Business & economics

The importance of teaching ethics and CSR

Andrea Werner Middlesex UniversityIn the wake of the Panama Papers scandal, Senior Lecturer in Management at Middlesex University Dr Andrea Werner outlines the teaching practices she believes can develop more socially responsible business graduates.

The leak of the Panama Papers has given unprecedented insight into how wealthy individuals and corporations have used shell companies in so-called ‘offshore tax havens’ to hide money and reduce their tax liabilities. But the Panama Papers are only the culmination of a series of revelations about companies, and individuals, that use elaborate tax structures in offshore tax havens to avoid paying their ‘fair share’ of tax; with big corporate names such as Amazon, Starbucks, Google and Facebook hitting the headlines in recent years.

While a number of activities in ‘tax havens’ are not technically breaking the law, they are increasingly perceived as unethical or immoral. They appear to be ‘unfair’ as they are only open to those individuals and corporations that are wealthy and powerful enough to make use of them. Furthermore, they inflict harm on societies as they reduce governments’ ability to fund schools, hospitals, and welfare payments to the low-paid, families, and vulnerable groups in society; an argument that carries particular weight in times of austerity.

The Panama Canal - Photo by @thyngum (Creative Commons 2.0)
The Panama Canal – Photo by @thyngum (Creative Commons 2.0)

A challenge to educators

The issue of tax avoidance poses a challenge to educators in business schools. It has long been argued that the predominance of the neo-liberal framework and its relentless emphasis on shareholder value and profit-maximisation (to the exclusion of everything else) in business and economics teaching has ‘freed’ students from any moral responsibility (Ghoshal 2005). In fact, it may reinforce students’ perception that alignment of their (monetary) self-interest with the profit-goals of their employers will be the only way to have a successful career in business (Roberts 2001). This may raise the question what guidance Business Schools, having created this moral-free space, are able to give to their graduates when they are faced with morally dubious practices in their workplace (my colleague Professor Chris Mabey asked similar questions following the VW emissions scandal). It is a question that may take on particular pertinence when graduates end up working in environments that actively champion aggressive tax planning practices, either in large corporations or in firms acting as intermediaries for wealthy clients.

Ethical theory counteracts the notion that pursuing one’s self-interest only is acceptable (and even encouraged) in business.

At the same time, the need to teach ethics and corporate social responsibility (CSR) to business students has also been recognised over the past few decades, not least for ‘legitimacy’ reasons, as the ability of companies to operate successfully also partly depends on how they and their actions are perceived by wider society. Even though CSR and ethics courses are still primarily taught as stand-alone subjects, they provide opportunity to raise awareness of ethical issues and the importance of ethical values in business, and equip students with critical thinking skills.

I have the privilege of teaching ethics to management students at Middlesex University Business School, both at undergraduate and MBA level. My aim in these classes is to introduce students to range of frameworks and concepts that help them to critically analyse ethical issues in business and work out possible solutions. A key set of frameworks I teach is ethical theory. Ethical theory counteracts the notion that pursuing one’s self-interest only is acceptable (and even encouraged) in business. Even though some students find the teaching of moral philosophy in a business course rather strange at first, they soon recognise the power of these ‘non-instrumental’ frameworks.

Photo by MickiTakesPictures (Creative Commons 2.0)
Starbucks, along with the likes of Amazon, Google and Facebook, has come under fire for its tax practices. The firm responded by changing the way it makes tax deductions and in 2015 it paid as much tax in the UK as it did in its first 15 years of operation – Photo by MickiTakesPictures (Creative Commons 2.0)

Kant and ‘virtue ethics’

Kant’s categorical imperative with its notions of ‘consistency’, ‘universality’ and ‘respect for persons’; and virtue ethics, which focuses on character traits of persons or companies that should inform ethical behaviour, as well as on the notion of communal and individual ‘flourishing and well-being’, appear particularly powerful to students.  I was delighted to see students apply these theories to the issue of Facebook’s tax avoidance in the UK in a recent assignment. Some students argued that tax avoidance is in clear violation of Kant’s consistency principle because, if everyone avoided tax, the whole idea of tax would be rendered meaningless. Other students applied virtue ethics, arguing that tax avoidance is not fair, not responsible and not respectful (as it does not respect the laws of the country), and that the practice only enhances ‘human flourishing and well-being’ for a small set of actors in society, but not for society as a whole.

Another aspect of my teaching is ‘techniques of neutralisation’, which focus on the language that people use to justify and rationalise their actions in business contexts and elsewhere. With MBA students in particular, I discuss how phrases such as ‘Everybody is doing it’, ‘No one will be harmed by it’ and ‘We do it for the shareholders’ – no doubt also heard whenever moral questions around aggressive tax planning have been raised – can be recognised as efforts to neutralise morally questionable actions and what effective responses can be made to these rationalisations.

At the very least, graduates who have been on my courses are no longer able to claim ignorance with regards to wider social consequences of corporate practices.

Finally, I encourage students to think of solutions to ethical issues such as tax avoidance, by thinking creatively about how the companies themselves could tackle the issue but also what the responsibilities of other stakeholders are. What would it require for companies to make ‘paying our fair share of tax’ a CSR commitment? What role have governments to play in tackling tax avoidance? How can consumers and the wider public build pressure to get business and government to respond? These are all examples of questions that I expect students to think through to come up with effective solutions.

Planting a seed

I am aware that my teaching will only plant a seed in students’ minds and hearts. At the very least, graduates who have been on my courses are no longer able to claim ignorance with regards to wider social consequences of corporate practices. But occasionally I receive emails from graduates, in which they tell me how my teaching has made them more aware of the importance of corporate ethical values when choosing their future employer, or from MBA alumni who tell me about the relevance of the frameworks and concepts I taught them for their job roles.  This gives me hope that my students may contribute, even if only in a small way, to a world in which the occurrence of the morally dubious behaviours that the Panama Papers uncovered will become a little bit less likely.

Business & economics

Islamic Finance: a viable alternative?

Edward Bace Middlesex UniversityCould Islamic Finance offer a viable and more ethical alternative to conventional Western models in the wake of the 2008 crisis? Dr Edward Bace, Senior Lecturer in the Accounting and Finance Department at Middlesex University, explores the issue.

In July 2015, I represented Middlesex University Business School in a meeting with long-time professional partner the Chartered Institute of Management Accountants (CIMA), which was seeking academic input to update its highly regarded qualifications in Islamic Finance (IF). CIMA’s interest, paralleled by that of other professional associations and academic institutions, is testimony to the growing popularity of IF. Since 1975, when the first Islamic commercial bank was established in Dubai, growth has been rapid, and IF global assets are now estimated at more than US $1.5 trillion across the banking sector, capital markets, and takaful, or Islamic insurance.

Despite this growth, IF is still accompanied by a variety of different views around its economic feasibility, consistency of criteria and core principles. Compared to conventional finance, IF is still in its relatively early stages of development and, accordingly, is grappling with some issues.

Core principles

A relatively recent phenomenon developed within the last 50 years, IF is built on much older Islamic economic thought going back to the seventh century. This philosophy emphasises a moral purpose for human existence, where the individual is the trustee for God’s resources, to be deployed for the ultimate good of society. IF accordingly adheres to Shari’a, or Islamic law. This means that IF must avoid ‘sin’ (prohibited) businesses such as alcohol, and abide by the Islamic prohibitions of riba and excessive gharar, which are generally understood to include lending and borrowing of money at interest and sale of risk. In this respect money is not considered a productive asset, like a farm or a factory (a notion which actually goes back to Aristotle in Western thought), and it is forbidden to make money on money. The focus on the good of society also ties in with modern and appealing concepts of corporate and social responsibility.

Rafael Matsunaga (Creative Commons 2.0)
Could Islamic finance offer a more ethical alternative to conventional Western finance models? São Paulo Stock Exchange – Photo by Rafael Matsunaga (Creative Commons 2.0)

Unanswered questions

There is a great deal of controversy surrounding the definition of riba. Is it interest? Is it usury? Does it mean excessive interest, or exploitation of debtors? Does it imply a predetermined profit? There seems to be some confusion, even among Islamic scholars, of its exact meaning.

Others take issue with the notion that money is considered unproductive, and should not earn a return. Money is not a farm, or a manufacturing plant, or computer software, but is it not fungible with all these and other traded financial instruments? Market activity will price out these relationships and establish a time value for money. Agents’ time preference and the time value of money demand compensation through market arbitrage, whether through interest or Islamic structures. How do Islamic finance advocates successfully address the contradiction between this market reality and a ban on interest?

Another core principle of IF is risk sharing, which sounds like a good idea. Yet if this were honestly and rigorously applied to banking, it would lead to a gross asset-liability risk mismatch, or turn banks into venture capital companies, with bank runs when they fail. It seems that even Islamic bankers do not engage in true risk sharing, but use the Islamic copies of conventional mortgages and loans.


Many observers agree that the underlying core principles of IF are refreshingly sound. The idea of tying the financial system more closely to the real economy and tangible, productive enterprises has great appeal, particularly following the financial crisis. Its emphasis on use of equity rather than debt also reinforces perception of a safer, more secure system. The ethical principles on which IF is based should bring banks closer to their clients and to the true spirit which ought to mark every financial service.

These questions, if definitively answered in the affirmative, could make Islamic finance a global and viable alternative to conventional finance.

Some regard IF as a singular global economic force that challenges ‘rogue economics’. It does not permit investment in pornography, prostitution, narcotics, tobacco or gambling – all of which seem to have flourished in a free market economy.

Nonetheless, critics continue to point to a perceived lack of common, universally accepted standards of Shari’a compliance. Until this is seen to be achieved, IF could remain a niche area, unable to provide an ethical alternative to conventional finance. Is IF really Islamic? Is there too much emphasis on form versus substance?

A need for dialogue

Other questions are asked about long-term economic feasibility. Some query the efficiency of IF versus conventional finance, maintaining that the prohibition of interest generates massive inefficiencies. There is a view that Islamic finance has abandoned its original ethical content and placed too much emphasis on legal form. Some issuers of sukuk (Islamic bonds) have claimed that many (non-Muslim) investors bought sukuk simply because these bonds paid higher yields than otherwise similar bonds. Does Islamic finance permit free flow of capital? Will parties be equally satisfied? Can investors make money? These questions, if definitively answered in the affirmative, could make Islamic finance a global and viable alternative to conventional finance.

In sum, Islamic finance does have much to say about excessive financial leverage, bank capitalisation, risk management and financial market ethics. Instead of a parallel financial system, perhaps a dialogue on these issues with regulators and legislators may be more productive.

Business & economics

VW: technik unsprung

Professor Chris MabeyProfessor of HRM at Middlesex University Chris Mabey is the co-editor of ‘Developing leadership: Questions Business Schools Don’t Ask’. In the wake of the VW emissions scandal, he says business schools have a responsibility to develop more ethically minded leaders.  

Vorsprung durch Technik is the advertising slogan and company ethos of VW and Audi. It means ‘advancement through technology’ and is the famed epitome of German manufacturing quality. A few years back, a senior executive, or more likely a cabal of executives, felt it defensible to cheat the Environmental Protection Agency’s emissions test. It was clever. It was also criminal. Just over two weeks ago the ruse was rumbled. A case of technik unsprung.

Moral meltdown

But this is just the latest moral meltdown in a string of corporate scandals. Few sectors have escaped; with public officials and senior leaders guilty of malpractice, duplicity, fraud and corporate malfeasance. We might ask what are conventional leadership theories doing to equip those with power to act ethically and responsibly?  At a more macro level, tighter audits and regulation remain toothless in dealing with the pernicious ethos of envy, greed and injustice. Many of the social and environmental problems we face in the 21st century are, in fact, spiritual in nature, rooted in a flawed human condition. James Speth, former environmental advisor to President Carter, claims that “the top environmental problems are selfishness, greed and apathy, and to deal with these we need a spiritual and cultural transformation”.

VW badge - Gerry Lauzon (Creative Commons 2.0)
Photo by Gerry Lauzon (Creative Commons 2.0)

Before becoming too judgemental, I ask myself as a leader: how do I deal with the persistence of ego; how do I reduce the credibility gap between what I say and what I do, focus on the important rather than the urgent and stay resolute to my life goals?  And, as a Professor of Leadership at Middlesex University Business School, I wonder how I can help others find their moral compass, lead responsibly, shun bad/unethical practice, energise others and leave behind a meaningful legacy? Indeed, in my more cynical moments I wonder whether we as educators have over-calibrated our courses, skewed our research and ‘fixed’ our performance so as to meet ever tighter scrutiny and generate income. In short, have we collectively cheated on our own ‘emissions’ test of high-performing students?

Difficult questions

Actually these are questions that have vexed me for a long time since my early career as a developer of leadership with British Telecom and Rank Xerox and, then more recently, as an academic. So three years ago I decided to act. I invited a number of colleagues in my network in the UK and across the world to nail one question that business schools don’t ask… but should. The response was immediate and overwhelming. I seemed to have struck a raw nerve and creative contributions poured in. The result is an edited book published by SAGE in July called Developing leadership: Questions Business Schools Don’t Ask.

The first section of the book highlights where business schools have lost their way: how they frequently fail in their original mission to be capitalism’s conscience; how they do not ask questions other institutions are afraid to ask; how they falter in promoting multi-disciplinary dialogue; and how they avoid the discomfort of provoking deeper self- and other-awareness. Too many business schools have lost touch with the world of work, indeed with the very ‘humanness’ of organisations and have become less human environments themselves. So different chapters ask: Do all businesses have to grow? Can leadership ever be values-free? In what ways are market capitalism and modern economics morally suspect? What do we lose ethically when we treat ourselves and others as disembodied and de-politicised subjects?

Ethical high ground

But along with the critique comes an array of antidotes which show how business schools can regain their ethical high ground. They do this by digging some neglected terrain of varied traditions and faiths: these include Heideggerian philosophy, Hebrew wisdom literature, Christian spirituality, MacIntyre’s virtue, classical Greek philosophy and the Maori notion of wairua. Finally, the book considers not just what and why we teach in business schools, but how. Contributors draw upon their first-hand experience in the MBA classroom: the genre-crossing and century-hopping relevance of Balzac to the demise of Lehmann Brothers; how a cross-cultural fist-fight in the classroom led to learning about respect; and why ancient Hebrew wisdom is packed with 21st century resonance. The book finishes with three raw, pedagogic challenges: teaching cosmopolitan values to mainland China students; modelling an ethic of care in the face of public sector redundancies; and creating legitimacy for students to critique their favourite management ‘blockbuster’.

As a co-editor, I feel privileged to gather together such a rich mix of perspectives and offer an up-beat pathway for business schools to regain the initiative in promoting ethical leadership. And, it seems this ‘conversation’ has wider appeal: the Economic and Social Research Council are funding nine seminars on Ethical Leadership led by Middlesex University Business School. Eager to embrace the themes of ethics and diversity, KPMG hosted the first two seminars at their Salisbury Square HQ and SAGE Publishers are filming each one. The conversation continues at

Professor Mabey is launching his book at Middlesex University on 28 October 2015.