Economists adopt ethics code

Economists regularly consult for companies or organizations.  They also may receive research support from parties that have an interest in how the research comes out.  Last week the American Economics Association formally adopted rules that require disclosure in academic work whenever conflict-of-interest issues may be present.  According to WSJ,

Authors submitting papers to academic journals must disclose to the journal's editors all sources of financing for the research and all "significant" financial relationships with groups or individuals with a "financial, ideological or political stake" in the research. The policy defines "significant" as financial support to an author and immediate family members totaling at least $10,000 in the past three years.

Technically, the policy only applies to only the seven journals edited by the AEA but most observers expect all of the leading journals to adopt similar policies soon.  Economists also are encouraged to disclose potential conflicts in other contexts, e.g., op-ed pieces, press interviews, and testimony. 

These rules should apply to bloggers as well.  I received support from a wide range of sources over the years, with most dollars coming from the US Department of Labor, Interamerican Development Bank, National Science Foundation, Financial Industry Regulatory Authority, and AFL-CIO Building Trades. 

What have b-schools learned from the crisis?

Precious little, according to an article in this week's Economist magazine. A new course here, an ethics pledge there, and not much more. Actually this piece is much more balanced than most journalistic attempts to bemoan the fate of b-schools. It even points to economic research showing that companies using "widely accepted management techniques" outperform those who make less intensive or zero use of such techniques. This might even mean that MBAs earn more money than non-MBAs because they contribute more!

A couple of stimulating ideas mentioned in the article: (1) more economic and business history should be covered -- the recent financial crisis is all too similar to those that preceded it; (2) faculty and students should be a bit more skeptical about what management techniques can and cannot do.

The original sin of business schools is boosterism. Professors are always inclined to puff the businesses that provide them, at the very least, with their raw materials and, if they are lucky, with lucrative consultancy work.

Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers. Kings once employed jesters to bring them down to earth. It’s time for business schools to do likewise.

Should MBA's take an oath on ethics?

This year a group of graduating Harvard MBA's decided to write and sign an oath that they would act to "act with utmost integrity and pursue my work in an ethical manner." Expecting no more than 100 of their classmates to take the pledge, the authors were surprised to see that at graduation more than half of their classmates had taken the pledge. The oath has now, as they say today, "gone viral" to other business schools and has received good press from Business Week and the Economist.

My reaction is mixed. On the one hand I am glad to see that more MBAs realize that the behavior of certain members of previous graduating classes helped create the current economic and financial mess. Further, I personally believe that some training in ethical leadership is an absolutely essential element in management education. This is now a required course in NC State's MBA program. If students want to take the oath -- and, more importantly, live up to it -- this activity could well end up being for the "greater good" (that's from the oath!).

My main reservations are twofold. First, the self-flagellation of MBAs and business schools is getting a bit carried away. If regulatory agencies such as the SEC had done their jobs and if the housing bubble had not been sustained through government actions (low interest rates from the Fed, various hijinks from Fannie and Freddie), today's economy would be in much better shape. Sure there are cases of market failure, but there was plenty of government failure as well. Second, managers have to walk a fine line in balancing the interests of society and the interests of their shareholders, as Milton Friedman argued many years ago. Those who end up on the wrong side of that line subject themselves and their organizations to severe penalties. Typical economics lesson -- there is a role for both carrots and sticks.