Creating an Ethical Business Culture

JULIA KENNEDY: Welcome to Just Business. I'm Julia Taylor Kennedy.

Calls for better ethics education at B school are growing in the wake of the financial crisis and the Occupy movement. So this week on the podcast we're looking at innovative ways that different schools are injecting business ethics into their curricula.

We'll start at the University of Southern California and an innovative Society and Business Lab at USC's Marshall School of Business. Then we'll jump coasts to the Institute for Ethical Leadership at Rutgers Business School in Newark, New Jersey, and look at some of the ways the institute is supplementing business education with the fundamentals of ethics.

First up is Adlai Wertman, Founding Director of USC's Society and Business Lab. Wertman is expert in the interplay between business, society, and B school because he has significant experience in all three worlds. He spent 18 years as managing director and manager of Prudential Securities and has worked at several other major banks; he was president and CEO of Chrysalis, a Los Angeles-based nonprofit that serves the homeless; and now he takes a bird's-eye view of the way do-gooders and hard-nosed business folks can learn from one another, work together, and use each other's strategies to inject responsibility into both sectors.

I started our conversation by asking Wertman why he decided to leave finance.

ADLAI WERTMAN: I think in my life I always thought that I was going to be doing community service. It was one of those things that I think was just born into me.

But Wall Street grabbed at me. When I was graduating from college, a professor asked me what I was going to do when I graduated. I told him, truthfully, I figured I would go home, sober up, and get a job. But he told me to go see his friend at the mall. It turned out to be a branch manager at a brokerage firm. He sent me downtown to see the CEO of this medium-sized company, and thus began an 18-year career on Wall Street.

JULIA KENNEDY: So you kind of fell into the first career, not the second.

ADLAI WERTMAN: Very much so. The first career is a very addictive one, so it's hard to leave that one.

JULIA KENNEDY: Then how did you finally decide to pull the plug?

ADLAI WERTMAN: I wish I could say it was an overnight decision, but it wasn't. I think during at least the last ten years of my career I really was feeling like when was the time at which I was finally going to do what I knew I was supposed to do, which was to use the skills that were given to me when I was born and those that I learned and my education that my parents made sure I got and to use it to make people's lives better rather than to maximize personal income. It just sort of over time became more important that I had to do it.

I think from the time I decided I was absolutely doing it, to then moving my family to Los Angeles to run Prudential's West Coast public banking, to actually leaving, was another four years. So it wasn't an overnight decision, and it was a carefully thought-out process, but one where I knew that once I got into the community service world, I was going to be in a place where I felt most comfortable for my family, which is one where I could be close to home, no longer traveling, and make my family part of my work.

I was working at the time in a very fancy office building in Los Angeles. As I walked around—having been a New Yorker, I actually walked in L.A.—what I found was that four blocks from my office was the largest concentration of homelessness in America. In Skid Row in L.A. there were 18,000 homeless people living in 40 square blocks.

Here I was in a city that was one of the wealthiest cities in the world, in the wealthiest country in the world, and there were, as I later learned, hundreds of thousands of people in America living on the streets. So that made me crazy.

I saw that as an economic issue. This to me—homelessness was a symptom of extreme poverty, nothing else.

The next step for me was to look around and figure out within that world who was doing great work in homelessness, what were the solutions that people were working on.

I came across an organization called Chrysalis, which was devoted solely to helping homeless people get jobs. That really made me crazy, when I learned that there were lots of these homeless people that really were ready and wanted to go to work but the world wouldn't let them back in. I just couldn't accept that.

So I started getting involved in Chrysalis as a volunteer, then as a board member, and then eventually quit my job and took a job running Chrysalis.

JULIA KENNEDY: You mentioned that this world was where your heart lived the whole time. But I'm curious if still there was any culture shock that you had to deal with going from this high-rise that you described to a nonprofit on Skid Row.

ADLAI WERTMAN: I think culture shock could be the understatement of my lifetime.

To get to my office, I parked across the street. My side of the street, where the parking lot was, was wall to wall—I mean the streets covered—in people selling and shooting up heroin. As you stepped over the hypodermics and you walked across the street to the side my office was on, it was wall-to-wall crack, people just smoking crack, and you had to step over those vials to get into my office. So from that standpoint it was way more the culture shock than the business side, for sure.

JULIA KENNEDY: So you take over Chrysalis, and in your time there you put in a very successful training program and a social enterprise for trash collection. You've now moved on to start the Society and Business Lab at USC, which focuses on social enterprise.

Now, the critics of social enterprise say it's an overly fuzzy concept. So I'm curious, what's your working definition of social enterprise?

ADLAI WERTMAN: Our own definition of social entrepreneurship/social enterprise is sustainable organizations making sustainable change in the world.

On the one side, we would take a look at a TOMS Shoes, where you buy a shoe and they give one away, and we would say, "As a private company making returns for shareholders, that's a sustainable organization. But handing out shoes on the street is not a sustainable change: as soon as we stop handing out shoes, people are barefoot again."

On the other side, we look at sort of a straight nonprofit and we would say: "Well, they are making sustainable change, they're helping people help themselves, hopefully; but relying solely on donations does not make them a sustainable organization."

So the new models are: How do we make an organization that looks, acts, smells like a business, so therefore it is sustainable, but its mission, its reason for being in business, is not ROI (return on investment) for shareholders but social return?

JULIA KENNEDY: Got it.

You are working at the Society and Business Lab at USC Marshall School of Business, it looks like, with a mix of graduate and undergraduate students. How did that lab get started, and do you find that students are really interested in this standing in the middle of the two worlds?

ADLAI WERTMAN: Right. Let me go back a little bit. As I mentioned, at Chrysalis we were trying to open new businesses. We had a commercial laundry facility ready to go. I was having trouble getting people to run that business. So I was invited to go to UCLA on the other side of town here in L.A. and teach second-year masters in social work students nonprofit management. I decided what I would do is I would teach them how to run these businesses.

Unfortunately, they were not the right people. They are brilliant, fantastic, but it wasn't their intention to run businesses. They were brilliant at running social work programs.

I was stuck, and I came up with this idea. I couldn't grow Chrysalis anymore because we couldn't recruit the right people. I said: "Well, what if we went to a business school and trained business students how to use their educations for positive social impact?"

I wrote a 10-page proposal for a center to do that and cold-called the three business school deans in town and said, "I've got a great idea for you."

Without naming names, one of them didn't get it at all; one of them was interested but not right away; and USC Marshall, Jim Ellis, the dean there, called me the next morning and said, "We have to have this."

JULIA KENNEDY: Wow.

ADLAI WERTMAN: He hired me almost immediately. We spent about a year with a group of students benchmarking against every business school in the world that had anything that said "social," "ethics," "social responsibility," any of that, and then developed a plan for the lab as one that would focus almost totally on helping students learn and get supported to the process of making this kind of change in the world.

We have been—I'm not surprised, but very happy, that there is a small but very strong cadre of students that want to learn business, want those skills, but want to have more meaning in their career and in their lives, want an integrated life, and want to use those skills to make change. They are fantastic and they are brilliant and they are remarkable young people. I am so encouraged every year by more and more of them coming to our door.

JULIA KENNEDY: What you've described in the microcosm of the market of L.A., having a range of different reactions from different business school administrators, is something that a lot of people have talked about in the business school field in general, that there are people in B school who just don't get injecting social mission or ethics into the curriculum, there are people that are trying to figure it out, and there are people who just get it.

I'm curious what you think about social and ethics programs that are available and other programs as you enter this new world of academia.

ADLAI WERTMAN: There are centers all over that do different things. At most of the universities, the centers are research-based. So we have a center on corporate social responsibility, but really what it is is it's a few professors doing research in the field and they'll have a conference. Which is great, it's really important.

We have decided to create a program that's totally student-focused, because in a very selfish sense I know the world needs these students and my job is to crank them out there to save the world, no less.

The issue is that business schools by design—and it's absent malice, just by design—are built to turn out people who want to make a lot of money and go into the private sector and run private businesses. That's why the vast, vast, vast majority of students go into business school. Therefore, the business schools that get the best students, that attract the most funding, are usually those schools that can produce the best outcomes for those students.

So the schools that produce the best, highest-paying jobs are the ones that get the best students. Therefore, the schools are built around that notion. I mean that's how rankings work. A good portion of rankings of business schools are starting salaries at graduation, what firms recruit there, those kind of issues.

Creating something for students who are not going to be the best thing in the world for your rankings at all—I mean our students are getting paid good money, a fair amount of money, but not Goldman Sachs money by any means—those students are not helping the rankings of the schools at all.

It takes courage, and it took courage on the part of my dean, Jim Ellis, to say: "This is not about rankings, it's not about that. This is about what the role of our school should be in the world."

You are seeing some schools take on that role and really support the students; some schools who create centers but aren't really looking to support students, but rather academic research.

And it took a lot of courage—and I really appreciate what Marshall has done—but to take the courage to say, "This is something that business schools are supposed to be doing for the world."

JULIA KENNEDY: A couple years ago you wrote a column on Huffington Post. It was just a few months after the financial crisis really hit. You argued that the unemployed, at that time mostly bankers who had been laid off as collateral of that financial crisis, could use their time and talents to serve as volunteers or work at nonprofit social enterprise.

I'm curious if you saw this play out at all, if you're seeing your current students who might be looking at a really tough climate consider these social-enterprise jobs or non-profit-sector jobs as a viable alternative, either because that's where opportunity might be, even though it's tight all over, or because they are reacting to sort of a cynicism about Wall Street and the financial sector. Are you seeing more of that move or do you think we're missing an opportunity here?

ADLAI WERTMAN: I think that one of the issues that I might have missed in that article was that I think I assumed that everybody wanted to have a positive impact on the world and that, given the opportunity, that is how they would love to spend their lives. The truth is that the work is somewhat more of a calling. The students and the professionals—I just had lunch with a senior person at a major Fortune 500 company who is thinking about making this change—it's eating at them, it's what they know they're supposed to do.

Unfortunately, a lot of times nonprofits were treated as default jobs—you know, "If I can't get a job in the private sector, I can always get a job in a nonprofit." The truth is running a nonprofit is—I know I get beat up for this—much harder than running a for-profit. I can go on for hours about why that's true.

In its simplest notion, in business, if you have more demand for services, then people are buying more of your stuff and you invest more to sell more. In nonprofit there's no relationship to demand for your services, people coming through the door who need food, and the amount of food or money that's donated to you. It's pretty hard to run something like that. In fact, one could argue that when there's the biggest demand for food and a bad economy is when there are the fewest donations. So that's a pretty hard business to run.

I always tell my friends, "Try running your business at a used desk on a donated six-year-old PC and see how you do. Let's see you run your business now."

But nonetheless, I think we are seeing people where the opportunity cost of taking a job that's a social-impact job has gone down—"my choices in the private sector are fewer and to a great extent I can make different kinds of choices."

But the truth is, at the top business schools in the country those students are getting jobs and they're doing just fine. So those people who are going into this are doing it because it's where their heart really is and it's what they want to do.

JULIA KENNEDY: True. But then also it seems that what you are providing is a service almost for you 20 years ago, which would be: here's a space that is created for folks who are 18 to 28 who feel this calling to actually try it out and to have some sort of a framework in which to put it, instead of getting jerked along and pulled by the hand by a mentor saying, "No, this is where you need to go."

ADLAI WERTMAN: There's a lot of that.

Here's what we do with our students, the first thing that we do. We say: "Look, you are a winner, that's how you got here. You've been a winner your whole life. You had good grades in high school, great grades in school, top scores, got into a great college or went to a good college, depending upon whether you are in graduate school or not now. But you are now at a school where winning has been defined for you as something that you have said is not what your career pursuit is, not what you want to do. So now what you have to do is have the courage to define success for yourself, with the understanding that your success may not be the same one as your classmate's. Your definitions have to be internal."

What we do is we create fellowship programs, scholar programs, where we really create our own cohort of students that we can encourage, that can encourage each other, and give each other the support they need, whether it be helping them find jobs—and I provide a lot of mentors to my students—all in order to make sure that they can do what they say they want to do and fight the tide of business schools in general.

JULIA KENNEDY: You've also said that you think that this concept of social enterprise really sits with the young generation and is being driven by younger generations. Why? Why is that the case?

ADLAI WERTMAN: Here's how I see it. I have a 17-year-old, a 16-year-old, and a 13-year-old at home. When they told my generation—I'm 52—about global warming, our eyes glazed over. God forbid they would say "global poverty." I'd have to hold my hand over my ears and yell real loud.

But my kids, they're different. When we said "global warming" to them, we also said to them, "Therefore don't use bottled water, shut off the water while you're shampooing your hair, buy better clothes that are available to you." We gave them tools to fix the environment.

When I say to my students "global poverty," they don't hold their hands over their ears. They say, "Okay, so how do I fix that?" I'm so encouraged by them, because they're not overwhelmed by it. They want to fix it. They are ready to go and they want tools. I think that our program is built, and some of these other programs are built, to give these students the tools they need and that they are longing for to make the world that we screwed up better for them.

JULIA KENNEDY: Adlai Wertman, those are definitely inspirational words to end on. Thank you so much for joining me on Just Business.

ADLAI WERTMAN: Thank you. It has been a pleasure.

JULIA KENNEDY: That was Adlai Wertman, Founding Director of USC's Society and Business Lab.

Next up in our tour of business ethics education is the Rutgers University Institute for Ethical Leadership. It provides supplemental ethics education to Rutgers business students and continuing education for professionals.

Alex Plinio is co-founder of the institute. He both teaches at the school and runs a consulting and coaching firm called Alex J. Plinio & Associates.

He argues that ethical considerations must be a constant in business decision-making and that ethics education must start early.

He started by telling me what he sees as the key to creating an ethical business culture.

ALEX PLINIO: What really drives good businesses, good nonprofits, and good governments are individuals who act on their values, and those values are seen first of all in the organizations, especially if they are a leader in organizations that they run. Those values will either help to create an ethical organizational culture or they won't.

You know, values and ethics only show up in one way, only one way. You can say all you want, just as I'm saying with a microphone here. The thing is if I walk outside and then I go rob somebody, that's the behavior. So the values show up in your behavior. That's the only place that they show up in a way that you know what those principles are for you in your life as an individual. When groups of people or teams get together it's important to focus on that.

I'll give you one quick example. A finance professor at Rutgers and I were having lunch together. He was telling me about this course that he does on entrepreneurial, innovative product development and so on.

So I said to him, "Well, in what part of your course do you teach values with the teams that are developing products and launching products?"

He said, "You know, I never talk about that. I talk about how we need to look at the marketplace, how we need to make sure our prices are right, how we need to understand how to launch a product, how we have to look at the financials."

So he invited me into his finance class. I've been there now two to three years in a row I think. In the class what I do essentially with the students is to talk to them about how personal values and organizational values could be either an enabler of these business teams or could cripple them, because many times the clash or values is the thing that brings an organization down, a team down, where people essentially are not compatible around the values that they are espousing or using in their own behavior.

My own opinion—and again it's an opinion—is that higher education is even behind business when it comes to the focus in these areas, and therefore if we can raise the discourse in higher education, I think we might be able to start a dialogue and get people focused on what is that they might be able to do.

There are business organizations that are doing something similar in that they are trying to focus on this through an already fairly good structure in a lot of larger businesses, where they have either ethics officers or compliance officers who have a very difficult job of trying to help top management and managers across their organizations to make sure that ethical issue arise and that problems are brought up as quickly as they can be.

When you think about the headlines that we have seen in business where it doesn't take but one person, because they've either, as happened in London, brought down $2.5 billion of poor trades, or a Bernie Madoff in New York, or any of these things that we see on a constant basis, the question becomes: Can we really begin to focus on those issues that are important in a business setting?

So when organizations try to protect themselves by building an ethical organization culture it doesn't mean that nothing is going to happen. The chances are something will happen at some point someday. Therefore, that culture is a protection against it, and when it does happen their reaction to those things should be quite positive.

A lot of times organizations react in a protective way. That happened recently, as you saw at Penn State. When they react in a protective way internally, what happens is people externally begin to view that what they have done is not only bad but what they are doing to protect is also bad. So they get a double whammy.

If you are developing an ethical organization, it's not just the culture you are focused on, your leadership or tone at the top. You have to have clear policies, you have to have self-regulation as well as external types of oversight; and your people, the way you hire, how you promote, the way you evaluate people. For example, today, organizations understand it's not important enough to just say, "Did someone achieve and were they accountable for the results that they got?" It's also how they did it, what values were employed in getting to where they had to get.

JULIA KENNEDY: How do you think that schools can start to inject this sense of core values? So many people turn to religion for a sense of core values. How can we start to create a secular sense of values-based thinking for future leaders?

ALEX PLINIO: Well, let me use a very practical example. We have undergraduates at Rutgers, and we give them to start out in one of the courses that we have ten questions that have ethical implications. The first time I did this it was amazing to me that the responses to some of these ethical dilemmas that we were giving the students came up in my estimation with the wrong answer. I mean you had splits like 50/50 and 70/30 or a third or a half of the class, or even more, who were sort of in my mind on the wrong side of an issue.

When we do something like that, in answer to your question, we also want to understand how much they actually know about these things that we call ethics or values or morals. So we ask questions that relate to their own personal values: What are your values? Why are they your values? Where do your values come from? How are they formed? How are they tested? How do you hold onto them or let them go? Do they change over your lifetime? These are the things we do with students to help them think these through.

Then we bridge from that and we say to them—and this is especially meaningful for the MBA students who are already working—"Okay. Now where do organizational values come from, how are they cultivated, who produces them, et cetera?"

So we have these discussions first about the basics, about where do values come from, how are they nurtured, how sometimes are they not adhered to? We provide tests through questionnaires, surveys, and case studies that allow them to see how these things actually work out and how values are actually seen in behavior.

JULIA KENNEDY: So give me an example of one of the first questions that you would ask them, that you would put to them, and how they respond.

ALEX PLINIO: Okay, I'll give you two quick ones. One of them is: You've signed a pledge at the university that you will not cheat and neither will you allow others to cheat. Let's say that that's the situation. You are in a classroom and you see that one of the students near you is cheating. They have a document that they are copying from. Do you report the student to the professor? Do you report the student to the administration? Do you do nothing about it? That's one.

JULIA KENNEDY: Got it.

ALEX PLINIO: Another one is: You are walking down the street and there are two people who are arguing. An older person seems to be berated by a younger person, is being pushed and physically assaulted. What do you do? Do you interject? Do you call the police? Do you walk on by?

So there are social things that we put them into and there are things in their own academic setting with these questions that we'll put them into.

As we ask those questions, how we use the questions later, after we talk to them about these things, is we discuss why some of them responded with answer A or B or C, etc. This gives them an opportunity to discuss what these differing reactions are to different kinds of situations in their lives, or potentially in their lives, and how people think about these things.

JULIA KENNEDY: Well, it sounds like really fascinating and very important work that you are doing with these students.

Alex Plinio, thank you so much for joining me on Just Business.

ALEX PLINIO: Happy to be here. Thanks for inviting me.

JULIA KENNEDY: That was Alex Plinio, Co founder of the Rutgers University Institute for Ethical Leadership.

That wraps up this week's look at business ethics education.

I'm Julia Taylor Kennedy. Thanks to Terence Hurley and Julia Mellon for their contributions to this week's podcast.

And thanks to you, our listeners, for joining us. We're happy to hear from you. Please send questions and comments to jkennedy@cceia.org.