How to steer clear of truly detrimental choices. (Hint: A key tip is simply to pause.)

The corporate environment is certainly familiar with leaders who either deliberately or inadvertently transgress ethical or even legal boundaries.

Consider the instances of Sam Bankman-Fried and Elizabeth Holmes.

Bankman-Fried was found guilty in 2023 of financial misconduct following the downfall of FTX, the prominent cryptocurrency exchange he established and led. Holmes’ technology company, Theranos, marketed home blood testing devices that were ultimately ineffective. She is currently serving a prison sentence for misleading investors out of millions.  

While these examples are, admittedly, exceptions, the overwhelming majority of business executives consistently make wise, ethical, and lawful decisions for their organizations. Nevertheless, they encounter difficulties, and a robust process is required to navigate the intricacies of many decisions, asserts Joseph Badaracco, John Shad Professor of Business Ethics at Harvard Business School.

Badaracco has dedicated three decades to instructing M.B.A. students and business figures. His efforts culminated in the introduction of the School’s first obligatory ethics course in 2004. The Gazette engaged Badaracco to discuss the evolution of business ethics and to provide some decision-making techniques. The interview has been modified for clarity and brevity.

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How has the meaning of business ethics transformed over the past 30 years?

When I began, much of business ethics revolved around applied moral philosophy. Thus, instructors would enlighten students on the basics of utilitarianism or deontology, perhaps incorporating some Aristotle, and then apply that knowledge to specific issues.

I believe that methodology has diminished. While the philosophical principles remain significant, the concept of a top-down application has lessened.

At HBS, we approach the subject from a bottom-up perspective. We emphasize the issue at hand, the context, the circumstance, and then we inquire which ethical and practical viewpoints will aid in determining what is right in this scenario. That represents one shift.

Additionally, the landscape is considerably more dynamic now. A plethora of ethical dilemmas now exist in a global context compared to, say, three decades ago. Moreover, significant technological shifts such as AI and robotics present challenges in discerning their ethical ramifications on your workforce and intellectual property. If you are a student, there’s the dilemma of how to utilize AI. What constitutes your work, and what does not?

Another aspect I am currently exploring is the perception of a company as a standalone economic entity competing in markets. Historically, it was viewed as having specific rules, laws, and regulations it needed to adhere to. The principal question revolved around: To what extent, if at all, should leadership consider stakeholders versus shareholders?

Today, countless companies are intricately connected to other organizations—through their IT infrastructure, because societies have delegated numerous social responsibilities to them (to improve air quality, ensure workplace safety, engage in fair hiring practices, and so forth). In response, businesses have become significantly more politically engaged and adept, being deeply involved in these intricate relationships with regulators, advocacy groups, and various levels of government.

Are the ethical dilemmas themselves distinct today compared to the past?

When an executive or manager, even a novice manager from an M.B.A. program, is attempting to determine what is right, their accountability is significantly more complex due to all these various groups they are entangled with.

When they endeavor to ascertain what truly matters in a situation: What are the essential facts? What risks are present? What do experts opine? This process is remarkably more intricate. They possess differing legal and ethical obligations towards all these parties. Consequently, considering what is practical becomes even more complex as well.

Therefore, there is a certain ambiguity regarding the fundamental managerial queries of what is significant, what is responsible, and what is practical that simply wasn’t present a couple of decades ago.

In a recent document, you indicate that commendable and flawed judgments do not exist in black and white; they occur along a continuum, and that making ethical choices resembles aesthetic or artistic evaluations more than statistical or logical deductions. If it’s more of an art than a precise science, how can individuals attempting to act ethically ensure that they are indeed doing so?

There are two categories of problems, that is, two varieties of inquiries and decisions. Occasionally, there are clear-cut distinctions. Sam Bankman-Fried may not have fully grasped them, but he crossed those distinctions, along with some of his associates.

There is indeed right and wrong, legal and illegal, and it’s perilous to approach those boundaries too closely as one might inadvertently cross them; and if you are a leader at any level, your subordinates might think, “Let’s see how close to the boundary we can tread, similar to our boss.”

Conversely, there are other multifaceted concerns we refer to as “gray areas.” One obligation may confound another, or there may be extensive uncertainty preventing clarity on the crucial facts. In these instances, personal judgment becomes substantially more significant.

Therefore, how can one ascertain that they are making responsible choices?

Much of it relates to your method of tackling the choice at hand. If you have contemplated deeply and meticulously about what is truly significant in the scenario, regarding your primary obligations, and what will be effective, you’ve tilted the scales in favor of a prudent, sensible choice.

How do those who make decisions navigate the challenge of recognizing their own cognitive biases to prevent making self-interested choices that might be unethical or unlawful, especially in situations that are ambiguous?

What may have transpired at FTX and has occurred in numerous other instances is that an individual distills something that’s straightforward, legal or illegal, and they assert, “Hold on. It’s not entirely obvious.” That’s a perilous endeavor, and it can certainly be exploited for self-serving purposes.

However, with a complex issue, a definitive right choice is often absent. If it were clear, you wouldn’t be grappling with it, and your colleagues might not be at odds with you regarding it. A multitude of biases can influence decisions in ambiguous situations.

Therefore, one inquiry is: Have you attempted to eliminate biases by collaborating with others and zeroing in honestly and analytically on what is significant, what is responsible, and what is feasible? This process will aid you in making the most informed decision possible.

Nonetheless, we are invariably swayed by various factors, both conscious and unconscious. Ultimately, you want to feel that you have done everything within your power to arrive at a sound, responsible conclusion, but with ambiguous issues, there are no certainties.

It’s one scenario to arrive at an ethical resolution based on facts presented in a publication or case study, but quite another to do so amidst external factors and shifting conditions. How do individuals guard against these influences that may obscure the optimal path ahead?

Several years ago, I authored a book on reflection, founded on comprehensive interviews with 100 executives and managers. I found that nearly everyone had some method of contemplation. It manifested in various ways: commuting, exercising, sitting quietly while gazing out the window, conversing with someone they admire and trust, or engaging in prayer. One executive mentioned that when he faced a particularly challenging decision, he would wear headphones and listen to his favorite Broadway show tunes, subsequently finding that his mind was clearer and he felt more at ease making a choice.

My core belief is that decision-making and reflection should be steered by the inquiries of: What is truly significant; what are my primary duties; and what will be effective? The concluding question is: What can I accept? After that, you make your choice. I don’t believe we fully grasp how we reach these ultimate decisions and conclusions. According to contemporary neuroscience, our minds resemble a kind of black box, and what is crucial is what we place into the box as we prepare to decide.