Could you pass a business school ethics test? Give it a try

In the wake of the Great Economic Meltdown — and the cheating that preceded it — business schools began using an ethics test before sending grads into the real world. Would you pass it?

The test — based on real-life situations — was developed by Babson College, Yale and the Aspen Institute, and was offered to 80 colleges nationwide. Ready for it? Here goes (answers at the bottom):

Scenario #1

You’re a rising executive just promoted to corporate controller. Shortly after you land the new job, several senior executives pressure you to distort the company’s restructuring charges in a way that would be misleading but not criminal.

What do you do?

1. Politely explain to the senior execs that you won’t stand for fudging the numbers.
2. Modify the charges. Since it’s not illegal, you can draw the line later when you have more experience in the job.
3. Research what the company has done in similar situations in the past and follow suit.
4. Go over the senior execs’ heads right to the CEO.

Scenario #2

You join a nonprofit firm in a junior accounting role. As you review the year’s corporate donations, you quickly realize that no standard procedure exists to determine the value of in-kind donations (gifts in the form of goods or services rather than cash). Some of your most prolific donors inflate valuations to deceive the IRS. Your overworked executive director makes a point of emphasizing relationships above data.

What do you do?

1. Nothing. What the donors tell the IRS is their business and your organization can’t afford to alienate them.
2. Bring up the problem at the next staff meeting. Since you’re in a junior role, you can only do so much.
3. Find an ally in a senior position and keep pushing for a solution.
4. Develop your own system to value each major in-kind donation in time for next tax season, and present what you’ve done to the senior executives.

Scenario #3

You’re a junior employee at a large investment bank. Hours before a client meeting, a portfolio manager tells you to review the portfolio of one of the bank’s smallest customers and find a new benchmark that will make it look like the portfolio had performed better than it really had. You know that the client remains with the bank as a favor to a friend who works there.

What do you do?

1. Point out that misleading the client risks getting the manager in trouble, and the client isn’t going anywhere. Be frank: underperformance happens in uncertain markets.
2. Don’t take a chance with a manager who asks you to lie. Immediately take your concerns to another manager.
3. Find the new benchmark. As long as you footnote it, you haven’t done anything illegal.
4. Duck the request to mislead the client and prepare a presentation that encourages the client to focus on the future.

Answers

Scenario #1. Correct choice: 4.

Several arguments could justify inaction: You’re too new; you need to wait until you’re more settled into the role and have the trust and confidence of the senior execs. Plus, raving about ethics to the team is a sure way to establish antagonistic relationships only a few days into the job.

On the other hand, if you wait to speak up until you’re fully entrenched, it could be much more difficult to reverse course. In the real-life situation that inspired the case study, the comptroller used his newness in the position as a way to break with the status quo. He went directly to the CEO with a new guiding vision for the finance department emphasizing its commitment to integrity. He focused on wanting to ensure the long-term survival of the company and rather than ask, the comptroller simply assumed that he and the CEO would be on the same side. It worked; the CEO supported his plan and in the process the comptroller successfully established his authority in the new role.

Scenario #2. Correct choice: 3.

In this kind of a scenario, junior employees typically can’t get past the feeling of powerlessness, says Mary Gentile, a Babson College researcher who helped develop the ethics curriculum. They’re low on the totem pole, so they “question their standing, their judgment, and their legitimacy” in taking a stand against unethical behavior that has become part of the company culture, she says.

In this case, the new hire decided to use his naïveté to his advantage. He approached the executive director and simply asked, “How do we standardize our donation valuations here?” The director never did act on his concerns, and soon left the nonprofit. The junior employee finally took his questions to the lead accountant and an outside auditor. He worked with them to establish an “average cost per box” formula the company would use if donors didn’t submit a written audit. Since it was a formal policy change, donors did not see it as a personal affront.

Scenario #3. Correct choice: 4.

You could justify not saying anything because the bank creates the benchmark and as long as you footnote it, you’ve done nothing illegal. Plus, given the size and relative importance of the portfolio, in all likelihood the manager simply overlooked it. If you refuse to lie on moral grounds, you’ll offend the manager and he will just ask another associate to take care of it anyway.

The woman in the case tried a different approach. She explained to the portfolio manager that she wouldn’t have time to provide an analysis for the new set of numbers before the meeting. Instead, she offered to provide data explaining the portfolio’s underperformance, which the manager could use to suggest a more suitable investment plan for the client. To her surprise, he agreed.