The business world is certainly no stranger to executives who either intentionally or accidentally cross ethical or even legal lines.

Take, for instance, the cases of Sam Bankman-Fried and Elizabeth Holmes.

Bankman-Fried was convicted in 2023 of financial crimes after the collapse of FTX, the high-profile cryptocurrency exchange he founded and ran. Holmes’ tech startup, Theranos, sold home blood testing devices that never worked. She is now serving a prison sentence for defrauding investors out of millions.  

These cases are, of course, outliers. The vast majority of business leaders routinely make sound, ethical, and legal calls for their firms. But they do face challenges, and it takes a solid process to work through the complexities of many decisions, says Joseph Badaracco, John Shad Professor of Business Ethics at Harvard Business School.

Badaracco has been teaching M.B.A. students and business leaders for 30 years. His work led to the launch of the School’s first required ethics course in 2004. The Gazette asked Badaracco about how business ethics have changed and to offer some decision-making strategies. Interview has been edited for clarity and length.

How has the definition of business ethics changed over the last 30 years?

When I got started, a lot of business ethics was essentially applied moral philosophy. So, you would teach students the basics of utilitarianism or deontology, and maybe some Aristotle, and then apply that to particular problems.

I think that approach has faded. Certainly, the philosophical concepts are still important, but this idea of top-down application has faded.

At HBS, we approach things in more of a bottom-up way. We focus on the problem, the circumstances, the situation, and then we ask what ethical and practical perspectives are going to be helpful in figuring out what’s right in this situation? So that would be one shift.

Secondly, things are much more in flux now. So many more ethical issues are now in a context that’s international compared to, say, 30 years ago. And then, you’ve got these big technological transitions like AI and robotics and trying to figure out what the ethical implications of that are for your workforce and intellectual property. If you are a student, there’s the question of how do you use AI? What is your work and what isn’t?

One other thing I’m writing about now: During much of the last century, there was much more of a sense of a company as an independent economic unit competing in markets. It had some rules, laws, and regulations that it had to follow. And the major question was: How much, if at all, should executives pay attention to the stakeholders as opposed to the shareholders?

Now, so many companies are enmeshed in really complicated relationships with other organizations — through their IT systems, because societies have delegated so many social responsibilities to companies (clean the air, keep the workplaces safe, hire fairly, and things like that). Companies, in response, have become much more politically active and sophisticated, and they’re much more involved in all these complex relationships with regulators, interest groups, state, local, federal.

Are the ethical challenges themselves different today than they once were?

When an executive or a manager or even a young manager from an M.B.A. program is trying to figure out what’s right, their accountability is much more complicated because of all these different groups they’re enmeshed with.

When they try to figure out what’s really important in a situation: What are the critical facts? What are the risks? What are the expert opinions? That is vastly more complicated. They also have different legal and ethical responsibilities to all these groups. And then, when they have to think about what is practical, that becomes even more complicated, as well.

So, there’s an open-endedness to the fundamental managerial questions of what’s important, what’s responsible, and what’s practical, that just wasn’t there a couple decades ago.

In a recent paper, you say that good and bad judgments are not black or white, they exist along a spectrum, and that making ethical decisions more closely resembles aesthetic or artistic judgments rather than statistical or logical conclusions. If it’s more art than science, how can those striving to act ethically be confident that’s what they’re, in fact, doing?

There are two kinds of problems, that is, two kinds of questions and decisions. Sometimes there are black-and-white lines. Sam Bankman-Fried may not have been sufficiently aware of them, but he crossed the lines and so did some of his fellow executives.

There is right and wrong, legal and illegal, and it’s hazardous to even get close to those lines because you may stumble across them, and if you’re a leader at any level, the people working for you may think, “Let’s see how close to the line, just like our boss.”

Then there are other complex issues we call “gray areas.” One obligation conflicts with another, or there’s just so much uncertainty you’re not sure what the key facts are. This is where personal judgment plays a much bigger role.

So, how do you know you’re doing something responsible? A lot of it has to do with how you approach the decision. If you have thought in depth and carefully about what really matters in the situation, about your central responsibilities, and what will work, you’ve loaded the dice in favor of a responsible, practical decision.

How do decision-makers get around the problem of seeing beyond their own cognitive biases to avoid making self-serving decisions that are potentially unethical or illegal, particularly in situations that are full of gray areas?

What may have happened at FTX and has happened in a lot of other cases is somebody takes something that’s black-and-white, legal or illegal, and they say, “Wait a minute. It’s not really clear.” That’s a dangerous activity, and that can certainly be done in self-serving ways.

But with a gray problem, there really isn’t a clear right decision. If there was, you wouldn’t be struggling with it, the people you work with might not be disagreeing with you on it. A lot of biases can come into play with gray-area decisions.

So, one question is: Have you tried to wring the biases out by working with other people and focusing sharply, honestly, and analytically on what matters, what is responsible, and what is practical? This will help you make the best decision you can.

But we are inevitably influenced by all sorts of factors, conscious and unconscious. In the end, you want to be able to feel that you have done all you can to make a sound, responsible decision, but with gray-area problems, there are no guarantees.

It’s one thing to make an ethical decision based on facts laid out in a book or case study, but quite another to do so while surrounded by outside factors and changing circumstances. How do people prevent these things from obscuring the best way forward?

I wrote a book a number of years ago about reflection, based on in-depth interviews with 100 executives and managers. I discovered that almost everybody had some way of reflecting. It took all different forms: driving to work, exercising, sitting quietly and looking out the window, talking with someone they trust and respect, and praying. One executive said when he was struggling with a really hard decision, he would put on earphones and listen to some of his favorite Broadway show tunes, and then he would often find that his mind was clearer and he was comfortable making a decision.

My fundamental conviction is decision-making and reflection should be guided by the questions of: What really matters; what are my central responsibilities; and what will work? Then the final question is: What can I live with? Then you decide. I don’t think we really understand how we make these final decisions and judgments. And the current state of neuroscience, our minds are a kind of black box, and what matters is what we put into the box as we get ready to make a decision.