A new article by Kowaleski, Sutherland, and Vetter (2019) examines the teachability of ethics in business. Looking at data from financial analysts, the authors concluded that investment advisers passing the licensing exam--Series 66--with “more rules and ethics coverage are one-fourth less likely to commit misconduct.” 

The article looked at the changes made to Series 66 in 2010. Prior to the 2010 changes, ethics based questions received 80% weight, whereas questions on ethics and rules post-2010 were weighted equally to technical questions (2019). The authors then found two comparable advisers accounting for firm, location, and role. The advisers were only considered different by the version of the Series 66 licensing exam they passed. When comparing misconduct between them, they found that, regardless of other confounding factors, “the reduction in the Series 66 rules and ethics coverage had a direct effect on advisers’ conduct” (2019).

In addition to concluding that an ethical foundation led to less misconduct, they found advisers with foundations in ethics and rules would leave firms experiencing “spikes in misconduct and financial sanctions.” Further, the exodus of advisers with greater training in ethics and rules predicted the sanctioning on firms in misconduct.

What does this mean for educational institutions moving forward? When the rules in business change, does institutional obligation to develop ethical graduates deteriorate? Many institutions require their business students to pass a course in business ethics or legal and regulatory policies. Are these courses enough to inform students of their responsibilities without the exams to emphasize their required conduct as a professional?

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Kowaleski, Zach and Sutherland, Andrew and Vetter, Felix, “Can Ethics be Taught? Evidence from Securities Exams and Investment Adviser Misconduct” (September 27, 2019). Available at SSRN: https://ssrn.com/abstract=3457588 or http://dx.doi.org/10.2139/ssrn.3457588