To be ethical leaders, we must understand how systems shape behavior.
“Would I have done the same?” It’s an uncomfortable question, but one I find myself asking in every Leadership and Corporate Accountability (LCA) class.
We like to think that we’d act differently — that we’d resist pressure, be clear-eyed, blow the whistle, and make the right call. But as we examine case after case, I find myself empathizing with those at the center, not because their actions were justified, but because the lines between personal choice and systemic influence are more blurred than we’d like to admit.
If we aspire to be “leaders who make a difference in the world,” we must expand our discussions beyond individual actions and examine the role of regulation in shaping corporate behavior. Corporate misconduct does not occur in isolation. It stems from policies and governance structures that shape the business landscape. To address chronic ethical failures, we must first understand how our systems give rise to them and then imagine reforms that align corporate incentives with broader societal goals.
Understanding the System, Building Empathy
LCA teaches us self-awareness about ethical decision-making and corporate governance. Every class, we examine a high-profile corporate scandal, ranging from Enron’s accounting fraud to Theranos’ deception, and conduct a post-mortem to dissect the causes of failure. Our discussions explore the perspectives of key stakeholders — CEOs, board members, regulators — who make decisions in high-pressure environments littered with competing interests. The pivotal moment in class arrives when the professor asks, “what went wrong?”
On one hand, there’s the perspective that the ethical choice is clear: these were bad decisions made by people who should have known better. If we were in Rajat Gupta’s shoes, we would have recognized the ethical line we were crossing and stopped ourselves. If we were serving on Enron’s board, we would have asked better questions and blown the whistle on the fraud. However, such an absolutist approach risks becoming overly moralistic, detracting from an analysis of the structural factors that perpetuate short-term, risk-taking behavior. By making the individual entirely culpable, we oversimplify the challenge at hand. Personal motivations are often complex, and framing the issue purely as a matter of individual virtue or vice fails to capture the broader systemic dynamics at play. The more productive question is not who is “good” or “bad,” but rather how the systems these individuals find themselves in prevent ethical decision-making.
Stepping back from the individual at blame, we also consider the complexities of their contexts: corporate cultures that pressure executives to chase short-term gains, boards that fail to challenge red flags, and regulatory gaps that create gray areas of compliance. The more we empathize with the protagonists, the more difficult it becomes to lay singular blame. While I generally agree with this perspective, the conversation often stops short of a truly actionable next step.
Considering the context is valuable, but without simultaneously discussing tangible solutions to create better systems, we risk normalizing these failures as an unavoidable aspect of corporate life. This implicitly diminishes the role of individual and collective agency in shaping systemic reforms. Much of our discussion still centers on individual decision-making — on developing an internal moral compass or “gut check” to guide us through ethical dilemmas. But how reliable is a gut check in an environment where the incentives, culture, and even your own colleagues encourage you to bend the rules? Is individual integrity enough when the system itself rewards those who blur ethical lines? Insider trading and fraudulent accounting aren’t anomalies; they are patterns. And if they are patterns, then what can be done to change them?
Exercising Agency
Rather than placing the burden entirely on individuals to resist systemic pressures, we should be asking how we can shape systems to make ethical behavior the default. And yet, this aspect is often missing from LCA discussions. We spend little time discussing the role of regulation, both legal and cultural, even though it is instrumental in setting the boundaries for corporate behavior.
For example, Enron led to the passage of the Sarbanes-Oxley Act (SOX), which fundamentally reformed financial reporting. The law introduced stricter auditing standards, held CEOs and CFOs personally liable for the accuracy of financial statements, and established the Public Company Accounting Oversight Board (PCAOB) to regulate auditors. Yet when we discussed the Enron case, there was little reflection on whether these regulatory changes were effective or what gaps remain. Similarly, while Rajat Gupta’s case highlighted the risks of insider trading, we could have further considered whether current securities laws adequately deter similar behavior today. And in the case of Theranos, where a private company misled investors and patients for years, we discussed the ethical failures but not whether biotech regulation should have been reformed in response.
Regulations are rarely neutral; they are shaped by the lobbying power of the industries they govern. Corporate influence over policy has grown to the point where lobbying and Super PACs have become industries in their own right, with corporate lobbying in the U.S. exceeding $4 billion in 2023. As future managers, we cannot be passive participants in this system; we must critically assess how corporations shape regulations and recognize our responsibility in ensuring they promote long-term value creation rather than short-term financial engineering.
Going one level deeper, corporate ethics isn’t just about fraud; it’s also about power. In an era of increasing corporate influence, businesses are not just market actors; they are also shapers of policy, labor conditions, and wealth distribution. As a result, regulation, as it stands, has prioritized capital holders over workers, reinforcing wage stagnation and rising inequality. The externalities of this system — growing economic divides and political capture — are not internalized in any meaningful way. Ethical failures in corporate governance, then, are not just about individual wrongdoing; they are also about how unchecked corporate influence perpetuates systemic inequality.
If we are serious about creating long-term value, preventing future corporate scandals, and internalizing social costs, ethics cannot just be about personal integrity. It also has to be about governance, incentives, and accountability mechanisms that make ethical decision-making the rational choice, not just the moral one.
Addressing Systemic Challenges
I experienced a glimpse of this during a discussion on the leveraged buyout of TXU, a major Texas energy company and one of the largest carbon emitters in the U.S., that considered both the possibility and challenges of companies internalizing the cost of carbon. Though the discussion only took up the last five minutes of class, it was rare to see the perspectives of my peers on a potential path forward — one that not only acknowledged systemic pressures, but also explored ways to encourage structural changes in corporate behavior toward a better world. If we shift the conversation beyond individual culpability and towards shaping incentive structures, we might move past reactive governance and into proactive solutions.
As leaders-in-training, we should be taught to recognize not only when to resist unethical pressures, but also how to advocate for and implement structural changes that align long-term business success with ethical governance. If our discussions in LCA repeatedly show that people in high-pressure environments struggle to make the right ethical decisions, then perhaps the true test of leadership is not just about personal choices, but also about actively working to build systems that prevent these dilemmas from arising in the first place.
Alison Kim (MBA/MPA-ID ‘26) is from Toronto, Canada. She previously worked in investment banking and development finance, focusing on water infrastructure. She is interested in structuring partnerships that align public and private capital for long-term development.
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