I think that these types of questions reflect the level of responsibility and involvement a candidate has had. I agree that the important point is what you learned and how you've grown.

One example I used was when I worked as a volunteer helping immigrants facing deportation file for humanitarian relief. Certain laws (drug offenses, violent crimes, etc.) trigger automatic deportation provisions. Some people face deportation to countries with severe human rights issues. We assisted people by handling final appeals based on humanitarian concerns over deportation to certain countries. The ethical dilemma was that these people had been convicted serious crimes - things like armed robbery and kidnapping - but my job was to support their causes based on humanitarian concerns.

I learned that, because of worldwide economic disparity, people from around the world preferred to serve long prison sentences rather than be returned to their home countries where they faced famine, war, mutilation and death. I said that my experience led me to realize that, more than almost any political or social movement, worldwide economic development might result in the greatest possible good for the greatest number of people; and that I was inspired to help develop growing economies for the benefit of local populations.

I think Pelihu just gave the best answer one could possibly give. Mind if I use that? (kidding)

I've totally struggled with the "ethical" sort of interview questions too, I just can't come up with anything good. I've never really had my ethics challenged in any situation that would work well for an interview answer. I guess I could tell them about how back in high school I knew drinking was illegal for people under 21, but I did a risk-utility analysis and decided I would go ahead and break the law anyway, going against my high ethical standards. And then after I tell them that I'll say, "So? Am I in or what?"

I look at ethical dilemmas and setbacks/failures as separate issues.

I believe the point of asking about a setback or failure is to gauge the maturity of the candidate. Nobody likes to talk about their own failures, but an effective manager needs to be mature enough to admit mistakes, analyze and move on. To a greater or lesser extent, everyone has had setbacks and failures; the question is are you "man enough" (ladies included) to talk about them.

An ethical dilemma is a different type of problem. I think it is a way to try to find out what makes a candidate tick. A lot can be learned based on the type of experience that the person selects. For one person, it might be an ethical dilemma whether or not to take money from a petter cash drawer. This would show a very different person than someone that struggles about turning in their boss for securities violations. It's not just a difference in the level of responsibility; it's actually a difference in the perceived characters of the two individuals, based on their values.

As suggested in essay-writing books, it's probably a mistake to select a situation that isn't really a dilemma or setback. It's like someone that says their greatest flaw is that they work too hard. Give me a break. Adcoms are going to think you are a pompous moron if you say something like that. A dilemma is a situation where both sides have merit (or risks) and it is truly a challenge to decide between them. A setback or failure should be self-explanatory, but it shouldn't be about a situation where you actually succeeded. Don't say, "I had a setback because our deal earned 100%, while I always shoot to earn 110%. It's a failure for me to do less." People will think you are a jackass.

If I were in the ad-com position I would definitely ask these questions because as Pelihu said, they tell you a lot about the person.

The thing is, I really cannot think of a single real ethical dilemma that I have faced. Maybe that means I've had a really boring life, but at the end of the day it means that I'm going to have to make something up. Hopefully they don't notice that I'm crossing my fingers when I'm answering their question.