Ask More of Business

Asking More Commentary: Perspectives from Mendoza College of Business

Commentary Post - Ed Conlon

What comes after wealth creation?

August 2, 2009

That something big has failed in business leadership is obvious. But the causes of the current economic meltdown aren't necessarily just a failure of ethics or values (although my personal hunch is that these are involved). Recently, the New York Times published an article, “Is It Time to Retrain B-Schools?” which tried to trace some of the corporate malfeasance back to the education many of the corporate leaders received, since presumably most hold MBAs. Broadly, the article reiterated several standing criticisms of business education, including a singular focus on maximizing shareholder value against a limited treatment and understanding of ethics and social responsibility.

Certainly, this focus shares in the blame.  I can cite lots of pieces that make this point.  A common answer of an executive accused of acting greedy is to claim that he or she was simply acting in the best interest of the owners and, therefore, doing his or her job.  Frankly, this is what all business schools, including the Mendoza College, have traditionally taught managers to do, as the idea is normatively embedded into the conventional economic theory of the firm.  Free-market economists elegantly justify the economic and social wisdom of that tactic.  In fact, they claim that the wealth of the world will be maximized through the use of that strategy yielding, in effect, a bigger pie to be distributed.  These economic gains provide important leverage for those who would wish to share their wealth with others.

Of course, trickle-down thinking aside, distribution of wealth by any other means other than by returns to effort or risk, such as by managerial investments in social goods, isn't the forte of that model or many others.  It is easy to blame the current mess on greed or a lack of social conscience.  It is much harder to propose models that elegantly and effectively guide managerial behavior toward desirable outcomes that don't involve short term maximization of shareholder wealth.  Managers who don't work hard to increase shareholder returns don't tend to retain their titles for very long, and I am unaware of any course, anywhere, that provides a good model for deciding when to shift pennies from quarterly dividends and toward “social goods," such as environmental sustainability. 

That said, there is a trend afoot within business that has begun to take corporate social responsibility more seriously.  The new-found emphasis on sustainability is but one expression of this focus, but this trend isn’t limited to issues of conservation or replacement of valuable resources.  It extends more broadly to determining the best, long-term strategies for the management of all of the key assets necessary for the success of a firm.  These, of course, include the maintenance of the physical environment.  Increasingly, they also include the development, rejuvenation and preservation of talent within the firm, and the deployment of the firm’s assets, not the least of which is credibility and voice, to facilitate positive social movements such as recycling, education, community building and even the peaceful resolution of conflict.  Far from being either altruism or the clever creation of a corporate image that might be attractive to consumer, these strategies are being embraced because they are seen as beneficial to the long-term prosperity of the firm.  They are not, in any way, antithetical to the interests of the stockholders.

The interests of society and the interests of private business are reasonably well-aligned, particularly when one takes a perspective that focuses dominantly on the next 10 years rather than the next 10 quarters.  While I would not argue that we have been wrong to emphasize the responsibility of managers to produce acceptable economic returns to shareholders, it seems that we have learned the hard way that our conventional ways of teaching about this responsibility may not create the kinds of perspectives needed among today’s managers.  Reliance on the old ways is unlikely to encourage business to break from the binge-and-purge cycles that have characterized it over the last decade.   

What is needed is a more thoughtful and better developed emphasis within business and business education on the linkage between the actions and strategies of business institutions and the societal outcomes that make the world a better place for everyone, including the stockholders and other stakeholders of the firm.  At Mendoza, we have long had our eye on questions of business ethics and corporate social responsibility.  We have long had a vision that business can be more than an agent for wealth creation.  However, we appear to be at a watershed moment where businesses are actively seeking new approaches and real transformation may be possible.

It is our mission and our goal at Mendoza to produce graduates who can be at the forefront of this evolution of strategic thinking.  At this time, it is particularly our goal to foster thought-leadership that better demonstrates the alignment between stockholder and societal value.  By doing so, we can achieve our mission to position business as a force for good in the world.