Reorienting business leadership
The global economic meltdown and erosion of trust require business schools to examine the fundamentals of the education they provide, says Arun Maira
MANY people are getting badly hurt as the global economy crumbles. Recent surveys reveal that fewer than two out of five Americans trust business leaders. While some business executives are losing their bonuses and business jets, those who counted on their stewardship of businesses are losing jobs and homes. When the US government pumped taxpayers money into private banks to restore flows of credit in the economy, bank executives used the money to shore up their own balance sheets. Some even spent the money on their own perks and bonuses! The public is shocked by this mind-set. The business community may respond by saying there are a few bad eggs. Since some of these same CEOs had been feted not so long ago by the business community and within the media, the public is dismayed by the values the business community had tolerated the greed of business managers and their carelessness for issues beyond their deals, profits, and bonuses. The Economist is harsh: it describes the economic meltdown as a fraud-infested downturn.
When the international advisory board of a well known European business school met to review the schools vision and strategic plan, a member of the board read out an email he had received from a student of an American business school. The student asked whether business schools had caused the economic mess that America and the world was in. The students question forced the board to introspect on the fundamental ideas that business schools teach, and also on what they do not teach but should. They agreed that the concept of responsibility underlying business management techniques taught in business schools is too selfcentred. And also that business schools do very little, if anything, to help managers build their internal moral compasses.
American business schools dominate the world of business teaching. Commenting on the recent apprehensions of malfeasance within US business corporations, Jack Welch, the greatly admired former CEO of GE, writes that it is not the job of company boards to prevent fraud. That, he says, is the job of regulators. He says the responsibility of boards is to assist the companys managers to create more value for shareholders. In this, he is reiterating the philosophy that rules the American business world and business schools, and began to pervade the rest of the world also.
A fundamental flaw in this philosophy is the ideologically-rooted limitation on the responsibility of boards and business leaders who are expected to focus relentlessly on the growth and profits of their business. The business of business is only business, said Milton Friedman the Nobel Laureate in economics from Chicago, with the corollary that government has no business to be in business. Friedman inspired Margaret Thatcher and Ronald Reagan who promoted an Anglo-Saxon model of capitalism. Reagan said that government cannot be a solution because it is the problem. When business leaders in America (and elsewhere) now run to their governments to clear the mess they find themselves in, the public is not impressed. People want business leaders to own up to their responsibilities. The tide has turned against the Anglo-Saxon model. In a recent poll in 20 countries for the World Economic Forum, over 60% of respondents said they want more government control over business activity.
WITH the advance of Anglo-Saxon capitalism and retreat of socialism, the world got carried away too far towards valuing money and wealth as the measures of worth of individuals and human activity. The pecking order whether in business, sports, arts, or education is dominated by those who make more money. The media gushes about their wealth, homes, yachts, planes and trophy wives. Business chiefs are ranked by their personal wealth, companies by their shareholder value, countries by their GDP, and business schools by the salaries their graduates obtain. Other measures of goodness seem to pale in comparison.
If making more money is the goal, it becomes smart to make even more money using other peoples money. Thus the financial services industry began to balloon into a world of exotic derivatives. The masters of this virtual world offered the highest salaries to business school graduates. And the schools, to improve their ratings, ran after these recruiters. Like Icarus on wings of wax, the wizards of this financial world flew further and further away from earth until their wings began to melt and they came crashing down, unfortunately bringing the global economy down with themselves.
Institutions that claim to produce leaders for the world must take responsibility for the values they teach their graduates. In their advertisements in the Economist and elsewhere, every business school claims it produces global leaders. In reality these schools are vocational institutions providing their students with tools and skills to create efficiency and produce financial returns and a passport to personal wealth. Business schools should examine their curriculum. Real leaders need a moral compass that points true north: to the path that improves the world for everyone. They cannot be pointed towards narrow self-serving goals of more wealth for their corporations and themselves. The means they use to create their wealth are more important than the ends they seek. Do these leaders strengthen the institutions of governance in society, or weaken and corrupt them for their own gain? And what are the values they embody? Those who espouse more freedom for business and ask for less regulation must accept that it is up to business to regulate itself more thoroughly and therefore for its leaders to have functioning moral compasses. Otherwise more regulations will have to be imposed to prevent business managers from unwittingly or deliberately causing harm to the environment and society.
The crumbling of economies and breakdown of trust in business leaders demand changes in many institutions. Boards must orient themselves towards good governance, not merely production of profits and shareholder value. Business schools must reorient what they teach, and also the way they teach, to develop moral compasses within their graduates. And the media must honour business leaders and corporations who are role models of good values as well as any business schools whose graduates, while not earning the most, help to improve the world for everyone.