What is the purpose of business education?
Despite some efforts to nurture the responsible business leaders of the future, our education system – along with legislation and business practice – still prevents corporations from fulfilling their broader purpose. What needs to change?
This year marks 50 years since Milton Friedman’s era-defining essay was published in The New York Times, which claimed ‘The Social Responsibility of Business is to Increase its Profits’.
It is striking that, half a century after the New York Times essay, the Booth School of Business at the University of Chicago – where Friedman spent three decades teaching and developing theories on free market economics and shareholder primacy – has begun incorporating environmental, social and governance (ESG) issues into its curriculum. Diverging from Friedman’s shareholder first doctrine, it now teaches the importance of a business’s wider stakeholders (communities, workers, the environment), the central idea driving a broader movement towards responsible business. This was echoed in the momentous US Business Roundtable statement last summer, in which nearly 200 corporate bosses unequivocally recognised a corporation’s responsibility to honour commitments to stakeholders and society, as well as its shareholders.
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Doubts over the sincerity of corporate directors' commitments to a broader definition of corporate purpose remained. The real impact of this shift of opinion seemed to be conditional on its ability to withstand a global economic downturn. The current coronavirus pandemic – and the widespread social distancing measures now in place to protect societies across the world – will ensure 2020 will be remembered as a large-scale human catastrophe and a more turbulent year for investors and businesses than Friedman saw in his lifetime. Business schools will play a critical role in continuing this endeavour during and after the present crisis. How prepared are they, and what is the purpose of business schools?
Purpose at the heart
The British Academy’s Future of the Corporation programme, which has been examining the relationship between business and society since 2018, makes it clear in its Principles for Purposeful Business that business has a responsibility to profitably drive solutions to, and not exacerbate, the problems faced by people and planet. The principles provide a coherent guide to the ways in which policies and business practices can shift to place purpose at the heart of business, not profit.
Business schools play an indispensable role in this shift. Along with legislation and business practice, education is another major part of the system that has prevented us from realising the full role of business in society.
Business schools will play a critical role during and after the present crisis. How prepared are they?
The Friedman era espoused and perpetuated norms around business’ sole purpose being to generate profits and shareholder dividends. Now, in business and management education, purpose has become a vital reference point. Historians, legal scholars and economists, many of whom have contributed to the British Academy’s research, all agree that purpose has been a defining characteristic in corporations both large and small, ancient and modern. It is increasingly seen as a central organising principle for shaping behaviour, in business and in society at large.
In recent years, there has been some significant movement towards redefining purpose in business education and placing ESG goals at its heart. One United Nations-supported initiative, the Principles for Responsible Management Education (PRME), is aimed at encouraging business education to nurture responsible business leaders who commit to making progress towards the UN Sustainable Development Goals by 2030 (see box below).
The six principles for responsible management education
Read more: unprme.org
New knowledge needed
But this is only part of what is needed to achieve the system-wide shift which would put purpose at the heart of business schools as well. What does this mean in practice? For example, at the moment, the way in which the quality of business teaching is measured is narrowly defined. Major rankings systems, such as the FT Global MBA rankings, are largely determined by graduate salaries (40% of the score), a factor with a range of variables, while corporate social responsibility (CSR) criteria, measured according to the “proportion of teaching hours from core courses dedicated to CSR, ethics, social and environmental issues” makes up only 3% of the score given.
At the moment, the way in which the quality of business teaching is measured is narrowly defined... CSR criteria make up only 3% of the score given
Rather than have CSR as a separate, subsidiary measure of success, courses should be assessed on how well they integrate ESG factors and accountability to internal and external stakeholders – the 2006 UK Companies Act lists employees, suppliers, customers, community and the environment – into their core curricula. With increasing debate over the social responsibility of business, corporate leaders will question the suitability of the shareholder value maxim and they will need experience and understanding of the alternatives.
The real test of a shift in business education will be whether corporate directors develop new skills and knowledge that enable businesses and their advisers to properly engage with their stakeholders and social responsibilities. Once business education provides business leaders with the capabilities to create trustworthy, purposeful and profitable businesses with ethical cultures, this will incentivise directors and employees to be loyal to their corporate purpose.
As long as the main metric for business school performance is financial, we cannot achieve purposeful change
In higher education more generally in the last few years there have been increasing moves to measure universities on the salaries achieved by their graduates, just as most chief executives are still incentivised by shareholder returns because their performance-related pay is tied to share performance. But the reliance on rankings may stand in the way of providing new incentives for business school deans to adapt.
The British Academy is setting up an ‘observatory’ function to monitor trends within humanities and social science disciplines. One thing we will be watching closely is the impact of developments like this on the curriculum and on student choices when it comes to university courses. As long as the main metric for performance is financial, we cannot achieve purposeful change in the way that people contribute to society through business.
New generations of students bring with them increased expectations of the responsibilities of all sections of the economy to the wellbeing of people and planet, particularly after a crisis of the magnitude of today’s pandemic, and business schools must rise to this challenge. In order to shift the ideas being taught, we must redefine the parameters of success.
- Molly Morgan Jones is director of policy at the British Academy.
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