By Andrew J. Hoffman
Ask any business student (or anyone for that matter) what the purpose of the corporation is, and they will likely parrot back that it is to “make money for its shareholders.” The prevalence of this belief is coming under much needed scrutiny within business circles and among business students. But it is not gaining enough attention within business education and that needs to change, something I hope to address in a new book, Management as a Calling: Leading Business, Serving Society.
The call for change within business practice
The Business Roundtable and World Economic Forum have both issued statements redefining the purpose of the corporation as one that “serves society at large…supports communities…pays its fair share of taxes…acts as a steward of the environmental and material universe for future generations.” Black CEO Lawrence Fink sent a letter to CEOs telling them that they have a responsibility not only to deliver profits, but also to make “a positive contribution to society.” Even former GE CEO Jack Welch called shareholder primacy “the dumbest idea in the world,” adding that “shareholder value is a result, not a strategy … Your main constituencies are your employees, your customers and your products.” This not a new idea; it is just one that has just fallen out of fashion. Peter Drucker, for example, argued in the 1950s that “the purpose of a company is to create a customer;” profits are one metric of how well the company performs this purpose but ultimately, he argued, “the business enterprise…exists for the sake of the contribution which it makes to the welfare of society as a whole.” It is time to bring these ideas back, turning more recent aspirational statements into management practice. And one way to do that is change the way we approach the education of the corporate leader.
The need for change in business training
Business leaders must learn about the basics of business management. But they must also consider the vast power that they may someday possess to shape and guide our society, and learn the responsibility to wield that power carefully. Tomorrow’s business leaders must start thinking critically about the role of business in society, their role as a manager in guiding those businesses and the overall system in which they will practice their craft – capitalism.
In that pursuit, they should be taught to look deep inside themselves to consider management as a calling in a similar spirit of service that we use to train doctors and lawyers —one that moves away from the simple pursuit of a career for private personal gain and towards a vocation that is based on a higher set of values about leading commerce and serving society. It is about connecting your career with your values and purpose. As corporate attorney James Gamble writes “power needs to be constrained by conscience.”
This shift in focus is needed now more than ever, at a time when capitalism is in crisis. One symptom of that crisis is income inequality, which is growing to epidemic proportions not seen since 1929. Before the Covid crisis, 40% of Americans could not pull together $400 for an emergency; 78% lived paycheck to paycheck; 44% earned about $18,000 per year; and 42% had saved less than $10,000 for retirement. Today, we are in that emergency and a vast portion of the American public is in serious trouble. A second symptom lies in our natural environment as global greenhouse gases are at their highest ever level and show no signs of declining, resulting in climatic changes whose costs to the US economy alone could reach hundreds of billions of dollars per year in lost labor productivity, declining crop yields, food shortages, early deaths, property damage, water shortages, air pollution, flooding, fires, and more. The market is threatening our way of life, both environmentally and socially, in ways that are unprecedented.
The pragmatic search for solutions
But, the pragmatic reality is that we must turn to the market – comprised of corporations, the government, non-governmental organizations, and the many stakeholders in market transactions – and specifically business to solve these challenges. While government policies can spur the market and individual choices can feed it, business, with its extraordinary powers of ideation, production, and distribution, is best positioned to bring the change we need at the scale we need it. Without business, solutions will remain elusive. And without leaders who are willing to challenge taken-for-granted norms and conceive of a new vision for the corporation, business will never even try to find them.
This is not a call for simplistic win-win scenarios and business as usual. Vocal critics are rightly skeptical of “thought-leaders” and “plutocrats” that only seek solutions that allow them to increase their wealth. Real solutions require trade-offs and distributive solutions to correct our systemic problems. We cannot have your cake and eat it too. Economist and Nobel Laureate Joseph Stiglitz wrote that the way we practice business today is “exploitive” and that “the neoliberal fantasy that unfettered markets will deliver prosperity to everyone should be put to rest. .” Capitalism, he warns, must be “saved from itself.”
Today’s students, tomorrow’s leaders
There is hope. Twenty years ago, students who wanted to change the world turned to schools of public policy and nonprofit management for their training. Today, increasing numbers are turning to schools of business management and they are bringing with them a desire to explore a new sense of the economic, social and environmental purpose of the corporation and their role as leaders. One survey found that 67% of business students want to incorporate environmental sustainability considerations into whatever job they choose; another found that 88% of business school students think that learning about social and environmental issues in business is a priority. By 2019, business ethics entered the top 5 most popular subjects for the first time, with nearly 25% of incoming students wanting a job focused on social impact after graduating, and nearly 50% wanting to do so later in their careers. These students are showing a strong interest in moving beyond narrow views of shareholder primacy and are dedicating their careers to making a difference in the world. And, I would add, if business schools do not provide the training they seek, many are turning to other sources to augment and expand their education.
Management as a Calling
My hope as a business school professor is to accelerate the process that business students should be undertaking and many are; to help them start the process of examining their purpose in the world. This is an idea and a goal that I find my students intuitively resonate with. The truth is that we all have a purpose to what we do. It’s just that some are more thoughtfully arrived at, while others may be more externally imposed or blindly accepted. A theologian once told me that he can tell you what you worship by how you spend your time because a vocation is the active manifestation of what you value. In the words of David Foster Wallace, “in the day-to-day trenches of adult life, there is actually no such thing as atheism. There is no such thing as not worshipping. Everybody worships. The only choice we get is what to worship.” As such, David Brooks warned “be watchful over what you love, because you become what you desire.” Sadly, Craig Smith, Professor of Ethics and Social Responsibility at INSEAD laments “Students come in with a more rounded view of what managers are supposed to do but when they go out, they think it’s all about maximizing shareholder value.” So frustrated was MIT MBA student John Benjamin that he wrote a scathing indictment of business education, warning that the curriculum stifles discussion of the common good while emphasizing the over-riding objective of profit maximization as unquestioned.
Pushing back against these curricular values is not easy, and we are often discouraged from even trying to find our calling. This book is an attempt to help future business students along that path of reconfiguring their education and preparation for leadership, developing a deeper literacy in social and natural science to understand the mechanisms through which business activities affect the natural and social environments through resource extraction, supply chains, manufacturing, consumption, tax strategies and political lobbying; and a deeper literacy in public policy to better understanding the role of government in the market and the role of business in policy making; and a more sophisticated understanding of the variants of capitalism(s), the underlying models on which they are based, the ways in which they both serve and harm society and how to shape necessary improvements.
In the end, my hope is to personally challenge every business student, every business executive and every business school professor to think about the system in which students are beginning their careers and to help future business leaders find their calling within it. I want to provoke students to set the goal of devoting their career in business to leaving the world better than they found it.
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Andrew J. Hoffman is the Holcim (US) Professor of Sustainable Enterprise at the University of Michigan, a position that holds joint appointments at the Stephen M. Ross School of Business and the School for Environment & Sustainability. His recent book is Management as a Calling: Leading Business, Serving Society from Stanford University Press. For more information, go to http://www.andrewhoffman.net/