I received a tweet recently from the Unreasonable Institute, a social enterprise incubator, which asked “Tell me truly, what gets you unreasonably fired up?” I now have the answer!
This week I am more than unreasonably fired up with the article Why MBAs should not sign the Harvard Business School oath written by by Theo Vermaelen, Professor of Finance at INSEAD. The MBA Oath is a voluntary oath drafted by the 2009 Harvard MBA graduates and is a significant example of ethical leadership which promotes corporate responsibility.
Professor Vermaelen suggests there are three reasons why MBA’s should NOT sign the Harvard Business School MBA Oath:
1.The oath invites violation of fiduciary duties and ethical standards
2. The oath is a misplaced response to the financial crisis
3. People are not driven by pledges, but they are driven by incentives
Vermaelen suggests that the corporate governance code requiring fiduciary duties to maximise shareholder wealth is inconsistent with corporate responsibility. He says that “none of these codes would accept that managers promote “social and environmental prosperity worldwide” as the HBS oath does. I would suggest to Professor Vermaelen that customers, employees and investors are voting with their feet, and their money, and gravitating to those companies that actively promote corporate responsibility. It would be hard to find a major corporation which does not publicly promote their commitment to sustainability, ethics and social values. Further if a corporation engages in global business then its responsibilities are also global.
He also has the impudence to suggest that “Externalities such as the consequences of business decisions for the environment have to be dealt with by the government, …”. Does he truly believe that governments are responsible to clean up the mess, if, as a consequence of business decisions which maximise shareholder value, there is a negative impact on the environment? Or is he suggesting that if governments don’t legislate against environmental degradation then corporations can behave as irresponsibly as they like in the course of maximising shareholder wealth. Historically it is correct that governments and voluntary environmental groups have cleaned up after environmental destruction caused by irresponsible corporations, however it is the responsibility of the corporation to make sound business decisions which do not impact negatively on society.
In regards to ethics Vermaelen writes “I believe it is unethical to raise money from shareholders without telling them in advance that you are going to pursue causes that are destroying shareholder value.” I ask which clause in the MBA Oath suggests that corporate responsibility would be unethically hidden from prospective investors? As far as I was aware the oath promotes ethical, moral leadership. And how does the pursuit of social and environmental responsibility “destroy” shareholder value? I guess that depends on whether financial returns to the shareholder is the sole measure of value. Besides, it is increasingly recognised that strong corporate citizenship programs enhance reputation, market share, employee retention, innovation and most other functions which contribute positively to shareholder financial returns.
Vermaelen argues that the MBA Oath is a misplaced response to the GFC. He suggests the crisis was due to a lack of financial expertise at the highest echelons in the financial industry. He further says “So the solution is not more ethics or pledges, but more finance education and better forecasting and risk management models.” Now we are getting to the crux of the article. Professor Vermaelen’s motives are perhaps to discredit a competitor, Harvard Business School, and market his finance faculty at INSEAD as the world’s saviour from further financial meltdowns. Might I suggest to the good Professor that the GFC has produced a very significant re-evaluation of our society and what it means to lead and conduct business with integrity. A significant segment of society believes that shareholder value goes beyond mere financial returns to shareholders. Employees are recognising that their value as human beings is integral with the work they do and the integrity of the company for which they work.
Oh dear, Professor, do come out of your glass INSEAD tower please, the carrot and the stick went out with Oliver Twist. Human Resources departments now realise that there is a lot more involved in talent acquisition and retention than throwing money at employees.
Vermaelen says “I don’t believe in pledges as an instrument to guide people’s behaviour”. It doesn’t matter what Vermaelen believes. What matters is the integrity of those MBA’s who have pledged an oath to be moral leaders upholding ethical and responsible corporate behaviour. They don’t need to be guided by anyone except their own principles of what is right and what is good.
Vermaelen interprets the oath ” as a commitment to bad corporate governance, companies which employ those who sign the oath as top executives should disclose this on the first page of their website. In this way investors are warned that investing in these companies can be “dangerous to your wealth.” To the contrary, I congratulate those MBA’s who drafted, promoted and signed the Oath, for they are the new generation of corporate leaders who will transform the way in which corporations seek to add real value to shareholders, employees, customers, suppliers and the communities on which the conduct of their business impacts.
I have chosen IBM at random as an example of the manner in which corporations are now taking their global social contributions seriously. Here is what I found on IBM’s website: IBM Corporate Citizenship and Corporate Responsibility. Please see below two relevant excerpts:
“The primary focus of our corporate citizenship activities is on developing initiatives to address specific societal issues, such as the environment, community economic development, education, health, literacy, language and culture. We employ IBM’s most valuable resources, our technology and talent, in order to create innovative programs in these areas to assist communities around the world.” – IBM
In 2003, we undertook a global, company-wide discussion about the values that define IBM. In addition to finding a common set of qualities that characterize “an IBMer,” we also learned something equally important: Almost every one of us thinks our work and choices should be determined by what we value. – IBM
Professor Vermaelen, the world has moved on, shareholder and employee value is not entirely vested in financial returns to shareholders. I invite Professor Vermaelen to quantify the destruction wreaked on IBM’s shareholder value by the inclusion of corporate responsibility within the conduct of their business.
There were a number of other statements in the article which I would love to refute, but the above will do. I am sure others will weigh in to the debate.
I was about to send off my application for entry to INSEAD’s MBA program majoring in social entrepreneurship. Guess I’ll have to tear it up now, I was assuming INSEAD would provide a progressive curriculum with a modicum of integrity. I clearly need to find another business school. Perhaps Harvard would take me?
Plato: Good people do not need laws to tell them to act responsibly ...