Posted by: millumino | November 30, 2009

INSEAD Professor incites corporate irresponsibility

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 ...



  1. We don’t get to weigh in on business school admissions decisions, but we think your commentary would get the attention of any business school admission committee!

    Thank you for your thoughtfulness. It adds considerably to our body of knowledge. We agree that the time is right for MBA students and businesspeople to re-consider the purpose of business.

    Peter Escher, Exec Director, The MBA Oath

    • Thank you Peter for your kind comments. I wish all those who pledge the MBA Oath wonderful, fulfilling careers as leaders of wildy successful businesses known for making significant contributions to society as a by-product of “maximising shareholder returns”.

  2. Briiliant post Maureen. Thank You.

    • Thank you Ian. May I one day have your ability to lead and inspire!

  3. Maureen,

    Thank you for your post on this important topic. I just blogged about how students from the University of Alberta invited students in Businss Admin and others to take an oath of integrity. I took it and invite others to do the same. See the blog at

  4. Dear Maureen

    I am sorry to hear you tore up your application to the INSEAD MBA program. Note that this is just the opinion of one finance professor. INSEADS faculty has a large number of left-wingers on it so I am sure you can find electives where they tell you what you want to hear.


    Theo Vermaelen

  5. Theo,
    Thank you for the comment. And now perhaps we need to open a new debate on what constitutes a left winger!

    I am not and never have been a left-winger. I was educated at one of Sydney’s most exclusive private schools. I have been a company director for over 30 years, I am a capitalist and business owner. I happen to believe that making a profit can and should be done in a responsible manner.

    INSEAD would not be a suitable institution for me if all I was going to hear is what someone thought I would like to hear or if my academic performance was based on what I thought faculty wanted to hear in return.

    I would want to expand my knowledge, network with innovative thinkers and reach my own conclusions.

    I am considering my options for 2011.


  6. An organisation that takes seriously the issue of social responsibility in business is Rotary International. A large proportion of Rotary’s 1.2 million worldwide members are business men and women who actively adopt Rotary’s guiding principles ( including its ‘Four Way Test’:

    1. Is it the truth?
    2. Is it fair to ALL CONCERNED?
    3. Will it build goodwill and better friendships?
    4. Will it be beneficial to ALL CONCERNED?

    In a corporate context, “all concerned” cannot readily be interpreted as “shareholders only”. It includes all stakeholders and the communities that the organisation impacts. So would Prof Vermaelen therefore label Rotarians as value destroyers? Surely not.

    Similarly, his argument that signatories to the MBA oath are value destroyers is unconvincing. Corporate value is BUILT by constructing well rounded organisations that integrate well with their stakeholders and communities. On the other hand, taking a narrow financial view can sometimes produce excellent short term results but end up destroying value.

    And the contention that people are driven by incentives, that their values (such as those contained in the MBA oath or the Rotary principles) have little bearing on their decision making? Total anathema.

    Rob Byrne, BEc, MBA, Rotarian

  7. Hi Maureen,

    Your positive take on the oath by the students of Harvard Business School re-vindicates my views on the importance of values and ethics in business.

    I feel this oath also serves as an effective tool that can inspire B Schools students in the ‘Business Values and Ethics’ classes all over.

    I do read you comments on ‘Linked-In’ with great interest.

    Thank you and with regards,


    • Thank you Dilip.

      I have been very quiet on LinkedIn lately as I pursue post grad studies in Social Impact, including CSR and business ethics. I will start tweeting and blogging again very soon.

      best regards

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