Wednesday 28 April 2010 8:28 pm

The man who thinks MBAs should make ethics centre stage in the boardroom

AROUND a year ago, in the aftermath of the collapse of Lehman Brothers and in the midst of governments bailouts, a group of Harvard Business School MBA students decided to create an oath that would help to promote more ethical behaviour in business. They were stung by criticism of MBAs, who were blamed by some for causing the crisis with a supposedly managerial and distant style, and wanted to promote a new way of doing business. Many of their peers signed up. Since then, MBAs at over 250 schools have taken the oath. Now its creators, Peter Escher and Max Anderson, have written a book, The MBA Oath. We caught up with Escher to ask him about it. What’s the idea behind the MBA oath? The short answer is that the MBA oath is what is says on the cover of the book, “a higher standard for business leaders”. The MBA Oath’s origins go back to London Business School in 1986, where Professors Nitin Nohria and the late Sumantra Ghoshal asked MBA students to propose clauses for a “Hippocratic Oath” for business. Professor Nohria then moved to Harvard and he and Professor Rakesh Khurana continued to research the idea of an MBA in the context of professions with particular focus on the precedent of medicine and law. When the music stopped in 2008/2009 there were naturally questions being raise about the purpose of business and the worth of an MBA degree. Many people wondered how we got into this mess, and there were a lot of fingers being pointed at MBAs. People started paying more attention to the ideas of a code of conduct for business put forth by Khurana and Nohria. What do you hope to achieve? A lot of it is trying to restore confidence and trust in business. From the start MBA programmes were meant to be founded on the idea of ethics. At the time, the very idea of brining business education into an academic environment, which is objective and non-profit, was controversial. The MBA was legitimized within the academic context primarily because of its intent to be a profession with an accompanying code of conduct and a standard body of knowledge. But over time business schools have got away from that, becoming more about technical financial models and strategic frameworks. We wanted to return it to its roots. So you agree with some of the criticism of the financial services industry, that it has become managerial and technical? I’d say that we do agree with some of it, but we see the nuances. One of the biggest supporters is a professor who previously worked at Goldman Sachs and he says that serving the customer was his primary goal. We want to say that the aim should be to maximise profits over the long-term, and not just the short-term. As a company, and as a manager, your good name is important; if your reputation takes a hit then that is the most important thing. Cultivating trust with clients is vital to long-term prosperity, for them and you, and if you are under great pressure to make quarterly targets, then integrity can be compromised. While you make a short-term profit, as we saw in the extreme case of Enron, ultimately the shareholders lost. The MBA Oath is meant to surface questions like: “Is this trade in the long-term interest of our customers?” If not, your profits will decline over time and then everybody loses out. Might the oath have helped Goldman Sachs avoid its current troubles? I think that the situation with Goldman Sachs is that you had a trader who offered a product to two different clients, Paulson and on the other side some institutional investors, and the derivatives market didn’t have a lot of regulation around it at the time. Goldman left a certain amount of disclosure to both sides, without thinking through the perception. Should the financial services industry have a morality over and above “following the regulations”? Sometimes people seem to think that following the letter of the law is enough. Is that the sort of thinking you are trying to change? In our book, Max and I, argue that the law and regulations should be treated as a minimum guideline for conduct. Too often, regulation is treated as a maximum requirement for ethical conduct. The results for business are becoming clear – if Wall Street is unwilling to regulate itself, the government will step in. With the so-called Volcker Rule and President Obama flying to New York this week, we are seeing government intervention in full force in the United States. A professor from the INSEAD business school said that the MBA Oath would clash with the fiduciary duties that companies owe to shareholders. what do you say to that? I don’t know if I am smart enough to disagree with a professor from INSEAD! The Oath is clearly in the context of business and the profit motive is at the centre of every business. Every day, managers come across decisions that require them to balance the profit role with customers, society ands shareholders. Look at Google in China – do they stay true to their principles or look to revenue? These are things that you have to weigh up and they are not easy. The MBA Oath can help to crystallize some of the issues. If he is saying that the Oath would not help at all in making these decisions, then I do disagree with him. Is the MBA Oath just campus idealism? Does it translate into the real world? Time will tell, but we have seen alumni from many different business schools sign up, including participants who are on executive educations courses, so you can’t say that these are people who don’t live in the real world. We are also partnering with the World Economic Forum, which is comprised of business practitioners all over the world and who have the same desire to act as we do. We have had 2,200 people from 200 business schools all over the world sign up, from Africa, Asia and India. There are 300,000 business school graduates every year, so we believe that they can go on to influence the world of business. The University of Hong Kong has incorporated the oath into their graduation ceremony. We hope that it is something that will eventually spread around the world and make a difference. The MBA Oath: Setting a Higher Standard for Business Leaders by Max Anderson and Peter Escher is available from MBA OATH | THE TEXT As a business leader I recogniae my role in society. My purpose is to lead people and manage resources to create value that no single individual can create alone. My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow. Therefore, I promise that: ● I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society. ● I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise. ● I will refrain from corruption, unfair competition, or business practices harmful to society. ● I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation. ● I will protect the right of future generations to advance their standard of living and enjoy a healthy planet. ● I will report the performance and risks of my enterprise accurately and honestly. ● I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity. ● In exercising my professional duties according to these principles, I recognise that my behaviour must set an example of integrity, eliciting trust and esteem from those I serve. I will remain accountable to my peers and to society for my actions and for upholding these standards. This oath I make freely, and upon my honour. EXCERPT | “A MYOPIC VIEW OF STRATEGY” Management education for the most part is subdivided into functional silos, separate stores of knowledge from which one draws disparate bits of information. They tend to select the cases solely based on what they may reveal about a marketing, financing, or accounting strategy. In other words, the discussion about any given case is limited to a particular functional perspective. The risk in this approach is that new managers are taught they only need to think of their responsibilities in a functionally narrow manner. They are not taught to think integratively, how these decisions may affect larger pools of interest or serve the common welfare. A student’s ability to hedge currency risk may have greater value than engaging in honest conversation about doing the right thing. In such a compartmentalized academic environment, students are invited to focus on the “hard” courses, like finance, rather than the “soft” courses, like leadership and ethics. Schools do not encourage this, but simply separating a course on ethics or leadership from the rest of the curriculum signals that the course is a standalone discipline and not a foundation for the rest of the curriculum. We remember studying a case on outsourcing manufacturing to East Asia. A student suggested that you risked supporting sweatshops. The professor told the class to “hold comments like that” because this was a case about strategy, not ethics. But is that not itself a myopic view of strategy? If a company is not sensitive to the strategic risks imposed by the ethics of its actions, it will be blindsided by consumers who demand more of the firm. In a compartmentalized curriculum, we forget the human fault lines, which may translate to real-life economic and social ruptures of devastating magnitude.” From The MBA Oath. Copyright Max Anderson