The challenges of 2020—a global pandemic, a reckoning for racial justice, rising inequality, climate change—have exposed the issues of the status quo thinking around economics like never before. One thing is clear from last year’s chaos and crises: business as usual cannot continue.
When public companies were awarded over $500 million in loans through the Paycheck Protection Program—a program intended to keep workers employed at small businesses—while thousands of small businesses received nothing, it came as a wake-up call to many.
While disappointed, I was not surprised. In my decade-plus as a high-profile business executive and board member of several public companies, I saw firsthand how unscrupulous decision-making could sometimes win out and get rewarded. In fact, it’s part of what prompted my transition to academia.
For decades, corporate America has held the attitude that harming employees, communities, and the environment is the “right” decision if doing so maximizes shareholder value. This attitude directly stems from business school curricula – specifically, the dominance of Milton Friedman’s shareholder primacy theory.
To remain profitable in the long term, organizations are looking to hire employees as well versed in social impact as they are in business.
In recent years, an opposing theory that businesses should create value for all stakeholders, rather than only their shareholders, has started to gain legitimacy. Prominent business leaders like Blackrock CEO Larry Fink and institutions like the Business Roundtable have brought this stakeholder capitalism perspective to the mainstream.
Meanwhile, consumers are also demanding that brands take a more ethical approach to business. In Edelman’s 2020 Trust Barometer, 87% of respondents said that stakeholders, not shareholders, are most important to long-term company success. Further, consumers are holding businesses accountable. A 2018 Edelman survey found that 64% of consumers would buy or boycott a brand based on its position on a social or political issue.
To remain profitable in the long term, organizations are looking to hire employees as well-versed in social impact as they are in business. Business schools must train the next generation of business leaders with this in mind.
That said, fundamentally, business education has not changed in over fifty years because business schools have failed to recognize the value of teaching ethics as essential to good governance. Examples of immoral decision-making like the businesses that exploited the Paycheck Protection Program have become all too common.
As a business student myself, I was taught to evaluate decisions based on their potential to generate value for shareholders, regardless of their societal impact. This meant that breaking the law—especially any environmental regulations—was considered justified if the project’s financial value exceeded expenses, including all legal and regulatory fines.
This cannot be the world we live in going forward. But if we want to change these types of practices, we must start by fundamentally transforming business education.
At my school, American Jewish University (AJU), our new School of Enterprise Management & Social Impact (SEMSI), the first of its kind, will develop leaders that make every organizational decision with a lasting concern for social consciousness, diverse stakeholder interests, and ethics. It is my hope that this spurs other institutions to follow a similar path.
In practice, what will a social impact management education look like?
At SEMSI, we are updating our rigorous academic offerings, research, and practicums to reflect the issues facing today’s business leaders. Our curriculum will examine the intersection of business needs and wider societal concerns, prompting students to consider a broader set of actors and stakeholders beyond shareholders. Beyond the classroom, we plan to convene dynamic public events featuring socially conscious business leaders to inspire our students and broader community.
There is no need to choose between teaching future business leaders traditional management skills, and giving them the tools to make a larger impact. Schools must adapt to meet ever-evolving needs.
These are lofty goals. But if we do not set ambitious goals now to make business education better, how can we expect our future generations to solve the world’s most pressing problems?
I have long believed that our capitalist system is a uniquely effective driver for making positive societal change. Yet, the power of the market to make these changes can only be unleashed if we have ethical leaders—focused not only on profits, but on social impact as well.