I was fortunate to take part in a panel discussion today at the Ivey School of Business on the relevance of the Occupy Movement to business schools. While there were some heated discussions, I think all four panel participants agreed that change is needed in business schools to produce leaders who can make decisions that consider a wider range of interests. There also appeared to be agreement that the old adage that profit maximization is how business contributes to society is outdated in light of the uncontroversial evidence of a negative correlation between profit levels and societal and/or environmental welfare.
This places business schools in a precarious position when their foundation largely hinges on the maximizing of the universal metric of financial performance. While all business schools have in their mission some reference to social good, ethics, and benefit to society, there is no doubt that the underlying objective behind all decisions in the classroom is financial accountability to shareholders within the confines of the law and, if necessary, at the expense of society and the environment. This is fundamental and while I acknowledge business schools’ fluffy wording on their commitment to society, it rings hallow when it comes down to class discussion.
But it was clear from student reactions today that they struggle with the notion that business is as bad as the occupy movement says it is. I can imagine that a 21-22 year old, part of one of the top business programs in the country and the world, would be disheartened to read about a movement that is against everything that they’ve pinned their future career on. Even as a business professor pushing for change in business schools, this is not an easy thing to read and hear about. But as I’ve written before, the occupation’s painting of business with the same brush is not only unfair but entirely inaccurate. That being said, there is no doubt that many businesses have and are continuing to play a major role in creating the inequality that the occupy movement is concerned about.
One area of disagreement among the panel members and perhaps among the students was the notion that consumers are ultimately accountable for their own decisions. So, going into unmanageable debt is nothing but irresponsibility of the consumer not the fault of companies. To me, this is a very naïve argument because it overlooks the fact that we all live in a society that is socially constructed. History has shown that when actors are powerful in society, they play a substantial role in shaping the norms and beliefs of that society, sometimes for millennia. Religious organizations, once the most powerful actors in society, institutionalized a number of taken-for-granted belief systems that we see followed today for good and bad. The dominant actor today is business, more powerful than religion and more powerful than most governments.
Here’s the kicker, what happens when a for-profit entity is able to wield power that intentionally or unintentionally influences social norms and beliefs? I discussed this in more detail in a previous posting.
Bringing this back to what we teach in a business school, company profit maximization largely hinges on the creation of a monopoly or near-monopoly situation wherever possible. By default then, the objective is to weaken the power of consumers by discouraging their search for information that would allow them to make informed decisions, influencing how that information is presented, influencing consumer interpretation of that information, and/or reducing the options available to consumers regardless of their absorption of information. The oil and gas industry’s attempts to create doubt in the science of climate change is an example here. Also the financial industry’s efforts as of late to destroy or at least weaken the Consumer Financial Protection Agency, a body meant to help educate and protect consumers from complicated financial innovation, proves quite remarkably that companies do not hope for consumer irresponsibility to pave their fortunes but instead create conditions that inhibit informed decisions.
This all comes down to a perverse incentive based on profit maximization exclusively with no consideration of the social and environmental consequences of these decisions. Combined with immense power that business as a social actor holds in shaping consumer behaviour, business’ role in influencing society is not the next conspiracy but merely an obvious and highly predictable outcome of what we’d expect these actors to do in our current socio-economic system.
So in my view, when the occupy movement voices its concerns over social inequality, they’re also implicitly referring to the disruptive effects on democracy when those in power work to maintain the status quo by shaping the views and beliefs of society.