Why MBAs should not sign the Harvard Business School oath

 Whilst the premiss that MBA’s should not sign the Oath refered to is correct, the article illustrates the total confusion that exists at every level of business and academia about the issues.

Organisations do have the primary responsibility to stay in business but in the One Planet World we are entering, they do this by working to continually reduce the financial costs of all failure costs including environmental and social failures.

Failure to do this is  dereliction of duty to shareholders and will in the medium term lead to destruction of shareholder value

This is a journey of integrated quality improvement see The Big Q ‘Leading for Competitive Advantage in the One Planet World’

Please comment

dd

 

 

 

 Why MBAs should not sign the Harvard Business School Oath

 by Theo Vermaelen, INSEAD Professor of Finance

Harvard MBAs have proposed that all MBA students sign an oath. The oath can be found on http://mbaoath.org/take-the-oath.  It pledges, among other things, to “contribute to the well-being of society” and to “create sustainable economic, social and environmental prosperity worldwide.”

I don’t believe that this is a good idea, for three reasons. First, some parts of the pledge are inconsistent with fiduciary duties and ethical standards. Second the oath is a misplaced response to the financial crisis. Third, I don’t believe in pledges as an instrument to guide people’s behaviour.

The oath invites violation of fiduciary duties and ethical standards

In many countries, board members and, as a consequence, managers have a fiduciary duty to maximise the wealth of shareholders. Even in countries where the corporate governance code is promoting maximizing stakeholder value, none of these codes would accept that managers promote “social and environmental prosperity worldwide” as the HBS oath does. Externalities such as the consequences of business decisions for the environment have to be dealt with by the government, unless, of course, a business case can be made that shareholder value is increased by taking care of these externalities.  For example, if I install equipment to reduce pollution and, as a result of my “socially responsible behaviour,” my customers buy more of my products, my workers accept lower salaries and the government lowers my taxes, my investment may well have a positive net present value. But then the oath should simply state that you pledge to maximise net present value.

Moreover, the oath may well promote unethical behaviour. (See Vermaelen, Theo : ‘Maximizing shareholder value : an ethical responsibility?’ in Mainstreaming Corporate Social Responsibility : Text and Cases. Wiley, June 2009.) 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. If you want to pursue other objectives, then you should tell them in advance, so that investors can incorporate these goals into stock prices, or simply refuse to buy the company stock. For example, a non-profit organisation can make it clear that the objective is to leave the shareholders with nothing, and this is of course ethical. So, if you want to promote “global environmental prosperity” you should set up your own company and attract shareholders and other stakeholders who share this objective. For example, I noticed that in 2009 almost every US-listed ethanol company went bankrupt. I don’t know what was communicated to investors when these companies went public, but if they were told: “This is not about making money but about doing good to promote global environmental prosperity” then the management did not behave unethically, even if they were fully aware that their policies were expected to generate zero returns for their shareholders…………………

Full article at http://knowledge.insead.edu/contents/csr-mba-hbs-oath-091125.cfm?vid=342

Advertisements

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s