The Trouble With Business School – Foreign Affairs Magazine

Inequality is growing, democracy is under threat, catastrophic climate change looms, and the COVID-19 pandemic has exposed massive inequality in everything from health care to food security. The need for visionary moral leadership has never been more acute. Yet business schools—the institutions responsible for producing many members of the next generation of leaders—are not keeping pace.
Outside the walls of academia, the idea that maximizing shareholder wealth should be a company’s top priority is no longer sacrosanct, or even widely accepted. And although companies may not always practice what they preach, one powerful sign of this came in 2019, when 181 CEO members of the Business Roundtable—one of the leading corporate lobby groups in the United States—pledged to run their companies for the benefit of all stakeholders. Meanwhile, critics of the short-termism that stands in the way of more sustainable forms of capitalism include the leaders of some of the world’s biggest banking and investment institutions, including JPMorgan Chase’s Jamie Dimon, the investor Warren Buffett, and Larry Fink, the CEO of BlackRock, a giant firm with more than $9 trillion in assets under management.
At the majority of elite business schools, however, this shift has barely begun. Although the mission statements of most M.B.A. programs pledge to educate leaders who can “make a difference” or “change the world,” too many professors remain wedded to a curriculum that largely reinforces the mantra of shareholder primacy without addressing how that approach has contributed to problems such as massive inequality, the climate crisis, and growing political division.
Many schools have introduced courses on sustainability, ethics, climate change, and diversity. Some are publishing cutting-edge research on new sustainable business models and corporate inclusion. Others are embedding the goals of social responsibility and sustainability into their core M.B.A. curricula. Mostly, however, business schools are tinkering around the edges, relegating ideas about social change and moral choice to the margins through optional electives rather than required courses. Meanwhile, the most influential rankings of business schools, such as those published by U.S. News & World Report and the Financial Times, remain largely based on the salaries that students achieve after graduation, reinforcing an ethos that places self-interest above all else.
The effects of these shortcomings extend far beyond campuses, because some of the biggest problems the world faces today involve the complex intersection of business and society. Thanks to the continuing spread of markets, the rapid advance of technology, and the increasingly interconnected, interdependent quality of global affairs, business leaders find themselves serving not only as executives and investors but also as arbiters of equity, ethics, morality, and social value.
That is why the institutions that train them need to impart the insights and moral imagination necessary to shift away from models and approaches to business focused on benefiting the few to alternative ones that take into account the common good and the health of the planet. Sustainable development and character building should be included in every aspect of business school curricula, from the core courses to the electives and case studies. Such adjustments will hardly guarantee the kind of change the world needs. But if business schools simply instill in the next generation of business leaders the same value system that they did in past generations, there will be little reason to hope for better from the private sector.
Reforming business schools should begin with the most basic questions: Who attends and who teaches? In the wake of the Black Lives Matter protests that took place during the spring and summer of 2020, many M.B.A. programs pledged to reckon with systemic racism and inequality, putting forth initiatives to increase the diversity of their student populations. Such efforts are sorely needed, since most business schools continue to recruit almost exclusively from traditional elite institutions and tend to seek out applicants who already have experience in financial services or consulting—sectors that themselves suffer from a lack of diversity. As a result, at most top-rated M.B.A. programs, student cohorts have fewer than one in ten students with work backgrounds primarily in government, education, or the nonprofit sector. Students are also taught by faculties that are disproportionately white. According to the educational nonprofit AACSB International, only around four percent of faculty members at U.S. business schools are people of color.
Business schools must massively increase their efforts to address this imbalance and also to attract more students of all races and ethnicities from working-class and lower-income backgrounds. M.B.A. programs should be seeking out not just conventional high achievers and academics but also individuals who have demonstrated resilience and empathy—and who have experienced failure.

Another step business schools need to take is developing in students the strength of character to manage profitable businesses while also tackling social problems with imagination, grit, and perseverance. This calls for experiential, immersive learning that puts students in close proximity to people with less privilege or social advantage. In the past, Acumen, the nonprofit venture capital fund that I founded and run, has experimented by surprising team members and fellows participating in the company’s leadership program by taking away their phones and their keys, leaving them with just $5 and a MetroCard, and sending them into low-income communities in New York City, where they spend a day using only those services designed to help the poor—such as soup kitchens and free health clinics. The idea is not pretend that to be poor but to observe city services from the perspective of the people they are meant to serve and then return with ideas on how to redesign those services.
Because today’s problems are not confined to one sector or organization, business leaders need the ability to work with a wide variety of stakeholders, from activist nonprofits to government agencies, and with individuals who hold opposing views to theirs. Simulating challenging scenarios in the classroom can help M.B.A. students learn to navigate conflict and collaborate across social and political boundaries.
Building businesses that are truly inclusive—and thus able to positively affect inequality—means ensuring that all participants in the value chain can survive and thrive. The supply chains of most multinational organizations heap risks on those who can least afford to take a hit and send rewards almost exclusively to well-insulated asset holders. Consider, for example, the chocolate industry. Around two million smallholder farmers in Côte d’Ivoire and Ghana produce over 80 percent of the world’s cocoa. But less than six percent of the price of a typical chocolate bar goes to them, and their average income is just $0.78 per day.
There are many initiatives within the chocolate industry to address and monitor some of the problems caused by this inequality of value distribution, but for too long, corporations have sidestepped the work of fixing a broken model by essentially outsourcing the job through large grants to nonprofits and charities. Although charitable work can improve lives, a better way forward would be to reimagine business models and value chains. A British company called Divine Chocolate, for example, gives smallholder cocoa farmers ownership shares; as a result, they receive approximately 44 percent of the company’s profits. These are the kinds of models that business schools should introduce to students, rather than encouraging Band-Aid solutions designed primarily to mitigate reputational risks.

Business schools should also make sure their students know how to measure what really matters. Some critics deride the “alphabet soup” of acronyms representing methods of measuring the social and environmental impact of business, such as social return on investment (SROI); environmental, social, and governance (ESG) factors for investment; and sustainability impact assessments (SIA) for trade. But a successful shift toward sustainable capitalism will require moving away from an exclusive reliance on orthodox measurements of business success, such as shareholder returns, and toward measuring the effects of decisions on all stakeholders. Business schools should be equipping future leaders to understand the tradeoffs that all metrics present and to take a longer view, measuring impacts in terms of years rather than quarters.
A final aspect of business school that requires a rethink is the use of case studies. Rather than teaching only cases that highlight traditional business dilemmas and profit-seeking decision-making, business school syllabuses should also include cases that demonstrate complex moral dilemmas and decision-making that takes into account other values and all stakeholders. Everytable, a fast-food startup in Los Angeles, is a good example. They set out to create delicious, healthy food and sell it for less than the traditional fast-food competitors in the “food deserts” of low-income areas of Los Angeles County. To hit such a competitive price point, they reimagined every aspect of the business model to include centralized kitchens and meal pricing that varies based on a neighborhood’s economic conditions. Everytable’s franchising model includes a training program to support potential franchisees from the communities they serve and provides access to capital through a combination of philanthropy and low-interest loans. This is the kind of enterprise that M.B.A. students ought to be studying: an innovative business using alternative metrics of success and moral imagination to contribute to long-term, sustainable solutions to poverty.
The world of academia moves slowly, and a variety of obstacles would stand in the way of these kinds of changes. For example, business schools might fear putting their students at a disadvantage with recruiters if they stray from the status quo. And schools may experience pushback from professors who have secured tenure based on their expertise in models rooted in shareholder primacy and who might be loath to redesign their courses or adopt new teaching methods. But given the significant shifts taking place in business and the investment worlds, as well as in society at large, schools that do not adapt risk becoming irrelevant in the longer term.
Change will not happen overnight. Students, alumni, donors, faculty, companies, recruiters, policymakers, and civil society organizations must all push for these kinds of reforms. But with courage, innovation, and resolve, business schools have the opportunity to help usher in the era of sustainable capitalism.
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