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Coronavirus Is Making Business Leaders Rethink the Rules of Capitalism

As companies struggle, business schools are changing how future leaders think about profit and sustainability.

NYU Stern School of Business. Photo courtesy of Wikimedia Commons

Fifty years after economist Milton Friedman sternly admonished society that the sole business of business is profit, business is rethinking that adage with support from business schools.  

Business schools have long embraced the belief that shareholders are the “owners” of the company and profits should be maximized to benefit them, and have taught accordingly.

So it is only fair that business schools, which play the dual role of educating the next generation of business leaders while also undertaking research that informs current corporate decision-making, help design the next chapter of capitalism.

The coronavirus crisis brings the issue home: Should well capitalized companies lay off workers (which would benefit shareholders) or should they figure out how to support their workers and society while managing a radically changed world?

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Two business school professors with outsize impact on this new field of research are Michael Porter at Harvard Business School, who coined the term “shared value,” which advocates for creating value for all players in the corporate ecosystem, rather than extracting value for the sole benefit of shareholders and Edward Freeman of the University of Virginia, who first developed the notion of managing for stakeholders such as employees, communities and customers, rather than shareholders alone.

A more recent pillar of sustainability research has focused on materiality—which demonstrates that a focus on material environmental, social and governance issues can generate better financial returns—with professors Robert Eccles (Oxford) and George Serafeim (Harvard) leading the pack.

In the last few years, more business school faculty have been researching topics related to the evolution of capitalism. A fall 2019 Financial Times survey of responsible business-oriented research found work from the noted French business school INSEAD focused on business methods to mitigate poverty, research from University of Oxford Saïd on how ownership relates to the conduct, value and endurance of family-owned corporations, and Harvard Business School’s library of 700 business and environment cases and work on reimagining capitalism. Our work at Stern’s Center for Sustainable Business on Return on Sustainability Investment was prominently featured, due to the need for more data on the business and investment case for sustainability.

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What’s notable is how diverse and wide ranging the research is—highlighting one potential challenge of institutionalizing this work within business schools. Sustainability cuts across all disciplines—marketing, finance, economics, operations, information sciences, accounting and so on. So is it its own discipline or something that becomes embedded into all disciplines?

Business school incentives work against publishing on these topics. To get tenure, professors must publish in top tier journals and, as sustainable business research is inherently interdisciplinary, it often does not fit in the rigid parameters of discipline-specific academic journals.

However, many business schools have created centers for sustainable business to focus on this type of interdisciplinary research among other areas—in fact, there is now a network of these centers called the Network for Business Sustainability with about 165 member universities across the globe. These centers generate research and curriculum on topics such as corporate citizenship, circular economy, social innovation and ethics.

For MBA students, a lot of this has been invisible until recently. Core courses often continue to teach from the Friedman script. However, there are a growing number of degrees and specializations in corporate sustainability and sustainable finance. These programs include focused-programs like the eight-year-old MBA in Sustainability at Bard College and long-standing dual-degree programs at Yale, Michigan and Duke wherein students can pursue an environmental studies masters and an MBA. More integrated courses of study include traditional MBA programs with specializations such as Sustainable Business Enterprise at Cornell’s Johnson School of Management, Business, Energy, Environment and Sustainability at Wharton and Sustainable Business & Innovation at NYU Stern. These programs build on the core curriculum of the two-year programs, and through electives allow students to grapple with broader questions of the role of business in society.

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One of our students describes the shift: Amy Gu, NYU Stern MBA ’20 noted that her class “engaged in a conversation that was larger than just making a profit: the ‘why’ or ‘why bother’ behind balance sheets and marketing strategies.” She explained, “This conversation at times reinforced and at times challenged what I learned in my other courses, but ultimately bestowed a greater sense of purpose around the impact that business can have on our world.”

Outside of the classroom, sustainability is permeating extra-curricular and co-curricular activities. Students are joining clubs on sustainable business, are competing in case competitions like the Kellogg-Morgan Stanley Sustainable Investing Challenge and the Patagonia Case Competition and are investing real money in companies based on ESG and impact criteria.

With business leaders calling for a more responsible capitalism (see the 2020 Davos Manifesto and the 2019 Business Roundtable statement), they will need business schools to train the next generation of leaders in new skills and illuminate the way forward through academic research.  The coronavirus is giving us a window into the types of challenges that climate change will bring, as it too, has exponential growth impacts. This will be the decisive decade in making the pivot to more responsible business and preparing us all for a rapidly changing world.

Tensie Whelan is the director of NYU Stern School of Business’s Center for Sustainable Business, where she is bringing her 25 years of experience working on local, national and international environmental and sustainability issues to engage businesses in proactive and innovative mainstreaming of sustainability.

Sophie Waskow Rifkin is the senior associate director at NYU Stern’s Center for Sustainable Business, leading work on curriculum integration, thought leadership and student engagement.

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