The Dismal Science of Business Ethics
By Daniel O'Connor of Integral Ventures, LLC
In an article entitled Bad for Business?, The Economist comments on a soon-to-be-published article by Sumantra Ghoshal in which he argues that many of the “worst excesses of recent management practices have their roots in a set of ideas that have emerged from business-school academics over the last 30 years.”
"He believed that the desire of business schools to make the study of business a science, 'a kind of physics', has led them increasingly to base their management theories on some of the more dismal assumptions and techniques developed by economists, particularly by the 'Chicago School' and its intellectual leader, Milton Friedman. These include supposedly simplistic models of individual human behaviour (rational, self-interested, utility-maximising homo economicus) and of corporate behaviour (the notion that the goal of a firm should be to maximise shareholder value). These assumptions, though in Mr Ghoshal's view badly flawed, were simple enough to allow business-school academics to develop grand theories of management supported by elegant mathematical models and empirical analysis that appeared scientific, and thus earned their subject academic respectability, but were, in fact, a pretence of knowledge where there was none."
"A particularly worrying feature of these theories, says Mr Ghoshal, is that they have no “role for human intentionality or choice”. And not only do such theories falsely claim to be scientific, teaching them can make them self-fulfilling. Business-school students learn that managers cannot be trusted—so when they become managers their behaviour is of the untrustworthy sort. Students have been freed “from any sense of moral responsibility”. Hence scandals such as those at Enron, where business-school educated executives were prominent. And hence, perhaps, future Enrons yet to be created by this year's much-in-demand crop of MBAs."
The Economist, both in this and a related article, responded by claiming that:
- it is not the fault of business schools that the other social sciences have failed to provide them with theories and practices that are superior to those being provided by economics.
- it is not the fault of business schools if their graduates are not fit for ethical business leadership because MBA programs are designed to develop technical managers, not ethical leaders.
In my view, economics, for better or worse, is the philosophy of business. The core subjects in the traditional MBA curriculum--strategy, finance, marketing, and operations--are to a large extent just applied economics. As such, it should come as no surprise that MBAs tend to express in their subsequent careers the economic philosophy they learned in business school... for better and for worse.
But The Economist is not entirely wrong in its nevertheless weak defense of business schools. Just because orthodox economics emulates the sciences of moving rocks does not absolve the other social sciences from responsibility for generating superior theories of business and economy. Nor, I would add, does this absolve business school deans and faculty from responsibility for seeking out these complementary perspectives and enriching the business philosophy they're teaching. And thankfully in recent years we are seeing evidence of these alternative schools of thought making inroads into business education. But this effort has a very long way to go before we will establish a truly human and authentically Integral Economics at the heart of every business school curriculum. Only then will Integral Business pass the test of both authenticity and legitimacy in the business academy and the business community.
Moreover, The Economist is all too correct when it notes that business schools do not, and indeed cannot, impart to their students the maturity and wisdom required of today's business leaders. But that does not mean business schools do not have a responsibility to point students in the right direction and provide them with developmental theories and practices that can, in time and with worldly experience, foster the necessary maturity and wisdom.
© 2005 by Daniel J. O'Connor. All Rights Reserved.
See Also:
- CSR: Cosmetic Treatment or Systemic Reform?
- CSR: Just Good Business?
- In Defense of CSR?
- CSR's Grim Reaper
- Stockholders: The New Special Interest Group
- Who Governs the Corporation?
- CSR and Stockholder Value
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