The Case for a Long-Term, Multi-Stakeholder Approach
SMITH BRAIN TRUST – There’s a fair bit of rigor in getting a business school degree. Students learn customer analytics, capital budgeting and “soft” skills, such as how to work well as part of a team. And along the way they gain essential tools that enable the kind of critical thinking required to solve problems and lead companies.
But there is a downside to the curriculum, says Maryland Smith’s Rachelle Sampson. Writing in the Stanford Social Innovation Review with co-author Witold Henisz from the Wharton School, she says it is “laden with two outdated assumptions” that students gain while pursuing their graduate education: the notion of shareholder primacy and its attendant short-term profit maximization.
“Recent research emphasizes the perils of this orientation as well as the benefits of an alternative focused on winning the hearts and minds of stakeholders,” they write. “A number of current examples highlight that the relative costs of these assumptions are not abstract but tangible, and have the power to affect a large number of industries.”
Sampson and Henisz say the popular approach of shareholder-value maximization doesn’t take into account the impact that decisions have on employees, customers, communities and the environment, nor the value that those stakeholders add to the firm.
“Too often, we leave any substantive discussion of the social or environmental implications to our ethics classes, overlook any damage to the value created by firm stakeholders that aren’t shareholders, and proceed with our (net present value) models,” they write. “A more comprehensive analysis might look more favorably on investments in alternative energy, healthier food production, lower emissions, less addictive medicine, individual rights to personal information, stronger worker and human rights standards, and more transparent contracting.”
They recommend a redesigned management education that would confront the gap between the models taught, which assume that the underlying negative externalities of social problems are addressed by policy, and “the stark reality.” The approach, they say, might even go further, exploring whether the tradeoff of private profits for social costs has contributed to the decline of popular support for capitalism and free markets and the rise of populism, as seen in countries such as Turkey, Thailand, Brazil, Italy, France, Germany, Hungary, Poland, Sweden, Great Britain, and the United States.
They propose a redesigned management education approach, with methods for evaluation that “directly engage multiple stakeholders to improve workplaces and communities, as well as benefit shareholders, but without requiring significant curricular changes.” And, they say, it can be implemented either top-down, via curricular-reform committees and professors, or bottom-up, by students.
“By ensuring greater sensitivity to all relevant stakeholders, this approach also ensures that business schools stay relevant in society and staves off the increasing populism that threatens to worsen conditions for all,” they say.
They recommend two fundamental changes.
First, students should evaluate medium-to-longer-term impacts of decision alternatives, ones that stretch beyond a one-to-three-year horizon, along with the typical short-term impacts. “While there is greater uncertainty with longer-range projections, this expanded evaluation process simply requires checking in on progress and adjusting course over time,” the authors write.
Second, students should examine how different decision alternatives affect all relevant stakeholders. “Consider, for example, the decision to outsource,” they write. “In the short term it is often profitable to slim down the firm by outsourcing. However, rarely are attempts made to measure the full costs of such decisions, including effects on employee morale, retention, and productivity, or the ability to iterate on new product design quickly, which is often most effective when firms co-locate manufacturing and design. These feedback loops are real, even if not measured, and have very significant implications for firm performance, not to mention for all stakeholders.”
Arguing that radical change is possible without significant curricular reform, Sampson and Henisz recommend asking the following questions in business school classrooms when evaluating decision alternatives:
What are the long-term implications of the decision you are making?
How does your decision affect different stakeholders, such as employees, customers, communities, and the natural environment?
How would you determine the effects of your decision on these stakeholders?
What implications follow from such stakeholder impacts for long-term firm performance (e.g., are any negative externalities likely to generate a social or political backlash that could undermine the long-term sustainability of the strategy)?
What would a longer-term strategy that considered the impact on the broader group of stakeholders look like in this context?
How would you evaluate progress towards the implementation of such a long-term strategy over time?
Read more: “Redesigning Management Education for the Long-Term,” was published in the Stanford Social Innovation Review.
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