Stakeholders More Than Shareholders
March 16th, 2009 - 1 Comment
The current economic crisis may be traceable back to America’s business schools and the way they teach their students, according to an article in yesterday’s New York Times, which asks “Is It Time to Retrain Business Schools?” Among the article’s critiques of the modern business school is the argument “that schools give students a limited and distorted view of their role—that they graduate with a focus on maximizing shareholder value and only a limited understanding of ethical and social considerations essential to business leadership.”
Smeal’s Dennis Gioia echoes this concern in his 2003 article “Teaching Teachers to Teach Corporate Governance Differently,” which appeared in the Journal of Management and Governance. Gioia argues that businesses today have a multitude of stakeholders beyond merely shareholders, and that business schools should be teaching tomorrow’s business leaders that they should be looking out for the best interests of all of them.
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I am not arguing that owner interests are not the prime interests of the managers and governors of business organizations. Generally, shareholder interests have priority. It would not be credible to suggest that owner interests typically should queue up with a long line of other equal claimants. I am arguing, however, that shareholder interests are never the only interests. The ever-rising influence of modern business on the welfare of society is too great to continue believing that we have but one stakeholder that invariably matters above all others.
… In our more challenging role as change agents, [business school faculty] need to account for the significant social and economic changes that have occurred in the last 50 years. Perhaps the most pronounced (if little noticed) of these is that modern industrial societies are no longer mainly societies of individuals; we are now predominantly societies of powerful organizations—most obviously, business organizations. When any element of society achieves the kind of dominant influence that modern business has, their influence comes with commensurate responsibilities toward the societies of which they are such key constituents. In today’s environment of heightened sensitivity to business scandal, it is perhaps the best possible time to question the degree to which we invoke a property rights perspective and to (re)examine the assumptions regarding how we teach corporate leadership and governance. It is also an especially good time to (re)evaluate how we account for social responsibility in our hoped-for new paradigms of corporate governance.