In this episode of Business Casual, our hosts John, Maria, and Caroline will discuss a report that ran in The New York Times with the headline, “Have the Anticapitalists Reached Harvard Business School?” 

If you’re wondering what HBS and other top business schools are doing to change the definition of capitalism, you have to listen in!

Episode Transcript

[00:00:07.210] – John

Well, hello everyone. This is John Byrne with Poets and Quants. Welcome to Business Casual, our weekly podcast with my co host Caroline Diarte Edwards and Maria Wich Vila. And today we want to talk about a story that appeared in The New York Times under the headline how the Anti-Capitalists reached Harvard Business School. Story basically said, social justice joins discounted cash flows on the syllabus as essential knowledge for aspiring corporate leaders. And what they mean by that is the greater emphasis on everything from climate change to prank social impact investing, to sustainability to diversity and inclusion. All topics that a new generation of people are very keen to discuss and get involved with. Now, there have been movements like this before. In the aftermath of some of the financial implosions that have occurred on Wall Street and elsewhere, schools rushed to put in courses on corporate ethics and social responsibility and governance and things like that. But ultimately, one might argue that what’s going on isn’t Anti-Capitalist at all, but it’s in the service of capitalism to benefit business. Maria, you went through one of these episodes when you were at Harvard Business School in the wake of the Enron disaster.

[00:01:38.080] – John

What do you make of it?

[00:01:39.570] – Maria

Yeah, so it’s interesting because when I was enrolling in business school, as you just mentioned, the Enron disaster happened. And for those of our listeners who may be on the younger side, enron was like the FTX of the early two thousands. And unfortunately, a very prominent Harvard Business School alumnus had been in charge of and oversaw a lot of that. And so the school got a lot of hate as a result. And so when I enrolled, they introduced a new course at the time called Leadership and Corporate Accountability. But really it was meant to be an ethics class to try to prevent the next Enron, at least a graduate from Harvard Business School, from being associated with the next Enron. And I was curious to see how they would do this. I thought, well, how do you even teach something like, quote, unquote, ethics? Isn’t that something that is perhaps morally, deeply ingrained in you? However, what was interesting about the class is that they basically taught how following a lot of these quote unquote ethical practices is in fact good for business. So, for example, we studied the Tylenol poisonings in the early 1980s.

[00:02:45.970] – Maria

A disgruntled worker, someone had put some cyanide into some of the Tylenol capsules and unfortunately, some people died from it. And from a purely capitalist perspective, you might say, well, that’s really sad, and I guess we’ll just sort of pay those people as some sort of a legal settlement. But in fact, Tylenol decided to do a national recall of every bottle that was on the shelves. It was hugely controversial, hugely expensive, perhaps overkill. However, the positive benefit they got from that, the goodwill that they received from the community, from consumers, you know, that ended up more than outweighing the initial cost. When people thought they were crazy for doing a recall, it more than ended up outweighing because now people know that they can trust Tylenol. And so that was one of the lessons that we learned where a case of doing the quote unquote right thing wasn’t simply good for your moral, internal, touchy feely ethical compass, but in fact was good for business. And so much of the course was around that. I mean, studies have shown all sorts of things, like, for example, that funds investment funds that are run by women or startups that have women in a significant leadership position, for example, often have higher returns than those that are only male dominated.

[00:04:02.220] – Maria

So lessons like that where you learn some of the right things to do, but you also learn, like, hey, this isn’t simply for your own internal benefit. But there are also you might also think about the capitalistic quote unquote benefits as well. I think that that’s kind of the focus for a lot of these courses.

[00:04:20.670] – John

Yeah, that’s definitely true. And some of this stuff is I’m not going to say it’s a fad, I hope it’s more than that, to be honest. But some of it is a reflection of the times that we’re in. Wharton is going to begin offering MBA majors in diversity, equity and inclusion next year and in environmental, social and governance factors for business. Yale apparently, according to the New York Times, has devoted nearly half of its core curriculum to ESG, which is sort of the acronym that’s often used to talk about social responsibility in business, social responsible investing. Harvard is lumping in more case studies on these topics as well as some courses. Caroline, what do you make of all this?

[00:05:13.050] – Caroline

It’s interesting that Maria references the Enron case because that definitely spurred a sea change at business schools. I actually lived through the whole experience having worked at Arthur Anderson before I went to business school. So I lived through the implosion of the firm in 2002 and had firsthand experience. It was quite a fascinating it was like the Chinese curse may you live at interesting times. It was a fascinating experience to have just before heading off to business school. And then when I got to business school in 2003, INSEAD had reinforced the ethics curriculum and I very well remember, as Maria does, the ethics classes. And in fact, the professor that I had for ethics at INSEAD had also taught ethics to Erroberto at Stanford because he had that time of going back and forth between INSEAD and Stanford. It did start some time ago and the schools, I think, are very conscious of their responsibility and fearful of the consequences of cases like Enron where alumni can be held up as examples of the way not to do things. And it does have very bad PR consequences for schools and the MBA in general.

[00:06:42.410] – Caroline

And then when I started working at admissions at INSEAD in 2005. So nearly 18 years ago now. And I’ve definitely seen a big evolution in the interest that candidates have in having a positive social impact. Right? So 20 years ago, it didn’t come up so much. It was starting, but it wasn’t something 1520 years ago. It wasn’t something that people wrote so much about in their applications. If it was, it might not be sort of core to their career interest or to their story. But that has changed dramatically over the past few years and I’ve seen really huge change. And I think that’s one of the biggest changes that we’ve seen in the interests of candidates over that period, that they are much more committed to having a positive social impact than the previous generation and that it’s very common to read that in an application. And I don’t think that they’re just sort of saying that because they think it sounds good. I’m sure some of them are. But I do think that it’s genuinely heartfelt for many of these students. And so the schools have had to respond. And as this article in the New York Times described, the schools have really ramped up dramatically the number of courses and electives that correspond to those to ESG and respond to the interests of students in those areas.

[00:08:18.040] – Caroline

So as you say, I think it’s very positive. We have a lot of issues to deal with as a society and particularly the environment. We’re really on the brink here. So the more that we raise a generation of future business leaders who have a social conscience and environmental conscience, I think so much better.

[00:08:39.520] – John

Yeah, that’s true. And you’re right. I mean, there’s been a significant demand from actually both the faculty and students to rethinking the obligation of the corporation to society. And some of this is the result of overreaching by companies and illegal activities and motives where profit exceeded every other goal in the company, exceeding the need to be a responsible member of society, being responsible to your employees, your customers and your suppliers. And money does get in the way. And let’s face it, a lot of the people who practice these very capitalistic movements in the world I know in Europe, they often refer to America’s capitalist system as jungle capitalism for how aggressive and market oriented it is. But many of the people who actually propagate these practices are MBAs in the world of work. You know, all that said, how anti capitalist is it to treat your workers with respect, to follow the rule of law, to care for the environment and care for less privileged people on the face of the earth? I don’t see that as an anti capitalist thing. I see it very much as a factor of a well functioning business that understands it has obligations that extend to those who are not merely shareholders.

[00:10:18.190] – John

And shouldn’t we all think that way?

[00:10:19.780] – Maria

Maria well, I like to think we should all think that way. But technically speaking, those things that you just mentioned are not part of traditional capitalism, right? Traditional capitalism is maximize shareholder value and if paying my employees well or giving them sick days and all that stuff, that literally flies in the face. Yeah, we can say, well, in the long term your employees are all going to hate you and then they’ll all quit. But in the immediate short term, especially in a world in which stock prices are driven based on quarterly results, strictly speaking, from a purely capitalist perspective, I as a peer capitalist should maximize my firm and therefore my shareholders financial success in the next quarter. And so these longer term investments in things like the environment and what have you don’t fit the definition of capitalism. Now, I don’t think that it’s necessarily Anti-Capitalistic to suggest otherwise. I just think that we need a reimagining of what the term capitalism refers to. And the basic thing is looking at things from a more longterm perspective. So even the most coldhearted person who says, well, I should treat my employees like garbage because they need me as they need me and if they don’t like it they can go somewhere else, that’s great.

[00:11:30.540] – Maria

But in the long term you’re not going to be able to hire people to come work for you or at least not good people. You’re not going to have employee loyalty. People are not going to give their best. Same thing with the environment. A lot of people like to treat the environment as sort of this invisible, this sort of externality like oh, why should I care about it? But the fact is you can maximize profits in the short term, but if you don’t have a functioning planet ecologically in the next 20 to 30 years or maybe you should have worried about it beforehand. So I think what we can do is we can educate people to the idea that you might not think that in the short term these things matter and maybe they don’t. But in the long term your company is going to suffer. And from that perspective in the long term you are damaging your shareholder value and therefore you should reexamine how you look at these topics.

[00:12:19.030] – John

And all of this harks back to the famous economist Milton Friedman who once said there is one and only one social responsibility of business and it’s to earn a profit. Because if you don’t earn a profit you basically can’t employ people and you can’t produce goods and services that are that may be ultimately helpful to society. But I think that people are tired of the freedom and definition and they’re tired of shareholder privacy. And this younger generation wants more out of business than just the need to make profits and satisfy investors. Even though many of these MBAs go up as investment bankers, they go into private equity and venture capital and put pressure on management to do just that make more money for themselves. Caroline that is really true, isn’t it?

[00:13:13.800] – Caroline

Yes, it is. It’s also true that they’ve invested a huge amount of money in their business school education and so many graduates feel compelled to take the highest salary that they can command when they graduate, right, to pay off those debts. So that’s also part of their decision making. So for sure the majority of graduates are not heading off into positions that are primarily ESG driven. Right. But nevertheless, I think it’s not such a minority interest as it was 1015 20 years ago. It’s much more core to the debate at business school than it used to be and hopefully that will stick in the minds of that new generation of graduates going into finance and private equity and consulting and so on. I think that will have an impact in the longer term. But of course, as Maria mentioned, so many businesses are driven by the quarterly results and short term thinking. And that is a huge tension in this arena because, as she said, the issues such as relating to the environment and so on, it’s a long term question. And in the long term, we’re all much better off doing the right thing.

[00:14:43.590] – Caroline

But in the short term, in the next quarter, if you’re trying to maximize profits and shareholder return then doing the right thing for the environment is probably not in your immediate interest. So that’s a huge tension in business that we’re grappling with and I don’t think anyone has really figured out the answer there. Unfortunately.

[00:15:07.480] – John

The other noteworthy thing about this is that this is filtered into admissions because how many applicants who apply to business school actually make a point in saying that they’ve been involved in an organization or maybe they’ve founded one that serves some social purpose of social good? And we generally in admissions consider that to be a real positive in a person’s applicant profile. In fact, if you don’t have an extra where you show that you’re concerned about someone other than yourself, I think that that’s a real red flag for many admission officers. So a lot of this thinking is very much reflected in some of the decisions that admission officers are making at the schools and that applicants are rising to out of their own personal interests. Yes, but also out of their personal self interest to get into business school. Am I over exaggerating this?

[00:16:06.480] – Caroline

I was just going to say that INSEAD, for example, is definitely taking that into account and that is a shift in their admissions policy, right? So over the last couple of years they have decided to look at whether the candidate has had a positive impact in some way. Not just achieve great things for their own benefit, but have they in some capacity. And it could be, as you say, it could be in their extracurriculars or it could be in their day job or it could be in their family or there’s so many different ways they could do that. But they are explicitly looking for students who have had a positive impact, and that is a change and that is not unique to in CED. And some schools actually have questions in their application that relate to what positive impact you’ve had trying to tease out those stories from the candidates. So I think it’s definitely something that has changed over the past few years.

[00:17:06.000] – John

Yes, true. And Murray, I’m sure you see this in some of your clients and folks who make use of applicant lab.

[00:17:14.370] – Maria

I do. However, I have a slightly more cynical take. I think that some people will only do the tutoring of the needy and working for the homeless shelter because they know it will benefit their business school application and not because it comes from a place of genuine interest. And in fact, I think it’s gone a little too far where now I see people sometimes applying with a career vision, let’s say that is, I’ve been working in private equity for the past five years, but now I want to do sustainable impact investing. And I’m like, but you’ve never done it? Like no. Like, people feel there’s this kind of rumor out there that you have to be you have to be this amazing do gooder to get into business school when I don’t necessarily think that’s true. I think someone who has been very as long as they’re not overtly evil, someone who has been extraordinarily accomplished, will still get into business school even if they haven’t done a ton of community service. But I think it’s got you know, sometimes it leads to people being a little bit disingenuous in what they choose to do or what they write about in their applications.

[00:18:14.230] – Maria

I would be fascinated to know, and I’m sure this would be like the alumni records people as they track alumni after they graduate, not to give them more work to do, but if they were to track people based on what they wrote in their applications. And the people who say like, yes, I have been doing financial literacy in my spare time, so now I want to leave Goldman Sachs and INSEAD launch a financial literacy social enterprise, like, do they actually do it? Do they continue with volunteering after they graduate from business school? Do they ever go back? That’s just my own little that’s my slightly cynical take on it. However, my non cynical take is, look, even if somebody does something good like tutoring an underprivileged child, even if they do it for the wrong reasons, hopefully it at least exposes them a little bit to something positive. It puts a little spark like the Grinch. We’re approaching Christmas season, so like, approaching a little thing for the Grinch’s heart in the longer term. And my non cynical take on this is that my hope is that with this current generation, with these schools offering more emphasis on things like ESG, that as people go out into the business world, yeah, maybe they’re going, to go into consulting and banking and what have you, but as they rise through the ranks, that they will keep these lessons in mind, and then when they get into positions of power, they will be able to start to affect some of this change.

[00:19:36.260] – Maria

Because I feel like if all of the business school graduates end up joining the environmental nonprofit, it’ll just be a marginalization of those people because the narrative is just going to be like, well, you’re just a bunch of whining hippie. And in terms of actually implementing changes, I mean, I think one of the things that’s been really interesting is seeing over the past couple of years when, for example, when certain environmental regulations were rolled back, I believe some major corporations said, you know what? We don’t care. We’re still going to go, even though under a certain president that we have some environmental regulations. I think some companies said, look, even though technically, legally, we no longer have to abide by some of these decarbonisation goals that we had, but we’re still going to do that. We are still going to continue to try to hire diverse candidates and give people from different backgrounds a chance, et cetera, et cetera. So I am cautiously optimistic that as long as the companies start doing it and start sticking to their guns on that. And so if today’s graduates, maybe, yeah, they do go to banking for a few years, but maybe 20 years from now when they’re the MD of that bank, they can then say, you know what, guys?

[00:20:45.960] – Maria

Here’s how we’re going to change our recruiting process, and here’s how we’re going to change it. So I also think that if all of those folks were to go to join nonprofits and social enterprises that no change would ever happen. I’m cautiously optimistic that the students of today will eventually hold onto these lessons, even if they don’t immediately apply them, that at least when they get into positions of power, they at least keep them in mind.

[00:21:10.800] – John

Yeah, look, no question about it. Exposure to these topics is a good and positive thing. And you’re right. Even if people aren’t going to go and immediately do good in the world, in the sense that they’re doing things that maybe don’t have a profit motive, it’s still important for them to see the implications of the decisions that are made in business on a regular basis are good and bad. There’s one sentence in the story in the New York Times which I think is pretty interesting because I think it does sum up this topic quite well. It says many of the students taking courses about challenging capitalism aren’t letting those big classroom questions overtake the ambitions that landed them in business school in the first place. I think we can all agree with that. But at the same time, it’s a positive that these schools are understanding their need to educate future leaders about ESG initiatives, about social, the important climate change and its impact on business, about diversity, inclusion. All the topics that a lot of people are very much concerned about these days. And the fact that the schools are responding to these demands for increased exposure to these topics, I think, is a really positive outcome.

[00:22:37.230] – John

All right, then. This is John Byrne with Poets and Quants. You’ve been listening to Business Casual with my co hosts Caroline Diarte Edwards and Maria Wich Vila. Thank you, Maria and Caroline, for your contribution today and for all of you out there. Thanks for listening.