BiGS Actionable Intelligence:
Andy Hoffman, a professor of sustainable enterprise at the University of Michigan who has taught MBA students for nearly 30 years, recently presented his research on MBA education to Harvard Business School faculty. Hoffman spent a year as a visiting fellow at the school’s Institute for Business in Global Society writing a book that Stanford University Press will publish in early 2025 called “Business School and the Noble Purpose of the Market: Correcting the Systemic Failures of Shareholder Capitalism.” The BiGS team sat down with him to discuss his thoughts on how business schools can do better at equipping future business leaders with the knowledge and skills they need to tackle complex societal issues like climate change and income inequality. The transcript has been edited for length, clarity, and style.
Why is shareholder capitalism faltering?
Today’s environmental and social problems are systemic breakdowns caused by capitalism and capitalism doesn't seem to be able to solve them. The bottom line is we have a system that is not serving the needs of the 21st century and it is time to amend it. Business schools need to play a role in that process and help students learn how to be stewards of the market and fix it.
What evidence do you see of a systematic breakdown?
Beyond growing inequality and climate change, some economic metrics show that shareholder capitalism is faltering. For example, the whole idea behind shareholder capitalism was to align the incentives of the CEO with the interest of the corporation. And yet, over the past 20 years, CEO pay has gone up 1,460%, eight times more than corporate profits. Total factor productivity has gone down compared to the era of capitalism that preceded shareholder capitalism. I could go on. The bottom line is we have a system that is not serving the needs of the 21st century and it is time to amend it.
What is the problem with current business school curricula?
Today, we teach that the shareholder is the purpose of the firm. That is not the whole truth and it leads to short-term problems and misaligned incentives. We teach that the government has a limited role in the market. That's not true, either. We teach that nature has no value other than as a resource to feed our supply chains. These are all leading us in the wrong direction. The idea of dropping an elective into a curriculum that teaches these kinds of ideas just won't work. We have to think about the curriculum as a whole if we're really going to deal with the systemic issues of climate change and income inequality.
How would you change the MBA curriculum?
We need to teach people how to run successful businesses. But we also need to teach them to run businesses that serve a broader purpose to help us live our lives. We want to have a society that serves everybody and not just the elite few, which is presently what we have. How do we encourage those students to become stewards of the market, to learn more about the role of government in the market, and to start to think about what their purpose in business is? I recently began teaching a course on management as a calling and I'm finding students resonate with this.
Why is it important for business education to incorporate discussions about win-lose scenarios alongside traditional win-win scenarios?
Business schools around the world are starting to focus on climate change. They're doing this primarily by dropping an elective into the rest of the curriculum, but the curriculum stands unchanged, focusing primarily on win-win scenarios. The idea, for example, is that we can simply develop another product or another service and get rich while solving climate change.
It’s not that simple. Some very difficult questions have to be addressed if we're going to deal with this issue properly. For example, how do you carefully and justly sunset the fossil fuel industry? The idea that we're just going to come up with a new source of energy and the fossil fuel industry is just going to pass away certainly won't happen in the time necessary for it to happen.
What other kinds of changes would you like to see in business education?
We need to break down the siloed approach to various disciplines like marketing, finance, accounting, and strategy and start to think systematically about the business as a whole. We need to teach students how to manage the power that they will one day possess wisely to serve society and protect the environment.
We also need to start to rethink the role of government in the market, the role of business in policymaking, and the true purpose of the firm. These questions have been engaged by numerous groups, such as the World Economic Forum and the Business Roundtable, but business schools now need to step into the debate.
Why is the role of business in society so important at this moment in time?
The questions right now go to a fundamental level. How does business serve society? What is the next variant of capitalism that will replace shareholder capitalism? These are the deeper questions we need to be asking in business schools because the answers to those questions will guide us into the kind of capitalism that will serve society in the 21st century.
Students are way ahead of us. Numerous opinion polls with Gen Z responders show they are quite concerned about issues like climate change and income inequality, and they want business schools that respond. They see the flaws in capitalism, and they want to roll up their sleeves and solve them. We need to provide them with the tools to do that. They are starting to agitate, they're a little frustrated and they want faculty to guide them.
I want to fix the institution because I love the institution and see how much it has to offer the world. I think if we can all come together and recognize the problems, we can fix them.
I see the opportunity right now. I have not seen this much attention on sustainability among students and businesses. I have never seen so many jobs with the word ‘sustainability’ in them. Companies are scrambling to try and figure this out and young people are coming to them saying, ‘We want to help you figure it out.’ Business schools need to give them the tools to do it.
What do you see as the biggest challenges to evolving business schools?
The obstacles to doing this are enormous. The inertia is enormous. Three things are standing in the way:
The rankings. The rankings have a very pernicious effect on stifling innovation because everyone's chasing the same set of metrics to look like Harvard Business School when they should be allowed to have more variety. We now have a monoculture of business schools.
The reward system. Faculty are rewarded for research. Teaching is important, but at the end of the day, it's coming down to research that decides how you are rewarded at the end of the year, and that drives faculty in a direction that minimizes the value of teaching.
The institutional challenge. The entire institution of business education has to change, from schools to journals to donors to recruiting, to you name it. One school could try and change the reward system and say, ‘We're going to follow a different metric,’ but that would be risky if it causes a drop in the rankings.
Are you at all optimistic about whether you’ll see significant change?
It's a question I'm asked often and it's a difficult question. I like to think about it as the difference between optimism and hope. Optimism is looking at the odds and saying they're in my favor. Hope is ignoring the odds and doing it anyway. I am hopeful because I see a growing number of students who want to focus on these issues. But we need to provide the tools to do it.