Issue link: https://www.e-digitaleditions.com/i/61383
EXEMPLARY CORPORATIONS ARE ENHANCING THEIR COMPETITIVENESS BY DEVELOPING A CUSTOMER-FOCUSED SENSE OF PURPOSE THAT EMPLOYEES VALUE AND FIND PERSONALLY MEANINGFUL. allegiance is, legally and morally, to the shareholder, senior managers often establish boards dominated by management-approved directors. They align themselves with the most docile major stakeholders, often composed primarily of financial insti- tutions more willing to sell their shares than to invest energy in influencing management's actions. These factors set managers free to use their presumably inviolable responsibilities to shareholders to deflect any criticism of their actions and increase their autonomy from more troublesome constituencies. Business schools and corporations must reverse this trend by exorcising the destructive cult of shareholder extends well beyond business school indoctrination. It provides a simplis- tic rationale for many of manage- ment's questionable actions. Its moral justification is, in essence, that "greed is good." It promotes the outdated assumption that financial capital, not human capital, is the pri- mary source of any organization's competitive advantage. At its founda- tion is the belief that the pursuit of shareholder wealth (which many equate to "personal happiness") will put financial capital to its best use and thus create the greatest hap- piness in society. Undoubtedly, some corporate managers have used this argument to pressure outside audi- tors into approving questionable accounting practices. After arguing that their overriding responsibility against another. There is always one answer: Act in the shareholders' interest. For faculty, this belief simplifies the world suffi- ciently to allow them to develop elegant, tightly reasoned theories, uncluttered by business realities. The tenacious power of this faith enhancing their competitiveness by developing a customer-focused sense of purpose that employees value and find personally meaning- ful. Consequently, these companies are realizing the considerable power that lies within their own employees' commitment, imagination, and aspi- rations. More managers are recog- nizing that in a knowledge-based, increasingly competitive, global economy, the shareholder-wealth ideology is unlikely to win in the long term. It neither promotes competitive advantage, nor unleash- es human creative potential. To respond effectively to these change. Corporate governance has been strengthened and transparency increased by recent legislation, more strict enforcement, and public out- rage. Today, students and managers alike more readily question the effi- cacy of a shareholder-focused pur- pose. Strategic pressures are forcing a shift to knowledge-based competi- tive advantages and away from capi- tal, to customer interest and away from all-encompassing shareholder interest. Exemplary corporations are realities, what is required of business schools is not marginal change in curriculum, but a transformation. Business schools should begin with the recognition that, while they can- not teach moral courage, they can provide students a coherent path to developing their own well-grounded philosophies of management. They wealth maximization and return to a venerable, central truth—that pro- viding value to customers is an orga- nization's raison d'être. This is a guiding philosophy that leads a com- pany to lasting competitive success, as leaders of great companies know. Fortunately, the time is ripe for tion is the recognition that manage- ment is as much an art as a science— a liberal art that encompasses the humanities and the social sciences. Management education needs to overcome its insularity. Its faculty need to reassess the philosophy of management underlying their research and teaching—beginning with a corporation's primary pur- pose. In the end, some professors might not advocate a customer- focused corporate purpose, but their teaching still should be open to other options. Only then can they help students appreciate the social, economic, and practical implications of the alternatives. The prevailing view of corporate can do so by broadening and deep- ening students' understanding of the world, human aspirations, managers' responsibilities, and the true sources of competitive advantage. Fundamental to this transforma- purpose in America is under com- petitive attack. The stakes are high. The outcome will determine the nature of 21st-century capitalism and which companies will survive. The question for business schools and corporate leaders is, how can they influence that outcome? One answer lies in how they influence their students' and employees' beliefs about the corporation's primary purpose. Those beliefs will determine not just the moral quality of their actions as managers, but the very future of their organi- zations and their nations. ■ z Richard R. Ellsworth is professor of manage- ment and co-director of the Institute for Advanced Studies in Leadership at the Peter F. Drucker Graduate School of Management at Claremont Graduate University in California. BizEd MARCH/APRIL 2004 67