The Social Responsibility of Business Schools

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Tuesday, January 4, 2022
By Colin Read
Photo by iStock/dolgachov
Today’s business students care about environmental, social, and governance issues—which means business schools must incorporate ESG into the curriculum.

Just over half a century ago, The New York Times created a firestorm when it prominently printed a controversial article by future Nobel Prize laureate Milton Friedman. The premise of “The Social Responsibility of Business Is to Increase Its Profits” was that there was no room for social responsibility in the boardroom. According to the good professor, such concerns were best left to government and democracy. The job of boards of directors was to represent shareholders—and shareholders demanded profits. 

Fifty years ago, the world was moving fast in its post-WWII reconstruction. Decolonization worldwide and the Civil Rights movement in the U.S. demonstrated that governments would need to provide for the people if corporations did not. In the U.S., expansion of social welfare nets, the adoption of environmental protections, the thawing of Cold War relations with Russia, and Richard Nixon’s historic visit to China allowed product markets to expand and corporations to focus on Friedman’s pursuit of profits. Meanwhile, burgeoning governments worldwide addressed social issues.

That was then. This is now. A new pathway for social change has opened up as members of an increasingly aware and concerned public grow skeptical of the ability of public sector institutions to recognize and operationalize their values. Now, corporations are expected to be part of the solution rather than part of the problem. 

The environmental, social, and governance (ESG) movement is sweeping through corporations and business schools alike. The new attitude flips Friedman’s assertion on its head. The new headline might be, “To Increase Profitability, Businesses Must Be Concerned About Social Responsibility.”

ESG in the Financial Field

As a board member for a NASDAQ 1000 bank, I can attest that ESG is now the drumbeat of the conferences and webinars I attend. Leading banks have created ESG committees that report directly to their boards of directors, and other financial institutions also are showing sensitivity to social issues. For instance, one bank is run by women and focuses on their particular career and family needs. Another bank will plant a tree each time its customers use its ATMs. 

Today’s credit unions and insurance companies cater to interest groups aligned around military service, union membership, and other indicators of shared values. Some banks now actively seek commercial borrowers who are proposing ESG-related projects such as solar and wind farms. Meanwhile, major banks are working together internationally to stop extending credit to coal-fired power plants. 

A potential customer who must choose between banks that offer similar rates and services might opt for the institution that has solar panels on its building.

At business schools, we well understand why financial institutions would employ these kinds of strategies. We know that, in an era of product commoditization, a company needs an attractive brand that sets it apart from its competitors. A potential customer who must choose between banks that offer similar rates and services might opt for the institution that has solar panels on its building or provides credit to the underserved or favors projects with a sustainability focus.

Therefore, it makes sense that some banks seek to cultivate brand loyalty by appealing to the public’s environmental, social, and governance concerns. This strategy is not entirely new. Fifty years ago in the Pacific Northwest, the motto of Peoples Bank was “A member of the FDIC and the human race.” The difference is, 50 years ago, that attitude was rare. Today, such examples proliferate.

The Three Aspects of ESG

Some corporations are developing ESG programs out of a sense of frustration that our public institutions are failing to address mounting societal problems. Other companies are putting programs in place in response to the growing angst among younger people about the state of our planet.

While the three aspects of ESG are interrelated, they highlight different issues:

Many environmental concerns are related to the troubling scale and acceleration of global warming. While the environmental movement has been brewing since the 1960s, it has grown dramatically over the past decade as each step forward seems to be countered with two steps back. 

Societal concerns focus on economic injustices that have been building since the Great Recession. Now, more than at any time since the Gilded Age, the gap between haves and have-nots has been widening, and the division has been most dramatic in the last few years. Too many families with children are falling into poverty, despite the enormous new wealth that is being created, particularly in the dynamic American economy. 

Governance issues arise from an increased awareness of perceived inequities. More people are coming to realize that, because of their race, too many individuals are not afforded the same access to opportunities, advancement, justice, and the ballot box. Recent regressions in combating oppression were moved to the forefront by the Black Lives Matter movement. Facebook and YouTube ensured that many of these instances played out in real time.

As customers have shown greater interest in these issues, companies have responded with initiatives that address each one. I have no doubt that many incredible ESG efforts by corporations are sincere, although it is possible that some may be cynical attempts to increase profits. To an economist, that’s a distinction without a difference. Whether or not programs designed to enhance ESG are genuine, they still move the ball in the right direction. 

ESG at the Business School

Just as corporations are now expected to produce great products and exhibit good public policy values, business school faculty are expected to excel at teaching and research and use their expertise to make the world a better place. In fact, AACSB makes that premise explicit in Standard 9 of its 2020 accreditation standards. It states: “Business schools and business are a force for good in society. Through their activities, schools have the opportunity to make a difference to society and to address significant issues at a local, national, or international scale.”

Standard 9 was prescient, because it provides an excellent inspiration for schools to incorporate ESG values into their curricula. But there is another reason for business schools to do so: Today’s young people have a heightened awareness of ESG values, and they demand that their acute concerns over climate change, diversity and equity, and social justice be integrated with their work lives and consumer choices. In fact, many young people now consider their activism to be more important than their careers.

Many of today’s students will choose universities based in part on the way these institutions sincerely articulate and implement ESG.

Therefore, many of today’s students will choose universities based in part on the way these institutions sincerely articulate and implement ESG. Some students will decide to attend a university because its buildings are constructed to meet LEED standards. Others will consider the way a school runs job fairs, how it deploys diversity initiatives, and whether it offers scholarships that enhance economic justice. Students want to know whether faculty lend their expertise to local governments and leading-edge corporations. They want to know who sits on the boards. They even want to know about a school’s bottle drives and recycling programs.

Students definitely will look at the way a business school integrates sustainability into the curriculum. That’s something we’re very aware of at the School of Business and Economics at the State University of New York Plattsburgh, where I formerly was dean and currently teach. For instance, I developed a course on sustainability, and for the next academic year I am expanding its curriculum around the ESG paradigm.

Other professors at our school are also addressing ESG issues inside and outside the classroom. To satisfy Standard 9 as part of our reaccreditation process, we requested that faculty list activities beyond their teaching that address societal needs. We had a modicum of responses, so we reframed the question around the ESG paradigm.

We asked faculty in what ways they use their professional training and stature to enhance the environment and contribute to a more equitable and harmonious society, and whether they volunteer locally, nationally, and internationally in organizations that improve access to the government and its programs. At this point, responses to our Standard 9 questionnaire blossomed fivefold. Often, the biggest challenge is in recognizing what we already do. 

The Next Generation

The schools that will pique the interest of the next generation of students are the ones that focus on ESG efforts, whether through corporate partnerships, values statements, or the sorts of activities outlined in Standard 9. Our success is more dependent than ever on the diversity of thought fomented by diversity in our programs, our faculty, and our student body. For this reason, business schools are becoming much more sensitive to the need to develop leaders and cultivate faculty who represent the broad spectrum of humanity.

A friend of mine often says “When people lead, our leaders will follow.” Shifting public concerns and evolving attitudes in the boardroom have led to corresponding changes in our faculty rosters.

When people buy products today, they are also purchasing a set of values. Many purchase Apple computers or Patagonia jackets because, as consumers, they subscribe to the values these corporations espouse. Likewise, young people will choose business programs for reasons that are greater than the sum of the parts of the curriculum. They want to join with their schools in making commitments to improve private markets and make the planet more sustainable.

Business schools are increasingly aware that we are, first, members of the human race, and then we are institutions. Perhaps, if Milton Friedman were still alive, even he would now agree.

Authors
Colin Read
Professor of Economics and Finance, School of Business and Economics, State University of New York Plattsburgh
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