Training Leaders to Manage Societal Impact

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Wednesday, November 9, 2022
By Ernie Cadotte, Bindu Agrawal
Illustration courtesy of Marketplace Simulations
How business schools can offer students more opportunities to manage a firm’s societal impact—and become more conscious leaders.

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  • With the emergence of societal forces such as the United Nations’ Sustainable Development Goals, business schools need to develop conscious business leaders who emphasize purpose over profits.
  • Simulations can help students look beyond traditional business metrics to see the cause and effect of their decisions on stakeholders, practice managing societal impact, and understand how conscious capitalism works in a firm's day-to-day operations.
  • The more business schools expose students to conscious capitalism, the more students will understand that businesses can actually increase their profits by becoming forces for good.

 
In 2020, AACSB set new standards that placed greater emphasis on training future business leaders to take responsibility for the effects of their firms on all stakeholders. According to Caryn L. Beck-Dudley, president and CEO of AACSB International, “The new standards are principles-based and outcomes-focused … and serve as a higher calling to the purpose of business schools to make a difference in the world through positive societal impact.”

AACSB’s action coincided with several forces that have emerged over the past 30 years. These include a rise in conscious capitalism, social entrepreneurship, and socially responsible investing; an increase in businesses adopting environmental, social, and governance (ESG) policies; and a greater emphasis on the triple bottom line of people, profits, and planet. The United Nations provided additional benchmarks when it established the Principles of Responsible Management Education (PRME) in 2007 and the Sustainable Development Goals (SDGs) in 2015.

In 2018, Blackrock CEO Larry Fink released a letter in which he presented “a new model for corporate governance” and called on companies to focus on purpose, not just profits. Then, in 2019, the Business Roundtable, an association of CEOs, issued a statement that redefined the purpose of a business to include delivering value to all stakeholders. Today, 90 percent of S&P 500 firms publish ESG reports, and investment research firms such as Morningstar provide sustainable environment indices that highlight companies with low environmental impact.

Together, these forces are influencing business education. When the two of us conducted a review of 220 of the 541 AACSB-accredited programs in the U.S. (both in business and in business and accounting), we found that two-thirds have societal impact provisions in their missions, visions, and values statements. Consider the sampling of such provisions below:

  • Wake Forest University advocates that “well-led businesses, while creating sustained value for themselves, can and should make the world a better place.”
  • University at Buffalo aims to “produce principled and insightful leaders who create positive change in the world.”
  • St John’s University promises to produce “graduates [who] will be known for ethical leadership benefiting all stakeholders.”
  • DePaul University wants to “develop socially responsible business leaders.”
  • Santa Clara University “cultivates ethical business leaders who transform the world.”
  • Florida State University wants to “help build a better society through the creation of ethical, sustainable business solutions.”
  • Clemson University “develops bold leaders who will positively and responsibly impact society.”
  • Bentley University holds that “businesses can make a profit and a positive difference in the world, at the same time.”
  • Belmont University “prepares entrepreneurial, ethical, and socially responsible future business leaders.”
  • The City University of New York makes a “commitment to social responsibility.”
  • Auburn University is “dedicated to … diverse business thought and sustainable business practice.”

These are lofty goals, but many administrators and educators are struggling to implement them in business curricula. Simply telling students to be part of the solution will not serve this purpose. Being a conscious business leader is far easier in principle than it is in practice.

One way educators can produce more conscious leaders is by teaching students values-based decision-making. That is the objective of the Conscious Capitalism business simulation offered by Marketplace Simulations. This educational tool is a collaborative effort between Raj Sisodia, a founding member of the conscious capitalism movement, and Ernie Cadotte, founder of Marketplace Simulations and co-author of this article.

In the simulation, players must consider all the firm’s stakeholders as they manage the typical challenges of running a business. To date, nearly 60,000 students and executives have participated in the Conscious Capitalism simulation. In the process, they have benefited from the power of simulations to engage in deeper learning.

Why Conscious Capitalism?

What distinguishes conscious capitalism as a mental framework is its focus on four elements that determine an organization’s societal impact:

Higher purpose. While making money is essential for a business’ vitality and sustainability, the most important reason a business exists is to establish a purpose beyond profit. By focusing on its deeper purpose, a conscious business inspires, engages, and energizes its stakeholders. Employees, customers, and others trust and even love companies with an inspiring purpose.

Conscious culture. Culture is the embodied values, principles, and practices that permeate the social fabric and actions of a business. A conscious culture fosters love, care, and inclusiveness and builds trust among stakeholders; it connects stakeholders to each other and to the company’s purpose, people, and processes. Conscious culture is an energizing and unifying force that brings a conscious business to life.

Conscious leadership. Conscious leaders focus on “we” rather than “me.” They foster transformation, inspire others, and bring out the best in those around them. They understand that their role is to serve the purpose of the organization, support the people within it, and create value for all stakeholders. Most important, they purposefully cultivate conscious cultures.

Stakeholder orientation. Conscious leaders understand that conscious businesses are healthy, sustainable, and resilient. They know that embracing conscious capitalism presents a win-win proposition that optimizes value for stakeholders and generates a healthy return to shareholders. These leaders also recognize that without a life-sustaining ecosystem that benefits employees, customers, suppliers, funders, and communities, there is no business.

The Game Scenario

To develop the simulation, Cadotte studied conscious capitalism for two years—he attended conferences on the topic, read and listened to stories by leaders who lived its precepts, and interviewed many of these leaders himself. In time, he realized that conscious capitalists could not be defined by a single action or a few good deeds. Rather, these leaders are shaped by thousands of decisions and actions that are driven by a sense of purpose and caring for all stakeholders.

This realization enabled Cadotte to develop a simulation where players must deal with a range of societal dilemmas. These dilemmas can have different consequences for markets, human resources, product quality, financial outcomes, and society—the nature of these consequences depends on the decisions students make.

In the simulation, student teams are provided with the seed capital to start up a business selling 3D-printed, carbon-fiber bicycles. These bicycles are light, strong, and affordable; because they are 3D-printed, they can be customized to each customer’s physical and performance requirements.

With the help of a highly contextualized computer model of the firm, students investigate various business scenarios and outcomes. As they make difficult decisions about how to allocate limited resources and consider competing priorities, they experience conscious capitalism in the day-to-day functioning of a business. They must strive to strike a balance between “doing well” through profit maximization and “doing good” through socially conscious business management.

For example, they must determine which is the greater responsibility, protecting their workers and neighbors from harmful chemicals or creating more wealth for company owners? Which is better, to engage and involve employees in decisions or generate more profits for the company? In such seemingly “either-or” dilemmas, the Conscious Capitalism simulation demonstrates that both possibilities are achievable.

As they lead the simulated business, students discover that leaders do not have to wait until the business is financially well-off to consider the welfare of employees, customers, suppliers, the environment, and the community. Students learn that conscious capitalism is not just socially responsible—it also is a profitable business model that can generate wealth.

Using Scorecards to Measure Success and Consequences

The striking feature of this simulation is that many of the metrics for conscious capitalism are the same as normal business metrics. Players use the traditional balanced scorecard to consider measures of success such as marketing effectiveness (customer satisfaction), human resource management (employee compensation satisfaction, morale, and turnover), reputation among stakeholders, manufacturing productivity, market performance, investments in the future, financial risk, financial performance, and wealth creation.

It is the players’ responsibility to understand how their decisions impact each metric, as well as how they can strengthen their business acumen and analytical skills to improve their performance.

In addition to the balanced scorecard, the simulation also includes a conscious capitalism scorecard. This ensures that players track, monitor, and address conscious business metrics in their business decisions. As we know, “What is measured, gets managed.”

At the outset of the simulation, players can indicate what kind of corporate culture they would like to adopt. For example, one team indicated that, among other objectives, they wanted to build a culture where they earned customer trust every day, acted with integrity, treated everyone fairly, built strong relationships, and delivered value to all stakeholders.

In the game, the conscious capitalism scorecard displays all opportunities players could have acted on in a conscious manner. Players receive green checkmarks next to their positive actions (such as improving the company’s environmental footprint, empowering employees, or improving employee health and supplier relationships). They receive red X’s next to their failures to fix conditions that harm employees, customers, and the community. Their final scores represent the number of their positive actions minus their failures to act.

Both students and their professors can use the balanced and conscious scorecards to track student performance over the course of the exercise. These results can have even greater impact when students take time to reflect on their performance and receive feedback from an instructor or business coach.

Whether or not professors use simulation results as part of the course grade, the simulation helps engage students in adaptive learning. The experience supports the feedback loop that underlies the theory of experiential learning.

‘The Most Powerful Weapon’

Nelson Mandela said, “Education is the most powerful weapon you can use to change the world.” If we want to change our ways of doing business, we must take responsibility to inculcate a caring mindset in future business leaders. Unless business schools make a deliberate effort to teach conscious capitalism, students might never know that this model can create dividends even greater than those generated by concepts traditionally taught in business classrooms.

Here are just three examples of how such exposure can improve students’ understanding and implementation of conscious capitalism:

  • In a recent Conscious Capitalism Competition hosted by the Association of Indian Management Schools, the members of one of the winning teams noted that, because their business educations trained them to focus on maximizing earnings, they were uncertain how to turn their desire to do good into real-world business practices. They said that their participation in the Conscious Capitalism simulation game helped them better understand and manage the tradeoffs between maximizing profits and doing good for all stakeholders.
  • Bindu Agrawal, a co-author of this article, offers another example. One of her students thought that conscious capitalism would not make sense if it decreased returns to the business owners. He was surprised to see that conscious capitalism helped improve company reputation and increase market share, generating more returns to the business owners. With his perception shifted, he shared his experiences in a debate in the students’ WhatsApp group.
  • In 2017, Denise Linda Parris of Northern Arizona University (NAU) in Flagstaff and Cecilia McInnis-Bowers of Rollins College in Winter Park, Florida, conducted a review of the impact of the Conscious Capitalism simulation on students at NAU that indicated students developed an “empowered intentionality to rethink business as a force for good.”

When students have hands-on experience learning the conscious capitalism business model, they learn that conscious leaders must do more than contribute to charitable causes, meet regulatory requirements, or simply be a good person. They must adopt conscious capitalism as a way of living.

It takes practice to turn this knowledge into actionable skills. It takes even more practice to turn these skills into societal impact. But business schools can provide relevant contexts where students can gain knowledge and apply their skills while managing issues related to societal impact. Simulations provide fertile ground for students to develop into socially conscious leaders.

Authors
Ernie Cadotte
Emeritus Professor of Innovative Learning, Haslam College of Business, University of Tennessee
Bindu Agrawal
Founder of Art of Learning, Adjunct Professor of Entrepreneurship, Manav Rachna University
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