"New MBA questions"
By MTHULI NCUBE
May 29, 2009
Business schools have claimed credit both for the formation of the leadership of business and the architecture of business ideas.
In these troubled times then, surely business schools need to be reflecting on their role in the current financial crisis and in shaping the environment for nurturing future leadership in business. The world economy is going through a "great dislocation" and it is not business as usual.
Consumers have been spending money they don't have (see consumer and household debt levels); investors have been seeking unsustainable rates of return, which involve risk that has neither been properly understood nor effectively managed. Banks, and shadow banks, have been lending recklessly to these consumers and investors. And the regulators have been asleep at the wheel. We have also seen a worsening in the pattern of dis-saving by Western economies - particularly the US and the UK, as evidenced by excessively high personal indebtedness, government budget deficits and current account deficits.
Consumerism has dissolved class interests and solidarity, and changed the face of our economies. Consumerism has also changed the very language of contemporary economics. Consumption is seen as a universal positive. Debt is frequently described as credit. Our values on ethics, leadership and executive reward urgently need review. How are the actions and choices made by business leaders to be measured and rewarded?
Business schools have a role to play in providing answers to such questions. There are more questions than answers. The desire to align the interests of executive management with those of shareholders sounded and sounds a good desire. The use of share options, really a make-believe form of stock ownership with exposure only to the upside, seems in retrospect in need of reform.
Equally the idea that executive reward should vary with the performance of the business is a shibboleth whose usefulness needs to be interrogated. First, we need to ask how realistic this is. How variable is the expenditure column of most executives? Is their lifestyle really restricted only to guaranteed pay, or has it incorporated, often in a recurrent way, total reward? If the latter is true we should not be surprised that performance-linked payment has paid out much more often than not. Is this statistically unusual outcome itself the product of company targets set mindful of executive reward?
A third feature of recent times is the fixed-term contract for executives. Has this promoted short-termism? It is certainly the origin of many generous pay-outs precisely when circumstances have dictated that the incumbent not serve his or her full term. Would not a realistic basic, together with limited discretionary bonuses reflecting the judgment of the board, and without fixed-term contracts, provide a better basis for executive leadership?
Ethics is the way in which people choose between morally significant alternative courses of action. The subject tends to exist only at the periphery of teaching. Leaders in every sphere of society must choose to exercise their power, authority and resources well or badly. The patterns of meaning that provide a context for responsible, "eyes wide open" choice in business should be a core and compulsory part of a business school's teaching.
Indeed the current crisis provides a rich agenda of moral dilemmas. This is the crucible in which business leadership is and will be forged. If it is not to be found wanting, those who claim to teach business should address these issues. This will also require business leaders with courage and integrity. In dealing with these issues, are the world's business schools up to the challenge?
Ncube is director of Wits Business School and president of the SA Business Schools Association. This article is co-written by Eskom chairman Bobby Godsell
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