As the purpose of for-profit firms moves away from shareholder capitalism, the purpose of business schools - and business school rankings - must move with it.
Some say that business school rankings are to the deans of business schools what share prices are to the CEOs of publicly listed corporations. Both measures provide leaders with single aggregate scores that indicate the “success” of their organisations. And both exert immense, and some would argue disproportionate, influence on how business and academic leaders arrange and conduct their activities.
The role, reliability, and results of business school rankings have been much discussed, so I do not want to rehearse here the now familiar arguments about their contributions and deficiencies. Instead, as both an academic and the former dean of the Oxford University’s Saïd Business School in the United Kingdom, I want to ask more fundamental questions: What is the purpose of business school rankings? Why did we create them? What is their current reason for being? And, most important, where do we go from here?
We measure what we valueThe rankings’ most straightforward reason for being is to provide summary measures of the performance and success of business schools. But an institution’s success can be evaluated only in comparison to its objectives. Therefore, we cannot discuss the objectives of business school rankings without also discussing those of business schools.
Such a discussion is not straightforward - partly because views on this topic differ appreciably both within and outside business schools, and partly because different schools prioritise different activities. Some focus on producing scholarship; some on teaching leaders in an international context. Some are more concerned about their relevance to corporations; others about their relevance to local communities, society, and the environment. Some view themselves in the context of their parent universities; others, in the context of their relationships with business organisations and government agencies.
What makes it possible to use stock market value as a single aggregate measure of corporate performance is the shared view that the single purpose of public companies is to provide value to shareholders. But the same is not true for business school rankings, because business schools have no equivalent single objective. The missions of even a homogeneous subset of institutions - for example, internationally focused schools - might vary substantially.
Nevertheless, in the past, the comparison of rankings to stock prices has helped clarify the objective of business schools. If most companies were primarily concerned about promoting their financial value, it made sense for business schools to be concerned with producing research and designing curricula that helped companies achieve that objective. It then also made sense for the rankings to evaluate business schools accordingly.
However, we now know that there is a problem with this reasoning. It’s a problem that demands that we change how we measure our success.
Predictable resistance to changeOver the last few years, a substantial body of thinking has emerged arguing that businesses should do more than create shareholder value. New business models suggest that companies focus on issues related to corporate social responsibility; sustainability and sustainable finance; purpose-driven business; stakeholder capitalism; and environmental, social, and governance (ESG) issues. Therefore, business schools must expand their missions to accommodate this new way of thinking.
In response to this shift, many business schools are incorporating topics associated with the responsibility and sustainability of business in their core disciplines. Additionally, academics in every field - from accounting to strategy - are broadening their research to focus on sustainability and societal impact.
But this enlightenment also has led to immense confusion. Whereas the previous emphasis on shareholder value was precise and clear, the new agenda appears to be all things to all people, and therefore nothing specific to anyone in particular. As schools work to embrace societal impact, there has been a predictable backlash from critics who say that such a focus is “fuzzy” or “flaky.” Ideas such as sustainability and societal impact, they argue, do not provide a sound basis for guiding the teaching of business or for shaping the conduct of business leaders.
What might alarm those calling for the transformation of business is that those resisting the transformation of business education have a point. To date, management education has not provided a sound approach for reforming business practices or pedagogy. In fact, the world’s increasing complexity does not mean that we should abandon the idea that businesses should maximise shareholder value.
It does mean, however, that we need an alternative conceptualisation of business to reflect current realities.
A shift to a modern viewWhat that alternative should be is precisely what I set out in my forthcoming book Capitalism and Crises: How to Fix Them. There, I assert that those who call for the reform of business must also appreciate that financial and material gain have been - and will continue to be - fundamental determinants of human behaviour.
Therefore, reforming business and finance will never be achieved simply by expanding the list of objectives that comprise an organisation’s reason to exist. Instead, it will be achieved by aligning financial and material gain with those new objectives.
In other words, we must show how making a profit and achieving financial value gain are consistent with the promotion of the well-being of humans, society, and the natural world. If we do not show evidence of this link, most businesses will not address the problems we see in the world.
But once we gain consensus that making this connection is not only necessary, but possible, we will simplify how we view both business and business education. The focus of businesses on profit and value creation is not wrong - but only as long as everyone recognises that value creation must be derived from promoting, not diminishing, the well-being of others.
Same purpose, different pathwayUnder this updated view of capitalism, topics such as sustainability and societal impact are no longer fuzzy or flaky - they are essential to the internal management and external environment of any business. As a result, they also are essential to business school research and curricula. Business schools still can focus on helping companies maximise profits, but in ways that align profit and financial value with environmental and societal concerns. Schools must ensure that students learn management and investment practices that are most associated with this outcome.
This understanding provides an agenda for business school education and research that is as precise, focused, and consistent as anything that currently exists, while encompassing our concerns about the role of business in society. This understanding also means that business school rankings should evaluate schools by how well they help businesses derive success from enhancing, not harming, humans and the natural world.
In short, we do not need to redefine the purpose of business and business schools as much as we need to redefine how they achieve that purpose. This idea has broad implications that could reshape the practices of both the rankers and the ranked alike.
Colin Mayer is Emeritus Professor at Saïd Business School, Visiting Professor at the Blavatnik School of Government, Oxford University.