(From left to right) Dean Thomas F. Cooley discussed the credit crunch and subprime crisis at a Market Pulse event; Cristina Rodríguez, a NYU Law professor, talked about immigration at a Global Issues in Campaign ’08 event; and NYU Stern Finance Professor Robert Engle, Stern alumnus Mark Patterson (MBA ’86), and Stern Finance Professor Edward Altman participated in a Market Pulse panel discussion on the current subprime mortgage situation.


By Thomas F. Cooley and Doug Guthrie

Enron and corruption. Royal/Dutch Shell and the sinking of the Bret Spar and Nigeria's execution of Ken Saro-Wiwa. Nike, The Gap, Global Fashions, and low-wage labor. How does Big Business get past these egregious associations of recent memory? More important: How do we as educators of tomorrow's global business leaders embed the lessons from the past into a values-driven blueprint for the future?

Despite these scandals, the past two decades have seen an ever-more compelling affirmation of the power of free markets and modern business to transform people's lives. The surge in economic well-being across the planet underscores the conclusion that business is perhaps the most powerful institution in society. This by itself elevates the way we must think about the role of business.

Market economies and business are, and will continue to be, forces for good in the world. Rising prosperity leads to improvements in health and education, an increase in the empowerment of women, and, when politics doesn't intrude, the gradual eradication of poverty. It is important to understand this, and equally important to understand the forces that can interfere with it. In a moral society, the logical next step is to accept the social responsibility that comes with progress.

Business schools traditionally kept a narrow focus on maximizing shareholder value. But changes in the global political economy have demanded something more: an obligation to think about the ways in which businesses influence the world. As a school, Stern has always placed the highest priority on rigorous academic research and on the training of the business community's future leaders. Whatever our research tells us about the design of optimal contracts, the incentives in organizations, or the protection of intellectual property, it can never inform us about our values or how to think about our place in the world. Because of this, we have a responsibility to foster a discourse about the role of business in society.

Business education can't “teach” values, but a discussion of values and the social importance of business is an essential and ongoing part of our conversation. How else would the next generation of business leaders grasp the full scope of their action in the business arena and its consequence in the rest of the world?


Beyond Shareholder Value

Nearly three decades ago in The New York Times Magazine, Milton Friedman published his now famous statement of his view on the social responsibility of business and the true purpose of the corporation1. According to Friedman, the issue was simple: corporations have one responsibility and one responsibility alone – to make money. A corporate executive’s only responsibility, Friedman wrote, “is to conduct the business in accordance with [the owners’] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society.” Throughout the 1980s and 1990s, this was the dominant perspective. There were voices pushing back against this view, to be sure. Most famously, Edward Freeman’s “stakeholder” view of the firm argued for a more holistic and socially embedded view of the corporation, one in which corporations are subject to the interests of the many different constituents that hold a “stake” in their operation. Yet, in an era in which finance and economics departments had become dominant forces in many business schools, the shareholder view of the corporation dominated, while the stakeholder view of the corporation was generally ignored.

In the last decade, three major shifts occurred that have influenced the public perception of the role of business in society. First, beginning in the mid-1990s, the high-profile corporate scandals relating to low wage workers and poor factory conditions raised significant – and persistent – questions about the relationship between corporations and the broader society. Corporations, in many cases, continued to insist that they were sheltered from culpability on social issues as long as they met their obligations to shareholders. But the shareholders themselves proved less than convinced, and they began to influence the capitalization of global giants by selling stock and creating discomfort with corporate policies.

orporate scandals hit closer to home in 2001 with the accounting frauds of WorldCom and Arthur Andersen, as well as Enron and other economic giants at the heart of the US economy. With the declining value of so many US corporate icons, the role of the corporation in society became impossible to ignore. It was clear that the argument for shareholder accountability did not hold water and that corporate leaders, in a rush to short-term profitability, had lost track of the very values that made a company seem like a good investment. Further, as the blogosphere took shape over the past five years, shareholders became armed with more information than ever. Shareholder demands for corporate accountability led, among other things, to stricter government regulation – an indication that corporations did not exist in a vacuum but had to perceive themselves as actors in a broader social landscape.

The third issue that has emerged is a sea change in the public consensus on environmental issues. Scientists’ warnings about global warming forced investors and companies to realize that their activities – whether burning fossil fuels or clear-cutting rain forests – had a direct impact on the social good, a social good that implicated not just corporate leaders but their shareholders just as much as anyone else. The values proposition suddenly began to have very direct relevance to corporations.

"At Stern, we embed the issues into the classroom, create top-flight research centers that produce state-of-the-art knowledge about important topics, and then become the venue in which the expertise is translated for the public."

How can business educators respond to this changing landscape? Business schools have a unique responsibility. We are entrusted by society with the culture of an extremely influential profession, and we have a responsibility to reinvigorate it through the education of each new generation. We especially have a fiduciary duty to the truth, not to the bottom line, and we are the last stop where individuals will wrestle with these issues before their professional lives begin. How, then, does this change or broaden the discussion in our schools?

For one thing, as researchers, our professors are some of the very individuals who are pointing to the larger costs of an insular corporate culture. We are, therefore, in a very good position to argue that the values debate is, and will continue to be, at the center of business education. We can, and do, also provide ample opportunities for our students to make up their own minds about how profitability should be assessed and about how their individual careers will mesh with the broader social good.

Yet we are also at the very center of a much larger conversation about business and society. Carrying out business in an effective and responsible way is about maximizing shareholder value in ways that are ethically, morally, and legally defensible, and business schools are in a unique position to grapple with and influence the conception of these issues.

How do we tackle such big issues at the Stern School?


Business-Society Initiatives at Stern

At Stern we promote the dialogue about business and society both through the curriculum and as a place where the issues can be joined in public. From the earliest stages of their business education, students are asked to consider how business operates in the broader society. At the undergraduate level, our course on Business and Its Publics is a required offering unique to the Stern School. Prominent speakers address a plenary session, and then the class is broken down into small discussion groups. A course like this is transformative. Students who want an undergraduate business degree because it is the pathway to a good job come to realize that their role as future business leaders will require them to think more broadly about their goals and accomplishments in the business world.

At the graduate level, Stern pioneered the MBA course in professional responsibility that is a requirement for all MBA students. Long before the need for such courses was obvious to the business world, the Stern School understood how necessary it was for future business leaders to grapple with some of the broader ethical dilemmas that they would face throughout their career.

ur concern with business ethics has led to the Paduano Faculty Symposium on Business Ethics. Funded by a generous grant from Daniel P. Paduano (MBA ’69), the symposium brings together faculty, the public, and leading figures in the area of business ethics to think about the role of ethics in business, the role of the corporation in society, and the responsibilities business institutions have to the public at large.

Business and public policy go hand in hand, and Stern has joined with The Economist and CFR.org, the outreach arm of the Council on Foreign Relations, to create a forum for discussion of current public policy issues. Each institution brings something unique to this partnership: The Economist brings a well-known and well-honed perspective on economic policy, as well as a very large readership; the Council on Foreign Relations brings a global political perspective and a team of prominent scholars and policy makers. Stern brings an academic and research-driven perspective as well as important connections to the business community. Hundreds of individuals from the general public have already participated in four such forums, hosted by Stern, about issues that are central to social roles of business in the current electoral cycle: globalization and trade, energy and the environment, immigration, and America’s “brand” in the world.

Finally, our Market Pulse Series of panel discussions brings together academic experts and important figures from the world of business and finance to discuss important unfolding events in the global economy. Discussions about the subprime credit crisis, the turmoil in global credit markets (page 3), and stagflation have been featured this year. Here Stern is able to showcase the knowledge of some of our most successful alumni, who not only comment on events and issues, but are themselves, in many cases, key players in outcomes that will affect the global market.


Creating the Platform for Business-Society Dialogue

Business education, like the market itself, tends to operate in cycles. Business educators are pulled between the need for academic rigor and the expectation of immediately applicable vocational training. In his recent book, From Higher Aims to Hired Hands, Rakesh Khurana of Harvard Business School argues that a balance can be struck here – business schools can foster rigorous academic research while, at the same time, fostering a type of knowledge production that is more tangible for the business world. Our model of business-society dialogue rejects this as a false opposition. At Stern, we embed the issues into the classroom, create top-flight research centers that produce state-of-the-art knowledge about important topics, and then become the venue in which the expertise is translated for the public. We cannot be remote from the discussions of what it means to be responsible business participants. We must be – and indeed, we are – shaping the debate itself.


Thomas F. Cooley is Richard R. West Dean and Paganelli-Bull Professor of Economics at NYU Stern, and Doug Guthrie is Professor of Management, Daniel P. Paduano Faculty Fellow, Faculty Director of Custom and Non-degree Executive Programs, and Academic Director of the TRIUM Global Executive MBA Program at NYU Stern.