Business Schools Undermine Wealth Creation

by | Apr 19, 2024

Students should be reminded that money-making is not an evil endeavor when done ethically and efficiently, and productive pursuits do not need to be tasked with tackling societal ills.

Corporate Social Responsibility (CSR) has been widely embraced within academic business programming since the early 2000s. The trendy appeal of Bono’s Buy (Red) Campaign and the One for One® model of TOMS shoes made cause-related campaigning an area of interest for universities who were eager to embrace terms that gave a softer connotation to business studies.

Programs highlighting social entrepreneurship and impact-based investing connected business curriculum to a higher calling and CSR, along with CSP (corporate social performance), were portrayed as tantamount to modern-day business practices. Business departments which were once viewed as the black sheep of a liberal arts education (even when serving as a cash cow for enrollment) could now be positioned as positive agents for change — and any concerns of creating more Gordon Gekkos could be put to rest.

Over time, academic programs promoting social responsibility have expanded and evolved in relation to CSR’s shift toward factors tied to ESG (environmental, social, governance). And, ESG has become a central part of business school curriculum at top tier institutions with the stakeholder mindset supplanting teachings that previously emphasized shareholder primacy.

The implication of steering student focus away from fundamental business strategies (most notably, operational efficiency) toward realms of social responsibility, however, seems to have been given little consideration. In fact, when universities began to initiate this change, research regarding CSR was still largely underdeveloped and the impact of business involvement with social matters was automatically positioned as positive. Time, however, has shown that greater care and attention should be given to the intermingling of economic value with supposedly virtuous causes.

Bono’s Buy (Red) Campaign came to receive a hefty amount of criticism for what was spent on advertising and marketing materials as compared to the contributions actually raised for fighting AIDS. And, TOMs shoes founder, Blake Mycoskie, had to reconfigure his flawed business model given that it ignored deeper issues related to development concerns. Turns out, investing in production in places where people need shoes (thereby creating jobs so that people can make or buy the shoes they want), is a better plan than flooding underdeveloped markets with free goods. Profit-seeking firms that invest in low-cost countries with market development potential already engage in such activities — no marketing of morality needed.

It is also worth noting that ESG is currently receiving a substantial amount of backlash, which is troublesome for universities who have advanced ESG based programs and centers; it is even more troubling for students and their future employers. The effects of stakeholder capitalism are far from clear-cut or easily understood and good intentions don’t always equate with good outcomes.

By promoting purpose-oriented strategies rather than profit-based approaches, higher ed systems are dulling overall interests for understanding and applying foundational business principles and competencies. To be sure, learning about accounts receivables or quality assurance is not as intriguing to students when they can aspire to be a social entrepreneur. And younger generations have certainly proved to have a vested interest when it comes to social matters. According to reports by both Deloitte and McKinsey, Gen Z patronizes, supports, and seeks employment from companies that promote their values and partake in social initiatives.

The impetus for firms to enhance their social performance is being derived from those who are young and educated within their workforce and customer base, but we should all be wary of companies playing the part of moral arbiters. Determining what has a ‘social impact’ is largely subjective, as are any associated measurements, and imposing one’s view of “what is right” or “what should be done” can end up being patronizing and paternalistic.

Nevertheless, business students are being taught to prioritize communal concerns rather than being motivated by the gains of an exchange, and instead of basing their experiences in economic realities, some college students are adopting savior like mentalities. Accordingly, it is quite telling but perhaps not surprising that for-profit employees have been opting to work at nonprofits at a significant pace and nonprofits are presently one of America’s largest employers.

As noted in a 2023 article for the Washington Post, “nonprofits have never been a bigger part of the U.S. economy…. Nonprofit employment has grown 33 percent, dwarfing the 9 percent job growth enjoyed by the for-profit private sector.” The nonprofit sector is clearly surging and interests in purpose-based work show no signs of slowing; and herein lies a problem. More and more students are likely to pursue positions or start organizations that require donor financing, government grants, and agency-based partnerships instead of embracing an entrepreneurial mindset that adheres to the profit motive, employs self-sustaining strategies, and contributes to a taxable income base.

Students should be reminded that money-making is not an evil endeavor when done ethically and efficiently, and productive pursuits do not need to be tasked with tackling societal ills. Businesses are drivers of economic growth, which raises the standard of living and our quality of life, and a profit-oriented mindset ensures value creation as well as the efficiency and effectiveness of a firm.

Academic programs have placed outsized focus on social performance, downplaying the benefits of wealth creation and its spill-over effects. And universities promote an obsession with social impact that ignores the vital social impact already accomplished by the realm of private enterprise. Financial performance improves opportunities and funding streams for addressing social matters, not the reverse.

Economic productivity is a noble pursuit in and of itself and the ways for-profit businesses improve our lives should not be minimized or marginalized, especially on campus. The conversion rate of companies being tasked as societal guardians rather than value creators is hastening with each graduating class and more attention should be paid to this fact.

Made available by the American Institute for Economic Research.

Dr. Kimberlee Josephson is an associate professor of business at Lebanon Valley College and serves as an adjunct research fellow with the Consumer Choice Center. She teaches courses on global sustainability, international marketing, and workplace diversity; and her research and op-eds have appeared in various outlets. She holds a doctorate in global studies and commerce and a master’s degree in international policy both from La Trobe University, a master’s degree in political science from Temple University, and a bachelor’s degree in business administration with a minor in political science from Bloomsburg University. Follow her on Twitter @dr_josephson

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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