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“Neglecting Human Costs”: Harvard Business School’s Role In Widening Inequality

No institution is more responsible for educating the CEOs of American corporations than Harvard Business School – inculcating in them a set of ideas and principles that have resulted in a pay gap between CEOs and ordinary workers that’s gone from 20-to-1 fifty years ago to almost 300-to-1 today.

survey, released on September 6, of 1,947 Harvard Business School alumni showed them far more hopeful about the future competitiveness of American firms than about the future of American workers.

As the authors of the survey conclude, such a divergence is unsustainable. Without a large and growing middle class, Americans won’t have the purchasing power to keep U.S. corporations profitable, and global demand won’t fill the gap. Moreover, the widening gap eventually will lead to political and social instability. As the authors put it, “any leader with a long view understands that business has a profound stake in the prosperity of the average American.”

Unfortunately, the authors neglected to include a discussion about how Harvard Business School should change what it teaches future CEOs with regard to this “profound stake.” HBS has made some changes over the years in response to earlier crises, but has not gone nearly far enough with courses that critically examine the goals of the modern corporation and the role that top executives play in achieving them.

A half-century ago, CEOs typically managed companies for the benefit of all their stakeholders – not just shareholders, but also their employees, communities, and the nation as a whole.

“The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in a 1951 address, “is to maintain an equitable and working balance among the claims of the various directly affected interest groups … stockholders, employees, customers, and the public at large. Business managers are gaining professional status partly because they see in their work the basic responsibilities [to the public] that other professional men have long recognized as theirs.”

This view was a common view among chief executives of the time. Fortune magazine urged CEOs to become “industrial statesmen.” And to a large extent, that’s what they became.

For thirty years after World War II, as American corporations prospered, so did the American middle class. Wages rose and benefits increased. American companies and American citizens achieved a virtuous cycle of higher profits accompanied by more and better jobs.

But starting in the late 1970s, a new vision of the corporation and the role of CEOs emerged – prodded by corporate “raiders,” hostile takeovers, junk bonds, and leveraged buyouts. Shareholders began to predominate over other stakeholders. And CEOs began to view their primary role as driving up share prices. To do this, they had to cut costs – especially payrolls, which constituted their largest expense.

Corporate statesmen were replaced by something more like corporate butchers, with their nearly exclusive focus being to “cut out the fat” and “cut to the bone.”

In consequence, the compensation packages of CEOs and other top executives soared, as did share prices. But ordinary workers lost jobs and wages, and many communities were abandoned. Almost all the gains from growth went to the top.

The results were touted as being “efficient,” because resources were theoretically shifted to “higher and better uses,” to use the dry language of economics.

But the human costs of this transformation have been substantial, and the efficiency benefits have not been widely shared. Most workers today are no better off than they were thirty years ago, adjusted for inflation. Most are less economically secure.

So it would seem worthwhile for the faculty and students of Harvard Business School, as well as those at every other major business school in America, to assess this transformation, and ask whether maximizing shareholder value – a convenient goal now that so many CEOs are paid with stock options – continues to be the proper goal for the modern corporation.

Can an enterprise be truly successful in a society becoming ever more divided between a few highly successful people at the top and a far larger number who are not thriving?

For years, some of the nation’s most talented young people have flocked to Harvard Business School and other elite graduate schools of business in order to take up positions at the top rungs of American corporations, or on Wall Street, or management consulting.

Their educations represent a substantial social investment; and their intellectual and creative capacities, a precious national and global resource.

But given that so few in our society – or even in other advanced nations – have shared in the benefits of what our largest corporations and Wall Street entities have achieved, it must be asked whether the social return on such an investment has been worth it, and whether these graduates are making the most of their capacities in terms of their potential for improving human well-being.

These questions also merit careful examination at Harvard and other elite universities. If the answer is not a resounding yes, perhaps we should ask whether these investments and talents should be directed toward “higher and better” uses.

 

By: Robert Reich, The Robert Reich Blog, September 13, 2014; This essay originally appeared in the Harvard Business Review’s blog.

September 14, 2014 Posted by | CEO'S, Corporations, Economic Inequality | , , , , , | Leave a comment

“Paula Deen Is Confusing People”: A Stange Epidemic Of People Pretending To Be More Stupid Than They Actually Are

American life is full of two groups of people: those who find racism abhorent, and those who find this first group of people tiresome. Paula Deen’s humilation this week seems to have brought out the members of Group 2. Why is everyone making such a big fuss, they ask?

Thankfully, The New York Times has a very amusing report from Georgia on this subject:

The line of Paula Deen fans waiting for her restaurant here to open grew throughout the hot, muggy morning Saturday. They discussed what they might select from the buffet inside The Lady and Sons, her wildly popular restaurant in the heart of Savannah. But they also talked of boycotting the Food Network, which dropped their beloved TV chef on Friday after she awkwardly apologized for having used racial slurs and for considering a plantation-themed wedding for her brother, with well-dressed black male servants.

And what are these folks really angry about?

 “Everybody in the South over 60 used the N-word at some time or the other in the past,” wrote Dick Jackson, a white man from Missouri. “No more ‘Chopped’ for me, and I suspect thousands like me,” he said, referring to a popular Food Network show.

A white man? I never would have guessed. And, then, of course, the question that good white folks love to ask:

In the line Saturday, some pointed out that some African-Americans regularly used the word Ms. Deen had admitted to saying. “I don’t understand why some people can use it and others can’t,” said Rebecca Beckerwerth, 55, a North Carolina native who lives in Arizona and had made reservations at the restaurant Friday.

Really? You don’t understand it? Ms. Beckerwerth doesn’t say she wants to use it, but it sure sounds like she thinks she is making a real sacrifice by not using it.

The article descends into unintentional hilarity when the writer decides to call an expert on race:

Tyrone A. Forman, the director of the James Weldon Johnson Institute for the Study of Race and Difference at Emory University, said the use of derogatory words can mean different things to different groups. “People take a term that was a way to denigrate or hold people in bondage for the purpose of continuing their subordination and turn it around as a way to reclaim it,” he said. But that kind of subtlety is often lost in a discussion of race. “That nuance is too much for us,” Mr. Forman said. “We have a black president so we’re postracial, right? Someone uses the N-word? That’s racist. But the reality is there is a lot of gray.”

Thank God we have someone to address all this confusion, although the final sentence here left me, if anything, even more confused.

The piece ends as follows:

[One man] was particularly bothered by a commentator on a national news program who suggested that Ms. Deen should have atoned for the pain of slavery, given credit to African-Americans who helped influence some of the country food that made her famous and offered a stronger statement against racism. “She’s a cook,” Mr. Hattaway said. “She’s not a Harvard graduate.”

Hold on, aren’t we supposed to sneer at Harvard graduates? Now apparently you have to go to Harvard to understand that using racist language is wrong. The Deen case has brought with it a stange epidemic of people pretending to be a lot more stupid than they actually are. Ms. Beckerwerth and her ilk aren’t really confused. I didn’t go to Harvard, but I’d diagnose their problem as something a little worse than a lack of comprehension.

 

By: Isaac Chotiner, Senior Editor, The New Republic, June 24, 2013

June 25, 2013 Posted by | Racism | , , , , , , , , | Leave a comment

   

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