CHAPTER 8

Sustainable Capitalism in the Business School Curricula

Introduction

The world today is changing rapidly and profoundly, economically, and politically, as well as socially, while capitalism is under siege (Porter and Kramer 2011). We believe, therefore, that it has become more important than ever to educate business students in this changing environment, where scholars and academics, as well as practitioners, must recognize how crucial for business today is the idea of sustainable capitalism and development. By sustainable development, we mean development that “meets the needs of the present without compromising the ability of future generations to meet their own needs” and includes at the same time the three pillars of economic, social, and environmental development (WCED 1987).

Currently, almost 30 percent of the students worldwide who pursue undergraduate and/or graduate degrees enroll in higher education business schools (AACSB 2017). In the United States, for instance, business and management education is the largest single field in higher education, due in large part to the result of institutional rankings and statistics that show the future economic value of a degree in business. Such potential for economic payback, however, is not an automatic guarantee of the quality of the graduate’s education.

Business Schools Curricula Development

In today’s general debate about business school curricula development, one criticism, in particular, has received significant attention, that the greatest world problem of our time is sustainability with its environmental, economic, and social implications. The debate has initiated the third shift in business school education (Starkey et al. 2004; Giacalone and Thompson 2006; Bradfield 2009; Thomas and Cornuel 2011) and in the business itself (Porter and Kramer 2011; Scherer et al. 2013). As a result, it has become necessary to rethink the purpose and justification for business school education. Some scholars (Porter and Kramer 2011) call for a revolution in society supported by business entities and business schools in which the focus is on both societal and organizational rationality. Hence, many business schools have come to the realization that they must adapt their management education to meet the changing societal and economic demands for responsible resource stewardship, offering a business education with both scientific rigor and societal relevance (Holland 2009).

Business Schools and Society

Our society seems to have changed its attitude toward environmental problems, as in many countries, predominantly in Europe, more environmental legislation is being passed, such as the new emission standards in the automotive and transportation industries. As a result, hitherto undreamed of environmentally friendly product improvements have been manufactured. Various other actions that reflect environmental and safety concerns have also been taking place, such as Germany’s announcement that it will close all its nuclear power plants by the year 2022.

It has further been suggested, by the European Communities that gross domestic product (GDP) as a measure of the market value of goods and services could be replaced with a measure of human welfare that takes into consideration the sustainability of future production (European Communities 2009). Such a change, which may very well turn sustainability the business solution of the future, is consistent with the opinions of some of the most well-known management thinkers of today (Porter and Kramer 2011).

Across the Atlantic, protests by the Occupy Wall Street movement have drawn attention to the perils in the current financial system and perhaps in the entire world order, as discussed in Chapter 1, which suggests that a paradigm shift in the attitude toward capitalism may be evolving. Assuming it takes place, the impact of such changes on business and employees is difficult to predict.

Somewhat different recommendations have been made in the hope that global wealth will still continue to increase. Acs and Phillips (2002) argued that society is best served by an “entrepreneurial capitalism” that relies on volunteerism, private foundations, and “giving back to society,” along the lines of philanthropists such as Rockefeller, Soros, Turner, and Gates. Other scholars suggest there is a need for more “social entrepreneurs” (Seelos and Mair 2005; Martin and Osberg 2007), such as OneWorld Health (United States), Sekem (Egypt), or Grameen Bank (Bangladesh).

As far as the promotion of, and instruction in, sustainability issues in business school curricula, a significant challenge is to change peoples’ and institutions’ general “economic-ideological” ideas and principles. From the perspective of green ecologists, sustainability means radical changes are required if the world is to survive (Hudson 2005). From this point of view, business schools, with their support of materialism and capitalism, are the enemy. If radical changes as argued by Hudson were implemented, the logic behind the business model that most business schools still promote would lose its support and legitimacy.

However, there is a second and opposing perspective that maintains that technological solutions within existing means of production offer the promise of a trade-off between economic goals and environmental or even social objectives (Hudson 2005). What if the market is, in fact, the prime and best mechanism for efficient resource allocation, as argued by the Austrian school of economics? In such case, business schools could maintain their status quo by continuing to teach the same curricula and the same economic models. This would be business as usual, with no paradigm shift necessary. In fact, Harvard Business School’s Professor Robert Simons (2013) argues that business schools have become part of the problem rather than the solution, as these institutions are not focusing enough on what the business of the business actually is, namely, to restore a focus on competing to win. This is the traditional focus of market capitalism.

There is yet another viewpoint, which lies somewhere in between these two extremes. Proponents of such perspective accept the general legitimacy of markets as mechanisms for resource allocation, but they admit the need for nonmarket, state regulation, suggesting that business schools should play a vital role as go-between institutions that mediate between the market and the state. Looking at the current trend, at least in the west, it appears that this intermediary role may appeal to many academics and higher education institutions, as it is a role that is advantageous to them. Al Gore, former U.S. vice-president, Nobel Peace Prize laureate, and environmental activist, shares this view, recommended at a seminar at University of Gothenburg (October 2010) that business schools teach “sustainable capitalism” as the path to the maximization of long-term economic growth, which would require the integration of environmental, social, and governance issues with business strategies, risk assessments, and, not least, reward systems.

Sustainable Capitalism in Business School Curricula

BizEd, one of the prominent magazines in business education in the United States, is an advocate of socially responsible business. The magazine and its publisher, AACSB, are currently investing much time and effort in promoting business sustainability. It is evident that more business schools are now addressing sustainability issues. For example, in 2007, Bloomberg BusinessWeek published the Aspen Institute’s alternative ranking of MBA programs (at 111 institutions, of which 71 are in the United States). On average, the business schools ranked in the survey offered six electives dedicated to social and environmental issues in their curricula, which was an increase of one elective since the previous inventory is taken two years earlier. Of the schools, 63 percent required students to take a course on “business and society issues,” and 35 percent offered a unique concentration in social and environmental issues.

Perhaps somewhat disappointing. However, the same report states that there are few sustainability topics in the core courses of business schools. The schools surveyed said that professors discussed such issues in only five percent of core accounting courses and only one percent of core finance courses. Unfortunately, not much has changed since 2007. A 2012 ranking by the same institute of 82 top U.S. business schools stated that “many programs offer little or no course work” in the area of green business and sustainability (Gloeckler 2013, p. 1).

One reason for the lack of sustainability issues in business school curricula is that university lecturers often do not have a clear understanding of sustainability (Reid and Petocz 2006). For many lecturers, it seems easier to define nonsustainability than to define sustainability; therefore, they often continue to use business model failures from the past as pedagogic examples. The problem is exacerbated by the fact that many business students are unaware and uninterested in these issues (Reid et al. 2009). Thus, among lecturers and students, there is a great deal of uncertainty, even ignorance, about the meaning, scope, boundaries, application, and limitations of the term sustainability that a more explicit definition might resolve.

Pfeffer and Fong (2004, pp. 1516–1517) argued that business schools should place greater emphasis on their professional ethos and “break free of the rating game and vocational focus that constrains their ability to provide critical analytic thought and analysis.” They state that the business model for business schools must include a real-value proposition that promotes innovative ideas and ideas about the profession of management educators, about management, and about business life in general, all in the context of the sustainable society. Such positions, however, seem to be somewhat more ideological than practical, as the concept of sustainability need not be contrary to the concept of making money.

Thinking in terms of money-making alone instead of thinking in terms of sustainable capitalism seems narrow-minded and fairly old-fashioned, though. Indeed, several Harvard Business School faculty (Bower et al. 2011) recommend that CEOs work in the interests of more stakeholders and take a more active role in trying to overcome global threats to capitalism itself, including but not limited to inequality, global warming, corruption, and weaknesses in the world’s financial systems, as depicted in Figure 8.1.

Figure 8.1 GDP growth per person is below history, and income inequality continues to rise

Source: OECD June 2017 Economic Outlook database and OECD Income Distribution Database

Note: RHS is the unweighted average of 17 OECE countries.

Short-Termism and Quarterly Capitalism

Prominent business leaders have begun to talk about the crisis caused by the continued use of yesterday’s business models in practice. For instance, the managing director of McKinsey & Company, Dominic Barton, is a critic of what he calls “short-termism and quarterly capitalism” and an advocate of “long-term capitalism” (McKinsey 2011). He argues that continued growth and a flourishing economy are only possible if we learn to live within rational financial and ecological constraints. He is not alone, as several CEOs of well-known market capitalists support such views.

Paul Polman, the CEO of Unilever, states that incentives connected to short-term reporting are at the heart of today’s financial problems. He contends there must first be an alignment between the capital’s interests and capitalism. Roger Ferguson, president, and CEO of TIAA-CREF, the large institutional investor, believes the system is more in error than its people (McKinsey 2011). Undeniably though, systems, in the same way as business models and institutions, are only created, maintained, and changed by people. While new possibilities, such as those stemming from significant innovations, technology advancements, and globalization, have created more economic value, ecological and social constraints, however, necessitate that future business models deal not only with possibilities but also with societal boundaries and restrictions.

Current awareness in business circles is that companies need help with their business models if they are to integrate and manage sustainability (Arevalo et al. 2011). Peter Bakker, the new president of the World Business Council for Sustainable Development (WBCSD), calls for a “new operating system” for capitalism that can “break the lock of business as usual.” He maintains that action and implementation are needed because, for 40 years there has only been a talk (WBCSD 2012). However, this “revolution of capitalism” (pp. 6–7), as he calls it, requires that sustainable performance be ”concrete, measurable, comparable, and linked to the scientific priorities.”

The Role of Business Schools: A Society with Sustainable Capitalism

There are several factors influencing the internal and external factors of integration of sustainability issues in business school curricula, and in business practices, to outline the required change in existing curricula to support sustainable capitalism. In our views, many researchers, academicians, practitioners, and students recognize sustainable development as a critical issue in the contemporary business environment and in higher education. Work in the discipline is in progress with evidence of some satisfactory results (Slater and Dixon-Fowler 2010). Although sustainable development has a high profile in some disciplines, in some respects, sustainable development remains a marginal concern in other quite influential disciplines.

Educators and researchers are often role models for students. This is as true in the area of sustainable development as in more traditional areas of instruction. Business school professors best fulfill this role when they share real-life stories from their professional and consulting experience, problem-based learning, close cooperation with businesses in the development of sustainable business models and cross-discipline courses (Teece 2010), and a holistic approach to education (Bennis and O’Toole 2005; Giacalone and Thompson 2006; Bradfield 2009; Thomas and Cornuel 2011). Besides interest and commitment, professors need special pedagogical skills for this complex task. Consensus policies regarding the need for increased funding for professors, especially for course administrators, are also indispensable. As more students request sustainable development courses, there must be a pool of knowledgeable professors qualified to present these courses. In addition, the administration should be open to change in the curricula. If only the enthusiasts support such change, there is less chance of success. Strong administration commitment is needed to gain the interest and trust of the students.

Responding to the external pressure to be a “modern business school” and to have an “up-to-date” curriculum must resonate with the inclusion of sustainable themes and issues in the curricula. It should be a requirement for business schools that compete for reputation and research funding, as well as for students. We believe that every business school should include sustainability in its business modules. We are convinced that the demand for graduates educated in sustainable capitalism will increase as its business relevance becomes better known. In addition, we would argue that it is the responsibility of business schools to train its researchers to study sustainability issues using a curriculum that emphasizes academic rigor and relevance.

The development of course materials, therefore, should satisfy the demands of students, businesses, various other stakeholders, and the general public, which can be very time consuming, especially if the school were to implement sustainability across all curricula, which will require rigorous course and curricula reviews, coordination of the various disciplines, and education and training of professors. In addition, the role business school should have in raising awareness of the mission and vision related to sustainability issues, as well as defining the strategies necessary to implement the mission and vision, is not an easy undertaking. One practical issue, for instance, would be whether students should have the opportunity to make their own selection of sustainability courses. The alternative is to offer them programs with required sustainability courses. This administrative issue sometimes has the unfortunate effect of overshadowing the more strategic issue, which is informing new students about the mission and vision of sustainable capitalism.

A major issue business schools face when implementing sustainability in their curricula is the fact that scientific knowledge and practical application of sustainability in the workplace are also not well developed. Severe problems arise because of the complexity of the supply and demand between business schools and businesses and because of the uncertainty about whose needs and demands to focus on and how. Ideology has a powerful influence as far as the proposed solutions to these. These are crucial questions for business schools that cherish the independence that is the right of institutions of higher education. In the best of the higher education worlds, such changes should be pioneered, and change is driven in response to society’s demands, but only to the extent that academic freedom is not compromised. Hence, business schools should be ahead of best practice in the business world, taking charge of the revolution. The increased complexity of the business environment means that discipline-based curricula are increasingly unable to capture all the elements needed to understand and manage real-life problems (AACSB 2011, 2013). In part, this explains why business schools, in many cases, seem to lag behind the fast-changing world of work.

In summary, free-market capitalism is an economic philosophy that has, more than any other, benefitted humankind in many places worldwide. This should not be forgotten in the discussion about the future role of business schools. Much of the empirical research suggests that when business school leaders and course administrators/professors commit enthusiastically to education in sustainability issues, the opportunities for a conversation about sustainable capitalism increase significantly. Business schools ought to realize that they have an obligation to integrate issues of sustainability in their programs and curricula because the return on financial capital alone is not an adequate measure of success: social and natural capital must be included. Teaching the concepts behind sustainable capitalism means preparing leaders and managers for the future and demonstrating that success is measured not only by the amount of profit but also by how the profit is earned.

Global Sustainable Capitalism Principles for 21st Century

As discussed throughout this book, the recent global financial crisis of 2007/2008 has raised widespread concern for the sustainability of the global economy, and much has been written concerning the negative impacts of economic development on natural ecosystems and civil societies. Unfortunately, few viable alternatives to the prevailing economic paradigms have been suggested for consideration. Those that have been are typically little more than suggestions for fine-tuning capitalist or socialist economies.

In his highly recommended book The Essentials of Economic Sustainability, John Ikerd addresses the basic principles and concepts essential to economic sustainability. Some of these concepts are capitalist, some are socialistic, and others are general principles validated by philosophy or common sense.

The following is a list of principles for sustainable global capitalism. None of them are unique in nature, with some being addressed by Ikerd, others appearing in the mainstream media, or discussed in the chapters of this book.

The following are 11 global sustainable capitalism principles to consider:

1. Unsustainable capitalism: Unsustainable capitalism is largely related to the crisis of neglect for nature and human capital. Do not disregard, kick the can, or attempt to reinvent human and the earth. Instead, strive to preserve and enhance the goals and values of your business. There is no fundamental contradiction between sustainable development and capitalism, Capitalism 2.0 that is. As Jonathon Porritt argues in his book Capitalism as if the World Matters, we should not seek to replace capitalism with a better, fairer, and more ecologically friendly economic system. We must continue to develop Capitalism 2.0, for the various advantages it presents compared with other systems.
2. Unsustainable capital: Such a form of capital becomes unable to meet its long-term commitments and disfavor long-term investments. Do not neglect the long-term dimension of your business and regenerate and communicate as much as possible a long-term contribution of your business stakeholders, making economies viable from local to global levels. As we argued throughout this book, there is a fundamental contradiction between a profit-oriented economic system and long-term environmental sustainability. Often, the solutions offered by mainstream environmental economists as well as their ecological economy colleagues do not solve the central problems but serve to further highlight the difficulties of changing Capitalism 1.0 to 2.0, sustainable capitalism. In a profit-oriented economy, capital accumulation is a prime driving force, and nongrowth for the economy at large tends to result in serious economic and social crises. On the other hand, a decoupling of economic growth from resource depletion and environmental degradation is possible only within certain sectors or product types and within relatively short-term perspectives. The assumptions of mainstream economists about infinite economic growth (and infinite dematerialization) represent a false ontology according to which the powers and mechanisms of the natural world are considered totally controllable by humans as if they were mere epiphenomena of the human world. On the other hand, the assumptions of certain ecological economists about the possibility of steady-state capitalism disregard the relation between capital and surplus value, which constitutes a strong mechanism driving the capitalist economy toward limitless growth.
3. Avoiding global unsustainably merges: For sustainable business expanding internationally, being global is not more important than being small and local; many successful sustainable businesses are and will be small and local. Any crisis of global scale operations should be hedged by being present locally as well as globally.
4. Being indeterminately more effective and efficient is not the final goal to increase value and grow a business: Being sustainably effective and efficient is also related to trust, quality, and relationships build-ups with all who take part in all cycles of your business.
5. Consider social and environmental outcomes: Not only financial results and market share acquisitions matter in business. Considering social (the community, the shareholders, and stakeholders), environmental, and sustainable business practices are becoming increasingly important under Capitalism 2.0.
6. Sustainable business requires sustainable customers local and abroad: Business is long-term financially sustainable and client’s/customer’s incomes are also long-term locally and globally financially sustainable. Under sustainable capitalism, the focus on debt-driven operations is no longer a sustainable option for global Capitalism 2.0.
7. A sustainable business model is a diverse model: Sustainable business model is generically a diverse model, not one of convergence. There is not a major or ultimate business, or economic model, as its success will require sustainable calibration. Sustainability is not antiproductive. Instead, it is the ability to change and adapt related resources of productivity and creation.
8. Sustainable capitalism involves transparent accountability: It requires reporting on social, environmental, technological, and financial impact and results of business capital and operations.
9. Growth of sustainable business is related to creation and maintenance of social and environmental justice: Without a sustainable peace, mutually fulfilling and meritocratic values for groups and individuals, there will not be a business success under Capitalism 2.0.
10. Sustainable capitalism is being characterized by flexible currency and money exchange: The postmodern world of finance is directly correlated to diversity, and the multitude of conventional and electronic money and currencies exchange, globally and locally, and is more about payment transactions and less about financial asset investments. Are you prepared for it?
11. Sustainability is about the reinstitution of economic responsibility: As much as it is about deepening of true economic freedom. Sustainable capitalism fosters freedoms of economic self-determination on all levels of the economy.

Conclusions

Contemporary Chinese artist Ai Weiwei observed that “Liberty is about the right to question everything.” This empowering statement reminds us that those who have the ability to question the status quo should cherish the privilege and make their voices heard. Only through collective discourse are we able to advance, by refining or even completely changing key tenets of our society. Similar to the way artists often draw inspiration from challenging times, perhaps companies and investors can use the global financial crisis, and global warming, as a catalyst to reshape how we view the world and to foster positive change.

The barriers to mainstreaming global sustainable capitalism are formidable but not insurmountable. We believe that the actions for change we are recommending, taken together, will affect the entire business ecosystem and encourage reform by investors, companies, government, and civil society alike to adopt long-term horizons and consider ESG factors in addition to financial ones.

These actions will also drive the development of solutions for our sustainability challenges. By this we mean not only investing in assets using an integrated sustainability methodology but actively funding projects and companies that are developing the solutions to sustainability challenges themselves (e.g., smart grid infrastructure service firms, low-income housing developers, and affordable life-saving drugs).

According to Tim Jackson, the Economics Commissioner on the UK Sustainable Development Commission, “Questioning growth is deemed to be the act of lunatics, idealists, and revolutionaries. But question it we must.” The exercise of reflecting on the sustainability of current business practices and developing ways to improve going forward requires us to revise our views on the nature of the value we create, the type of expansion we seek, and how we measure success.

Incremental change will prove insufficient to mainstream global sustainable capitalism by 2020. So, like an artist at the easel, our goal is not to make superficial touch-ups that conceal deep structural flaws beneath. We are calling for a fresh canvas on which, together, we can paint a new picture of our future.