The “wealth care” industry needs the transparency of the health care industry

Rehan Syed, head of portfolio management at ABN AMRO Private Banking in Dubai, recently wrote that the “wealth care” industry must catch up to the health care industry when it comes to objectivity and transparency.  We’re not sure everyone wopuld agree that the health care industry is the model of transparency, but his main point still holds: that the Hippocratic oath changed medicine and another oath could change business. He argues for an oath for business and makes the case that protecting integrity can be a core competitive advantage:

“In a research study by the Harvard and Michigan business schools, 80 cases drawn from a period of more than 30 years were analysed to evaluate whether corporate social performance contributed to corporate financial performance. In 53 per cent it did, which is a high outcome for a study of this nature.”

One note on his article however is that he says more than half of Harvard Business School students chose not to sign the oath. Actually more than half of the graduating students last year did sign the MBA Oath. And now students from hundreds of other schools are signing too.

Syed’s topic is ethics in the investment business.  How do you integrate ethics into an investment firm? Syed proposes three steps.

1. integrate ethics into the hiring process:

Inquire what ethical situations candidates faced, how they handled those and what should have been done differently. If they are clients facing staff, perhaps they need a “moral sense test”, such as the famous one by the bioethicist Marc Hauser.

2. Hire an ethics officer to supplement the requisite compliance manager.

Instead of a dedicated hiring, one US corporation smartly rotates business leaders into that role to promote ethical sensitivities throughout the management team. Encourage whistle-blowing, preferably to an anonymous hotline or in-box, and adjust the incentive structure to reward ethical behaviour.

3. Set client expectations appropriately

When it comes to ethically setting client expectations, design a management mechanism to cross-check whether sales staff promise too much. If a salesperson sells more product for a higher fee in a shorter time than is normal, pat the person on the back but also meet the client to understand that the expectations set are appropriate.

4. Build a brand around your firm’s corporate character. Syed describes how Kit Kat is advertising its Fair Trade practices in EMEA. Could an investment fund successfully do the same thing? How many investors go for a socially responsible firm and how many just want the best return? Socially responsible investment funds already exist. Why don’t they take a larger share of the market?

Syed’s ideas are worth considering, but changing the landscape of business can’t be done quickly and can’t be done by one firm alone. Entire industries need to change, a difficult but exciting challenge.

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“The Road from Ruin” and professionalizing business

Another post, another book to add to the list. This time it is The Road from Ruin by Matthew Bishop and Michael Green. It is a highly readable, well written analysis of where the glogal economy has been and what can be done to fix it by two world-class thinkers. Here’s a link to their site. Bishop did a story on the MBA Oath for the Economist last year when we were first getting the movement off the ground. Our initiative seems to have made an impression, because Bishop and Green seem to argue that professionalizing business is what the future should be about. Bishop and Green argue that,

“Capitalism as we knew it ended on September 15, 2008, the day Lehman Brothers went bust.”

If capitalism is “dead,” as Bishop and Green argue, the question is what will replace it? Bishop and Green go to some lengths to give their answer. In chapter 8, they argue that part of the answer may be a renewed capitalism with a focus on professionalism – on of the key ideas of the MBA Oath.

“The current crisis of capitalism is in part a morality tale, but it is not a simple one. And it owes at least as much to failures of design, especially too much reliance on short-term measures of success, as it does to ethical lapses…. Increasingly, employees throughout the system were paid to maximize short-term financial returns, such as every-expanding quarterly earnings and rising share prices. There were no rewards for asking tough questions about whether what was good in the short term was also good in the long run. Even regulators kept quiet.”

The authors go on to explain how this isn’t the way things were supposed to be. They look back into history and find that when business schools were first founded, they were founded on the idea of making management a profession:

“In 1925, at the newly created Stanford Business School, Wallace Donham, the second dean of HBS, gave a speech, “The Social Significance of Business,” in which he declared that the “development, strengthening, and multiplication of socially minded business men is the central problem of business.”

Donham feared that as scientific, technological, and material progress accelerated, the traditional sources of professional ethical leadership (such as the law and the clergy) would be unable to cope, and that it would fall to the “new profession of business” to save modern industrial civilization from itself.”

Bishop and Green essentially ask the same question that we have been posing for the past year: if business schools originally set out to make management a profession, why not return to that noble goal? Perhaps the MBA Oath is helping pave the road from ruin to a better future. We think so.

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Michael Lewis has a new book on the Financial Crisis: “The Big Short”

Joe Flood, writing for Asset International, has a review of Michael Lewis’ new book on the financial crisis, “The Big Short.” Lewis is the author of Liar’s Poker, Moneyball, and The Blind Side, which became a film and won an Oscar for Sandra Bullock. Like his other books, Lewis explores a cultural phenomenon from the ground up, telling it through rich narrative. Flood writes,

“Lewis is more interested in stories and characters than didacticism, but his tale of what went wrong and who saw it coming provides something much more important than regulatory advice: It’s the most insightful and enjoyable account yet of what went wrong on Wall Street, a must-read for any would-be reformers, regulators, or investment bankers hoping to learn from the mistakes of the past.”

Has anyone read the book? What do you think?

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INSEAD Professors debate Oath

Two INSEAD professors, Theo Vermaelen and N. Craig Smith, provide a set of well-thought-out perspectives on the MBA Oath.

Vermaelen makes the provocative argument that the Oath actually invites violation of fiduciary duties and ethical standards. Meanwhile,  Smith states that the Oath may be one of a number of appropriate responses by business schools to business misconduct.

Both provide different viewpoints on that core MBA Oath dilemma – can the Oath encourage improved behavior?

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Two Different Viewpoints

Two 2010 MBA students present very different viewpoints on the MBA Oath in the Harbus, HBS’ weekly student paper. Larry Estrada calls the oath “an opportunity to reassert the purpose of the business profession”.

As MBA students and future business leaders, we have an opportunity to promote a higher standard aimed at professionalizing business and ensuring a purpose rooted in responsible long-term value creation not simply short-term value extraction.

Meanwhile Andrew Sridhar is skeptical of the Oath’s aims.

Follow the law and your personal ethics, but resist the urgings to “play fairly.”

The Oath acknowledges the usefulness of capitalism, drive, and the profit motive, but also encourages managers to consider a broader sense of purpose. Is there an insurmountable chasm between the two viewpoints?

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INSEAD Dean Suggests The Time Is Now

In a provocative essay on Businessweek.com, INSEAD Dean J. Frank Brown suggests that business schools need to seize on the current environment as an opportunity.

If business schools don’t focus more on ethics now, today’s concern about business ethics will fade away, and no progress will be made after all the world has been through in the past couple of years.

We only need to look back at news articles from 2002 to find talk of a pre-Enron and post-Enron environment and its effect on business education. Many point out that not enough was done at that time and that following a path of  inaction now will lead to yet another sense of deja vú a few years down the road.

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Two good bits

The MBA Oath continues to generate a lot of discussion online, with a great recent discussion at 12Manage.

Also Time has a short review of Rosabeth Moss Kanter’s new book on “How Vanguard Companies Create Innovation, Profits, Growth, and Social Good.”

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New Graduates And Wisened MBAs

From South Korea, we get word that several graduates from the first graduating class of the SolBridge International School of Business have embraced the MBA Oath. Along with the newly-minted graduates, we are seeing an increasing number of MBAs with years and sometimes decades’ worth of experience taking the MBA Oath. Among them is our 1,500th signer, David Epstein (Boston U MBA ’83) as well as several signers whose post-MBA experience spans more than 40 years. We are very pleased to see experienced professionals commit to the principles of the oath.

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Make History, Start An MBA Oath Chapter

We are ramping up efforts to build on the MBA Oath momentum by providing MBA students worldwide the opportunity to start official MBA Oath chapters at their schools.

Those who embark on starting a chapter will face a challenging task, but will also join the passionate group of founding students who are aiming to change the business world by setting higher standards for management.

More information, as well as a chapter kit, is now available.

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Serving Both Oneself And The Greater Good?

The Christian Science Monitor’s piece on the MBA Oath brings up a student’s questioning of whether “serving the greater good” is compatible with capitalism.

Such dialogue highlights “a deep fundamental difference about what the purpose of the corporation is and whether it has any responsibility to society other than maximizing profits,” says Rakesh Khurana…It will take this kind of pressure, he says, for business schools to shift curriculum and practices to emphasize different values.

The MBA Oath is based upon the idea that self-interest is an important driver of capitalism, but that it is not incompatible with having a responsibility to different stakeholders and to society at large. The intent isn’t to force a binary choice between raw individualism and collectivisim, but to encourage the acknowledgement of broader responsibilities.

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