By James E Post
Published: May 3 2009 19:00 | Last updated: May 3 2009
The voice of change is ringing across the global economy. As chief executive Jeffrey Immelt, wrote in General Electric’s annual report: “The global economy and capitalism will be reset in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be regulator and also an industry policy champion, a financier and a key partner.”
Mr Immelt’s diagnosis amplifies the advice of Rahm Emanuel, chief of staff to Barack Obama, the US president, who observed it was important to “never waste a crisis”. A genuine crisis permits an executive to take transformative action with maximum support and minimal objection.
Business schools should heed this advice. Many are laden with entrenched interests that constrain the possibility of deep change. Schools need to seize the opportunity latent in the global economic crisis to move into a reset world.
Four steps business schools should pursue are:
- Build scenarios for a post-crisis world. Schools cannot assume the world will return to “normal”. They must make a critical estimate of the structural and behavioural dimensions of the profound change occurring in the global economy and prepare a curriculum fit for the times.
One can extrapolate a variety of scenarios from the current situation and challenge status quo assumptions – for example the Iceland scenario, in which nations go bankrupt. Unthinkable? Angela Merkel, the German chancellor, has warned EU colleagues that there are no laws to prevent other nations from following Iceland into the abyss.
There is the Japan scenario of torturous, zig-zag fiscal and monetary policy. In the German scenario of the 1920s, widespread unemployment, financial ruin and social anger combine to produce a state of political revolution. No one can say with certainty that any of these scenarios will, or will not, become reality in some part of the world of 2010. The challenge to business educators is to prepare students to see these possibilities for the future.
- Build for sustainability. Superficial teaching about ecological risk is not sufficient. Leaders should press faculty to shape the new systems thinking that is essential for tomorrow’s businesses. Energy consumption, climate change, sustainable farming and food preparation are some of the many dimensions that face radical change.
- Promote new entrepreneurship. Schools must develop programmes that demonstrate new ways to integrate social and economic mission. The heart of the new enterprise is no longer a layer of social responsibility on top of greed and economic self-interest but an integrated social and economic mission that frames executive thinking about business purpose in the 21st century. Schools should rethink the premises of risk-based financial management and the role of capital in the global economy.
- Rethink financial engineering. Schools need to jettison the financial engineering curriculum in favour of a reformulated “foundations of finance” curriculum of value-based financial principles. They should rethink the premises of risk-based financial management and the role of capital in the global economy. Capital’s role will not be as it has been and the management of risk has changed. Indeed, the mindset of risk versus reward is undergoing cataclysmic challenge. Some enterprises are now too large to fail, government has become the insurer of last resort and old and new fail-safes alike have lost credibility.
Human nature does not change quickly but it does adapt through crisis. Many financial sacred cows have been slain and a new order is emerging. Business schools – and our economic system – cry out for leaders whose understanding of public interest reaches well beyond return on investment. The depth of this crisis will heighten the call for change in the way our economic and social institutions are managed and governed.
Having been the training ground for many of those responsible for the current problems, schools must now reinvent themselves as part of the solution.
The writer is the John F Smith Jr professor in management, business policy and law at Boston University School of Management, US.
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