The financial crisis has raised fundamental issues about corporate regulation, governance and business culture. Our first priority must be to get the financial system moving again. But, longer term, it is essential to restore legitimacy to and trust in the practice and profession of management.
To regain society’s trust, business leaders must look beyond their responsibility to the shareholder and commit to their duty as institutional custodians. In other words, we need to make management a profession. True professions, such as medicine or law, have codes of conduct and consequences taught as part of the education required of their members.
The idea of management as a profession is not new. In 1959, the Ford Foundation and the Carnegie Corporation called for more emphasis on academic standards and rigorous research. Management was a kind of social science and that had consequences for the way it was studied and taught. Their directives and funding led to the recruitment of faculty, many of whom were trained in economics, from the social sciences, mathematics and engineering. This period saw the development and diffusion of the economic theories that form the staple fare of MBA courses today.
It was a perfect storm. As concepts such as efficient market theory moved into the classroom in the 1980s, the system of manager-dominated capitalism was collapsing. So while increasingly aggressive investing institutions were taking advantage of the growing market for corporate control to extract greater value, MBA students were being taught that they were bound by contractual relationships to clients and shareholders. Managerial incentives, such as stock options, redefined managerial self-interest from a fallibility to a virtue. Management had ceased to be a profession.
What would it take to return management to a professional footing? We propose a code of conduct that would govern a formalised profession of management. (We have written an example of a code in an article in the October issue of Harvard Business Review.*)
The requirements are:
● Enhance the value of the enterprise to create wealth for society in the long term.
● Uphold laws and contracts.
● Make judgments based on the best knowledge available.
● Never let personal benefit supersede the good of the company.
● Present the company’s performance accurately and transparently.
● Accept responsibility for promoting management standards.
● Do not allow gender or race to influence decisions.
Modern societies have an interest in creating organisations that enjoy public trust and can mobilise resources to create economic value greater than the opportunity cost of the resources used. This formulation affirms the importance of ensuring the enterprise creates value. Businesses that destroy value hurt their shareholders and society’s trust in the companies’ ability to create value.
To ensure ongoing legitimacy, an enterprise must meet the legitimate claims placed on it. By turning managers into agents of society’s interest in thriving economic enterprises, we break out of the debate that requires us to define managers as agents either of one master (shareholders) or of many masters (stakeholders) with conflicting interests.
By moving management towards a profession, we erect the scaffolding for institutional ethics and move towards institutional self-governance. Managers who violate their professional obligations will confront the disciplining forces of peer review and potential sanctions.
We know that human behaviour is influenced by the expectations placed on it. If management was seen as a profession, our expectations of managers’ moral conduct and their expectations of themselves would rise.
* “It’s Time to Make Management a True Profession”, October 2008, Harvard Business Review, by Rakesh Khurana and Nitin Nohria.
Rakesh Khurana and Nitin Nohria are professors of business administration at Harvard Business School. www.ft.com/soapbox
