Are MBAs and biz schools to blame for recent eco crisis?

He’s taken over as Dean of Harvard Business School at a time when businessmen and their methods are being questioned by governments, regulators and the public at large. Harvard Business School Dean Nitin Nohria spoke about the perception problems faced by the business community globally, and what changes he’s making at the school to set that right.

Here is a verbatim transcript of the interview.

Q: What are the key challenges you see them or the urgent changes that need to be made?

A: I have been appointed dean at a time when business as a whole and business education as a result has found itself at an inflection point. We have just come through the great economic crisis in the US—businesses have come under attack in all kinds of ways, trust in business leadership has been lost, many people are worried that business schools and the leaders that they have educated in some ways may in part have even been responsible for the crisis that was created. So you might imagine that being a business school dean right now is being put in a hot seat because there is a lot of expectation.

Q: Is it about damaged control if it was a corporation in a literal sense?

A: There was some amount of damage control but more than that I think there is also an extraordinary amount of opportunity on the other side of this crisis as well because even though we have been worried a lot about what is going on in the past, if you look to the future, it is actually a time in history when the need for innovation is so immense that it is staggering.

Think about the problems that the world faces whether it would be the environment and the need for us to find ways to either on the supply side create new fuels but on the demand side to create more efficient cars, whether you look at healthcare with an aging population all around the world, India maybe a slight exception, but nevertheless and we have to cure cancer, we have to find treatments for some other things that will allow people to live longer and healthier lives. There are opportunities in every field of human endeavour to take on major challenges that will affect the prosperity of humanity.

Q: Currently does the world think that MBAs are not ready to cope?

A: I think the world is not sure that MBAs are going to contribute to this problem and this is what I think business education has to address—which is business leaders have always been admired because they have solved society’s most significant and pressing problems. It is not the only player but think about anything important that has been done, whether it be the clothes we wear, the materials we consume, great technologies like the internet, any product or service you would imagine including financial products that have created prosperity for so many people. Business has been a vital part of creating prosperity throughout the world and if you look at the challenges that lie ahead, I think business has this opportunity yet again. I believe in fact that the next century is going to be a century of remarkable innovation and what I wanted to do at Harvard Business School, in fact my vision for this school, is that we should be thinking about ushering a new century of innovation at Harvard Business School and to usher a new century of innovation in business education.

Q: I am sure you spent the better the past two years trying to understand why people, why individuals and companies behave the way they did and why we are now in the grip of this economic crisis. The world is sort of coping with the actions of a few people at the top of several different companies, why do you think people behave so badly whether it is the USD 100,000 bathroom fittings or it is executives of auto companies flying in private jets to ask for bailout funds whether it is the most recent crisis, BP CEO Tony Hayward who had a great 28-year run but now seems to be the leader who can do nothing right, so how do you explain this?

A: When you are in the midst of a single crisis, you somehow seem to forget that this is not the first crisis that we have had. The history of humanity is full of examples of crisis that have occurred—all the way back to the French Revolution where we had rich people said why don’t they eat cake when people didn’t have food. So the history of sometimes people who are doing well getting disconnected from the rest of the population is not a new one and in recent times that it has happened again. But if you forget those moments or those blips in history, you have to remember there has also been an enormous amount of history in which business leaders have done remarkably good things for the world. I think what we have to do is to remind people of that better half that business people have just as we, as individuals, occasionally have a worse half and we have a better half, I think business people also have a better half.

So I think a lot of people got caught up in a short-term game but as we step back from it, my hope is that a lot more business people will recognise that playing business for the long-term and creating value for the long-term is a much more stable way of running a business enterprise and a much better way of creating value that is durable both for yourself and for the society.

Q: So if you are saying that this is not the first time, there are instances of this happening and it is the short-term approach and this giving into peer pressure—this could happen again, the way we do business is not going to then fundamentally change, is it?

A: I don’t think that we are at the end of crisis forever. The question that we have to ask ourselves is that can we learn something from this one and at least not make this mistake again, there maybe some other kinds of mistakes that we might make in future and in fact that is the nature of human progress, the nature of human progress hopefully is that you made one mistake and you learn from that and hopefully you correct that but then life is uncertain.

Q: One of the perceptions that business leaders need to cope with or deal with is the fact that they have seen these people who are out there just to profit for themselves, to lie in their pockets, so this whole debate and moves to regulate executive pay—where do you stand on that, what do you make of that?

A: I think that the society has never had any grudges about paying people or having people become rich if they become rich in the process of creating value for society. So if you are engaging in actions that generate value for society, if you keep some yourself typically I think that is a social contract that has long been accepted in society.

Take Bill Gates, take Warren Buffet, nobody complains about the wealth that the two of them have made because it is seen to be wealth that was made in the process of creating a lot of remarkable value for society as well. So when you create an enormous amount of value for society, nobody would have grudges. The wealth that you get as a reward for what you have created. In fact I think that incentive almost, is an incentive that society retains as a way to encourage people to do things that can create value for society.

When people get a little troubled about executive pay and high levels of executive pay is when it seems to have been done when no value was created for society or when value was destroyed and even as value was being destroyed, you could protect your own pay pocket that is what I think the controversy in executive pay is all about. So I am not in favour of caps, I am not in favour of trying to regulate pay to say let us put a cap on it, I am much more of the view that let us make sure that when people almost in a philosophical way understand that high pay has to be correlated with high value creation. And, as long as you do that, society will be quite comf
ortable with the money that you make.

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