Business schools must cast off their capitalist ethos

They helped create the problems we face. Now business schools should be fundamentally reimagined as democratic institutions, says Carl Rhodes

December 15, 2021
A house made of Australian $100 bills, with solar panels on the roof, symbolising greener business schools
Source: iStock

Today’s global challenges fall into three broad groups: climate disaster, inequalities and political populism. Since the dawn of industrial capitalism, these are problems that have been created or exacerbated by business activity. The expansion of business schools, especially since the 1980s, was grist to the mill.

The catalyst was the dogmatic acceptance of shareholder capitalism as it took hold in the business world from the 1980s. In that “greed is good” decade, the embrace of shareholder value required that executives should maximise the financial returns accrued to the owners of capital. Businesses were goaded to ignore any consequences that pursuing this singular objective might have for anyone else.

The costs of globally ubiquitous and corporate-led capitalism have been severe. The price of economic growth has been rising social inequality, curtailed democracy, diminution of labour power, relentless damage to the environment, world hunger crises, and austerity politics – to name but a few.

This post-1980s neoliberal world saw the massive expansion of business education worldwide. Enamoured of what Margaret Thatcher called “popular capitalism”, students flocked to universities in the hope of securing a job with a big pay cheque. Business schools responded with curricula dedicated to shareholder primacy and blind faith in markets. Despite criticism, this approach remains dominant to this day.

Business is still the most popular course of study in the UK, attracting more than 16 per cent of all students. In Australia, it is about a quarter. It is not surprising that new business schools have sprouted up everywhere, becoming the cash cows of their universities as they too embraced the ethos of shareholder capitalism.

There are increasing calls for radical overhaul of business education and research in response to the deleterious problems resulting from shareholder capitalism. But we need to go one step back if we are to take two steps forward. That crucial step is to admit that the whole institution of the modern business school has been a critical contributor to the serious threats facing the world today.

Business schools and the affiliated institutions of scholarly journals, accrediting bodies, journal quality lists, ranking systems and conferences must accept the burden of responsibility. Until we take that as the basis of change, there will be no progress. Business schools have been, and still are, part of the problem. We need to be part of the solution.

A recent study of elite management journals is illustrative. This study discovered that a paltry 2.8 per cent of published scholarly work addresses “global challenges”. For whatever reason, the climate crisis, stubborn gender inequality, entrenched racism and the scourge of economic inequality mean little in prestigious research circles.

That is not to say that there is no work coming out of business schools that tries to imagine a different and better future for the world. If nothing else, business academics who publish the 2.8 per cent of research on global challenges are a case in point. So are the many schools embracing curriculum renewal around environmental, social and corporate governance (ESG), decolonisation and climate action.

But that does not change the reality that business schools remain enthralled by the neoliberal business model. It is not just curricula and research agendas at stake. In the global market for business education, the name of the game is competitive rivalry and maximising the generation of economic surpluses – most notably by the recruitment of as many international students as possible. Education and research have been redirected from a central dimension of social and economic development to an export market.

In their own operations, therefore, business schools continue to hold on to the “shareholder primacy” model that is rapidly eroding in the business world itself – even though public universities have no actual shareholders.

If we don’t change, we risk becoming the new luddites of the world economy, hanging on to failed and outdated dogma. The opportunity is there to enter a new era of partnership with business, government, the community and other universities. Fiscal responsibility is the bedrock of enabling us to do this, but working for imaginary shareholders is not.

What business schools have to offer, and what makes them unique, is not a capitalist ethos. It is a long inherited academic tradition of creating and sharing knowledge through free inquiry. Emulating corporations, teaching old-school capitalist dogma, and researching safe topics will not enable us to help address the world’s most pressing challenges.

Universities are an indispensable part of the ensemble of institutions that comprise democracy, accountable to the public through the responsible exercise of academic freedom. This is a legacy to be embraced if business schools are to be vital institutions that play their rightful part in ensuring a better future for both humanity and the planet.

Yet if business schools are to reconcile with their past, they need first to reimagine themselves not as beholden to illusory masters of shareholder capitalism, but to the very real citizens of democracy.

Carl Rhodes is dean of the UTS Business School at the University of Technology Sydney.

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Reader's comments (4)

I found this to be an informative and disturbingly accurate article. It points unerringly to how we have seen businesses operate over the past forty years and, perhaps more disturbingly, to how we have seen them respond to Climate warnings and the pandemic.
When some of them are run like fiefdoms, run by self serving pesudo managers, where even the views of those that work there count for jot, where the mindless and the spineless nod yes to whatever the all powerful deans dish out to them as long as they personally benefit from it, good luck with those schools contributing anything to democratic values. I dont get the angle of the article that seems to present democracy as an alternative to shareholder capitalism. What exactly is meant by "illusory masters of shareholder capitalism, but to the very real citizens of democracy." ? 1. what is illusory about shareholder capitalism? 2. Real citizens are important actors in shareholder capitalism via their investment in mutual funds and pension funds. I do agree with the other points raised here: on responsible exercise of academic freedoms, producing at least socially relevant research etc. and most importantly that "Universities are an indispensable part of the ensemble of institutions that comprise democracy" not just another money making enterprise.
Thanks for commenting. To be clear I wasn't suggesting the shareholder capitalism is illusory. Far from it! My point was that public universities do not have any shareholders, so adopting management practices that behave as if they do evinces being "beholden to illusory masters of shareholder capitalism". Moreover, corporations themselves, at least in word, are increasingly letting go of the idea of shareholder primacy, while business school curricula and practice are slow to catch up. As well, while many citizens (at least the middle class ones!) are shareholders that does not necessarily mean that they adhere to an ideology of shareholder capitalism, with many shareholder activists, for example, voting for climate resolutions.
Thanks for clarifying. I see it now, good point indeed. The criticism of "shareholder capitalism" that the article highlights is that coprorations are being managed by the managers (agents) with sole purpose of maximising benefits (only) to the shareholders (the principal). So here the agents and the principal work together to maximise their benefits to the exclusion of all other stakeholders. Now, if we were to draw parallels between this and what happens in HE sector, what can we say? So where universities are publicly funded, one could argue that the tax paying public (proxied by the government) is the principal, and the university managers are the agents, and there are of course other stakeholders involved (e.g. staff). Here, the question is - for whose benefit are the manager's managing or alternatively, who benefits from the way things are managed now? The issues raised in the article suggests there is an agency problem. I am sure there is a literature on agency problems in the public sector. Would be worth writing a paper on this, but probably will be the last one you write if you worked for an HE institution!