Society appreciates athletes and entertainers. When they use their talents to get rich, fans applaud their success. The opposite happens when business leaders use their brains and industry to earn equally big paychecks.
Rather than receiving thanks for expanding economic opportunity, successful business leaders face suspicion and sometimes scorn. Many people view them, not as givers who create value, but as takers who exploit human and natural resources.
The tension grows as corporate salaries increase. People root for underdogs struggling to launch start-ups in their parents’ garage. But as soon as these risk takers achieve wealth — precisely because they are productive — then public sentiment sours and these entrepreneurs often find themselves lumped in with the perceived evil establishment of business.
Few dare to speak up as champions of enterprise in such an environment. Even within business schools, some professors view profit as a necessary evil — or worse — even while teaching aspiring managers the pragmatics of how to make money with finance, marketing and strategy.
Instead of all the handwringing and guilt, business schools should teach their students to celebrate accomplishment. This can be done, in part, by supplementing the core curriculum with a broader foundation in ethics.
Business students already learn about the need for honesty and integrity. But they also need to be given historical and philosophical perspectives to help them understand the role of enterprise and markets in both the creation of value and its distribution.
Far too many of our ethical lessons these days are focused on how value ought to be distributed, while not thinking about the principles required to create value in the first place. What follows are five often-overlooked lessons that future business leaders need to know.
1. Don’t substitute money for purpose. Author Dan Pink lays out the research on what really motivates high performers when they tackle complex problems. Their real objectives are threefold: Autonomy, the ability to be self-directed; mastery, the ability to get better at something; and purpose, the ability to make a meaningful contribution. People focused on these motivators use business to organize their time and create value. They earn self-esteem and lead a rich life, in more ways than one. Aspiring executives who are focused on money alone typically perform worse or burn out when challenges arise.
2. Keep it win-win. Ethical business is based on voluntary trade. Nothing is forced. Internally, companies create social structures that allow people to pursue their passions to the best of their abilities. Engineers, accountants and sales managers have different talents, but they can all find their places within the same organization and do what they enjoy while contributing to corporate profits. Employees and shareholders both win. Externally, customers choose where they spend their time and money. They get what they want, and so do the companies that serve them. When one side loses — or when participation becomes coerced — then results are not sustainable. Business leaders who want long and satisfying careers cannot take shortcuts.
3. Business combats poverty. The unproductive rich do not need capitalism. Through cronyism and the purchase of political favors, they will thrive. The poor lack access to these backroom deals and generally suffer when government decides to pick economic winners and losers. History is filled with examples. The poor have the most to gain when businesses are allowed to trade freely, because only then can they flourish based on merit and upward mobility rather than privilege and status-quo. As businesses thrive, economic conditions improve for everyone. I have seen this firsthand in my native India, where conditions of extreme poverty have softened in the post-liberalization era. Many politicians don’t like to acknowledge it, but voluntary trade combats poverty better than government programs — even the ones established in the name of fighting poverty.
4. Philanthropy is not penance. Productive business leaders tend to be benevolent. When they see a need, they want to provide solutions. This mindset extends to their philanthropy. Yet instead of thanking them for their giving, many beneficiaries view philanthropy as an obligation or form of penance for extracting profits from society. People who hated Bill Gates as chief executive of Microsoft love his work with the Gates Foundation. This line of thinking discounts the value that comes through core commercial activities — regardless of what gets designated as “corporate social responsibility.” In terms of economic impact, Microsoft has improved more lives than the Gates Foundation. Business also generates the profits that make philanthropy possible, giving society a second layer of benefits. So give thanks and expect it in return, both for the initial creation of value and the philanthropy that often follows.
5. You are worth it. Many people can sing, dance or play sports, but only elite performers merit lucrative contracts. All-Pros such as New England Patriots quarterback Tom Brady earn more than players on the practice squad — regardless of who works the hardest — because the NFL has short supply and high demand for great play callers. The same principle applies in business. Markets generally pay people what they are worth based on supply and demand. Companies pay big salaries to executives because they bring rare talent to the C suite, where decisions affect entire organizations. One bad leader can destroy a company, while good leaders can create enduring value. Think about the contributions of Henry Ford, Thomas Edison and Steve Jobs. These innovators are no longer alive to collect income, but society still benefits from their work. So if your paycheck has several figures after the dollar sign, congratulations! You probably earned it. If not, beware. The market will soon catch up to you like a one-hit wonder or NFL draft bust.
Rajshree Agarwal, Ph.D., is academic director of the Ed Snider Center for Enterprise and Markets at the University of Maryland’s Robert H. Smith School of Business.
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