Harvard Business School (HBS) has long been the worldwide leader in business and management education. I think that they deserve much of the credit for the awareness and development of advances in strategy, process management and productivity improvement. However, these fields are now almost completely developed and understood.
For HBS to maintain their leadership position they must find a new field to explore, study and document. Such a field must also be of interest to the readers of the several HBS publications or else that publishing empire is also under threat. I think the new field that HBS has chosen is the "role of the corporation". Many of the most prominent and the newer faculty are taking old concepts such as creating value, morality and economics and applying it to better explain the role of the corporation in a new world with large social and environmental problems. Perhaps another way to explain where HBS looks to be going is "what is the role role of the corporation in sustainability".
In a new working paper, "The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research", HBS Assistant Professor George Serafiem explores several interesting issues about the 1000 largest corporations. First, these large multinational corporations are states unto themselves. Serafiem:
"The combination of larger corporations that exert more power over society and the separation of ownership and control led to shareholders surrendering their right that the corporation should be operated for their sole interest (Berle and Means 1932). In the words of Walter Rathenau (1918), ‘The depersonalization of ownership, the objectification of enterprise, and the detachment of ownership from the possessor leads to a point where the enterprise becomes transformed into an institution which resembles the State in character.’ "
The concept that these large corporations are accountable to their shareholders is no longer valid. These corporations are accountable to their management, but Serfafiem and I would both prefer that these corporations have responsibility to society. However, Serafiem goes to great lengths to explain that this is not a normative point but in fact just good business.
Eleven pages into the article Serafiem comes out of the closet, with this definition of sustainability:
"While there are many definitions of sustainability, broadly speaking it represents a portfolio of environmental, social, and governance (ESG) considerations upon which company performance can be evaluated. " [my emphasis]
Serafiem concludes the article by showing that there is a positive correlation for large corporations between support for sustainability and financial performance. In other words, supporting sustainability does not lower financial returns. Serafiem:
"At this point, a conversation is warranted about whether sustainability has a positive, negative, or irrelevant effect on future financial performance. If it is the case that sustainability destroys financial value, then an implication from the previous discussion is that large firms are at a competitive disadvantage compared to smaller competitors. .....The evidence seems to support a positive relationship between sustainability and future financial performance (Orlitzky, Schmidt, and Rynes, 2003). Very little evidence exists to suggest that sustainability can be an impediment to corporate profitability."
I think the type of research Serafiem is doing is in the early days but very interesting and worthwhile. Proving that saving the world produces better financial returns ties in perfectly with this post on social entrepreneurship from yesterday (just a coincidence), "Another reason to explain social entrepreneurship". The Corporate 1000 can provide the capital for social entrepreneurship to accelerate addressing social problems...and it will improve their financial performance....according to HBS. Sounds perfect!
Earlier writing by Serafiem on large corporations on Bloomberg.com, "Top 1,000 Companies Wield Power Reserved for Nations".
I have some concerns about the notion that the 1000 largest corporations are "states" unto themselves. I have known this for a long time, but now I need to really think about what it means for society and the role of government.