Last Wednesday February 26th, Dean Kim Clark tackled a seemingly ubiquitous and pervasive business crisis in a presentation before the National Press Club in Washington D.C. titled “Corporate Scandals.” Is it a problem of bad apples, or is it the barrel?, Dean Clark explained that it is a mixture of the structure as well as the individuals that contribute to corporate misconduct.
In explaining that he had contemplated this issue deeply, especially over recent times, Dean Clark conveyed that “…at every level, I find the events of the past year deeply disturbing. I am appalled at the instances of greed and wrongdoing uncovered at firms and organizations once held up as paragons of success, and I am dismayed to see the destructive effect these corrupt acts and ethical breaches have had on our society and our economy.”
The Dean, in his presentation, used an analogy of apples and barrels to describe the structure of business as well as the individuals within the structure. “At one pole are those who place primary blame on “a few bad apples” and the solution is to catch them, prosecute them, and put them in jail. At the other pole we have people who believe there is something very wrong with the barrel the systems of governance, the practices of companies, and the web of laws and regulations. The solution here is to remake the barrel with new laws and substantial new regulation. I believe both views contain an element of truth: we do have bad apples, and there definitely are problems with the barrel.”
Dean Clark’s presentation assigned three problems to the barrel. “There are three problems: 1) as markets have become pervasive firms have applied them badly; 2) leaders have substituted market-based measures for standards and judgment where they shouldn’t; and 3) governance institutions have compromised principle in the pursuit of new market opportunities. All of this has been exacerbated by an intense competitive environment.” The Dean also mentioned flaws with compensation structures as well as auditors, rating agencies, and investment analysts as contributors to the problem. “Markets require faith, faith in the integrity of data and information and in the reliability of promises. Even more, they depend on the existence of principles, standards, and well understood rules that define how the system operates. To work, they require leaders who understand the importance of integrity in the creation of trust, and who inspire that trust in their people, their organizations, and in the communities and the larger society of which they are part.”
The Dean mentioned that the community must go beyond punishing the guilty for the misconduct and encourage personal accountability and intergrity within the individuals that comprise the business community.
“We have seen good people faced with strong incentives to do the wrong thing. We are fortunate that we have a lot of people who did not succumb to those incentives. There are a lot of great apples in the barrel. But the evidence is clear too many people crossed too many lines they should not have crossed. As the world gets more complex and the gray areas more prevalent, we need to strengthen individual integrity.”
Finally, in offering a solution as well as what business schools, specifically HBS, can contribute to remedying the problem, the Dean offered “As we look to the future, therefore, we must think about work in two areas.
The first encompasses finding ways to reduce conflicts of interest while
shoring up standards, principles, and institutions of governance. The second comprises strengthening the integrity of leaders and organizations.”
Regarding HBS, the Dean offered “Six years ago we launched an initiative at the school on Leadership and Values. It grew out of a conviction that we needed to make our commitment and our values more explicit, more visible in our community. We could see forces at work and challenges developing and I felt we needed to act. This work involved articulating the values we believe are central to leadership and to learning integrity, personal accountability, and respect for others and making them visible in the community, and central to life on the campus.
It also involved work in our educational programs, and in our research.
The mission of HBS is to educate leaders who make a difference in the world. I believe we have a responsibility to shape and influence the next generations of leaders joining the economic system, and help them understand what creates outstanding organizations, what makes markets work, and the importance of trust and integrity. We also need to understand the system better: how to design markets more effectively, reduce conflicts of interest, and build stronger institutions of governance.
I believe that the Leadership and Values initiative is an important part of the effort to do that.”
In concluding, the dean ended on a note on his personal role. “I believe I have a responsibility to do everything I can to make HBS a living model of the highest standards of excellence, integrity, accountability, and respect for others, so that we deliver on that mission. I am committed to do everything I can, to use every bit of whatever creativity and skill that I have to make HBS a vibrant, innovative, principled place, a place that our alumni will be proud of, and a place that will earn the trust and respect of the society we serve. That is my commitment.”