Rethinking the Rules

Last fall, I sat in on Keith Hennessey’s Practical Policy and Politics class. The topic that day was the purpose of corporations.

Hennessey, who ran the National Economic Council under President George W. Bush, had assigned two opposing texts: Milton Friedman’s 1970 essay “The Social Responsibility of Business Is to Increase Its Profits” and Elizabeth Warren’s 2018 Accountable Capitalism Act.

The discussion was a model of what one hopes for in higher education.

There were articulate arguments that the U.S. economic system is in need of fundamental reform. There were incisive defenses of shareholder value optimization. After two hours of spirited and respectful debate, there were no easy or simplistic answers.

This debate is, of course, playing out in the world more broadly.

Last August, the Business Roundtable revised its corporate principles, placing all stakeholders — customers, employees, suppliers, communities, and shareholders — on equal footing. For the first time in decades, the organization was moving away from the principle of shareholder primacy.

Certainly, it will be interesting to see how the Business Roundtable companies deliver on these principles. Under one interpretation, many are already on course; doing well by employees or customers is often in the best interest of shareholders, especially from a long-term perspective. On the other hand, serving all stakeholders requires making tradeoffs. If decisions are not made in the interest of owners, whose interest will they serve — and who will decide? These questions, raised by Friedman, still await compelling answers.

In a larger sense, the Business Roundtable announcement reflects an urgent conversation about the growing societal unease with capitalism and institutions. In stump speeches, op-eds, and investor letters, politicians, journalists, and business leaders are lamenting the failure of both the private and public sectors to effectively address the most challenging issues of our time — including climate change, inequality, migration, and rapid technological change.

This conversation has deep implications for our work at Stanford GSB.

Our mission is to educate the next generation of leaders, and that means preparing students for an increasingly global, complex, and politicized world. Our students need to think broadly and critically about the rules and structures that define business and society. We don’t just want them to succeed under the current rules, but to understand how the rules are shaped — and become the leaders who help to shape them.

In this effort, we are building on a great tradition at Stanford GSB. We have a special strength in innovative approaches to societal problem solving, with students involved in creating social ventures and mission-oriented startups, running the Stanford GSB Impact Fund, and taking on global development challenges in courses like Design for Extreme Affordability.

We are also bolstering the curriculum to challenge students to think about the relationship between business, leadership, and society. In addition to Keith Hennessey’s classes, we are offering such courses as Anat Admati’s Power in Finance, Amit Seru’s Corporations, Finance, and Governance in the Global Economy, a class on political risk with former U.S. Secretary of State Condoleezza Rice and Amy Zegart, and the political economy class Strategy Beyond Markets.

And we are partnering across Stanford to address societal issues. As part of the university’s long-range planning process, Stanford GSB faculty members recently led a working group to identify research and teaching opportunities focused on responsible investing. We also believe that Stanford can do more to prepare students for careers in civic and public leadership, and that the business school has an important role to play in this effort.

Stanford GSB is sharpening its focus on the intersection of business and society. Our students are arriving at the school at a time of great change — an era where long-settled questions are on the table again and the rules are being questioned. It’s an era our students will be ready for.

This letter from the dean was originally published in the print edition of Stanford Business in February 2020.