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Mitt Romney Follows Failed MBA Theory

Author: Gayle Tzemach Lemmon, Senior Fellow for Women and Foreign Policy
January 30, 2012
Politico

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The president's reelection campaign is reportedly focused on former Massachusetts Gov. Mitt Romney. But labeling an eventual contest between President Barack Obama and Romney the battle of Harvard Law graduates misses the real point. Romney is, at heart, the product of Harvard Business School.

He embodies U.S. business management's view that creating more efficient firms builds a stronger economy — and so best serves the American people. This theory has been widely influential for the past few decades, but it's now beginning to evolve. Romney should change with it.

"Corporations are people, my friend," Romney told a crowd at the Iowa State Fair. "Everything corporations earn ultimately goes to the people. Where do you think it goes?"

His comment reflects values taught in the business schools of America, where serving shareholders and investors is crucial to serving society. Healthy, well-run firms generate good jobs that give workers a ladder to better lives. This increased prosperity benefits the economy and, in turn, the public as a whole. Thus, the argument that corporate earnings are ultimately returned to America's citizens. Firings, while unfortunate, are required by this quest for greater efficiency and bigger returns.

I had never heard this view articulated so consistently as at Harvard Business School, where I studied for an M.B.A. in 2004, after leaving the ABC News Political Unit. This idea — that the success of business was intimately wed to the success of society as a whole — was both foreign and new to me.

As the child of a union worker, I had never heard the idea of firing people presented in such detached tones — as a painful but necessary means to a superior end. It was the opposite of Bill Clinton's 1992 campaign. Instead of "Putting People First," the discussion seemed more like "Leaving People Out."

But this dispassionate dialogue was a product not only of Harvard Business School but of the industries that feed into all U.S. business schools. At Harvard, 45 percent of the students come from financial services, consulting, venture capital and private equity.

In their professional roles, most M.B.A. students had never even met workers on the losing side of the global economy's leaps forward. Certainly, they cared about people. But part of their job was moving people around on paper to create the most efficient and profitable firm. This was doing good — focusing on productivity gains that benefited the company and, eventually, the public in the form of a stronger economy.

They rarely focused on the fate of an individual, left bewildered and adrift by the Excel-dominated universe that had deleted his or her livelihood.

And it is not only institutions that focused first on efficiency. Business management scholarship between 1958 and 2001, as Harvard Business School Professor Josh Margolis wrote in 2004, concentrated on economic performance, while "research focusing on how organizations affect other dimensions of human welfare, beyond economic performance, has declined." It was about profits, not people, Margolis said in an interview with Harvard Business School.

"The study of organizations," Margolis said, "could be even stronger if the increasing focus on economic performance were accompanied by comparable attention to the impact organizations have on human welfare and on society."

The emerging view now is that it's no longer enough for corporations to focus exclusively on their own financial health. Creating jobs at a living wage and embracing values that serve the community are also part of building strong companies. Efficiency is only one component. This shift to long-term thinking is essential.

Romney's telling comment in New Hampshire, "I like being able to fire people who provide services to me," was shortened by his opponents — Democrat and Republican — to "I like being able to fire people." It served as political gunpowder precisely because it played into the view that Romney and his private-equity friends have no appreciation for the human cost of capital's gains.

But the global recession offers an opportunity to find broader ground that prizes profit and efficiency without worshiping it. To embrace the idea that business's responsibility is not just to its shareholders but to all citizens. This is a view the former Massachusetts governor should hug tightly.

After all, when Romney returned to Harvard, a few years after getting his M.B.A., he urged students to judge success as far more than dollars in a wallet. Graduates, he said, must include family and community when defining the word achievement. This speech stayed with the students who heard it, as they wrote years later.

"In the private sector," Romney said in Bethlehem, N.H., "if you don't recognize if you're wrong and you keep sticking to a decision that you had before you had all the data that you get later in your experience, why, they call you stubborn. With time, you'd be likely to lose your job — and so you learn as you moved along."

In seeking his next job, Romney would do well to follow Margolis's advice that business leaders search for ways "that organizations can deliver value to society along multiple dimensions." Margolis said, "What we are calling for is a subtle but significant shift in orientation, and we acknowledge it is not easy."

Not easy, but necessary. Perhaps Romney can learn from Professor Michael Porter, who graduated from the business school not long before the former governor entered. Porter now urges firms to "take the lead in bringing business and society back together."

"Companies remain trapped in an outdated approach," Porter writes. "They continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success."

The solution, in Porter's view, is a new paradigm of "shared value — which involves creating economic value in a way that also creates value for society, by addressing its needs and challenges."

I, like many of my classmates, chose business school because we believed it offered the best path to making a difference — particularly given business's growing role in our society, as Washington's institutions seem increasingly dysfunctional.

Romney would do well to speak to this larger view of American business; to acknowledge the people behind the profits and stand alongside those who say business must think more broadly — for its own sake and society's.

After all, corporations may be people. But we all have to change with the times.

Gayle Tzemach Lemmon analyzed public policy for the global investment firm PIMCO, after working as a journalist for the ABC News Political Unit and "This Week With George Stephanopoulos." She is now a fellow at the Council on Foreign Relations and author of "The Dressmaker of Khair Khana."

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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