“As soon as you have a business-school manager, you see a relative decline in wages”
A great 'wakeup call' research
November 13th 2022
On recent academic research, the renowned M.I.T. economist Daron Acemoglu and his coauthors wanted to know what happens when a C.E.O. with a business degree, like an M.B.A., takes over from a C.E.O. without a business degree. They found that employees at the firms run by business-school managers saw their wages fall over the following five years, compared to similar firms — a wage drop of 6 percent in the U.S. and 3 percent in Denmark. The researchers also found that paying workers less does make those firms a bit more profitable, but those firms don’t actually increase their output.
As Acemoglu explain in his own words in a recent podcast: “the main findings are actually very simple. As soon as you have a business-school manager, you see a relative decline in wages and labor share. So, within five years, the wages of business-school-manager-operated firms is about 6 percent lower than comparable firms in the U.S. and about 3 percent lower in Denmark than comparable firms.”
As a conclusion, the researchers put this phenomenon down to change in business-school syllabuses: “MBA programmes have over the years grown less focused on technical aspects of finance and management, and more obsessed with maximising shareholder value and corporate leanness. The result is that workers have increasingly been seen as ‘costs to be reduced’ rather than an investment in human capital.”.
This is, in my view, a clear wake up call for many Business schools. What is becoming abundantly clear in marketplaces and making its way to corporate agendas is the notion and acceptance that there will hardly be any profits in the future without taking into account all actions and initiatives that address Planet & People. The time of Friedman’s statement that the only social responsibility of businesses is to make profit has long gone.
Which means that Business Schools need to adapt and fully understand what society is currently expecting from future leaders. The purpose of any business school, seems to me, should be the willingness to contribute to a society where we only have Responsible Businesses led by Responsible Leaders. In other words, leaders who understand that the Purpose of any company goes beyond Profit. Profit is paramount but the discussion can never stop there.
Nuno Moreira da Cruz
Center for Responsible Business & Leadership