Opinion

Opinion | Duff McDonald

Harvard Business School earns an incomplete in ethics

The Baker Library on the Harvard Business School campus.
Charles Krupa/Associated Press/File
The Baker Library on the Harvard Business School campus.

If you spend too much time watching cable news, you could be forgiven for thinking that our country’s most pressing problem is that the gap between left and right is widening every day. But is it, really? The fringes may be moving farther away from the rest of us, but the center, for what it is, still holds. The majority of us are not unreasonable people. Here’s what is widening: the gap between the haves and the have-nots. The ruling class of American society has untethered itself from the rabble, and is pulling away in a ship full of stock options, excessive pay, and tax shelters.

The ruling class, of course, sees things a little differently. Their view can be found in the multi-year “US Competitive Project” out of the educational nucleus of establishment power, the Harvard Business School, a “fact-based” effort to understand how American inequality can be on the rise even as the country’s largest firms are prospering. Surveys of HBS alumni (of their opinions, which aren’t really facts) point to reasons galore — taxes, infrastructure, regulation — but none so simple as the truth: that the decisions of actual people have made it so, with MBAs foremost among them.

The latest such report, released earlier this month, points the finger at self-interested politicians. Last year’s was at least surprising, in that it tried to present inequality as something that is equally felt by all. At which point, those pesky facts intervened: between 2000 and 2014, real incomes fell for the 60th percentile and below, but were flat or rising for the 80th percentile and above. Our goal, the authors concluded, should not be “reducing inequality,” but “creating shared prosperity.” That’s the kind of thing you say when you’re on the winning side of an imbalance, where it becomes difficult to recognize, let alone admit, your own ethical failings.

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We’re not even talking about illegal stuff, such as fraud, price-fixing, or employee discrimination. We’re talking about the thorny questions: How much should CEOs be paid? What responsibilities do organizations have to their communities? To whom is a director of a public company accountable?

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But it might be asking too much of the lords of finance to tackle such issues. Because the one thing that Harvard Business School hasn’t figured out successfully is how to incorporate ethics into its teachings.

Of course, HBS’s view of capitalism derives straight out of the Protestant ethic and its transformational view of money, in which the ability to accumulate wealth is a reflection of one’s character. As John Kenneth Galbraith put it, “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.” Considered in that light, it all starts to make sense: If you’re convinced that you’re on the side of the angels, then the question of your ethics is moot.

Some argue that you can’t teach ethics to a bunch of 26-year-olds. But you can certainly lead by example. Alas, the recent example set by the leadership of HBS shows a blatant disregard for even the simplest of ethical considerations.

To wit: HBS dean Nitin Nohria, a supposed expert on ethics and corporate governance, has become embroiled in a boardroom scandal at India’s cherished conglomerate, Tata Sons. While Nohria has denied all accusations of impropriety, even a superficial reading of the facts is enough to raise eyebrows.

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In March 2010, India’s Tata Trusts donated $50 million to HBS for a new building to be named in honor of Ratan Tata, chairman of the Trusts. Why Harvard, one of the richest universities in the world, needed $50 million from a public charity in India is another thorny question. Nohria talks about “giving back,” but directing charitable funds to capitalist ends seems a little more akin to “taking away.”

Weeks later, an HBS case study on the Tata Nano — Ratan Tata’s baby, the result of his quest to make the world’s cheapest car — called it a “runaway bestseller.” It was nothing of the sort, and would be better described as a runaway failure. HBS accounting professor Krishna Palepu, the case’s author, has earned consulting fees from several Tata companies.

Palepu had fallen down on the job as director of another Indian company, Satyam Computer Services, a few years earlier, somehow missing that it had overstated its assets by more than $1 billion. That didn’t stop Harvard president Drew Faust from appointing him her senior adviser for global strategy in 2012, prompting Nohria to assert that Palepu had “substantively reshaped how we think about leadership in a global century.” Whatever that means.

Nohria was named to the Tata Sons board in 2013, as a nominee of the Trusts. One wonders: How can a business school dean not be vulnerable to outright conflicts of interest and other ethical quandaries when working all sides of a situation, as fund-raiser, academic researcher, and board member?

In October 2016, just weeks after giving chairman Cyrus Mistry a rave review, Nohria was one of several directors who voted to oust him in a surprise coup. It’s no secret that Mistry had lost the confidence of Ratan Tata, but Ratan Tata was not a board member of Tata Sons.

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So what changed? Nohria says he was fulfilling his fiduciary duty as a board member, but one can’t help but wonder whether he was compromised by his relationship with a $50 million donor. Mistry sued, but India’s courts ruled that his removal was not illegal. It’s not their prerogative to rule whether the whole situation smells like the rigging of a corporate board by a majority shareholder, with the dean of a respected business school serving as his water carrier. The court of public opinion can decide that on its own.

Duff McDonald is a business journalist and author of “The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite.”