MBA Oath Is Nothing to Swear By
The MBA oath—a pledge of integrity created by a group of graduates from Harvard Business School—will prove largely ineffective in warding off the type of corporate misdeeds that led to the U.S. financial crisis. Pro or con?
Pro: An Impotent, Misguided Gesture
Harvard Business School MBAs have proposed that all MBA students sign a special oath, and I don’t believe that’s a good idea.
First, the oath invites violation of fiduciary responsibilities. In many countries, board members and, as a consequence, managers have a fiduciary duty to maximize the wealth of the shareholders. None of them would accept that managers promote "social and environmental prosperity worldwide" as the HBS oath does. Externalities such as the consequences of business decisions for the environment have to be dealt with by the government.
Second, the oath is a misplaced response to the financial crisis. It assumes that the financial crisis was caused by unethical MBAs gambling with other people’s money. Research shows, however, that banks where the CEO held a lot of stock were also the banks with the biggest losses. Moreover, 81% of the mortgage-backed securities purchased by bankers for their own personal accounts were AAA-rated. These securities turned out to be the most mispriced: They produced poorer returns than the lower-rated tranches. So the evidence shows that bankers have made mistakes and board members may have been ignorant, but they are not crooks.
Third, the idea that we can prevent the next crisis simply because we sign an oath seems excessively naive. Rather than focusing on pledges, businesses should make sure that managers comply with their fiduciary and ethical responsibility to maximize the wealth of the people who pay their salaries, i.e., the shareholders.
The HBS oath aims to achieve exactly the opposite by including the whole world as a stakeholder. If MBA students insist on taking an oath that promotes better corporate governance, I would propose the following: "I pledge to maximize the wealth of the people who pay my salary, i.e., the shareholders, unless the shareholders tell me in advance that they want me to do something else."
Con: A Path to Integrity
The MBA oath will come to be seen as a declaration of a new way of thinking, and will significantly prevent future misdeeds. The opening sentence of the oath states a new perspective:
"As a manager, my purpose is to serve the greater good by bringing people and resources together to create value that no single individual can build alone."
This language explicitly links managers’ actions to a larger, social purpose. It rejects the belief that the aggregate of individuals’ self-aggrandizing behavior best maximizes social good. It’s both an ethical statement and an economic statement.
A new, hyperlinked economy is emerging. Business is more interdependent than ever before. Yet our business vocabulary is still dominated by our competitive relationships, not by our common interests. Rather than linking value creation to "sustainable competitive advantage" and "maximization of shareholder wealth," the oath links it to collaboration with others.
Old competition-based thinking will continue to exert drag, but new realities are compelling us to see that success is increasingly driven by collaboration, not competition. The oath is a wake-up call to review the world in which business operates.
Business has come to believe in management by monetary incentive and leadership by pushing the boundaries of the legally permissible. We rely on external force to correct excesses: laws, processes, prosecution, and regulation. There is no internal belief system beyond self-aggrandizement.
We have forgotten another belief system, one articulated by Nelson Mandela in the movie Invictus: leadership by example, and management by inspiration.
The oath invokes both. The absence of enforcement mechanisms doesn’t weaken the oath—it underscores the idea that management itself must be responsible. An oath made to a regulatory agency is worth nothing; an oath to one’s own society is binding.
The oath will be effective, because it’s an idea for our times.