Harvard Business School bottom-line-only philosophy has had a poisonous effect on American business practices.

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Wednesday, January 09, 2002

Biz School Blindness
Sank Enron


Harvard Business School: It's called the West Point of capitalism. In fact, the school's bottom-line-only philosophy has had a poisonous effect on American business practices.
The Enron disaster is the most recent and spectacular manifestation.

To illustrate my point, let me take you back to a classroom at the school in the late winter of 1978. The course was productions and operation management, taught by Chip Bupp, a thoughtful and serious man.

On this particular day, the case study involved a company that manufactured a product that might be harmful, even fatal, to the consumer. The question was, what should you do, if you were the company's CEO, in such an ambiguous but potentially dangerous situation?

Several students offered suggestions, none of which galvanized the class. Then a hand shot up, and Bupp said, "Jeff, what would you do?"

Jeff, with his thinning blond hair, wire-rim spectacles and slight Southern drawl, was one of the brightest members of the class and a natural leader. When he talked, as the commercial used to say, everyone listened.

"I'd keep making and selling the product," Jeff said. "My job as a businessman is to be a profit center and to maximize return to the shareholders. It's the government's job to step in if a product is dangerous." Several heads nodded.

Neither Jeff nor those who agreed with him seemed to care about the potential effects of their cavalier attitude. What if the product really did harm consumers? How about the company's employees? Were they in danger during the manufacture of the product? What would happen to the company if the CEO's decision was wrong?

Few in the classroom that day dared to raise these questions. At Harvard Business School and business schools nationwide you're considered soft, a wuss, if you dwell on morality or scruples.

As the years went by, Jeff had a meteoric career. He became a partner in the McKinsey consulting firm. From there he joined Enron and was soon promoted to president and chief executive officer.

Jeff is Jeffrey Skilling, who resigned under unexplained circumstances in August after only six months on the job.

In two stock sales before and after his departure, he cashed out $30.6 million worth of Enron stock.

Skilling and other senior managers encouraged employees to buy and keep Enron stock, even when things started to sour, while they were hurriedly selling huge blocks of their own stock. And now Enron has collapsed, "the largest bankruptcy case in American history," according to Sen. John McCain (R-Ariz.).

One analyst told CNBC, "It's the biggest insider trading scandal ever." Another observer said, "Enron was run to benefit the top executives. They literally looted the company."

Yet Skilling proclaims total ignorance of any problems. "I had no idea the company was in anything but excellent shape," he has said.

Articles about Skilling written since the demise of his company cite his arrogance and cold-heartedness. But as I witnessed sitting in that Harvard Business School classroom nearly 24 years ago, the seeds of his destruction grew out of a gross misunderstanding about the role of a business leader in our society. In his view, it is to be "a profit center" and to "maximize return for the shareholder," no matter the peril to consumers or employees.

Harvard and other business schools must pay more than lip service to the gross ethical blind spots that the Enron case has exposed. Starting with an admissions policy that selects potential students for ethics and character as well as brains, these institutions need to return to the goal of teaching their students to be good citizens first and moneymakers second.

America can't afford many more Enrons or Jeffrey Skilling-like CEOs.

LeBoutillier graduated from Harvard Business School in 1979.
He is the author of "Harvard Hates America."

-- Cherri (jessam5@home.com), January 10, 2002

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