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Professor Strives to Makes Business a Force For Good









 
 

Professor Strives to Make Business a Force for Good

The business world promotes wealth acquisition above other human drives, according to Michael Pirson, Ph.D.

Photo by Patrick Verel

By Patrick Verel

The 2008 economic crisis exposed sobering truths about how the American financial system needs to be overhauled, according to Michael Pirson, Ph.D., assistant professor of management systems in the Graduate School of Business Administration.

Pirson is a founding partner of the Humanistic Management Network, a group of scholars, practitioners and policymakers who promote a life-conducive economic system. The network seeks to alter contemporary economics to decrease its emphasis on wealth creation as the ultimate objective and instead focus on well-being creation to better people’s lives.

“Economics began during the Enlightenment as a way to provide people with freedom and allow them self-determination so that they might find personal fulfillment. Before that, many people were deprived of their right to freedom because they were bound by royalty and obedience to kings, or by the clergy and to the church,” he said.

“That was a very enlightened project, but it derailed quite a bit because today many people are unhappy in their work, and they’re not doing what they want to do. Instead, they’re performing some sort of obligation in order to have a life.”

Pirson promotes reforms that he said would rein in the reckless behavior that caused the financial meltdown of 2008. His proposals are rooted in the theory that all people possess four basic drives: to acquire, to defend, to bond and to comprehend.

The problem is that the economic system places far more value on the drive to acquire than it does on the others.

“At this point, in the basic management-of-business world, we’re focusing on the drive to acquire. That means maximizing income, maximizing power, maximizing status—maybe even maximizing beauty,” he said.

“From science we know, however, that the happiest people are those who have all four drives balanced. They have enough to eat, enough to live off of, enough status and they are protected such that they don’t need to think about whether they will be fired or shot, and they also have good social relationships and a deep sense of purpose.”

At an extreme end of the spectrum is someone who has only the desire to acquire. Bernie Madoff is a good example, said Pirson, as are the CEOs of many Wall Street banks. But while sociopaths who enter politics are subject to the will of the voters, the same cannot be said for those who enter the business world, he said.

“A corporation is basically a feudal, dictatorial system, where some guy is running the show and giving orders, and there’s no control,” he said. “We can do some things that democratize the corporation.”

In the paper “Could the 2008 U.S. Financial Crisis be Avoided with Network Governance?” Pirson argued that the bankruptcy of Lehman Brothers shows the inadequacy of the system by which a unitary board of directors advises a CEO.

In theory, a board of directors provides advice to a CEO and puts the brakes on plans it feels are not prudent. But since the CEO is privy to more information about the firm than the board members are, the board is at a disadvantage.

“The control function at Lehman Brothers did not work. Risk was not managed well on the CEO level or on the board level,” Pirson said.

“This system supposedly supports shareholder rights and shareholder value maximization, but in reality it hurts all shareholders as well as people beyond the corporation. Democratizing the decision-making structure can help protect shareholders and everybody else because information would come directly to the board from different levels of the company.

“Maybe you don’t want to have one board with only 10 people. We know that one person can take in a finite amount of information before he or she gets overwhelmed. So maybe you would want to have separate boards with more than 10 people total.”

In the paper “Social Entrepreneurs as Paragons of Shared Value Creation? A Critical Perspective,” Pirson explained how the system is stacked against business owners who choose to put social good ahead of profitability. He detailed the story of GrameenPhone, a project conceived by investment banker Iqbal Quadir and Nobel Laureate Muhammad Yunus, which aimed to cover Bangladesh with telecommunications services by using mobile technologies.

While it achieved major success in increasing the telecommunications capabilities of poor residents, the company was subjected to enormous pressure to increase profits when it sought partners to expand. It eventually abandoned plans to cover the entire country and focused exclusively on cities.

Pirson laid the blame for much of this pressure on financial analysts, who he said are often young and unfamiliar with what it takes to run a company.

“Once companies are publicly listed, they are under great pressure to move toward financial value first. What they do is not even financial value creation so much as it is shareholder value maximization in the short term,” Pirson said.

“It’s actually very difficult to maximize shareholder value over time because who knows what’s going to happen in 10 years? The only thing you can do is reduce costs over a three-month period. That’s what happens usually, and that’s the problem with being a public company subjected to financial analysts. These guys don’t know what really maximizes shareholder value in the first place.”

 


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