A Confused Mess

Bill Sandberg, Associate Professor of Management at the Moore School of Business University of South Carolina, sent this email concerning my post "A Crime By Any Other Name."

"What a confused mess Professors Fisman and Khurana have offered in place of a reasoned critique. They attribute the corrupt, self-enriching deeds of some corporate executives to what they claim is business schools' emphasis on a selfish doctrine of shareholder wealth maximization. The professors assert that this pernicious doctrine drove out the b-schools' former teaching that management is a profession that bears fiduciary responsibilities. In the current climate of financial upheaval and widespread fear, the professors' arguments will find a receptive audience. That's unfortunate, because their reasoning is either sloppy or slippery, but it's a mess either way.

If business schools have taught a doctrine of maximizing shareholder wealth, the execs in the professors' crosshairs are poor practitioners of that doctrine. The professors accuse execs of plundering "organizational resources"--which means the assets belonging to shareholders. Some maximizers of shareholder wealth those execs are!

Ben Rast zeroed in on the professors' greater offense: while purporting to stand up for the organizations that have lost resources to the rapacious execs, the professors actually employ a sleight-of-hand to shift the focus to "society's resources". But those resources never belonged to society; they were the property of the corporation, and therefore belonged to its shareholders.

The fiduciary responsibilities inherent in the profession of management are essentially those of an agent. An agent is empowered to act in behalf of a principal but not against the principal's interests. The doctrine that managers are agents of shareholders does not diminish managers' fiduciary responsibilities, and the law certainly allows different degrees of risk-taking within the bounds of fiduciary responsibility, depending on the goals or needs of the person on whose behalf the fiduciary acts. A trustee has a fiduciary responsibility to the trust's beneficiaries, for example, and not to society at large. Depending on the terms of the trust, he or she may manage its assets aggressively or conservatively, and may take single or multiple objectives into consideration. To society the trustee owes compliance with the law but not the subordination of the trust's interests to the claimed interests of society. 

From the vantage point of a b-school that's far less exalted than Columbia or Harvard, I'd say the professors' argumentation falls short of professional standards."