Recent election shenanigans have prompted use of some of my least favorite phrases—“good business” and “just business.” These phrases are often invoked when observing behavior that recalls the banker Henry Potter from It’s a Wonderful Life—a mean-spirited Scrooge living high off squeezing the little guy. Unfortunately, such portrayals give the average American a sense that “good business” is consistent with “not a very good person.”
“It’s just business” is no excuse for engaging in behavior that appears morally bankrupt. As a business school professor, I feel compelled to clarify what I believe is “good business.” I do not want the country to think that our goal is to churn out legions of misogynistic, xenophobic, self-centered, and narrow-minded “businesspeople” who worship the almighty dollar (or tax loss?).
So just in case you were wondering, “What the heck do they teach in business schools?”
Leveraging Diversity. Being able to involve and manage diverse and inclusive teams is good business. At all levels of the firm, including women, minorities, and immigrants makes for better problem-solving and more creative solutions necessary for the innovation economy. Companies with a higher percentage of women in leadership positions financially perform better. Women-founded businesses are more profitable than those founded by men. Immigrants start ventures at a higher rate than average and with better success. Some categories of job losses, for example, in manufacturing, that have particularly hurt Middle America have been driven elsewhere by improving business practices in other countries— good business is not limited to the United States!
Will “returning to greatness” involve bringing back the buggy whip? I think not. We need to fill talent gaps in the innovation economy by retraining workers for the future. Looking in the rearview mirror, limiting diversity, and blaming others for market forces is not good leadership—it is a recipe for bankruptcy. I teach future business leaders to recognize comparative and competitive advantage and leverage it, not to build walls to isolate ourselves from competition, progress, and people who are different from us.
Paying Taxes. While not many of us love paying taxes, I do recognize that taxes support the police, military, educational institutions, and infrastructure that protect us. They also allow businesses to function and prosper. Good accounting does involve identifying ways to minimize taxes given a certain level of profitability. But Uncle Sam should get his due. And if a business loses money, there are mechanisms like tax-loss carry forwards to get some future tax relief from those losses. But losing enough money in one year to even legally offset 20 years of gain would hardly be viewed as good business—one hopes to, on average, do more than break even over time! I can’t imagine an accounting colleague telling students: “And the cool thing is, if you play your cards right and lose enough money, you can avoid taxes for decades!” Paying taxes is a badge of honor that you are winning. So no, I do not teach my business school students that taxes are evil.
Using Metrics. Most of us know the adage “You can’t manage what you don’t measure.” Across disciplines, I certainly teach my students to identify metrics of success and measure progress along the way. And different types of businesses may rely on different measures. A high growth software venture, for example, may focus on top-line growth and number of users versus earnings per share or net income. A capital-intensive business may choose to focus on return on equity versus return on assets.
Good business leaders select the metrics that are appropriate for the narrative they are telling and their context. But -- there are two important caveats to the responsible use of numbers for leaders to be credible over time. First, they should not choose metrics that misrepresent the reality of the situation—e.g., on average we are not losing jobs, though some categories of the economy are indeed hurting. Second, a good business leader NEVER lies about the numbers. An entrepreneur who was found to be true or mostly true only 16% of the time, or to be misrepresenting information over 70% of the time, would not survive or build sustainable businesses. While I may teach selective and strategic use of metrics in business school, I do not teach my students to lie or misrepresent.
Identifying Undervalued Assets. Identifying undervalued assets is indeed a sound approach to investment and good business. Knowing that a market is due for a downturn, buying low and selling high after recovery shows business savvy. Warren Buffet is a great example of a business leader who is able to identify solid but undervalued assets, invest dollars, add talent, and implement sound management practices to those businesses to improve them. Adding strategic value is important here — simply engaging in financial transactions does not create jobs or spread economic wealth, particularly when one does not pay taxes. And “doing right” by your partners—actually paying your bills to the hosts of small businesses that help you create your empire—is essential for sustainable and sound business practice. “Winning” while bankrupting your support team is not what I teach as good business.
In summary, we teach that good business involves inclusive leadership that unites and ignites the workforce, not divides them. It embraces diverse opinion. Using the right metrics but not misleading stakeholders is central to sustainable leadership. Taxes, moreover, are a by-product of sound business practices over time. Finally, there is nothing wrong with buying distressed or undervalued assets. But taking advantage of the unfortunate and subsequently causing them financial distress is not good business. Getting them to vote for you 10 years later? That is not business—but it is unbelievable politics. Could you imagine the citizens of Bedford Falls electing Henry Potter as mayor?