Doing the right thing, is the wrong thing for most investors. That’s a surprising admission from the gold standard for MBAs. But Clay Christensen and Derek van Bever of Harvard Business School have a more important admonition — not changing the standard could mean their students won’t find the exciting jobs they want.
In writing The Capitalist’s Dilemma, Christensen and van Bever crowd-sourced information from 150 alumni. And they point out financial measures like internal rate of return (IRR) and return on invested capital (ROIC) were designed when financial capital was scarce. But, capital is no longer scarce.
A recent Bain & Company concludes we have entered a new environment of “capital superabundance.” Bain estimates that total financial assets are today almost 10 times the value of the global output of all goods and services. And Christensen and van Bever think we are awash in capital, and should not fear scarcity.
More importantly, continuing to adhere to these measures will force corporations to focus on efficiency improvements which eliminate jobs, rather than market-creating innovations, which generate them. And worse yet, even pension funds, who should have a longer term view, suffer from the same nearsightedness.
So if a company pursued both purpose and profit, what would it look like? Google. They exemplify what it means to pursue both purpose and profit.
Photo licensed under Creative Commons from grmisiti on flickr