Motley Fool Money - What Business School is Missing

Episode Date: July 27, 2025

So what is the role of business? Motley Fool contributor Rich Lumelleau and Motley Fool analyst Dave Meier talk with Andy Hoffman, Professor at University of Michigan’s Ross School of Business and School of Sustainability. He’s the author of 14 books, including his most recent, Business School and the Noble Purpose of the Market. The conversation covers a motley array of topics: Business and Sustainability Business School ESG Funds Heresy to Dogma Sectors to Watch Host: Rich Lumelleau, Dave Meir Producer: Mac Greer Engineer: Dan Boyd, Natasha Hall Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit ⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

We are now altering systems of the earth. These aren't environmental issues. These are systems breakdowns. To fix the system's breakdown, you have to fix the system that's causing it. That's capitalism. That's the market. And so I am arguing that we need to start to rethink some of the tenets of the market. I'm not arguing for socialism.

Don't worry. But I'm arguing that, you know, my sphere of influence is business education. And so we need to teach business students to be stewards of the market, to recognize this is how the market works. This is what it does. This is where it may not work right so well. And this is how you can play a role in getting it in the right direction. That was Andy Hoffman, professor at University of Michigan's Ross School of Business and School of Sustainability.

He's the author of 14 books, including his most recent, business school and the noble purpose of the market. Now recently, Motleyful contributor, Rich Lumello, and Motleyful Ampley. journalist Dave Meyer talked with Hoffman about sustainability in business. Rich kick things off by asking Hoffman about his background. Obviously, there's a lot of ground to cover here, but I thought what we do is open things up, maybe give us a little bit on your background, including your career path and, you know, kind of how that led to this focus on sustainability and, you know, and then obviously how it impacts the business and the environment. Oh, boy, how do I make that a short story. Yeah, take as much time as you need.

You don't. I mean, I got interested in environmental issues when I was an undergrad. It's interesting because I was a chemical engineering undergrad, and environmental issues really weren't a thing. And so I said I wanted to do an environmental miner, which basically meant wastewater engineering. The concerns we have today just didn't exist then. I did that.

I worked for the EPA for a couple of years, didn't really like it, became a house builder. And I built custom homes. for five years, some very large custom homes. The largest was 29,000 square feet. Went back to grad school. Environmental issues were starting to get much more interesting. Business was doing it because they saw a reason to do it.

And they were an ally in it rather than an opponent. When I was at the EPA, I was an inspector. I just showed up at people's doors and ruined their day by doing an inspection. And now companies were actually focusing on these issues in a constructive way, because at the end of the day, Something that animates my work is that if we're going to solve these problems, they have to be solved by the market. The market is the most powerful institution on earth, business most powerful entity within it.

If they're not solving it, they won't be solved. And so that's why I focus on business and sustainability. And I got my PhD in 1995 at a time where, again, this really wasn't a central aspect. I love to tell people that when I was trying to get business school professors to be on my committee, most of them, most, almost all of them, told me, what are you doing there? It's nothing new with business. Go to a school of government. And now those very same professors, with sustainability is one of the areas of expertise and the schools that I went to and many others less sustainability is a central focus. So the world has changed a lot. And I cannot say

that I caused it, but I can say I was just lucky enough to be right at the wave as it was starting to take off. I thought we would maybe jump into the book. And I thought we would do it like this. So I came from, before I joined the Molly Fool, I was an engineer and I was working up, doing more business-related work at General Electric, the titan of corporate, of corporations, right? And I got my MBA because they said, hey, you're doing a good job. Would you like to do it? I said, sure in 2000 and 2002. Where have I gone wrong? Use the book and tell me where where did they fail me? And you will not hurt my feelings because I actually think I've grown a little bit since then. Okay. Well, first of all, just to find a little anecdote, the first time I was a carpenter on was Jack Welsh is on the Antucket.

Oh, wow. Yeah, you might find that in the 80s. He's an interesting character. I'll say that. He certainly was. But, You know, I think what I would say to you is that the MBA you got in 2002 probably didn't differ a lot from the MBA you couldn't have gotten in 82, 92, 2012 or even 2022. The degree is ossified. And so you'll learn a lot about the how of business, the very little coverage of the why of business. Why are you doing this? What is the role of business in society? and while that may have not have been a hugely pressing concern then it is today. And so I just think that students need to be taught more about what is the role of business society, what is their role as manager, how are they going to address the issues that society faces? Because at the end of the day, the original purpose of business school,

Rakesh Karana from Harvard University has a book called From Higher Ames, to hire at hands. And he likes to point out that when business goals were first proposed in the early 1900s, the university said, no, this isn't an area of academic inquiry. They said, no, we're going to teach the titans of industry how to run commerce and service to society. We're going to teach them, like we teach doctors to serve society. And the point of his book is that we've lost that mandate. Yeah. And so my book is a call to say, let's get it back. What does leadership really look like? On the power of advice, a new podcast series from Capital Group, you'll hear from athletes, entrepreneurs, and executives who've led on the field, in the boardroom, and in their communities.

It's not about titles. It's about impact. Discover what drives them and the advice they carry forward. Subscribe and start listening today. Published by Capital Client Group, Inc. One of the fortunes that I've had working with the Motley Fool is I actually worked in our asset management business, you know, manage money for clients as opposed to, you know, in a publishing type, in a publishing way. And one of the things that I saw about 10 years ago was the rise in popularity of ESG-type funds. Not only was there a framework to say, hey, you can actually evaluate a management team this way, but there were people who were raising capital, right, to put it in a fund structure. One, what was your, how did that impact the way you were thinking about things?

And two, like, was that a good sign? meaning that capitalism was actually starting to facilitate this. Maybe, you know, how has it gone from, how, based on your experience and what you've researched, how has it gone from there? Well, certainly monetizing it is the way to get into the market. And so investing, finance is certainly one way to do it. We can talk about the stumbling that's happened since then. But I would add one thing, and we can talk about this.

this more, but another avenue through which these issues are getting monetized is insurance, and that's happening right now. Insurance rates in this country are going up property insurance across the board, and not just L.A. where there's a wildfire or Florida, whether it's a hurricane, but the Midwest, where what they call secondary perils, just ordinary events that are now extraordinary. We now have a new vocabulary for atmospheric rivers. These costs insurance companies a lot of money, and so they're reducing coverage, they're raising deductibles, their limiting coverage, they're even withdrawing from some markets, and that will

ripple through the economy. That will change real estate markets. So back to finance, ESG became a lightning run because... Sure did. Yeah, receiving this as favoring some companies more than others and not serving their clients well, Black Rock and State Street and others. And you know, there was some, what was Alan Greensman's term, irrational exuberance, that, you know, a lot of the mantra that, you know, doing good by doing well, I think is the way it was phrased, and some people weren't as critical. I would also add, though, that a lot of the pushback, particularly from state's attorney generals, is coming from states where their domestic industries

are going to be harmed by a shift, for example, away from fossil fuels. And so that is part of the push. Do we have to get off fossil fuels if we're going to address climate change? Yes. Is it going to cost certain economies on a local scale money? Yes. Are they going to push back? Yes.

And so that's what we're dealing with. But I just think that we need to become much more sophisticated in how we think about sustainability in finance. When does it actually impact your investments? think about it carefully. Don't just make a bottom line assumption that it's good for the environment, it's good for my bottom line. Because I would also add, the pendulum has swung.

Because now you've got some investment funds that are anti-woke investment funds, and they are doing the same thing on the other end of the spectrum. The Wall Street Journal just had a story about this last week saying, you know, some of these anti-woke funds, like one of them they looked at it was 85% S&P 500, and they're charging huge management fees, and they're not doing anything special. So really think carefully about how issues like climate change impact certain sectors. If you rely on water, if you're on the coast, if you're in agriculture, climate change is something you better be focusing on very, very carefully.

That's a very good point because I moved from the Northern Virginia area to the coast. I live just south of Myrtle Beach. And my latest escrow assessment said, hey, you're paying about $200 a month more. And I'm like, what's going on? And sure enough, it was because my insurance for my house went up because it's near to the coast. And so I totally get it. And that can bring up opportunities for innovation. building codes have been very slow to change.

But in Florida, there's a development called Babcock Ranch that actually became a haven during the last hurricane because it was designed to withstand the storms that were coming. That used to be 100-year storms that are now happening with much more frequently. They have a lot of wetlands to absorb the storm blow. They kept buildings low. They made them stronger. They buried all the utilities. This is smart investing. These days I'm all about quality over quantity, especially in my closet.

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kind of corporate America. I don't know if you would consider that sustainability one point zero back then or point one or whatever you want to call it. But how are things kind of evolved? What did things look like then versus what they look like now? Well, you know, for your listeners, the metaphor of heresy to dogma comes from, I did my dissertation. Part of it was at the Amico Corporation. Remember the Amico Corporation? and the vice president for EH&S, environmental health and safety, told me a story where he was at a senior director's meeting and the CEO at the time said we expect environmental constraints to become more stringent, both here and abroad. And so an environmentally progressive company like Amico, we expect us to provide strategic advantage. And the head of UK operations leaned over to the gentleman's name is Wally Kwanstrom.

I hope he's listening. and he said, how does it feel to hear your heresy become dogma? And so that was the metaphor of issues of the environment in particular entering the market and influencing corporate strategy in way that companies thought in their interests to address these kinds of problems. And so that I see as sustainability 1.0. I would teach this. I would give talks of business audiences saying, you don't even need to see the climate change is real.

if your insurance companies care about it, if your investors care about it, your customers, government, you reframe it in the language of business. It's regulatory compliance. It's consumer demand. It's operational efficiency. And you will address it. In Sustainability 2.0, it's recognizing that while this is good, it will not solve the problem. It will slow down the velocity at which we're running into a brick ball, but it won't reverse course.

We are now at a place where, without getting too existential about this, a place where human beings have not been before. We start to think about issues like climate change or other issues of the Anthropocene, whether it's species extinction, ocean acidification, freshwater availability, nitrogen and phosphorus in the natural environment. We are now altering systems of the earth. These aren't environmental issues. These are systems breakdowns. to fix the system to break down, you have to fix the system that's causing it. That's capitalism. That's the market. And so I am arguing that we need to start to rethink some of the tenets of the market. I'm not arguing for socialism.

Don't worry. But I'm arguing that my sphere of influence is business education. And so we need to teach business students to be stewards of the market, to recognize this is how the market works. This is what it does. This is where it may not work quite so well. And this is how you can play a role in getting it in the right direction. That was University of Michigan professor Andy Hoffman.

His book again is Business School and the noble purpose of the market. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for our guest. So don't buy or sell stock space solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes.

For the Motley Full Money team, I'm Matt Greer. Thanks for listening and see you tomorrow.