Why business can be a force for good in SA – INSEAD’s Ilian Mihov

JOHANNESBURG — On a recent trip to South Africa, Professor Ilian Mihov, the Dean of renowned global business school INSEAD, took the time to chat to us at BizNews. In this wide-ranging interview, Mihov explains why business can be and, in many ways, already is a major force for good in the world. He also explains how he thinks South Africa has tremendous potential and why it too can benefit dramatically from just getting on the path of becoming a more business-friendly destination. He also explains the value of an MBA in today’s world and why INSEAD wants to see more students from Africa joining its ranks and alumni. It’s fascinating to hear an outsider’s perspective on the challenges and opportunities that South Africa and Africa face. Take a listen. – Gareth van Zyl

With me on the podcast is Prof Ilian Mihov who is the Dean of global business school INSEAD. Ilian, thank you very much for joining me.

Thank you. It’s a pleasure to be here.

So at the time of this interview, you’re currently visiting South Africa. What is the purpose of your visit here?

Well, INSEAD is a Global Business School. In fact, we consider ourselves as the business school for the world and at INSEAD we have 94 nationalities with no dominant culture. The biggest group at INSEAD is only 10% of the entire class. It’s a very diverse group of MBA students. For us, diversity is part of our DNA. It’s very important. The purpose of this trip is actually to engage more with the South African candidates and alumni to get them closer to INSEAD – to basically show them what INSEAD can offer because I strongly believe that in order for a country to succeed in building a better life for everybody, we do need human capital. We do need business leaders that are aware of the challenges today, that are capable of leading and creating a new country.

What are your thoughts on the state of the economy right now and the business environment in South Africa? I know that you’re  here on a short visit but what have been the key takeaways for you – because at the moment, it’s quite a depressed environment.

Well, I agree. There are a lot of challenges that the country is facing. Growth has slowed down and there are a lot of challenges in how you create a business environment that is conducive to business creation, to human capital, and to how you create inclusive growth. These are big challenges but at the same time, I think that there are also great opportunities. So, obviously, South Africa has amazing natural resources. There is a lot of willingness in some parts of the population to create this inclusive growth. I actually am a macroeconomist so I teach economic growth and when you look at countries like South Africa, you can only be excited by the opportunities that can lie in front of this country. At the same time, it does require a lot of changes and I think that it is a difficult situation but from my point of view there is also a reason for optimism.

We’ve got a big election coming up next month. Do you think the country is capable of making those changes to realise the potential that you’ve just discussed?

Well, to be honest, I don’t know. The listeners probably know much more about South African politics than I will ever know. But to me, the fundamental thing is that there are a couple of key ingredients to growth and to restarting the engine of growth. The first one is the very simple realisation that the only engine of economic growth in the long run is business creation. At the same time, we have to realise that if you want to eliminate poverty; if you want to eradicate poverty, you need growth. Without growth, there is no sustainable way of dealing with poverty. Of course, we have to create more inclusive growth but, fundamentally, growth that drives a reduction in poverty. One very important example is China. In 1980 in China, there were 840 million people – 85% of the Chinese population – who lived below the extreme poverty line, which was $1.90/day. Today, there are less than 20 million people so it’s a miracle that happened in China.

It has happened before in Singapore. It has happened in Japan. It has happened in many countries around the world and when you start going back and asking yourself, “How did this miracle happen? How did they manage to eradicate poverty and to improve economic welfare?” — the only answer is economic growth and business creation. Once we start with this fundamental understanding, we have to ask ourselves ‘how do we create the right environment for business creation’ and this is where I think South Africa has a big opportunity to improve. Fundamentally, what is important is to create the right institutions for economic growth and to ensure that there is rule of law, that there’s less corruption, political stability. The World Bank has its project where it monitors doing business indicators where South Africa is ranked number 82 this year, if I’m not wrong.

But there are some fundamental things there that can be easily improved. For example, the reason I like the World Bank’s doing business indicators is because they are very concrete. When we talk about having the broader institutions such as democracy, it’s very difficult to measure what democracy exactly is, or rule of law. But the doing business indicators are very easy to measure. For example, you can measure how many days would it take you to register a company. In Singapore, which is usually ranked number 1 or number 2 in this ranking, it takes about a day or two. In fact, in 2007, I registered my own company. I was sitting on my terrace with my laptop and two hours later, I received a PDF file with the articles of memorandum of association and I printed it. I had a company two hours later. In South Africa, it takes you 40 days to register a company. Now once these things start changing, you realise that people will start creating more and more companies, and ultimately will drive growth at the end of the day.

I don’t know what the next government in South Africa will do but I will strongly urge them to look at these things, and to make sure that people can create businesses. And of course, there are responsibilities on the shoulders of business leaders as well but we can discuss that later.

One of the topics that you are passionate about is how business can be a force for good. How do you see that playing out in a continent like Africa?

Business as a force for growth has two interpretations. There is the narrow one, which I always insist that we mention – because otherwise people forget it. And this is exactly the thing that I was talking about before: if your objective is to improve economic welfare, reduce poverty, increase lifespan, and improve healthcare then the only thing that can lead to lasting improvement is economic growth. So, business as a force for good has a narrow interpretation where business creation generates economic growth and leads to all these objectives that societies usually have. However, this is only the narrow interpretation of business as a force for good because even in light of all these great improvements in terms of poverty reduction over the last 14 years, trust in business has been going down in many countries around the world.

Tension between businesses and societies has been increasing and, today, if you look at some of the measures of trust like one of the PR companies that actually measure trust – one of the questions they have is: what is driving CEOs? And 56% of the general public in the world believe that they are driven primarily by greed. So, the trust is eroding and we started asking the question: what is really happening? This engine of economic growth and economic improvement at the same time is being vilified and criticised by so many people. We realised that amid the positive value creation for the company, very often, companies or CEOs create externality that might be damaging for societies or for the environment.

Business as a force for good now goes beyond the narrow interpretation to a broader one where we want to make sure that in the process of value creation for the company, business leaders, executives, and decision-makers think about the impact that they have on societies and the environment. Try to find solutions and new business models that will improve the state of the environment, and will actually continue human progress and cyber progress. So, I think that this is possible. I think that there are many companies around the world that have done this but it requires a change in mindset, a change in social norms, and a change in what we think is acceptable and what kind of behaviour is unacceptable.

Just in terms of your students from Africa, do you have a lot of students from this part of the world?

Unfortunately, not, and that’s why we decided that we want to engage more with Africa. I really think that for us, INSEAD was started on the idea of diversity, inclusion, and tolerance. Our founders wanted to create a school in Europe that would bring Europeans from all over the continent to work together, and to build businesses together instead of fighting with each other. The school was started in 1959 and if you look at the history of Europe; for the previous centuries, Europeans were fighting with each other every 20/30 years in a small or big war. So, the vision of INSEAD was to create a school where, through building businesses, we would promote peace and prosperity. That is why now, as a business school for the world, Africa is very important. We want to have the benefit of increasing our diversity. We know the big value of diversity and we want to increase our diversity and through this, we think we can actually contribute in one way or another in the development of this part of the world. To completely answer your question, we only have about 4% of our students who are coming from Africa and I think this is too little for us and I think, for Africa.

I believe that you also have an active scholarship programme that students from around the world can take part in, including Africa, correct?

Absolutely. We have several scholarships for African students. We’re trying to raise more money for scholarships. We understand that if you want to increase socio-economic diversity, then you need to go through scholarships. It’s impossible for some people to afford studying at an institute or any other top business school without a scholarship. Even though at the end of the day, the reward for taking an MBA is that you will be sure that in 99% of the cases you can repay a loan but many people actually are risk-averse and they feel uncomfortable taking so much money as a loan just for their education. I’m originally from Bulgaria and I’ve done my undergraduate degree in the United States and my PhD and my education benefitted from scholarships. I would not be here without scholarships, so I really understand how important they are for certain parts of the population.

What is the value, in your opinion, of an MBA in today’s world where it seems like more and more people are getting them?

Well, I think that I can speak about the value of the INSEAD MBA but probably also more generally. At the institute, we try to build these competencies and without these competencies, we cannot put our standard ‘you have an INSEAD MBA’ so you have to know finance, accounting strategy, economic organisation behaviour, statistics etc. So, these are important things but what is more important – beyond the competencies – is actually to start building character and to start the leadership journey, to start a process of reflection… How do I make decisions? How do I ensure that 10/15 years from now when I look at my decisions, I will not be disappointed? Forget about the others. How do you make responsible, ethical decisions?

Ethics is something that is very personal but what we do at INSEAD more and more now, is we do this transformational program where people become much more reflective because we believe that many of the mistakes that CEOs, executives, and managers have made in the past are not necessarily driven because of being evil or ill-intentioned but because of the biases that we have in the decision-making process. Reflection is like a muscle. If you want too get big biceps, you have to do a lot of curl-ups with dumbbells. If you want to be reflective, you have to start training because, otherwise, you don’t have the automatic urge to reflect on our actions and the implications of these actions. So, I think that this is important because it will help you make better decisions. The network that we have created in the last 60 years is absolutely in parallel.

We have 58,000 alumni in 175 countries. This helps you in your entrepreneurial adventures if you want to work with some of your classmates or some other alumni. Actually, sometimes, if you need venture capital, some of them will come forward and so this for you, etc. I think that there are a lot of benefits but besides competencies and reflection, the network and the values that we try to instil are very important.

Ilian, thank you so much for taking the time to chat with me today.

Thank you Gareth. It was a pleasure.