Friday, May 22, 2009

BW: Are Business Schools' to Blame for Crisis?

As we've written in countless pieces there is enough blame to hand out in every direction... no one from misguided government programs, "only think for today" financially illiterate consumers, conflicted credit agencies, laughed at (and purposefully weakened) regulators, lobbyist groups running Congress,and many of our best and brightest in the corporate world - are innocent. And there are others I did not include even in that list...

Frankly, much of this disaster goes to the US ethos of: I want it now, I want it bigger, I want it better, and I deserve it - that seems to have overtaken the nation. Combine that with "kick the can down the road" on any problem and a lack of cost benefit analysis (we only think of benefits) and here we are. In the corporate world specifically - instant gratification, combined with a completely broken board of directors system (poor internal oversight in a "scratch my back, I'll scratch yours" world), along with "heads we win, tails we win" compensation culture (just "exist" in the top spot for 3 years no matter what you do and you have generational wealth) are the backbone of the ills in our public companies. So was much of this taught in the business schools? Yes "shareholder value" was "king" - but to point it out as a primary cause is far too simplistic. We have much broader structural issues here and policy dominated by extremist dogma rather than rational, centrist discussion...

That said, this is a thought provoking piece in BusinessWeek: MBA's - Public Enemy #1?
  • It's easy to see why MBAs are getting blamed for the financial crisis. In the 1970s when Lehman Brothers' Richard Fuld was attending NYU Stern School of Business and Merrill Lynch's Stan O'Neal was knocking around Harvard Business School , the gospel of shareholder value was gaining a stranglehold on the nation's business schools. Fuld, O'Neal, and other newly minted MBAs of their generation would go on to inherit a world where following that gospel—by boosting shareholder returns in the short-term—left them exceedingly rich. So it comes as no surprise that Fuld and O'Neal would, nearly 30 years later, make big bets on mortgage-backed securities that they believed would improve their bottom lines, but would ultimately destroy their companies and deal a body blow to the world economy.
  • The opposite case could just as easily be made. For one thing, a lot of MBAs go on to live the kinds of lives that could charitably be described as virtuous. And a lot of corporate leaders who were among the worst offenders in the current economic crisis never came within a stone's throw of an MBA, including Jim Cayne at Bear Stearns, Frank Raines at Fannie Mae, and the whole motley crew at AIG.
  • Whether, and to what extent, the nation's business schools laid the groundwork for the economic crisis is a debate that's engulfing the world of management education these days. Philip Delves Broughton, who received an MBA from Harvard and wrote about his experiences there in Ahead of the Curve: Two Years at Harvard Business School (Penguin Group, July 2008), calls the three-letter acronym "scarlet letters of shame," and suggests they stand for "Masters of the Business Apocalypse."
  • Harvard Business School itself—which produced a glut of recent failures, including Merrill Lynch's John Thain and General Motors' Rick Wagoner—is studying its role in the crisis. ... an HBR online debate about business schools' culpability in the crisis has raged on for weeks—with two out of three respondents to HBR's online poll saying business schools were at least partially responsible for their graduates' ethical lapses.
  • Business schools experienced a similar bout of external criticism and internal soul-searching in 2002, after the collapse of Enron ushered in an era of curriculum reform, ethics classes, and other changes. This time, the charge is more serious and systemic.
Key point
  • Business schools not only turned a blind eye to their students' ethical shortcomings, this argument goes, they enabled them. By focusing on shareholder value, they created the intellectual preconditions and theoretical frameworks that allowed a kind of moral relativism to flourish on campus and, ultimately, in the business world itself. "The unbridled free market as the answer to all problems became the basis for business education,"
Now, considering the 2nd most powerful man on Earth, the head of the Federal Reserve who is in part a REGULAR - also believed this, is it really a surprise? This was the national ethos? I have always said, if people are going to act in the best interest of the collective and regulation should disappear in the ethos, why do we even have policemen? The "free market" should fix itself - see Baghdad about 2 years ago. The problem is every time you bring up 'regulation' it's like 'socialism' - the extremes at the right and the left give their clarion call and then attack each other in 45 second sound bites. Booing and Hissing dominate... and that's our national debate. Sensible middle ground never has a chance.
  • While the shareholder maximization model gathered steam, business schools began fighting for top spots in media rankings. As a result, some business schools are more concerned with helping place students in high-paying jobs, say critics, than with educating them about how their decision making could affect the companies the work for and the economy at large.
  • "Business schools fell into the same trap as business media. They were not critical enough of what was going on, which made them complicit to the problem."
  • For business schools, the question of complicity in the crisis is a tricky one. Those who maintain that business schools are to blame are admitting a serious error in pedagogical judgment. Those who say the poor judgment of executives with MBAs who were implicated in the current crisis was entirely of their own making—the product of innate values and decades of on-the-job training—run an even bigger risk. "MBAs created a dominant view of business and its language and tools," says Angel Cabrera, president of Thunderbird School of Global Management . "To say we have no responsibility is to say the MBA is irrelevant."
  • For many in the business school community, the very notion of culpability is ludicrous. Sydney Finkelstein, professor of leadership and strategy at Dartmouth's Tuck School of Business "We don't create CEOs, and we don't destroy companies in business school,"
  • For many business school critics, the problem with how MBA programs approach the sorts of ethical conundrums that can result in global economic catastrophes is that in many cases they're treated as an afterthought. By creating ethics electives, programs have made it possible to spend two years in business school without pondering right and wrong in any systematic way—they've made integrity optional.
  • Complicating matters is the fact that the business leaders with MBAs who were at the heart of the crisis all received their degrees 30 years ago—long before the schools' current curriculums were developed, long before the current faculty arrived on the scene, and long before the rankings. Those men and women are products of an educational system that no longer exists. If business schools are to blame, then reform—in whatever form it takes—may be 30 years too late.
  • Khurana says the idea of self-interested leadership, as it's now advanced in the business school world and practiced in the world of business, must give way to something new: servant leadership with a focus not on self-aggrandizement, but "guided self-interest."
To that last point may I not quote but summarize Gordon Gecko: Keep dreamin'. Competent people with good morals will always be the same people with or without snazzy degrees. What needs to be asked in the business community is why "these" types don't seem to be rising to the top of the ladder of some of the "most important" public companies in America.

Again - we have structural and systematic issues....safeguards need to be built around the idea that some proportion of bad actors will always rise in any system. In our system, the bad actors get the same benefits as the good actors, and that in of itself - is a major cause of our ills.

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