Blame the Business Schools
I didn't watch CNN, Fox News, MSNBC, Brian Williams, Charles Gibson, or Katie Couric for the last two weeks during the bailout/rescue/recovery crisis, but I was glued to CNBC and watched Fox Business for a few hours on two days for the purpose of comparing and contrasting its coverage to CNBC's.
There was one issue that I did not see covered, the role that graduate business schools might have played in America's financial and credit markets meltdown. The media missed the story.
Who do you suppose came up with the concept of complex derivatives and credit swaps to manage risk? Who do you think conceived of the complex formulas and algorithms for risk management based on the mathematics of game theory - investment bankers or graduate business school professors?
The answers to these questions can be found in two recently published books: From Higher Aims to Hired Hands: the Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession by Harvard Business School Professor Rakesh Khurana and Managers Not MBAs: A Hard Look a the Soft Practice of Managing and Management Development by Professor of Management Studies at McGill University Henry Mintzberg. Both books are intelligent, scholarly indictments of current educational practices in graduate business schools, especially the top ones such as Harvard, Wharton, Stanford, and Dartmouth.
Khurana traces the history of management education that began in the late 1800s. Business educators' goal was to improve the reputation of management so it would be seen as a profession like law, medicine, and the clergy, with a strong public service commitment. However, after over a century of existence to think that graduates with business degree or and MBA today are committed to public service is a laughable.
Here's a prescient passage from Khurana's From Higher Aims to Hired Hands, written in 2007:
The market logic that has taken over business schools and American business has prevented us from even seeing that there might be an alternative to either markets or regulation as a way of preserving the integrity of our capitalist system.
This self-inflicted blindness is symptomatic of an even deeper malady. Lacking either the religious framework invoked by the founders of the modern university and the university-based business schools, or shared agreement about basic social values, we have no meaningful language for civic discourse about the ultimate purpose of our secular institutions. Thus, we have been left only with empty rhetoric about "excellence" or "leadership" with which to discuss the educational mission of the university. As a result, our universities are now apt to turn out what the late Robert Nisbet calls "loose individuals." The loose individual Nisbet described is someone who does not feel constrained by norms arising from social values such as fairness, or equity, or by allegiance to social institutions such as nations, firms, or even jobs. Such individuals lack any sense of "moral responsibility," often playing "fast and loose with the other individuals in relationships of trust and responsibility." Their relationships with those who are not their intimates are anchored in utilitarian self-interest.
So is it any wonder where the Wall Street greed that was at the core of the current market meltdown was nurtured? Congress has spanked former Chairman of the Federal Reserve Alan Greenspan, and under questioning he admitted his errors in judgment. The Senate and the House Banking Committees should ask the deans of the five top business schools to testify under oath, and ask these academics what they have done to contribute to the crisis and how they might change their ways.
If congress decides to summon a group of graduate business school deans, the deans will certainly be more concerned about whether or not they are asked to appear and are, thus, in the top five than they will be in taking any blame.
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This is a great column, and I couldn't agree more. I am currently an MBA student at Presidio in San Francisco, which is a program the focuses entirely on Sustainable Management. As opposed to a couple classes in sustainability and the integrated bottom line, this program weaves sustainability, social and environmental responsibility throughout the entire curriculum. All of the students there understand that this is an entirely new way of looking at business, and many graduates have gone on to have significant impacts on major organizations (even though the program is only 5 years old). Ethics are the foundation of what we are studying, and we've often discussed that the focus on quarterly profits is one of the many inherent flaws of our economic system. There are more schools like Presidio developing, but for now, rest assured, there are students working on changing the way business is done in the U.S.
Most of the companies I've worked for had maximizing returns to stockholders as their number one goal in their mission statements. Of course profits are important, but when maximizing profits is your primary consideration, any action is justifiable, no matter how callous, unethical, or illegal, as long as it is profitable.
There's a great passage in Dave Packard's book The HP Way, where he describes a post-WW2 meeting between industry leaders, and he articulated the need for corporations to behave as good citizens of their communities. The other participants looked at him like he was speaking in tongues. I don't think much has changed, except now they have PR departments.
I have been saying that the Wharton School of Business is to blame for this Economic Mess!
They encourage the Philosophy of "Quarterly Profits" over 5 Yr. Plans. Our father's generation understood
long term thinking creates a secure financial society. Tis a pity that no one from that previous generation could make the case that a "Me First' philosophy is ruination for all. I also think that Publicly held Corporations are terrible as it's ALL about lying to the value of the stock. This is what the CEO's Bonuses
are based on so it behooves them to Cook the Books! When Companies are privately owned they are more responsible to their employees, customers and communities. It's a 'Sad Day" when this even has to
be told to Greenspan!
I loved your comment -- I agree, they are teaching MBAs how to cook to the books.
Finally, somebody said it. Thanks, Mr. Warner!
Don't blame other academic disciplines. At a large Denver-area college, the business department has been waging a war against the philosophy department ever since the course called "Business Ethics" was mandated and assigned to the philosophy department in the 1990s. The various business and similar majors were told by their biz profs not to pay any attention to the evil communist philosophers who actually presumed to look at different possible theoretical approaches to ethical dilemmas. With the McCarthyite biz school rhetoric, biz students routinely got physically intimidating to the philosophy professors who refused to submit uncritically to Friedmanite dogma. I quit teaching at this school due to disgust with this situation.
Just a month or two ago, the biz school won the battle with the bureaucracy and will be the department teaching Business Ethics in the future. Just in time for the only theory they know, Friedman's, to have bit the dust.
Great insight. That college has just put the chicken thieves in charge of the hen house!
Business schools do indoctrinate as much as they teach. I have a business degree with a marketing major, but I showed a talent for economics and I received a small scholarship offer from the economics department. I still remember having the most frustrating exchanges with a few of my profs over the true nature of money, debt and banking. So much of it did not make any sense.
I see now that my education was typical. The agenda does not leave much room for questions that challenge the prevailing wisdom. My profs did not lie, but they too were indoctrinated.
In any case, several of my friends in medicine have told me horror stories about med school and the blatant lies which are being sold there. The influence of pharmaceutical manufacturers on doctors and nurses throughout their careers is a crime, and it is most severe in med schools.
Excellent comment. I talked to one of my doctors today and he said essentially the same thing. Ethics and a sense of public service has gone from the practice of medicine in many cases.
The real problem is our economic-business philosophy. Banking crisis is just another manifestation of a rotten philosophy. Ideas create reality and bad ideas create bad reality. The majority of MBA's I've met don't know how to create real wealth. They know how to make things more "efficient" while making the overall system ineffective. They know how to create paper "wealth", a process which always ends up in a disaster. They think models are reality and believe that manipulating models manipulates reality. Some of the most ignorant people I've met were MBA's.
Excellent comment. I see a big backlash in business against MBAs -- it's code for people who don't know how to manage people or have any social conscience.
Charlie,
Right friggin' on.
Thanks for saying so.
But, the ethics ain't the only thing.
What about the unsustainable, non-repayable debt-money system that underpins this whole shebang.
She's a coming down.
Ethics, or no ethics.
To have a debt-money based economy, or to NOT have a debt-money based economy, THAT IS THE QUESTION.
And which business school teaches the option of the sustainable, Treasury-based, debt-free money system?
The one in Antigonish.
refreshing, thank you! We need to look more to Hayak and Von Mises and our constitution. Sound money and only Congress to issue it.
"Allow me to issue and control a nation's money and I care not who writes its laws!" Amshell Rothschild
Great comment -- grounded in history.
BUSINESS SCHOOLS ONLY REINSTATED ETHICS CLASSES 3 YEARS AGO.
MOST OF US LEARNED ETHICS AT HOME !
Yes, which is where you should learn it. I think business schools give students a pill that causes them to forget what their parents taught them -- or should have taught them.
Here is the unspoken truth.
You dont pay $100,000+ at the top 5 MBA schools because of the curriculum or the teachers. You pay that kinda money for Networking, Contacts/rolodex and sometimes campus recruiting.
If you look at curricum quality they might not be that much better than 5-15 ranked schools and even some 2nd tier school. However, you cant recreate that kind of networking in the 2nd tier schools. and that is worth top $.
as a disclosure, i never went to an MBA school. Want to, but cant afford that kinda cashola. But if i had the balls to take on a 100 grand student loan debt, i would. its worth it.
again, it only makes sense to take on that kind of debt if you are going to top 5 or 10. Beyond that, save your cash and look for other options. The jump in salary for your remaining life wont cover for the opportunity costs for that kind of money that you would be giving up.
I think it will be harder for MBAs to repay loans -- the gravy train as left the station.
What's fun about business schools is that they don't really teach anything that a bright person didn't learn during high school. They don't teach college-level economics, just an "overview" (which corresponds to what is taught in high school). They don't teach college-level mathematics, just "business math" (which is less that what most high schools teach at the senior-year level). They certainly don't teach history or science or ethics in any meaningful sense.
And it isn't just the low-end schools that do this. I once had the dubious privilege of seeing the final exam of the most advanced math class offered by Kellogg, the business school affiliated with Northwestern University. It had nothing on it which I could not have answered after my junior year in high school. (I went back and checked.)
The fact of the matter is that business schools are a sham, designed to give a patina of respectability to people who would be unable to qualify for a real degree. And it has always been this way, too -- back around 1900, G. K. Chesterton wrote an essay in which he quoted a highly successful businessman as saying that "business educations" were useless for doing business.
A damning comment -- I agree. Graduate business schools are just a way to get your ticket punched and network. I kow many bright young people who have joined Wall Street firms but quit in disgust. One did the right thing -- opened up a local micro brewery.
There is probably lots of blame to throw around. While I take your message Charles, I wonder if there aren't more than a few 'professional' schools that have gone down a similar road. I got an MBA back in the 80s and wondered why I thought I needed it. Teaching 'business' has got to be a fool's game. But I then started noticing that other professions were getting a little too isolated and inbred, so to speak.
Even journalism schools are coming under scrutiny as they have seemed to produce a generation of know-nothing reporters who try to compensate for their inability to understand complex subjects by providing the 'fair and balanced' perspective. Or they focus on non-issues, like Palin's wardrobe expenses, while failing to note that this is no different from other campaign advertising expenses (she needs to look her best, don't ya know).
Even within my own 'profession' we have gotten so into the wow of the technology that we forget to ask if we (humanity) really needs this, especially when to get it means the consumer throws out the previous model.
Good comment. Thanks. Yes, where has all the social service gone?
when they start teaching a cross-curriculum and include Von Mises and Hayek I'll regain some hope.
I have long wondered what they were teaching in MBA's studies and how bad that education was.
Now we have found out.
After watching 60 Minutes last night I realized they must not be teaching any history.
The financial meltdown is the result of schemes out lawed in 1907?????? Our great Grandfathers knew that much more than all the financial genious's on Wall Street and all the MBA's combined?
Give me a break.
And the law legalizing these fraudulent schemes mentioned Bucketshops by name?
This is absolutely unbelievable. Incredible. Fiction writers could not come up with a more ridiculous scenario.
Why not simply legalize Ponzi schemes?
Or I have idea. Why doesn't everyone in the world send me $5 from my chain letter. If everyone in the world sends me $5 I will be rich.
And if everyone else in the world sends identical chain letters . . . WE Can All Be Rich!!!
I'd like to ask Harvard Business School in particular about their graduates George W. Bush and Jeffrey Skilling (former Enron ceo).
Harvard business school does one thing well, market itself. I have worked at two companies that had Harvard MBAs running them. One is out of business, the second is on the ropes. They don't seem to turn out leaders , but rather more of the old boy network. It is kind of like a big circle jerk................" we're doing a heck of a job." My wife and I started a business over 20 years ago. My degree is in history and political science, my wife's in 3D design. We service some of the largest companies in our industry. I am amazed at the decisions some of their MBAs make, laughable to say the least. Here is a tip for all you MBAs....................cut your marketing group by 2/3's and re-invest that into R&D and you'll be heading in the right direction. For some reason marketing folks think they know something about r&d. They don't! Their job is to analyse the marketplace and provide that info to R&D. They will then do their thing . After which, marketing can add their fluff and bring a well researched and designed product to market. Marketing adds zero value to a product other than the fluff they need to get it to, and absorb by the marketplace, yet they always seem to have the largest budget and the largest staffs. The real value is in the product not the fluff.
Hooray for you! I agree, build a better mouse trap -- one that works -- and world will cut a path to your door. Things go off track so that people though the way to riches was to finance the mouse trap.
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