B-School Professors, Not Students, Are To Blame
Rivers of ink have been spilled blaming MBA graduates for the credit crisis. We are tired of reading how many of the disgraced bank executives that presided the institutions which dumb, ill-fated punts sank the world were endowed with the formerly-glorious degree. We are once more relentlessly reminded that Enron was also commandeered by MBAs. Some unrelenting Bush-bashers have not missed the opportunity to remind us that, yes, the former Prez has a diploma by Harvard Business School on the wall too. If all those havoc-wreakers have the MBA in common, then the MBA must be a very very bad thing, right? Let's scour the land in search of anyone sporting the three-letter acronym on their resumes and duly hang them high. Let's have our revenge for the economic and financial mess that has destroyed so many lives, let's give MBAs hell!
Sadly for the bloodthirsty avengers, the actual truth is that the MBA per se did not cause the mayhem (though there are certainly tons of problems with the degree and many of its holders). Most pundits and (much more damagingly sinister) b-school administrators and faculty members are laying the blame for the disaster on the greed-obsessed, capitalism-revering, ethics-light behavior on the part of financial players, which the latter supposedly picked up while earning their MBAs. According to this line of finger-pointing, Wall Street MBAs were too greedy, too capitalistic, too unethical. If only their classroom training had worshiped money-making a bit less, if only it had emphasized community values a tad more intensely. Time to imbue the curriculums with courses on responsible citizenry and unbounded ethicality (maybe b-schools can indoctrinate MBAs into always ceding their bus seat to old ladies?); that, goes the argument, will prevent any future similar mishap.
But, if we are fair, we must admit that MBAs are being unfairly targeted, thus making the proposed solutions not really preemptive. MBAs did no more and no less than what a typical Wall Streeter has the potential to do. Once they receive that diploma and cash in their sign-on bonuses, MBAs became businesspeople, thus displaying the same potential weaknesses as any other businessperson (MBA or not, high school graduate or not): temptation, avarice, corners-cutting, cheating. The MBAs involved in the crisis found themselves in such unsavory position not because of their academic credentials but because of their (degree-neutral) actions as businesspeople. I mean, it's not like the MBA-endowed Merrill Lynch traders who gorged on impossibly toxic securities based their reckless decisions on anything they were taught years prior by some taciturn professor. "Man, b-school made me so greedy and unethical that I had no alternative but to purchase $100 billion of Subprime CDOs" was most certainly not the rationale behind the actions of the punters anymore than his HBS brainwashing was the main motivation behind Jeffrey Skilling's peccadilloes in Houston.
B-school administrators and faculty (together with naïve outsiders) are simply assigning too much weight to what goes on inside their hallowed grounds. Maybe that's why they are blaming their students and the gaps in their education for the worst crisis since the 1929 Crash. These people assume that what MBAs are taught at b-school dictates their future professional activities, and nothing could be further from the truth, especially in the case of finance, particularly in the case of trading activity. I know, I studied and taught at top b-schools. B-schools arrogantly believe that what they teach affects graduates throughout every single day of their lives, but in fact MBAs can't forget what they were taught soon enough (and employers too typically assume that they didn't learn much; simply witness the contents of the training programs at investment banks). Note to administrators and profs: no, what you taught (or didn't teach) MBAs did not cause the crisis; your indoctrination is not that important, is not that relevant, is not that influential, not by a long shot. Once your students receive their diplomas, they, frankly, forget about you. As they should, as grown-up businesspeople.
It's not as if having forced all MBA students to take a course on helping the blind cross the street or on the virtuousness of poverty would have prevented any of the financial and economic meltdowns that the world has witnessed. Besides, the current crisis has little to do with ethics or unlawful behavior, except perhaps in the subprime loan origination process, which of course happens to be precisely the area where no MBAs could be found. This was no Enron. Wall Street simply made huge toxic, yet entirely lawful, bets and it lost.
Rather than (presumptuously) blaming their students for acting in ways that many other businesspeople would naturally choose (another note to faculty: not all the people who caused losses were MBAs), b-school bosses should take a hard look at themselves. If they want to search for truly guilty parties they should leave their students alone and fixate on the mirror in front of them. It's the theories concocted and sponsored by the theory-adoring professors that can cause the real troubles, and that did cause trouble this time and in the past. Theoretical concoctions played a decisive role in the unleashing of the current crisis, as they have, by the way, in all the worst market disasters since 1929. B-schools, by churning out, promoting, and endorsing the theoretical method (over any other considerations) are responsible. By endowing the use of (often deleterious, almost always flawed) analytical tools with untold respectability and legitimacy, the current b-school status quo puts us all in danger. That's the truly unseemly and unjustified behavior, not MBAs behaving (for better or worse) as businesspeople.
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We would all be better off without B schools altogether. Real wealth is created out of science, math, engineering, medicine, the arts and humanities. Once the wealth is created, all the MBAs can do is manipulate it or screw it up. I worked for a few companies where the MBA was not viewed as an asset at all.
I'd like to lay some of the responsibility at the feet of the mentors of these young impressionable minds once they leave school too. What they learn once they leave school is to make as much money as they can any way possible without getting caught. Integrity and ethics take a back seat to this which weakens our society overall by creating an atmosphere which propagates our distrust of each other. The States may still be United, on paper at least, but we as a people no longer are.
I have taught classes to MBA students in the past. And in my experience there is a huge difference between students in hard sciences and engineering and MBAs. While scientists and engineers see mastering their field as the main goal of their studies while getting a diploma is merely a side effect, to MBAs getting an in-depth understanding of the material is merely a necessary evil on their way to getting their diplomas which they see key in achieving their main goal, which seems to consists in making money.
Of course MBAs did not cause this mess, it was the general greed of the Baby Boomers, again, which has given us one more bubble. But MBAs are a phenomenon that is very telling about the general attitude of our population: we want it all, we want it now... and, most importantly, we do not want to have to work for it if that can be avoided by any means.
I have to agreee. Few if any of the people i saw interested in this field did b/c they found business fascinating. It was all about making money. Ask yourself, would you want a doctor, a teacher, a salesperson whose ONLY concern was making money. This is why we distrust car dealers. Because we believe they don't see their job as about service, but about makign as much dough as they can off of you. The b-school people I know were no different. It was always about the money.
not everyone in this planet is out there to serve mankind. You are pretty much generalizing in saying that only MBA's care about money. what about lawyers? what about singers? footballers?
whatever dude !!
Completely agree with you KTM.
Hard science is much more tough than say business/accounting. That said, not everyone is cut out to be scientist or have a phD. I have MS in Comp. Science but thats a piece of cake compared to phD in pretty much anything :). i COULD NOT do it EVEN IF I wanted to (or even if i put my mind to it). its just beyond me.
I am trying to change careers and switching to Accounting. Way easier than engineering/comp. science. :)
I went to a decent law school - USC [U of So Cal, not U of So Caro - though I'm sure So Caro has a pretty decent law school also]. I got a decent grade in legal ethics. It was 45 years ago, so I don't remember all the details, but the gist of the course was clear - in general, your primary responsibility is to the client, but even that is trumped by your responsibility to the court [i.e., the public.] So no, you could not say "Screw the client (customer), screw the public, if that will make money for the firm." On the other hand, my impression is that business schools do teach "Screw the customer, screw the public, if that will make money for the corporation." And no, it is no defense to say the student doesn't pay any attention - you are either teaching the students evil, or ripping them off with useless teaching. Which is it?
There is a difference between the ability to "run a company" and to "value a company".
an MBA in Finance teaches you how to do the second, but not necessarily make you an expert on the first. Its the fault of the people above who gave this MBA guy the authority to do the first rather than just the second.
Hmm wonder if they are even taught 'yes there are products and services that people actually produce that people want to purchase' not just numbers on a computer screen.....sorry it is NOT a video game.
valuing a company is a science and an art. You are valuing mostly tangible stuff (cash flows in the future and also intangibles like competitive strategies, management quality etc etc).
only you would think this is a video game
I can agree with that, almost completely. The authority given is the problem.
"Theoretical concoctions played a decisive role in the unleashing of the current crisis, as they have, by the way, in all the worst market disasters since 1929. B-schools, by churning out, promoting, and endorsing the theoretical method (over any other considerations) are responsible. By endowing the use of (often deleterious, almost always flawed) analytical tools with untold respectability and legitimacy, the current b-school status quo puts us all in danger."
I don't get your point in writing this. Of course the part I quoted above is the issue in criticizing the influence of MBA education on its grads. By far.
The issue of culture and the smugness and insularity students develop during the intense period of working in teams on their degrees while also networking madly with each other is also an issue. But so many students being trained to focus on a small set of things that can be plugged into spreadsheets or, in the case of Wall St, more complex computer models is a much more enormous problem. As a former disillusioned B-School prof who gave up trying to fight the damaging ideas students were learning from faculty with physics envy, I can tell you that's more the focus than whether ethics classes could be devised that would solve anything. Moreover, the giant debt that makes students more likely to become corporate bots or ignore fraud for fear of being fired and blackballed by other firms is a much more serious concern as well.
"Moreover, the giant debt that makes students more likely to become corporate bots or ignore fraud for fear of being fired and blackballed by other firms is a much more serious concern as well." Just wanted to point this out, and re-emphasize it. It's being felt in law and medical practice as well. Someone's coming out of school with 100,000-250,000 in debt, and the financial pressure to compromise ethics or ignore others' ethical compromises is a big factor.
Debt THEY took responsiblity to aquire and pay back. Maybe getting a plain Jane degree, getting a job and then part-time MBA grad work might keep them humble.
I can tell you from my own experience that physics envy is NOT a general problem with MBAs. I am a physicist and I tried to teach MBA students the basics of computer science once. Most of these students did not get the most basics concepts of the field and they certainly would not have been able to pass even a decent introductory class in hard sciences. The reasons were diverse and ranged from lack of intellectual curiosity to active work avoidance strategies. Yet, some of the same students had a Porsche sitting on the student parking lot...
As for the model building in finance... it is mostly done by hard scientists (like physicists,chemists etc..) and mathematicians. I know at least two people personally who switched from careers in mathematics and biochemistry to banking. No MBA I ever met in my life would be able to compete with the math skills of these people.
One of the highest paid jobs in finance are the Quants.
Who work as Quants? not MBA's. 99% of the people who are hired as Quants either have a PhD in Maths or MFE (Masters in Financial Engineering).
also i must add that a lot of people confuse MFE with MS in Finance. Completely different curriculum !!
Having said that... building models and using them are two different pairs of shoes. Any model can tell you pretty much anything if you are willing to ask the wrong questions. And most models outside of academia are really built with a purpose in mind (mostly to "prove" a preconceived notion) and are not trying to coax some hidden truths our of reality (which is what scientific models are meant to do).
I have even actively participated in several such model building exercises for friends of mine who were given "expectations" by company boards and who were under pressure to "prove" them. I always found it a fun exercise to come up with truthful ways tell the kind of story these people wanted to hear. The really cool thing was that it wasn't even necessary to lie... all it took was to let board members use their own prejudice to read THEIR story into what was really presented. It just shows that many MBAs will swallow their own RedBull even if the data says the exact opposite. Needless to say, in such a situation one can not convince these people of the opposite of their own religious beliefs.
You also need to understand the model that you use. Rating agencies used the incorrect models to rate these mortgage backed securities b/c they didn't understand what was truly behind the model, the assumptions underlying them. That, or they didn't care b/c they were making money.
I absolutely agree with Mr. Triana's conclusion. Spend a little time looking at the past decade of Harvard Business Review articles. You will find a significant number arguing that publicly traded companies have a fiduciary responsibility to engage in ANY tactic that is legal, regardless of whether it is moral. These are the people providing the intellectual and academic justifications for ENRON, WORLD COM, and DERIVATIVES. Until we integrate moral responsibility with fiduciary responsibility we will continue to return to where we are today. Simply watch how the banks are now behaving in the face of attempted regulation of the derivatives market. It is shameful.
what has derivatives go to do with Enron or Worldcom. What do you know about derivatives? huh.
Eventual business, legal, societal, and personal disasters were caused by each of the three, ENRON, WORLD COM, & financial DERIVATIVES. These disasters were directly caused by unethical behavior at the very tops of the organizations or industry in the case of derivatives. All three relied on deception as the fundamental method by which they created wealth for themselves at the expense of their employees, customers, and investors. ENRON involved the creation of shell holding companies that allowed the company to deceive both insiders and outsiders about the reality of their balance sheets. WORLD COM similarly involved accounting deceptions and false balance sheets.
While, the primary deception propogated by the developers of derivatives is that they KNOW the ASSUMPTIONS upoin which the mathematical models rely to produce accurate results are UNTENABLE, and yet they marketed and sold them as if they are TRIPLE A rated bonds. Thus, INTENTIONAL DECEPTION remains the fundamental method by which banks are attempting to develop wealth for their senior executives, which will inevitably be at the expense of the majority of their employees, their investors and society.
You at least hint at the real problem. An MBA is an education in... well, not much. And yet they're treated as experts because of that education in concoctions and vapor theory, and actually listened to. Med students have residency req's, Law students have the Bar, MBA students have.... an empty degree.
blah blah blah. If MBA's are the dumbest of the lot, who do you think is going to rule the day?
GED's??BA in contemporary literature? BA in arts/philosophy?
rule the day??? rule the day? rule?
the great unwashed... the "little people" it is they who have always ruled the day, they don't reap the greatest rewards, and their sucess is often silent, but it is they who have always and who will always ...rule... the day.
"who do you think is going to rule the day?"--
Answer: The lawyers being paid up to $1200 an hour to see those same dumb@ss MBA's through the bankruptcies of the companies that they so brilliantly ran into the ground. In other words, the same ones who've always ruled the day. Seriously though, it's not a criticism of the people who hold the MBA's, or a claim that they're "dumbest of the lot." It's the trust that's placed in them just because of the degree. Sorry, but compared to the objective standards any other professional degree holder has to meet before being allowed to practice, the MBA doesn't mean much. Could there be such an objective, test-like standard for something as fluid as business? Probably not. The answer then? You promote from within, send your own people to get MBA's to hone their knowledge and skills, and you realize that the MBA just in and of itself isn't much good.
"I didn't do it, he did!"
Your post is self-contradictory. You first claim that business school education has no impact on future behaviour of graduates as business people, and then you claim that the professors exert an influence that they shouldn't be exerting.
So which one is it?
Make no mistake. The question of social responsibility and business ethics is a totally different animal. This is about a gross failure of sound risk management practices. To the extent that the education offered 'analytical tools with untold respectability and legitimacy' without proper clarification of the limits and risks, you are right. But whether or not that happened depends on the particular case.
There can be only one conclusion: more technical knowledge in finance is needed, not less. And certainly the structure within the firms must be such that those who have the knowledge are listened to, not thrown under the bus.
The ignorance on the relevant subjects is breathtaking. The cure can only consist in making sure it's no longer cool to celebrate this ignorance among the top brass.
So, we should lock up the car driving instructors because people get in accidents?
Oh, and the shooting instructors for all the gun injuries and deaths?
Flight instructors too.
But for the individuals' choice of committing these immoral and/or illegal acts, they would not be done.
There is no question that B-schools have utterly failed to inculcate a sense of social responsibility. Or, professional responsibility.
There is no question that there needs to be some restructuring of corporations - ownership through mutual funds and other investments concentrate far too much power in a few of the individuals already involved and separates the investment from the owners longer-term interests.
There is no longer any question that the stock market and most investments have, therefore, become nothing much more than gambling.
All that being said, there is a causal break between the perpetrator of these acts and their teachers. The individuals' are committing these acts on their own - and are graduates of the best schools in the nation - they KNOW precisely what they're doing.
The bigger issue here is why the Obama Administration and Congress are still so lazy and negligent that they cannot act to put in place adequate regulations. At a minimum, return to active the regulations that kept these issues from occurring fo many decades.
And, the biggest issue is, of course, why they're not taking action. Is it because of the money they're receiving from the banks and insurance companies? Just how corrupt are these "lawmakers"?
You are exactly correct, these people KNOW exactly what they were doing....So the question is what Social Engineering can be done to ameliorate the effects on society and we all know what those are..
1. Double the tax rates on the rich from 35% to 70%, take the cap off the Payroll taxes, and tax capital gains as ordinary income..
2. Audit the taxes, audit the corporations.
3. Indict them for Racketeering just like Charles Keating and Kenny Lay...
Except if you tax the rich 70% the Obama-haters will have a field day crying "Socialist!"
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