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 (NYU Stern Full-Time MBA Profile) and Merrill Lynch's Stan O'Neal was knocking around Harvard Business School (Harvard Full-Time MBA Profile), 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. At times, the line between the ivy-covered Harvard campus and global economic disaster can seem bold, black, and straight.
But is it? 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."
But that was only the beginning. HBS 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. Joel Podolny, the former dean of the Yale School of Management (Yale Full-Time MBA Profile), in an article in the June issue of Harvard Business Review, issues a clarion call for reform. Meanwhile, 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. Even Dilbert is MBA bashing these days. "I hear you have an MBA," Alice tells a co-worker in the May 20 strip. "Just like the jerks who ruined the economy."
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. Back then, the rap against business schools was that they failed to check the worst impulses of MBA students, allowing a few bad apples to graduate with no sense of right and wrong.
This time, the charge is more serious and systemic. 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," says Rakesh Khurana, professor of leadership at Harvard and author of From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession (Princeton University Press, September 2007).
Not Critical Enough
While the shareholder maximization model gathered steam, business schools began fighting for top spots in media rankings, such as the biennial BusinessWeek list of top business schools. Some educators are asking business media to take a look in the mirror before pointing the finger at business schools alone for today's problems. James O'Toole, a professor of business ethics at University of Denver's Daniels College of Business, says business school rankings have helped to turn students into consumers and business schools into businesses. 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. "Students are not customers. They're students," says Alex Chu, an admissions consultant and 2001 MBA graduate of University of Pennsylvania's Wharton School (Wharton Full-Time MBA Profile). "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 (Thunderbird Full-Time MBA Profile). "To say we have no responsibility is to say the MBA is irrelevant."
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.
For many in the business school community, the very notion of culpability is ludicrous.
At a panel discussion in Orlando last month, Richard Cosier, dean of Purdue University's Krannert School of Management (Krannert Full-Time MBA Profile), said all AACSB-accredited schools teach ethics, integrity, and social responsibility—and therefore are not to blame for the crisis. "It is my opinion that business schools will continue to produce students who will be part of the solution rather than the problem," he added. Sydney Finkelstein, professor of leadership and strategy at Dartmouth's Tuck School of Business (Tuck Full-Time MBA Profile) agrees. "We don't create CEOs, and we don't destroy companies in business school," Finkelstein says. The best MBA programs, he says, remain valuable. "We live in a world of organizations," he says. "The single best place to go to understand how organizations function and can be improved is in the business school environment."
Warren Bennis, distinguished professor of business administration at the USC Marshall School of Business (Marshall Full-Time MBA Profile), agrees that you can not lay the blame for the crisis on business schools. But he also says that business schools have to do a better job of teaching transparency and what it means to be an honest business leader. "We have not provided enough information on the practical world of business or the ease with which you can slip into greed and hubris," he says. "We need to better prepare [students]."
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. Cabrera says ethics must be integrated into all MBA coursework, and include practical solutions to ethical problems students will face in their post-MBA careers.
Such an approach is consistent with an idea that has surfaced in recent years to professionalize the MBA degree. Advocates of this approach say the MBA should include many of the same elements that degrees in law and medicine incorporate—such as making the degree mandatory for certain positions, competency testing similar to the bar exam for lawyers, and most important a sense of responsibility to society. At Thunderbird, MBA students are required to sign an oath—and repeat it aloud, in unison, at graduation—in which they promise "to strive to act with honesty and integrity," among other things. Says Cabrera: "The MBA is the ultimate professional qualification for management just as the MD is the ultimate qualification for medicine."
Of course, a business school equivalent of the Hippocratic Oath doesn't guarantee that MBA graduates will do no harm. But it can't hurt, especially if the business school reforms that now seem inevitable go well beyond a simple oath. 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."
John Fernandes, the president and CEO of AACSB, says business schools are not to blame for the crisis, but he is certain that any reforms undertaken in the wake of the crisis will be a step in the right direction. "Business schools take this very seriously," he adds. "Whatever they can do to make better leaders, they will do. They're not teaching people to steal."