B-school Bashing in Overdrive

By | March 18, 2009

Financial CrisisIt seems like B-School are being bashed left right and center this past week, and MBA programs are being blamed for the current financial mess that we’re in. I’ve also read various opinion editorial pieces and heard interviews of faculty members who have commented on the role business schools have played directlyor indirectly in leading to the current financial mess. Notably, the academics who’re chiming in have been from all tiers of schools… from Harvard to Stanford to McGill to Dalhousie.

First and foremost, is Henry Mintzberg and his article in the Globe & Mail where he refers to the current financial crisis as a “monumental failure of management”, and points to management education as a major contributing factor. It wasn’t surprising to read his column since he has always been a detractor of traditional MBA programs citing that the MBA approach to a management education is fatally flawed, and as an answer to this problem, he co-founded the International Masters Program in Practicing Management (IMPM).

Mintzberg’s opinion about b-schools producing graduates who have an “excessively analytical, detached style of management” is shared by Peggy Cunningham, who is the new director of the School of Business Administration at Dalhousie University, and is currently involved with restructuring the the school’s business programs around the core concept of responsible leadership. In her interview to the Globe & Mail, she says that it’s the excessive focus on individual success and obsession with corporate competition that makes people forget about social accountability.

In both these discussions, focus on individualism has emerged as a common theme that can be identified as a root cause for the current mess, and I started to wonder whether individualism is really to blame here! I believe that it’s important to differentiate between individualism and self-centeredness. It is my contention that individualism isn’t necessarily a bad thing – afterall, it is our individualism that gets us to be self-reliant, remain active, competitive, and independent to be able to look after ourselves and our families. The problem arises when individualism gets overridden by self-centeredness and that’s what leads one to ignore or overlook values of social and moral consciousness, and ultimately causes irresponsible economic behaviour.

Coming to the issue of business schools, while it’s easy to point fingers at them, I personally don’t think the blame wholly lies there. In this podcast, Jeffrey Pfeffer, Professor of Organizational Behavior at Stanford Unversity’s Graduate School of Business talks about b-schools and how what is taught in management programs is really only a small part of the problem.

I personally believe that there are things that B-schools need to do better – especially in instances where there has been an unbalanced and unhealthy focus on financial engineering and novel modeling techniques… but I also believe the current financial mess has a lot to do with common sense management or lack thereof. Common sense cannot be taught in business schools, and someone doesn’t need an MBA to figure out that overly and recurrently leveraged portfolios and risky derivates will probably lead to disastrous consequences.

On the one hand, it may the “Quants” in the firm who used imprudent innovative techniques for risk assessment, but it was the decision makers who went along without taking the time to understand the assumptions or dynamics of such novel mechanisms.

Contrary to what common sense would dictate, in their pursuit of exotic financial instruments, the Quants put too much faith in mathematical risk models and in the process, they forgot that financial models are just that – models! They’re meant to be used as maps and not bibles.

This is not to say that B-schools don’t need to change – many would need to re-evaluate their programs and curricula and incorporate business ethics more seriously than they have before. I know that for most schools seeking accreditation through AACSB or EQUIS, this is a requirement, but I suspect that many schools still treat the subject of ethics as a snippet in their course discussions.

In devising a new way forward, management schools need to make sure that students have a naive faith in free market, and they also understand that business ethics is not to be a taken as a moving target and that there’s no harm in bending the rules to suit one’s own personal interests. Secondly, for schools focusing more on the technical aspects of financial engineering, and risk management, they need to strike a balance between short-term gains, social accountability, and long-term sustainability.

Hand-in-hand, our overall business culture also needs a massive overhaul – afterall, management schools are a reflection of current organizational customs and conventions, and most practices that get communicated at schools make their way into the books and syllabi through the industry. Investors demanding higher returns and rewarding managers for short term performance need to look at the bigger picture. The question of proper performance incentives needs to be revisited, as managers becoming shareholders in the company doesn’t seem to be the be all and end all approach for getting managers to perform in the best interests of the firm. The decline of regulatory oversight is another issue that deserves a closer look.

To end my diatribe, I agree with Jeffrey Pfeffer when he says that B-Schools don’t really shape the world as much as they reflect the broader societal trends and the ideology of the world they exist in, and to lay the blame entirely on them is being over-simplistic and overly reductionist.

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