MBA Programs: Source of Financial Crisis?

With all the heated discussion of greedy bankers and guilty fraudsters, some people have been looking to business schools as a potential culprit of the current financial mess. A recent article in the New York Times, entitled "Is It Time to Retrain B-Schools?", published a stinging criticism which highlighted the failure of schools, in particular MBA programs, to focus their students' skills and attention on nothing more than short term shareholder value. Not surprisingly, the publication aroused a lot of debates, not only from the business school community, but also among the broader readership of the paper. Most comments agreed the financial environment we are emerged in now is traceable to MBA programs’ neglecting the topic of ethics in their curriculum, drawing from the fact that the CEOs of corporations who brought their companies down in the recent crisis all attained an MBA degree from a well-known institution. While I do acknowledge the fact that the MBA programs suffer from “an over-emphasis on the rigor and an under-emphasis on relevance,” according to Warren Bennis, a professor of management at the University of Southern California, I believe the inappropriate decisions those CEOs made should primarily be accredited to their own personal judgment.

The arguments towards why MBA programs are responsible for the current financial mess all began by short-listing a bunch of company CEOs who owned a MBA degree, yet failed to save their companies with their expertise during this critical environment. Then the line of reasoning continued by criticizing the education encouraged a scientific approach to business, assuming that the business profession could be nailed down in a textbook. By preaching a set series of formulas, schools encouraged students to believe that running a company could be mastered by anyone. Yet, in reality, management is a skill that is acquired through experience, judgment and flair. In addition, the intellectual tools that led us into the financial meltdown were largely invented within academia. Ken Starkey, a management professor at Britain's Nottingham University School of Management, pointed out that the economic models developed by business-school faculty were crucial to the massive trading of complex financial products that now are crippling banks. “They've been absolutely at the forefront of delivering a new financial system which was relatively untested, a financial system which has taken us into uncharted waters,” he said. The business schools neglected to address the issue of risk management. By doing so, they encouraged a whole generation of young men and women to go into investment banking armed with the belief that either they had mastered risk or worse yet, not acknowledging the factor at all. The truth, of course, turned out to be hugely different.

The reasoning continued by stating the schools created a managerial elite that acted like a caste apart. One reason the bonus culture ran out of control, with news of top executives running away with large sums of money when their companies are at a dire state, was that many of the people involved were engaged in a mindset: they thought guaranteed bonuses, private jets and multimillion-dollar compensations were normal. This thought-process began with assumptions that an MBA degree would guarantee a fabulous career and financial return. A survey done by CNNMoney.com in 2008 illustrated where MBA students expect themselves to go into after graduation, all of which are multi-billion corporations. Another survey compiled in the same year investigated on the expected salary of MBA students upon graduation. There were two interesting aspects in the results: one, there was an increase in salary expectation from 2007 to 2008 (see right); second, students expected their salary to double five years into their career.

While I agree to a great extent the criticisms in the New York Times article, I believe it is unfair to assign all the blame to business schools and their MBA programs. For all it matters, an MBA degree is simply another qualification, a stepping-stone for one to land a good, well-paid career on Wall Street. "People don't behave like jerks just because they spend two years in business school," said Matthew Stewart in his article. True, companies who did not survive in this crisis all seemed to have a CEO who graduated from a renowned MBA program. However, correlation does not necessarily mean causation. Go through the records, and we would probably find that most of them also did finger painting in kindergarten. My point here is: it is unfair to point the responsibility solely to MBA programs and condemn their value. In fact, I would say the general MBA curriculum has made the necessary efforts to incorporate the issue of ethics. All in all, there are limitations to courses in an MBA program consisting simply of professors lecturing students in a classroom setting. While professors try to bring in real life case studies into their class discussion, there are infinite amount of factors that could not be predetermined in a situation which could perhaps drastically affect one’s decision making. As Dwight Crane, Professor of Business Administration, Harvard Business School expressed in an interview, “Students need to gain an understanding of the real-world implications of their own professional actions, something that can seem highly abstract.” There is knowledge that could only be attained through real-life in-person experience. A random example would be a CEO’s decision of whether or not to fire an unproductive manager who has, however, serviced the company for a long period of time. Schools would definitely teach students firing the manager is the right thing to do. Yet, external factors were not considered in the discussion. Due to the fact that he has been with the company for quite some time, the manager’s dismissal would cause discontent among workers and possibly even a labor strike. In addition, firing the manager could hold up the company’s operations; send a sense of restlessness amongst employees; encourage buyers to switch out because of management instability, and so on. As a CEO, one has to be attentive of how his decision affects the different departments and operations of the company. Hence, the CEO has no choice, in a way, than to retain the unproductive manager.

I believe with regards to ethics, business schools are in the role of promoting awareness on the issue, and not guarantee every MBA student who graduates is equipped with the ability and desire to make the perfect choices as a leader in a corporation. As Alan Morrison, a finance professor at Oxford University’s Said Business School said, “I could teach you how to use a gun for good or for ill, and I can teach you how to create a financial product. How you use that skill is down to you.” Business schools for sure drew those CEOs’ attention to the issue of ethics and advocated the importance of upholding it when making business decisions, yet the desire to adhere to that still lies within the CEOs themselves. "We cannot take credit for their success one day and then the next day pretend we are devoid of responsibility when we witness such widespread failure of leadership."suggested Dr. Angel Cabrera, president of Thunderbird School of Global Management , As much as we criticize the CEOs' responsibility for the financial turmoil, we should be fair in recognizing their contributions to corporations, and efforts of trying to prevent the situation from happening. Instead of putting the blame on business schools, CEOs should take the initiative to evaluate themselves and revisit the values that came with the MBA degrees attained.