MBAs: Public Enemy No. 1?

The debate over business schools' culpability in the financial crisis rages on, with no clear end in sight

By Francesca Di Meglio

Editor's Note: We've taken down the slide show on MBAs in Crisis, previously titled MBAs Gone Bad, because the editors believe it grouped together CEOS whose companies were having a bad year financially with some individuals associated with past scandals. Moreover, it didn't distinguish between individuals who had been found by courts to be responsible for wrongdoing and those who merely faced accusations. In particular, Frank Quattrone shouldn't have been included on the list because he didn't fit the criteria that had been established for the slide show. We apologize for including him.

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."

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