Financial Crisis: Blame B-schools

Business schools are largely responsible for the U.S. financial crisis. Pro or con?

Pro: Failure to Promote a Higher Cause

We are facing the most severe economic crisis since the Great Depression. There is plenty of blame to go around. But as suppliers of ideas and talent to the business community, business schools need to accept some responsibility.

Ideas and tools—exotic financial instruments, poorly designed compensation plans, models of corporate leadership that value leaders’ charisma over substance, an uncritical embrace of laissez-faire models—were taught to MBA and executive-education students without considering whether these idea and tools would contribute to a firm’s long-term well being or endanger the legitimacy of the U.S. capitalist system.

The elite business schools also shape and perpetuate the business culture and the aspirations of their graduates. For example, even though not all military officers emanate from West Point, the role of West Point is to serve as not only teacher of military tactics but also the conscience of the profession of arms, and at times, to act as a trusted critic. Similarly the leading business schools are the collective conscience of the practitioners of business and finance.

In the runup to the crisis, many business executives were so self-interested they failed to consider themselves as custodians of their own institutions. All of us involved in business education need to ask what our role has been in fostering a culture that allows executives to walk off with millions of dollars while their firms lay in tatters and society is left with the bill.

Now is the time for business school faculties to make the most of this opportunity to consider how they can contribute to the creation of a business culture that better serves the American economy and society.

We must define business leadership in terms of value creation, not value extraction. This would be an important first step toward restoring society’s faith in our future business leaders.

Con: Business Education—We Need More, Not Less

A natural response to crisis is to try to make sense of it—how did we get here, could we have prevented it, and how do we fix it? But sense-making can easily turn into a less productive and more vindictive blame game. While ethical lapses and illegal activities should be exposed and prosecuted, the more urgent question is why financial crises seem unavoidable. Is it really because business schools do not have the right mission statement?

As unprecedented as current events may seem, researchers have documented at least 18 bank-centered crises globally since 1974, and the majority were preceded by runups in housing and stock markets, large capital inflows, rising public debt, and financial liberalization.

Sound familiar? One possible explanation, supported by recent neuroscientific studies, is that fear and greed are hardwired into human behavior. Periods of great prosperity breed complacency, and risks seem remote and unlikely until we overextend our financial reach and experience a rude awakening. Then fear kicks in and we rush to safety—presto, instant financial crisis! And the bigger the bubble, the louder it bursts.

The only refuge from this emotional seesaw is our intellect. Real disaster comes not from losing money—which entrepreneurs have been doing since the dawn of innovation—but rather from not being properly prepared for it.

The current crisis highlights the growing complexity of the financial system and underscores the sea change in business education from the generic to the specific, from the old boys’ network to the global financial network, and from boardroom tactics to risk analytics. By training tomorrow’s leaders to manage the risks of the financial system effectively and ethically, we’ll have a fighting chance of surviving even the largest crises. This is what business schools do, and we need to do more of it, not less.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies. Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

random

Even the best business school with the finest professors and the most critical classes and grading systems can't teach someone who's greedy, out of touch, and only interested in personal gain at all costs to be a good businessperson, or a good person in general.

I would agree that executives who think they're rock stars, make hundreds of millions in bonuses and severance pay for failure and whose ranks see a turnover that rivals that of a local supermarket, have more than their fair share of the blame. But blaming business schools for their willful disregard of good business practices isn't productive. It's just finding another scapegoat.

Rooey

Really? You people are seriously blaming business schools? Blaming B-schools for this economic crisis would be like punishing a mother because her child had committed murder. I am sure that you great economists from Harvard know that cause and effect are almost impossible to prove. B-schools are not two years of a brain washing; people will still have emotions when the graduate. But people are flawed, and blaming them for their flaws for would be a more reasonable. It is human greed and desire that was one of the factors responsible for this crisis. Not Business schools.

....feel free to disagree, what do I know Im only a high school student. But its surprising to me how badly some of these articles are written.

John V.

This is ridiculous. Who do they want to blame next - the parents of these executives for raising them to be greedy?

PNW Trojan

How absurd. The problem lies entirely with Congress, in needing more and more money, for their own enrichment. Want legislation written by your industry lobbyist? Pay Congress. Want endless tax breaks/holidays? Pay Congress. Want to contaminate ground water/aquifers? Pay Congress. Want to bring overseas profits back, tax-free, to the US? Pay Congress. Want to bring in endless H1B foreigners to drive down costs, and boost CEO bonuses? Pay...well, now you know. Both political parties make the Mafia look like Girl Scouts selling cookies.

David C

I don't remember learning how to take advantage of any organization in my ethics classes. The problems we face today came about through greed by a few. The moral fibers of business leaders now have to be questioned by share holders. Excessive quick profits at the expense of employees and customers results in what we are left with now.

ya hooo


This is typical of business school to not accept responsibility. The fact of the matter is, the kind of candidate selectively chosen and the environment B-school creates, breed aspiration of seven figure salaries, not one where a student looks to better society. If you say otherwise, you’re kidding yourself.
A lot of fluff models and exotic derivative products valuation were taught in business school. Frankly, it’s sad to preach one thing and do another, and I commend the Harvard professors to admit it and accept responsibility.
Maybe the shifting job market will make the costumers of business school think twice. How sure are you that a job will be here when you come out of school with a $100,000 loan?
Good Luck.

Buddy S

I did have a required ethics course, and I place emphasis on ethics, not business ethics. The course is aimed at making the students ethical people, not ethical business men/women. I believe this approach to be invaluable. Often, business ethics are intermingled with “plain” ethics. The drawback to this approach is that profits and shareholder value are still the most important objective. This approach has proven time and time again to be fundamentally flawed. Ultimately however, the fault rests with the mighty dollar and the individual that chases it, not the institution from which the individual was educated.

Peter

Perhaps it is a stretch to blame American business schools for all the recent fallout. However, there does seem to be a culture of pushing the limits of individual gain that the country as a whole has nurtured. As other Economic blocks begin to really compete in scale with the United States, we may need to be aware of its danger to the wealth of the country. Now may be the time to re-evaluate our approach.

Roberto Minadeo

I’m a teacher of Business Administration at one Master school, in Brazil. I think that it’s impossible to foresee one perfect school, with perfect teachers and perfect pupils.

In other words, the culture that dominates nowadays is profit at any cost. Everyone can tell some real stories about that.

So, the companies and the schools are ruled by the people that are in the real world, with the materialism culture of the moment. Even if I see that the teachers have good patterns in ethical issues (everyone can have their doubts about this) it’s insufficient to educate how the people take decisions under pressure. In other words, is very difficult in our culture to not accept the easy money.

The people that arrive at B-schools are adults, with the pattern of behavior formed in the first levels of education, and with the virtues acquired from mirroring teachers and more importantly their families. I see good things in the world: more study, more interest in ethics, and so on. But I think the crisis is basically caused by absence of controls by the State. In Enron’s case, the deregulation was so fast. Enron was the first, and was too ambitious, under applauses of all the business media.

Mike K

Business cycles go up, and business cycles go down. Right now, we're in a down cycle. This one was spurred by a credit crisis which was spurred not by MBAs but by many people who were told and saw that there was money to be made in real estate. The people who bought more than they could afford are the root of the problem. I remember ethics being taught in the 70s but I don't remember a class in good judgment.

Mashuri

The number one cause of our mess has been the expansion of government, the resulting market distortions, and "moral hazards" caused by its interventions. This will happen until we realize that we will continue down ever larger boom-bust cycles until we're completely insolvent as a country.

sean

I concur – B-schools are to be blamed as well, because they write their chapter after the crisis, not train people for the crisis. After this event, there will be a whole chapter written in the B-school book about all of these top players who graduated from Harvard/Stanford and so on. What were they able to do? Nothing.

dheeraj jalali

I strongly disagree with this article. Business Schools teach you what management is all about and how to make morally sound decisions. I am sure everyone who has attended a B school had ethics class. However, to use it or not lies upon individuals, and that is where human greed gets into picture. Do not blame schools but the settings, which encourage such behaviors.

Arne

What B-schools should put more emphasis is to teach sustainability models, rather than short term focused money making models. I graduated 3 years ago from my Masters Degree, and one of the aspects of business we learned was "what will your action cause.”
The whole situation that we are in right now is not the reason that business schools taught bad business practice. It is society and the willingness to make quick bucks rather then to look and foresee what could happen next.

Jim Lee

B-schools are the solution to our problems. Teachers and students should be studying the problems in depth. The top tier schools should be in the lead. Perhaps the science people can play a new role in advancing our economic agenda. We need new thinking that is unclouded. The government must put a huge investment in R&D. Then we must apply the best thinking to all of the pressing problems.

Wally T. Thander

Both arguments are flawed. One side presents an argument against the teachings of B-schools, which is at best pulling at straws. How many years have the executives who made most of the bad decisions been out of business school, if they went at all? Most of these bad decisions were made out of greed and a blatant disregard for the future. This was allowed by a Republican government who has largely supported deregulation for personal benefit. On the other hand, the con argument seems to essentially shrug off the valid point that many of the theories taught in business school are not very applicable to reality. Ultimately what business school graduates need to be able to do, is to see beyond the theories they are taught, and to realize that because things change those theories will not be valid forever.

B Prof and MBA

Business schools indoctrinate students that profit isn't the most important thing, it's the only thing. You learn that you have fiduciary responsibility to your shareholders to maximize profit no matter what the effects of your company are on the world. You learn that incentives are there to encourage you to behave, and the free market says you should take advantage of them and that behavior is bad for the world, though. This is what they teach. This created the bunch that perpetuated and is still perpetuating the mess.

steve

It is no wonder we are in this mess we are in now. "Failure" as a strategy has been peddled from the Stanfords, Harvards and MITs for years now.

Well...here we are. Epic failure.

Additionally, you can look at the Enron post-mortem and see clearly that reaping profits with the help of dubious software before anything is built, up, and running or deployed is a sure fire recipe for the collapse of anything.

MonThailand

I think what GM should do the most is all executives must not get any salary because they have run business wrong for about four years now.

JDT

Why don't we blame the non-MBA part of the population who were naive about how credit works and got in over their heads?

Oliver Stone

I blame Michael Douglas. Why? Because he played the character Gordon Gecko ("Greed is good") in the movie Wall Street. No doubt his portrayal of this greedy character inspired many of the people responsible for the financial meltdown. That is why Michael Douglas is at the root of the problem.

Bobbie K

It’s called ethics, something that should be taught in greater detail at school. Why since the Bush Administration are no wealthy people or politicians held accountable for anything they do?

Policy Failure

This is government policy failure. Business schools teach how they can maximize one’s own self interest with the allowed policy boundaries. Because government policies such as not regulating CDS/CDO, keep interest rates low for long, all kind of toxic businesses develop. Note that they are mostly legal, which proves that this is government policy failure.

BIGWEEDS

Does anyone remember the people called carpet baggers from their American history classes? It is sad that history does repeat itself and usually the events are bad. Too bad we cannot repeat good history. That’s right, the liberal media does not document good things – too bad.

Anonymous

I agree with some of the statements made. I am currently in an MBA program at a school I will not mention for confidentiality purposes. I am only 22 and have very minimal experience in the business world, but I have a good insight as to what is taught in these programs. I have taken multiple ethics classes and proper business ethics is strongly emphasized in every class, but competition is emphasized more. I understand why this is so, because obviously to survive people need to have a certain level of competitiveness and need to be able to separate personal feelings with business needs. I believe that if ethics and altruistic values were emphasized as much as competition in these programs things would be different. Obviously this is not the end solution to the problem, but it could certainly help. The saying goes that you can't teach an old dog new tricks, so if someone is one way going into academia then they will still come out a lesser shade of gray, but I believe people are impressionable at this stage of life and certainly can latch onto a value or two.

Agree with user "random"

I was going to type a response, but random's post pretty much sums up my opinion. I don't remember seeing "Greed 101" in the course curriculum back in either the bachelors or masters, but I do remember the courses about law and business ethics.

Call me stupid

Surprising how fresh graduates have come to the top of firms and imposed bad corporate governance principles to Wall Street vets.

metoo

As a recent adult graduate, I agree that B-schools have some blame in this economic dilemma. The idea of globalization as a positive policy was routinely preached to students. When pushed on the topic, the professors’ response was that the loss of manufacturing jobs would be replaced with service industry jobs which included analysts, and legal and engineering jobs. They never addressed the reality that not everyone wants to or is capable of working in these fields. Nor did they address the issue that the more common jobs in the service industry do not pay as well as a typical manufacturing position. Even as the financial crises began, the idea that increasing unemployment, and glowing consumer debt could possibly be a factor.

CN

They should punish white-collar criminals as harshly as blue-collar criminals. Then maybe those people will think twice about their actions. China executed the chief of their Food and Drug Administration within one month for taking bribes. Meanwhile the criminals from the US economic crisis are still millionaires, and the harshest sentence was eight years in a minimum-security prison with three meals a day. Nice. I guess in America, it is ok to be a psychopath as long as you use your brain to perpetrate crime instead of using your brawn.

Squeezebox

You're all wrong! It's not greed, and it's not ethics. It's leverage theory that led us astray. In business school we were told over and over again that debt was good and the academics couldn't prove that it was bad. We all knew it intuitively, but that's not the same as a mathematical model which shows how you can increase shareholder return by borrowing all you can. We were also taught free trade like a religion. The problem is that nobody else is practicing free trade. We're too busy committing hostile takeovers against companies that have no debt just to get at the cash.

Travis

It's called- who needs B-school? Let's use the would be tuition money for an oversized house, luxury car, exotic trips to pile on more credit card debt, etc. and not learn the fundamentals of business and how the global economy functions. Personally, my MBA holds a little more value that my neighbor's debt- who is in foreclosure, car repossessed with some fancy souvenirs from vacation. Long live capitalism, the root of the problem lies with credit being available like weekly sales at Wal-Mart.

suntzusagacity

It maybe altruistic to expect all graduates to adhere to or even respect moralistic philosophy when the issues of pay and perks come into play.

Yet it this very neglect of ethics by all concerned from Main Street to Wall Street that has continued to allow negligent irresponsible acts to recur resulting in the loss in values of many investors’ funds.

To allow executives strong leverage in dictating salaries and perks based on credentials is one thing; providing opportunities for self gain without proper checks and balances to the detriment of stakeholders is simply careless and deserving.

The rate at which blue chip companies had been failing for the last fifteen years under the management of greedy and negligent stewards surely must be embarrassing to the discerning alma maters.

The time is right for renowned academic institutions from where Wall Street frequently head hunts to self examine their programs on inculcation of moral values and leadership principles be the source Socrates or Sun Tzu.

Having rules to revoke qualifications and licenses thus removing opportunities for deviant executives to repeat careless and negligent performances in new companies are insufficient today. Boards of universities should provide means to enhance and maintain long term faculty contact with former graduates in Wall Street as a way to monitor conduct.

The recurrent cycles of management failures must at least point to some oversight on the part of prestigious universities which frequently pride themselves on their graduates’ successful employments in equally renowned financial institutions.

Board of universities must realize that dispensing qualifications comes with a degree of responsibility and realization that universities too owe an indirect duty of care to the public because any qualification conferred is a pass on which employers allow entry into companies' realms and ultimately access to stakeholders' funds.

It should be a norm for universities to adequately inform the public of actions taken on former graduates, should their graduates be proven guilty of irresponsible, greedy, negligent incompetence and fraudulent activities in the markets. This should only act to further strengthen the credibility of the university concerned in addition to being a reflection of the university fulfilling its social responsibility.

Making executives aware of the possibility of being named and shamed provides an excellent safeguard against temptations to enrich themselves unethically. Surely, stakeholders should always have a right to know from which tree the rotten apples came from?

DOUBTING THE GOVERNMENT

Are you kidding? How could this even be suggested? B-schools are not responsible for this mess. The lack of government regulation is. We should instead by blaming public policy schools and the media for teaching the American public that all government is bad. Proper regulation helps to prevent boom and bust cycles by setting the rules within with people can play.

Araki

The question that should be asked is not whether business schools are responsible for the financial crisis, but “how can business schools contribute to ensure the same mistake does not happen again?” Most MBA programs have at least one business ethics course incorporated into their curriculum. The reality is, once students complete this ethics course, the ethical concepts they learned are rarely used in other business courses throughout the MBA program. Most courses taught in MBA programs focus on creating high profit, ROI, and other achievements that benefit investors. I believe it is ideal that business schools integrate ethical concepts and practices throughout their teachings.

Loyd Eskildson

It’s not business schools' fault but that of capitalism and insufficient regulation. It is hard to resist getting on the sub-prime bandwagon when the problems are hypothetical and everyone else is jumping on board. If you don't, your earnings and stock price will suffer, and both you and your firm could be gone.

Bert parks

This whole financial crisis boils down to one thing: Banks over leveraged their investments and took on a lot more risk than they could afford to lose. Now that the banks have lost our money, somehow our government has suckered us into recapitalizing the banks with tax payers’ (our) money. Boy you talk about disaster capitalism.

Selfishness

The fact remains that as human beings we are selfish. And that selfishness is the root cause of the whole crisis. In a world where success is defined by a Ferrari and a condo at Manhattan, you cannot blame the B-school student to not try and be “successful.”

The whole financial crisis has raised a question on capitalism itself, which in a way is based upon selfishness. I am not saying (and don't know) whether capitalism or socialism is good. Mankind needs to go through the cycle of prosperity and suffering.

Lawyer for the Rest of Us

All states require lawyers to pass a bar examination and, after that many states require lawyers to take continuing legal education courses, including a minimum requirement for ethics courses. Pro bono public work and diversity are encouraged, measured, and recognized professionally in the legal profession. By contrast, MBAs aren't even required to be licensed, let alone take any continuing ethics education. Pro bono work and diversity are not officially any concern to the MBA community. Is it any wonder that those with their hands on the wheel have driven our financial vehicle off the road by a systemic failure of ethics?

Jim Rogers

Bear Sterns, Lehman Brothers, Enron, Tyco, MCI World Com were all Made at Harvard Business School and Wharton...

BIGWEEDS

My vote is for the liberal media that seems to promote people who are tearing this country apart. We just cannot bring ourselves to say that most media is bad. A few years ago we tuned in to hear the news, and now when we tune in all we get is someone's twisted thoughts on what they think about a given subject.

Deny all responsibilty

B-schools do represent relevant experience for people who get to the top of organizations, based also on the references they received.

If B-schools can take pride in the people they have made a name for themselves, then they should also accept that questions will be raised when people who come highly recommended prove to have made unethical judgment calls in their job, which is apparently the case.

I think that their reaction will be just as strong as our feedback to their inability to judge character in additional to professional abilities.

teksan11

The B-schools focus too much on profit thinking which leads to greed. We need more teaching about the role of business within the greater social economic scheme. Business firms’ role is to provide value to people.

Ian

B-schools must rethink what they teach, the curriculum, everything. They must change outdated models, change priorities and make overhauls if necessary. And please, B-schools must emphasize long term business development and survival rather than pleasing Wall Street. Pleasing Wall Street was the ultimate cause of this recession.

TomasC

I agree that it is mostly individual greed and lack of control mechanisms that allowed the financial turmoil to take place.

But I also strongly agree that we need to talk more about business ethics on B-schools and find a way of not just describing it, but also teaching it.

Complex finance system

The complex finance system and commission-driven world are to blame - not the business schools.

Gustavo

Let's ask the broader Socratic question: what do business schools teach?

Business schools are the Sophists of the modern era.

tilly

No, it's mostly due to allowing criminals to take over the system by deregulation.

A

I find it very telling that so many people reacting to this article blame the government, non-MBA's, and a variety of others, just not themselves.

Personally I believe the “greed is good” mantra engrained in American society, business, and business schools is the underlying cause of the crisis, in no small way stimulated and covered up by the past Bush regime.

But who am I?

Steve Brunner

The December 1st issue, "The Subprime Wolves are Back," interestingly draws the same nearly immediate response from folks in the office for whom I brought in my copy to circulate and read. It is "what are people making $45-50,000 a year doing buying $300,000 homes and condos?" I have to say that I make twice that much, more or less, and would think of buying a $300,000 residence nothing less than insane foolishness. My real desire to vent is my disappointment that people could possibly, even remotely possibly, be this, well, frankly, stupid. Sorry, but I have no sympathy for this whatsoever. It is ridiculous, and again, everyone who reads this story, unsolicited in any way, comes running over to say, "Did you read this about these people?" pointing to page 41, etc. They thought somehow they did not have to pay for it like the rest of us?

dftc

I am not sure it is fair to blame the schools. Ethics is a way of acting that one learns over a lifetime. It is naive to assume one course could inspire someone to always act ethically. Ask anyone who regularly practices their faith; if they are honest it is not a guarantee of good behavior. If you accept that premise and then try and operate in a system that promotes self interest as the most effective way to promote the greater good, the challenges should be obvious. Our system is not intrinsically evil. It is, despite being the best we have found, far from perfect.

dennis

Most people here say don't blame the business school. However, I would like to know who the bright lights of education were that started teaching the type of economics that cheered on the idea of unlimited free trade agreements, deregulation of our whole financial system, and endless sky's the limit trade deficits? After all, Washington economists have supported these theories for the past 20 years at least and our government has been built around them. Now you are looking at the results. If business schools did not cause this, then why did they not openly oppose our leadership in our government's financial policies over the past 20 years? They seemed to go along very quietly if the economists and politicians in power were diametrically opposed to everything they had been taught.

DC-AD

While I would agree that MBA programs need a curriculum that promotes ethical decision-making and fosters a solid moral compass, the claim that B-schools are to blame for the current financial crisis is a stretch. American society, as a whole, needs to reprioritize. Excessive consumption fueled by a spend-thrift, "buy now, pay later" mentality has left a vast majority of Americans with a pile of credit card debit and no one to blame but themselves.

Reckless CEOs are a byproduct of a deregulated financial system and golden parachutes. We voted these men and women into power with our shares and are now up in arms because they placed unscrupulous bets with nothing to lose.

Business ethics is not learned over the course of a semester, and higher education doesn’t exist for the purposes of teaching students, young or old, what to think. A culture that cites material wealth as the measure of its man is due for a 3 a.m. wake up call from time to time.

J.TJONGGORO

Nobody to be blamed in this case, but I would say, the policymaker didn't realized that the decision made was unsuitable for the customers who has 1,001 ways of thinking to get something without caring about what consequences will occur. In other words, they are more clever in practice than a decision maker who only bases on economic theory.

sathya

I fully agree that business schools do play a major role in laying foundations for future business. Most of the business leaders believed that markets can regulate themselves and there is no need for interference from government. The result is today's crisis. Now is the time for the business schools to look at the crisis and come up with new ideas/theories/models for the future economy. Set new standards for government role and market self-regulation, and make the system work for betterment of all. And of course, most of the business schools now are putting more emphasis on teaching ethics, leadership, moral responsibility, and CSR in their curriculum. Most of the business leaders do believe what they learned in B-schools, so it is time for them to play a big role. And bring change.

sam

Deregulation turned the economy into a playground for white collar criminals.

rjf

There is plenty of talk about morals on this page. However, every single commenter has missed the biggest moral misgiving on this entire subject. That being the immorality of the U.S. government using taxpayer money (read our money) to pay for the failures of investors, business people, shareholders, borrowers, etc. for the bad decisions that they have engaged in. Would all of these groups be running to the government to pay additional taxes when they received a windfall on their home value doubling, or their 401k skyrocketing, or their bonuses?

As a 25 year old, I have not yet heard a compelling reason I should have to pay anything for the failures of people my parents' age to save, invest with less risk, or buy homes they cannot afford. The problem underlying our current situation is that we are rewarding people who made poor choices. Until people are forced to take their lumps at their own expense, they will not learn to make better decisions. If the foreclosed homeowner lost their home they would not overpurchase next time. If the CEO drove a company into the ground to failure, he would have a hard time landing another highly paid CEO job. If investors invested their 401ks in shoddy funds and lost everything, they would make better decisions next time.

tilly

We have many crops of B-school grads who have been inculcated with "markets can solve everything" beliefs. They will probably cause problems for many years to come.

Bill, Phoenix Arizona

The business school industry (that is, a Master's and above) must accept its share of the blame. They have forgotten the art of business leadership by emphasizing finance over all others. A business exists to make money for its owners--correct? What does it take for a business to make money. It takes a leader to convert the resources of a business: labor, land & equipment, and capital plus management, marketing, finance, etc., into a sustainable activity that provides a profit to its owners. The overemphasis of one element will doom the enterprise to failure. All the econometric and statistical models a business could use will not take the place of understanding the market you are involved in; the risks and rewards, the needs of the customers, and a competent knowledge of how to make your product. Financial engineering will never replace hard assets (intellectual property could be considered to be physical assets). Therefore, in maximizing shareholder value, one must ensure that efforts are self-sustaining after you are gone; otherwise, there is no shareholder value. Our goal should be to manufacture a product or service that meets the needs of current and future customers and provides a sustainable return to labor, capital and the community. To do otherwise would destroy the capital base that underlines the entire business. A three-month quarter; one year or even five years is simply too short of a period to consider as your time horizon. How would you manage a multi-billion dollar investment that has a 20 to 30 year life span? You need to understand the customer's needs before you can even integrate all the resources at your disposal. You need to understand the technology of your business as well as how someone else may defeat you. Finance will not give you all the answers. I've been a CPA in both public practice as well as aerospace manufacturing. We need more CEOs with a manufacturing and engineering background. Finance is only a supportive function, not the leader. Business schools can step up to the plate by requiring more of their students to have an engineering and manufacturing background before they are admitted to the program. No lawyers, no accountants ever need apply.

Squeezebox

@ Dennis: You can blame a sixteenth century gentleman named Adam Smith for the free market ideal. His ideas were based upon his observations of British mercantilism practiced at the time (an equally unethical way of doing business now being practiced by Asian governments).

ALG

I believe a lot of today's problems were created by the S&L mess of the early 1980s, when students at business schools could see our politicians cave into business demands. Guess what? Today's business school class is watching and noting our politicians' lack of resolve and foresight. Yes, greed did create this mess. Let's also give a round of applause for deregulation, which allowed shoddy lending practices to become the norm.

Mike

If this article is true, then watch your back, because all those kids who play violent video games might just wake up one morning and start killing people.

Gimme a break!

David Benderly

As critical of business schools as you might be, no one can claim (or prove) that business school teaches greed and dishonesty. I am amazed at those who claim we produced financial instruments that are so complex that only few really understood what they really are. This type of statement allows the unscrupulous criminal elements off the hook with just a slap on their wrist.

jack

Let's do this scientifically: Take the top three tiers and their recent retired executives of the failing financial firms, determine what schools they attended and what departments they received their business education, assess the approach the schools and departments use, and then seek out potential generalizations. If the executives being assessed studied subjects other than financial management, then you certainly can't blame the schools. It would then be a failing of the companies.

Joshua A. Gerlick

I must take offense to any claim that it is the hardworking MBA who is to blame for our current economic situation.

Do we place blame on doctors for the crisis in U.S. health care?

Pundits point to the few who have squandered billions on themselves to the detriment of the many. But, how often do we forget that our economy is not a byproduct of big corporate ethos, but rather of the small-business enterprise.

You can call her "Jill the Plumber" or point to "Donald the Auto Mechanic," but just don't forget that the foundation of any economy is built upon the small enterprise.

Schumpeter would be ashamed to see the unabashed critic, awash with their few examples of corporate greed and malfeasance, but never a comment over the creative destruction that the small entrepreneur brings to the large enterprise.

As an MBA graduate, I do expect an entitlement, not necessarily monetary, over those who don't carry the degree. So, too, does any specialized practitioner in their field.

Having the degree is a hygiene factor, in that we have the demonstrated proof of being able to apply textbook learning in a practical setting.

Better we who know how to lead the herd than the maverick who flies by the seat of his or her pants.

Joshua A. Gerlick
joshgerlick@gmail.com

Don Creswell

Many, if not most, B-schools have created greedy, competitive, financially oriented executives who take jobs on the "earnings per share" merry go 'round, where decisions are financially centered on short term results. Don't we need a new paradigm?

sid1138

In the late 18th and early 19th century the world underwent a dramatic change. This change was known as the industrial revolution. It took 100 years for the ramifications of that revolution to work their way through society (culminating in WWI and the ousting of European imperialism).

In the late 20th century a new revolution started. Some call it the information age, but I prefer the revolution of the individual. The individual has access to more information now than the largest companies had just 50 years ago. The individual can be more productive and produce more and better products than whole companies could 75 years ago. The individual can communicate with more people in a day today than the biggest newspaper could in a month just a short century ago.

This individual capability is changing how governments work, how companies work, and how people work. The change is rippling through the economy, politics, and society. The standard fare that was taught 20 years ago no longer works. The future knowledge is being created today, and it will take time for it to be institutionalized in colleges, business schools, and board rooms.

While there is plenty of "blame" to go around, the reality is the world is changing very quickly and it will take a long time for everyone to catch up with the changes. We are entering a Brave New World where the old rules and theories no longer work, but the new rules and theories have not yet been completed.

It is indeed an interesting time (in the Chinese proverb way).

Jim

It's not hard to blame the B-School graduates who in the lust for money went to the top schools and sought out high paying jobs on Wall Street. Wall Street engineered the financial products that are now blowing up in our faces. Blame the system.

Top B-schools are self-proclaimed top schools. They have not been proven to be superior other than by these self-assessments that form the basis for rankings. It is really their exclusivity that leads people to assume they are the best schools.

The system requires inputs (students) who have top numerical characteristics, but the quality of the person's ability to use that knowledge is not a criterion. The output is somebody who can crunch the numbers, but lacks the ability to apply common sense to what they know. But you can't teach common sense. Hence, garbage in, garbage out.

For example: subprime mortgages. Mathematically it may have worked, but practically it never had a chance. It doesn't take a Harvard MBA to see that the product wouldn't work. The dot-com bust is another example. Long-term capital management (when genius failed) is another. These blow-ups were all due the blind faith in academic theory learned in B-school.

These products were all managed by b-school grads on Wall Street and represent some of the biggest financial market blow-ups of the last 20 to 30 years, a timeframe that corresponds to the popularity of getting an MBA.

The character traits of those who seek and are admitted to these "top" schools are not the right traits for our decision makers. Book smart and not a lick of common sense.

Hence, garbage in, garbage out.

JDL51

Do you honestly think they can teach everyone to act ethically and responsibly? The current crisis was not caused so much by dishonesty as it was incompetence and greed. Credit default swaps were designed to circumvent regulation because the system allowed them to do it. We need greater regulation and regulators who believe in what they're doing and not have an inclination to look the other way. That's not saying we need to over-regulate, but there have to be safeguards to protect the financial system from people who would take advantage of loopholes that may have been overlooked.

Anonymous

I vaguely recall a similar attempt to teach ethics in business schools in the 1970s or 1980s after the LBO and/or S&L scams and disasters. Those were very similar to today's highly leveraged investments but at least weren't securitized and sold all over the world. The ethics courses had no long-lasting affect. This is a problem with the culture and character of the nation. As long as making money by any means is venerated in American society, then this country will remain corrupt and possibly self-destruct.

MBA guy

I am an MBA who works in private equity. I would say that the "propeller heads" are equally to blame. I have also seen compensation metrics based on investment volume and growth (wonky structures) leading to very poor investment decision making.

Fix the comp metrics, right-size funds, and tie transactors in for the long haul, and MBA or not, better decisions will be made.

POLOMAN

Blaming B-schools is nonsense. The biggest issue is the erosion of leadership in this country and the egotistical behavior of those put into leadership positions who actually believe that they deserve to lead rather than fulfilling their responsibility toward shareholders and employees. With all the people losing their jobs today, it would have been prudent to start kicking out the senior leaders in many companies. Where else can you get $11 million dollars after you reduce the value of the company by 60% during your tenure as a CEO? How many have stepped down and said, "I cannot get it done?" No, baby, this is not the business schools' fault. This is all about greed, incompetence, and a simple lack of leadership and being held accountable.

Sujeet Mishra

The value system and paradigm of analysis is something which the schools provide to their pupils and it is on this parameter their standing rests. Not singling a school or the other, it appears that the schools not only taught the business principles but also taught them the dogma of laissez faire in its most raw form and also drilled in the models of success which shortened the horizon of thought to a quarter. Industry and its compensation models made the long term planning subservient to quarterly performance-battles were won, buts the war was lost.

No longer did the schools considered it fashionable to teach what went in to create an enduring business-something which would have run for ages and supported millions of individuals. That business is more than the mathematical models is something every self made businessman understands as no business fully is end-to-end based on machines and mathematics.

Unfortunately the basic lessons were forgotten; every student of physics knows that his work presupposes a set of clearly defined assumptions and the moment you lose sight of these, you may land with untenable conclusions. Business has to address a need of a segment of people who can afford that solution. This relationship is driven purely on the perceived value and that's why we stress upon value creation and delivery as the raison d'etre of business.

Surely a person who can ill afford a house would love to own it, especially when the wisest of salesmen assure him that he would get a solution well within his means. The person did see value in it, but the targeting was wrong and that's where the link gave way-wrong make-believe assumptions that drove the models to disastrous conclusions.

Compensation models also faulted on the fundamentals--if an undeserving gets a million dollars for doing practically nothing, then be sure that a can of Coke will cost you a million dollars. The culpability of business schools lies in the fact that present schools have taken students away from the very basic of business-value creation. We believed that mathematics and financial engineering can drive business, and took the practitioners away from the shops and shop floors. It was easy just to perform complex mathematics and be done with the day's hard work. I do see value in financial analysis and theory, but I always believed in the dictum that a true business leader can't be a mercenary; a true business leader has to understand the domain where he operates--something that is both time consuming and arduous--and should be able to see the complete business cycle, unlike the present crisis, which saw the glorified ponzi schemes going bust-scum no matter how well packaged or however named shall eventually stink.

John

Business schools were not well known until the early 1980s (unlike law or medical school) when Wall Street started recruiting from them. Business school would not have become so popular if it wasn't for the attractiveness of Wall Street's pay packages. Unlike law or medicine, where you have to go to school in order to practice, an education in business is unnecessary.

Over the years, b-schools proliferated and in turn made a handsome sum of money. This business models will continue to work as long as they are in demand and making money. B-schools are to blame insofar as they have not taken the appropriate measures to steer away from this model (teaching ethics? Seriously?). Sadly, if they were to steer away from this model (i.e., not opening doors to very attractive jobs) would people still want to go to business school?

Business schools need to reform their teaching model to focus more on practicality, rather than theory, as outlined in the article below. Unfortunately, this will never happen, because business-focused academics are not practitioners; they're thinkers.

http://www.aomonline.org/Publications/Articles/BSchools.asp

BIGWEEDS

Folks,
There are people who have a built-in radar that allows them to jump from one scam to the next as they plunder the uninformed and just non-smart people that our educational system is turning out by the millions each year. Their built-in radar is only sharpened by attending b-school, where they learn how to use the laws to their advantage. Is life not wonderful here in the 21st century?
Regards.

RollsRoyze

Look at it from this perspective:

Your child commits a crime, and it will reflect badly on you as a parent. It is you and your family who have not raised and educated your child with the proper values. Business Executives::business school, as children::family.

It's simply this idea that is behind the argument.

MBA_Grad

When are we finally going to see the business media bring to light what is probably the single largest contributor to our current economic woes? That would be: all of our leading business schools. They are the ones pumping out these MBAs who look to be making a million bucks a year before they're 30. Don't they teach them anything about business ethics, basic business principles (i.e., risk assessment as a part of any major decision), considering the needs of--or impact on--society when inventing new ways to create shareholder value (and large bonuses for themselves), etc.? That's where BusinessWeek and WSJ should be directing their accusations, indignation, and spotlights. Clearly, a large number of this nation's business schools have a systemic problem somewhere in the basic framework or structure of their programs. Until this is recognized and addressed, we will continue to have these economic meltdowns that are tearing at the very fabric of the nation's future. The collective business leadership group of this country should be ashamed of itself for where--and how--we have led the nation's economy. As the importance and esteem of the business community--and especially finance--had risen over the past 20-25 years, it seems to have been cloaking an important development. The very character and being of our business school graduates appears to have been degrading. Just as the business schools were more than happy to claim responsibility for producing graduates that could "think outside the box," generate "frame-braking ideas," create "economic wealth," develop "creative financial instruments," create "shareholder value", and so on, they most surely will claim a major responsibility for the current economic mess we're in. Now, what will they do to reverse this?

Patrick

Blame B-schools? A bit of a stretch, eh?

Jhon

The "greatest" business schools in the United States are highly relaxed in terms of the rigor and discipline needed to understand, assimilate, and solve complex problems and the structures that go with them. They believe that by means of delegation, every problem is eventually solved. No wonder some of these schools pride themselves on accepting a ballerina to the MBA program (in the name of diversity?). The guys with an MBA know what I am talking about. Obviously business schools do not demand much of their students and the whole MBA experience is more about networking and making friends in the B-school than anything else. There you got the results: Enron, Worldcom, Lehman Brothers, etc.

Human

People do not know what to sell. They just sold all the products, and the customers bought it, and they can't repay. One must know what you are selling and why you are selling, and one must know what you are buying and why you are buying that. When you are selling money, who pays for it?

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