SO, WHAT ARE THEY WORTH?
Business schools need to look at the lessons of history and reinvent the MBA curriculum to avoid future recessions, writes KIERAN FAGAN
AS THE financial carnage continues, bringing industrial giants like General Motors to their knees and toppling pillars of Wall Street, scarcely a bank has escaped unscathed. The question is - what went wrong?
Prof Ken Starkey of Nottingham University believes that business schools have some culpability. "Finance and industry leadership is being exercised predominantly by graduates. Business schools need to reflect on the role of the MBA in the carnage on Wall Street, and just how management education has contributed to the mindset that has led to the excesses of the last two decades."
The destination of choice of top MBA students has been hedge funds, private equity firms, investment banking, venture capital and consulting, he says, and the schools who educated these people have to recognise they have been complicit in creating a form of social Darwinism.
"Now schools need to cultivate an appreciation of the role of the state and of collective action to counter the fixation on markets and individualism. Business schools need to spend more time looking at the lessons of history," says Starkey. He cites Enron, tulip mania, the South Sea bubble, dotcoms and the collateralised debt obligations feeding frenzy as lessons going unlearned because business schools do not teach history.
Teaching in business schools needs to be skills-based. "Go to medical school, you learn skills. Go to business school and you learn theories, which you apply without reference to externals. A blend of maths and economics will win through, without considering other factors. Business schools have a touching faith in models and that is why banks in particular are in trouble. Medical schools teach a code of ethics. Business schools teach 'greed is good'."
Starkey says that phrase originated in a talk by inside trader Ivan Boesky to a California business school, and was adapted by Oliver Stone for the film Wall Street. It didn't start in the film, it started in a business school "where unfortunately it belongs".
"The MBA was supposed to be the basic toolbox for managers, now the question is - can it reinvent itself. Right now the MBA is not fit for purpose."
Prof Brian Lucey of Trinity College Dublin quotes John Maynard Keynes on economic theory applied without regard for real-life implications. "Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back." (Put that way, it sounds like a recipe for some of the financial derivatives which have recently come to roost.)
"Some US MBA courses teach competition, competition, competition to the virtual exclusion of all else. The students turn out like crabs in a bucket, forever clambering over each other to try to get ahead. That's generally not the case with Irish business schools," says Lucey. "Business schools are not just about MBAs, we run executive courses, undergraduate and post-graduate courses," he says, admitting Starkey's broad point about the widespread failure to see the credit crunch coming. "In Trinity last year, we started a masters in finance in co-operation with the Chartered Financial Analysts' Institute. We see the finance function as part of something larger. Apart from shareholders, there are other stakeholders and while we may argue about how they should be 'weighted' there is no argument about their validity.
"We deal with ethics and corporate governance, not as 'bolt on' extras, or on a lip service basis, but integrated into what we do. Business schools cannot be divorced from reality, theories must be tempered with what is happening in the real world. For example, in our part-time MSc in finance, real-life problems are raised by working students and they help to keep the course, teachers and students, grounded."
Stephen Dunne and colleagues at Leicester University management school foresaw trouble on the horizon in a paper published in March 2008. "In a survey we have conducted of the papers published within the top business and management journals over two years, we found that over 98 per cent did not acknowledge the relationship between business practice and war, global violence or the displacement and dispossession of populations. Over 90 per cent paid no substantial attention to unsafe or exploitative working conditions around the world. At least 2,296 of the top 2,331 articles we surveyed did not consider questions of race, international migration or neo-colonialism," they wrote.
"And despite the increasing attention being afforded to ethical business practices, almost 85 per cent of the articles surveyed failed to examine the issues of corporate social responsibility or business ethics. In fact, our study found a remarkable lack of attention being paid to the pressing social and political issues of our day," they wrote.
Jackie McCoy, professor at the University of Ulster (UU), says the Enron collapse has been included in the strategic financial module of their MSc in executive leadership for some years and courses are being reshaped to reflect the new business reality.
Through case studies, students learn how to unpick instances of "toxic leadership" which can include aggressive profit-making at any cost, and how, unchecked, it eventually damages or destroys value in an enterprise. Even before the credit crunch, UU's business students were learning about varying perspectives on leadership and how integrity is essential.
Trust too is at the basis of all healthy businesses relationships and this is important because when all is said and done, people do business with people. Businesses then are "people businesses"; live, self-reinforcing or more often, as we have experienced with the credit crunch, self-destructing networks of relationships between shareholders, staff, customers, suppliers and the wider world.
McCoy leads the Business Institute at UU, and is director of the MSc in executive leadership. She emphasises corporate responsibility. For her, responsibility is about being answerable and she says, in order for someone to be prepared to be answerable they have to care for or about someone or something and be willing to use their power and influence in a positive way to effect change for the better.
Dr Brian Webb of the Open University in Ireland says we should be wary of blaming the MBA for the financial crisis just as we should be wary of claiming that the MBA was responsible for the economic good times.
"Ironically, in a review of the MBA which pre-dates the financial crisis, the Open University has been looking at shifting emphasis from left brain - deductive, analytical, information-based - thinking to right brain - inductive, creative, heuristic - thinking.
This is believed necessary to make the MBA more responsive and relevant. But it is the very lack of left brain thinking, a lack of careful analysis and decision making, that seems to have caused the financial crisis, where excessive right brain thinking lead to unchecked speculation and risk taking.
"Clearly, we need to balance both aspects. That is the challenge," he says. However, we may have some distance to travel before the guys in red braces and striped shirts howling in the trading pits in Chicago pay the same attention to corporate responsibility dividends, as they do to their bonuses.
Q&APROF PAT GIBBONS, VICE DEAN FOR ACADEMIC AFFAIRS, UCD MICHAEL SMURFIT GRADUATE BUSINESS SCHOOL
How much of the credit crisis and global meltdown can be blamed on business schools?
The notion that the blame for the credit crisis and financial meltdown can be put at the feet of business schools is very over-stated. One of the key principles taught in business school is that there is a relationship between risk and reward - obviously the regulators and many board members forgot this.
Did common sense lose out to economic theory in your curriculum and were your staff and students dazzled by complicated financial instruments at the expense of the basics?
That question arguably makes a case for business schools. In recent years, many banks and financial houses have been recruiting directly from mathematics and physics departments in universities to help the banks get a handle on the valuation of complex products. These highly qualified individuals have had little grounding in business fundamentals and economics, so their assumptions are not tested against an appreciation of economic or market reality. This is where business schools can help - by providing insight into what went wrong with LTCM, Enron and the dotcoms.
How is your curriculum being changed to adapt to a very changed landscape?
The question presumes that we change our curriculum to match a boom-and-bust cycle. We don't - we seek to provide a rounded business and management education to equip people beyond the crest or nadir of any particular cycle. Naturally, contemporary events provide a context for the discussion of principles. The current crisis exposes the need for competitive enterprise, productivity growth and innovation - topics we are committed to delivering.
What are you doing differently today?
We're focusing a lot more on equipping our graduates to compete in what will be a particularly difficult labour market.
Will next year's graduates be better equipped?
We don't design our curriculum around the business cycle. We are developing managerial talent to manage with skill, ingenuity and integrity.