Business schools in crisis

Let’s not mince words: Our MBA graduates marched out and destroyed the world financial system. Few in academe have stepped up to take responsibility. We have yet to hear a professor say, “I taught those people, and I’m sorry.”¹

MBA curriculum, taught in US b-schools, has become a race to the bottom, with courses getting shorter and easier as MBA programs proliferate and compete for students.²

Harvard’s Rakesh Khurana notes there’s no longer a consensus on what constitutes a core curriculum in business. There is nothing even resembling a unified body of management knowledge. “It’s not clear what an MBA consists of anymore,” he says.

Small wonder, when US b-schools lack leadership. The Dean that is selected is the candidate with the most fund-raising ability, and at least enough publications to pretend to scholarly respectability. She or he is not required to show the academic leadership that could produce a coherent, relevant curriculum. In any case the Dean will spend, on average, only five years in office before moving on to another job – and a quarter of them spend only three years as Dean (Bradshaw 2015).

Reports in Forbes, Chronicle of Higher Education, Harvard Business Review and others reveal simultaneous intellectual crises in the disciplines taught in b-schools. The foundations of Economics (DeLong (2011), “Economics in Crisis”; see also Krugman (2011)), Strategy (Denning (2012), “What Killed Michael Porter’s Monitor Group?”), Psychology (Shea (2011), “Fraud Scandal Fuels Debate Over Practices of Social Psychology”), Finance (Galbraith (2010), “Why the ‘Experts’ Failed to See How Financial Fraud Collapsed the Economy”), venture capital (Mulcahy et al (2012) on the Kauffman Foundation’s conclusion that “…the VC model is broken”), and Management (Bloom et al (2012), “Does Management Really Work?”) have shaken.

Why this happened all at once is still mysterious, though in large part we may attribute it to b-schools being slow to adapt to a new and vastly different business environment. It is one reason Khurana says “you’re not going to learn much” in the MBA program. Students take the MBA not for its irrelevant content, but simply to show potential investors and employers that they are smart, hard-working people with good personal networks. Prospective students looking at escalating tuitions are going to find cheaper ways to demonstrate these qualities.

No one in the university admits responsibility for this. No one in the leading research universities gets tenure for redesigning curricula. The teaching colleges follow the lead of the research universities. Who then will change what b-schools teach students? William Holstein (2013) is right: “Business schools are facing a crisis of global irrelevance.”

Denial of the crisis among social scientists has largely been of the “There’s always a few bad apples” variety. Denial seems to run deepest among economics and finance faculty and professionals. Ironically, “In Defense of Financial Innovation”³ was published the same day as “Big Banks Fined $5.7 Billion After Pleading Guilty to Global Currency Conspiracy.”⁴

In preparing this paper we have tried to find credible articles supporting this denial. However, we conclude the crisis is real.

In what follows, we write in more detail about the crisis in each of the mentioned disciplines and its interaction with the changing business environment and with business education. Drawing on expert opinion and literature review, we then connect the discussion to the business school’s mission, organization, and curriculum, outlining the key considerations that will frame improvement or solution. The paper concludes with a set of recommendations for business schools.

The changes include globalization, technological advances, growing income and wealth inequality, declining social mobility, big data, climate change (see e.g., Phillips 2006; Howard-Grenville et al. 2014; Phillips 2014), the rise of China (and more recently of India), demographic shifts, the sharing economy, and U.S. détente with Iran and Cuba.

Doing and teaching business will be much more difficult until we can come to a new, and possibly radical, set of perspectives that acknowledge these changes.

The remainder of this section looks at the obstacles and opportunities for a number of business-related disciplines.

Universities are subject to external controls that somewhat constrain how fast we can change. Accreditors want credit hours, not skills. They want approval authority over the fraction of online courses that can be credited toward a degree. The ability of accreditors to change quickly is even less than that of universities.

Accreditors want to see that each b-school has a strategy and is following it. As a result, b-schools stick to a course of action between accreditation visits, in order to show their adherence to, and progress against, a stated strategy. This occurs even when it is obvious to dean and faculty that, due to new knowledge and market forces, a change in strategy is urgently imperative. Colleges must be freer to revise strategies, and to experiment with new educational forms.

The AACSB is the premier US professional accrediting body for b-schools. One of their national meetings took place at the height of the Enron crisis. Seated in the audience, one of us eagerly awaited a signal from AACSB officials reaffirming the importance of ethics education in the business curriculum. Astonishingly, the word “ethics” was uttered neither by them nor by any of the academics in attendance. Instead, the luncheon speaker – the CEO of Tupperware Corp. – was the only human being in the three-day meeting who so much as mentioned ethics.

So no faculty attendees heard a thing about ethics from their peers, and naturally, their students didn’t hear anything new about ethics from their professors. Ten years after the MBAs trashed Enron, its employees’ pensions, and its auditor, new MBAs inflated and popped the housing bubble. Swanson and Frederick also noted AACSB’s non-reaction in the Enron times, wrote about it (2003), became activists in the matter of AACSB’s policy on business ethics, and reported in a follow-up piece (2015) that no progress was evident.

A number of studies, mentioned in Wheelan and Elgart (2015), criticize the high cost of regional accreditation. Wheelan (President of the Southern Association of Colleges and Schools Commission on Colleges) and Elgart attempt to discredit these studies. Commenters on the paper do a thorough job of highlighting Wheelan and Elgart’s fallacies in rhetoric, though it does seem possible that some accreditation costs noted by the studies are commingled with federal grant compliance costs. Yet on the other hand, professional schools undergo the added costs of specialized accreditation - AACSB and the like, in the case of business schools.

Attendees at AACSB’s (very expensive) 2015 meeting complained that (i) none of the sessions’ titles matched their content, and (ii) the many newly added reporting requirements evidently benefited AACSB but not the universities. The organization seems to be prestigious because it is prestigious, famous for being famous. It must reform. Otherwise all it will take is one influential individual to stand and say the emperor has no clothes, and the empire will tumble down.

Perhaps that person is Hunter R. Rawlings III, former president of the prestigious Association of American Universities, who says (Rawlings 2016), “Accreditation… not only is outmoded but threatens to taint our entire enterprise”.

A word about money: In one sense it is not the university’s job to create millionaire alumni. In another sense, we love to do so because it creates an opportunity to ask them to donate to dear alma mater. Either way, we should take a neutral stance on the matter of money, teaching that amassing it is neither virtuous in itself nor the opposite.

However, few would argue the moral equivalence of productive investment that results in improved goods and services, and non-productive rent-seeking, e.g. speculation. (This is despite that GNP numbers notoriously do not make this distinction.) Even an organ such as Forbes (Denning 2012) agrees, “The purpose of business is to add value for customers and ultimately society”.

In fact, the states charter corporations in the expectation that the corporations will add such value. This first and most basic principle of corporate social responsibility (CSR) should not be given short shrift in the classroom.

It is curious that California and some other states have created a new corporate form, the “B-corporation,” that is for-profit but exists specifically for social benefit. Curious because examined logically, it seems to give a free pass to C- and S-corporations as regards CSR.⁸ Legislators and the press have not adequately explained this.

Critics ask, “What’s the real value of a college education?” If a b-school grad is prepared specifically and exclusively for his/her first post-college job, and that job ends, then the value of the college education wasn’t much. Let’s prepare students for careers, and moreover, for the several careers in serial that they will probably experience in their lifetime.

“60 % of employers complained that job applicants lack interpersonal and communication skills. They can pass a calculus exam, but they can’t identify or solve problems on the job, or negotiate, or lead a meeting.”⁹ These things CAN be taught in a classroom. Let’s make sure we are doing it.

Grant Cornwall, president of Rollins College, agrees that “post-secondary schools should not simply be job training centers.” “Is education for the next job?” Cornwall asks. “If so, then that kind of training is great for the student and our economy. But I have to mention the other – education that prepares students for a full career” (Mathewson 2015).

Benton (2008) makes the point that excessive vocational focus in an institution of higher education can exacerbate anti-intellectualism and the general dumbing-down of America. Skilled employees lacking perspective make bad business decisions, and both poison the business environment. How long can short-termism in business survive in a steadily deteriorating business environment of crumbling infrastructure, decaying neighborhoods, and public mistrust? Not long: Ethologists tell us that only members of dying species defecate in their own nests. Gorillas (which do this) seem to know they’re on the brink of extinction. Do public corporations know it about themselves?

A faculty member at a top b-school told one of us, “We have to prepare students to get a job.” “But what about the university’s mission to graduate well-rounded, well-informed and responsible citizens?” asked the interlocutor. “Don’t be naïve,” the lecturer replied, “That’s past and gone”.

We hope not.

The article linked in footnote 7 is the latest in a recent, unfortunately large, number of wrong-headed pieces on why universities should be run “more like a business.” That sentiment is broadly false, but the underlying point that times are changing does mean that some adjustment is called for on the part of universities.

Not a radical change, in our opinion. Universities have existed, in more or less their current business model, for 1700 years. Contrast this with a history of about 150 years for the modern corporation model, and much shorter histories for specialized business forms, like VC firms. If an industry leader says, “The university needs to change its business model,” our best response would be, “Talk to me again in another thousand years, and we’ll see whose model has survived.” Seventeen hundred years means universities are answering a need that is not just transitory. The Internet is not the first technological revolution to come along; the university has persisted through several others.

Indeed – as signaled by the re-privatization of Dell Corp. – the age of the public corporation may already have run its course. Konczal (2015) attributes this to the shareholder power movement: “Research now finds that private firms invest more [in innovation and growth] than similarly situated public ones, while the corporate sector as a whole now returns virtually all profits to shareholders in the form of dividends and buybacks.... Where finance used to get money into firms, now finance is about getting money out of them”.

Our hypothetical industry leader (and we’ve heard the same from some real ones) is forgetting who the university’s most important stakeholder is. Our students and their parents – not companies – pay tuition. Especially in the US, companies don’t want to pay for training their own employees. They are eager to get something for free from the government, and they think public universities ought to train students to “hit the ground running” on their first day of employment after graduation.

Students do want to be employable upon graduation, and particularly in the case of business students, it is the reason they’re paying tuition. Yet they have chosen to attend university, not a trade school. At some level they understand that it’s the university’s job to prepare them for a career, not for a particular job. Blogger Arnold Kransdorff has substantiated¹⁰ (using BLS data) that “today’s learner – i.e. tomorrow’s employee – will have 10–14 different jobs by the age of 38. Currently, the median average over the whole of a typical 45-year working lifetime among Fortune 500 companies is already 12 [jobs], with job tenures of just 12 months for many”.

So it’s worthwhile to push back against industry’s assertiveness.¹¹ Ask CEOs, “OK, you say that’s what you want. Are you paying your fair share?” Even if the answer is “yes,” the university must consider to which constituency it owes what investor Jason Calacanis (2015) calls “the highest moral commitment.” The university’s highest moral commitment is to the student.

Back in the day, b-schools led the business world, sending out new ideas and techniques. Now, b-schools react to the business sector, and far too slowly – especially compared to journalists, who turn around in-depth analyses very fast. Of what use is the b-school?

We should not confuse technical skills with knowledge. Teamwork, socialization, character-building, learning how to learn, and developing the commitment to keep on learning, are all things that the university more or less uniquely provides, and are difficult to develop via online courses or short courses.

‘“The explosion of all the different things that aren’t universities, their presence in the learning ecosystem, will both force and allow universities to re-center themselves around the kind of learning that can’t take place in other kinds of settings,” says Randall Bass, vice provost for education and professor of English at Georgetown University.’ Good point. Students can learn from Khan Academy, online university courses (maybe MOOCs), professional association short courses, computer schools, boot camps, the Internet generally. How can we duplicate, partner with, or effectively complement these sources?

Shall we accuse Jack Dougherty of literary hyperbole? Perhaps. Yet a line like that in a bestseller is less than a PR coup for Penn. Before the advent of modern b-schools, companies – even Wall Street banks – hired liberal arts graduates. There’s a lot to be said for this practice, and businesses would be wise to return to it. Those grads had a sense of history, a way with words, and some idea how their actions would affect society. Unlike, need we point out, the ones who designed collateralized debt obligations.

The new president of the University of Texas at Austin promises the creation of new interdisciplinary centers on campus (Roush 2015). “The big questions that we face as a society, as a nation, and as a state don’t fit into neat disciplinary boxes.”

More than ten years ago, for the first time, published social science papers citing works outside their discipline outnumbered those that cited only within-discipline (Van Noorden 2015) and have continued to outnumber pure disciplinary works. This is a worldwide statistic; the United States ranks 7th among countries publishing interdisciplinary works in all sciences. Van Noorden shows that interdisciplinary publications are cited less than disciplinary papers in the three years following publication, but the situation reverses as more years pass.

Vital interdisciplinary studies will require re-examined faculty reward structures.

The professor’s role is indeed changing. We don’t believe lectures will disappear. But we do hope profs don’t “lecture from the book.” There is too much information on the Internet, much of it erroneous. A good role for faculty is to sort through the online drivel and select what’s most important for students to see and to have explained to them. This function alone justifies tuition. However, professors should be mentors and role models as well.

We were struck by what one Northwestern University professor said many years ago: “My FORTRAN programming has got rusty. I ought to teach a course on it.” Humorous, but the remark highlights that professors too need to embrace lifelong learning (indeed it is easier and cheaper for us to do so, because we work right here at the university, and we have doctoral students who can bring the leading-edge literature to our attention) and that teaching is an excellent way to learn and to deepen learning.

Being a role model means being willing and able to learn new things just as - or better than - we want our students to. In this regard, another recent article quoted another misguided dean: “Employers now want Ruby on Rails coders. You don’t need a 3-credit course to teach Ruby on Rails, and I can’t hire faculty to teach a course that may be obsolete in 18 months.” Solution: Make R-on-R one replaceable module in a semester course on Modern Programming Environments (or some such), and use current faculty who, like the Northwestern prof, want to learn by teaching.

Frick (2015) conducted a study, and cited another one, both of which showed that CEO success is better explained by luck than by knowledge or skill. This is possibly another indictment of our teaching. However, let’s put a constructive spin on it: Luck comes to the well-prepared, so let’s teach students how to recognize opportunity.

There are rays of hope – though as yet precious few – for US b-schools. Swanson and Frederick (2003) report that Northwestern University’s Kellogg School has launched a ‘Business and Its Social Environment’ major. The same authors report that a large number of business educators have banded together to protest AACSB’s tepid stance on business ethics education.

Psychologists Silberzahn and Uhlmann (2015) recruited twenty-nine research teams to re-analyze a data set on referee bias in soccer, using methods of their choosing. They found the collective conclusion to be much more equivocal that any single team’s interpretation. This is a valuable result. Their exploration of multi-team methodology as a new standard in psychology research, they concede, is less than promising: Efforts to turn psychology into “Big Science” are unlikely to be funded when it is seen that putting more resources into the study leads to more tentative results. The authors claim that the approach would reduce “the incentive for flashy results,” though we see this effect as indirect at best – as would be its incentive for researchers to share data sets, which they are now widely reluctant to do. We wonder whether similar and cheaper results could be obtained by a single team using multiple methodologies to analyze their own data. Nonetheless, this study is a step toward reining in undisciplined research and publication.

More promising, but still in its infancy and a long way from influencing curriculum, is the Kavli project of Azmak et al. (2015). Subtitled “Using Big Data to Understand the Human Condition,” the project follows “10,000 individuals whose biology and behavior will be measured using an unprecedented array of modalities over 20 years.” It will yield “a complete record of the health, education, genetics, environmental, and lifestyle profiles of a large group of individuals at the within-subject level.” Leveraging the multiple perspectives of several social and biological sciences, Kavli might unblock progress in the social sciences (while also providing frightening new tools for marketers).

We hope Brooks (2015) is correct in saying, “On almost every campus faculty members and administrators are trying to stem the careerist tide and to widen the system’s narrow definition of achievement. Institutes are popping up — with interdisciplinary humanities programs and even meditation centers — designed to cultivate the whole student.” Carlile et al. (2016) offer encouraging examples.