Is Business School Education Sustainable?

April 11, 2014

 I’ve had a few emails/comments asking me to further comment on my views related to business school education. Let me start by saying outright that, in my view, the present business school education is unsustainable and in need of a revamp. A majority of business school courses are predicated on the rather narrow worldview of maximizing shareholder value. This is so engrained in these courses that business professors tend not to think twice about it. This extends beyond the classroom to academic journals as well. For instance, a growing number of management scholars are examining how corporations can shape government policy in ways favourable to the firm. Interestingly, these scholars consider this to be a viable strategy of the firm completely ignorant of the ethical implications of a for-profit entity influencing the very institutions meant to preserve the public good. The tools and frameworks in accounting, operations, finance, strategic management, marketing, and human resources are all based on performing well on a very narrow set of measures. While there may be some intermediary measures such as employee and customer satisfaction, these measures tend to exist because they help to improve the ultimate measure of shareholder value.

 

Shareholder value as the ultimate barometer of success in business became solidified in the 1970s. With this as the dominant presumption guiding research in business, one can safely presume that the many frameworks and tools that make their way into business textbooks and journal articles were developed with shareholder value in mind as the dominant outcome. When you have thousands of business graduates exiting universities and colleges with this mindset, one has to wonder why we are so surprised with our current predicament. As Holland of the New York Times explained, “Instead of being viewed as long-term economic stewards, managers came to be seen as mainly the agents of the owners and responsible for maximizing shareholder wealth”. This led to board and manager accountability to one actor (shareholders), absolving them of any responsibility for anything other than financial results (my next posting will speak of Intel’s recent shift in board accountability that has gained a lot of press).

 

It’s likely no wonder that the “M.B.A.” initials are being satirically translated into phrases like, “Mediocre but Arrogant”, “Mighty Big Attitude”, “Me before Anyone” and “Management by Accident” and more recently “Masters of the Business Apocalypse”. Harvard Business School is taking a particular beating as journalists are regularly reminding readers that they graduated the likes of Stan O’Neal and John Thain, the last two heads of Merrill Lynch, Andy Hornby, the former CEO of HBOS (who by the way graduated at the top of his class), Jeff Skilling, the CEO of Enron, Hank Paulson, former US treasury Secretary, and Christopher Cox, former chairman of the SEC. In contrast, some of the positive revolutionaries of our time – Larry Page and Sergey Brin of Google, Bill Gates of Microsoft, Michael Dell, Richard Branson and Lak-Shmi Mittal – do not have an MBA.  

 

The New York Times’ Kelley Holland put forth some convincing statistics suggesting a close relationship between MBA programs and those responsible for the financial crisis. For instance, Harvard Business School is perceived as the top MBA school in the world yet 40% of their graduates end up on Wall Street. Because of stats like this, many people are questioning whether the existing business education is partly to blame for this behaviour and whether a revamp is required. The Dean of Thunderbird School of Global Management was quoted as saying:

 

“It is so obvious that something big has failed…We can look the other way, but come on. The CEO’s of those companies, those are people we used to brag about…We cannot say, ‘well, it wasn’t our fault’ when there is such a systemic, widespread failure of leadership”. 

 

 A major conclusion drawn from many critics is that managers are ill-prepared to make decisions that consider the complexities associated with the financial crisis, social inequity, environmental devastation, corruption, and climate change.

 

When I teach my Business and Sustainability course, I tend to find three types of students. The first are those students who want my course to end as soon as possible because they feel that this topic is a waste of time and want to get on to the real crux of business which is to make money (this is not to dismiss other reasons such as my ineffectiveness in teaching). The second group includes those who are generally indifferent. They are shocked by the role of business and intrigued by how business can represent an agent of change but they are not necessarily eager to be change agents wherever they end up working, put could be encouraged. The third are those students who are somewhat aware of these issues and are in the classroom because they are excited about the idea of using business skills to address social, ethical, and ecological problems. These three groups are distributed over the typical bell curve but interestingly, the distribution is shifting to the right meaning that there are less of the first group and more of the third group. This tells me that perhaps our students are demanding a different type of business education.

 

So where do business school educational curricula go from here? A growing number of scholars and practitioners are questioning the disciplined based approach of business school and are advocating for a systems thinking approach where students learn how to think critically, creatively and independently, where they are able to see the bigger picture, are exposed to multidisciplinary approaches, understand the global and historical contexts and perspectives, deal effectively with complexity and ambiguity, approach problems from multiple perspectives, and focus on leadership and social responsibility.

 

Here’s an example. Let’s say an MBA class is doing a case on a food processing company where students are asked to devise a future growth strategy for the company (let’s say Kellogg or General Mills). In most cases, students are going to apply frameworks and tools that will assess the firm’s competitors, market trends, internal competencies with the ultimate objective to understand how to boost market share, revenue and profitability. They’ll likely crunch some numbers, come up with a few ratios to assess past performance, conduct an NPV or two and put together a couple of projected financial statements. Anything else, like how ethical the decision might be, its health effects or impact on the environment would represent a tradeoff to financial value creation unless it is in direct violation of the law or they foresee negative consumer response to their decisions.

 

An alternative approach would encourage the class to consider the bigger picture of the firm’s decision, considering how the industrialized food system emerged since the second world war, how the western diet emerged, how the actions of the firm impact environmental systems, health systems, etc.. They’ll also consider the decision from the perspective of small farmers, doctors, the obese population, diabetes associations, developing country farmers, environmentalists - – all of whom are directly or indirectly impacted by the decision these students make for the company. They would be challenged with reconciling these conflicts. In fact, they would be discouraged to consider these diverse perspectives as conflicts and instead recognize that this dialogue is what being a business leader is all about. They would move away from an either/or decision and learn how to think creatively for a solution not pursued before yet maximizes value for multiple stakeholders simultaneously – including shareholders. The new role of business graduates is not to manage but to lead business in a new direction where assumptions are constantly questioned, new perspectives are consistently incorporated, complexity is the norm and critical thinking encompassing collaborative solutions is the measure of success.

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