Wednesday, April 14, 2010

Is Business School Education Sustainable?

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.

5 comments:

  1. Valente, that is a great piece of thinking. I’d like to comment on the ‘three types’ of students in your class (although I suspect you may have a fourth type - the girls who are there because of your muscles).

    Aren’t students who enrol in an MBA doing it because they’ve made a significant life choice and investment based on their personal strengths and desire to succeed in the business world as it currently exists? You’re talking about changing behaviour of those ‘type As’ who want to make the big bucks and hide behind the shareholders. It seems to me the people who can be the leaders you're talking about may not be the business type at all. The question is, how do you get those people to become future business leaders…perhaps you can convince the business school to start recruiting at NDP or Green Party AGMs!

    Russell

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  2. This is a good point. There are indeed a group of students in the class that fit this description. I certainly sense resistance to some of the approaches i describe when i use them in class. But if a student is in any university program, they hopefully are there to learn something. It is up to university institutions to take the lead on building in society's needs into educational curricula. If business schools are sensing their existing tools and frameworks are associated with behaviours inappropriate for society, it is up to them to change them. If students coming into the program are unwilling to change, then perhaps their performance in the program should reflect that resistance.

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  3. i find myself taking this thought one step further. currently were trying to debate on weather the values of the business world are appropriate for what society needs. though defined rules of how business should operate are important, shouldn't we be looking at the overall purpose of business? or did i miss this in my point in my business education? isn't business the mutual exchange between two people or parties? or is business the driving factor behind change within society? or both? (im not really sure i wish my school talked about this more) either way, i completely agree that this motive of shareholder wealth is contradictory to what business stands for. business to me is about beneficial exchange, not shareholder wealth(though i don't believe profit is a "bad" thing). i feel as though i am a student looking for an alternative education about business and agree that schools need a broader perspective not only on the messages they send about business, but what business is and should mean to society. good thing my parents taught me that school is only a portion of my life long education.

    Chris

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  4. I agree with the three types of students but, as a former female student, not the fourth - that is a little demeaning.

    The reason why in high school I never wanted to go to business school is because of the first group of students. But the reason why I am went to business school and I am getting my CA is to be part of the third group.

    I believe the only way to change they way the business world currently works, is to be part of and it is important to understand the first group, because we will have to find ways to engage them.

    But the question I have is, what masters programs are teaching students how to be "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."

    Or are the examples of Richard Branson and Bill Gates is that it needs to be found organically?

    And what not redefining what the term "shareholder wealth" means? How do we, as new business graudates, create this lasting change in the existing business world?

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  5. Just wanted to point out that although most business schools are missing the opportunity to create "change agents"... there are some good things happening in accountancy schools, especially in Canada. The CA designation also requires some important prerequisite study of sustainability in business and "triple bottom line".

    I think MBA programs could look at these programs as a start. It would be nice to see it instituted as mandatory reading for profs (if there was such a thing!)

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