MBA factories must bear blame for shoddy product
March 29, 2009
By Matthew Lynn
When King Henry VIII broke with the Catholic Church in Rome, he shut England's monasteries. When Fidel Castro took power in Cuba, he closed Havana's casinos. So let's close down business schools to get into the spirit of the new financial order.
In the past 20 years, Master of Business Administration (MBA) factories have created the conditions that helped land the global economy in this mess.
They legitimised a pseudo-scientific approach to finance that turned out to be bogus; promoted a management style that was too mechanistic; and formed a managerial elite more interested in rewards than producing lasting wealth for their economies.
There is little mistaking the growth of business schools, especially as the economy contracts and jobless bankers seek to boost their qualifications. Applications to MBAs last year rose at the fastest pace on record, according to the Graduate Management Admission Council in Virginia.
The trouble is, the last batch of MBA graduates who rose to the top made such a hash of things, it is hard to believe the next will do much better. The people who steered the global economy on to the rocks in the past year all benefited from the finest management education money can buy.
Richard Fuld of Lehman Brothers, John Thain of Merrill Lynch and Christopher Cox of the Securities and Exchange Commission all have MBAs. So does former US president George W Bush.
The record isn't much better in Europe.
Andy Hornby of British bank HBOS is another Harvard Business School alumnus. HBOS had to be bailed out in a merger with Lloyds, then both had to be rescued by the UK government. Peter Wuffli, who presided over losses that took Zurich-based UBS to its knees, also studied management.
Of course, it is unfair to assign all blame to business schools. Over the past three decades, taking an MBA has become just another hoop to jump through to land a good job. If we studied the records, we would probably find that most of the chief executives who led us into the crisis also did finger painting at kindergarten - and it would be wrong to pin the credit crunch on that.
Still, it raises the issue of what business schools are teaching and how they created leaders unable to spot the flaws in the firms they ran. If a flight school produced this many crashes, we would be asking some questions. There is no reason business studies should be exempt from the same scrutiny.
The schools should be called to account for several things.
First, they encouraged a quasi-scientific approach to business, sermonising that everything could be nailed down in a textbook. By preaching a set series of formulas, they urged students to believe running a firm could be mastered by anyone.
In reality, management is a skill acquired through experience, judgment and flair. Billions will be wasted relearning a simple fact that should never have been forgotten.
Second, the intellectual tools that led us into the meltdown were invented within academia. Complex models for pricing risk created the market for the options and derivatives contracts that caused so much trouble.
The schools took something unknowable, risk, and tried to make it as easy to count as peas in a pod. They encouraged a generation to go into investment banking armed with the belief that they had mastered risk. The truth is, bankers can no more tame risk than sailors can tame the oceans. They can only hope to steer a safe course through it.
Third, the schools created a managerial elite. They thought guaranteed bonuses and private jets were normal.
No doubt we will hear a lot about how schools are reorganising themselves. We will see papers and proposals, and probably a few equations, explaining how to stop the crunch from happening again. But as Henry VIII and Castro both concluded, for different reasons, sometimes an institution can't be fixed, simply because it is the problem.
Just shut them down.
Matthew Lynn is a Bloomberg columnist. The opinions expressed are his own
|
|
