The MBA Scam.....

In my last Money Week column, I've been looking at how much blame we should put on the MBA course for creating the credit crunch. Here's a taster....

There have been many different culprits put forward for the credit crunch. Greedy, bonus-chasing bankers, asset-inflating monetary authorities, and bubble-blowing politicians have all, with some justification, been blamed for the worst collapse in the global economy since the 1930s.
But perhaps we can pin it all on the MBAs, those clever, impeccably trained young men and women, babbling jargon, and flashing power point presentations, who in the last decade have taken over the world’s leading banks, our biggest corporations, and increasingly government as well.
Some of the main MBA factories certainly seem to think so. Indeed, students at the prestigious of them, the Harvard Business School, have now launched what they call the MBA oath, a managerial equivalent of the Hippocratic oath, which tries to make sure the graduates don’t repeat many of the mistakes made over the past year.
The trouble is, the oath looks like yet more of the kind of meaningless waffle that the MBA has itself been associated with. There is no doubt that the way the global economy is run needs to change, and there would be few better places to start reforming it than with the education system. But if they the Business Schools want to contribute to that, they need a code with real teeth, they need to change what they teach, and how.
Indeed, the mere fact the oath has been launched at all raises the interesting question of how far the MBA can be blamed for the global economic crisis.
Certainly, many of the people who steering our leading banks so calamitously onto the rocks had received the best business education that money can buy.
Andy Hornby, the man in charge of HBOS when it collapsed, had been trained at Harvard Business School. Peter Wuffli, whose management of UBS was so reckless he practically bankrupted Switzerland, had been to that country’s most prestigious business school. Richard Fuld, the man in charge of Lehman Brothers when it went pop was another MBA. So were most of the leading players on Wall Street that led the financial system into crisis last year.
True, to some degree an MBA is just a stepping stone. But if a pilot school was resulting in that many crashes, we’d be asking some touch questions about what was being taught. There is no reason why the business schools shouldn’t be subjected to the same kind of criticism.
It is not hard to see the flaws in their methods. Over the last two decades, the business schools pushed a quasi-scientific approach to business that has turned out to be catastrophic. They have taken something that was essentially unknowable – risk – and persuaded a generation of bankers and managers that it could be easily quantified and traded away. They failed to teach people about the whiplash of the business cycle, and they bred an over-confidence in their methods that in many cases turned out to be fatal. The one thing most bankers needed to take into work was humility, but they weren’t learning much of that at business school.
Worse, they have ramped up expectations unrealistically. Graduating from an elite business school won’t leave much change from a £100,000. With those kinds of debts, students don’t have much choice but to get on the banking, bonus treadmill. There was a bubble of inflated pay-outs, private jets and lavish contracts at the top of business, and it started inside the MBA schools. Even if it unfair to blame the MBA for the credit crunch, the course has still become synonymous with a greedy, asset-stripping, bubble-inflating approach to management.
It is hardly surprising that at least some of the business schools think a re-balancing is needed. The oath makes a start. You can read the whole thing at mbaoath.org, but its starts: “I will act with utmost integrity and pursue my work in an ethical manner’: and continues “I will manage my enterprise in good faith, guarding against decisions and behaviour that advance my own narrow ambitions but harm the enterprise and the societies it serves”. It then carries on in much the same vein through eight core principles.
There is some recognition of past sins in there. Not many bankers could put their hands on their hearts and say they have always put their company and the wider economy ahead of their own self-interest. Nor could every company director honestly say they have always presented their financial data with complete honesty as the code will now require them to do.
But it is hard to escape the suspicion the pledge comes straight out of the textbook titled ‘How to Re-Brand a Tainted Product’. Most of the clauses look like the kind of guff we are used to seeing served up in the corporate social responsibility pages of annual reports. It is hard to take seriously a promise to “create sustainable economic, social, and environmental prosperity worldwide.” It is just words, designed to make the person reciting them feel good about themselves.
If the Business Schools were serious about reform, they wouldn’t go for a quick re-branding. They would re-engineer the product from the bottom up.
The MBA courses need to change what they teach and the way that they teach it. There should be less emphasis on financial engineering, and more on real engineering. They should be less emphasis on slick marketing, and more on building decent, good value products. They should drop the pretence that anyone with the right sort of MBA can be dropped into any company and run it properly, and put more emphasis on the enduring culture of a company that has been built up for decades.
At the same time, they might like to cut the fees so students weren’t burdened with such massive debts that they can only pay them off by working for an investment bank. And they should start reminding their students that risk can never be eliminated in business, merely planned for; that the business cycle will always re-emerge, and catch out anyone who hasn’t prepared for it; that mergers and de-mergers are just an expensive distraction from actually creating products; and that the best companies are built patiently over many years by people who love the product, not assembled overnight according to a textbook.
If a generation came out of business school equipped with some of those lessons, who knows, we might even avoid another credit crunch.