Commentary
How Should Our Business Schools Respond To The Financial Crisis?
- by Dave Morgan , Featured Contributor, January 29, 2009
It's impossible to avoid the constant flow of news, criticism and finger-pointing related to the financial crisis; and that's a good thing, I believe. So far this week, we're heard about many tens of thousands of layoffs in the U.S., a distressed bank buying a $50 million jet, the CEO of another distressed bank spending $1.2 million to renovate his office - while dozens of world leaders and world-renowned economists take a stage in the Swiss Alps and blame American companies, American business executives and American regulators for the creation of this global financial mess. While as an American, my initial reactions to all of the global criticism were a bit defensive, I must admit also feeling a certain amount of shame for the actions of some of my fellow countrymen. Who is not a bit upset and embarrassed by it all?
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We will have to spend a certain amount of time over the next couple of years reflecting on what happened here, why it happened, and what we can do to make sure that it doesn't happen again. It's pretty clear that there are many, complex causes for this financial mess, shared by many across the globe.
In a discussion on this topic yesterday with a close friend of mine, we were speculating how the country's business schools were coping with this crisis. Certainly, many of them have suffered significant losses in their portfolios. Of course, many of them may also be seeing record numbers of applications as laid-off workers and jobless recent college grads look to business schools for a two-year respite from the crisis. But most importantly, how many business school leaders are looking past these two looming issues and asking themselves the really hard question, which is: Where did they go wrong in training the last generation of business leaders?
Certainly, there are a lot more folks to blame than just business schools for the conduct -- whether bad, indifferent, or just stupid -- on the part of many of our business leaders over the past decade. But many, if not most, of these leaders have something in common: an MBA from a "top" business school.
I know. I know. Correlation does not equal causation. However, there's at least one other commonality across many of the events and activities that helped cause this crisis -- irresponsible management of risk and a disregard for ethical conduct.
It doesn't matter who is to blame for the ailment, but I do think that business schools can have a role in treatment. Risk and ethics need to be elevated in the curriculum of business schools; the ability to understand and truly manage these areas needs to be part and parcel of the development of future business leaders.
When it comes to risk, our business leaders have to understand that they are dealing with people's lives, literally. There seems to have been little understanding or care shown in this area by our financial services sector.
When it comes to ethics, we need much more transparency and more responsibility for one's actions in business. While we will certainly see more government intervention and regulation as one of the responses here, just providing much more transparency to shareholders and the public would make an extraordinary difference.
If business schools don't take on this task and make sure that our future business leaders carry more than a school brand and a network -- that they are ethical in their conduct and responsible in how they manage risk -- who will? What do you think?
What do you mean how did all of this happen? And who is the blame?
answer: The FEDERAL RESERVE.
beauty of it all:
Everyone is fooled into believing and has bought into the idea that some bad CEO's and crooks on Wall St. are to blame. And therefore Big Government must come in and bail us out to save us all.
Ummmm, ok. Sure. You guys keep buying into that. Meanwhile, business schools need to understand the FED and how that affects our economy.
The FED is no more Federal than Federal Express. Great name for a private entity that is
NEVER AUDITED.
Is is just me or is there an elephant somewhere in the room who is determined to keep us looking in every other direction!?
There is no mystery - the bubble come and go because the FED artificially adjusts interest rates. Then to pay for it, has to print money out of thin air. Then the value of the dollar goes down and inflation goes up.
People buy into the interest rates as being safe (even though they're artificially adjusted) and you get working people spending more than they can pay back because they were led to believe they could afford it.
It's all tied together. There's the answer to your big mystery. 2 words, 2 seconds.
The FED.
wake up America.
Correlation does not equal causation...but it is a good place to begin the forensics so that we don't repeat the problem. Perhaps we may even learn something from it.
Continuing education is an asset, but far too often education tends to overshadow real world expereince. Starting theforensics by looking at MBA programs at "top" schools wil yield some interesting results. More importantly, look at the backgrounds of the "educators." Were they successful or real world practioners of those subjects they were teaching? A PhD and full academic career can never count as much as spending 20+ years in the field with real world pressures - economic, corproate/cultural/political, customers, investors, etc. These should be the men and women teaching the next generation...
Teach ethics.
This goes way beyond the realm of business schools, though there's no question - they should be more focused on the issues you raise. The real cuplrit here is greed. For years I've been watching stunning sports cars on the streets of Toronto -the BMW M3 is one I especially like the looks of - noting each time that its driver is typically 30ish and often male. Now I'm not saying that these guys shouldn't drive a nice car... but a car with a base price of $70,000 CDN? What are the odds that they can really afford it?
My guess is that most of them can't. They got a bank to agree to a loan or a dealership to agree to a lease. It's the same story in housing and other industries too. This un-checked instinct to acquire goods that are beyond one's means is spreading like wildfire through Gen X, Y and even the youngest generation.
As a parent, my gut tells me that by the time my kids get to biz school (if they can even afford it), the die will be cast - I will have instilled the correct values in them or I will have failed. But I certainly can't rely on school to teach what is mine alone to bestow. We can show our kids that they can enjoy their lives while still living within their means. Otherwise, this cycle will be upon us again, very soon.
well said - but unfortunately there's no better training for a money person better than catching a glimpse of someone else making money, and that works both ways: there's no better training in risk, caution and responsibility than witnessing the catastrophic result of ignoring all three - even though ignoring them worked so well for so long and judging from human history will again someday. most of today's mess was made by consenting law abiding adults - it's not about ethics or laws, just limits.
While there is enough blame to go around shared by both greedy, irresponsible consumers and the business people who exploited that greed, our government should begin requiring that all colleges and universities that accept government money be required to make Ethics a 4 year requirement that students must pass to earn their degree. MBA students should be required to continue their ethical training while earning advanced degrees.
We are all paying a hell of a price for the complete lack of ethical behavior from the person who cleans the building right up to the CEO. But it fall to a much greater degree on our leaders, both in business and politics, who set a terrible “me first” example.
High schools and possibly even middle schools should be required to teach basic finance management and make it an important part of every student’s education.
I also think that the Obama administration should hire as many prosecutors as it takes to investigate the bonuses paid company leaders that were booking profits that were based on business that eventually brought the company down. I’m thinking people like Washington Mutual’s Kerry Killinger for example. These people should be given a 6 month window that allows them to return their bonus and excessive pay without penalty. After all, these people know who they are. After that, if they are convicted they should get serious jail time like the managers of Enron.
Lets send a message to our future business and political leaders. And lets start training youngsters about being financially responsible.
When I was in college for TV Production, I had to take a Communications Law and Ethics class. It was more than sufficient to help keep me in line with what was acceptable behavior.
Today, every year, I have to take an ethics class in my company. This, too, has been enough to keep me in line.
What we have seen, ethically, from many companies in this "crisis" is that there are some people (as usual) who have put their own affairs and interests ahead of those of their clients. This is not unusual. What is unusual is the complete lack of understanding on the part of most people that this is common - even with regulations, and company training, and good teaching.
What we need is a better system to allow people to be "whistle blowers" and feel good about being one. We continue to live in a society that puts "ratting out" at the bottom of the acceptable behavior poll. It's better to remain quiet and get my piece of the pie and avoid getting in trouble. We tend to attack those who draw attention to problems, and laud those who create them (until we find out they created them, and then sometimes we forgive them too easily).
What needs to be taught is that ethical behavior is win/win for everyone involved. There needs to be an emphasis on showing why unethical behavior not only hurts the system, but ultimately the people engaging in that behavior.
The real problem, of course, is that most of what we are currently viewing as unethical behavior really wasn't unethical at all. Loaning money to people who make $30,000 a year for a $500,000 home is stupid, but not unethical. And when that loan was quickly bought up by government entities who have a mandate to help people earning $30,000 buy homes, it doesn't seem all that stupid, either.
I'd argue that what we need is ethics classes for our government officials (yes, even the current administration is going to be prone to take advantage of the system). They need to learn what makes the economy work (government spending doesn't, but government oversight does), why rigging markets always fail, and that helping people get things they shouldn't ordinarily have is ridiculous.
To look at the current "crisis" and say it's a failure of ethics is only partially correct. The vast majority of businesses and businesspeople remain on a high ethical standing.
This crisis goes far beyond the MBA level. Ever notice how old banks were designed to look like temples? We worship money. That is who we are: the people who worship money.
Now our God has failed us and we are lost. "Who did this to us?" we ask. Not Alan Greenspan, not the Fed, not Wall Street, not Bush. All are mere surrogates for our mad acquisitiveness. Look no farther than the nearest mirror for the answer.
1. Human beings are tribal, not necessarily the best trait.
2. The rule of law law. Without particular regulations, chaos erupts. So when ethics takes a holiday, the store is still being minded. (Ethics class helps but does not guarantee the usage.)
3. There's an old saying saying those who can't, teach. Arguable. However, back to a basic formula while working at the Art Institute of Phila. shortly after graduating, I learned from Phil Tratchtman, founder, to insist that his instructors taught part-time only and worked for their real income in their respective profession.
4. The "Me" generation turned out the "Entitled" generation. Yeah, Yeah. We can all discuss amongst ourselves about theory. Let's pull out the stocks from storage and use them as leverage for failing stocks. (METAPHOR) Shame and greed go back to #1 and #2 with rules to garner a balance check on both.
5. Details as described by all of the previous responders.
Ignorance is amazing. The banking regulators assured us they were on top of all this. Barney Frank said "nothing to worry about" last summer. He and Chris Dodd sit atop this mess and, thanks to a liberal media, the blame goes to the MBA types instead of the Democratic-run Congress. Keep drinking the Kool-Aid, America, Obama will spend our way out of this mess. Why just yesterday the House passed a stimulus package that includes millions and millions for STD prevention (there were zero 'yea' votes from Republicans). Sounds like someone really knows how to stimulate their package.
As a starter, universities need to figure out why the cost of an education has been been growing at 2x plus the cost of inflation for so long. I consider this their own ethics or mismanagement problem.
This spike in post-graduate education costs isn't specific to MBA programs but the business schools could focus some of their own case study work on figuring out how to solve this problem and how to get their own cost structures under-control.
I am currently in an MBA program at a "top" school and, believe me, we have our ethic courses. The problem doesn't stem from business schools.
The marketplace reacts to supply and demand forces - not govermnet intervention. The problems all lie in the government or so-called "quasi-government" agencies. I'm not writing tro assign blame to Democrats or Republicans....however, when these politicians start tampering with the free market system bad things happen.
Our FED paid me a $400K severance so I could go to treasury. Who else gives a $400K severance when you go to a new jobn? All you slobs who have no clue how money works and is created, well you are all debt slave losers that we use to create enormous wealth for ourselves. The bubble of late 80s ended with junk bonds being blamed as now it is sub prime. We the Fed always create a nice clean scapegoat for our ways. Maybe if business scholl educated its students in economics and FIAt money the grads would know a thing or two - but then the banks wouldnt give grads money for school since school would be teaching how to steal out monopolistic franchises. You know sicne the author is into tennis he must know my criminal friend on the board of the bank of new york - we print the money and the sheeple live on debt. lol - sheeple loses we bankers, politicains, and super rich win every time.