Something happened to management culture decades ago and now being a Master of Business Administration, especially from Harvard, is rather on the nose. MBA, it's being said, can also stand for 'Mediocre but Arrogant', or 'Management by Accident'. Reporter, Stephen Crittenden.
Stephen Crittenden: As the unemployment queues grow and the bailouts continue, they're beginning to say that narcissists with Harvard MBAs killed Wall Street.
Hello from Stephen Crittenden, welcome to Background Briefing on ABC Radio National.
This week, we're taking a look at the business culture behind the financial meltdown and the kind of business education which shapes that culture.
This is a story that goes a lot further back than Lehman Brothers, or Fanny Mae and Freddy Mac, to the glory days when America's leading manufacturing companies were the envy of the world.
It's the story of how this great corporate heritage was squandered, and what this all has to do with the rise of a comparatively new social figure: the professional manager.
There's no doubt that American business has relied heavily on the Masters of Business Administration as a credential. Some say too heavily: 100,000 new MBAs pour out of American business schools each year, and more than 40% of them go into the financial services sector.
But now they're being called the Masters of Disaster. As you'll hear in this program, some of the leading critics of the MBA culture are actually business school professors who have been raising the alarm for some time.
The most prominent among them is Henry Mintzberg, Professor of Management Studies at McGill University in Montreal. He says there is no question that business schools like Harvard, Wharton, Stanford and MIT deserve a large part of the blame for creating and sustaining the business culture that caused the meltdown, because they have been promoting an utterly dysfunctional form of management practice for decades.
Henry Mintzberg: Look, my view is you cannot create a manager in a classroom, let alone a leader. You simply can't. Management is not a science, it's not a profession, it's a practice; you learn it by doing it. To claim that you're training people who are not managers to be managers, is a sham, pure and simple, it's a sham. You can't do it. You give completely the wrong impression and you send them out with an enormous amount of hubris which is, 'I can manage anything, even though I've never managed anything'.
Stephen Crittenden: In 1986, when Russell Ackoff, a pioneer of management education, retired as Professor at the Wharton Business School, he was asked what were the benefits of a business education. With savage irony he replied that there were three:
Ackoff Reading: The first was to equip students with a vocabulary that enabled them to talk with authority about subjects they did not understand. The second was to give students principles that would demonstrate their ability to withstand any amount of disconfirming evidence. The third was to give students a ticket of admission to a job where they could learn something about management.
Stephen Crittenden: Everyone we spoke to for this program was quick to point out that there are many very capable MBAs, and many good business schools offering sensible MBA courses.
But the number of failed CEOs with MBAs has not escaped notice. Stan O'Neill and John Thane at Merrill Lynch, Andy Hornby at HBOS, and the best-known of all, Enron's Jeff Skilling who's serving a 24-year jail sentence, and the former President of the United States, George W. Bush.
McGill University Professor Henry Mintzberg says what we call a financial crisis is really at its core a crisis of management, and not just a crisis of management, but a crisis of management culture.
Henry Mintzberg: It's a syndrome, it's a whole attitude. We've corrupted the whole practice of management, it's utterly, utterly corrupt from top to bottom; not everybody, but much too much of it is corrupt. It is a cultural problem. And by the way, it's largely an Anglo-Saxon problem I think. I think the worst of it is in the US, and second is the UK. I think Canada has been smarter. In England the UK for example, there's a long history not just of MBAs but of accountants running everything. In other words, what you had is a detachment of people who know the business from people who are running the business.
Stephen Crittenden: Another critic of the MBA is Harvard Business School Professor Rakesh Khurana. He says the business schools have been teaching some pretty anti-social theories which their graduates go away and put into practice.
For example, Rakesh Khurana says it was the business schools who were the source of the theory of shareholder maximisation. They originated the idea of using derivatives and credit swaps to manage risk, and the idea that managers are so fundamentally self-interested that they can't be trusted to do their jobs unless they're provided with huge stock options.
Rakesh Khurana: What we taught were very simplified and not necessarily accurate models of human behaviour, that over time become self-fulfilling. And so there was this model that in fact by basically being self-interested to an extreme, that was the appropriate way to behave and act. And what that does over time, because this is not an innocent exercise, it actually over time because it is a professional school, comes to shape the identity of those individuals. That is, they begin to see themselves in those views. And one of the consequences of that is that if you look with respect to executive compensation for example, and the incentives around that, the view becomes that I actually have to be compensated to do the job I was hired for, and on top of that you have to bribe me with stock options to make sure I do that job. In no other occupation or profession is that part of the modus operandi.
Stephen Crittenden: This is also a story about how society educates its elites. Phillip Delves Broughton is a former Paris correspondent for Britain's Daily Telegraph. He recently took two years off to do an MBA at Harvard Business School - HBS - and he's just written a book about the experience. Here's the man himself, reading from his book.
Phillip Delves Broughton: A second year student rose to welcome us, and to reiterate the importance of values to our future in business. He told us that simply by getting into HBS, 'You've won'. From now on, it was all about how we decided to govern our lives. What he said would be repeated throughout my time at Harvard. Harvard Business School was a brand, as much as a school, and by attending, we were associating ourselves with one of the greatest brands in business. We were now part of an elite, and we should get used to it. I struggled with this idea. It seemed so arrogant on the part of the school, and somehow demeaning to those of us who had just arrived. Regardless of who we were when we arrived, or what we might learn or become over the next two years, simply by being accepted by HBS, we had entered an über-class. It was Harvard Business School, not anything that came before it, that conferred the 'winner' tag on all of us.
Stephen Crittenden: Some defenders of business school education say the present financial meltdown has been caused by a few greedy and dishonest people, and that the problem can be fixed with more regulation. But Phillip Delves Broughton, speaking from New York, says it wasn't just a few people. It's a problem systemic to an entire management culture.
Phillip Delves Broughton: The big problem with the MBA culture is that it creates this elite group of people who are there by dint of nothing more than this qualification, which is useful, but little more than that. To say that it qualifies anyone to really do anything is absolutely false. And I also think it's fundamentally anti-democratic. One of the weirdest things about this country is you have enormous churn and entrepreneurialism, and you have a place like Harvard Business School that essentially says 'Once you get in, you're now part of an elite, almost regardless of what you do subsequently.' and it seems so antithetical to everything else in American culture. You see it in their behaviours, this sense of entitlement, the way these people take these golden parachutes. There is a sense that these people deserve more than their fair share because of who they are because they're this magnificent elite. And I think a little humility from these people would be very much appreciated, because it's been shown they haven't done a tremendous job.
Stephen Crittenden: Given all the risky behaviour we've seen with derivatives and toxic debt, Phillip Delves Broughton says it's ironic that in his experience, Harvard Business School seems to attract people who are actually risk averse, at least in relation to themselves and their own careers. He says unlike genuine entrepreneurs, they tend to be people who want fast-track careers, and by associating themselves with the powerful Harvard brand, what they're really doing is seeking to minimize risk in their own lives when they go after future opportunities.
Phillip Delves Broughton: Well it's always a big joke, essentially. You look at the great entrepreneurs in the world, the Bill Gates's, the Rupert Murdochs, the Kerry Packers, the guys who founded Google, Larry Page and Sergey Brin, not one of them went near a business school and yet they've built fortunes with companies that really have had a big impact on the way a lot of us live. So people who tend to go to business school I think are people who are trying to set themselves up for life in a certain way, they're grabbing onto an elite structure again, but they're not the great adventurers, they're not the buccaneers, they're not the people who are going to change the economic universe.
Stephen Crittenden: What about the atmosphere in the classroom at the Harvard Business School? In your book you paint a picture of a whole lot of pumped up, not necessarily very critical people, playing corporate games and elbowing each other out of the way, and you say that your wife, Margret, came to the conclusion pretty quickly, that they were a bunch of freaks.
Phillip Delves Broughton: Well you know, I think there's two things at play here. One is, I'm British, I was a journalist for ten years. You don't get a more cynical profession than Fleet Street. And so you take that, and put that in a terribly earnest environment. It's an American environment and I'm a great fan of America, but again, it can be jarring if you come from a more Anglo-Saxon, English, Australian, whatever it is, where people aren't so accepting of corporate game-playing. You know, in England, you start a corporate game, everyone is rolling eyes, saying, 'Oh Christ, do we have to do this?' I quote a friend of mine, a Chinese woman who just got driven crazy because at Harvard Uni, you're in these classes of 90, and every class is essentially everyone putting their hands up, there are no lectures, it's all case studies. You look at a business situation then you discuss it. So an enormous premium is placed on your ability to stick your hand up in front of 90 people and make a point. So for a Chinese woman, she just said, 'Why on earth is my ability to fill air space with just blather, matter?' What matters in Chinese business is your ability to get things done. The last thing they want is these kind of chest-bumping meetings. And I think again, if you're not from the American business culture, you can look at this and just find it nonsensical. Why does it matter if you're good at meetings? Why does it matter if you have an ability to B.S? And these things seem to be prized.
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