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Why the Value of the MBA Has Declined

Should business schools share the responsibility for the financial mess?

Few business schools—particularly MBA programs or executive training programs—adequately address the importance of developing leaders.

For the most part these programs are theory-oriented in nature, and use the traditional tools of conceptual learning—case studies, lectures, films and discussions—relying on the contrast between what managers do and what leaders do. And it appears that the MBA degree and salaries of MBA students are not longer what they used to be.

The problem with many business school leadership programs is that they teach ideas, not real life behaviors, and business school professors are chosen by virtue of their ability to publish detailed research, not having had leadership experience themselves. Understanding something intellectually often has little to do with being able to do it. Adult learners need experiences and coaching to turn concepts into leadership behaviors. 

A New York Times article entitled, Is It Time To Retrain B-Schools? has had a massive response. Kelly Holland, the author of the article says among other things, "Critics of business education have many complaints. Some say the schools have become too scientific, too detached from real-world issues. Others say students are taught to come up with hasty solutions to complicated problems. Another group contends that schools give students a limited and distorted view of their role - that they graduate with a focus on maximizing shareholder value and only a limited understanding of ethical and social considerations essential to business leadership .Such shortcomings may have left business school graduates inadequately prepared to make the decisions that, taken together, might have helped mitigate the financial crisis, critics say." 

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In an article in the London Times, entitled Harvard's Masters of the Apocalypse, Philip Broughton, a Harvard Business School graduate and author of What They Teach You At Harvard,  says, " The Masters of Business Administration, that swollen class of jargon-spewing, value-destroying financiers and consultants have done more than any other group of people to create the economic misery we find ourselves in...You can draw up a list of the greatest entrepreneurs of recent history, from Larry Page and Sergey Brin of Google and Bill Gates of Microsoft, to Michael Dell, Richard Branson, Lak-shmi Mittal - and there's not an MBA between them. Yet the MBA industry continues to grow, and business schools provide vital income to academic institutions: 500,000 people around the world now graduate each year with an MBA, 150,000 of those in the United States, creating their own management class within global business. From the Royal Bank of Scotland to Merrill Lynch, from HBOS to Lehman Brothers, the Masters of Disaster have their fingerprints on every recent financial fiasco."

Henry Mintzberg, a professor of management studies at McGill University in Montreal, also argues that because students spend so much time developing quick responses to packaged versions of business problems, they do not learn enough about real-world experiences. Rakesh Khurana, a professor at Harvard Business School and author of "From Higher Aims to Hired Hands," a historical analysis of business education, says that business schools never really taught their students that, like doctors and lawyers, they were part of a profession, with professional standards.  And in the 1970s, he said, the idea took hold that a company's stock price was the primary barometer of a leader's success. This, among other things, changed the business schools' concept of proper management techniques. Instead of being viewed as long-term economic stewards, he says that managers came to be seen as mainly as the agents of the owners - the shareholders - and responsible for maximizing shareholder wealth. He goes on to say that "we can't rely on the usual structure of MBA education, which divides the management world into the discrete business functions of marketing, finance, accounting, and so on."

Warren Bennis and James O'Toole have written how business schools have been on the wrong track for years, claiming among other things that "MBA programs face intense criticism for failing to impart useful skills, failing to prepare leaders, failing to instill norms of ethical behavior." Rakesh Khurana and Nitin Nohria wrote that schools of management will fail to produce consistently principled, decent leaders until management itself becomes a profession, like medicine or the law which will include a code of conduct.

For universities, business schools have been a means to an end—money. Business schools are less expensive to operate than graduate schools with elaborate labs and research facilities, and alumni tend to be generous with donations. Business education is big business, too. Some 146,000 graduate degrees in business were awarded in the U.S. in 2005-06; roughly one-fourth of the 594,000 graduate degrees awarded that school year, according to the U.S. Education Department. Still, there have been signs that all is not well in business education. A study of cheating among graduate students by Linda Trevino, Ken Butterfield and Donald McCabe, published in 2006 in the journal Academy of Management Learning & Education, found that 56 percent of all M.B.A. students cheated regularly—more than in any other discipline. The authors attributed that to "perceived peer behavior." In other words, students believed everyone else was doing it. No wonder the issue of ethics in corporate America has been seen as important.

McCabe, writing in the Harvard Business Review, contends the prevalence of cheating among MBA students is because of the "get-it-done, dam-the-torpedoes, succeed-at-all costs mentality that many business students bring to he game." McCabe describes an MBA student mentality of getting the highest GPA possible so that they can get the highest paid jobs in the pharmaceutical, high tech and finance industries.

Michael Jacobs, writing in the Wall Street Journal, argues that there have been three profound failures of sound business practices at the root of the economic crisis that have not been addressed by business schools. The first is the practice of financial incentives as a motivation for leadership, which has morphed into greed. The second is the failure of instituting a financial regulatory system and the absence of any meaningful corporate board responsibility and oversight of CEOs. The third breakdown has been the focus on short-term financial gain for the shareholder at any cost.

Some employers are also questioning the value of an M.B.A. degree. A research project that two Harvard professors released in 2008 found that employers valued graduates' ability to think through complex business problems, but that something was still lacking. "There is a need to broaden from the analytical focus of M.B.A. programs for more emphasis on skills and a sense of purpose and identity," said David A. Garvin, a professor of business administration and one of the project's authors.

Indeed, students themselves may welcome an emphasis on character skills and personal development. In surveys that the Aspen Institute regularly conducts, M.B.A. candidates say they actually become less confident during their time in business school that they will be able to resolve ethical quandaries in the workplace.

The value of the MBA degree may also be in decline. Many recruitment experts now see the MBA as having replaced the bachelor's degree as a threshold for management and leadership positions. John Bryne, in an article in BNET, reports data showing the salaries for MBA graduates from 2001 to 2010 have actually declined, in comparison to the high costs of getting a the degree in the top schools.

In fairness, a number of business schools recognize these problems, and are trying to revise their model and focus but most have yet to realize they have credibility problem. Business schools such as the Rotman School of Business, Carnegie-Mellon, Wharton, Yale, Stanford and others are overhauling the MBA program, with a focus on better problem-solving, decision-making, ethics and social responsibility, along with a greater focus on experiential opportunities.

Angel Cabrera, President of the Thunderbird School of Global Management in Arizona, says that business schools are slowly beginning to move towards accepting the broader responsibility of management, citing the example of more than 200 business schools around the world that have endorsed the Principles of Responsible Management Education, a movement sponsored by the United Nations.

So what should business schools focus on? I would argue that business school or executive training programs should focus more on developing individuals' personal growth with an emphasis on values, emotional intelligence and ethical behavior in business. The challenge for business schools is how to develop leaders not managers, and who believe that business has bottom lines beyond shareholder value.

Ray Williams is the author of Breaking Bad Habits and The Leadership Edge.

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