How business schools lost the moral plot

One of the drivers of inequality — as Thomas Piketty and others have pointed out — is the colossal increase in the remuneration of senior executives in major public companies. Since much of this increase is accounted for by the switch from mere salary to salary-plus-stock-options, it has incentivised executives to prioritise share price at the expense of almost everything else.

But who taught these executives the techniques needed to boost share prices? Answer: the business schools which gave them their MBAs. But in looking at modern business schools, it’s clear that they are very different from their first predecessors like the Sloan School in MIT. And so are their students. The huge fees charged for an MBA course by leading business schools (the cost of a Wharton MBA, for example, is currently over $100,000) are usually borne by the students studying for the degree. It’s a huge personal investment, which means that they are understandably desperate to start paying it back as soon as they can.

So what happened to turn an MBA from a sensible preparation for a professional career as an executive into a sausage machine for shareholder-value-maximisation? It might be worth looking to From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession by Rakesh Khurana for some answers.

Khurana is the new Dean of Harvard College as well as a professor in the Harvard Business School, so he knows his field well.

Here’s the blurb for his book:

Is management a profession? Should it be? Can it be? This major work of social and intellectual history reveals how such questions have driven business education and shaped American management and society for more than a century. The book is also a call for reform. Rakesh Khurana shows that university-based business schools were founded to train a professional class of managers in the mold of doctors and lawyers but have effectively retreated from that goal, leaving a gaping moral hole at the center of business education and perhaps in management itself.

Khurana begins in the late nineteenth century, when members of an emerging managerial elite, seeking social status to match the wealth and power they had accrued, began working with major universities to establish graduate business education programs paralleling those for medicine and law. Constituting business as a profession, however, required codifying the knowledge relevant for practitioners and developing enforceable standards of conduct. Khurana, drawing on a rich set of archival material from business schools, foundations, and academic associations, traces how business educators confronted these challenges with varying strategies during the Progressive era and the Depression, the postwar boom years, and recent decades of freewheeling capitalism.

Today, Khurana argues, business schools have largely capitulated in the battle for professionalism and have become merely purveyors of a product, the MBA, with students treated as consumers. Professional and moral ideals that once animated and inspired business schools have been conquered by a perspective that managers are merely agents of shareholders, beholden only to the cause of share profits. According to Khurana, we should not thus be surprised at the rise of corporate malfeasance. The time has come, he concludes, to rejuvenate intellectually and morally the training of our future business leaders.