Life beyond the Street

It took a giant financial blowout for B-schools to wake up to the fact that they too needed to reinvent, but change may finally be afoot.

The current global financial cri­sis, dubbed the worst since the Great Depression of the 1920s-30s, has wiped off more wealth in one single year than the past two decades put together. While the crisis may have changed the world of financial services forever, the other significant casualty has been the man­agement education industry, or the B-schools. In early 2008, the most hallowed of B-schools, Harvard, celebrated its centenary in great splen­dour, just past the peak of the world’s most exu­berant ever business cycle. It was a near-perfect world for the factories that churned out Masters of the Universe. In a matter of weeks, everything turned topsy-turvy.

By the end of 2008, the triumphant mood at Harvard turned reflective. After decades of teach­ing students how to fix businesses, the professors were wondering how to fix B-schools. Nearly eve­ry Wall Street CEO who ran his company down to the ground carried an Ivy League MBA on his CV. Earlier this year, Jay O Light, the dean of Harvard Business School, remarked with a sense of gloom and despair that there have been imbalances both on campuses and in the economy. “We lived through an enormous extended period of finan­cial good times, and people became less focused on risks and risk management and more focused on making money,” he said. The indictment only grew harsher.

Rakesh Khurana, another Harvard professor and the author of Higher Aims to Hired Hands, a historical analysis of management education, felt that B-schools never really taught their stu­dents that, like doctors and lawyers, they were part of a profession. Management techniques and prudence were displaced by a fixation on creating shareholder value and keeping the Street hap­py. While the unprecedented attack has forced top-notch B-schools around the world to look in­wards and question their methods, their Indian counterparts are whistling along as if nothing had changed.

When Open spoke to directors of IIMs and oth­er leading B-schools earlier this year, they were in denial. “If Detroit is in a mess, does that imply a failure of engineering worldwide?” was a common refrain. But things seem to be changing now, and it’s the less-fancied schools that are leading the charge.

“We are trying to change the basic philoso­phy and the contours of business education that we have just borrowed from the US. The global financial crisis has been an eye-opener. Management education in India too is equally guilty of producing students who are motivated only by fancy salary packages. That is just not sus­tainable,” says Harivansh Chaturvedi, director, Birla Institute of Management Technology, New Delhi. From the next academic year, the school plans to start new courses in business ethics and corporate governance, and another strangely named course called ‘Managing Self: M, Body and Soul’, which will emphasise an Indian identi­ty and management concepts heavily borrowed from Indian classical texts.

The trouble is that B-schools in India still tend to consider themselves above criticism. Deans and professors dismiss the very notion of B-schools being in the dock. “This [collapse of America’s financial sector] had to happen,” says Pankaj Chandra, director, IIM-Bangalore, “Everybody was living beyond their means and companies cashed in while the going was good even if it led to their downfall. But ex­pecting B-schools to factor in an ethics course just because people at the top are B-school products is a simplistic way of looking at it. Failure at the top has nothing to do with having an MBA. It has more to do with neoclassical economics and the world of modern finance.”

To undo some of the perception damage, grad­uating students from Harvard have now start­ed to sign an oath that requires them to ‘cre­ate value responsibly and ethically’. Professors Nitin Nohria and Rakesh Khurana, architects of the document, modelled it on the lines of the Hippocratic oath for doctors, to instill a sense of professional pride and serve as a reminder of their larger responsibilities.

Bimtech too has taken a leaf out of the Harvard book and introduced a similar ‘oath’ that graduat­ing students have to take. It may sound like a gimmick to some, but Chaturvedi says it’s an important step towards building the sort of moral accountability that binds other professions such as law, medicine and accountancy.

“Directors and professors have taken the is­sue of B-school culpability very seriously, and we realise that there was something rotten some­where. When the times were good, we had just forgotten about key issues like risk manage­ment and ethics,” says Anwar Ali, director, IMT Ghaziabad. This school too has begun new cours­es on risk management and ethics.

Ideally, skills picked up in B-schools should have helped people like Richard Fuld, the former CEO of Lehman Brothers, foresee market risks and make sound judgment calls. But leading Lehman through its tumultuous years saw him gaining nothing more than notoriety. From huge payouts (around Rs 2,000 crore between 1993 and 2007) to luxury homes all over America, and from winning a ‘Thief’ award for his obscene salary in the years before Lehman went bust to being fea­tured on CNN’s 2008 list of top 10 culprits, Fuld has left a trail few MBAs would care to follow.

“Which is why our emphasis is going to be on the soft skills and rigorous data analysis. Much of the problems in the financial world can be traced to the lack of sound data analysis. We have also been guilty of producing these wonderful PowerPoint strategists, unwilling to dirty their hands going out there into the market. That’s why they are found wanting in the area of execu­tion,” says Rajan Saxena, director, Narsee Monjee Institute of Management Studies (NMIMS).

Perhaps the biggest failure of business edu­cation has been that it has encouraged MBAs to measure success only in terms of their pay pack­age. In India especially, an MBA degree (prefera­bly preceded by one in engineering) is a seen as a ticket to prosperity.

The focus on earning rather than learning irks AK Sengupta, director of the Mumbai-based SIES College of Management Studies. “Increasingly, management graduates have become subservi­ent to the cause of shareholder value and profit maximisation. This has to be balanced by a com­mitment to ethics,” he says. In 2008, Sengupta, along with Ganesh Natarajan, CEO of Zensar Technologies, and Suresh Ghai, director of KJ Somaiya Institute of Management Studies and Research, started a Google group called ‘The Higher Education Forum’ to promote ethical practices in higher education, with a particular focus on management education.

While most deans shrug their shoulders and carry on with their tried-and-tested teach­ing models, there are some like Jeffrey Pfeffer of the Graduate School of Business at Stanford University who are calling for sweeping chang­es in curriculum. In his recent paper, ‘Leadership Development in Business Schools: An Agenda for Change’, he argues that although one-third of all CEOs in the US hold an MBA degree, their success isn’t guaranteed. Surprisingly, research shows that having an MBA doesn’t necessarily mean better salaries, and a degree from a prestig­ious rather than a not-so-fancied B-school does not result in better performance at the firm lev­el. ‘Schools need to measure not just the start­ing salaries of their graduates but outcomes that are proximately related to their stated mission of leadership development,’ says the paper. Will Indian B-schools listen?

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