Background Briefing

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.

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 minimise 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 BS? And these things seem to be prized.

Stephen Crittenden: But let's go back to the beginning. The United States was originally founded as a corporation, by a corporation, when a group of English Puritans, led by John Winthrop, created the Massachusetts Bay Company, and set sail in April, 1630, establishing the first really successful settlement in New England.

The Puritans were Calvinists. The prosperous society they created was quintessentially Protestant, and it would remain so.

More than 300 years later, America's first Catholic President, John F. Kennedy, who was born in Massachusetts, gave a famous speech in which he embraced this Puritan heritage as his own.

John F. Kennedy: But I have been guided by the standard John Winthrop set before his shipmates on the flagship Arbella 331 years ago, as they too, faced the task of building a new government on a perilous frontier. 'We must always consider', he said, 'that we shall be as a city upon a hill. The eyes of all peoples are upon us.'

Stephen Crittenden: The Puritans are the heroes of an important new social history of the rise and decline of American business, which The Financial Times newspaper named as one of the top ten business books of last year. It's called The Puritan Gift, and it was written by two brothers, Kenneth and Will Hopper. Will is a retired investment banker, while Ken is a former engineer, and an expert on the history of the organisation of the American factory floor. In The Puritan Gift, the brothers tell the story of how the Puritans built America.

Will Hopper: I think in a very important sense, they founded the society that became the United States. The Puritan migration actually lasted for ten years, for the whole decade of the 1630s, something like 160 ships sailed, 10,000 people were brought over, they founded the colony of Massachusetts and the colony of Massachusetts became the model for other colonies, and the pattern spread right across the continent.

Stephen Crittenden: Will and Ken Hopper say the Puritans brought four key virtues with them when they came to America, four characteristics which have been transmitted down through the centuries as a cultural inheritance for all Americans. This is the 'Puritan Gift' of their book's title.

Will Hopper: The first and the most important was that they were attempting to create an ideal society; they called it establishing the Kingdom of Heaven on earth. Later this would be interpreted in a much more secular fashion, that they undoubtedly set out to create the ideal kingdom or society, that they were unable to create in England, and I think that's the first and the most important. Secondly, as individuals, they possessed mechanical skills, they were middle-class people with artisan skills; they were therefore able to build the society, and they came fully equipped, unlike the earlier migrants; they brought the tools with them. I think the third characteristic is the one that we admire most, and that is a willingness to suppress the ego, as it were, to subordinate the interests of the individual to the group. Now that group could be a church, it could be a town, it could be the colony itself; ultimately it became the United States. Now this willingness to suppress the ego was, I think, very important. And finally, there was organisational ability on an enormous scale. So these are four characteristics which we find right back in 1630 in the original migration, and to a large extent have characterised the United States right up to let's say the 1980s.

[Apollo Moon landing audio]

Stephen Crittenden: High moral purpose, technological innovation, co-operation, and organisational skill. The first moon landing in 1969. From the sailing ship, Arbella to the space ship, Apollo 11. In many ways this project represents the culmination of the cultural legacy we're describing.

[Moon Landing audio: ' ... the Eagle has landed.']

Stephen Crittenden: Will Hopper says the four puritan characteristics also shaped the managerial culture of the great American manufacturing companies of the 20th century -- companies like Johnson & Johnson, Proctor & Gamble, General Electric, AT&T, IBM, and General Motors.

At their height, between about 1920 and 1970, these companies often displayed a surprising social conscience, and tended to value quality over profit. Their management structures were collegial, bottom-up rather than top-down, so that the entire organisation was involved in management. Promotion was based on merit, and the chief executive was usually someone who had spent a lifetime working his way up through the same company.

Will Hopper: Yes, this is a characteristic of what we call 'the great engine companies'. The young man -- and there were not many women in business going back to the 1950s and '60s -- but the young man would join the corporation from college, aged 21, 22, and he would work his way up to the top. And as he went, he learned two things. He learned the craft of management. Now I think this word 'craft' is extremely important. Management is something that you learn on the job under a master, just like an old-fashioned craft of carpentry for example. So the individual learned the craft of management as he worked his way to the top. And at the same time he acquired -- and I'm now going to use a phrase that was recently launched by Jeff Immelt, who's the chairman and chief executive of General Electric, which is of course the largest manufacturing company in the world. Jeff talks about 'domain knowledge', he says managers must have 'domain knowledge'. And as the young man progressed up through the ranks towards the top, he would tend to move around all the departments, so he spent a little time in sales, a little time in accounting, a little time in manufacturing, and when he reached the top he would have acquired 'domain knowledge'. He would know about the product, the suppliers, the customers, the method of production, the relation to regulatory authorities, movements in the market. He would be a master of the subject.

Stephen Crittenden: According to the Hoppers, the story of how this Puritan inheritance was squandered goes back to the establishment of the Harvard Business School in 1908, 100 years ago last year.

Although the impact of business schools like Harvard only really emerged after the Second World War, and then only gradually, in retrospect this looks like a key cultural moment.

It's the moment that marks the beginning of the time when access to management began to be limited to people with a special academic degree. The tipping point occurs around 1970, when a new caste of professional managers began to dominate American industry. And by the 1980s and 1990s, the business schools ruled America.

Will Hopper.

Will Hopper: The concept arose that management was a profession, like medicine, or the law, or dentistry. The business schools brought in the idea that management was a profession, you could go to business school for two years, you came out with a degree, and then you could practice management anywhere. You could practice it in a chemical company, an engineering company, in a government department or in a charity. And you didn't need to acquire the craft of management because you were qualified. And secondly, you didn't need to acquire 'domain knowledge' of the company in which you worked, because you were a trained manager and you could manage anything.

Stephen Crittenden: If Ken and Will Hopper's cultural history of the American corporation has a bogeyman, it's Frederick W. Taylor, the inventor of the time and motion study, the founder of Scientific Management theory, or Taylorism, and the first management consultant.

The Hoppers say Taylor himself was an incompetent manager, an utter egomaniac, even a bit insane, and that his insanity would come to infect the whole of society.

Will Hopper: You have to divide his legacy in two: he had a highly beneficial effect on the organisation of the factory floor. The factory floor up to that point in America had been a fairly chaotic place where Adam Smith's principles of the division of labour were not really observed: one workman would make an entire object from the beginning to the end. And he then brought these Adam Smithian principles to the factory floor, divided the functions, made the factory floor a much more efficient place. I think if you were summing up his career, you would have to put this on the plus side; he made factories much more efficient. I think on the negative side, he attempted to apply the same principles to the human parts of business, and at that point the whole thing began to deteriorate very seriously. Human beings simply cannot be measured the way physical objects can be measured.

Stephen Crittenden: The influence of Taylorism has been all pervasive, and not just in America.

It's from Taylor that the business schools derived their obsession with numbers and measurement, and the idea that management was a science that could be studied in a university.

It's also due to Taylor's influence that the emphasis in business shifted from people to figures, and from quality to quantity. We started to hear talk about the bottom line, employees started to be called human resources, and we saw the rise of the influence of the accountant.

Will Hopper: If you don't possess 'domain knowledge', how do you run a company? Well, you do it through the accounting department. And so the senior manager studies the accounts of each division every week, he notes when sales go up, he notes when the profit of a division goes up or down, those divisions that do well, senior managers get promoted. So you have companies run through the accounting department. Now this leads at once to the manipulation of both underlying activities and figures. There's a very good author called Marianne Keller, who wrote a kind of biography of General Motors, and she says the object in General Motors after the arrival of this new concept of management was to improve the numbers, not to improve the product. This is a theme that runs through the whole of American business, particularly in the 1980s and the 1990s. It's what happened at Enron, where they took their debt off the main balance sheet and stuck it into a subservient balance sheet, so the interest costs would not weigh down earnings. So first of all, you find the manipulation of the events underlying the figures to achieve the right figures and then you have of course the manipulation of the figures ending up in fraud. So the characteristic of the new age of management as a profession, is improving the numbers, not improving the product.

Stephen Crittenden: Writing about his two years doing an MBA at Harvard Business School, Phillip Delves Broughton says this obsession with figures is why business education has always been susceptible to pseudo-scientific fads like the Myers Briggs test, and psychometrics.

Phillip Delves Broughton: Do you know, I hadn't done any maths since I was 16, and it was interesting for me to go through the sort of routines again and the disciplines of it. But often I found at Harvard Business School - and I know a lot of MBAs find this - is that there you are, you sit there and you draw these pretty little graphs and look at your Excel spreadsheets and you've put together a Powerpoint presentation, everything looks neat and tidy. But you know what? If you've ever been in the world you realise that things are never that simple, everything is much messier. And perhaps again, having been a journalist, I've been in enough situations, I travelled enough to know that you would hear someone talking about a solution and they'd cracked it with a sum. And you've said, 'That would never work, people would never accept those things.' It's the ability to think both in mathematical scientific business terms and also with some kind of dose of humanity, that there are people in an economy, as well as numbers. And I think that often got downplayed, and again, to go back to what we were talking about originally, the more the power and financial rewards drifted to those who could just push numbers around and manage large pools of money, the more dangerous that mindset became.

Stephen Crittenden: On ABC Radio National, this is Background Briefing. I'm Stephen Crittenden. And this week we're asking whether business schools are to blame for driving the business culture that brought you the financial meltdown on Wall Street.

Bloomberg Anchor: Have the best and brightest minds killed Wall Street? Kevin Hassett is a Director of Economic Policy Studies at the American Enterprise Institute, and also a Bloomberg news columnist. He explores that question in his latest column, and he joins us from our Washington bureau. Kevin, I couldn't help but get a few, I don't know if it was intended or not, but a few laughs from your column. It was very interesting, and the take away for me, though -- I hope I don't offend any viewers -- but the take away was essentially when Wall Street was run by idiots it could handle crises a lot better.

Kevin Hassett: The reason why Wall Street disappeared is that risk management was terrible, and risk management was terrible because people running risk management for Wall Street firms believed the models 100%. They had great confidence. And there are studies that I site in my columns, psychological studies, that look at what people get out of an MBA, and one of the main things people get out of an MBA is narcissism, self-confidence. They tend to think that they know what the right answer is and that they're 100% right, and the people that are most like that are the ones that rise to the top of organisations. And so what we had is failed models that were believed 100% by narcissists running organisations and that brought the organisations down. If you had people that were worldly and suspicious of these mathematical models running the organisations, they'd be a lot better off.

Stephen Crittenden: The business schools have always been aware that there are problems at the heart of business education which they've never quite managed to resolve. Can management really be taught in a classroom? Is it a coherent body of knowledge, like medicine or law?

These are perennial issues and they've made business schools places where there's always been a lot of vigorous and healthy debate about curricula and teaching methods.

But the critics say there's an even deeper problem at the heart of the MBA degree. The MBA is all about putting careers on a fast-track to the top, whereas in the glory days of American industry there were no fast-tracks. MBAs, in other words are fundamentally anti-meritocratic.

On the line from his office at McGill University in Montreal, Professor Henry Mintzberg says wherever the new management class has had an influence, it's been a corrupting one, beginning with the way it's undermined the coherence of internal company structures.

Henry Mintzberg: It kind of creates two tiers in organisations, you know, people who are getting ahead because they have credentials, and people who know what's going on and aren't getting ahead. How many times have people come to me and said, 'Look, I agree with everything in your book, but I'm getting an MBA because I'm stifled, I can't move up'. This is terrible, it's absolutely dreadful. And when you ask MBAs -- even MBAs -- to name their most popular managers, the people they respect most, they rarely mention other MBAs. They mention people like Bill Gates or Warren Buffett -- Buffett was turned down by the Harvard Business School -- they don't mention people who have MBAs. So what you get is two tiers and it's manifested most dramatically in the whole compensation issue, where these people are more concerned with what they're being paid than whether they're building teams and building companies for the long-term future.

Stephen Crittenden: So in other words, you're undermining the very foundational idea of merit-based promotion and you're creating parallel universes within corporations?

Henry Mintzberg: Yes. In effect you're creating a tier of people who are quite different from the other people who know the heart and soul of the enterprise. And that's simply wrong. Nobody should get ahead because they have an MBA. If they happen to have an MBA and really know their business, that's great, terrific. As long as they weren't too contaminated by all the analysis. Look, my view of George Bush is give me a 20-page case study on Iraq and I'll give you a war. What did the guy know about Iraq? He learned at Harvard that you have to be decisive because in case study classrooms you read 20 pages the night before about a company you never heard of, and the next day if you're called upon you have to take a stand. What happens after you do that hundreds of times? You learn to be decisive. George Bush was certainly decisive, let alone divisive, and he was decisive in utter ignorance. The case study method does that. It trains people to make decisions about things they know nothing about in their guts and in their soul.

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Stephen Crittenden: Ken and Will Hopper call the 1980s and '90s 'the years the locusts ate'. As the content-free managerial caste moved in, bottom-up management became top-down. These years saw the rise of the imperial CEO and stratospheric salary packages.

They were also the years of outsourcing, and the use of strategic consultants, including two of the biggest, McKinsey's and the Boston Consulting Group.

In fact, Will Hopper says when company executives employ strategic consultants they're actually outsourcing the very function they themselves were hired for.

Will Hopper: Strategic consultants barely existed in the 1950s and 1960s, but the strategic consultant becomes very important after 1970, because if the new chief executive lacks 'domain knowledge' he has to look for someone who possesses 'domain knowledge'. And since he's the boss, he can't very well reach down into the organistion and ask people how he should run the company, because then he's not the chief executive. So this accounts for the rise of the strategic consultants. But unfortunately, many of them were as lacking in 'domain knowledge' as he was, so you had someone lacking 'domain knowledge' consulting someone lacking in 'domain knowledge', and unsurprisingly, there was a collapse in the quality of management.

Stephen Crittenden: And what about outsourcing generally?

Will Hopper: Well I think there are two kinds of outsourcing. I mean if I run a factory, I can outsource the canteen without too much trouble, and it may even produce better food. But as soon as you outsource some key part of the production process, you actually lose control of it. A supreme example of this has been Boeing in the last decade, with its new Dreamliner. It not only outsourced the production of parts of the Dreamliner to companies overseas, it actually outsourced the design, and the result has been chaos, and the company is suffering rather badly from it. So outsourcing can be quite a dangerous exercise.

Stephen Crittenden: The professional management culture also infiltrated the wider society. MBAs were taught that were qualified not just to manage businesses, but to manage anything: governments, armies, even charities.

Henry Mintzberg calls it 'educating for hubris', and he says business schools like Harvard have been far too immodest in their ambitions.

Henry Mintzberg: Oh yes, I mean read the Harvard Business School website. I looked at it about a year-and-a-half ago and the words 'leader' and 'leadership' appeared over 50 times on the Harvard Business School MBA website. And very explicit that you're trained to manage anything, which means you're doing courses in marketing and finance in order to manage government or healthcare, it's complete nonsense.

Stephen Crittenden: That's interesting. Several business professors I've spoken to this week have suggested to me that the way forward for business schools now, is even more focus on teaching about leadership.

Henry Mintzberg: Oh, that's a lot of nonsense. That's a disease in the United States. Everything is going to be cured by leadership. Look, every time you talk leadership, you're talking followership. So every time you're identifying a leader, you're identifying a whole bunch of followers. Do we want a world of followers? And leadership is a very individualistic notion. Even if that leadership is portrayed as energising everybody else, it's the individual leader who's energising everybody else. And I'm much more enthusiastic on what I call communityship, that we need much more emphasis on the idea of community and people working together and developing things together.

Stephen Crittenden: Talk of leadership leads to the question of how business schools teach ethics.

In recent years, especially in the wake of Enron, many business schools have been attempting to incorporate ethics right across the curriculum.

Here in Australia, the Melbourne Business School has even appointed a philosopher-in-residence, John Armstrong. His web page says that in a former life he was a dealer in 18th and 19th century European paintings, and Italian cars. And at the Melbourne Business School, John Armstrong's locked the doors in order to talk about ambition.

John Armstrong: What I'm interested in is the education of ambition. I don't mean educating someone to have ambition, but someone who has appetites -- ambitious appetites -- who wants to make an impact on the world, who wants to rise above the normal fate of human beings, who wants to make their marker on their society. How do you educate that person's ambition?

Look, we've closed the doors now, it's secret, OK? It's secret. The business school is not devoted to averages or normality. The business school is trying to take people who have unusual, special appetites to get on in life, and to do marvellous things with their lives, and to contribute in valuable and important ways to those people's lives. You come to us with a longing, which may not have a definite focus. It may not have a very clearly defined target, but it's strong in you, and you know that, and that's why you're here.

One of the things that education can do is to arm someone technically. It's to put the technical and practical means of advancement, of success, into their hands. But there's another shaping task, which is to do with identifying what it is good, what is noble to seek with the powers and the capacities and the strengths that you have. And this is part of the, the secret of ambition, the embarrassment of ambition. How do we work out for ourselves what the proper noble task of our lives actually is? It's not the sort of thing there can be courses about -- it's too embarrassing in the world. You can't have that. You can't have a book which says how to be noble, for some reason it's too private, but it's perfectly real. That's why we've locked the doors.

Stephen Crittenden: The Melbourne Business School's philosopher-in-residence, John Armstrong.

Melbourne Business School's Associate Professor Jenny George, says there's a growing interest in ethics among MBA students.

Jenny George: What we're seeing is that most of our students are keenly aware of the social impact of what they're going to do. We have a new research centre for leadership for social impact, we also have huge interest by our students in sustainability, they've just had a student conference on sustainability entirely organised by themselves. This is something that we see a huge amount of interest in. Human beings are not going to change too much from year to year. I think there have been people who've been greedy in the past, there are probably people who are greedy now, there will be people who are greedy in the future. That's not going to change. But I also don't think we need to be despondent. We see as many people who are keenly interested in their place within the community and their role in building good societies. You see just as many now as you would have seen in the past.

Stephen Crittenden: Several people have put it to me this week that the MBA degree has lost its credibility. Is that the case to any extent?

Jenny George: No, I don't believe it has. Actually the MBA is absolutely the pinnacle of professional education. India and China are providing more students just about than ever before, and the MBA is clearly the jewel in the crown of the professional degrees that they're looking for. It is suffering I think a little in the First World, if you like, from some, perhaps just jaded opinions about it, but frankly, that's coming as much from the media as from students. I tend to not hear it from prospective students. We had pretty much as many prospective students as we've had in the past, and they're not worried about the degree, and it appears to be giving them what they want. I do hear it a lot from the media, but I'm not sure where they get it from, or whether it's a sort of self-referential rumour within the media actually.

Stephen Crittenden: Meanwhile, at the Harvard Business School, Professor Rakesh Khurana says the whole idea of the content-free professional manager is one that's riven through with tensions and contradictions. On the one hand, MBAs are taught that they can manage any social problem; but on the other, they've been taught that there's no such thing as society.

Rakesh Khurana says if universities are teaching managers that their only responsibility is maximising profits for shareholders, and that companies have no other social responsibilities, the whole idea of the university has been turned on its head.

Rakesh Khurana: If you look at the original intention of the founding of the university-based business school, it was to create management as a profession, and not merely a profession in the sense that we make a distinction between an expert and a novice in terms of the knowledge, but also a profession with respect to the orientation of its managers. That is, that managers would largely put the interests of society and the interests of the economic welfare of their firm before their own individual interests. This was the social contract upon which business education was founded.

This contract over a period of several decades at first became neglected and then eventually abandoned. And it was replaced by a very different type of orientation which was that of shareholder maximisation, in which the manager was no longer seen as a professional who had an obligation to society, but rather as merely a hired hand of shareholders. What's interesting about this phenomenon is that managers haven't really, if you look at recent events, haven't even really delivered for shareholders. That actually became a cover under which really the sole purpose of management largely became self-enrichment.

Stephen Crittenden: Rakesh Khurana says that business education tends to teach technical skills, but has always lacked a proper ethical framework.

Rakesh Khurana: Modern business education is really missing that component. As a result, money has largely become the common denominator which really becomes the calculus around which modern business education has become. And if you think about the difference between, for example, a marine or a mercenary, the difference is not technical skills, but merely who will sell their services to the highest bidder. A marine does their work, and uses the same skills in terms of duty and towards an orientation, say, of preserving the national security of their society. That's very different from a mercenary who basically sells their skill to whoever's willing to pay.

Stephen Crittenden: So what effect is the global meltdown really having on business school education? It seems amazing, but all the business schools we've talked to say their enrolments have actually gone up. Apparently MBA enrolments tend to rise when economic times are poor, as people try to improve their credentials.

But there are also signs that many big companies are realising that if they want to be regarded as good citizens, they need to be more responsive to issues like sustainability, and the environment. There's also some anecdotal evidence that employers are becoming more skeptical about recruiting MBAs, and paying new attention to the importance of on-the-job training.

Recently, the Harvard Business Review even suggested that the new hot ticket in the corporate world was a Bachelor of Arts degree.

Here's one comment from the blogosphere:

Reader: Having run over a hundred companies, I don't find the letters MBA attractive. Frankly, they make it tougher for anyone seeking employment with me to get the job.

I've proved to my satisfaction that I can train a housewife to be a turnaround expert in about one-sixth of the time it takes with Harvard MBAs, because the housewives have real-life experience.

Stephen Crittenden: So does Professor Henry Mintzberg of McGill University, think, as some people are suggesting, that the credibility of the MBA degree is in tatters? Or are the business schools likely to use the global meltdown as an opportunity to rethink what they're doing?

Henry Mintzberg: Is it in tatters? No, not at all, they don't even notice. Look, my book has sold, I don't know, 50,000, 75,000 copies, I guess it depends on languages and things, but there's one piece in that book that talks about tracking the records of Harvard's star executives of 1990 and out of the 19 of them, 10 were complete failures and 4 were clearly questionable records, so 5 out of 19 performed well, of their best graduates, their best and most successful graduates in 1990. Do you think anybody sort of looked at that, noticed that, cared about that? No response whatsoever. The business schools are much more comfortable to ignore all the criticism, because people are beating down the doors to get in.

Stephen Crittenden: Well, indeed. I spoke to an Australian business school dean this week who says the leading business schools here in Australia appear to be giving students what they want, and that the present global meltdown is not likely to be any kind of watershed moment in which business schools re-evaluate what they do.

Henry Mintzberg: I wouldn't expect a dean to say much more, he's not going to say 'We're in crisis'. But Madoff I'm sure kind of said the same thing, you know, he was giving his investors what they want. I don't accuse deans of being dishonest in that way, but I think they're dishonest in a different way, which is they're not looking carefully at the consequences. That data I cited a few minutes ago about the Harvard MBA, they're not looking at how they're really performing. And this idea of them training managers, since 65% of Harvard's most recent classes are going into consulting and investment banking, they're not training managers.

Stephen Crittenden: The real lesson behind the financial meltdown, according to Harvard Business School's Rakesh Khurana is about the importance of institutions. We have to decide whether institutions are a positive thing in themselves, or just a means of getting somewhere.

Rakesh Khurana: I think this is one of the most important questions that has to be answered. For the last couple of decades, we've been living with a kind of cartoon model of society in which the idea was that the only thing you needed to build social order was a lot of self-interested actors with some minimal property rights, and then sort of society would emerge from that. I think that model has really shown its limitations, because undergirding that, is the importance of institutions. And by institutions, we talk about patterns of behaviour, things like the law, things like norms of how one ought to behave, things such as obligations and duty. And we're increasingly recognising that this really the fundamental operating system of the society.

Stephen Crittenden: This goes back to Ronald Reagan's line that government is the problem, and Margaret Thatcher's line that there's no such thing as society?

Rakesh Khurana: This goes exactly right to that, because in many ways that was paradigmatic, that was an inflection point for this view that no other institutions were necessary in society. But if you talk to any serious student of capitalism, institutions have always been the bedrock for an effective market system, and an effective society. What is a society without some form of regulative government which not only creates the minimum aspects of behaviour, but the aspirational aspects of behaviour. What is a society without any sense of professions and obligations, and notions of honour, duty? Those are the kinds of things that are really the lifeblood of a society. It's these kinds of things that have really gotten lost in the discourse. In fact I think the thing that was really probably the saddest thing about the last couple of decades around these issues, is that the notion of bringing up words like 'duty', 'responsibility', 'institutions', 'partnership', you were often derided and seen as soft-minded if you brought those things -- they were terminologies that were seen as quaint or seen as naïve, if not mocked.

Stephen Crittenden: Background Briefing's Co-ordinating Producer and Technical Producer this week is Leila Shunnar. Research and website, Anna Whitfeld. Executive Producer, Kirsten Garrett. I'm Stephen Crittenden and you're listening to ABC Radio National.

Further Information

The New Bashing of Economics

Slate: Why Harvard is bad for Wall St

Goodbye to glib gurus and their gobbledegook - Timesonline

PRME Principles for Responsible Management Education

Publications

Title: The Puritan Gift: Reclaiming the American Dream Amidst Global Financial Chaos
Author: Kenneth Hopper and William Hooper
Publisher: I.B. Taurus 2009

Title: Managers not MBAs: A Hard Look at the Soft Practice of Managing and Management Development
Author: Henry Mintzberg
Publisher: Berrett-Koehler, San Francisco, 2004

Title: From Higher Aims to Hired Hands:The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession
Author: Rakesh Khurana
Publisher: Princetone University Press, 2007

Title: Business Schools Share the Blame for Enron
Author: Sumantra Ghoshal
Publisher: Financial Times, 17 July 2003

Presenter

Stephen Crittenden

Producer

Stephen Crittenden