The financial crisis

In the recent decades, there has been a mass of graduates into the banking world from top MBA business courses. These graduates, often from reputable universities and business programmes, have the opportunity to step straight into powerful, prestigious, and high-risk taking positions within the financial world (James, 2009). Such individuals potentially focused their success on profit making and quick money; a debatable strategy with regards to a companies health and success.

Such methods of management and regulation have been disputed (Lorsch & Khurana, 2008). However, can business schools really be to blame for the actions of their graduates, or is it simply that “greed is hardwired into human behaviour” (Lo, 2008), and that business schools played a minimal role in the cause of the economic crisis. Is the link between the business schools and the financial crisis instead due to the nature of individuals that business schools attract rather than the business schools teaching?

The cause of the financial crisis cannot easily be pinpointed on any one reason, but instead a number of causes that have been critically debated in the search to find an explanation in order to prevent future occurrences. Corruption and ignorance has been put forward as an explanation for the crash, with lack of knowledge and skills from MBA graduates to deal with high-risk situations and decisions under pressure. The lack of ability of business schools to use more critical techniques and to teach efficient and effective response to economic events (Currie et al., 2010) lead The Economist (2009) to turn on business schools, highlighting their weaknesses.

According to Lorsch & Khurana (2008), “exotic financial instruments, poorly designed compensation plans, models of corporate leadership that value leaders’ charisma over substance, an uncritical embrace of laissez-faire models” were taught to business students without consideration as to whether these tools and concepts would actually help a company or firm’s long-term health and well being. Lorsh & Khurana also pointed out that many business executives were self-absorbed and interested in making their own money in the run up to the crisis and as a result failed to consider themselves as important leaders and protectors of their own firms.

Currie et al. (2010) highlights that unfortunately for business schools, there is no hiding the fact that many of the individuals implicated in the disasters that beset Wall Street were MBA graduates. MBA graduate job destinations have been focused on the higher ranks of finance and banking, private equity firms and hedge fund careers, making business schools a prime target for finger pointing for the crisis. Students are taught financial economics which supposedly should equip them for these particular careers, however if this was the case then the economic meltdown clearly shows that these models and practices are flawed. Whether this is due to materialism or ignorance in the application of theories is debatable.

As a result of the crisis, many have explored and examined potential methods and theories that may allow business schools to better equip their students prior to graduating and landing in high end financial jobs. Ferlie et al.’s (2008) paper provides a debate examining an alternative form of model of the business school, in the form of a ‘public interest’ model for the future. This particular model calls for the development of a form of professional school with more interest in professional identity, self-regulation, codes/ethics of practice and socialization. This model reflects professions such as medicine and law, which thus far management has not fully evolved into (Ferlie et al., 2010). As Ferlie et al. (2010) explains, socialization into a profession such as management can teach self-restraint and appropriate behavior, and argues that this development of expert knowledge is vital to a legitimated profession.

Transformational leadership, as first introduced by James MacGregor Burns in 1978, has also been considered an important characteristic of individuals at the highest ranks of firms and companies. The characteristics and charisma of a transformational leader enthusiastically communicates a vision for the company involving a better future, personal commitment and to provide a link between the direction of leaders and their followers (Tourish et al., 2010). The presence of a charismatic leader has been argued to transform values, behaviors and attitudes leading to ultimately greater socialization within a firm. Business schools have not ignored this form of teaching, and have in fact emphasized this role, however it has come in conjunction with agency theories which emphasize self-interest, a key cause of the financial crisis.

On the other end of the spectrum, it is argued that it is not the fault of the business schools, but rather the personality and characteristics of the individual that graduates with the MBA. Enron provides a perfect example, with the business scandal leading to the company’s bankruptcy as a result of greedy, self-interested managers. Is it not that that simple to prove cause and effect, and the fault potentially rests with the capital and the individual who chases it rather than the institution where the individual was educated.

Business schools cannot necessarily change the motivation of individuals and future managers, and if a graduate is money motivated, this may well come hand in hand with self-interest, greed, and other characteristics that were key contributions to the financial crisis. Instilling leaders with corporate social responsibility and sustainability is important and has a great effect on the health of an organisation. With only 20% of UK MBA courses including a mandatory CSR module (James, 2009) it is debatable as to whether the graduates of today are prepared with adequate training to be managers of the financial and business world.

Bibliography

2009. ‘The pedagogy of the privileged’, The Economist, [online] Available at: <http://www.economist.com/node/14493183> [21.09.11]. Burns, J.M., 1978. Leadership. N.Y: Harper and Row. Currie, G., Knights, D. and Starkey, K., 2010. Introduction: a post-crisis critical reflection on business schools, British Journal of Management, 21(s1), pp.s1-s5.