In January this year, an irate American, Christopher Kilbridge, wrote a powerful letter to the Financial Times arguing that business schools should share the blame 
for the world’s financial meltdown. It was time, he 
said, to “burst the bubble” of worshipping holders of Masters degrees in Business Administration. “How many self-anointed leaders have presumed that the holding of a degree from the most exclusive (translation: most expensive) universities conferred a Midas touch to every decision they made?” he asked.

A torrent of similar letters from around the world has pointed the finger at MBA degree holders and the schools that produce them. Confidence in financial institutions and their MBA bosses has been devastated.


And business school professors can prove it. In February, Professor Luigi Zingales of the University of Chicago Booth School of Business, and Associate Professor Paola Sapienza of the Kellogg School of Management published the findings of their new Financial Trust Index. They showed that 36% of respondents believed managerial greed was the main cause of the financial crisis. Only one in ten still trusted stock markets, and a similar proportion had withdrawn their cash from the bank.


Meanwhile, Raymond Fisman, Lambert Family Professor of Social Enterprise at Columbia Business School in New York, the city where the world’s woes originated, conducted an experiment that sheds a telling light on some consequences of business education.


Students at Yale Law School were divided into two groups, one taught by philosophers, the other by economists. “The people taught by economists divided pies according to efficiency, while those taught by philosophers divided them according to equity,” he says.


In other words, students taught by economists tend to forget about fairness.


Fisman says he was further jolted when Alan Mulally, chief executive of the Ford car company, responded to questions about the size of his $21m compensation package with the words: “I think I’m 
ok where I am.”


Mulally, who holds an MBA from the Massachusetts Institute of Technology and lectures frequently to those studying on MBA programmes, seemed insouciant of the implicit ethical contradiction between his pay, and his request for taxpayer funds to bail out the company.


Fisman says that part of the problem is that MBA programmes are too short to teach “the totality of economics” to participants. “It is a programme that doesn’t give its due to market failures, transaction costs and externalities. Faculty say they are teaching the facts, without recognising that embedded in that approach is a set of values.”


Mea Culpa? “It would be irresponsible to say we take no blame,” says Fisman. “It would be equally irresponsible to say that business schools should take all the blame.”


However, Professor Sir Andrew Likierman, dean of London Business School, insists: “Business Schools can hardly be blamed for those who decided to bet the shop and lost.”


Bankers — whether with MBAs or not — are responsible for their decisions, he says. In further support of business schools, Likierman, adds: “[They] teach a wide range of managerial skills for graduates to use in all kinds of organisations — risk management and corporate social responsibility, as well as finance.”


Professor Santiago Iñiguez, dean of IE Business School in Madrid, agrees that MBA programmes are diverse, but suggests that there is a key difference in values across the Atlantic divide. “In Europe, for example, stakeholder management has been a preferred methodological background to teach management, whereas in the US, the emphasis is on shareholders’ interests,” he says.


Like Likierman, he argues that those who got us into this mess “didn’t apply the golden rules taught at most business schools”.


But Iñiguez believes there is a problem, about which he is far from complacent. “I would say that business schools should feel co-responsible rather than guilty,” he says. “Business schools should have taken a number of initiatives that become peremptory now... truffle all MBA courses with aspects of management deontology and business ethics.” 


Among revisions underway in core IE programmes are the introduction of humanities, including history. Back in New York, Fisman, too, believes history lessons, absent from all but a handful of US MBA programmes, deserve a place.


And what about a business school equivalent of the medical profession’s Hippocratic Oath, as proposed by Professor Rakesh Khurana at Harvard Business School? IE already has one.


Ultimately, the future of business schools will be shaped by corporate recruiters. Companies are still hiring those with MBAs, and London Business School, for one, says endowments and course applications remain on an upward trend.


But maybe the schools’ mission is changing, and their teachings with it. Iñiguez believes business schools should shoulder some of the burden of sorting out the mess. “Good business is the best antidote to bad international politics and to many of the world’s illnesses. We need to prepare the new business generations for the reinvention of financial institutions and capitalism itself.”

Where do business schools go from here? By Ken Starkey

It has not escaped attention that many of those blamed for the banking crisis — including George W Bush, the first US president to hold an MBA, from Harvard — are graduates of some of the world’s leading business schools. The career choice of recent years for top MBA graduates 
was a lucrative post in private equity and investment on Wall Street or in the City of London. Consequently, business schools are now having to face up to the fact that they helped create the mindset and the business philosophy that have led to our economic woes. 


Why this happened was primarily due to the rise to dominance of economics as the core business school discipline to the exclusion of other ways of understanding the world. This happened, in part, because it made claims to be a science, backed by mathematics, while serving as a breeding ground for a business ideology that became politically popular in the Reagan-Thatcher era and reached its zenith during George W Bush’s time in the White House.


A management mentality flourished that drew its intellectual inspiration from two main sources: Milton Friedman’s view of freedom as synonymous with the pursuit of self-interest as the prime human motivation, and a crude social Darwinism according to which greed is good, competition is all, and only the fittest will survive. Together these created a potent mix driving the corporate excesses of the last two decades. The simplistic marriage of economics, psychology and biology meant that self-interest was seen as synonymous with self-preservation and strategy as akin to war, with no sense of limits, in pursuit of super-normal returns. m

Times are changing. Society is unlikely to tolerate the business excesses of recent years or the narrow economic and political ideas that supported them. In the US, President Obama has signalled a clear break with the economic orthodoxies of the Bush administration. In France, President Sarkozy is championing a more “humane” European capitalism. 


Business schools will need to take a lead in redefining business for our time as well. Courses in professional ethics, corporate social responsibility and sustainability will need to be at the centre of what they offer, rather than optional extras. The economic philosophy that underpins courses in finance needs to be surfaced and examined for what it is, an ideology as much as a science. In particular, business schools need to encourage in their students a sense of history. 


In The Ascent of Money: A Financial History of the World, Niall Ferguson examines the sorry tale of Long Term Capital Management, a hedge fund set up by Nobel-prize winning economists, Myron Scholes and Robert Merton. This was an unmitigated disaster and nearly led to meltdown of the world’s financial system in a foreboding pre-run of what happened recently on Wall Street. Ferguson argues that this failure might have been avoided if its founders had had any sense of history, rather than naively believing that their economic models were scientific enough to predict and manage the future in a risk-free way. If they are to survive, business schools will be judged, like Long Term Capital Management, on their ability to learn from 
past mistakes.

Ken Starkey is professor of management 
and organisational learning at Nottingham University Business School