The Failure of Business Schools

There is a crisis in the quality of education provided by American business schools.  This is especially unfortunate since the graduates of these schools have largely taken over the running of American businesses.  The classes, taken as a whole, are insufficiently rigorous, but this is hardly the only problem.  The failure comes at all levels, from the overarching philosophy that informs strategic decisions to the nature of the classrooms.  Business schools have become platforms for lazy teaching, irrelevant research and a thorough corruption of the academic mission.

The root of all of their evils is the amoral pursuit of money.  Business schools are floating in money.  Cries of poverty from deans and the institutions at large should be treated with ridicule.  They receive donations from alumni at a rate and size unimaginable to other parts of the university, save the athletic department.  Recently, the University of Michigan’s business school received a gift of $100 million and used it to build a new building.  The schools lose track of their mission both when acquiring money and when spending it.

In the drive to collect money, business schools have become too close to the companies that they are supposed to be studying.  The evidence of this relationship can be found in every corridor.  Business schools have sold the naming rights not only to the entire institution and each building, but everything imaginable.  There is a sign by the door to every classroom and publicly accessible conference room, telling you which corporation paid for it.  At times, it seems that the naming rights to the staplers have been sold.

This is a problem because one of the primary jobs of an academic institution is to conduct research on the field that it studies.  In the case of a business school, that field is, obviously, business.  In the same way that outside auditors of a firm need to be independent of that firm, good researchers need to be independent of the things that they study.  If a marketing professor believes that a certain method in use is unethical, he feel free to say so publicly.  It is the same for an operations manager that feels a new, highly touted, process in use at a major donor to the school is ineffective. 

An academic must have a sense of intellectual curiosity and must both want and be able to publish the things that this curiosity discovers.  If that’s not the way an individual feels, then they should be conducting their research for a private entity.  If the school she works for discourages this, then it is a failure at its mission.  Research directly applicable to current business needs can be adequately developed by the entities that use it.  The thing that a university can do that a company driven by profit can’t is basic research with no immediate applications but that can be built upon to create them.  Business schools is the institution best suited for saying that the emperor has no clothes when it is true of an outside business.  To haul out a bit of corporate jargon, that is their core competency and they should spin off the tasks that interfere with it.

Perfect independence for an academic is as impossible to achieve as perfect independence for an auditor.  While this is true in all departments, it is especially problematic for those who study business.  Much of the data they need to examine is proprietary or in some other way in the control of businesses.  Regardless, professors need to maintain their distance.  To do otherwise compromises the honesty and accuracy of the resulting research.

Business schools consciously try to emulate for-profit businesses in the way they operate.  Given the nature of their mission, this is inappropriate.  The purpose of a university is to provide an education to its students and to produce research for its community.  These are not compatible  with a focus on making money.  Universities do not, or at least should not, be primarily concerned with created a product that can be sold for a profit.  In their own ways, medical and engineering schools have fallen afoul of this, but the mindset is overwhelming in business schools.   Nowhere can this be seen more clearly then the conception that has taken hold that students are, and should be treated as, customers.

In a technical sense, this is true.  Like customers, students are paying for a service.  After that, the analogy breaks down.  If someone is your customer, it is your job to provide them what they want.  You might have to explain to them why their desire isn’t possible, but their satisfaction is paramount.

This is a problematic paradigm in the case of college students.  In theory, it is the job of a university to provide a good that has a very amorphous, non-quantifiable and long-term nature: an education.  Students tend not to see it that way.  Because of the pressures of getting a job, they tend to believe that the good they are purchasing is a degree, rather than the degree merely being a symbol of what was really traded. 

In order to have efficient markets, a customer needs to have a lot of information about the good that they are buying.  Education fails this test in several ways.  Many, if not most, prospective college students and their parents don’t really understand what it is that a university does.  The value provided by a diploma is often only apparent years after graduation.  These sorts of issues make a market for university education function poorly.  There is abundant research that freshmen frequently arrive at a school poorly suited to their particular needs.  The ever growing abundance of university administrators is more than just bureaucratic expansion.  It results from schools trying to improve things that add little value to students’ education, but that increase their prestige and their standing  in the myriad of poorly constructed rankings of colleges, such as that published by U.S. News & World Report.

It is the degree, and its place on the resume, that contains the direct and quantifiable value to the student.  College becomes a form credentialing.  The number of job descriptions that say that a bachelor’s degree is required continues to rise, without necessarily meaning that there are more jobs that truly require one.  It is the piece of paper that hiring managers are looking for, not the knowledge that was acquired in getting it.

Thanks to this, college students are notoriously unconcerned with the educational quality of their classes.  They treat college as more of a social exercise, and figure out which professors require little work and give still good grades gets around, and students rush to their courses.  This is not a new trend.  Twenty-five years ago, I had a Russian history professor who said that college students are the only consumers who want the least amount for their money possible.

Treating students as customers exacerbates this problem.  At the end of every semester, students are polled as to their happiness with the product.  The vehicle for this survey are the student evaluations of their professors that students fill out at the end of each semester. They are little different from customer satisfaction surveys corporations conduct.  In the pursuit of student satisfaction, these evaluations play a critical role in the decisions on how much to pay faculty members.

Of course, the surest way to get good student evaluations is to provide an easy A.  Universities in general install incentives for their professors to give good grades, but business schools are at the forefront of the trend.  Naturally, the faculty responds to these incentives.  If they didn’t, one would have to wonder what model of businesses they have in their head.

The Carlson School of Business at the University of Minnesota, my alma mater[WU1] , found that these incentives proved to be too enticing.  They have a policy that mandates that the median grade in undergraduate courses should be a B+, and in graduate courses it should be an A-.  The official reason for this policy isn’t to push grades upwards to satisfy the students.  It’s to keep the professors from routinely being even more lenient in their grading.

Along with handing out inflated grades, business school classes are frequently very easy.  There are a number of them that rely heavily upon multiple choice exams, a format that, with limited exceptions, has no place in a university curriculum at all.  The most glaring example of this in my studies was a graduate level class in the Masters of Business Taxation program.  The grades depended solely upon a multiple choice midterm and a multiple choice final.  The exams were open book.  Some of the questions were the first part of a paragraph from the accounting standards, and the correct answer was one of four possible continuations of the quote.  A part of the materials in the course pack was those very standards.  It would have been easy to look the quotes up to find the answer, except that that wasn’t necessary.  In addition to being open book, it was also permissible to use one’s laptop computer during the exams.  The course website had links to those standards, in the form of searchable PDFs.  I’m sure you can see where that led.[WU2] 

There is much back-patting in the administrative offices of business schools that they are hard to get into.  That may be true, but they are also very easy to get out of.  What is true of the undergraduate programs is even more so of MBA programs.  The value of an MBA has nothing to do with education.  Rather, it is one part credentialing and another part networking.  The important part isn’t what you learn, it’s who you get to know.

A part of the reason for the inadequacy of MBA programs goes back to the process of raising money.  A large number of MBA students, perhaps a majority, have much or all of their tuition paid by an employer.  At the beginning of the semester, instructors often ask who the students work for.  At Carlson, you get a huge number of people from Target, a lot from Delta Airlines, Best Buy and other large corporations based in the Twin Cities.

These corporations are a major source of funds for the school.  As a consequence, teachers are even more reluctant to give out bad grades, because that would be a statement to these companies that their employees are of a poor caliber.  The fund raising department of the schools wouldn’t tolerate that.

Of course, the corporations aren’t providing all of this funding out of generosity.  They expect the business schools to turn out students that are prepared to work for them.  This warps the content of the classes, as they are geared towards teaching students the methods and cultures used by the major donors.  These companies have outsourced a significant piece of their employee training, as the donations are less than what it would cost to train the employees themselves.  There is a certain economy of scale in having a single entity provide these kinds of basic training, but it can’t be the primary mission of a university.  An education, even a business school education, needs to be broader and more open to alternative ideas.  If local corporations want to have a single entity provide introductory training, they should set it up on their own directly, rather than using business schools.

The deans of business schools apparently disagree.  Their incentives dispose them towards doing the sort of work that pleases large donors.  The amount of money coming in means that they have higher salaries and more comfortable offices than they otherwise would.  There is no doubt that were business schools to focus on their true mission, much of those donor streams would dry up.  While such a decline is desirable from the standpoint of society at large, it would be catastrophic for the lifestyles of administrators.  Many of their perks, including getting to socialize with business elites, would decline in value. 

As a counterpoint, it is worth looking at who the best teachers in business schools are.  They are not the tenure track faculty.  While teaching is a large part of their job, the ability to do so is not the primary criterion in their hiring.  Research is much more important for that.  However, there is a class of teachers for whom the love of teaching is their primary motivation.  These instructors are given titles other than Professor, such as Senior Lecturer.  These are individuals who were successful in their industries, usually quite successful.  Some are part time teachers and keep their outside jobs.  The quality of these teachers is highly variable, some very good and some appallingly bad. 

It is the other group, those who gave up their other career altogether, that is consistently very good.  They could be making much more money had they stayed in their previous jobs, but gave that up because they want to teach.  While not immune to financial incentives, they have demonstrated a tendency to make economically irrational decisions about their career.  A number of them have the same objections to the way business schools operate as those laid out here.  They work hard to improve teaching methods and conduct useful research.

It is their tenure track colleagues that disappoint.  They are indifferent teachers, but what is striking is the quality of their research.  In accounting departments, the problem is not that the professors face skewed incentives from donors.  It’s that the work they produce is mostly worthless.  It is as if the departments have been populated by second rate economists.  Their papers are filled with abstract mathematical models built on assumptions that leave them so far removed from real world conditions that they have no practical value.  It is not even the sort of basic research that can pay off in the long run.  It’s simply its own little world, at a time when the business environment cries out for ways to solve currently intractable problems.

Business schools shouldn’t be useless.  There is more than enough meat in all of its fields that true academic departments could arise, with the sort of research that only an institution not driven by bottom line payoffs can conduct.  There is a desperate need for a place that can rigorously teach students how to think, rather than how to apply rules the way a particular company desires.  A university is a place to open horizons, not close them off.  Unfortunately, America goes to work with the business schools we have, not the business schools we wish we had.

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 [WU1]I want to give specific examples, and Carlson is the place I know best, but I don’t know if I should do it without personal interjections.  I can probably also get more examples from my parents about the University of Michigan if it should be spread out.

 [WU2]This example seems clunky to me, but might work fine for a reader.