MBA: Moral bankruptcy assured

MBA: moral bankruptcy assured? (September 19, 2002)

The View From Taft, Business World

In the wake of the string of US business scandals led by the Enron meltdown, business schools are doing some serious soul searching. Andrew Fastow, the creative force behind Enron's highly lucrative but questionable financial and accounting practices, is an MBA. By published accounts, Enron recruited heavily from MBA graduates. The strategy was to hire the brightest and to pay them more than they thought they were worth. If this was a strategy to get full and unquestioning cooperation, it seemed to have worked.

Meanwhile, a study by US-based Aspen Institute on the social responsibility attitudes of MBA students showed a distressing result: the students' sense of social responsibility decreased as they progressed through the MBA program. For example, at the start of their program, more than 40% of the students said that one of the primary responsibilities of a company is to produce useful, high-quality goods and services. This dropped to just over 30% at the end of the MBA program.

The above developments led a writer to conclude that "MBA" stands for "Moral Bankruptcy Assured." As a business school professor, this hit me in the gut where it hurts. I felt like a manager of a factory who had just been accused of dumping toxic waste in the Pasig River.

Are we, in fact, training self-serving champions of greed who will dazzle their peers and bosses with their financial wizardry and highfalutin' jargon while leading their companies to ethical ruin? Are we breeding amoral technocrats who will tell management that a course of action can always be justified, as long as the price is right?

I don't think so. I've talked to too many MBA students struggling to lead good professional and family lives; too many who have left jobs which they found financially rewarding but couldn't stomach because of the questionable things they saw; too many who choose to stay in this country because they love it even if they have so many options abroad. And I'm proud of every one of them.

While I do not believe that business school training leads to professional business banditry, I must say that traditional MBA training does have a number of weaknesses which may lead MBAs astray. Let me mention two critical ones that come to mind.

1. MBA training tends to build an excessive fascination with models and formulas.

By reputation MBAs are very adept at models and number crunching. After all, an MBA without a spreadsheet model and a PowerPoint presentation is unthinkable. And models are great at representing business reality - like a map represents roads and highways to guide drivers. The problem begins when the MBA assumes that the model is reality. A driver using a map avoids accidents and going astray by looking out the windows to verify what the map says and proceeding cautiously. In contrast, many MBAs are often unwilling to look "out the window" and verify their models before making conclusions.

A good example of this thinking is the use of economic models of competition. An MBA would argue the merits of market competition based on the oft-cited intersection of demand and supply curves under conditions of perfect competition. What the student forgets is that the model's validity is based on a number of assumptions, such as: there are many buyers and sellers and none has a substantial market share and each one can freely enter or leave the market, every buyer and seller has full and perfect knowledge of what each other is doing, and goods being sold are so similar to each other that no one cares from whom each buys or sells. A simple reality check will show that these assumptions usually do not hold, and, therefore, the conclusions based on the model are of limited value. Do we tell MBAs to forget their models (or drivers to throw away their maps)? Hardly. We just tell them to use such models with caution while keeping in touch with reality. In addition, we need to tell them to balance their quantitative analyses with a more hands-on and people-centered appreciation of the business situations they study.

2. MBA training tends to create the belief that the main purpose of a business is to earn profit.

When I ask a class what the main purpose of a business firm is, the first answer that they always bark out is "to earn a profit."

This is the most fundamental flaw in the thinking of many business students. The flaw emanates subliminally from the curriculum itself and the repetitive attention it gives to the profit objective.

Typically starting with economics, reinforced in accounting and finance and topped off with good measure in strategic management, the operative question that resonates in students' heads is "How do we make a profit?"

Lest I be misunderstood, I do not question the importance of profit. It is essential to business in the same way that air is essential to life. But do we ever say that the main purpose of life is to breathe air? What kind of a life would that be?

And what kind of business exists mainly to earn profit? Certainly not a worthwhile one.

Do we tell our MBAs to forget profit? Again, no. In life, one needs to breathe to live. But life is more worthwhile when we don't breathe too fast or in excessively large gulps so that we can do other worthwhile things.

In business, we need to remind our MBAs not to confuse means with ends. We need to emphasize that profit is merely an instrument for the higher goals of a business firm such as providing employment, building a working community that dignifies people, and serving society through genuinely valuable products and services.

I have only the highest hopes for our MBA students. And this includes the hope that with their hard work and example, "MBA" will come to be construed as "Moral Business-sense Assured." Then the MBA program would have served its purpose.