Premeditated Thought

Time To Revamp MBA Programs?

Kelly Holland, writing in today's New York Times, asks Is It Time to Retrain the B-Schools?

The master’s of business administration, a gateway credential throughout corporate America, is especially coveted on Wall Street; in recent years, top business schools have routinely sent more than 40 percent of their graduates into the world of finance.

But with the economy in disarray and so many financial firms in free fall, analysts, and even educators themselves, are wondering if the way business students are taught may have contributed to the most serious economic crisis in decades.

This is a fair question.  I graduated from NYU's Stern School of Business - a prime feeder of the Wall Street beast - in 2007.  Though my concentration was on innovation and strategy rather than finance, I saw much of what the article points as the problem:

Critics of business education have many complaints. Some say the schools have become too scientific, too detached from real-world issues. Others say students are taught to come up with hasty solutions to complicated problems. Another group contends that schools give students a limited and distorted view of their role — that they graduate with a focus on maximizing shareholder value and only a limited understanding of ethical and social considerations essential to business leadership.

Such shortcomings may have left business school graduates inadequately prepared to make the decisions that, taken together, might have helped mitigate the financial crisis, critics say.

“There are extraordinary things taking place in business education, and a lot that is very promising,” said Judith F. Samuelson, executive director of the Business and Society Program at the Aspen Institute. “But what’s the central theorem of business education? It’s wanting.”

Some employers and recruiters also question the value of an M.B.A., and are telling young people they can get better training on the job than in business school. A growing number are setting up programs to help employees develop skills in-house.

But is the MBA program really to blame for the shortcomings of its graduates?  After all, business school attendees are self-selected. 

Still, there have been signs that all is not well in business education. A study of cheating among graduate students, published in 2006 in the journal Academy of Management Learning & Education, found that 56 percent of all M.B.A. students cheated regularly — more than in any other discipline. The authors attributed that to “perceived peer behavior” — in other words, students believed everyone else was doing it.

I draw a different conclusion from the first sentence.  MBA students are, for the most part, focused on making money and obtaining power.  They are the probably not the most ethical people before their business education.  The question is whether the MBA helps or hurts these future corporate leaders become more ethical or not.

I can say that at Stern, I saw nothing that would encourage overt unethical behavior.  Although ethics was not a major part of the program - we had one business ethics class that did reveal the worst in some students - NYU did nothing to encourage future investment bankers to take outsized risks, to encourage fraudulent hedge funds (did Bernie Madoff have an MBA?  I don't know), or to create fictitious energy trading firms a la Enron.  How many tobacco leaders forty or fifty leaders had MBAs?  Indeed, the professors, and most of the stundents, I met at NYU were nothing but ethical.

My MBA program, though, did help us understand why this unethical behavior persists: improperly designed reward systems.  One of the first papers we read in NYU was Steven Kerr's "On the Folly of Rewarding A and Expecting B" (Google it).  Kerr presages how the short-term bonus structure on Wall Street leads to outsized risk.  It explains how a focus on shareholder value leads to strip mining.

Reward systems that base bonuses on short term results lead to risky behaviors.  Proper compensation systems are not easy to design and executives do not want to wait ten years to be rewarded for their work.  That said, we clearly need to do something about today's bonus structure.  By basing rewards on long-term stock options, we have aligned executive (and in my industry - software - employees) interests to that of the owner to avoid agency costs.  The system is flawed but a step in the right direction.

Do not think, though, that the MBA program teaches leaders to focus on short-term value.  Every strategy class, every finance class, every leadership class talked only of the long-term (well, with some reasonable exceptions to ensure the company survives in the short term). 

So what about the focus on shareholder value?  Does this inherently lead to unethical behavior and are MBA programs to blame for this?   In the U.S., the board of directors is - by law - squarely on maximizing shareholder value.  Executives are agents of the owners, and as such are expected to maintain this focus.  Taking Kerr's argument to heart, compensation systems should reward executives for building long-term shareholder value.  The distance between this goal and reality accounts for what business school terms "agency risks."  An agent, in this society, is expected to behave the way they are incented. 

Some societies recognize stakeholder beyond owners.  They recognize employees, suppliers, and communities.  In Germany, for instance, the union has a seat on the board of directors.  This provides power to the union while simultaneously aligning the union with the company.  I suppose the American corporation reflects deeply seeded American values, not MBA values. 

When a company does something for its shareholders that negatively impacts outside stakeholders, we call that an externality.  For example, if I dump pig waste upstream and pollute water, downstream communities would have suffered an externality.  In the U.S., we rely on the government to pass laws to control these externalities.  It is no surprise corporate leaders lobby against these laws.  They are incented to do so, and they are mandated to do so.  Asking them to do otherwise is the same as asking the prosecuting attorney in a murder case to testify to the good character of the suspect; that is the job of the defense attorney.  America firmly believes in checks and balances.

BUT.  America does not believe the goverment solves problems.  They believe in the market.  Unfortunately given this bias, our system is designed to have the governement, not corporate leaders, control the negative impact of our focus on shareholder values.  This is not a problem the MBA program should or can rectify.  We, as a nation, must come to terms with the system we've designed.  We have a choice: more regulation and more powerful government agencies that can effectively counterbalance externalities or revamping the structure and goals of the corporation.

While writing this, I kept flashing back to Amy Wrzesniewski, my first and favorite MBA professor, now at Yale.  Amy would have pointed out that once our career is driven by money rather than passion the battle is already half-lost.  I suspect this is the nature of the incoming MBA class.  Don't blame the MBA program for this.  Blame us.

Teamwork, Trust, Perfection

I'm now four weeks from finishing my MBA.  Reflecting back on the previous three years, one of the biggest lessons I've learned is trust other teammates.  This was not an easy lesson for me.

In my previous degrees - undergrad and masters in computer science in the 80s - the emphasis was on technical mastery and individual achievement.  I can remember only one group assignment, and that was with just one other person.  By contrast, almost all of my MBA classes have included multiple team projects.  One class did not have any individual assignments.  Teams vary from three to five people, and are usually self-selected. 

My first group, in September 2004, consisted of five people, and we quickly learned that one of us would only be disruptive.  The rest of us worked our butts off, though.  It was our first semester, and we were eager to show our best.  NYU Stern is a competitive place, full of smart and ambitious students, and we wanted to prove our worthiness. 

But although we worked hard, we did not produce our most capable work.  I spent hours arguing with Rebbecca - who became my best friend at NYU - nitpicking about insignificant points.  In order to finish a paper, we would trade over a hundred emails during the course of a work-day (we all were part-timers with full time day jobs).  Every wording change made by any teammate received thorough scrutiny, especially by me.  Its a wonder these people wanted to work with me again.

But they did, and I gradually came to trust their intelligence.  After a while, I stopped lording over the work, bullying sentences to read the way I wanted.  After a few semesters, we were able to churn out an 'A' paper in just a few drafts.  The effort required to produce quality work dropped dramatically.

But I still hadn't learned my lesson.  I had learned to trust Ipshita, Rebecca, and Anne.  But put me in another group, and the tyrant resurfaced.   It wasn't until much later, in a strategy class, that I learned to relinquish some control.  I did not know many people in this class, and joined a team with too many leaders.  My ideas were frequently shot down.  Sometimes I would not see a draft of a paper until the day before it was due.  I was completely unaccustomed to working like this, and my only choice was to surrender.  After all, what was the worst that can happen.  And what was the net result?  A string of 'A's on the papers and for the class.

I have come to appreciate different types of intelligence and different styles of working since I have learned to yield to other teammates. The net result has been better balanced papers and higher grades with reduced individual effort.  I have learned to truly believe the maxim that many minds are better than one.

Moreover, I had come to learn the counter-productiveness of my perfectionism.  One maxim heard a lot at business school is that to succeed as a consultant, you must content yourself with B+ work.  Too much time spent trying to polish work sacrificed productivity.  It was advice I had never heard before.  Not that I would be happy with a B+ in my coursework, but I learned to shoot for quality work without perfection.  This resulted in happier teams and a more balanced life.

Unlike the real world (well, the work world), the MBA classroom presents a controlled environment to look at how you perform in the team environment.  All teams have to do the same project in the same amount of time.  Getting an A with less sweat equity (to work in a favored term of my co-students) is all the self-reinforcing feedback you need.

Existential Crisis

This blog is not confessional, but if I am going to write about meaning and identity, occasional personal bits will slip through my filter.  Here's one I'm holding the door for:

Tonight I am sitting at home for the second straight day, having slept too much from a flu.  I am facing an existential crisis.  The cause, or so I tell myself, is that I am looking toward the end of my MBA, and looking back at what it has meant to me as a person.  I am sure I will be writing more about this as May graduation gets closer.

What brought this on was a short story a woman in my class sent me late last night.  The gesture touched me; I do not know this woman, but my posting on identity reminded her of a story she had written.  The one-page fable is about a little hexagonal iron nut that was no longer holding together a computer system.  The nut had suddenly lost its purpose in life.

Prior to applying for Stern's MBA program, I had been writing fairly regularly for several years.   At weak moments, I had dreams of cashing out on my NYC apartment, enrolling in an MFA program, and writing in some shack in Mississippi.  Or the Rhode Island coast. 

I always read voraciously.  My bookshelves are stocked with magic realists, nineteenth century Russians, Kundera, collections of short stories, Robert Stone, the great twentieth century Jewish American writers, James Joyce, and oodles of eighteenth century romantic literature.

I haven't read a novel since September 2004, when I started my MBA program.  Aside from New Yorker stories, I've read little fiction in the interim.  I feel the void.

To return my new friend's (well, I've yet to meet her) gesture, I sent her a story I had written in December 2003.  The plot tracks a man's rebellion against his hell-bent pursuit of money at the risk of any deeper emotional life.  His guide out of the abyss is an Isis-like character.

The MBA has not cost me my soul.  Many of the courses, especially on the leadership track, emphasize our humanity.  Yet the program as a whole is of course focused around the pursuit of career, whatever that may mean.   And at the end of winter, with the last of my sixty credits fast being awarded, that single-minded pursuit finds me searching for deeper meaning again.

And, with that in mind, I am about to crack open Durrell's brilliant opening to the Alexandria Quartet, Justine. 

Self-Identity and Adaptability

Rick Miller, in a case I read for my change management class at NYU this week, is forced by external circumstances to make major career choices.  Having been CFO at RCA, he opted to take a line management position to gain operations experience, where he was on the fast track toward CEO.  Miller was caught unaware when his division was sold to GE (wounding his pride in the process, since he was not involved in the negotiation).  Despite realizing he had little chance to become CEO of GE, he took the challenge of rebuilding GE's consumer electronics division.  After just nine months on the job, Jack Welch surprised him by announcing that Thomson, a French company, had made an offer for GE's consumer electronics division.  "I don't even know the French national anthem," Miller said to himself while contemplating whether to follow his division to Thomson.

In class, we discussed Miller's dilemma mostly in terms of entitlement and complacency.  To me, it was about self-identity.  Miller defined his career in certain terms: he was going to be CEO of a major American brand and help American competitiveness in the process.   Taking a position at Thomson would mean rejecting that self-identity.

It is often said that Americans, more than other nationalities, define themselves through their career, their work, and their ambitions.  "What do you do?" is a frequent conversation starter.   Yet we are often faced with changes we cannot control.  In my career, my company has been sold (twice), my division has been spun-off (twice) and I've been laid-off.   Each change forced me to consider how I define my career.  Of course, the lay-off forced me to confront much more about my self-identity as a successful professional.

Rick Miller had specific career goal, but many people I know have an even narrower self-identity.  They may be malpractice attorneys or Unix kernel hackers, but what they have in common is a vulnerability to external forces.  Too narrow a self-identity is a straitjacket.  In this view, Resistance to change can be the result of a slim self-identity.

In fields driven by technological progress, maintaining a broad identity - being a generalist, perhaps - is increasing in importance.  In The Singularity Is Near, Ray Kurzweil says "the time to adapt new paradigms is going down by half each decade."  With the pace of change so rapid, what we started our career doing is almost certainly not what we will end up doing.  Most of us will change careers several times, sometimes within the same general field, but not always.  Even if we stay in the same field, we may be doing drastically different work than what we had anticipated - such as management instead of technical work.

To build a capacity for change, we must create a broad career self-identity.  Doing so lessens the impact of sudden unexpected shocks and provides leeway to find new positions that fit your self-image.

But to truly be flexible and less traumatized by uncontrollable career-changing events, I think we need to develop non-work identities.  Healthy relationships and hobbies - whatever floats your boat - all serve as stabilizers for unexpected turbulence.   

Fear. Change. Or Else.

I started my final semester of my MBA today.  My last class - somewhat appropriately, I think - is  managing change, a required elective for the leadership specialization. 

For many students at the finance-heavy NYU Stern program, it is an odd sort of class.  The class started  with the professor warning there are wrong answers but no right answers.  How do students who would sooner calculate return on investment than create positive energy cope with such ambiguity?  (One of them has so failed to understand the basic lessons of management that he believed fear to be the best motivator.  I'm scared for our future.)

In my first semester at Stern, I was chosen to ask Jack Welch a question during a Stern guest lecture - well, more of a book promotion tour.  I asked him what MBA classes he wished he had taken.  His answer came easy: more management classes.  Corporate finance, strategy, accounting, this he could read about.  Management and leadership took him much longer to learn.  Cutting your teeth on the job is a high-risk strategy.  The interactive classroom is the perfect place to share your opinions, gauge others' reaction, and refine your "people" skills.

In our first class, fear seemed to rule the day.  A number of times the professor asked us "When are people ready to change?" The popular answer: "When you're fear of not changing is greater than the fear of embracing change."   This may be an appropriate answer when you are thinking about how to lead others through change, though it was somehow unsatisfying.  Too much negative emotion for me.

Change brings opportunity - when change occurs, some people lose power (influence, status, etc) and others gain power.  People who embrace change sooner are more likely to share in the spoils.   In a static environment, opportunity knocks only when people above you in the organization move on.  Career progress may be predictable, but it is slow.  So while change may bring stress, it may be your lucky break.