Managers Without Morals

Today comes news that newly-minted MBAs are making more money than ever before, which made it an excellent day for Princeton University Press to host a lunch in New York to plug Rakesh Khurana's new book, "From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession".

I was in excellent company: Justin Fox of Time, Dan Gross of Newsweek, and a brace of reporters from BusinessWeek. The publicist apparently was looking forward to something of a debate, but in the absence of any visible apologist for business schools as they operate today, the lunch turned into more of a very enjoyable Khurana monologue, occasionally punctuated by questions from the assembled hacks.

Khurana's thesis is more or less encapsulated in his book's title, and a lot of the discussion was centered on the concept of management as a profession – something which a noble non-profit entity such as Harvard University should be proud to teach. This idea is closely aligned with the idea that the liberally-educated Protestant elite, who lost family control of their companies around the turn of the century, would retain control of those companies by dint of the combination of strong management and weak owners (shareholders). Management, in turn, would run the nation's biggest companies not for the sole benefit of shareholders, nor for the benefit of labor, but rather for the greater good of society as a whole.

This idea of the role of management has become delegitimated over the past 30 years (roughly since George W Bush got his MBA from Harvard in 1975), to the point at which MBA students now speak of creating shareholder value as though there were no other conceivable purpose to management. The irony is that the schools those MBA students attend would never exist were it not for that higher purpose; indeed, Yale and Princeton lack business schools precisely because they felt a university to be no place for an entity whose prime raison d'être is to make its graduates wealthy.

Without this higher purpose, business schools have become cast adrift rather. The professors, most of whom do not have MBAs themselves, find themselves more the servants than the masters of their aggressive and ambitious students, who generally aspire to end up in whichever sector will make them the most money. As a result, says Khurana, there is now "an implicit contract between students and faculty: if you don't push us, we won't push you". There is no exam at the end of the degree which tests knowledge or ability, and there's certainly nothing analagous to the Hippocratic oath; rather, business schools have become credentialling factories, advertising themselves on the basis of the wealth of their graduates and the value of the contacts one receives there.

Business-school graduates are not taught that theirs is a moral profession, beyond the standard imprecations that good ethics is good business. They abjure any responsibility for society as a whole, and they justify massive pay packages on the grounds that it's in shareholders' best interests to make sure that management's interests are aligned with those of owners by giving management lots of shares and options. The implication, of course, is that without that kind of bribe, managers can't be trusted to act in the interest of shareholders either.

It's quite a compelling story, although I'm not convinced that business ethics really have deteriorated materially over the past 30 years. I do think that managers are held in lower regard than they were 30 years ago, but that's a slightly different question, and has more to do with the reporting of corporate fraud than it does with morals empirically going down the tubes. That said, I do wonder why it is that MBAs get paid so much money, given that both they and their employers will usually admit that the MBA in and of itself has very little value. After all, as Khurana notes, most business schools have resorted to saying that they're teaching "leadership" – which is pretty much the one thing that no one has yet worked out even how to study, let alone teach.