The article in the url below reports on recent research examining the effects on firms in the U.S. and Denmark following the appointment of a CEO with an MBA. The results are not encouraging. While the researchers find that profits (specifically, return on assets) increase over the subsequent five years, it is not because the CEOs are necessarily making their organization either more profitable, or more effective:
"The authors look at newly appointed CEOs in America and Denmark. They find those with MBAs increase returns on assets in the five years after their appointment—by a total of three percentage points on average in America and 1.5 points in Denmark. But that is not because they boost sales, ratchet up investments or raise productivity. Rather, the higher returns are the result of suppressing workers' wages, which fall by 6% in America and 3% in Denmark over the five years after an MBA takes charge. In short, ushering MBAs into corner offices seems to boost shareholder value by slicing the pie in certain ways, not by making the pie bigger."
The researchers place the blame for this effect squarely on business schools:
"The researchers put this phenomenon down to change in business-school syllabuses. MBA programmes, [say the researchers], have over the years grown less focused on technical aspects of finance and management, and more obsessed with maximising shareholder value and corporate leanness. The result [they] contend, is that workers have increasingly been seen as 'costs to be reduced' rather than an investment in human capital."
This fits with my sense of a drift in the purpose of business schools over the last 50 years, or so. There was a time in the U.S. when the role of manager was being talked about in terms of becoming a profession, like a doctor or an architect (see Strategic CSR – A professional). This was when business schools were spreading throughout universities (post WWII) and were being designed to play a central role as gatekeeper in determining who could call themselves a manager (and the MBA degree was going to be the required certification – a license, if you will).
Clearly, that didn't happen, although there is still value for business schools in claiming to be a professional school in the university (as demonstrated by the insistence on marketing "Professional MBA" programs – a great example of deceptive advertising). Instead, we lost that broader educational purpose and, instead, seemingly have dissolved into training as many business students as possible. This is no doubt partly because it is easier to train (than to educate), but also partly because revenue generation has become the primary driver of activity – it turns out that business school faculty enjoy their (relatively) higher salaries.
In short, we have shifted from an emphasis on quality to an emphasis on quantity, and the consequences for the business world (and broader society) have been immense (e.g., see here). In terms of business schools, the result is a loss of the essence of what it means to be a manager/leader. I have recently taken over as director of the Executive MBA program at our school and would like to use the position to try and get back to this core, where what it means fundamentally to be a manager (what it means to manage) is central to a business student's degree.
Here is another relevant article on this topic: https://www.nytimes.com/2022/05/05/opinion/business-schools-capitalism-mba.html
The research cited in this newsletter was also covered in depth recently on the Freakonomics podcast: https://freakonomics.com/podcast/are-m-b-a-s-to-blame-for-wage-stagnation/
Take care
David
David Chandler
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Degrees of unconcern
April 9, 2022
The Economist
Late Edition – Final
51
