[R-G] [BillTottenWeblog] Harvard's masters of the apocalypse

Tue Apr 7 00:00:37 MDT 2009

If his fellow Harvard MBAs are all so clever, how come so many are now
in disgrace?

by Philip Delves Broughton

The Sunday Times (March 01 2009)

If Robespierre were to ascend from hell and seek out today's guillotine
fodder, he might start with a list of those with three incriminating
initials beside their names: MBA. The Masters of Business
Administration, that swollen class of jargon-spewing, value-destroying
financiers and consultants have done more than any other group of people
to create the economic misery we find ourselves in.

>From Royal Bank of Scotland to Merrill Lynch, from HBOS to Lehman
Brothers, the Masters of Disaster have their fingerprints on every
recent financial fiasco.

I write as the holder of an MBA from Harvard Business School - once
regarded as a golden ticket to riches, but these days more like scarlet
letters of shame. We MBAs are haunted by the thought that the tag really
stands for Mediocre But Arrogant, Mighty Big Attitude, Me Before Anyone
and Management By Accident. For today's purposes, perhaps it should be
Masters of the Business Apocalypse.

Harvard Business School alumni include Stan O'Neal and John Thain, the
last two heads of Merrill Lynch, plus Andy Hornby, former chief
executive of HBOS, who graduated top of his class. And then of course,
there's George W Bush, Hank Paulson, the former US Treasury secretary,
and Christopher Cox, the former chairman of the Securities and Exchange
Commission (SEC), a remarkable trinity who more than fulfilled the
mission of their alma mater: "To educate leaders who make a difference
in the world".

It just wasn't the difference the school had hoped for.

Business schools have shown a remarkable ability to miss the economic
catastrophes unfolding before their eyes.

In the late 1990s, their faculties rushed to write paeans to Enron, the
firm of the future, the new economic paradigm. The admiration was
mutual: Enron was stuffed with Harvard Business School alumni, from Jeff
Skilling, the chief executive, down. When Enron, rotten to the core,
collapsed, the old case studies were thrust in a closet and removed from
the syllabus, and new ones were promptly written about the ethical and
accounting issues posed by Enron's misadventures.

Much the same appears to have happened with Royal Bank of Scotland.

When I was a student at Harvard Business School, between 2004 and 2006,
I recall a distinguished professor of organisational behaviour, Joel
Podolny, telling us proudly of his work with Fred Goodwin at RBS. At the
time, RBS looked like a corporate supermodel and Podolny was keen to
trumpet his role in its transformation. A Harvard Business School case
study of the firm entitled The Royal Bank of Scotland: Masters of
Integration, written in 2003, began with a quote from the man we now
know as Fred the Shred or the World's Worst Banker: "Hard work, focus,
discipline and concentrating on what our customers need. It's quite a
simple formula really, but we've just been very, very consistent with it."

The authors of the case, two Harvard Business School professors,
described the "new architecture" formed by RBS after its acquisition of
NatWest, the clusters of customer-facing units, the successful "buy-in"
by employees. Goodwin came across as a management master, saying: "A
leader's job is to create the conditions that enable people to believe,
in their hearts and minds, in the value of what they are doing".

Then just last December, Harvard Business School revised and republished
another homage to RBS - The Royal Bank of Scotland Group: The Human
Capital Strategy.

It is tragic to read now of all the effort put in by those under
Goodwin, from "pulse surveys" to track employee performance to "the big
thank you", a website where managers could recognise individual
excellence in customer service.

Every trendy business school idea was being implemented, it seemed,
while what really mattered - the bank's risk assessment, cash flow and
capital structure - was going to hell. To be fair, neither Podolny nor
the authors of the case studies were finance professors, but it's still
pretty shocking that a school that purports to teach general management
should fail to see the gaping problems at a firm they studied in such depth.

Is there a pattern here? Go back to the 1980s, and you find that Harvard
MBAs played a big enough role in the insider trading scandals that
washed through Wall Street for a former chairman of the SEC to consider
it a good move to donate millions of dollars for the teaching of ethics
at the school.

Time after time, and scandal after scandal, it seems that a school that
graduates just 900 students a year finds itself in the thick of it. Yet
there is remarkably little contrition.

Last October, Harvard Business School celebrated its 100th birthday with
a global summit in Boston. While Wall Street and Washington descended
into an economic inferno, Jay Light, the dean of the school and a board
member at the Blackstone private equity group, opened the festivities by
shrugging off any responsibility.

"We all failed to understand how much [the financial system] had changed
in the past fifteen years or so, and how fragile it might be because of
increased leverage, decreased transparency and decreased liquidity:
three of the crucial things in the world of financial markets", he said.

"We all failed to understand how that fragility could evidence itself in
a frozen short-term credit system, something that hadn't really happened
since 1907. We also probably overestimated the ability of the political
process to deal with the realities of what could happen if real trouble
developed.

"What we have witnessed is a stunning and sobering failure of financial
safeguards, of financial markets, of financial institutions and mostly
of leadership at many levels. We will leave the talk of fixing the blame
to others. That is not very interesting. But we must be involved in fact
in fixing the problem."

You would think after failing on so many levels, the school that
provides more business leaders than any other might feel some remorse.
Not in the least. It's onwards and upwards, with the very people who
blew apart the world's financial plumbing now demanding to fix the leak.

You can draw up a list of the greatest entrepreneurs of recent history,
from Larry Page and Sergey Brin of Google and Bill Gates of Microsoft,
to Michael Dell, Richard Branson, Lakshmi Mittal - and there's not an
MBA between them.

Yet the MBA industry continues to grow, and business schools provide
vital income to academic institutions: 500,000 people around the world
now graduate each year with an MBA, 150,000 of those in the United
States, creating their own management class within global business.

Given the present chaos, shouldn't we be asking if business education is
not just a waste of time, but actually damaging to our economic health?

If doctors or lawyers wreaked such havoc in their own professions, we
would certainly reconsider what is being taught at medical and law schools.

During my time at the school, fifty students were chosen to participate
in a detailed survey of their development. Scott Snook, the professor
who ran it, reported that about a third of students were inclined to
define right and wrong simply in terms of what everyone else was doing.

"They can't really step back and take a critical view", he said.
"They're totally defined by others and by the outcomes of what they're
doing".

A group of people unable to see their actions in the broader context of
the society they inhabit have no business being self-regulating. Yet in
the financial services industry this is pretty much what they demanded
and to a large extent got - with catastrophic consequences.

The happiest in my cohort, which graduated into the rosy economic
conditions of 2006, are now certainly those who went off to do the
unfashionable jobs: a friend who spurned Wall Street to join a
Mid-western industrial firm, and now finds himself running the
agricultural division of an Indian conglomerate; one who joined a
foundation promoting entrepreneurship; one who went into Boston city
government, another who moved to Russia to run a cinema chain.

However, these were the rarities: 42% of my class went into financial
services and another 21% into consulting, both wretched sectors to be in
today and for the foreseeable future.

Applications to business schools in America and Europe are broadly up,
as people search for a safe haven from the recession. What are they
thinking? Many MBA jobs will not be coming back. Students who stump up
more than GBP 60,000 for a two-year MBA can expect a long wait to make
that back.

For those about to graduate from business school, these are grim times.
Financial and consulting firms, which used to soak up two-thirds of the
MBAs from top schools, have all but vanished from campuses. Suddenly
jobs in government and at nonprofit organisations are in hot demand from
students who used to consider them laughably underpaid.

A dose of modesty among MBAs and business schools is long overdue. But
it's not going to come from Harvard. Light, told his audience in
October: "The need for leadership in the world today is at least as
great as it has ever been. The need for what we do is at least as great
as it has ever been."

A bold claim to which many might say: please, spare us.

_____

Philip Delves Broughton is the author of What They Teach You at Harvard
Business School (2005), published by Viking at GBP 12.99. Copies can be
ordered for GBP 11.69, including postage, from The Sunday Times
BooksFirst on 0845 271 2135

http://www.timesonline.co.uk/tol/news/uk/education/article5821706.ece

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