MBA – Major Bad Ass?

Are business schools bad for business? I recently came across a very interesting article by the late Sumatra Ghoshal, who blamed business schools for the demise in management practices because they have become obsessed with teaching maximizing shareholder value at the expense of everything else.  In Bad Management Theories are Destroying Good Management Practices he claims that business schools have gone astray because they teach ideology more than they teach theory, let alone good management practices. Are business schools really that bad?

Theories turned ideologies?

Ghoshal questions the very basis for many of the topics taught in business schools, such as principal-agent theory, transaction-cost economics and game theory, among others:

  • In courses on corporate governance grounded in agency theory we have taught our students that managers cannot be trusted to do their jobs – which, of course, is to maximize shareholder value – and that to overcome “agency problems”, managers’ interests and incentives must be aligned with those of the shareholders by, for example, making stock options a significant part of their pay.
  • In courses on organization design, grounded in transaction cost economics, we have preached the need for tight monitoring and control of people to prevent “opportunistic behavior”.
  • In strategy courses we have presented the “five forces” framework to suggest that companies must compete not only with their competitors, but also with their suppliers, customers, employees and regulators.
  • MBA students are not alone in having learned, for decades, these theories of management. Thousands of executives who have attended business courses have learned the same lessons, although the actual theories were not presented to them so directly.
  • Even those who never attended a business school have learned to think in these ways, because these theories have been in the air, legitimizing some actions, de-legitimizing others, and generally shaping the intellectual and normative order withing which all day-to-day decisions are made.

Theories have turned into accepted truths that have turned into ideologies about how business works and how it should be run. Few, if any, have questioned these theories, and Ghoshal puts it quite harshly when he says that

academic research related to the conduct of business has had some very significant and negative influences on the practice of management. These influences have been less at the level of adoption of a particular theory and more at the incorporation, within the worldview of managers, of a set of ideas and assumptions that have come to dominate much of management research […] By propagating ideologically inspired amoral theories, business schools have actively freed their students from any sense of moral responsibility.

Essentially then, if I follow Ghoshal’s train of thought, we have fallen victim to our own theories, or ideologies, and we should not feel so surprised at what perspired at Enron, or the Lehman Brothers for that matter.

What would business be without Milton Friedman?

In particular, Milton Friedman’s postulation that “Few trends could so thoroughly undermine the very foundation of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money as possible for their stockholders” does not go down well with Ghoshal, and I am inclined to agree.

I mean, who can honestly say that companies will not survive and prosper (and perhaps even more so) when they simultaneously pay attention to the interest of customers, employees, shareholders, and perhaps even the communities in which they operate? Luckily, and what bodes well for the future, some academics are in fact beginning to see business management in this light. Unfortunately, they are up against the mighty enemy of mainstream economics which is not yet ready to accept such new ideas.

MBA = Major Bad Ass?

We’ve probably all heard the usual euphemism for PhD, Permanent Head Damage, snd if I follow through on Ghoshal’s thoughts, MBA could be described as Master of Bad Administration, or as some say, Major Bad Ass, which would certainly be in line with Ghoshal’s own perception:

Combine agency theory with transactions costs economics, add in standard versions of game theory and and negotiations, and the picture of the manager that emerges is one that is now very familiar in practice: the ruthlessly hard-driving, strictly top-down, command-and-control-focused, shareholder-value-obsessed, win-at-any-cost business leader.

Maybe not all leaders are like this? I hope so.

Reference

Ghoshal, S. (2005). Bad management theories are destroying good management practices IEEE Engineering Management Review, 33 (3), 79-79 DOI: 10.1109/EMR.2005.26768

Author link

Read online

Related posts

Jan Husdal is an engineer turned researcher turned engineer again and he is now a Resilience Adviser with the Southern Region office of the Norwegian Public Roads Administration (Statens vegvesen Region sør) in Arendal, Norway,

Posted in ARTICLES and PAPERS
Tags: , , ,
ARTICLES and PAPERS
Resilience revisited
resilience
How many ways are there for defining vulnerability and criticality, really? Traditionally, risk matr[...]
Corporate vulnerability
goran-svensson-corporate-vulnerability
Göran Svensson is one of the leading key figures in supply chain vulnerability research and his conc[...]
Supply chain vulnerability and resilience
francesco-longo-supply-chain
Today's post is a review of a conference paper written by Francesco Longo and Tuncer Ören in 2008 an[...]
BOOKS and BOOK CHAPTERS
Book Review: Supply Chain Risk
brindley-supply-chain-risk
This book, Supply Chain Risk, is from 2004 and edited by Clare Brindley of the Manchester Metropolit[...]
The Definition of Agility
agile-enterprise-goranson
Although getting close to 20 years old now, The Agile Virtual Enterprise: Cases, Metrics, Tools, wri[...]
Book review: Cost-Benefit Analysis: Theory and Application
cost-benefit-analysis
I really enjoyed reading Cost-Benefit Analysis: Theory and Application by Tefvik Nas.  I used this b[...]
REPORTS and WHITEPAPERS
Analysing road vulnerability in Norway
bow-tie-f
How does the Norwegian Public Roads Administration NRPA assess the vulnerability of the Norwegian ro[...]
When disaster strikes...
bridge-collapse
...how does the transportation network recover? And why are transportation networks so essential to [...]
Supply Chain and Transport Risk
supply-chain-transport-risk
We are living in a new world of risk that is making this world unprecedentedly complex and challengi[...]