Not business but finance models
Financialized business models sticks to faith based “Market knows best” rule.
…The number of MBAs graduating from America’s business schools has skyrocketed since the 1980s. But over that time, the health of American business has decreased by many metrics: corporate R&D spending, new business creation, productivity, and the level of public trust in business in general.
There are many reasons for this, but one key factor is that the basic training that future business leaders in this country receive is dictated not by the needs of Main Street but by those of Wall Street. With very few exceptions, MBA education today is basically an education in finance, not business—a major distinction. So it’s no wonder that business leaders make many of the finance-friendly decisions. MBA programs don’t churn out innovators well prepared to cope with a fast-changing world, or leaders who can stand up to the Street and put the long-term health of their company (not to mention their customers) first; they churn out followers who learn how to run firms by the numbers. Despite the financial crisis of 2008, most top MBA programs in the United States still teach standard “markets know best” efficiency theory and preach that share price is the best representation of a firm’s underlying value, glossing over the fact that the markets tend to brutalize firms for long-term investment and reward them for short-term paybacks to investors. (Consider that the year Apple debuted the iPod, its stock price fell roughly 25 percent, yet it rises every time the company hands cash back to shareholders.)
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Since the 80s I have called it the attack of the MBAs.
The financial aspect of this attack shown in this article is only part of the problem. The other is that you have people making business decisions that have no real basis in the business they are in. One size fits all. See Six Sigma.
I have not been in a fight or wanted to be since I was in high school. The closest I ever got was when my partners hired a consulting firm(against my wishes) who spouted this six sigma nonsense.
Couple years; couple hundreds of thousands of dollars later; and I was finally allowed to fire them. Nice pie charts though.
Six Sigma is an interesting case of GIGO (the trick is what is the divisor and how relevant is it actually to your business).
But this whole theme is what Chris Dillow (Stumbling and Mumbling) calls “managerialism”. The idea that detached (and often they are increasingly detached) non-specialists have the knowledge to run large businesses. Somehow the market works because prices assemble dispersed knowledge, but large businesses are run by generalists using aggregate statistics, the meaning of which they largely don’t understand.
In my own field (IT) I’m amazed by the repeated rehashing of ideas that have been long abandoned as impractical in the past. The reason they are brought back is they suit the interests of the managers rather than the interests of the firm or their customers. In particular, the idea of compartmentalizing work, so that people are forced to tell other people exactly how to do something even though those people have no idea what they are doing and can’t respond to the unexpected. The manager likes it (because it forces detailed documentation and division of responsibilities) but both the workers (because of poor information flows and loss of control) and the customers (because nobody ever seems to know who is responsible) hat it.
“MBA education today is basically an education in finance, not business”
This is just not true. To earn an MBA students must take classes in accounting, statistics, marketing, public policy, and management, at least. Most take only 3-4 finance classes out of 20. Most of the teaching is by the “case study” method where students analyze real companies’ successes and failures, mistakes and achievements.
Hard to see what else is possible in the US when shareholders have such disproportionate legal rights to the firm while other stakeholders have few formal rights. While broader conceptions of the firm are associated with better performing firms (by measures other than the return to shareholders) periods where these conceptions dominate are brief in the US. Compare to countries with more formal rights granted to other stakeholders and you see a lot less managerialism.
Welcome back there stranger.
When a topic dear to one’s heart appears it brings a smile. MBA degrees awarded since the 1980’s have increased a great deal. For me one can trace the downfall of western society with their ascension. That New Yorker cartoon”Sure we destroyed the world but for a while we created great shareholder value” comes to mind. An elite with too much power and too little competence.
Thanks for the mention run. I’ve been around lurking but I haven’t really had the writing bug in a while so I’ve been quiet. I recently got around to doing a deeper dive into the stakeholder literature, something I’ve been meaning to do for a while, which is why this post resonated with me. I agree with the post’s focus on the financial focus of MBA programs on a philosophical level, though they do require a broader set of courses, but strangely enough it was my MBA program that really got me to think about how negative shareholder dominance is for firms considered as entities separate from their shareholders. Admittedly, I don’t believe this was my program’s intent.
Tz:
I graduated Loyola Chicago with a Masters. I know what you mean. Funny thing though, you had to take a course in ethics. Not sure if it still exists now; but, it did make sense at the time. You start to think a little bit. At the time in the early eighties most people were still tied to one company. I think I graduated in early 1980, 81, 82 just after Reagan broke the Controllers union and companies started to shed people. I had made that statement about shuffling around to different companies and caused quite a stir. I survived as I was experienced in moving around.
When you get the bug to write, let us know. You are on . . .
Run and TZ,
The idea that curriculum matters or has affected the actions of MBAs since the 80s is a waste of time.
As Willy Sutton said when asked why he robbed banks, “that’s where the money is”, so is true of the MBAs of the world.
Regardless if they took statistic classes or Eastern Art History (the worst class in my entire life).
I got my BS in Bus Admin in 81. At the time, an MBA was all the rage. I took a few classes in the MBA school, it was a rehash of what I was taught as an undergraduate for the benefit of the non-business majors. I said forget it and never got one. When I went into high tech sales in the late 80s, I finally learned what was never taught in college. I learned about sales. The strange thing I learned was just how unpredictable sales were and that customers bought on whimsy, the more expensive the sale, the less objective the customer. I swear to God, I have seen really smart people make multi-million dollar decisions that were horrible. One can get a BS and an MBA and never learn one thing about selling, how to manage sales people or even why someone buys something. I was a VP of International Sales for most of the 90s. I once called my alma mater to see if they would let me guest lecture for free to their international business students. Since I did not have a Masters, they said no. At the time, I was VP of AIPAC for Ericsson for Chrissakes.