Is Wharton Ruining American Business?

[David Farber <dave () farber net>]

Begin forwarded message:

From: Maureen Tkacik <mo () phillymag com>
Date: May 31, 2005 2:28:54 PM EDT
To: dave () farber net
Reply-To: mo () phillymag com


The headline is a bit much -- I didn't write it -- but I thought you  
might
enjoy a bit of an anti-MBA rant:

http://www.phillymag.com/ArticleDisplay.php?id=569

Is Wharton Ruining American Business?
by Maureen Tkacik
From the June 2005 issue.

The sun had just begun to set on the verdant acres of the Iroquois  
Springs
Camp in Rock Hill, NewYork, and the air had filled with the smoky  
aroma of barbecue dinner for
500 of the top businessminds in the universe, when the staff started  
acting funny. A gray-haired
woman was running toand fro in a panic, crying out sporadically in  
anguish. Walkie-talkies
static-beep, static-beepedwith alarming frequency. Finally a camp  
supervisor charged through on a
golf cart at what seemedan unusually high speed. Then, sirens.

The prospect of danger seemed nearly impossible after the jubilation of
the day's events, whichhad commenced with an "assembly" of sorts at  
which members of the 2006
Wharton MBA classwere called by their second-year "Leadership  
Fellows" to rise, amidst
deafening applause, if theyspoke more than two languages, had worked  
outside the country, had
completed a marathon, etc.(almost two dozen marathoners rose), and  
continued on to include a complex
water-balloon fight,a kayak obstacle course, the composition of  
special cohort songs, and a
marshmallow roast.
"There's a fire," a khaki-clad Leadership Fellow finally announced,
underwhelmed. Most of theparticipants in the 2004 Learning Team  
retreat seemed as oblivious as if
the sirens had beenblaring back in West Philadelphia. "We need  
everyone back in the auditorium."

Dutifully, the future MBAs, dressed in their green, red, yellow, and  
pink
team t-shirts, returned tothe auditorium's folding chairs. The goal  
of this whole thing, they had
been told eight hours agoby a Leadership Fellow standing on this very  
stage, was to pluck them out
of their "comfortzones." This was not what he meant.

True to form, though, the future MBAs were good-natured; they even  
seemed
comfortable. Thefire — which had ravaged a laundry room a few hundred  
yards down the
campsite and would, laterthat night, seize some bathrooms — ceased,  
for the moment, to smell. After
a quick head count —no one really disappears at Wharton — the class  
of 2006 of the world's
oldest and most esteemedschool of business quickly resumed its  
yammering.


Okay, okay, you get it. MBAs do not put out fires. MBAs often do not  
seem
to notice fires, evenwhen they are raging mere yards away. Hence the  
scandals Enron, WorldCom,
Global Crossing,Adelphia, HealthSouth, AIG. Hence the billions of  
dollars in hidden debt,
the billions more inmade-up profits, that could persist on paper  
quarter after quarter even as
their failure to exist inreality emitted an ever fouler smell.

That is, anyway, the assertion of an increasingly influential batch of
business-school professors,including noted iconoclasts like McGill  
University management guru Henry
Mintzberg and Yaleeconomist Robert Schiller (who wrote that MBA  
curriculums are "so devoid
of moral content thatthe discussions of ethics must seem like a side  
order of some overcooked
vegetable"). Morereasoned types like the late Sumantra Ghoshal of the  
London Business
School, whoseposthumously published Bad Management Theories Are  
Destroying Good
Management Practiceshas roiled the business education world, agree.  
"Business schools do not
need to do a great dealmore to help prevent future Enrons," Ghoshal  
wrote. "They need only to
stop doing a lot theycurrently do."

The attacks come at an already trying time for MBAs, especially those in
training west of theSchuylkill. Wharton has only seen a couple of  
high-profile grads convicted
in the currentcrackdown on corporate greed — IPO king and justice- 
obstructor Frank
Quattrone, and Adelphia'sTimothy Rigas. They're hardly the zeitgeisty  
bunch of Greed Generation
MVPs Wharton becamefamous in the '80s for schooling — junk-bond king  
and ex-con Mike Milken,
corporate raidersRon Perelman and Saul Steinberg, The Donald Trump  
himself. Still, lesser
embarrassments havestung — like '98 dropout Mark Yagalla, who started  
a $50 million "hedge
fund" that turned out toinvest mostly in the young stock-picker's  
harem of Playboy models, or 1998
grad Jeremy Kraus,whose much-hyped ice-cream company, Jeremy's  
MicroBatch, lost millions in
investment moneybefore he shut it down to found a "business  
development" firm the SEC
alleges used boiler-roomtactics to pump its stock.

But the more serious problems at the world's oldest business school,  
which
turns out about 1,000MBAs a year, are the signs of crumbling in the B- 
school industrial complex
it worked so hard tobuild. For years the MBA's importance has been  
perpetuated by a
triumvirate of conjoininginterests — 20-somethings who want to jump- 
start careers, companies that
want to groom them,and schools that want to reap the fees and create  
wealthy alumni. Now the
first two are shrinkingaway: Wharton applications fell 21 percent in  
2004 (and fell again this
year), and since 2000, thepercent of MBAs landing full-time job  
offers has fallen to 83 percent from
near 100 percent.
Then, in October, Wharton was singled out for ridicule by one of its own
when the Wall StreetJournal printed an embarrassing letter, "Are MBAs  
Really Learning How to
Do Things?" The missive,written by Wharton marketing professor J.  
Scott Armstrong, essentially
charged that the MBA is aworthless degree. Relating the pathetic  
responses he'd gotten when he
asked students toanonymously write down what they'd learned in  
previous classes ("I learned
to think out of thebox" was a popular answer), he wrote that MBAs  
"resist learning about
useful managementtechniques. On the other hand, they love jargon. Can  
you say 'strategic
thinking' or 'scenario'?"Business schools, he concluded, "have  
convinced students that they have no
responsibility fortheir learning." Armstrong, it turned out, so hated  
MBAs that he hadn't
taught any in years, butother members of the faculty began to step up  
and concur, to the point
that Anjani Jain, the vicedean charged with overseeing Wharton's MBA  
program, wrote an e-mail to
MBAs reporting thattheir academic performance was falling  
precipitously. Little wonder: They
had admitted in asemiannual "stakeholder survey" that they were  
spending 22 percent less
time on classwork thanstudents four years ago. Alumni began to fear  
for the Wharton "brand," and
wondered aloudwhether the school's precious grade nondisclosure  
policy — a sacred cow
that, in the interest ofgiving MBAs time to work on their "people  
skills," since 1994 has
prohibited students from tellingprospective employers their GPAs —  
might have to be abolished.

But the most humiliating blow to the MBAs came in an episode earlier  
this
year dubbed the "PubControversy." For decades, Whartonites had  
gathered on Thursday afternoons
(there are no Fridayclasses) for a prolonged on-campus happy hour  
"Pub" attended and staffed
by MBAs; in February,however, an MBA imbibed so much that he passed  
out and had to be
hospitalized. The ensuinginvestigation by the school's risk  
management department yielded some
sobering findings —namely, that Pub managers were paying themselves  
$31.25 an hour. "In the
era of Dick Grasso,the one lesson we should all learn is that  
executives should not set their
own compensation,"Dean Jain drily opined in the Wharton Journal. The  
reference to Grasso,
the notorious former NewYork Stock Exchange chief who, with the  
assistance of an oblivious board
of directors, set his ownpay to the tune of more than $188 million,  
was so over-the-top as to
almost seem joking. Butafter hanging around Wharton for most of the  
2004-'05 school year, I had
heard enough from andabout Jain to know he wasn't. He'd simply had  
enough.

Tellingly, in the same Wharton Journal, Jain revealed to the MBAs  
that the
"achievement gap"between their grades and those of the (notoriously  
intense) undergrads who
took the samecourses was widening. It seems that as the MBAs while  
away their years
chatting and schmoozingand drinking to excess, a younger, shrewder,  
more competitive group of
B-schoolers is toilinginto the night, plotting world domination. The  
MBAs, as a group, have the
temperament of DickGrasso's clueless board members, whereas the  
undergrads want to be the
$188 million man.

Ask any Whartonite today what business school is supposed to do, and the
answer you'll get islikely some variation on "Find people jobs."  
There is, after all, no bar
exam for business, no poolof basic knowledge required to succeed in  
it. Steel baron Joseph Wharton
gave Penn the $100,000that founded the school in 1881 in large part  
to advance a curious agenda:
protectionism. ToWharton, who'd made his millions aided by steel  
tariffs, founding the
first school of economicsand finance was a way of preempting the  
spread of a dangerous new
philosophy known as "freetrade." And while Wharton has long since  
embraced free trade as an
economic concept, the MBAdegree it invented has become its own sort  
of tariff, levied by
universities on the aspirations of thewould-be leadership class. The  
MBAs I met were all bright, young (average
age 28), and undecidedabout which industries they wanted to land in.  
The appeal of Wharton was
that this did not seemto matter. As the website advertises, getting  
an MBA is a fiscally prudent
thing to do:

You'll develop lifelong connections and leadership skills to engage the
world … and transformyour career in ways that extend far beyond your  
return on investment.


Excepting the preambulatory niceties, what Wharton is really telling
prospective students is thatthey'll get a return on investment, ROI  
for short, on their degrees. The
term "ROI" has been so co-opted by the B-school industrial complex  
that many websites post
Java-based ROI calculators withwhich students can compare Wharton to  
Carnegie Mellon on their most basic
numerical levels. Butit's imprecise: ROI is more accurately a metric  
used by corporations to
measure the profitability ofa capital expenditure, like the purchase  
of a server or the construction
of a new plant. The MBA isnot a machine, though. Generating a decent  
ROI in an era when tuition and
room and board fortwo years amounts to more than $125,000 requires  
the commitment of years,
sweat and tears to ajob in an 80-hour-a-week field like investment  
banking or consulting;
otherwise, the degree isoften worthless.

More than 60 percent of MBAs become bankers and consultants, jobs for
which the recruitmentperiod can be as exhausting as the work itself.  
So most MBAs, aware of
this and free from mostGPA concerns, seem to spend the rest of their  
two years developing "people
skills" at Pub, pubs,and the 100 MBA clubs. Class, meanwhile, is  
largely devoid of meaningful
discussion. A typicalexample: During a finance lecture with market  
demigod Jeremy Siegel,
Wharton's most popularprofessor, I watched a girl enter words in the  
columns of an Excel
spreadsheet that turned out tobe the steps to a choreographed dance  
set to a Beyoncé Knowles song.
Conversely, studentsappeared rapt at a pre-term career counseling  
seminar called "Succeeding
in Business Today,"developed by Gail Madison, a Hermés-scarved  
Huntingdon Valley woman with
shoulder-lengthhair who despite a lack of business degrees has built  
a successful
business, the Madison School ofEtiquette and Protocol, training  
businesspersons in the manners of success.

Madison began by distributing an etiquette quiz with 38 true-false
questions. No. 33, "It isacceptable to drink alcohol at company  
receptions that usually follow the
EIS (employmentinformation session)," was an emphatic false.

"Test, test, test!" she cried. "It loosens us up, and we make mistakes!"
(It may also be a test,Madison had warned earlier, if a senior  
executive lights up and offers us
a cigarette when wehappen to smoke. "It's not corporate.")

Then Madison lapsed into a series of rhetorical questions. What's the  
most
powerful color suit youcan wear? Navy blue, followed by black, for  
both sexes. (Brooks Brothers
may be boring, but itworks!) What do people look at first after a  
handshake? The feet! (Ladies,
always wear heelsbetween one-and-a-half and two inches. There may be  
industries in which
you can go higher, butplay it safe.) And hair should be short!  
Shoulder or above! If your
religion prevents that, put it up!Dress for the person you would like  
to be! Name card on the right
shoulder! Perception is reality!
In Madison's eyes, the world of the post-MBA held no room for  
relativism,
for humanimperfection, for minor displays of distinctiveness. It  
seemed a grim way
of seeing things, until Iexperienced its inverse, at another optional  
seminar, "Identity Is
Destiny," given by a consultantnamed Laurence Ackerman, who had  
written a book advising corporations to
think of themselvesas human organisms.

"It has been inside me to be who I am since the day I was born, and  
who I
am creates value in theworld," Ackerman told the MBAs. "I get rewards  
in return. Both monetary.
And psychic. ... Whenyou're in alignment with that, Life … Becomes …  
Magnificent."

The student next to me flipped through his cell phone's instruction  
manual.

Ackerman introduced an eight-part PowerPoint tutorial on finding an
identity, from the Law ofBeing to the Law of the Cycle. All was calm  
until He started posing
questions. When a slide flashedonto the screen asking "What is my  
gift?," a long silence followed.
Ackerman elaborated: "How, touse MBA lingo, do you differentiate  
yourselves?"

A slight, curly-haired girl raised her hand:

"I think this question makes a lot of people really nervous. That's why
there's no response to thisquestion. There are a lot of motivated,  
organized people here. I mean, I'm
in the business world.My gifts are gifts that a lot of people have. I  
have quantitative skills."

A guy in a gray t-shirt and Teva sandals he'd spent much of the morning
slipping on and off wasnow moved to step in:

"I'm talented in math and quantitative stuff, but what I really derive
value from is teaching, notdoing all that quant stuff for clients. … "

All the way back in 1977, a Citibank recruiter explained to Forbes  
why the
company recruitedMBAs and paid them so generously: "To hire 300  
people, we'll give over
7,000 interviews — so theefficiency and accuracy of the interviewing  
process becomes very important
to us. … The chancesare the MBA will know the jargon a little better  
and will have sorted out
the question: 'Do I want towrite the Great American Novel? Or be a  
banker?' "

The thing is, a lot of MBAs are still, like the Teva guy, sorting out  
that
question. It did not requireadvanced quantitative skills to determine  
that teaching would not deliver
a suitable ROI on thisman's MBA, but his fate still had not settled  
in. All over Wharton, I
found similar small bursts ofdissent.

A telling moment from an ethics class, Merck case edition: In the '70s,
Merck learned that aveterinary drug it had developed could  
potentially treat African river
blindness, a disease in whichworms embedded in people's skin and  
eyes, rendering entire swaths of the
continent blind.Treating the illness would require Merck to spend  
millions testing and
distributing the drug, withno hope of ROI. Should it do so? Most  
students raised their hands "yes" —
perhaps realizing that"yes" had been Merck's decision — while a  
healthy plurality, looking
flummoxed, tried to explainto the class that Merck had no  
responsibility to save the world, that
maybe if the company hadreceived grant money, it would make sense. A  
male student raised his hand:

"I don't think shareholder opinion should matter at all, for any  
reason,"
he said, in the sort ofidiotic tone with which you would have  
expected him to say something like
"Women should gobarefoot and pregnant."

God bless him, I thought. If any single factor has corrupted American
business, it's the warpedconcept of shareholder "value," which has  
justified everything from
accounting shams to theawarding of hundred-million-dollar bonuses to  
merging AOL and Time Warner.
Most of theseactions are not, of course, in the interest of  
shareholders who hold their
shares for more than afew months, but they, of course, are not the  
shareholders on whose behalf
Wall Street analysts areusually lobbying. That "shareholder value" is  
not a phrase uttered with
the sarcasm afforded to,say, the phrase "vertically challenged" is a  
depressing statement on the
reflective capacity found incorporate America.

No one, though, took the guy's bait. A noisy debate on the concept of
shareholder value wouldhave been interesting, entertaining, and maybe  
even memorable enough to
stick with studentsinto their careers, but no such debate ensued.  
Merck treated the disease;
students exited theroom. "Pharmaceutical companies aren't really  
relevant to what a lot of us
end up doing," onestudent explained to me.

It was little wonder, I thought, that corporations needed dudes like
Ackerman to get them to actlike "humans." The MBA above all teaches  
people to act like corporations,
to follow the path ofhighest ROI. Humans don't know how to act like  
humans anymore. Instead
they are drones,vassals to their massive debt loads for whom  
reflection and critical
thinking are not usefuloffsetting assets.


If Wharton MBAs think of their lives a little too much like CFOs,
undergrads are a bit more like thecustodians of a start-up firm that  
just landed a big investment from
"angel investors" — theirparents. Thus capitalized, they are freer to  
pursue their goals and "find
themselves." However,because their GPAs are available to prospective  
employers, they mostly
find themselves inHuntsman Hall study rooms, running spreadsheets.  
And they love it. "It's a
constant back-and-forth, whether it's good that these kids are so  
driven or bad that they're
sacrificing their 20s,"opines Nicole Ridgway, who covered the job  
searches of seven Wharton
undergrads (average joboffers awarded to a Wharton undergrad: 2.6)  
for an upcoming book, The
Running of the Bulls. "Butsome of them are just really enamored with  
finance ... I've had quite a
few spirited intellectualdebates with them." This confuses the MBAs  
no end. "I just don't know what
it is that drives a 17-year-old to go to an undergraduate institution  
like Wharton," an MBA
columnist mused in theWharton Journal in October. But there was  
something attractive in the
undergrads' determination,an honesty of purpose that was lacking in  
the MBAs. I watched the eyes of
a Wharton sophomorenamed Allison Strouse visibly light up, for  
instance, when she talked
about her first finance class.
"I just really liked it, like the concept of net present value. Every
dollar I get, I think about itdifferently now."

Slim and tan, with silky dark hair and status jeans, Allison looked like
she'd stepped off the set ofThe O.C. (A tip-off, I learned later from  
one of her sorority sisters,
should have been her one-and-a-half-inch mules: "Allison never wears  
flat shoes anywhere but the gym.
It's, like, her policy.")Allison bought her first stock (Coke) at 11.  
It's a precociousness that
has been shared by manyWharton undergrads over the ages, from Warren  
Buffett, who dropped out
after a year in the '40safter concluding he knew more than the  
professors, to the now-imprisoned
Mark Yagalla, to mostof the Wharton undergrads I met as an undergrad  
at Penn in the late '90s.
If Milken had been bornin 1980, I thought, he'd have gone to Wharton  
undergrad, and not bothered
with an MBA. Theundergrads are for the most part nimbler, harder- 
working, harder to relate
to, and — and I don'tmean this in an entirely bad way — greedier. One  
undergrad, back when I
was a student, invitedme to participate in an insider trading scheme  
with the memorable line,
"It's called insider trading,and you can make a lot of money."  
Undergrads seem riper for spectacular
humiliation, or at leastSEC inquiries.

Of course, context is everything. Yagalla and Quattrone both acted  
within
the unique and absurdcontext of the Internet bubble, irrational  
exuberance, IPO madness, stock
options, the worship ofall things young and ambitious. The supposed  
"New Economy." The creeping
fear that it wouldpass one by. The Internet bubble fueled the idea  
that the skyrocketing
stock prices of telecomgiants like WorldCom, Global Crossing and  
Adelphia were the result of some
legitimate creation of"shareholder value" that gave executives  
license to buy planes. And
companies like Enron —corporate slogan: "Ask Why" — profited from  
their encouragement of
employees to buck trendsand ask questions, when in actuality they  
were profiting only because no
one had the curiosity toask where their profits came from.

Money was all around, and money somehow became legitimacy. Frank  
Quattrone
was raisingbillions for companies like Beyond.com and E.piphany that  
never stood a
chance of turning profits,Jeremy Kraus went public, Yagalla raised  
$50 million. Then, of course, the
market crashed,investors got angry, and prosecutors started finally  
asking why.

"There are two reasons for the scandals" to which the business world has
fallen prey, Whartonprofessor Armstrong says. "The first, and the  
less important one, though
it's still important, is thatCEOs steal. The second, more important  
one is 'workers following orders,'
to make the numbersand so forth."

But a lot of people learn to stop asking "why" the day they set foot at
Wharton — because if theydidn't, they'd face the Teva guy's paradox.  
Students who come for vague,
restless reasons — aformer Yahoo marketer, for instance, told me he  
wanted "confidence to make
decisions" — quicklyrealize the MBA is about ROI. What starts as a  
quarter-life crisis ends
with a signing bonus and ajob running spreadsheets; and most of them  
don't enjoy it.

And that is why MBAs — and the business community comprised of them —  
are
to blame for thescandals, the bear market, the layoffs. WorldCom,  
Enron and Beyond.com
were staffed and sold toinvestors by MBAs, grown-ups; people who  
should have known better.

Not that knowing better always helps, as a Wharton MBA blogger explained
in a recent post abouta flight he'd just taken:

Everyone's baggage [emerges] soaked with fuel … Being a former Navy  
pilot,
this is a smell withwhich I am quite familiar. I told them they  
needed to call someone in
charge of maintenancebecause there may be an internal fuel leak. They  
basically replied,
'Whatever dude. Get out ofhere.'

Later, the blogger talks to an airline pilot friend, who confirms that
nothing short of a leak couldhave doused luggage.

All it would have taken is one static electricity spark and that plane
would have gone down in afiery blaze.

On a good note, I have been doing some trading in [the airline's]  
volatile
stock. I was able to buyat about 3.70 and flip it at 7 in less than a  
month. So I can't get too
mad at them right?
At least one reader, posting anonymously, found this a bit callous. I
don't mean to judge, butyou've got your priorities upside down —  
don'cha think? someone wrote the
blogger.
I couldn't get too mad at the MBAs, though. They didn't create the  
system.
Had the blogger beenback in the Navy, where putting out fires is  
serious business, he'd surely
have pressed more. Buthe was at Wharton now, where perception is  
reality, return on investment
is all that counts, andthe only fires worth putting out are the  
sparks inside ourselves. b






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