The Road Ahead

Criticism of MBA programs is almost as old as graduate business education itself. But in the aftermath of the worst financial crisis since the Great Depression, it has also led to a more meaningful debate over what business schools need to teach.

It’s been a tough year for the financial markets. As the world economy begins to show signs of recovery from the worst economic crisis since the Great Depression, critics have assigned blame, and business schools have been among their targets.

Dozens of stories have appeared online and in major newspapers and magazines over the last year, all contemplating whether MBAs—and by extension business-school training—bear some responsibility for the financial meltdown. The question inevitably leads to a more meaningful debate, one that business educators have been contemplating for some time: How should business schools change their curricula in response to the crisis?

Many schools have reacted predictably, by adding or expanding required ethics courses. Tuck’s approach has been different. First, its curriculum changes have not been reactive; they were under way more than a year before the financial crisis struck. The changes, part of Tuck 2012, the school’s five-year strategic plan, are rooted in the strength of the Tuck faculty. Chief among them is a series of Research-to-Practice Seminars boasting extremely small class sizes and unprecedented critical rigor. These second-year courses are made possible by Tuck’s high faculty-to-student ratio, which the school is committed to further improving with the addition of 10 new professors. The plan also includes an increased emphasis on leadership development, with a new core course and the inclusion of leadership activities throughout the MBA experience.

An ethics and social responsibility requirement is part of the changes as well, though Dean Paul Danos notes that ethics in the classical sense—of knowing wrong from right and choosing the latter—was not a major factor in the financial crisis. Rather, he contends that leaders did not fully embrace their responsibilities. That, in combination with an increasingly complicated business environment and the contagious enthusiasm for bubble-time profits, contributed to the crisis.

“The lesson you learn is that it takes more than what I would call conventional ethics to be a responsible leader,” Danos says. When firms are committing enormous sums based on complex risk models and insuring them with byzantine counterparty agreements, leaders must understand completely the risk to which they are exposing their firms and by extension the whole society. “The important thing is that you have to keep up, and if you can’t keep up, you have to make a choice: ‘Either I slow the process down or I get more educated about this.’”

In the run-up to the financial crisis, very few business leaders had the confidence to apply the brakes. In a May speech to the Association of MBAs International Conference for Deans and Directors in Montreal, Danos said that the key players in the crisis couldn’t fairly be accused of blatant ethical misconduct, yet many acted irresponsibly. “Some regulators and business leaders did misinterpret their duties, did not keep up with the latest knowledge, misused models, were not brave enough to demand full explanations, and engaged in other behaviors that were, while perhaps not overtly unethical or unlawful, certainly irresponsible.”

The key parties in the financial crisis suffered from two major deficiencies related to business education, he explains. First, their understanding of ethical behavior was too limited. And second, they lacked the training and mindset to perform the critical analysis that a broader embrace of their responsibilities would require. Danos urged his colleagues to expand their schools’ definitions of ethical leadership and to add courses—particularly small-scale seminars, to help students develop a critical-analysis mindset.

The speech created something of a stir at the conference, where other speakers urged more emphasis on conventional ethics and societal responsibility. “I said that, in addition to an appropriate emphasis on ethics and social responsibility, we need to do more in-depth contemplation about the basis of our knowledge. And I think that hit a nerve,” Danos says. “The problem with implementing this is that it’s very expensive to do these small-scale seminars, and it just doesn’t meet the business model of most schools in the world.”

Tuck Senior Associate Dean Bob Hansen chaired the Tuck 2012 Access to Faculty Task Force, where the Research-to-Practice Seminars germinated and took shape. As part of that process, the Parthenon Group did benchmarking and discussed the project with leaders at other top business schools. While a handful offer seminars with fewer than 20 students, only Tuck combines very small classes, original faculty research, and an emphasis on critical analysis. When the consultant’s report came back, Hansen recalled being particularly struck by one response from another school. “‘It’s a great idea. We’ve talked about it, and I know others have, but most places can’t pull it off. Tuck probably could.’”

Tuck has three critical ingredients that make these unique seminars possible: An exceptionally high faculty-to-student ratio; a faculty who are both leading researchers and enthusiastic educators; and what could be described as the Danos Doctrine—a recognition that an increasingly complex business world demands more varied and different skills of its leaders.

Today’s executives are confronted with a large and ever-expanding body of potentially contradictory information—a paradox of more data but less understanding. To thrive in such an environment, business leaders require the skills to develop a deep understanding of that data and make effective use of it.

The Research-to-Practice Seminars are a key piece of Tuck’s strategy to provide those skills to its students. They probe deeply into a specific management topic, giving students a forum in which to hone their research skills. The seminars also offer a profound exploration of professors’ core areas of research. This approach, coupled with small class sizes, provides students with insight into the way in which faculty go about the knowledge-creation process.

The seminars rely exclusively on research-based materials; they do not rely on case studies, textbooks, or other sources of distilled knowledge. The goal is to teach MBA students to be critical and intellectually skeptical—to test ideas against both theory and data. Hansen says that conditioning students to think in such a way—to relentlessly and rigorously question the claims and evidence presented to them—ultimately leads to a fuller understanding. “When put to such intellectual testing,” adds Hansen, “wrong and even unethical claims will normally get weeded out.”

Rafael La Porta, Noble Foundation Professor of Finance, led the first seminar, an examination of international entrepreneurship, during the 2009 winter term. During the spring term, organizational behavior professor Judith White led a course on managing the effects of a diverse workforce, and Hansen led an investigation of the credit crisis. Six more seminars are scheduled for the current academic year.

Small class sizes and close interaction with faculty are two signature strengths of Tuck. The Tuck 2012 strategic plan aims to improve this ratio still further and has remained true to that commitment despite the economic downturn, signing four new professors this year toward a goal of a net increase of 10 new faculty—all without any corresponding increase in the student body.

“We’ve chosen to focus on the MBA, limit the number of students, and maintain a high faculty ratio,” says Assistant Dean Penny Paquette T’76. “With the right kind of faculty—professors who are research-oriented but also interested in imparting their knowledge and skills to students—we have the opportunity to make this program reach new heights,” she says.

The school’s business model supports that strategic choice. While many business schools rely on tuition or executive education programs as major income sources, Tuck concentrates on the MBA program and relies more than most on alumni generosity. That allows Tuck to deliver on its core strategic promise: unprecedented student access to faculty who are leading thinkers in their fields.

“You’re taking a top faculty member and putting them in with 12 students,” Hansen says. “Well, other top MBA programs may have 80. Do you want to look at the economics of teaching 12 students versus 80?” Elective classes at the 15 elite business schools that the Tuck consultants surveyed averaged 43 students. Tuck averages 34 for its mainstream electives; the new seminars are designed for between eight and 12 students.

Hansen believes that the intimate nature of these seminars will make them the pinnacle of many students’ business-school experiences. Andy Cronin T’09, took Hansen’s seminar on the credit crisis last spring and came away with far more than a deep understanding of the meltdown. He lacked the banking-industry experience of many of his classmates in the seminar but ultimately found that the shortcoming enriched his experience. “The humility of not knowing a lot about the topic actually turned out to be a very powerful factor in the sense that it forces you to ask questions about things you don’t understand,” Cronin says. “Once you ask those questions, then you can start to create solutions. And that’s what leaders do.”

Hansen too found his credit-crisis seminar a learning experience. He had planned to teach a seminar about his research specialty, the economics of auctions. But with the credit crisis in full swing, he felt there was no better subject to study in the spring of 2009.

The prospect was somewhat daunting. Like a CEO confronting a rapidly shifting business environment, Hansen had to lead his students through a deep analysis of the crisis as it was still unfolding. There could be no better training for young business leaders, but it wouldn’t be easy for anyone. Tuck students bring a lot to the table, and Hansen encouraged a no-holds-barred environment in which everyone’s analysis—including his own—would face rigorous scrutiny.

“That’s the way we do our research. We present it to our peers in a workshop, and they tear it apart because we’re searching for the truth,” he says. It is a mindset that was sorely lacking in the years and months before the credit bubble burst.

“It’s not enough to accept that the securities are triple-A rated,” Hansen says. “If the investment-banking world had been subjected to that kind of scrutiny, I don’t think we’d be where we are today.”

MBA programs have certainly seen their share of scrutiny. Indeed, criticism of the MBA is almost as old as graduate business education, but in the aftermath of the financial crisis, critiques from both within and without have taken a decidedly sharper tone. Even when the popular press undertakes a serious discussion of post-crisis business education, they often lead with tell-all anecdotes about the blind obduracy of prominent CEOs. Less enterprising reporters just compile lists of the guilty parties and their alma maters, like CNN’s “Ten Most Wanted: Culprits of the Collapse” and Time magazine’s “25 People to Blame For the Financial Crisis.”

Still, if business educators deserve any credit for the 25-year run of increased wealth that ended with the financial crisis, they cannot escape some degree of blame for the crash that followed. And so the criticism rained down. Leaving aside the irony of the news media bemoaning lack of depth in another industry, the arguments on which most of these critiques focus—that business schools teach a slavish adherence to the next quarter’s bottom line—were already out of date in 2002, when they were trotted out in response to the Enron scandal.

The internal criticism has been more cogent but no less biting. The last time business schools as a whole took such a hard look at their curricula was half a century ago. That too was in response to a crisis, though a far less dramatic one than the current financial meltdown. As American corporations grew with the postwar economy, they became increasingly dissatisfied with the skills of managers graduating from business schools. In response, the Ford Foundation and the Carnegie Corporation each commissioned studies of business education. Both papers, released in 1959, warned of a lack of rigorous scholarship in MBA programs. The Ford report, written by economists Robert Aaron Gordon and James Edwin Howell, excoriated business schools for their vocational approach and lack of scientific rigor.

The reports sparked a wholesale transformation of business schools. “Schools started delving into research and hiring more research-based faculty,” Paquette says. Fifty years on, she notes wryly, “there are a lot of people saying that that’s the problem.”

The criticism has not always been subtle. Writing in the Harvard Business Review four years ago, Warren Bennis and James O’Toole of the University of Southern California captured the prevailing mood. “The dirty little secret at most of today’s best business schools is that they chiefly serve the faculty’s research interests and career goals, with too little regard for the needs of other stakeholders.”

New research shows that at least one major stakeholder—hiring corporations—does value faculty research, for one very good reason: Research professors teach students how to think. In a comprehensive study of recruiters’ attitudes spanning 57 business schools over 18 years, Tuck marketing professor Peter Golder, formerly of New York University’s Stern School of Business, and Debanjan Mitra of the Warrington College of Business found that MBA recruiters pay higher salaries to students from schools that are increasing their research output. That correlation has become stronger in recent years.

One reason for this is that fact-based knowledge is static knowledge; it soon becomes either a commodity or obsolete. “The best education inculcates dynamic knowledge whereby students learn how to learn. This type of education can never become obsolete,” Golder and Mitra wrote in Business Week. “And experts in this process of knowledge discovery are professors skilled in research.”

Tuck’s emphasis on close student interaction with quality faculty supports the creation of this type of dynamic knowledge, with the Research-to-Practice Seminars representing perhaps the purest example of such learning.

The old complaint that MBAs have become heartless number crunchers no longer bears scrutiny, Danos says, especially not at Tuck. “We have so much on teamwork, so much on leadership, so much on society, and so much on ethics—but we also train our students on the numbers and quantitative analysis.” The future of business education is not a choice between heart and head; it is to bring the two approaches together. Future MBAs need the probing mindset and concrete analytical skills to fulfill Danos’ broader definition of ethical leadership. At Tuck, they’re getting it. “I have learned from the crisis that one cannot know it all,” adds Danos. “But one can have the right critical mindset when confronting a difficult problem.”

“If anything, a lot of MBA curricula have gotten softer than is appropriate,” adds Hansen. “There’s also the pressure to put the latest trend into your curriculum. I think the most important part about this crisis is that you need to understand the fundamentals, and you need to be able to tie the fundamentals together.”

Amidst all the institutional soul-searching, Hansen says it’s important to remember this: “Nothing we’ve been teaching has been proven by this crisis to be wrong.” If anything, it was leadership that was lacking: there were no villains but no heroes either. “I tell my students that if they think of themselves as leaders of the business world in the future, when they see an issue they’ve got to take a stand on it and have the courage to ask the hard questions.”