Business Schools and their Contribution to Society

Mette Morsing, Alfons Sauquet Rovira

• Publisher: SAGE Publications Ltd
• Year: 2011
• Print ISBN: 9780857023872, 9780857023865
• eBook ISBN: 9781446259955
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Ética empresarial

Business schools are arguably some of the most influential institutions in contemporary society. The research and education they provide set the standard for how future leaders manage local and global organizations - a responsibility requiring continual discussion, development and challenge.

 

This exciting book explores the role of business schools through 3 key dimensions:

- How business school legitimacy has been challenged by the recent economic crisis and corporate scandals;

- How schools contribute to shaping and transforming business conduct; and

- How institutions, past and present, develop their identities to face the challenges presented by the ongoing globalization process.

 

Combining global perspectives from business school Deans, scholars and stakeholders, this book presents a unique discussion of the current and future challenges facing business schools and their contributions to society.

Part 1

HISTORICAL AND
GEOGRAPHICAL
PERSPECTIVES ON
BUSINESS SCHOOL
LEGITIMACY

1	BUSINESS EDUCATION: THE AMERICAN TRAJECTORY

Rakesh Khurana and Daniel Penrice

Harvard Business School, USA

As business education in an academic setting becomes an increasingly global phenomenon, the university-based business school in America remains a unique institution. This holds true despite the fact that the American business school, as it evolved in the post-World War II era, has become the dominant model for business schools in Europe and elsewhere in the world.

Most observers looking at these institutions as they exist today, without an awareness of their differing historical origins and development, would likely conclude that business schools inside and outside of the USA exhibit more similarities than differences. Yet the uniqueness of the American business school lies not so much in the widely imitated strategies and practices it has developed over the last 60 years as in the way that, for more than a century, it has articulated and shaped for the larger society a set of ideas, aspirations and norms concerning business and management. Moreover, the visions and values animating the university-based business school in America – which arguably account more than any other factor for the great influence it has enjoyed in American society – have changed significantly from the era when the earliest schools were founded up until the present day. Thus, the institution that came to be the major influence on business education worldwide in the postwar era is significantly different from the one that preceded it in the first half of the twentieth century, when American and European business schools developed along largely separate lines.

Indeed, as we will argue, the loss of legitimacy with which the American business school is now threatened¹ has resulted from an evolution in which the fundamental ideas and purposes behind its original establishment in the late-nineteenth and early-twentieth centuries have been largely abandoned, both by business schools themselves and by other institutional actors with which they have become linked. If these original purposes – which committed American business schools to producing a public good in the form of a socially conscious business leadership for the nation – still survive at all, it is now mostly, to paraphrase Max Weber, as the ghosts of dead beliefs. As a consequence, in our view, the institution that became the model for business schools in Europe and elsewhere in the postwar years was a significantly diminished version of what had preceded it, while the American business school of today has little to offer by way of answers to the fundamental questions being raised about our global economic institutions in the wake of recent crises. At the same time, we maintain, even though the visions and values that originally animated American business schools have been in retreat for several decades, they offer a path out of the present crisis of legitimacy and towards a renewal of purpose that can ultimately benefit both business education and business itself as global institutions.

Prior to World War II, business education in academic institutions followed one of two models, one German in origin and the other American. The German system arose as the Prussian civil service, responding to the rapid industrialization of the newly united German nation, began a rapid expansion of engineering schools (technische Hochschulen) in the late nineteenth century and then of schools of commerce (Handelshochschulen) at the beginning of the twentieth century.² (Faculties of business and commercial economics were introduced in the universities of Cologne and Frankfurt-am-Main in the early twentieth century, but these institutions were focused primarily on research rather than teaching.) By the early decades of the twentieth century, the German system was thoroughly institutionalized, increasingly imitated in Switzerland, Holland and Sweden, and the dominant model for business schools in all the non-English speaking European nations (Engwal 2009). The American system, by contrast, was the creation not of the state, as in Germany, but of private institutions and individuals including universities, foundations and industrialists.³

The key difference between these two systems of academic business education, inherent in their historical origins, was that the German system assumed a role for the state in the administration of business and of society that, in the American conception, was to be fulfilled by creating an enlightened class of private business leaders. It is critical to note that the university-based business school in America arose in the context of what one historian has called the ‘search for order’ in American society in the last quarter of the nineteenth century and the first two decades of the twentieth century (Wiebe 1967). The disruption of the social order occasioned by the rise of the large corporation in America and its attendant economic and social phenomena was profoundly troubling to the nation’s existing social and economic elites. The appearance, at this time, of a new class of aspiring elites known as managers occurred in a context in which industrialization, urbanization, increased mobility and the absorption of local economies into what was increasingly a single national economy dominated by large corporations had facilitated the deinstitutionalization of traditional authority structures.

In this destabilized context, three institutions – science, professions and the university – offered alternative structures and rationales on which to erect a new social order and create a new class of elites that, their proponents argued, were more suited to changed social conditions. Amid the sometimes violent clashes of interests attending the rise of the new industrial order, science, the professions and the university presented themselves as disinterested communities possessing both expertise and a commitment to the common good. The novel institution of the university-based business school – which made its first appearance with the founding of the Wharton School at the University of Pennsylvania in 1881 – drew upon the prestige of science, ⁴ the professions and the university itself in arguing that management could be conceived as a science and transformed into a profession on the model of the ‘high’ professions of medicine, law and divinity, which had all been part of the Western university from its medieval origins. The traditional professions, and particularly medicine and law as they were being reconstructed in late-nineteenth-century America, provided a rhetoric of social duty that framed business education as possessing a higher purpose than mere ‘moneymaking’, thus rendering it more palatable to academics who opposed its inclusion within the university.

Among the most eloquent spokesmen for the novel idea of business as a profession were several figures associated with the founding and early decades of the Harvard Business School (or the Graduate School of Business Administration, as it was known at its founding in 1908). Harvard president Charles W. Eliot, who approved the creation of the business school, explained his decision by noting that ‘business in its upper walks has become a highly intellectual calling, requiring knowledge of languages, economics, industrial organization, and commercial law, and wide reading concerning the resources and habits of the different nations’ (Eliot 1908; also quoted in Cruikshank 1987: 44). The school’s first dean, the economist Edwin F. Gay, stated that placing the study of business on a firm intellectual footing by grounding it within the university would help develop ‘a habit of intellectual respect for business as a profession, with the social implications and heightened sense of responsibility which goes with that’ (Edwin F. Gay, quoted in Cruikshank 1987: 44). In an address delivered at Stanford University’s business school in 1926 that was later published in Harvard Business Review, Gay’s successor, Wallace B. Donham, showed equal concern with producing business leaders who could be called professionals, individuals who appreciated the dignity and worth of their occupation as well as the social responsibilities that accompanied it:

The development, strengthening, and multiplication of socially minded business men is the central problem of business … Moreover, it is one of the great problems of civilization. Discontent with the existing condition of things is perhaps more widespread than ever before in history. The nation is full of idealists, yet our civilization is essentially materialistic. On all sides, complicated social, political, and international questions press for solution, while the leaders who are competent to solve these problems are strangely missing. These conditions are transforming the world simultaneously for better and for worse. They compel a complete reappraisal of the significance of business in the scheme of things … The business group largely controls [the mechanisms placed in society’s hands by the development of science and technology] and is therefore in a strategic position to solve [the resulting] problems. Our objective therefore, should be the multiplication of men who will handle their current business problems in socially constructive ways. (Donham 1927: 24)⁵

From these ambitious beginnings, business schools multiplied rapidly in American universities from the beginning of the twentieth century until the Great Depression, ⁶ an event that only compounded the widespread sense that the nation suffered from socially irresponsible business leadership. The professionalization project in American business education faltered during the 1930s, however, and was deflected significantly from its original course after the end of World War II. Although the postwar years saw an explosion in enrollment in American colleges and universities, and in business programs in particular, American business schools in this era took a decisive turn in the direction that the Wharton School’s sixth dean, Joseph Willits, had foreseen in the 1930s when he asked: ‘Have we not put too much emphasis on turning out business technicians alone, and paid too little attention to the development of business men with a sense of statesmanship …?’ (American Association of Collegiate Schools of Business 1934).

The new intellectual orientation of the post-World War II business school in America arose from three momentous developments: the emergence of the new organizational society that came out of the war; the concept of the rational manager that accompanied the latter development; and the rise of a reform movement in American business education spurred by the intervention of two large private foundations, the Carnegie Corporation and – even more significantly – the Ford Foundation.⁷ The successful Allied war effort was widely viewed in the USA as a triumph of American organization, planning and management rather than just a feat of arms. In the postwar era, what the sociologist Richard Scott has called ‘organizational society’ – a societal order characterized by large government agencies and the birth of a new and soon dominant form of business corporation, the conglomerate – had the effect of increasing the importance of management as a social function and of producing a more rational, technically rooted conception of professional management than had existed prior to World War II. The emergence of the Soviet threat and the onset of the Cold War, moreover, made the development of large cadres of highly skilled managers a national priority, considered to be as important to the struggle against communism as the nation’s managers and planners had been in the defeat of fascism.

It was a widespread belief that American business schools lacked the necessary intellectual rigor that, along with Cold War fervor, motivated the Ford Foundation to spend what would eventually come to over $35 million to remake business education in the USA in the 1950s and 1960s. This concerted effort to transform American business schools was driven by a two-part premise about how best to increase the intellectual quality of business education and to make the field truly ‘professional’. First, the reasoning went, business schools must increase the proportion of faculty with doctorates in existing academic disciplines, primarily the social sciences and various quantitative fields. Second, business school faculty and MBA students must be extensively trained in quantitative analysis and the behavioral sciences. The new emphasis on hiring business school faculty from the quantitative disciplines dovetailed perfectly with the new conception of the rational manager that came out of the American war effort and became established in the corporate world by the rise of the conglomerate form of organization. The appearance of the postwar industrial conglomerate, with its multiplicity of managers increasingly removed from hands-on operations, increased the seeming applicability to corporate management of sophisticated quantitative tools developed during the war. As a result of their profit-maximizing orientation and because, in the conglomerate form of organization, a single executive was often responsible for 10 or 12 different businesses, corporate management in these companies devalued concrete, industry- or firm-specific knowledge and skills in favor of the newer, more abstract and analytical tools and techniques that could be applied without regard to industry distinctions. Conversely, the human relations model of management from the 1930s, with its emphasis on interpersonal skills and motivation, felt less and less suited to the conglomerate environment.

In the Ford Foundation’s program for the remaking of the postwar American business school, the first major testing ground for this new approach – which organizational scholars have called ‘systems rationalism’ or the ‘Carnegie perspective’, but which can also be described as managerialism – was the Graduate School of Industrial Administration at the Carnegie Institute of Technology in Pittsburgh, Pennsylvania.⁸ For the purpose of tracing the evolution of the visions and values that have historically underlain the university-based business school in America, the key point is that the Carnegie perspective emphasized one side of the older ideal of professionalism in business education, technical expertise, at the expense of the other, which was about producing what Wallace Donham had called ‘socially minded business men’. In the last three decades of the twentieth century, however, American business schools would largely abandon both professionalism and managerialism as defining conceptions in favor of a new ideology that amounted to the antithesis of such ideas. By the 1970s, as the postwar economic boom in the USA began to come to a halt amid a series of economic shocks, the system of managerial capitalism that had prevailed in the 1950s and 1960s gave way to a new investor capitalism that both influenced and was influenced by intellectual developments within American business schools.

In the 1970s, while many talked about the American corporation being squeezed by high oil prices, new foreign competition, or excessive regulation, other Americans were becoming more sceptical about attributing all of the problems affecting the nation’s corporations to such exogenous factors and began to blame corporate managers themselves – and, specifically, many of the management techniques put in place as a consequence of the business education reforms of the 1950s and 1960s – for the lackluster performance of their companies and of the economy as a whole.⁹ Yet not all of the critics of the American corporation in the American business school of the 1970s and early 1980s put the blame for poor corporate performance on the new management techniques. A second camp within American business schools implicated managers in the context of a sweeping critique of what University of Chicago economists Raghuram Rajan and Luigi Zingales have called ‘relationship capitalism’, a system of managed competition enforced through a mixture of government policy and informal cartelization that obtained in the USA in the postwar era (Rajan and Zingales 2004: 238–43).

This group of critics – consisting mostly of economists and policy makers, many trained in the free-market tradition of the University of Chicago – was doubtful that the problems facing American corporations could be solved either through voluntary restructuring or by adopting the industrial planning and industrial welfare policies of Japan or Germany. They also argued that managers would not voluntarily reform. The solution to the problems of American competitiveness, in the view of the Chicago School critics, entailed not only minimizing the government’s role in the national economy but also – in an argument that stood Alfred Chandler’s famous thesis about the ‘managerial revolution’ in American business on its head – preventing managers themselves from standing in the way of the efficient operation of competitive markets.

In particular, business school economists such as Michael Jensen and William Meckling, propounding what they called agency theory, argued that the lack of an active market for corporate control had contributed to a lack of corporate discipline and managerial accountability. Ultimately, the agency theorists argued, the answer to poor corporate performance was to monitor managerial behavior and rely more on markets, both for the regulation of the overall economy ...

Table of contents

• Cover Page
• Title
• Copyright
• CONTENTS
• NOTES ON CONTRIBUTORS
• ABOUT CEMS
• FOREWORD
• PROLOGUE: BUSINESS SCHOOLS AS USUAL?
• PART 1:HISTORICAL AND GEOGRAPHICAL PERSPECTIVES ON BUSINESS SHOOL LEGITIMACY
• PART 2:TOWARDS A NEW LEGITIMACY FOR BuSINESS SChOOLS IN GLOBAL SOCIETY
• PART 3: BUSINESS SCHOOLS’ ROLE IN SHAPING AND TRANSFORMING ETHICAL BUSINESS CONDUCT
• EPILOGUE
• Index