Glen Hubbard, Dean of Columbia Business School Speaks Out

A recent Business Week piece asked: "Is the MBA Overrated?" Now in business circles that is shocking…

Business Week found that only 146 of the 500 highest paid executives at very large companies had MBAs. A 2002 Stanford study reported that: "What data there are suggest that business schools are not very effective. Neither possessing an MBA degree nor grades earned in courses correlate with career success..." And the quote continues: "And, there is little evidence that business school research is influential in management practice, calling into question the professional relevance of management scholarship."

An even tougher take on business schools came from the Harvard Business Review article by Warren Bennis and James O'Toole saying that "MBA programs face intense criticism for failing to impart useful skills, failing to prepare leaders, failing to instil norms of ethical behaviour- and even failing to lead graduates to good corporate jobs". The reason? The author says it is because too many of their professors afflicted with what they puckishly call 'physics envy' waste too much on time on abstract research lacking real-world value.

I take all these criticisms very seriously. I also acknowledge some truth to them all. Straddling the university and the world of affairs, a great business school should be neither a trade school nor an ivory tower. In a graduate business school, research that leads to changes in practice is useful. Research that merely piles theory on theory can run the risk of losing its punch and pulling the academy apart from the worlds of commerce, industry, and finance that affect all of our lives.

Unfortunately, a deeper critique extends tot he value of business itself. The late Robert Heilbroner, in his classic Business Civilisations in Decline, said outright that capitalism is fatally flawed and must be gradually transformed into a bureaucratic state. That view has since adopted a fresher, more market-friendly vocabulary. But this anti business take is still very much among us.

I disagree with the rising anti-business rhetoric. And I disagree with those who say that business schools are out of touch.

So I am here... if you will, to defend business as a social agent, the academic study of business as way to help it better perform that role, and the MBA as he best vehicle to do that on a large scale basis

The Business of the World is Business
On the value of business: Let me turn to Columbia's own Bruce Greenwald, who wrote a provocative piece noting: "from roughly the period of the Roman Empire until the end of the Eighteenth Century, the average standard of living of human beings failed to increase significantly".

In short, conditions did not change for the human race until an Industrial Revolution was sparked in England in 1750. Why? Because of business institutions.
As a consequence of the Glorious Revolution of 1688, the British government was able to credibly commit to upholding private property rights, protecting wealth, and eliminating arbitrary increases in taxes. These institutional changes gave entrepreneurs the incentives to make investments necessary to make the most out of technological inventions. Though a sophisticated economy at the same time, China, by contrast, lacked the business institutions to allow entrepreneurship to flourish.

What accounts for this extraordinary change? Economists observe that sources of technological change include increases in human capital, to be sure, but also better means of organising and managing production. Greenwald puts it more crisply: "It appears to have arisen largely from the application of sustained management attention to everyday enterprise". In a word, business.

Business has Certainly Transformed Society
At the end of the twentieth century, the management thinker Peter Drucker looked back and wrote that underneath all the was and horrors of that century were important social transformations linked to business. Business not only spurred these transformations through innovation, it also created the material basis for social change. It created wealth that allowed society to adjust to the civil rights revolution of the 1960s as it had during the 1760s and 1860s.

Recent economic research confirms the intuitive prediction that well-functioning financial systems head directly to economic growth.

The Role of Business Schools
I believe there is no task more urgent than for business to apply knowledge to transform financial markets sot convince other countries of the benefits of transparency and openness, and to remind our own opinion leaders here in the United States of the value of basic business principles.

Business schools are up to the task... Entrepreneurs and entrepreneurially minded business leaders are successful not because they set an unchanging goal and then labour to achieve it. Rather, they succeed as seekers looking for many different ways to identify and capture opportunity. Great business institutions enable these seekers. Great business schools focus those seekers.

(The above text is from a University lecture, delivered by Glen Hubbard at Columbia Business School, 9 May 2006.)

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