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Beware the B-School Boys…

… is a tag UD‘s used so much on this blog that she’s decided to make it a Category.

She’s about to use it again.

She’s always warning universities about their business school faculty. Her experience of this group, as she’s come to know it from keeping this her blog, convinces her that though to be sure most of its members are decent and upright, a disproportionate number of them (disproportionate to other faculty, that is) gets in serious financial and legal trouble. UD’s followed any number of stories of B-school professors – and B-school alumni – whose side or primary businesses become quite the embarrassment for their universities.

Take Wharton, at the University of Pennsylvania. One of its most beloved grads, Raj Rajarantnam, has just been arrested in “a $20 million insider trading scheme by federal prosecutors.” He and five others are charged with “using insider information in 2008 and 2009 to trade in shares of companies including Google Inc., Polycom Inc., Hilton Hotels Corp. and Advanced Micro Devices Inc., according the complaints filed in Manhattan federal court today.”

It’s awkward for U Penn. Not only do various fellowships and scholarships have his name on them; Wharton’s admiration of him in alumni publications now scans a bit ironic:

… Managing General Partner of the Galleon Group, Mr. Rajaratnam notes that Wharton was “an important credential” when he founded the company more than a decade ago. He also recognizes the School for helping him to land his first job in financial services, and for the skills he has used to succeed since then.

His experiences at Wharton continue to shape his life—in particular, through the relationships he formed. Having recently celebrated his 25th reunion, he says, “my classmates are among my closest friends and colleagues. A day doesn’t go by that I don’t interact with Wharton alumni.”

For Mr. Rajaratnam, he wished to give something back to “the institution that was so important to me personally and professionally.” In so doing, he is helping to create a community on campus that reflects the global business environment Wharton students are trained to lead.

To be sure, Wharton gave him a credential… Which must have made it easier to do what he is accused of having done. And as for the global business environment, if the charges are true, he has certainly done a number on it.

Margaret Soltan, October 16, 2009 12:10PM
Posted in: beware the b-school boys

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5 Responses to “Beware the B-School Boys…”

  1. Tom Says:

    Wharton has a number of grads that have been embarrassing to the school. The MBA that Wharton awards opens the doors to BIG jobs and BIG careers, where the opportunity to commit BIG crimes is a feature of the workplace.

  2. Ani Says:

    I agree that this is awkward for U Penn — no school likes to see a loyal alum break the law. And his Wharton credential probably made it easier for him to do what he is accused of having done. But are you maintaining that it instructed him how to do it, or failed to inform him of the importance of not doing it? If not, do you still think it is to blame? This seems to treat faculty and grads as being of a piece.

    Perhaps you believe that the business school faculty, of which a disproportionate number (I assume you mean per capita) supposedly get into serious financial and legal trouble, pass on their corruption to the students? Or do you think the faculty are no more unethical than their university peers, but simply have greater opportunity to engage in behaviors with serious financial and legal consequences? The latter sounds more like what Tom is suggesting is true for its grads.

  3. Margaret Soltan Says:

    Ani: Alan Greenspan gave a speech to a graduating class at the Wharton school a few years ago. He noted that despite endless legislation and rules, there’s still significant, high and low profile corporate corruption:

    But recent corporate scandals in the United States and elsewhere have clearly shown that the plethora of laws and regulations of the past century have not eliminated the less-savory side of human behavior.

    Greenspan went on in a vague way to call for more oversight and perhaps yet more legislation; he concluded by saying this to Wharton’s graduating class:

    A generation from now, as you watch your children graduate, you will want to be able to say that whatever success you achieved was the result of honest and productive work, and that you dealt with people the way you would want them to deal with you. … I do not deny that many appear to have succeeded in a material way by cutting corners and manipulating associates, both in their professional and in their personal lives. But material success is possible in this world, and far more satisfying, when it comes without exploiting others. The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake.

    There’s a reason Greenspan felt compelled to give a group of highly educated and no longer very young people this very very basic moral lesson. He spoke at a time of many corporate scandals (there have been, in the intervening years, many many more, and they’ve gone a long way toward destroying our economy and our faith in corporations). He spoke to people he knew perfectly well would – some of them, like Raj – contribute to those scandals.

    My belief is that many business schools, including the one that produced Raj, do little to undermine what Greenspan calls the less savory side of human behavior. Some b-schools positively encourage it. Having claimed Raj with pride as one of its own, Wharton can’t just wash its hands of the man it helped form.

    But no – of course Wharton’s not to blame for Raj. He learned how to be morally corrupt (if he’s guilty) all by himself, no doubt long before he came to Wharton. But Wharton certainly seems to have offered an environment in which his rapaciousness, which made him one of the richest cheaters in the world, found itself at home.

    Business schools, in my experience of them, run the gamut morally. Some do little to offset the notorious link between, as Greenspan says, cutting corners, manipulating people, and financial success. Some offer one or two usually pretty lame courses in business ethics. Some take the ethical problems at the core of free markets very much to heart, and insist that their students think seriously about those problems.

    But for the most part American business schools seem to be faithful reflections — passive reflections, really — of the prevailing operations and moralities of the markets in the world outside their campuses. They have an instrumental, not a reflective or transformative, disposition. They prepare you to interact and compete with people like Raj — important business people.

    I find Greenspan’s speech embarrassing because it pretends there’s a black and white, evil and good world of business out there. Everyone knows things are far more nuanced, and that nice guys tend to finish last ( they don’t always — it just happens an awful lot ). It would be fascinating, and useful, for business schools to get real about what’s going on, in this larger sense, within them, so that every time a prominent Wharton grad flames out and goes to jail for twenty years (as Raj is likely to do), they can do something other than express total shock.

  4. Ani Says:

    Thanks for the exceedingly thoughtful reply. I do think part of the problem is that business schools, because of the subjects they teach and the students they tend to attract and bring together, have over time developed a tendency to facilitate borderline behavior even if they do little overtly to encourage it or even if they actively discourage it. Many, including Wharton, take the business of teaching ethics seriously; at some point the larger problem becomes the difficult of making those principles appeal to students whose minds are elsewhere. It is not unlike the problem of those dealing with the student-athlete.

    I do believe, though, that there is a difference between the tendencies of the average B-school grad and those of the average B-school professor, and I am not sure the transgressions of one have much to do with the transgressions of the other.

  5. Brad Says:

    You may think that business schools have "Business Ethics" courses to teach students business ethics. If so, you’d be sadly mistaken. The purpose of Business Ethics is to keep the business school out of hot water. Wharton’s course has failed its mission. Expect the professor to be called on the carpet. A real risk, in these days of computer-accessed information, is that some smart-aleck, like Tom above, will accumulate data, make correlations, and publish damning articles.

    Who teaches the ethical standards that business students live by, if the students don’t listen to the Business Ethics professors? Business schools find it’s the ECONOMISTS who teach business students that they should know everything, always be rational, and act always and only in their own interest (http://fabrizio.ferraro.googlepages.com/Ferraro.Pfeffer.Sutton.2005a.pdf). The economists Klein and others, in the Organizations and Markets blog (http://organizationsandmarkets.com/?s=Sutton&searchbutton=Go!) offer a riposte. They argue, quite convincingly I think, that the students don’t listen to them either.

    This could be a MAJOR issue for universities. If it can be shown that the students are listening to their professors, acting on that information, and damaging the school’s name ("brand" it’s called in business school) or in any way limiting donations to the school, those professors could get the boot.

    Athletics Departments, as always, are one step ahead. They realize that learning can be dangerous and so discourage attending classes at all.

    Brad

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