AS THE clamour grows for more regulation to address the corporate failings that led the world into a two-year recession, business schools sense a chance to drive the agenda. By producing academic research that can inform the debates within Washington and Brussels, there is a chance to become relevant once again. But business is also changing its mind about it wants from MBA students. The super-confident, gung-ho leader, that was once their calling card, has fallen out of fashion. So can schools adapt to a changing world? To find out, The Economist spoke to two prominent business deans from either side of the Atlantic: Santiago Iñiguez de Ozoño, dean of Spain’s IE Business school, and Paul Danos, dean of Dartmouth College’s Tuck School of Business in America.
How do business schools remain relevant in today’s changing world?
AS THE clamour grows for more regulation to address the corporate failings that led the world into a two-year recession, business schools sense a chance to drive the agenda. By producing academic research that can inform the debates within Washington and Brussels, there is a chance to become relevant once again. But business is also changing its mind about it wants from MBA students. The super-confident, gung-ho leader, that was once their calling card, has fallen out of fashion. So can schools adapt to a changing world?
To find out, The Economist spoke to two prominent business deans from either side of the Atlantic: Santiago Iñiguez de Ozoño, dean of Spain’s IE Business school, and Paul Danos, dean of Dartmouth College’s Tuck School of Business in America.
Has the role of the business school changed as a result of the economic crisis?
Santiago Iñiguez de Ozoño: Actually management is very much demanded these days. Management is everywhere. All our universities are demanding programmes in management from many different quarters: for engineers, for doctors, for architects.
But some things have changed. The presence of the visible hand [of regulation] is now more explicit. This means that business schools may have a role in preparing members of governments and the administration. The collaboration between the public and private is becoming one of the fastest growing areas of business schools.
We also see more demand for entrepreneurship courses. In times of crisis managers need to reinvent their existing businesses, launch new products and diversify. But also there are many opportunities for the creation of new business—start-ups in fields like technologies, biotechnology, in energy, even in education.
Then we also see some things changing at business schools. We field the demand from the real world to develop research which can actually address the real problems of business. This will probably affect the profile of professors. Not only must they be solid in terms of their research skills and teaching skills, they should also be able to interface with the top management.
Have you seen a change in what professors are researching over the last two years?
Paul Danos: Research grinds slowly. Let's take a marketing professor who's an expert on internet marketing. Well that hasn't changed because of this crisis. Some people say "everything has changed," well it's not true. Most of the courses that we teach MBAs have not changed because of the crisis.
I think the change has come at a higher level. It's the level of: can leaders be made to be both responsible and analytical enough to understand the complexity of the world? And why did the leaders, the regulators, the CEOs and the board members miss these risk factors? Well you can debate that but it doesn't change everything. It doesn’t even change everything in finance. Finance is primarily the same as it was before the crisis. When you get to a higher level though, when you start asking CEOs and board members to contemplate their responsibilities, then you have to think about it in a different way. So it's subtle, nuanced.
Santiago Iñiguez de Ozoño: This brings me to another thing that many of our schools are currently contemplating: that all the areas evolve over time. So in finance, as Paul was saying, the golden rules are still valid. But the institutions, the concepts of risk, the ways of assessing risk have evolved in the past years. We need people to come back to school. Managers cannot just rely on what they learned 30 years ago in their MBA programmes. This is a clinical profession like medicine, like architecture, where you need to update your knowledge. So something that may come out from this crisis is the need of managers to come back to school and update their knowledge and validate what they do in the real world.
Paul Danos: I think one thing I've walked away from the crisis with is that no-one can know it all. You need the right kind of probing mindset when you attack problems of such complexity because no one could have ever seen the combination of factors before. So it's not the understanding of every eventuality—which is impossible—it's the right mindset.
So at Tuck we have instituted a whole series of small scale, deep courses where students are forced into that sceptical mindset of truly questioning the foundation of theories. Now that sounds esoteric, but it's really practical.
My main takeaway was not that it was an ethics problem, not that people were cheating overtly, it is that people were using the wrong mental attitude when they approached extremely complex problems that they hadn't seen before. Practice can hypnotise you into using old models and old ways of thinking. When you talk to people about the risk management systems in the big banks and at the Fed and at the regulators, it's amazing how they put together old models and old ways of thinking and tried to lay it on top of a new system.
So it proved that they weren't doing it right; they just didn't have the right mental attitude about the models and how they worked and how they hooked up. So we're trying to reinvestigate that.
Does that imply that schools have historically failed to inculcate that attitude in their students?
Paul Danos: The crisis was not caused by the broad 90% of our students who went into businesses. It was caused by the dynamics of the interplay between big banks and the regulators. Now you might say [that] those are business people too and they were trained at business schools. True, but ordinary corporations didn't do what banks did. I'm on boards of corporations and we weren't blinded, we weren't 40-to-1 leveraged. So this particular virus was in the banking system, and I think it can be analysed. I really think, at the end of the day, even though the banks themselves were irresponsible, the real irresponsibility was with the regulators because when everything else fails, the regulators are supposed to keep things safe and keep people from doing unsafe things and they didn't do it.
Can business schools exert any leverage over regulators?
Paul Danos: I think so. We have a group at Tuck right now that is made up of several schools—finance professors and economists—and they are writing white papers on many aspects of regulation. So they, as an independent party, are trying to get their voice into Washington and into Europe about the future of regulation and the future regime. They are able to get into congressional and other hearings, but it's just one voice. You know how politics is: there are many voices and lobby groups trying to influence the future of regulation.
Santiago Iñiguez de Ozoño: My impression is that we still need to develop many new things in financial theory and the way we assess risk. Again, we are attending the early stages of these sciences. If you look at medicine 200 years ago and the remedies that were applied to some illnesses we get horrified now. So we will probably see some changes and here academics are actually paying the best possible service to society. Again, now we need good management. We need to recover the golden rules of what is good management, what is establishing the mission for a company. And from business schools I think we can train regulators because they need a very solid technical preparation that they lack. If you look at public administrations, people in both national, local and federal administrations, they need more preparation in finance, in management in order to take better decisions.
Paul Danos: For instance, we're doing a lot of work with healthcare delivery which is a big, important topic. If you talk to people who try to deliver healthcare, one of the biggest problems is that there's very little management education. I'm not talking about high-level finance, I'm talking about the basics of budgets, of cost containment, of deficiency. Very little of that is part of the medical-school training.
I think that in every aspect of society some amount of management education is necessary in order for those institutions to deliver the services that they intend to deliver at a reasonable cost.
Is the nature of leadership changing?
Paul Danos: If you looked at the top-level demand from executives for our programmes, it's almost all about leadership. And it's really interesting how it has evolved. So much is now focused on a teamwork-based leadership model that really emphasises self-awareness. It's a very humanistic philosophy. It's not the person that charges ahead and rallies the troops. It's more of a person that is sensitive to the situation and to themselves.
Santiago Iñiguez de Ozoño: It is a different sort of leadership than the one which has grown in the past decade. It is not charismatic leadership, but teamwork. We will also see in the future many institutions getting rid of this spirit of elitism or arrogance which has contributed to create this atmosphere of overconfidence. They [believed that they] were actually beyond any controls or rules—that Nietzschean moral of the super-masters. We will get back to more controls, the golden rules, more supervision, getting rid of superficial things. History is very recurrent and we are attending again a move of the pendulum.