Is the Harvard Business School the Root of All Financial Evil?

Admittedly, a blog that tends to associate a litany of huge financial failures, from Enron to bundling subprime mortgages as A-rated gold and deciding to bail out the biggest baddest boyz on Wall Street, with Harvard’s esteemed Business School (HSB) has to be suspect when it is written by a Yale graduate, but hey, facts are facts.

First, let’s look to a quote (executive summary) from a paper, released way back on October 13, 2008 (at the HSB centennial celebratory business summit) by Professor Rafael M. DiTella: “The current financial crisis has raised questions about the legitimacy of capitalism. Ethical failures certainly played a role. While it remains to be seen whether and how many people blatantly broke the law, there are abundant signs of various forms of potentially unethical behavior. These include greed, unreasonable amounts of leverage, subtle forms of corruption (such as ratings agencies that appear to have had a conflict of interest), complex financial instruments that no one really understood, and herd behavior where people just followed along and failed to exercise independent judgment.” So Harvard acknowledged early in the game that massive ethical lapses were the seeds that ultimately decimated the nation… and then the world. But which business school had the greatest number of its graduates in capacities of “deciders” in the mess that Wall Street left behind?

How about this mea culpa summarized in the February 3^rd Wall Street Journal: “[Harvard] university caused a stir last week when it said it would significantly revamp its M.B.A. program, adding new required courses with an increased focus on ethics and teamwork. It's an unusual step away from the school's lauded case-study method of teaching and the start of a planned overhaul—made more urgent as the school seeks to restore a reputation tarnished by the financial crisis…The changes are also part of an effort to diffuse what many see as a money-hungry culture that prevails at elite business schools—a culture that some say helped create the recent crisis on Wall Street. ‘The public lost trust in business, and some of our graduates seem to be responsible for that,’ says Nitin Nohria, who was appointed dean of the school in July 2010.” For a number of the senior HSB deciders – investment bankers, traders, CEOs, accountants, lawyers, analysts, etc. – who pretty much ran the Street when those fateful decisions were made, ethics wasn’t even on the curriculum when they attended Harvard.

While there are lots of folks who disagree, “Phillip Delves Broughton, an alumnus of the Harvard Business School, says a procession of Harvard–trained MBAs played starring roles in the economic collapse…. ‘George W. Bush was a Harvard MBA. Hank Paulson was a Harvard MBA. The CEOs of General Electric, Procter & Gamble, the heads of hedge funds, private equity funds [were Harvard MBAs],’ Broughton says.’ NPR, May 17, 2009.” There are those who would add the business schools at the University of Pennsylvania (Wharton) and Columbia University to the list. These days, “all graduates of Columbia Business School must pledge to uphold a Columbia Business School Honor Code, which reads as follows: ‘As a lifelong member of the Columbia Business School community, I adhere to the principles of truth, integrity, and respect. I will not lie, cheat, steal, or tolerate those who do.’” Wikipedia. A few other business schools have their own versions of this new MBA code.

Jeffrey Skilling, Enron’s disgraced CEO who is now serving a 24 year sentence (the US Supreme Court did vacate a portion of his conviction) in connection with Enron’s collapse, was a 1979 graduate of HBS. Henry Paulson (noted above), former Goldman Sachs head (when they pushed the “too big to fail” policy on the SEC) and the Bush administration’s Treasury Secretary widely credited as the architect of the Wall Street bailout, is a 1970 graduate of HSB. Former Merrill Lynch CEO Stanley O'Neal and O'Neal's successor, John Thain are also HSB grads and are also linked to failed banking practices. The majority of HSB miscreants emanated from classes between 1970 and 1985, a rowdy period where finance was more about inventing complicated “derivatives” and selling them to rack up huge profits than such mundane subjects like creating real economic value within ethical proscriptions.

It’s not just Harvard, of course, but a host of elite business schools that pumped out vain-glorious failures who touted new “can’t lose” paths to riches, but themselves created and then followed like sheep Wall Street’s proclivity – still hardly contained to this very day – to invent toxic derivatives and make money at all costs without the slightest concern about ethics or their impact on their country or the global economic scene. It’s our fault for letting them do that to us. But shame on you for screwing me the first time, and shame on me for letting you screw me the second time. There is a movement to stop the regulations that might slightly dissuade such noxious behavior in the future… or at least de-fund the regulators so that they cannot do their jobs. When are voters going to learn that they really can make a difference and elect Congress-people who really can make a stand and a difference?

I’m Peter Dekom, and I suspect I will not be getting any invitations to lecture at Harvard’s Business School anytime soon.