“Why did all the smart people miss the coming of the financial crisis?” That was the question posed repeatedly over the past few years. All the MBA bankers and equity managers, formerly regarded as seers of the stock market, have been exposed as the multimillionaires with no clothes- and, after their testimonies denying blame for themselves, with no shame either. Overseeing the buildup to the crisis was George W. Bush, Harvard MBA. Is the MBA just a cheap useless piece of trash that apparently has taught these wizards of our economy nothing?
I have recently read Ahead of the Curve: Two Years at Harvard Business School, a memoir written by former London Daily Telegraph writer Philip Delves Broughton about his experience at HBS. He has a generally positive view of the classes offered, noting that although it verged on the overly theoretical at times, the classes (especially finance) were mostly focused on real-life cases and scenarios on which students apply their business know-how. Indeed, HBS’s famous case system, and MBA curricula in general, is more geared toward everyday use and application than graduate disciplines in, say, economics or English. Cleary, the MBA’s should have been up to day with the realities of the financial markets, and the classes should have given them the tools to recognize the balance sheet, er, imbalances that led to the implosion of the mortgage and larger financial markets.
Broughton’s most pointed critique of his time at HBS is what I precisely believe to be the cause of their lax oversight of mortgage market reality. He questions whether it was wise to allocate so much financial power to “a single, narcissistic class of spreadsheet makers and PowerPoint presenters.” Among the situations he observed were an orientation speech describing how being admitted to HBS meant that the students had “made it” in today’s society, corporate speaker after speaker who spent 100+ hours on the job with no family life to speak of, and a business school that seeks to “educate the leaders of tomorrow’s world” when all they were producing were bankers and consultants that were driven by money and naked ambition. The top MBA programs, he observed, tend to produce too many overstressed, arrogant businessmen and women in a few limited fields.
It’s not hard to connect the dots between this attitude and missing the signs of the housing bubble. When times were good, and stocks and home values were rising, the MBAs’ arrogance naturally made them assume that the times were good because they were running their businesses like the geniuses they thought they were. They were the crème de la crème of society, and they were on top of the world. What can possibly go wrong under their watch? This was the attitude taken by all players in the financial industry, from the top MBA bankers running the show to the regulators and Fed unwilling to go after the successful to the general public who assumed that Ivy League graduates always knew their stuff.
Of course, the watchman who slacks off eventually lets one get past him. And so the bursting of the housing bubble caught everyone by surprise, leading to the ruin of many major banks and the bankers’ credibility. Yet the bankers still insisted they had done no wrong in the financial crisis; Goldman Sachs CEO Lloyd Blankfein even went as far as to say that his company was doing “God’s work.” The arrogance and refusal to accept wrongdoing is endemic in many such financial companies chock full of top MBAs- while Blankfein doesn't have one, his CFO was a Harvard MBA student.
It is not the course material of an MBA curriculum that is the program’s weakness, but the attitude of superiority it tends to instill in people. If the MBA bankers were not so blinded by their own perceived excellence, more of them would have spotted the worrying lack of equity to cover bad mortgage loans. MBA programs, especially those at the top, need to reevaluate their individual cultures to make sure that they are not breeding grounds for arrogance. As for the rest of us, this is a good illustration of the downfall of overconfidence. In an uncertain economic environment, being too sure of yourself can be dangerous.
