A Warning to America

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13. Business schools are a huge problem.

I earned my MBA in 1976. At that time, we were taught that corporations had three constituents: the management of the corporation, the workers, and the shareholders. In the decades since I was in school, that has changed to a single focus of increasing shareholder value. Nothing else matters. Corporate managers make decisions solely to keep Wall Street investors hapoy, with a secondary goal of feathering their own nests with huge corporate bonuses of cash and stock. Thus CEOs make decisions that keep stock prices high because it benefits them. A perfect example is the Boeing 737 Max disaster. Boeing managers knew they were taking a risk with public safety and potential deaths, but they did it anyway because they were losing market share to Airbus.

Like many corporations that think they have a guaranteed market, it appears that Boeing was resting on its laurels and not investing in new, more efficient planes. Thus, when Airbus offered a much better plane, they tried to react quickly by bootstrapping new engines on an old design not equipped to handle them. And over 300 people have died as a result. So why could Airbus afford the investment in a new plane and Boeing could not (or did not want to spend the money)? In late 2018, Airbus reported third quarter adjusted operating profit of $3.1 billion, while Boeing reported $6.8 billion. It isn’t that Boeing didn’t have the money, it was their management’s lack of foresight into future needs and investment in new product development, which cuts into operating profits and affects stock prices/shareholder returns and CEO bonuses. Airbus is now being rewarded with new orders at Boeing’s expense, a result of the damaging short-term business decision making driven by Wall Street in this country.

Business schools have done great damage to our country, including the top business schools in the country. With Milton Friedman’s economic theories, the Chicago School of Economics has long taught policies that exist to reward shareholder greed. The Koch brothers have funded any number of business programs at lesser universities to teach the libertarian view of no regulation, no taxes, and little to no government intervention into whatever corporations want to do to increase their profits. I don’t know how we counter this, but we need to start talking about the role of corporations. They are needed because they provide a lot of jobs, and to do that they need to make a profit. The question is how much profit and at what cost to workers and the country as a whole.