Friends, Romans, greedy MBAs...

Elite business schools in the US are facing a backlash. What did you teach those stuffed shirts, anyway... Russian roulette??

Bloomberg's Oliver Staley reports: Harvard Business School, stung by criticism that it hasn’t prepared alumni to cope with the economic meltdown, will dissect its performance using a practice it employs to examine corporations in crisis.

A task force, created in November at the direction of the dean, is writing a case study to scrutinize whether the school is failing to teach students to understand and manage risk in the current environment, according to Paul Healy, co-chair of the panel. The case study method is the technique Harvard uses to analyze decision making by executives during times of duress.

The idea is to put professors in the students' seats and ultimately use the discussion to promote curriculum changes.

Harvard's less than illustrious alumni at the moment include the likes of Stanley O’Neal and John Thain (ex Merrill Lynch), Rick Wagoner, (ex General Motors Corp) and Christopher Cox, former chairman of the U.S. Securities and Exchange Commission.

The article goes on to add that "many of the graduates involved in failures attended the school 20 or 30 years ago, before classes on risk management, macroeconomics and leadership were required". But another Bloomberg columnist, Kevin Hassett, points out it's not so much what they studied but their attitude which resulted in the downfall.

And he makes such a good case that this is one of those rare instances where I am compelled to reproduce a large chunk of the article.

For two centuries, Wall Street survived wars, depressions, bank panics and terrorist attacks. Now Wall Street as we know it is dead. Gone.

When a healthy and thriving person dies suddenly, a medical examiner may talk to family and friends to see if the deceased had recently changed behavior in some way.

Wall Street did change radically in recent years in one notable way. Twenty or 30 years ago, it was common for the best and the brightest to be doctors or engineers. By the 2000s, they wanted to be investment bankers.

When Wall Street was run by people randomly selected from the population, it was able to survive everything. After the best and brightest took over, it died the first time real-estate prices dropped 20 percent.

Are the two facts related? In other words, did Harvard kill Wall Street?

Hassett goes on to argue that Wall Street is gone because its firms did a terrible job assessing the risks of the positions they took.

The models these firms used to evaluate risks failed. But having a failed model brings a firm down only if the firm collectively buys into the model. To do that, the firm must be run by people who have a great deal of faith in their models, and a great deal of faith in themselves.

So basically, MBAs believe they know everything, that they can do no wrong. This narcissism has a real career impact...

The consequences of Wall Street’s reckless brilliance in many ways parallel modern-day engineering disasters. If you travel through Italy, you can’t help but notice the many Roman bridges that still stretch across that nation’s waterways. How is it that the Romans could build bridges that would last thousands of years, while the ones we build today collapse after a few decades?

The answer is simple. Back then, they did not have the fancy computers required to calculate exactly how strong a bridge must be. So an architect made a bridge very, very strong. Today, engineers can calculate exactly how much steel they need to incorporate into a bridge to bear the expected load. The result is, they are free to make them weaker...

The same is true of the financial sector. Back when Wall Street was run by individuals without fancy degrees, they had a proper skepticism toward fancy models and managed their risks with a great deal more humility and caution. Only when failed models became canon did catastrophe strike.

He concludes: Wall Street didn’t die in spite of being run by our best and brightest. It died because of that fact.

Ahem. I don't agree with this entirely - the regulators who turned a blind eye and allowed the is good' brigade to take over are also to blame. But yes, there is much in what he says that rings true.

Every catastrophe has its lessons (one hopes!). Here is some more food for thought for bschools and their students from columnist Matthew Lynn (also from Bloomberg!)

A sum up: Business schools legitimized a pseudo-scientific approach, promoted a mechanistic management style and formed a managerial elite more interested in rewards than producing lasting wealth for the economies they operate in.

(An attitude which manifests right from the time of placement, I would add!)

But the details are more interesting, so here goes:

If a flight-training school produced this number of crashes, we would be asking some questions. There is no reason that business studies should be exempt from the same kind of scrutiny.The schools should be called to account for several things.

First, they encouraged a quasi-scientific approach to business, sermonizing that everything could be nailed down in a textbook. By preaching a set series of formulas they encouraged students to believe that running a company could be mastered by anyone. The entire private-equity industry is founded on that principle. So are mergers and acquisitions.

In reality, management is a skill that is acquired through experience, judgment and flair. Billions are about to be wasted relearning a simple fact that should never have been forgotten.

Second, the intellectual tools that led us into the financial meltdown were largely invented within academia. Complex models for pricing risk created the market for the options and derivatives contracts that have caused so much trouble in the past year.

The business schools took something that was mysterious and unknowable -- risk -- and tried to make it as easy to count as peas in a pod. By doing so, they encouraged a whole generation of young men and women to go into investment banking armed with the belief that they had mastered risk, that it had been tamed and brought under control.

The truth, of course, turned out to be different. Bankers can no more tame risk than sailors can tame the oceans. All they can hope to do is steer a safe course through it.

Third, the schools created a managerial elite that acted like a caste apart. One reason the bonus culture ran out of control was that many of the people involved were trapped in a bubble. They thought “guaranteed” bonuses, private jets and multimillion-dollar payoffs were normal. That process started in business schools.

Citing examples from history such as Henry VIII and Fidel Castro, Lynn makes a rather drastic proposal: Shut down business schools. They are beyond redemption.

Not that yeh honewala hai. Just arbit emotional CP. But for a moment, if we were to say that an ordinance was passed to shut down bschools across the world. What would happen?

Nothing. They would just spring up in another form. They might teach anything, anywhere, but ultimately we would find a new way to create elites, who believe they are the brighest and best, and can do no wrong.

We will bring down other walls on other streets. But keep building more... to separate Purebloods and Mudbloods, Brahmins and non-Brahmins, Thinkers and Followers, ... 'Us' and 'Them'.

Ivy league goes the IIM way - II

So Indian students with the right credentials and less or even no work experience have a decent chance of getting into a good US bschool. But as Suze Orman would say, "Can you afford it?" It can be tougher than you think. A recent grad shares his experience:

I graduated from a top-20 school (which isn't an Ivy League by the way, but then when we were talking Stanfords and GSBs, I guess a non-ivy isn't necessarily a deal breaker). My decision to pursue an MBA wasn't economically motivated - I was doing pretty well back home, and just wanted to try something else, and I didn't know what that something else was supposed to me.

Coming to America wasn't as regrettable as going in for an MBA was. The two years were real tough. The school didn't guarantee loans, and I mismanaged my funds. One of my loans didn't come through and I was stranded mid-way, having spent nearly 40,000 dollars at the end of the first year and with no money for the second year. I had to negotiate with school to allow me to continue, which they did but there were times when I had to choose between being able to pay my bills or buying groceries.

(And now that I started earning again, that strain is eased but the school has held my diploma till I pay of my dues - and that means no India trip for me for a long time).

I was the only one in my class who had never worked outside of India (and never earned foreign moolah) - so there weren't too many people who could relate to the situation. But even though I might be a one-off case, MBA is pretty expensive whatever way you look at it (an MBA costs you one half of what it costs you to buy an average home in America), and even if you get a loan, it's important to keep in mind that we, termed aliens for tax purposes won't get credits for the tuitions or the interests that we pay (unlike the citizens).

Getting an MBA could be a positive NPV venture but the initial cash outflows could create a BIG void. The second disadvantage that we aliens have is the (non) availability of work visas (there is no guarantee you would get one even though you might have a good job and you are ineligible for a lot of positions because of your visa status).

Apart from the high expense, the experience has been awesome. There were people from more than 30 different countries, and the age difference varied. In a class of nearly 165, there were 7 who had near zero work experience. They were either undergrads at the same institute and had developed good rapport with the admission staff/faculty, or had dabbed in entrepreneurship (e.g. one had started a gaming company, the other used to sell designer clothes), or were pursuing joint degrees (one was a medical student and another a law student).

I wouldn't know how would they have fared had they pursued job opportunities. Only one of them actively looked for jobs (and even though he had multiple job offers, most offers were a rung or two lower than what they would have been had he had some experience under his belt). Almost all the interviews I had were based on my work experience pre-MBA and so I believe it matters a lot. But younger people do tend to get higher salaries (younger = less than average age) though I don't have stats to prove that. And Indians tend to be among the younger lot.

The older guys didn't really care much about salaries (quite a few of them knew they would have to settle down with lower than their pre-MBA salaries because they were switching careers).

In short, MBA in the US is akin to a two year reality show. The stakes are high - and if you don't have sufficient assets to back your loans, one mistake could put you in debt for life. Work experience helps (the kinds where you have managed people or dealt with bureaucracy or been caught up fixing processes). And if you come straight from India, there is a lot of potential to learn and have fun at the same time.

"Whatever the reasons, the bottomline is, if you have a high GMAT score, great academics and something in your CV which stands out in terms of leadership skills or entrepreneurial experience, you should take a shot at top US bschools. Even as you take the CAT, XAT and all that."..Completely agree. Just one thing to add. Make an informed decision whatever school you choose to go to.

If you'd like to share your experience or advice on doing an MBA abroad, write to me at rashmi_b at yagoo.com.

Ivy league going the IIM way

Yesterday I bumped into a Stanford GSB student and learnt something new. It is possible for foreign students enter one of America's top bschools with negligible or even zero work experience.

"The youngest person in my class is just 21, and with a kheti background (ie family owns a horticulture business)," he said. And there are other examples of students at Stanford GSB who are just graduates or have 1-2 years work ex.

"Of course your profile should stand out in some way," he adds.

Frankly, this news has left me a bit confused. What does one now advise the numerous students who ask:"What is the eligibility for a top 20 US bschool?" Is the standard answer of '4-5 years of work ex' redundant??

Some google research reveals that there is an effort by leading bschools to recruit younger applicants. Since 2006 Stanford GSB has lowered its age requirement for Chinese applicants.

Guangdong Online reports: "Our school welcomes undergraduate applicants with outstanding experience," said Seda Mansour, a vice director with the Stanford business school's recruitment office.

The Wharton School also greatly encourages Chinese applicants with less than two years of work experience.

In 2007, a QS TopMBA Applicant Survey revealed that the average age of MBA applicants has fallen to 25.5 years, from 26.8 years in 2004.

Columbia is actively seeking to recruit fresh graduates into her class of 2007 – academic high-fliers who would otherwise be lost to the business school world once they enter fast track careers in banking or elsewhere. Columbia will also target a greater number of candidates with less than three years of work experience.

Harvard Business School has also started to recruit younger students to their MBA programme. They target students within 3 years of graduating from university or college. The average age of the Harvard MBA student was 27 years of age, but has fallen to 26 years of age as the school has recently admitted a number of 22 year-olds.

However, the survey noted that while US bschools are becoming more flexible, European bschools have not changed their policy. The average age at top European bschools remains 28.5 years.

Do younger applicants face a problem in the job market? Apparently not.

According to Jana Kierstead, Director of MBA Career Services at Harvard Business School, younger students received salaries just as competitive as their more experienced classmates, and equally across all industries.

Speaking to the Wall Street Journal, Katherine Schwab, a vice president at Citigroup, says she has recruited "young, hungry" M.B.A. graduates at Rochester with great success for the company's finance training program.

"The students we have hired at Rochester bring a lot of energy and flexibility," she says. "They haven't had management experience in the past and are willing to travel all over the world and approach different opportunities with a lot of enthusiasm."

Hmm, sounds like the Ivy league may be headed the IIM way. And it's ironic because IIMs have always faced criticism for taking in fresh graduates.

Chicago GSB and some other top-ranked schools have relaxed work-experience requirements partly in hopes of attracting more minorities and women.

Whatever the reasons, the bottomline is, if you have a high GMAT score, great academics and something in your CV which stands out in terms of leadership skills or entrepreneurial experience, you should take a shot at top US bschools. Even as you take the CAT, XAT and all that.

The good news is that if you are admitted to a school like Stanford GSB, you will automatically be eligible for a student loan to fund your studies. And of you can apply for the Reliance Dhirubhai Ambani fellowships at Stanford which covers ALL your expenses (estimated to be $ 83,000 per year).

The only condition being that after graduation you must return to India for a minimum of two years of employment in the private or public sector.

Last year there were 1400 applications for 5 fellowships which is tough competition but still worth trying for!

If you are an student or graduate of a foreign bschool do share your insights and experiences with me. Especially on this work ex issue but any other topics also welcome. Drop me a line at rashmi_b at yahoo.com.