Crisis in the Classroom: The Recession's Impact on MBA Curriculum

Posted by Cara Scharf on June 6, 2011
Crisis in the Classroom: The Recession's Impact on MBA Curriculum

Economists may be proclaiming the end of the recession, but that doesn't mean Wall Street is back to business as usual. The nation's economic landscape has been greatly altered: Bear Stearns and Lehman Brothers have vanished, Uncle Sam is flexing his regulatory muscles, and nearly 10 percent of the country remains unemployed. Businesses have been forced to adapt-and so must business schools.

Professors at the nation's top MBA programs are updating their courses to address the economic, strategic, and ethical factors behind the global financial crisis, and hopefully give students the wherewithal they need to help preempt future meltdowns. 

Lessons Learned
As with any disaster, the financial crisis can be used as a learning experience-and b-school professors are taking full advantage of its many textbook-worthy lessons. At Villanova School of Business, a new course called Understanding the Marketplace in a Post-bailout Economy pairs finance, marketing, IT, and law professors with local business managers, to show students how the crisis affected businesses. "The course isn't about avoiding mistakes of the past, it's about learning from them," says Mike Pagano, a finance professor who spearheaded the course. "The students had read all the headlines, but the class helped them make sense of it all."

The crisis has brought to light issues of compensation, conflicts of interest, and systemic risk, all of which Pagano has incorporated into his finance courses. To put Wall Street compensation into perspective, Pagano discusses short-term incentives given to mortgage brokers and investment bankers involved in the mortgage-backed securities meltdown. "For mortgage brokers, it [was] about scraping the bottom of the barrel to make as many deals as quickly possible," says Pagano. "But in that rush people forgot about the long-term. You have to stop and think about the big picture. Does what I'm doing make economic sense and work for the customer?"

When teaching about risk, Pagano asks students to consider the implications of regarding some companies as "too big to fail". That philosophy was reflected in government bailouts for institutions, such as Citi, Fannie Mae, and Freddie Mac, but the lifeline didn't necessarily give those institutions a clean slate. "A government safety net doesn't mean you can lower yourself into complacency. You may get bailed out, but your reputation will be tarnished and the people who made risky bets will lose their jobs." In other cases, the government might not even come to the rescue, as was the case with Lehman Brothers.

At Georgetown University's McDonough School of Business, professor Jim Angel offers a new course called Financial Crises Then and Now. "It was interesting," says Angel, "like teaching a course in earthquakes when the entire classroom starts to shake." Like Pagano, Angel uses the housing bubble to teach students to recognize the ebb and flow of markets. "This housing market meltdown was eerily reminiscent of the sub-prime meltdown in early 2000. Before that, loans grew rapidly, but they imploded very quickly when it became apparent there were loan quality problems," he says. Angel's course is designed to help students recognize problems before they occur by examining the past. Angel hopes this will cause students to be more forward-thinking and develop contingency plans if they see things getting out of hand.

Expanding Ethics
From Lehman Brother's involvement with questionable mortgage lenders to lavish vacations taken by AIG executives after an $85 billion bailout, the crisis brought forth concerns about corporate greed and corrupt management activities. For b-schools, such as McDonough and Thunderbird School of Global Management, these concerns have pushed classroom material about ethics to the forefront.

Associate professor Ed Soule at McDonough teaches a course called Leadership and Business Ethics. Students are required to take two iterations of the course, one at the end of each year of study. Soule says the course hasn't changed much, but that he has infused it with current examples. The ethical lessons of the financial crisis are all about companies aligning private practices with public personas, says Soule. "Every company says they pay attention to risk, but not all of them do, and you can tell the difference by looking at a company's culture. Successful banks have long-term strategies and compensation systems that complement conservative risk management. J.P. Morgan is an example: Their risk management team is viewed with respect. But at AIG, the risk management team was a nuisance and they were cut out of the loop."

Though ethics has always been part of Thunderbird's curriculum, the crisis has fostered a common understanding that the topic is of pressing importance for the next generation of business leaders. "In the past year, students and faculty have been giving ethics more attention," says Melissa Beran Samuelson, professor and manager of women's entrepreneurship programs in the Middle East. "It's given us an increased capacity for implementing these changes."

In one of Samuelson's courses, Global Enterprise, she emphasizes that proper ethics is not just a matter of following rules, but making sure your company's practices project a good image in the community. "One thing we talk about is the auto industry and how it was perceived during the crisis," she says. "You may have a private jet, but is it appropriate if you own it to fly it to DC to ask for bailout money?"

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