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Shaken by crisis, MBA schools retooling emphasis
2009-02-16
PHILADELPHIA (Reuters) - In 2001, Cristina Mariaca watched the dot-com bubble burst while working as an analyst at the Latin American unit of Internet giant AOL in Ft. Lauderdale, Florida. Today, she's in business school, where a global financial collapse that dwarfs that earlier meltdown has prompted soul-searching among business academics about corporate responsibility and governance and a re-examination of risk models that failed to predict such disasters. "I didn't understand how this could continue to happen," said Mariaca, 30, as she prepared last month for the inaugural lecture of a new financial crisis course at the University of Pennsylvania's Wharton School. "There's a blindness to financial analysts." Mariaca, a Brazilian native who has also worked for Spain's Banco Santander, has watched in shock with fellow students as veteran executives with MBAs joined the ranks of the unemployed while they ponder their own dwindling job prospects. For some academics, the financial crisis is the ultimate "teachable moment" for anyone destined to work in financial markets, big business and start-ups, and is forcing the schools to rethink the way they teach the art of making money. Preparing future executives for any eventuality at the top of corporations is becoming the new vogue, replacing an emphasis on simply making money using short-sighted business plans and discredited risk models. "People are more interested in exploring research that shows the limits of rationality," said Charles Trzcinka, chairman of the finance department at Indiana University's Kelley School of Business, and a former economist at the Securities and Exchange Commission. "Our younger faculty are willing to entertain ideas that would have been offensive 20 years ago," such as psychological biases in markets, he said. For example, big banks didn't model situations where housing prices fall, assuming that what happened in the past wouldn't occur in the future, Trzcinka said. He and Simon Johnson, a professor at the Massachusetts Institute of Technology's Sloan School of Business, also see an increased emphasis on ethics and global issues, and expect this trend that started after the 2001 terrorist attacks in the United States to gain momentum. FAILED MODELS In one example, Wharton professor Jeremy Siegel asked his students last month to imagine a fictitious bank board meeting in December 2006, where executives were busy deluding one another about safe lending practices. "We've tested all our portfolios with state-of-the-art risk models," he said, quoting one of his confident executives, and then prompting laughter when he added: "Some of which were learned at Wharton." The models in the scenario failed, steering the discussion back to responsibility. For Siegel, it sits squarely with chief executive officers paid millions "to stand back and say something" about excessive risks. His musings prompted a wry smile from Patricia Klarner, a visiting doctoral student from the University of Geneva, whose loss on "conservative" investments in bankrupt Lehman Brothers strengthened her resolve to hold executives present and future accountable for their actions. "It seems unbelievable that those company leaders who took their part in creating this crisis are now fired, but that many of them still get a bonus," she said. Corporate governance and executive compensation need to be rethought, she added. U.S. President Barack Obama earlier this month launched a broad effort to clamp down on excessive corporate pay by setting a $500,000 annual pay cap for executives at companies requiring taxpayer bailouts. The subject of financial crises is also becoming a fertile field of study in itself. Jennifer Amyx, a University of Pennsylvania professor who will lecture on the similarities of the current crisis to Japan's financial mess in the 1990s, called it "a huge boon for teaching." But for students, the fact that employment outlooks have soured far outweighs the benefits of interesting coursework. Some 2008 Wharton grads are reporting they've lost their jobs, and professors at other schools say companies are rescinding offers made to students preparing to graduate this year.
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