Research Findings

Do business schools really matter? Yes, and it’s because of their main products: MBAs

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March 20, 2019

Do business schools—and their products, MBAs—really matter?

Business school professors often lament that business education has no impact on the real world—that they waste their energy debating esoteric theories that nobody outside the academy pays attention to. But at the same time, business school critics claim that through excessive risk-taking and profit-maximizing at any cost, MBAs drove the economy into the financial crisis and the great recession a decade ago .

In a recent study, we examined how much business schools really matter. Does business school education really shape students’ minds and behaviors many years later, when they have reached top positions at major corporations and financial institutions?

We explore this question by looking at how CEOs engage in diversifying acquisitions over the last three decades. We chose to study corporate diversification because business professors dramatically changed their views about it during the period under study. This allows us to see how the business school curriculum impacted students.

Up until the 1960s, business school professors viewed diversification as a valuable strategy. Kenneth Andrews, a Harvard Business School (HBS) professor, wrote in 1951, “The purposeful diversification of American corporate enterprise has been accomplished with the hope of attaining greater stability in organization and earnings, greater efficiency in the use of company resources, greater economy in marketing operations, or greater returns from the exploitation of unexpected opportunity and peculiar economic conditions.”

Thoughts on diversification turned into skepticism in the 1970s and outright criticism in the 1980s. This reflected a broader shift in business education. As Rakesh Khurana meticulously described in From Higher Aims to Hired Hands, the 1970s witnessed a rise of financial economics as the dominant discipline in business schools.

In particular, agency theory in financial economics became mainstream and dominated both academia and practice. Based on the belief that managers are agents who work for the shareholders, agency theory views diversification as a prime example of managerial opportunism at the expense of shareholders’ wealth.

During the 1970s and the 1980s, Michael C. Jensen, another HBS professor well-known for his articulation of agency theory, promoted a new agency-theoretic orthodoxy that corporate managers should avoid diversification and instead focus on the firm’s core business.

While theories and evidence against diversification emerged in the 1970s, many U.S. firms remained diversified well into the 1980s. Why did the decline of corporate diversification unfold so slowly?

We believe it was because corporate strategy reflects the views of top decision makers, and change in strategy follows only from a new crop of decision makers. It took 20 to 30 years for those MBA students who absorbed a skeptical view on diversification in the 1970s and the ‘80s to climb up corporate hierarchies, replace CEOs at major firms, and put the brakes on diversification.

To test our argument, we collected data on 2,031 CEOs who ran 640 large U.S. corporations from 1985 to 2015. We also gathered information on their educational background, such as the school they attended for an MBA and their year of graduation. We split our sample into three cohorts—CEOs who earned an MBA before, during, and after the 1970s—and examined whether these groups made different strategic choice about diversification.

Here’s what we found: Compared with CEOs without an MBA, CEOs in the first cohort, who earned an MBA before the 1970s, were 17% more likely to pursue diversification at some point during their career. The later cohorts of CEOs, those who earned an MBA in the 1970s and later, were less likely to pursue diversification than their non-MBA counterparts, by 24% and 30%, respectively.

We also conducted some additional tests. A quarter of CEOs with an MBA in our data graduated from HBS, where Michael Jensen taught agency theory beginning in 1985. Given his elevated role in popularizing agency theory, we expected that being exposed to his teaching had an enduring effect on students’ views of diversification. We found that CEOs who attended HBS after Jensen joined the school were 83% less likely to engage in diversification than those who went to HBS before that.

We also compared HBS-educated CEOs with the CEOs who had MBAs from other schools or who didn’t have an MBA. HBS education had a strong negative effect on diversification only after Jensen’s arrival.

If being exposed to modern financial economics was a crucial factor in altering MBA graduates’ views on diversification, we would expect to see the negative effect of MBA education on diversification to be stronger for CEOs who graduated from business schools with a top-ranked finance program. We found this to be accurate. The effect of MBA education during or after the 1970s was observed only for CEOs who trained at one of the top 50 business schools in finance.

This has implications that go far beyond corporate diversification strategy. The late business professor Sumantra Ghoshal warned that business schools had direct and negative influences on management practices, contributing to major corporate scandals and economic crises. As more students, scholars, leaders, and pundits are now reflecting on the influence of business schools, it is precisely the time when business educators should realize their responsibility and potential.

What business schools teach matters, because their products—MBAs—eventually become powerful and faithfully follow what they’ve learned. The impact of business schools on society only becomes clear after many years.

Read More

Jiwook Jung and Taekjin Shin, “Learning not to diversify: The transformation of graduate business education and the decline of diversifying acquisitions.” Administrative Science Quarterly 2018

Image: HBS1908 via Wikimedia Commons (CC BY-SA 3.0)

Research Findings

How inequality leads to its own legitimization


March 12, 2019

Research has demonstrated a dramatic rise of income inequality in the West. Today, across advanced capitalist countries, the top ten percent of households take home about a third of all income and own two-thirds of all wealth. 

Despite what scholars, journalists and some politicians consider a worrying trend, there is no evidence that people have grown more concerned about inequality. In fact, citizens of more unequal societies are less concerned than those in egalitarian societies. How to make sense of this paradox?

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Research Findings

Climate Change Isn’t Hurting Everyone: White Middle Class Americans Benefit from Natural Disasters

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March 7, 2019

Recently, the United Nations’ Climate Change Conference in Poland, the U.S. National Climate Assessment Report, and severe forest fires, hurricanes and winter storms have called attention to just how devastating climate change already is and will continue to be. Yet, what these events often fail to highlight is who benefits from this devastation. Understanding that piece of the puzzle is critical for building better policy approaches to climate change.

One of the most tangible effects of climate change in the United States is the mounting cost and frequency of high-impact natural hazards. In 2018 alone, mudslides engulfed large segments of Montecito, Hurricane Florence flooded a large swath of the Carolinas, Hurricane Michael destroyed communities along the Gulf coast, and California experienced some of the most destructive wildfires in history. These are just some of the most widely known events. Hundreds of other natural hazards caused millions more in damage and loss of life across the country.

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Research Findings

How mobility of R&D workers opens new avenues

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March 3, 2019

R&D employees moving from one employer to another is a frequent, yet controversial event. On the one hand, inventor mobility has been shown to have a positive effect on overall innovative activity. On the aggregate level, the fast development of new technologies in regional clusters such as Silicon Valley is driven by dynamic labor markets and high turnover rates of engineers, programmers, or developers. On the firm-level, learning-by-hiring is a fast and efficient way to acquire external knowledge.

From the perspective a firm that loses key employees, outbound mobility, on the other hand, creates costs of finding suitable replacements and is associated with the risk of losing not only employees but also crucial knowledge. Knowledge that potentially is employed by the hiring firm to compete in related markets. Recent media coverage has revealed a number of lawsuits caused by one firm’s R&D employees moving to a competitor in industries ranging from semiconductors and mobile phones to pharmaceuticals and autonomous-driving vehicles.

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Commentary

Panel – Reflections on “Roma” from researchers who study domestic work


February 19, 2019

Spoiler alert: plot/character details and research-based social analysis ahead.

The film Roma, written and directed by Academy Award winner Alfonso Cuarón and chronicling a year in the life of a domestic worker and the family that employs her, was released in theaters and on Netflix in 2018. On the heels of several recent award wins (Golden Globe for Best Picture and Best Director; BAFTA for Best Film and Best Director; Directors Guild of America for Best Director), Roma is among the favorites to win big at the Oscars this month.

In addition to the critics’ adulation, Roma has inspired conversations among the public and has been strategically used by domestic worker organizations to heighten their visibility. But the voices of researchers who study domestic work in Latin America have been missing from these conversations.

As the founder and coordinator of a research network, RITHAL (Red de Investigaciones sobre el Trabajo del Hogar an América Latina – Network of Research on Domestic Work in Latin Amerca), I feel strongly that we can make valuable contributions to public discussions of the film.

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Commentary

Taboo affects and impossible motherhoods in an unequal Mexico


February 19, 2019
Marco Graf, Yalitza Aparicio, and Daniela Demesa in “Roma.” Image: Alfonso Cuarón via imdb.com.

Getting to see the film Roma on the big screen, before it was released on Netflix, was truly an odyssey. In Monterrey, Mexico, where I live, I had to buy a ticket a week in advance.

Monterrey is home to a prominent and privileged population, who usually contract live-in domestic workers from indigenous communities, like Cleo in the film. This was the site of the ethnographic research for my book Yo trabajo en casa, published in 2017, which discusses the naturalizing of gender, class, and racial inequalities in this stigmatized occupation.

It was worth the wait: the film is beautiful and the cinematography extraordinary. The story of Cleo and a bourgeois family that lives in the Roma neighborhood of Mexico City, during the presidency of Echeverría (1970-1976), is narrated from the point of view of the family’s youngest child. In the final scene, this little one sleeps in Cleo’s lap, while his sister leans on the shoulder of the worker, who just saved her from drowning in the sea.

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Commentary

Romanticizing “Roma”: For whom and for what?


February 19, 2019
Yalitza Aparicio and Verónica García in “Roma.” Image: Participant Media, Netflix via imdb.com.

As people who have historically occupied second-class status, domestic workers execute their jobs in private homes where the power — and their position — is utterly in the hands of their employers.  So, much like the battle for gender equality, the real change must start inside the homes where domestic workers perform their duties, where the day-to-day occurs. 

Change won’t happen until the terms of the relationship becomes one between equals — until the one who has been inferiorized can speak with a powerful voice; be heard in her terms; narrate in equal measure.  Until then, it is the boss’s voice telling the story of the one who is bossed. 

That is how I feel about Alfonso Cuarón’s critically acclaimed “Roma.”

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Commentary

The limits of fictitious kinship: “Roma” reveals the need to recognize domestic workers’ own care rights


February 19, 2019
Image: Sean O’Flaherty (CC BY-SA 2.5) Desaturated from original

“We don’t want to be adopted by our employers. We simply want our rights.” This was one of the statements made by Mexican domestic workers’ rights activist and union leader Marcelina Bautista, following the release of Alfonso Cuarón’s Roma.

Through its portrayal of the inner life of a 1970s middle class Mexican household, Roma provides an intimate view of the construction of a prevalent myth: that paid domestic workers, and live-in domestic workers in particular, are “like part of the family” to their employers.

The struggles of main character Cleo (Yalitza Aparicio) to meet her needs to both give and receive care as a live-in domestic worker confirm what scholars refer to as the “fictitious”  or “imaginary” nature of these kinship structures. Her pregnancy introduces an element of unpaid reproductive labor that does not serve her employers’ interests. 

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Commentary

No Love in “Roma”: Maids’ Representation as a Language of Class


February 19, 2019
Yalitza Aparicio in “Roma”

Expectations were piling up around Mexican film director Alfonso Cuarón’s film Roma even before its release last December. Its reception immediately highlighted the many attributes of the film elevating it as a masterpiece of Mexican cinema.

A recent dossier on the website Mediatico with contributions from academics specialized in Mexican cinema leaves no doubts about the aesthetic attributes of the film. The black-and-white images, the large format framing, and the neorealist look make the character and story of Cleo, a live-in maid based on Cuarón’s own childhood nanny Libo, resonate emotionally with the audience in a unique way.

However, it might not be the film itself that needs closer attention, but rather its quick positive reception, a kind of urgency for approval that might be more related to a cultural industry that transcends national borders, and social class anxiety anchored in ethnic/gender/race identities. The film seems to respond to these anxieties, offering a visual and emotional soothing.

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Research Findings

Does outsourcing of domestic services increase female earnings?

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February 19, 2019

Even though a vast majority of all households in wealthy countries have two wage-earners, women on average work fewer hours and at lower wages than their partners. This is commonly attributed to the fact that women perform most of the routine housework. For instance, Swedish women spend approximately 15 hours per week on domestic work compared to 10 hours for men – a moderate gender gap compared to many other European countries.

When women decrease time in domestic work, their time in paid work is generally thought to increase. This may happen, for example, with increased access to child care, increased supply of low-skilled workers which makes it cheaper to hire domestic help, or technological improvements in household appliances.

However, we don’t have detailed information about exactly how much more women work for pay when these kinds of changes occur.

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