When does more diversity equal less diversity?

PICTURE a typical MBA lecture theatre twenty years ago. In it the majority of students scribbling away furiously will have conformed to the standard template of the time: male, middle class and Western. Walk into a class today, however, and you’ll get a completely different impression. For a start you will now see plenty more women—the University of Pennsylvania’s Wharton School, for example, boasts that 40% of its new intake is female. You will also see a wide range of ethnic groups and nationals of practically every country.

It might be tempting, therefore, to think that the old barriers have been broken down and equal opportunity achieved. But, increasingly, this apparent diversity is becoming a mask for an insidious new type of conformity. Behind the differences in  inflatable slides  sex and sexuality, the varying skin tones and mother tongues, there are common attitudes, expectations and ambitions which risk creating a set of clones among the business leaders of the future. A future in which the methods and motivations of hotshots in Bangalore, Beijing and Boston are impossible to tell apart.

Many of the corporations which led us into the current economic mess were also the most enthusiastic hirers of MBAs. Diversity, it seems, has not helped to address fundamental weaknesses in business leadership. So what can be done to create more effective stewards of the commercial world? According to Valerie Gauthier, associate dean at HEC Paris, the key lies in the process by which MBA programmes recruit their students. At the moment candidates are selected on a fairly narrow set of criteria such as prior academic and career performance, analytical and problem solving abilities and numeracy. This is then coupled to a school’s picture of what a diverse class should look like, with the result that passport, ethnic origin and sex can all become influencing factors. But schools rarely dig down to find out what really makes an applicant tick, to create a class which also contains diversity of attitude and approach—arguably the only diversity that, in a business context, really matters.

Professor Gauthier believes schools should not just be selecting ‘usual suspect’ candidates from traditional sectors such as banking, consultancy and industry. They should also be seeking individuals who have backgrounds in areas such as political science, the creative arts, history or philosophy, which will allow them to put  pearl earrings   business decisions into a wider context. Unless at least some students on a programme have this sort of grounding—and the open mind that hopefully goes with it—then the increasingly fashionable focus on ethics and social responsibility is unlikely to have a significant effect in the long term.

Indeed, there does seem to be a demand for the more rounded leaders such diversity might create. A study by Mannaz, a leadership development company, suggests that, while the bully-boy chief executive of old may not have been eradicated completely, there is a definite shift in emphasis towards less strident styles of management—at least in America and Europe. Perhaps most telling, according to Mannaz, is the increasing interest large companies have in more collaborative management models, such as those prevalent in Scandinavia, which seek to integrate the hard and soft aspects of leadership and encourage devolved responsibility and accountability.

Test of will

The impetus appears to exist, therefore, for business schools to create management teams that are diverse in more than just colour, sex and nationality. But if they are to achieve this, it may mean significant changes to the way they recruit prospective MBAs. Professor Gauthier acknowledges that the GMAT, the near-ubiquitous entry test for international programmes, can shell jewelry  offer valuable insight into an applicant’s verbal and quantitative skills. But she also maintains that it reveals little about their interpersonal skills, leadership ability, integrity or adaptability.

In a bid to widen the MBA applicant pool, schools such as Stanford and MIT's Sloan school are among a growing number to have adopted the GRE test (which is administered by Pearson, part owner of The Economist) as an alternative to the GMAT. The GRE includes an optional evaluation system that allows recommenders to rate an applicant on qualities such as creativity, teamwork, ethics and resilience. Though not measuring diversity in hard numbers, schools hope the test may encourage more non-traditional candidates from humanities and science backgrounds to consider the MBA among other graduate programme options.

However, gathering the information that institutions need to recruit a genuinely diverse class will require a much wider range of assessments, more in-depth interviewing, perhaps even for a new approach to the way the MBA is marketed. And, in these straitened economic times, it remains to be seen how many schools will be willing, or able, to follow Professor Gauthier’s call.

How do business schools remain relevant in today’s changing world?

AS THE clamour grows for more regulation to address the corporate failings that led the world into a two-year recession, business schools sense a chance to drive the agenda. By producing academic research that can inform the debates within Washington and Brussels, there is a chance to become relevant once again. But business is also changing its mind about it inflatable slides   wants from MBA students. The super-confident, gung-ho leader, that was once their calling card, has fallen out of fashion. So can schools adapt to a changing world?

To find out, The Economist spoke to two prominent business deans from either side of the Atlantic: Santiago Iñiguez de Ozoño, dean of Spain’s IE Business school, and Paul Danos, dean of Dartmouth College’s Tuck School of Business in America.

Has the role of the business school changed as a result of the economic crisis?

Santiago Iñiguez de Ozoño: Actually management is very much demanded these days. Management is everywhere. All our universities are demanding programmes in management from many different quarters: for engineers, for doctors, for architects.

But some things have changed. The presence of the visible hand [of regulation] is now more explicit. This means that business schools may have a role in preparing members of governments and the administration. The collaboration between the public and private is becoming one of the fastest growing areas of business schools.

We also see more demand for entrepreneurship courses. In times of crisis managers need to reinvent their existing businesses, launch new products and diversify. But also there are many opportunities for the creation of new business—start-ups in fields like technologies, biotechnology, in energy, even in education.

Then we also see some things changing at business schools. We field the demand from the real world to develop research which can actually address the real problems of business. This will probably affect the profile of professors. Not only must they be solid in terms of their research skills and teaching skills, they should also be able to interface with the top management.

Have you seen a change in what professors are researching over the last two years?

Paul Danos: Research grinds slowly. Let's take a marketing professor who's an expert on internet marketing. Well that hasn't changed because of this crisis. Some people say "everything has changed," well it's not true. Most of the courses that we teach MBAs have not changed because of the crisis.

I think the change has come at a higher level. It's the level of: can leaders be made to be both responsible and analytical enough to understand the complexity of the world? And why did the leaders, the regulators, the CEOs and the board members miss these risk factors? Well you can debate that but it doesn't change everything. It doesn’t even change everything in finance. Finance is primarily the same as it was before the  wish pearl jewelry   crisis. When you get to a higher level though, when you start asking CEOs and board members to contemplate their responsibilities, then you have to think about it in a different way. So it's subtle, nuanced.

Santiago Iñiguez de Ozoño: This brings me to another thing that many of our schools are currently contemplating: that all the areas evolve over time. So in finance, as Paul was saying, the golden rules are still valid. But the institutions, the concepts of risk, the ways of assessing risk have evolved in the past years. We need people to come back to school. Managers cannot just rely on what they learned 30 years ago in their MBA programmes. This is a clinical profession like medicine, like architecture, where you need to update your knowledge. So something that may come out from this crisis is the need of managers to come back to school and update their knowledge and validate what they do in the real world.

Paul Danos: I think one thing I've walked away from the crisis with is that no-one can know it all. You need the right kind of probing mindset when you attack problems of such complexity because no one could have ever seen the combination of factors before. So it's not the understanding of every eventuality—which is impossible—it's the right mindset.

So at Tuck we have instituted a whole series of small scale, deep courses where students are forced into that sceptical mindset of truly questioning the foundation of theories. Now that sounds esoteric, but it's really practical.
Some people say "everything has changed," well it's not true.

My main takeaway was not that it was an ethics problem, not that people were cheating overtly, it is that people were using the wrong mental attitude when they approached extremely complex problems that they hadn't seen before. Practice can hypnotise you into using old models and old ways of thinking. When you talk to people about the risk management systems in the big banks and at the Fed and at the regulators, it's amazing how they put together old models and old ways of thinking and tried to lay it on top of a new system.

So it proved that they weren't doing it right; they just didn't have the right mental attitude about the models and how they worked and how they hooked up. So we're trying to reinvestigate that.

Does that imply that schools have historically failed to inculcate that attitude in their students?

Paul Danos: The crisis was not caused by the broad 90% of our students who went into businesses. It was caused by the dynamics of the interplay between big banks and the regulators. Now you might say [that] those are business people too and they were trained at business schools. True, but ordinary corporations didn't do what banks did. I'm on boards of corporations and we weren't blinded, we weren't 40-to-1 leveraged. So this particular virus was in the banking system, and I think it can be analysed. I really think, at the end of the day, even though the banks themselves were irresponsible, the real irresponsibility was with the regulators because when everything else fails, the regulators are supposed to keep things safe and keep people from doing unsafe things and they didn't do it

Paul Danos: For instance, we're doing a lot of work with healthcare delivery which is a big, important topic. If you talk to people who try to deliver healthcare, one of the biggest problems is that there's very little management education. I'm not talking about high-level finance, I'm talking about the basics of budgets, of cost containment, of deficiency. Very little of that is part of the medical-school training.

I think that in every aspect of society some amount of management education is necessary in order for those institutions to deliver the services that they intend to deliver at a reasonable cost.

Is the nature of leadership changing?

Paul Danos: If you looked at the top-level demand from executives for our programmes, it's almost all about leadership. And it's really interesting how it has evolved. So much is now focused on a teamwork-based leadership model that really emphasises self-awareness. It's a very humanistic philosophy. It's not the person that charges ahead and rallies the troops. It's more of a person that is sensitive to the situation and to themselves.

Santiago Iñiguez de Ozoño: It is a different sort of leadership than the one which has grown in the past decade. It is not charismatic leadership, but teamwork. We will also see in the future many institutions getting rid of this spirit of elitism or arrogance which has contributed to create this atmosphere of overconfidence. They [believed that they] were actually beyond any controls or rules—that Nietzschean moral of the super-masters. We will get back to more controls, the golden rules, more supervision, getting rid of superficial things. History is very recurrent and we are attending again a move of the pendulum.

HOW much will climate change end up costing the world? The estimates, not surprisingly, vary widely. The United Nations Framework Convention on Climate Change (UNFCCC) estimates between $49 billion and $171 billion annually. A team of researchers at the Grantham Institute for Climate Change at Imperial College London has published a report that says UNFCCC is underestimating by a factor of two or three. Between 1996 and 2005, they point out, the annual damages done by hurricanes, fires, and other extreme weather was already averaging more than $50 billion per year. Yet few governments are willing to spend even fractions of that on preventative maintenance. Look at widespread fiddling over climate change; or the neglect of the dams surrounding New Orleans in the years before Hurricane Katrina devastated the city.

So would people be prepared pay to avoid future disasters? And if so, how much? That is the question tackled by Robert Pindyck of MIT's Sloan School of Management and Neng Wang of Columbia University, in a recent paper, "The Economic and Policy Consequences of Catastrophes." It is not easy to calculate accurately the likelihood of disasters. Some, such as rising sea levels or nuclear weapons gone rogue, have few historical precedents on which to base estimates. So Messrs Pindyck and Wang chose instead to model how likely people think it is that a catastrophe will inflatable slides  occur, and how much money they would be prepared to spend to prevent it. In their model, the hypothetical household had to decide both the likelihood of a potential catastrophe and its magnitude, since a high-risk disaster with little consequence would affect spending behaviour differently to a rare but devastating event.

The model has the disadvantage of being, like many economic models, theoretical. But it has the advantages of not requiring people to have perfect information about the future, and being applicable to any disaster—not just climate change, but flu epidemics or widespread warfare. (Mr Pindyck himself reports being particularly worried about nuclear terrorism.)

Sky-is-falling economic modelling, so to speak, is not new. Two decades ago a paper by Thomas Reitz, then of the University of Iowa, pointed out that equity owners, even while acting averse to risk, demand high rates of return in anticipation of an unlikely, but severe, crash. More recently Richard Posner, of the University of Chicago, has argued at length that governments should spend more to prevent disasters that will probably not freshwater pearl pendant    happen, but would be awful if they did. Mr Posner's blogging partner, Gary Becker, an economist, estimated in May the worldwide willingness to pay to avoid another flu pandemic at about $200 billion, even assuming the probability of such a pandemic occurring at only 1% over the next 20 years.

Messrs Pindyck and Wang's study lends credence to previous work which maps not only the probability of a risk occurring, but also the expected damage should it occur. In their model, even when a hypothetical consumer estimates the risk of a disaster occurring is close to zero, he still estimates the scale of potential devastation to be between 26% and 32% of national capital stock, far greater than the effects of Hurricane Katrina or even the 2004 tsunami. To avoid such a disaster entirely, or reduce its impact, the households in the model would be willing to pay a permanent consumption tax of up to 15%, depending on the size of the reduction and the likelihood of catastrophe.

In theory, then, governments should be able to spend far less than 15% to minimise the danger of catastrophes without suffering (political) risk. Although not every potential disaster could be averted, such studies provide rationale for spending money on the most pressing issues: stockpiling flu vaccines, shoring up rotting infrastructure, and, akoya pearl ring  yes, preparing for higher sea levels. Unfortunately, climate change is just one area where people fail to act as rationally as they do within economic models. 

This year we publish our eighth annual ranking of full-time MBA programmes. In the past, schools including Northwestern (Kellogg), Chicago (Booth)and IMD in Switzerland have held the top spot. This year Spanish school iese has prevailed. It, too, has form, having previously come first in both 2005 and 2006.

Business school rankings are not perfect. What makes a good MBA programme will vary for each individual. Our ethos is to look at business schools from the students’ perspective. Indeed, over the past 21 years we have asked close to 150,000 of them why they decided to sign up for an MBA. It is their responses that inform the criteria we  freshwater pearl bracelet  measure and the weightings we apply.

Over that time, four factors have consistently emerged:

•to open new career opportunities and/or further current career;

•personal development and educational experience;

•to increase salary;

•the potential to network.

The Economist ranks full-time programmes on their ability to deliver to students the things that they themselves cite as most important. It weights each element according to the average importance given to it by students surveyed over the past five years (see full methodology).

Other rankings have different standpoints. They may give a higher weighting to the research output of faculty, the salaries of graduates or the perception of a school among employers. All are valid, and it is up to each prospective student to understand the various methodologies and decide which are most relevant. What’s more, the rankings should form only part of a student’s selection process. It is equally important to look at issues such as school culture, employment prospects and areas of speciality.

With the job market for MBA graduates at its most competitive for many years, now, more than ever, schools which can demonstrate the effectiveness of their careers services will be highly sought after. At IESE, our top-placed school, 98% of graduates found employment within three months of graduation, with an average basic salary of $125,000. It is a similar story of success throughout our top-ranked schools. Harvard, fifth in  multi strand pearl necklace  our ranking, attracted recruiters from 11 different sectors, paying graduates an average $124,000. Graduates at second-placed IMD earned even more, which is perhaps one reason why they rated its careers service the best in the world.

A hard-working and effective careers office at a school undoubtedly makes a huge difference to MBA Mstudents. But in many ways, the employment credentials of schools’ graduates is just a product of the quality of students accepted on the programme in the first place, and the ability of schools to give those students the best education. Two of the most important measures are the average GMAT score of those admitted to the programme—the de facto MBA entrance exam—and how much previous work experience they bring to the classroom.

As a rule of thumb, students at North American schools have the higher test scores and Europeans the greater work experience. All six of the American schools in our top ten have average gmat scores of over 710 (out of 800). In contrast, students at London average 693, at iese 685 and at imd just 675. But IMD students will have nearly double the work experience of those at Stanford, for example.

This also helps explain why European students, on average, will earn more than their North American counterparts immediately after they graduate. Tenth-placed Vlerick Leuven may not have the cachet of Wharton, but that probably doesn’t concern its graduates, who will typically out-earn their prestigious American counterparts by $26,000 a year.

European schools also do well in the networking category, often because their alumni are more international. HEC Paris, for example, has 63 overseas alumni associations in 49 countries. Even in Asia and Australasia, where schools are often younger and haven’t had the time to build up extensive links, it is not unusual to find an international alumni network. The National University of Singapore’s business school has an impressive 37 overseas alumni associations.

Many American schools, however, have yet to open a single overseas branch. However, they undoubtedly have the edge when it comes to keeping their alumni active once they have left the programme. In this they are helped to some extent by having graduated more mbas each year for a longer time, meaning they have a bigger alumni base. But they also expend a lot of time and effort keeping their alumni engaged. Northwestern (Kellogg), for example, has 40,000 active mba alumni; Chicago (Booth) has even more.
Regional rankings

North America
These are difficult times for North American business schools. They have been widely pilloried for supplying the chief executives who were at the helm as some of the world’s most prestigious companies sank—for example, Richard Fuld of Lehman Brothers is a New York (Stern) alumnus, and Andy Hornby of hbos and Rick Wagoner of General Motors are both Harvard alumni. The financial crisis has hit mba students particularly hard. Not only are jobs harder to come by, but as banks started to feel the pinch, they pulled out of a scheme to supply loans to foreign mba students. Added to that was President Obama’s edict that firms receiving government bail-out money should hire Americans where possible. The result has been a drop in the number of foreign business students choosing American schools—hitting both revenue and class diversity. As if that wasn’t enough, schools have found that the generous donors on whom they had relied for years had stopped returning deans’ phone calls as endowment funds withered.
Full ranking

But all of these problems are relative. With the exception of just a handful of European schools, America remains the standard bearer for business education. With endowments still in billions of dollars, schools such as Harvard and Stanford are hardly on  pearl jewelry wholesale  their uppers—and no other business schools in the world come close to competing.

Europe
Europe boasts some of the world’s most prestigious schools. London, IMD, INSEAD and IESE are names that sit easily alongside America’s finest institutions. And although they may not be able to match the resources available to their cousins across the pond, they do have some undeniable advantages. Foremost is an unparalleled internationalism—in the student body, the faculty and the curriculum. This can make the European MBA an exciting cultural experience. At London Business School, only 35% of students are European, with 25% from Asia, 20% from North America and the remainder from Africa, the Middle East and South America.
Full ranking

Furthermore, European programmes are often shorter and the students older and with more work experience. If the mantra is that you should learn as much from your cohort as your professors, then this can make many European schools highly appealing. Ashridge students have an average of 13 years’ work experience; Durham’s have 10.

Asia and Australasia
The MBA market in Asia and Australasia is growing in terms of both size and, among the top schools at least, quality. Heavy investment in programmes is bringing the levels up to western standards—something that could not have been claimed a few years ago. At the region’s top-ranked school, Melbourne, for example, there are 49 full-time faculty teaching on the MBA programme, 98% of whom have a PhD. Students rate the facilities at the Hong Kong University of Science and Technology as the best in the world. Furthermore, with easy access to markets such as China, employment prospects for students from the top schools are burgeoning.
Full ranking

However, the increasing interest in Asian business education is both a boon and a potential stumbling block. The sheer number of programmes that are setting up, particularly in China but also in India, could see resources stretched in the coming years. In particular there is a concern over whether there are enough top-quality faculty to service such a high number of schools.

Questions will also be asked about the academic rigour of such programmes. Here the international accrediting bodies, such as AACSB, AMBA and EQUIS will have a huge part to play. (The China Europe International Business School, for example, has equis accreditation.) It may also encourage more western schools to set up campuses in the region, as insead has done in Singapore and Northwestern in Hong Kong.

AT THE start of the 1960s London’s status as a financial centre was in gentle decline, reflecting Britain’s waning importance in the global economy. Then the American government helpfully imposed Regulation Q and the Interest Equalisation Tax, two measures that encouraged investors to hold a lot of their dollars offshore. THERE was a time, a decade ago, when British Airways (BA) could credibly claim to be “the world’s favourite airline”, as its posters proudly affirmed. Not any more. And certainly not to those passengers who were hastily booking alternatives to their BA flights this week as the threat of a long strike over Christmas loomed. The walkout was averted on Thursday December 17th, but the underlying problems that led to the standoff remained unresolved. Compounding the woe came news of a series of two-day strikes at Eurostar, the passenger-train service under the English Channel, and the collapse of Flyglobespan, a Scottish airline.

The dispute at BA centres on its desire to cut costs by reducing cabin staff on most flights and limiting wage increases. The airline’s pilots and engineers have already accepted austerity measures; cabin staff, notified of the proposed changes in July, are less inclined to compromise (though some have taken voluntary redundancy). On December 14th inflatable slides   Unite, the union which represents almost all of the company’s 13,500 cabin staff, said they had voted overwhelmingly to strike.

The next day BA applied to London’s High Court for an injunction to stop them. The airline argued that Unite had not polled its members correctly: some votes were recorded from people no longer employed by BA, and the call for industrial action did not specify the intention to strike for 12 consecutive days precisely at Christmas. Had members known those details, fewer might have supported a strike, BA argued. The judge agreed, and ruled against the strike.

Industrial disputes are not the only issue bothering BA. More than 20 years after privatisation, it is still struggling with the legacy of state ownership. Grandfathered work practices allow cabin crew to spend two nights at a destination if the itinerary has been disrupted, which plays havoc when planes are redirected because of bad weather. According to the Civil Aviation Authority, it costs BA an average of £29,900 ($49,000) in cheap pearl jewelry  basic pay to employ a cabin attendant, compared with £20,200 for easyJet, the next-best payer among British airlines. BA staff work a maximum of 900 hours a year in the air, far fewer than European Union guidelines allow, and most can expect generous pensions.

Willie Walsh, the airline’s punchy Irish chief executive, was appointed in 2005 to knock such practices into competitive shape. He is unlikely to yield much ground to union militancy. It seems that BA’s core shareholders support him: the share price hardly moved when the strike was announced. Many reckoned that the benefits of BA’s restructuring outweighed the likely damage from the threatened strike. Estimates of potential net revenue loss over the 12 days ranged from £60m to £160m, whereas the benefits of restructuring were put by some analysts at £60m a year.

Such numbers are in any event small change compared with other losses looming over the company. BA is already expected to report a pre-tax loss of at least £400m in the year to March 31st, and perhaps as much as twice that sum. Its important North American routes and business have been hard hit by the collapse in business-class travel. This could bounce back quickly with economic recovery in America and, provided that cost increases from environmental measures are not too onerous, the long-haul travel on which BA’s profitability depends should revive in time. But, like all former national carriers in Europe, it is facing devastating competition on its short-haul flights from low-cost airlines. The only remedy may lie in creating or teaming up with a low-cost partner.

The planned merger with Iberia, the Spanish airline, looked as if it would be a winning combination a year ago when it was first mooted. Today it seems more like a mutual rescue operation. Both airlines’ national economies are still in the doldrums; both firms are multi-strand necklaces  struggling with costs greater than their revenues. Iberia seems unmoved by Mr Walsh’s fight with the union. It is also reasonably sanguine about BA’s other big problem: its enormous pension deficit. But according to the merger memorandum signed in November, Iberia can call off the wedding if BA cannot reach a satisfactory agreement with the trustees of its two pension funds.

On December 14th the trustees announced that they had recalculated the deficit of the two funds at £3.7 billion, based on March 31st valuations. BA is currently making cash top-ups of £131m a year. The Pensions Regulator will help to determine whether the trustees’ valuation is adequate and what must be done to plug the deficit. If BA has to pay in a lot more cash, Iberia could opt out of the merger. Pension valuations are notoriously susceptible to assumptions, and BA’s deficit could easily lurch between £1 billion and £8 billion.

Such uncertainties limit BA’s options, as well as its attractiveness to a merger partner. Any spare cash that the airline can generate should be used to replace its fleet of 55 ageing Boeing 747s, which are an average of five years away from retirement. But how much spare cash will BA have? Less, after its dispute with cabin staff, even though it won its case in court.