Part of the fallout of the economic crisis has been news reports questioning whether b-schools need to rethink their curriculum so that they aren’t turning out leaders who make unethical decisions.
But when I have been asked as a finance professor whether business schools need to scrap what they’ve been teaching, my answer is no, we do not need or want to change our curriculum. Simply put: If everyone in the world understood and bought into the material in our curriculum, there would have been no financial crisis. Period.
The people who took out loans they could not afford were either naïve or unethical. The same thing is true for the mortgage lenders who pushed these loans (although, here I put more weight on the unethical).The people who bought the bundles of these loans without sufficiently investigating them were grossly negligent. People at the financial institutions (hedge funds, investment banks, Fannie Mae and Freddie Mac) that were so over-levered apparently did not attend any of our classes that point out that leverage makes your position riskier and extreme amounts of leverage make your position extremely risky.
I cannot think of a single financial principle (including ethical principles of finance) that needs to change because of recent events. What will change is that now we have a whole host of new examples with which to make our points, and to drive home our existing principles. Recent events cannot help but change how individual instructors deliver these principles and what they emphasize.
For example, a major contributing cause of our problems is that many people over-relied on models—simplifications of reality. We as educators must do a better job of emphasizing that, while models can be very useful tools, they can easily be misused. I have been studying the financial crisis for some time now and I have yet to see even one of the financial principles that we teach fail to hold true—just a lot of people ignoring or misinterpreting the fundamental financial and ethical principles that are already part of our curriculum.
In the face of so much negative publicity surrounding the finance industry, it’s tempting to suggest that those of us who teach the future executive leaders should go back to the drawing board, or add new courses to prevent the very bad decisions we’ve seen from being repeated. Some of this discussion might be useful, but I stick by my point. We are teaching the right things. We are in this situation because too many people did not do the right things. The main change we have to make is to use this as a teaching moment and integrate these new examples into our classes where they are appropriate in order to illustrate the principles that we currently teach.