My grandfather turned 100 years old earlier this year. Tomorrow I'll see him at the Thanksgiving table again.
We often talk about current affairs. As an old Rockefeller Republican, over the years, he's been more conservative than I; but that has changed over the last few years. Last year he supported Obama when I was still pulling for John Edwards (cue groan); sometimes someone just shows a spark, he said. He was right.
Earlier this year, I remember talking to my grandfather about the financial crisis, specifically bond rating agencies. Isn't there an inherent conflict of interest in an organization paying a ratings agency to rate its own bonds? “Sure there is,” he said; “but what the agencies forgot is that their honesty and independence were worth money.”
So there's that. But last night watching Frontline's show on credit cards, I was reminded of the tension between the demands of market economics and “rational action”, and a personal ethical baseline, a sense that “I won't do it simply and only because it's wrong.” I don't disagree with my grandfather: I agree that trust is like oil in the engine of an economy; trust is an assumption of your partner's integrity. But integrity and self-interest are not always mutually supportive, particularly when there's an imbalance of power and information. And we need to admit that. Sometimes your smarts and skill in playing the incentives leads you to do wrong … just plain wrong.
Anyway, my grandfather is an early 1930's graduate of Harvard Business School. Late last year the HBS alumni received a letter from the Dean regarding the school's response to the financial crisis: It counted the new ways in which the school was instructing its students (e.g. adding Bear Stearns to its case studies) and helping alumni ride out the crisis. It was all rather technical, analytical, self-congratulatory … and strangely cold-blooded, in that familiar Harvard way. For example:
Developing an understanding of the crisis touches virtually everything we teach in the MBA program, and will permeate our curriculum for years to come. The beauty of the case method and our classroom is that we can incorporate new materials extremely quickly, allowing learning to happen in real-time. [etc.]
… The months ahead will bring many challenges. The School's operating philosophy will be one of caution and prudence; in all our efforts, we must focus on the core and distinguishing elements of the School: delivering outstanding educational programs, developing path breaking research that is close to practice, and communicating important ideas worldwide.
Got all that? You'll have to trust me that the rest wasn't all that much more specific or enlightening.
My grandfather wrote this letter in reply. I hope the moral note is not missed:
December 20, 2008
Jay O. Light
Dean of the Faculty
[address @ HBS]
Dear Dean Light,
Thank you for your letter of December 1, 2008. I have read it over carefully three times. It is good to have your update on what you feel are the School's problems and the proposed efforts you and the faculty will undertake in making improvements.
But you have, in my opinion, completely missed two critical areas of management and scholarship that also need attention from you and your faculty.
Item 1: If, as we all assume, the Harvard Business School is the principal leader in the nation in scholarship and teaching in the field of business, and an integral part of the team of graduate schools at Harvard University, then the Harvard Business School must also recognize that the enormous source of failures that have created the recent financial crises may also be the partial fault of the school, due to lack of oversight and critical thinking.
In hindsight, we wonder how anyone, with a good understanding of banking, could think that an agent of the bank could bundle together weak home mortgages and thereby create a reliable investment. The fact is that the sales agent got immediate pay, with no responsibility, and then rode on the trust and favorable reputation of the issuing company, violating two basic principles of banking.
Where was the management course of our Business school? What do we teach differently in the future?