Flawed b-school ideas

It's interesting that there has been much finger-pointing towards b-schools in the massive debate on capitalism prompted by the present crisis. In the Satyam episode, some of the outrage stemmed from the realisation that two b-school dons were on the board.

As I have pointed out in earlier blogs, I don't really buy the stuff about 'excessive' focus on shareholder value and how b-schools have gone wrong in overemphasising this aspect of capitalism. For a change, I came across something more sensible in this article by Richard Layard of the LSE's Centre for economic performance. Lord Layard points out three b-school ideas that need to be questioned:

Three ideas taught in business schools have much to answer for. One is the theory of “efficient capital markets”, now clearly discredited. The second is “principal agent” theory, which says the agents will perform best under high-powered financial incentives to align their interests with those of the principal. This has led to excessive performance-related pay, which has often undermined the motive to work well for the sake of doing a good job and introduced unnecessary tension among colleagues. Finally, there is the macho philosophy of “continuous change”, promoted by self-interested consulting companies, which disregards the fundamental human need for stability – in the name of efficiency gains that are often not realised.