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Academy of Management Learning & Education, 2005, Vol. 4, No. 1, 75–91.

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Bad Management Theories Are Destroying Good Management Practices SUMANTRA GHOSHAL Advanced Institute of Management Research (AIM), UK and London Business School The corporate scandals in the United States have stimulated a frenzy of activities in business schools around the world. Deans are extolling how much their curricula focus on business ethics. New courses are being developed on corporate social responsibility. Old, highly laudatory cases on Enron and Tyco are being hurriedly rewritten. “What more must we do?”, the faculty are asking themselves in grave seminars and over lunch tables (Bartunek, 2002). Business schools do not need to do a great deal more to help prevent future Enrons; they need only to stop doing a lot they currently do. They do not need to create new courses; they need to simply stop teaching some old ones. But, before doing any of this, we—as business school faculty—need to own up to our own role in creating Enrons. Our theories and ideas have done much to strengthen the management practices that we are all now so loudly condemning. vested interests, which are dangerous for good or evil” Keynes (1953: 306). This is precisely what has happened to management. Obsessed as they are with the “real world” and sceptical as most of them are of all theories, managers are no exception to the intellectual slavery of the “practical men” to which Keynes referred. Many of the worst excesses of recent management practices have their roots in a set of ideas that have emerged from business school academics over the last 30 years. In courses on corporate governance grounded in agency theory (Jensen & Meckling, 1976) we have taught our students that managers cannot be trusted to do their jobs—which, of course, is to maximize shareholder value—and that to overcome “agency problems,” managers’ interests and incentives must be aligned with those of the shareholders by, for example, making stock options a significant part of their pay. In courses on organization design, grounded in transaction cost economics, we have preached the need for tight monitoring and control of people to prevent “opportunistic behavior” (Williamson, 1975). In strategy courses, we have presented the “five forces” framework (Porter, 1980) to suggest that companies must compete not only with their competitors but also with their suppliers, customers, employees, and regulators. MBA students are not alone in having learned, for decades, these theories of management. Thousands—indeed, hundreds of thousands— of executives who attended business courses have learned the same lessons, although the actual theories were often not presented to them quite so directly. Even those who never attended a business school have learned to think in these ways because these theories have been in the air, legitimizing some actions and behaviors of managers, delegitimizing others, and generally shaping the intellectual and normative order within which all day-to-day decisions were made. 75

Our theories and ideas have done much to strengthen the management practices that we are all now so loudly condemning. “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood,” wrote John Maynard Keynes (1953: 306). “Indeed the world is run by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences are usually the slaves of some defunct economist. . . . It is ideas, not

Editor’s Note. Sumantra Ghoshal died unexpectedly after drafting this manuscript. Our gratitude belongs to his son, Ananda Ghoshal, his secretary, Sharon Wilson, and his student, Felipe Monteiro, all of whom were instrumental in...
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