The Wizard of Oz and the Business School

Much has been made about fraud in industry, but there is as much fraud in education.  An example is the enrollment of unqualified students who are told that they will find jobs appropriate to college graduates but never will because they lack the writing skills.  Often, colleges will tell applicants  that if they matriculate, they will get high-paying jobs. The students do the necessary work, and of course make the necessary payments, but in the end they do not get a job equal to the one promised.  This is especially true of business schools, which use statistical manipulation of data on graduates' salaries to trick students into attending.

The film The Wizard of Oz adumbrates the academic scam.  The Wizard tells the Scarecrow that he doesn't need a brain--all he needs is a diploma.  As William Leach points out in his Land of Desire, which is about consumerism, The Wizard of Oz is about consumerism, for its author, Frank L. Baum, was one of the first modern advertising men. He created the window displays at Wanamaker's.  The Wizard, the man behind the curtain, is the same old snake oil salesman whom Dorothy knew in Kansas, but he uses new imagery:  the medal for the Cowardly Lion, the testimonial for the Tin Man, and the diploma for the Scarecrow.  Coinciding with the development of commercialism and marketing is the development of the university degree, a replacement for intellect and education.  This point is captured by Robert M. Hutchins, president of the University of Chicago in the 1940s, who decries the advent of the anti-intellectual university in his Higher Learning in America.  

But the illiteracy-producing university?  This is a topic that deserves more scrutiny. How many of America's college grads cannot write and are literally illiterate?
 
I moved to Manhattan after a small college on Long Island canned me. One of the doormen in the building had attended the same college. The college produced doormen.  Like Dante's admonition to abandon all hope,  they should have said as much above the doorway to the administration building, perhaps employing one of their own alums to open and close the door for prospective students. 

What is the role of standards-setting bodies in limiting the modern university's fraudulent production of illiteracy?  From what I can tell, the current standards-setting bodies in American universities are indifferent to whether college graduates can read, write, or do basic arithmetic.  Admittedly, I have not studied the question, but recently I heard a former chair of the board of trustees of a public university state that his students were at the national norm. But I know first-hand that a large share of his students are illiterate.  This suggests that the problem is pandemic.

Is the production of illiterate college grads a form of fraud?  If the college admits openly that it is graduating illiterate students, and it tells the students that if they cannot write, then they cannot find jobs, then it is not committing fraud.  The board of trustees chair did no such thing.  He insisted that his illiterate students are literate.  The students pay for an education, so if they are paying thinking that they are being educated, and they are not, then the university is committing fraud.  Fraud is lying for money.  Colleges like to claim that their graduates will all get great jobs.  I suspect that a large share of colleges, including top business schools, routinely commit fraud.  Many, but of course not all, higher education institutions have ethical characteristics much like Enron's.

The Concept of Fiduciary Duty in Business Administration

Business schools have been in existence for more than a century, but they have failed to articulate a meaningful explication of the concept of fiduciary duty as it applies to managers. This omission is striking because the primary duty of management is to serve shareholders. The subject of economics, specifically information economics, has developed an attenuated image of fiduciary duty as alignment of two utility functions--that of manager or agent and that of principal or stockholder. However, the practical ramifications of such alignment are not explicit and remain a sphinx-like riddle.

Do managers owe a duty of disclosure to shareholders, and if so, what competencies are required to exercise such disclosure?

Do managers owe a duty to act in good faith toward shareholders? If so, what is the ethical make up required of managers?

Must managers be capable of explaining bad news in a balanced way? If so, what competencies are required?

Are managers expected to act on behalf of shareholders? If so, to what degree does an understanding of economics, incentives and accounting serve as a pre-requisite to competent managerial action?

How far are boards expected to go in assessing personnel standards and systems?

These questions are not asked in management courses. Nor are they answered. They are not asked in business schools at all, nor are they answered.

It is not surprising that American business has become a spectacle of bad ethics, incompetence, mismanagement and waste. Corporate boards have not been required to develop standards of competence. Little is expected of boards. Managers are compensated on the basis of stock market trends that do not reflect managerial skill.