BY WHAT right do managers run companies? Daft question: because they have the knowledge and skills to do it. That's the accepted line - managers are the visible hand that takes over where the writ of the market doesn't run, using the technologies of organisation to gain economies of scale that the market can't match. This version is now so taken for granted that it is effectively 'invisible'.
But in the late 19th and early 20th centuries, as Rakesh Khurana shows in a masterly new survey, conquest of the industrialising economies was as bloody as that of the Wild West. That large companies and managers came out on top was not inevitable or 'natural', but the result of a fierce institutional battle largely decided in favour of the winners by a marriage of convenience between management and business schools.
From Higher Aims to Hired Hands (Princeton) charts in compelling detail a symbiotic and often perverse relationship in which management and business schools decisively shaped the purpose of the corporation, which has then fed back to alter the theory and practice of management. It's a remarkable and uncomfortable story.
As suggested by the subtitle - The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession - Khurana, a Harvard academic, views management as not only an unfinished but a crippled project. His case is that having failed to establish a 'grand narrative' of management as a profession with a claim to moral leadership, business schools were an easy prey for outside influences that bounced them into adopting a much narrower role. First supplying technocratic organisation men to run the conglomerates of the Fifties and Sixties and, latterly, even further from the founding ambitions, simply supercharging the career prospects of their graduates.
By a supreme irony, the theories currently elaborated and taught in business schools, notably agency theory and transaction cost economics, de-skill and de-legitimise management by turning managers into the hired hands of the title. They exactly reverse the professionalisation project. Small wonder that those taught that self-interest drives everything take the doctrine at its word. As Khurana notes, the corporate scandals of the past few years are 'bitter fruits' of business school developments in the Seventies and Eighties.
Now, while apparently at the peak of their power, business schools find themselves in full existential crisis, impaled on a painful prong of their own making. If management is not a profession but sim ply a means of amassing private wealth if, as the theory suggests, management gets in the way of the efficient functioning of markets and is thus the problem rather than the solution - what are business schools for? And why should management studies be taught in publicly funded universities?
How did it happen? Khurana leads us through the institutional twists and turns with nary a false step. He shows that, subverted both from without and within, the professionalisation project - 'so to broaden the minds and raise the ideals of its graduates that it will do something to elevate the business community above the plane of mere money-getting', as the Tuck School put it - never even approached completion. Lacking a critical mass of moral or factual authority, management has never defined itself in the terms called for by an early Harvard dean: 'While 2+2 in mathematics may always be 4, 2+2+ the X of human relations... is never 4... A new conceptual framework was required.' With business academics beavering away in deep furrows increasingly unconnected with actual business practice, it still is. The mission of instilling 'leadership', now desperately invoked as a new business-school role, is also undermined by the glaring lack of an accepted fact base.
Meanwhile, theoretically and in practice, business schools are in the grip of a market logic which, as Khurana points out, doesn't even allow consideration of the questions being asked of them. The interests of academics, students and business continue to diverge, and MBA grades are on the decline. Why should students work when the point of an elite degree is not to gain practical knowledge (unnecessary for a career in financial engineering) but access to networks and to signal to employers that they are the elite? Maybe Oxford's long resistance to a business school wasn't so unreasonable.
Khurana's meticulously researched account ends with a call for renewal of the idea of management as a profession - otherwise, it will find its privileges regulated or forcibly wrenched away. Coming as it does out of Harvard, the most iconic of business schools, From Higher Aims... could hardly be a more provocative and timely intervention. It's no beach read (500 pages, 100 of them notes), but anyone remotely interested in management and its future should get hold of it - and ignore its lessons at their peril.
The Observer, 7 October 2007