December 4, 2011 11:27 pm

From the editor: Trouble at the top

When the alleged UBS rogue trader Kweku Adoboli was accused of causing a $2.3bn (£1.4bn) loss at the bank in London, business school professors were out in force. They blogged their analysis, tweeted their advice and generally pontificated at large on the issue of corporate governance.

I must say I was mildly amused by these responses. Arguably the most idiosyncratic aspect of European business schools is the range of different types of ­inappropriate governance systems that they labour ­under. And in particular, how different they are from the “real” world when it comes to appointing the big chief.

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IN European Business Schools 2011

Of course, most US and UK university-based business schools follow a straight­forward system in which the president (US) or vice-chancellor (UK) appoints the dean of the business school based on recommendations from a search committee or firm. Presidents hire and only presidents can fire.

But non-university-based schools are different. The question of governance came to a head a few years ago when deans at the top schools began toppling like ninepins. First to go was Robin ­Buchanan at London Business School (LBS), who lasted just 15 months in 2007 and 2008. John Wells lasted just over two years at IMD in Switzerland, leaving in June 2010. And at Insead, near Paris, Frank Brown handed over the deanship to Dipak Jain in February, without completing a five-year term.

What is significant is that each of the three schools has a different way of appointing the top dog. The most straightforward is London Business School, which ­effectively operates as a standalone business school even though it is part of the University of London. There the process is led by a search committee, which makes a recommendation to the school’s governing body. So far, so good. But the governing body also has to take into ­account the views of the school’s faculty board.

Faculty involvement moves to another level at Insead, where the business school is set up as an association rather than a not-for-profit. There, faculty decide who they would like to be dean and recommend the candidate to the board of governors, who make the ­appointment. It is hard to imagine any other organisation – commercial or academic – allowing the workers to effectively decide who will be their new boss. When the FT is next looking for an editor, will jobbing journalists be asked to vote?

Strange though it seems, IMD, the most corporately minded of European business schools, is in the process of increasing faculty involvement in the appointment process. IMD was established as a foundation, under a supervisory board that makes the decision on the top job following the recommendation of a search committee. But, at the time of going to press, there was a proposal on the table to ask faculty members to recommend two internal professors to the board when the dean’s position is next up for grabs.

And what is significant at all three schools, is that it was the faculty, not the students or the managers who studied at the schools, who brought down the deans.

IMD operates much like a commercial company. IE Business School in Madrid, on the other hand, acts like a not-for-profit, but is actually a for-profit company owned by one man, Diego del Alcázar, Marquis of la Romana. The kingmaker, he is the man who appoints the dean.

At the French business schools, and in particular HEC in Paris, the Chambers of Commerce are instrumental in the governance of the schools. So much so that it is the boss of the Paris Chamber that appoints the HEC dean.

Governance issues and faculty involvement go beyond the appointment of the dean. At HEC, for example, it is the faculty who get to vote on who should hold the senior faculty positions, regardless of the dean’s wishes.

And it does not look as if issues of governance will go away. In March this year the board of the Copenhagen ­Business School announced that it had fired its president (dean), Johan Roos, while in May the director (dean) of EM Lyon in France, Patrick Molle, announced he was going to step down. In both cases, a fall-out with faculty appeared to be part of the problem, as well as a desire by both deans to change the structure of the business school.

Of course, there is another issue that needs careful consideration. Five of the top six European business schools in the FT ranking, it seems, operate outside the traditional university governance systems. So do faculty know what is best for their business school after all?

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