© The Financial Times Ltd 2016 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
They say that mud sticks – when a person or organisation is vilified people remember it. But does this matter for a business school? If so, what can a school do about it and should students and alumni care?
In recent years these questions may well have been a topic of conversation in the offices of several prominent business schools.
In January a professor at Harvard Business School, Ben Edelman, published a blog describing his most recent paid consultancy work, which outed what he said to be the use of secretly intrusive “adware” by Blinkx, the online video search company, something the company strongly denies. “If I traded in the companies I write about (I don’t!), I’d be short Blinkx,” Prof Edelman concluded.
Some investors evidently took his advice and two days later shares in the UK-listed company fell by a third, leaving less savvy investors nursing heavy losses. Prof Edelman has not revealed the identity of his clients except to say they were US investment firms. Commentators, however, have pulled no punches.
“Edelman and his ilk degrade professional standards. This is a long- standing problem that business schools operate on a different level of conflict of interest disclosure than other academic units,” writes one at the end of an FT article on the affair.
“HBS should fire Edelman . . . HBS is a school of management, not a research house for sale to sleazeball hedge funds,” writes another.
HBS is not the only business school to come under public scrutiny relating to the consulting activities of a faculty member. In late 2011 Esade in Barcelona suffered a shock when a three-year investigation in Spain led to allegations of embezzlement of millions of euros of public funds by the Nóos Institute – a non-profit organisation headed by Iñaki Urdangarin, the Duke of Palma and son-in-law of King Juan Carlos of Spain. The duke denies any wrongdoing.
Esade’s name has been dragged into the scandal not only because the duke gained a graduate qualification at Esade in 2011, but also because Marcel Planellas, who was then secretary-general at Esade, had performed consultancy services for the Nóos Institute from 2004 to 2007. Prof Planellas has given sworn testimony to a court investigating the allegations. Now, more than two years later, although there is no suggestion of any wrongdoing by either the school or Prof Planellas, Esade is still mentioned in connection with the scandal in the Spanish press and in the Spanish blogosphere, with interest fuelled by the royal family connection.
Meanwhile, Columbia Business School is still trying to live down the uncompromising revelations in the film, Inside Job, which focuses on the payments received from financial institutions by the dean of Columbia, Glenn Hubbard, and Professor Frederic Mishkin for their consulting activities in the run-up to the financial crisis.
Despite the media storms these events generated, opinion is divided over whether the bad press matters and debate continues on how best to handle potential conflicts of interest.
“Intense media interest doesn’t mean your reputation is damaged,” says Rupert Younger, founder director of the Oxford university Centre for Corporate Reputation at Saïd Business School. A business school can simultaneously have a good reputation, such as for enabling students to secure a well-paid job on graduation, while also having a bad reputation for something else he says.
Kevin Money, director of the John Madejski Centre for Reputation at Henley Business School agrees.
“You have to ask yourself three key questions about reputation: For whom? For what? And for what purpose?” he says, explaining that for certain stakeholders focused only on a school’s networking opportunities, perhaps, a discussion about conflict of interest might be immaterial.
Prof Money says that while outside consultancy work is vital for business schools if they are to remain relevant, he concedes that “risk comes with the territory”. Business schools, he says, might begin to suffer from bad news associated with outside consultancy if that bad news lasts for a long time.
“Ethical behaviour in the long term will provide you with good long-term performance,” he says, adding that, long-term unethical behaviour will eventually have a deleterious effect.
Students and alumni would be justified in worrying about their business school if it was consistently mentioned in non-favourable media reports, according to Charles Fombrun a former academic at the Wharton school at the University of Pennsylvania and NYU Stern who is chairman of the Reputation Institute, a US-based consultancy.
“As a student it would mean you’re investing in a depreciating asset. I think it would matter to the student.”
Institutions also have cause for concern. A decade ago Mr Fombrun measured what he calls “the reputation halo” of a number of business schools and ranked them according to the different criteria. The rankings were published. A year later he was able to see a measurable effect in alumni funding. Those schools that were ranked low had seen a fall in funding, those ranked more highly had seen a rise. Reputation, it appears, matters.
Mr Fombrun believes that consultancy work does carry reputational risk. He says schools are conscious of this and over 25 years he has participated in many discussions and committees that looked at this topic.
“There was always a concern and a discussion about the degree to which professors should be allowed to do [outside] work,” he says.
“If you prevent professors from engaging in activity you can limit the income they make and then you can’t attract the stars.” This can damage a business school’s good name he explains, because star faculty members enhance a school’s reputation.
. . .
The reluctance to discourage star players might account for business schools’ careful handling of conflict of interest guidelines. Where these are explicitly stated, most schools appear to rely upon disclosure as a means of curbing any professorial excesses.
But disclosure might not be enough. In a 2205 paper called The Dirt on Coming Clean, Daylian Cain et al found that: “Disclosure may fail to solve the problems created by conflicts of interest and may sometimes make matters worse”. Disclosure can have perverse effects, they say.
Revising the rules
How heavy handed should business schools be when it comes to handling potential conflicts of interest?
Schools can choose to require disclosure or impose stricter rules or guidelines. Columbia hit the headlines in 2011 for toughening its conflict of interest rules. It made the move after the film Inside Job came out, but says it was in the process of revising them anyway. The revised guidelines state that professors must now publicly disclose all outside activities that create or appear to create conflicts of interest. Additionally, a section on outside activities must also be included in professors’ annual Faculty Activity Reports.
Harvard also relies heavily on disclosure in its rules, but the rules also spell out ethical norms, such as: “Faculty members should refrain from actions that could reasonably bring discredit upon Harvard and their own academic and scholarly integrity.” In addition, the rules prohibit certain activities such as entering into any form of commercial relationship with a student.
Academics at Saïd Business School, however, must comply with a different approach set down by the University of Oxford. Instead of relying simply on disclosure, rule number one is that all university employees must obtain approval from their head of department before undertaking paid outside activities.
Copyright The Financial Times Limited 2016. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.