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If business schools in western economies were owned by public shareholders, investors would be anxious today to sell their holdings. The outlook for many business schools is as ominous as the financial pages in the last recession: falling enrolments, lay-offs, rocketing prices that are out of reach for many, funding cuts, formidable competition for the lucrative international student market coming from their home countries (China and India) and low-cost competition from online education.

But the worst of it is that many business schools in Europe and North America cannot restructure themselves quickly enough. The reason is a stifling obstacle that would drive away even the most daring private equity firms from making a purchase offer: tenured professors. Tenure makes it extraordinarily difficult for administrators to fire non-performers. It limits the flow of research funding from stable and less-critical domains to emerging and crucial areas. And it enables professors to resist more effective but radically different teaching methods – particularly online technologies that should be revolutionising the classroom as much as they’ve already reshaped the office.

At business schools that provide it, tenure has become a guaranteed job for life. Believing that it fostered incompetence, UK Prime Minister Margaret Thatcher did away with tenure for new professors in 1988 at English universities, with the Higher Education Reform Act. Yet tenure still rules at US colleges, as well as at certain schools in the rest of Europe.

So how bad is tenure for business schools? Let me count the ways:

● It protects the incompetent. Tenure restricts business schools from firing professors who no longer perform at their pre-tenure levels. Only an estimated 0.02 per cent of US professors have their tenure revoked annually, a dismissal rate limitation that no high-performing chief executive would accept from his or her board.

● It layers in costs. A single tenured professor who teaches for 35 years costs a college about $11m, according to Mark Taylor, Columbia University’s chair of the department of religion. The inability to easily reduce the expense of non-performing teaching staff is costing business schools dearly. A study of one premier US university found that if it could fire unproductive teaching faculty and motivate half its professors to be as productive as the top 20 per cent, it could save nearly $300m a year.

● It enables professors to resist new teaching methods. The content of professors’ lectures and the way they deliver it (through the classroom and books) are as easy to digitise as news, music, television and radio shows. Why, then, do so many professors continue to drone on in big lecture halls with little interchange when they could provide far more dialogue by delivering their wisdom through the academic version of a social networking site?

● It restricts the ability to rapidly shift research and faculty investments from static subjects to emerging and more critical domains. Many business schools must compete for endowments and other resources with their peers in non-business curriculums. The Center for College Affordability and Productivity, a US non-profit research centre, has decried tenure. “With a tenure system, colleges are not able to reduce the number of medieval history professors in order to increase the number of information technology and business professors,” it said in a 2010 report.

Business schools need to replace tenure with multiyear rolling contracts. Those professors who are not performing would be given notice or bought out of their contracts. Even one-year rolling contracts would be attractive to some professors – especially those whose expertise is in great demand and short supply.

Business professors should be made to seek more outside funding for their research and depend less on internal funds for it. Internally funded research drains resources; business schools can significantly reduce costs if a sizeable portion of the budget is provided by externally funded research. More importantly, such research has a significantly greater chance of lacking the relevance that would be forced upon it by external customers.

Clinging to tenure will cost western business schools dearly. This would not have been an issue over the past 50 years, when US and European business schools were indisputably regarded as the world’s finest. But that has changed. China and India have invested heavily in their business schools and their quality has improved significantly. The number of Asia-Pacific business schools in the FT’s top 100 MBA programmes has doubled since 2009, from seven to 14.

Business schools have long taught that a company that ignores customer needs will not last long in a competitive market. Management gurus Peter Drucker and Jim Collins both criticised tenure and, more recently, with billionaire venture capitalist Peter Thiel urging – and paying – aspiring entrepreneurs to skip college and get cracking on their ventures, we know something is wrong with business schools. What is wrong is tenure and the faculty incompetence and calcification of teaching methods that it has created among a minority but nonetheless troubling number of business teaching staff.

In today’s global market, with fleeting product cycles, continuous innovation and agile business models, tenure is the ultimate business irony. Some argue that without tenure it will be difficult to attract the best and brightest to careers as business professors. But can we expect the most innovative thought leadership from those whose top priority is job security?

The writer is professor of information technology and founding director of the Institute for Internet Buyer Behavior at Rawls College of Business at Texas Tech University

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