1

Lynn Parramore – How MBA Programs Drive Inequality

Business school students are taught to extract resources instead of creating value.

Over the last several decades, American business executives have made decisions that have exacerbated the inequality that chokes prosperity for the country. They have misallocated resources and they have awarded themselves mind-boggling compensation packages while workers have suffered stagnant wages and increasing job insecurity. The stats are shocking: In 1965, a typical CEO took in about20 times what an average employee earned, while the latest figures from the AFL-CIO put current CEO pay at 373 times what the average worker makes. (Amazingly, according to a forthcoming paper for the Institute for New Economic Thinking (INET) by Matt Hopkins and William Lazonick, even that ratio is grossly underestimated because it is based on grant-date fair value estimates of what stock options and stock awards might be worth, rather than how much CEOs actually take home when they exercise stock options and when stock awards vest).

Inequality holds back the growth of the entire economy, as research supported by INET has shown. Even today’s business elites are worried about its impact: In a 2015poll of over 2,700 Harvard Business School alumni, respondents said that they were more concerned about growing inequality than ever before. They saw it as a serious threat to the country, and to the bottom line of U.S. corporations. According to Harvard Professors Jan Rivkin and Michael Porter, and Harvard Business School Senior Fellow Karen Mills, who reported on the findings, respondents “remain pessimistic on balance about the likelihood that firms will lift American living standards by paying higher wages and benefits in the near term.”

Read More