Are business schools to blame for the economic crisis? Finance professor George Morgan, who has followed some of the considerable commentary and debate about the culpability of U.S. business schools, says the question is still unresolved.

Public commentary so far has focused on ethics, conflict of interest, and financial thinking in general—all of which have played a role in the crisis, Morgan says. His own view of finance education, he says, is that “it’s not so much about return as about risk—about how to avoid losing money. What pitfalls can you avoid by being smart about what you do?” These lessons, he says, may not have been communicated effectively, were not embraced adequately, or were forsaken in practice.

Ignored Lessons

“Most business finance faculty are bewildered that the lessons we thought we were teaching about sound financial management appear to have been so soundly ignored in recent years,” Morgan says. Prudent lending, especially the importance of investigating credit worthiness; the riskiness of high leverage/debt; conservative, risk-avoiding or risk-reducing strategies—“all appear to have been abandoned, as we’ve seen a rush to seek risk and apply advanced concepts without understanding the basics.”

(From left) Raman Kumar, George Morgan, Randy Billingsley

“Some of us are asking ourselves some tough questions: Did we spend too much time on ‘advanced’ strategies and not enough on the basics? Did we not assess accurately whether our students learned these lessons? Or, is this the best we can hope to achieve?”

The crisis itself, Morgan says, will help to reinforce the time-honored lessons of sound management. “The receptiveness of our audience may change, as it does after every recession or crisis—at least until the next bubble inflates.” Or, he adds, “we may need to adjust our lesson plans.”

Morgan and finance professors Raman Kumar and Randy Billingsley discuss the economic crisis, the government’s responses, and research topics arising from the crisis in the latest Research magazine. Read the story, “Everyone has questions about the economy,” available online at www.research.vt.edu.