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Academy of Management Learning & Education, 2005, Vol. 4, No. 1, 96 100.

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Why Do Bad Management


Theories Persist? A Comment
on Ghoshal
JEFFREY PFEFFER
Stanford University
In a word, Ghoshal (this issue) is right. He is right
in the sense that economics is indeed taking over
management and organization science, just as it
has taken over political science (Green & Shapiro,
1994) and law (Posner, 2003) and is making inroads
into sociology (Coleman, 1993) and psychology
trends that have been occasionally documented
and could, and should be, empirically studied (e.g.,
Pfeffer, 1997: 1314). As noted by Bernstein, the
field [economics] has more and more tended to
dominate the formulation of curricula and research
agendas in all of the social and policy sciences
and, in some cases, even in the humanities (2001:
3). Ghoshal is right that this takeover matters, because social theories matter. The theories that
come to be believed and accepted affect both public and organizational policies and practices.
Moreover, as Ghoshal notes, theories, once accepted, set into motion processes that tend to ensure they become self-fulfilling (see, e.g., Ferraro,
Pfeffer, & Sutton, 2005, for a discussion of this phenomenon).
And Ghoshal is certainly right when he reiterates an argument that he first made a while ago:
that the assumptions of much of economic theory
and the effects of these assumptions on people and
institutions can be harmful (Ghoshal & Moran,
1996). In fact, as I will discuss presently, I think
Ghoshal if anything understates the potential
downside to the inculcation and acceptance of economic language, assumptions, and theory. Finally,
Ghoshal is right in asking what role business
school academics have played in the rise of a
particular form of theory that is bad for practice.
His article appropriately questions what we are
teaching and what we and our professional associations are doing in a world in which business
organizations are having their legitimacy questioned and in which scandals and misbehavior
appear rampant. In short, this is an impassioned,
important, and impressive work that made me

mourn all the more deeply the untimely passing of


its author.

In short, this is an impassioned,


important, and impressive work that
made me mourn all the more deeply the
untimely passing of its author.
But having said that I agree with essentially all of
Ghoshals arguments, which I do, does not mean I
am completely comfortable with where we collectively are in this discussion or even where his
article leaves off. What I want to argue is something first argued more than a decade ago (Pfeffer,
1993) in an article that is often cited but seldom
understood for its intent: that all of the processes of
theoretical domination and displacement that
Ghoshal and others talk about are, in fact, (a) capable of being empirically studieda task that
largely remains to be accomplished, at least in the
organization sciencesand (b) are, at their core,
very much political processes and need to be at
least in part analyzed and discussed as such. If we
are going to do something about the growing dominance of theoretical perspectives that are harmful
for practice, we need to take collective action or
else nothing will change. Until we both acquire
more understanding of how theory develops in the
organizational and social sciences and use that
understanding to organize ourselves for action, we
will have, I am afraid, many more well-argued,
brilliantly written treatises like Ghoshals, but the
prospects for change will remain dim.
So, having agreed with essentially all of
Ghoshals arguments, I believe it is important to
ask the next logical question: If he is right, and
the management theories we are teaching are as
harmful and negative as he maintains, if much of
what we wind up teaching is, in fact, bad for
practice (Ghoshal & Moran, 1996), what has caused
these harmful ideas to gain and maintain such
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Pfeffer

ascendancy? Until we deeply understand the answers to this question, progress in changing the
situation will be limited.
ITS EVEN WORSE THAN GHOSHAL MAINTAINS
Ghoshal argues that we need to own up to our
own role in creating Enrons, and indeed we do.
There is evidence that both economics, a subject
that forms the foundation for most business
schools and a majority of business school courses
and education, and business school training and
business school environments themselves, can
have deleterious effects.
Consider first the effects of business schools on
student values and behavior. An Aspen Institute
study (2001) found that student values changed
during their two years in the MBA program. Not
surprisingly, over the time they were in business
school, enhancing shareholder value became more
important and customers and employees became
less important for the students. Business education
apparently also has effects on conduct beyond
business school. A study of citations for violating
occupational safety and health regulations found
that the positive effect of firm size on the number of
citations received by organizations in the sample
was mediated by the MBA composition of the top
management team. The link between firm size
and corporate illegal activity becomes stronger as
the percentage of TMT [top management team]
members possessing an MBA degree . . . rises
(Williams, Barrett, & Brabston, 2000: 706). Studies of
cheating and student values also raise questions
about the role of business education. For example,
in a large empirical study McCabe and Trevino
found that business school students placed the
least importance on knowledge and understanding, economic and racial justice, and the significance of developing a meaningful philosophy of
life (1995: 211) and that business majors report
almost 50% more [cheating] violations than any of
their peer groups and almost twice as many violations as the average student in our study (p. 210).
Economics training also has some important
consequences for behavior. As reviewed elsewhere (Ferraro et al., 2005) there is evidence that
taking economics courses or majoring in economics results in (a) more free-riding (e.g., Marwell &
Ames, 1981); (b) more defection in prisoners dilemmas experiments (e.g., Frank, Gilovich, & Regan,
1993); (c) more selfish behavior in ultimatum games
(Carter & Irons, 1991); and (d) more willingness to
recommend a plumber for a film club when the
plumber charges a higher price but the subject
personally receives more money for making the

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recommendation (Frank & Schulze, 2000), an example of succumbing to the temptation to behave
corruptly.
These data on the effects of both business
schools and economics raise the interesting question of whether the observed effects are the result
of self-selectionwho attends business schools or
majors in economics or the educational and socialization process (e.g., Frank et al., 1993) that
occurs in these classes and settings. It is likely that
both effects may be operating. In any event, further
exploration of the question of the effect of business
school and economic education on values and behavior, and the mechanisms by which such effects
occur, would seem to remain an important research agenda.
THE PROBLEMATIC OF THE CURRENT
SITUATION
It is easy to forget, as one reads Ghoshals wellwritten lament about the current state of affairs,
that economics was not always so dominant a social science, nor was the content of economics,
with its neoclassical, antigovernment intervention
slant and its emphasis on mathematical proof, always as it is today. Bernstein (2001) opens his history of the transformation of the economics profession in the 20th century by describing how the
Smoot-Hawley tariff was passed in the Hoover administration even though one third of the members
of the American Economic Association had signed
a petition opposing it, as a way of illustrating the
limited influence of economics at that point in
time. Bernstein also describes how the economics
profession was very early on not only concerned
about increasing its membership but also quite
self-conscious in embarking on strategies to enhance its influence: No amount of enforcement of
particular boundaries of expertise could substitute
for the rigorous refinement of colleagues that
would result from the inculcation of specific ways
of doing the [economic] communitys business
(2001: 20).
Considering the content of economics and the
form of economic theory, Kuttner (1996), among others, reminds us that that the reliance on mathematical proof and the ascendancy of an emphasis on
market-based solutions to almost every problem
and disdain for the role of government and regulation is a relatively recent phenomenon. In the
1950s, Milton Friedman was dismissed as a curiosity. By the 1980s, Friedman and several of his followers had won the Nobel Prize (Kuttner, 1996: 33).
Kuttner (1996) has analyzed when markets and
conventional economic models work and when

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Academy of Management Learning & Education

they dont, and he argued that current versions of


economic theory make claims for the soundness of
their empirical analysis and policy prescriptions
that exceed the reality of what they are able to
accomplish. Bazerman (2005: 25) maintains that
during the last twenty-five years, economic theory
has been proven systematically wrong. Ghoshal
claims that academic research related to the conduct of business and management has had some
very significant and negative influences on the
practice of management.
Taken together these statements raise an important question: Why do harmful theories that may
also be descriptively inaccurate gain such widespread acceptance? A number of answers have
been offered, and each may have some validity.
Bazerman (2005) argues that the social sciences,
other than economics, have been reluctant to be
sufficiently prescriptive and engaged in policy issues and debates. Another part of the answer may
be that theories become self-fulfilling (Ghoshal,
this issue, Ferraro et al., 2005), so that once accepted as true, processes unfold that make the
theories become true. Ghoshal also argues that the
pretense of knowledge and rigor supports the continuing acceptance of bad theory. After critiquing
agency theory and its effects on corporate governance, Ghoshal asks why that particular perspective has so much currency in the face of disconfirming evidence and ineffective prescriptions,
and why various alternative perspectives have not
taken hold. His answer: such a [alternative] theory
would not readily yield sharp, testable propositions, nor would it provide simple, reductionist prescriptions. . . .we would have to fall back on the
wisdom of common sense. And finally, ideology
also plays a role in determining what theories
become more accepted, even in domains such as
scientific research that are ostensibly value-free
(Ghoshal, this issue).
But it is also something more than these explanations, which, by the way, ought to be systematically empirically studied. Research by scholars
such as Dezalay and Garth (2002) and FourcadeGourinchas and Babb (2002), as well as the historical study by Bernstein (2001) suggest that the rise
to prominence of economics and the particular
style of research and ideology that came to predominate within economics was affected by the
particular history, actions, political context and
contests, and institutions of each particular country and time period. So, for example, ideas follow
money and power, and the growth of particular
ideas about economy and society was helped
along by foundations and research institutes that

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received funding from conservative sources (e.g.,


Blyth, 2002; Kuttner, 1996).
Although there have been some historical studies of the origins of theoretical concepts and language in management (e.g., Shenhav, 1999; Barley
& Kunda, 1992), this particular research focus remains comparatively underdeveloped. To unravel
the fundamental question Ghoshals article raiseswhy do we teach what we teach and theorize
using the particular models and approaches we
doalmost inevitably will lead to a focus on the
sources of business school funding and the dynamics of the interaction between schools and those
external groups and organizations on which they
depend (Pfeffer & Salancik, 1978).

To unravel the fundamental question


Ghoshals article raiseswhy do we
teach what we teach and theorize using
the particular models and approaches we
doalmost inevitably will lead to a
focus on the sources of business school
funding and the dynamics of the
interaction between schools and those
external groups and organizations on
which they depend (Pfeffer & Salancik,
1978).
But understanding the processes of the development of paradigmatic dominance, where ideas
come from and how they obtain prominence, and
what determines the status position of a particular
social science seems necessary if we are to eventually answer the paradoxical question of how theories that are both wrong and harmful can achieve
such exalted positions. That understanding would
also appear to be necessary as a basis for action to
attempt to change the current state of affairs.
A LEGACY FOR SUMANTRA: FROM ANALYSIS
TO ACTION
The start of publication of this journal has been
accompanied by a plethora of critiques of business
schools and business education and their effects
on management (e.g., Pfeffer & Fong, 2002; Mintzberg & Gosling, 2002; Mintzberg, 2004). Two themes
from this literature seem to be particularly relevant to ideas and themes covered in Ghoshals
work here.
First, a number of authors have bemoaned the
focus of business research and business education. For instance, Walsh, Weber, and Margolis

2005

Pfeffer

noted that the public interest . . . holds a tenuous


place in management scholarship (2003: 860).
Their analysis shows that interest in outcomes
other than economic performance peaked in the
late 1970s but that recently little research considers effects of managerial action except in economic terms. Hinings and Greenwood (2002) bemoan the fact that organizational scholars have
stopped asking big, important questions and instead have devoted an increased focus on technical precision and manageable research projects.
In the domain of business education, because
business school students are so interested in the
instrumental value of their educationthe credential and its economic returnsthere is not much
concern about how that credential is obtained or
what is learned in the process. Commenting on
college students in general, McCabe and Trevino
noted, They have come to college to get a credential. . . How they get that credential is often less
important than simply getting it (1996: 29). McCabe and Trevinos study of cheating and their
finding that cheating is more prevalent among
business school students raise[s] concerns about
the ethical behavior of the next generation of corporate managers (1995: 205).
Second, there is concern that there is not sufficient professionalization of management and management education, in the sense that a profession
is concerned with professional values, about the
why and what of managerial action, not just the
how. Trank and Rynes (2003) noted that pressures
from students, from the rankings, and from the
business community itself, accompanied by a shift
from a professional to a market rhetoric, has
caused professional values to fall by the wayside.
Pfeffer and Fong (2004) argue that business
schools, in their quest for resources and status,
have lost their way and their professional mission
in their quest for enrollments, executive education
dollars, and donations, while Gioia and Corley
(2002) have documented and bemoaned the effect
of all of the media attention and competition for
higher rankings on what business schools do and
how they do it.
Very much in the spirit of Ghoshals conclusion
we ought to ask, what do we do about any of this?
Change will obviously be difficult. Business education is heavily institutionalized in the truest
sense of that word. Much of what we do is truly
taken for granted and there are powerful organizations such as the Graduate Management Admissions Council and even the AACSB that have some
vested interest in the status quo. We know that
power and status tend to be self-reproducing, and
as Scott has noted, every treatment of institutions

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emphasizes their contribution to social stability


(1995: 49).
But there are alternatives emerging. In part in
response to the recent corporate scandals, Harvard
Business School has a new first-year required
course that incorporates materials on leadership,
ethics, and values. Stanford has changed its materials for prospective students to emphasize both
the content of the curriculum and the intent of the
students. They are encouraged to consider coming
to business school not as a career move but as a
means to build skills to lead organizations. Mintzberg has described trends in management education in a number of countries, many of which are
not simply following the U.S. model but, instead,
are incorporating different elements and approaches to management education and development (2004: 176 194). Whether these approaches
will get swamped by the U.S. MBA tide and by U.S.
management ideas is, of course, an open question.
It would be nice if Ghoshals legacy, sparked in
part by his article here, were to result in a slightly
different role for business school academics and a
somewhat different view of what management education is about. For business school academics
and their role, Ghoshal himself is a great role
model. Not merely content to do research about
corporate strategy, Ghoshal was interested in putting his ideas into practice in his work with organizations and also, as his article demonstrates, he
was concerned with broader social issues. To expand the opportunity to discuss and influence public and social policy, we need publication outlets
that are similar to some in political science and
foreign policy, where the public policy implications and applications of our ideas can be discussed and debated, where we can discuss what
is, and what is not, good for practice and, for that
matter, what is good for people.
And, very much in keeping with the ideas and
spirit of Ghoshals article, management and organization science must be concerned with more than
science and theory, although those are obviously
important foci. The organizational studies and the
education we do ought to, at least some of the time,
engage with values. As Ghoshal argues, our
courses today are not value-free. We ought to be
both more explicit and more thoughtful about the
values we are imparting by what we teach and
how we teach it. With more engagement in issues
of policy, and with more reflection on the implications of our ideas and our pedagogy for the values
and behavior they produce, we might just be able
to create social conditions and organizations and
management practices more consistent with what

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Academy of Management Learning & Education

Ghoshal believes is both possible and desirable.


And that would be a wonderful legacy, indeed.
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Jeffrey Pfeffer is the Thomas D.
Dee II Professor of organizational behavior at the Graduate
School of Business, Stanford
University. He received his PhD
from Stanford University. His
article with Christina T. Fong,
The End of Business Schools:
Less Success Than Meets the
Eye? was the winner of the
Academy of Management
Learning & Educations Best Paper Award, 20022003. Pfeffer is
currently coauthoring a new
book on evidence-based management and conducting research on the effects of economic
language and assumptions.