New Lessons for Turbulent Times: When a Financial Crisis Becomes a Teachable Moment

By Mary A. Dempsey
Published: Spring 2010

When students in GWSB’s “Leadership and Organizations” class examined the financial crisis, they didn’t talk much about mortgage-backed securities, troubled assets or systematic risk. Instead, they looked at decisions made by Henry Paulson, who vigorously promoted free markets and called for limited government involvement in private banking – until he became treasury secretary. As head of the treasury at the height of the crisis, Paulson pumped billions of dollars into the system. The lesson for students? Leaders must adapt to changing circumstances.

“Underlying the entire financial crisis is a human drama that reflects the core of what it means to be a leader,” explained Associate Professor of Management D. Christopher Kayes, who teaches the course – one of the many tools GWSB has wielded in response to the ongoing global economic crisis.

For the past 18 months, the School of Business has used the crisis as a petri dish, engaging students and the public in discussions about its impact and bringing in top financial and market experts to help explain the events that led up to the worst economic tailspin in generations.

In the first weeks of the economic meltdown that started in the fall of 2008, attention focused on the corporations that died, were absorbed or needed immediate rescue: Lehman Brothers, Bear Stearns, JP Morgan Chase, Countrywide Financial, Merrill Lynch, Fannie Mae, Freddie Mac, AIG and others. But it wasn’t long before the spotlight shifted to the individual players, the MBAs who stood at the helm of the U.S. financial ship when it started to resemble the Titanic.

Critics across the country and around the world began to ask what role business schools played in creating the crisis, what role business schools might play in a recovery and what role the schools should shoulder in shaping a future corporate climate less likely to indulge in the same excesses.

Since GWSB had already redesigned its curriculum, adding the much-touted Global MBA program that emphasizes ethics, it was well positioned to get students – and the public – discussing the roots of the crisis and its lessons.

One of the first responders was GWSB’s Center for International Business Education and Research (GW-CIBER). Within weeks of the crisis, it had organized a high-profile panel presentation, “Demystifying the Implications of the Financial Crisis on the World Economy,” that drew several hundred people in a standing-room-only crowd and was viewed by many others over a live webcast. At that October 2008 event, panelists predicted the inevitability of a recession stretching into 2010 and cautioned against a knee-jerk move toward over-regulation of markets.

On the panel, GWSB Dean and Professor of Finance Susan M. Phillips, a former governor of the Federal Reserve System, was joined by W. Russell Ramsey, BBA, ’81, chairman and CEO of Ramsey Asset Management and chairman of the GW Board of Trustees; John Glascock, West Shell Professor of Real Estate Finance at the University of Cincinnati and a former GW professor of real estate finance; and Stijn Claessens, assistant director of the research department at the International Monetary Fund.

They fielded questions from managers, investors, policy-makers, students and the public in presenting a detailed analysis of the roots of the crisis, explaining its reverberations in economies around the globe, offering solutions, pointing to reasons for optimism and appealing for calm.

Since then, an ongoing rotation of GWSB seminars, speeches and discussions has continued to plumb the crisis and its implications. Speakers have run the range from William Fox, managing director of Alvarez and Marsal, whose team worked on restructuring in the Chapter 11 proceedings of the bankruptcy of Lehman Brothers, to Barry Eichengreen, a global expert on financial crises. Chad Holliday, then-chairman of the board at DuPont, led a presentation on issues of corporate social responsibility and strategic management. And GWSB hosted a two-day event, “New Frontiers in Labor and Employment Policy: Ensuring Good Jobs, Fair Treatment and High Performance in a Turbulent Economy,” with a panel that included U.S. Secretary of Labor Hilda L. Solis.

The student-run Finance and Investment Club (undergraduate and graduate students) jumped on the bandwagon, too, with its own series of public discussions. Its event, titled “The Great Recession by Media Pundits,” featured former World Bank Vice President and Treasurer Eugene H. Rotberg. The club’s most recent panel discussion, in late February, focused on “The Great Recession: Bank Failures, TARP and Various Government Initiatives,” with panelists Richard Brown, the chief economist at FDIC; Patrick J. Tadie, MBA,’93, who is executive vice president of the Bank of New York Mellon; and GWSB Professor of International Business Jiawen Yang.

In tandem with the public events, Phillips and faculty members hold regular luncheon meetings to brainstorm on how lessons from the heaving global economy can be woven into the curriculum.

“There are a lot of questions about the role of business schools at times like this. I want us to look at how we teach, what we teach and our research topics,” Phillips explained.

Lunch discussions have questioned whether students need broader knowledge of the regulatory environment and whether risk management classes should go beyond financial risk to include management risk and personal risk. Discussions also covered ways business schools can help shape government policy on corporate governance.

GWSB has stayed ahead of many business schools in attempting to make sense of the financial crisis. GWSB’s international business and strategic management departments, as well as the School’s internationally oriented research centers, continue to examine existing and emerging implications of the crisis in the classroom and in student and faculty research endeavors. Phillips said the University’s Washington, D.C., location  close to the national debate around Wall Street’s failures  has also kept the discussions meaningful.

So has the dean’s prominence as a pioneering advocate for ethics classes in business schools.

Not only did Phillips successfully lead the Association to Advance Collegiate Schools of Business (AACSB) in a national charge to require ethics be part of every business school’s curriculum, but she pushed to reinforce the subject as a cornerstone of GWSB’s pedagogy.

In fact, a broad swath of the School has been integrated into the crisis debate. That includes the F. David Fowler Career Center. There, counselors are developing new strategies to respond to the decline of jobs on Wall Street.

The career center has added five employer-development consultants to reach out to Fortune 500 companies and other potential employers. It formed a partnership with Meridian Resources, a career-coaching firm, to extend student job-counseling services into the evenings and on weekends. And it launched an advertising campaign urging alumni to hire GWSB students.

At the same time, the center has organized a rotation of presentations on business-sector trends and corresponding career opportunities. Prominent business executives lead the panels.

“Not only are students learning about trends in the industries, but it’s an opportunity for them to network and put themselves in front of potential employers,” said Gil Yancey, executive director of the career center.

But it has been inside the classroom that GWSB has best put the ongoing crisis under the microscope. In addition to Kaye’s “Leadership and Organizations” class and the School’s courses focused on detecting fraud, experts with unique insight were recruited to teach three new electives.

“We wanted to address the financial crisis but there wasn’t enough analysis yet to make it part of our core courses,” said Murat Tarimcilar, associate dean of graduate programs. “So we added electives, tapping the expertise of Washington, D.C., financial and regulatory insiders and our alumni in the private sector.”

In the fall, “Understanding the Housing Crisis” was taught by Ashish Arora, who sits on the Federal Housing Administration team that developed the government’s response to the mortgage crisis. Walter Lukken, who until recently served as acting chairman of the Commodity Futures Trading Commission, took on the “Modernizing the Financial Regulatory System” class. And Joann Weiner was recruited to teach “Financial Crisis Consequences.” Weiner has worked in the U.S. Department of Treasury and on a tax-reform project for the Commission of the European Communities.

“We know that business schools alone will not change corporate behavior,” said Phillips. “But if we fail to change the way we approach business, if we fail to embrace ethical behavior, we risk the very future of the free market system.” GW