Ivo Welch, Professor of Finance, Yale/SOM.
upd. October 2002
This document: http://welch.econ.brown.edu/academics/bweek.html.

The 2000 Business Week Rankings of Business Schools

Why they are both harmful and wrong

Every two years, Business Week publishes their annual rankings of major business schools. It is not only one of their best sellers, but also one of their worst issues---and the distorted incentives created by these rankings have diminished the value of a business education.

Before I describe some of the more specific survey problems, let there be no doubt that these rankings are very important: they determine the attractiveness of schools to potential students, recruiters, and companies, When a school drops in rank, it has major adverse consequences. As a result, almost all schools have implemented widespread programs designed to improve their Business Week ranking. Although not all of these changes have been detrimental, many changes have been detrimental---and almost all changes have been totally ineffective as I will explain below.

The rankings are driven by a customer satisfaction survey of students and corporate recruiters. Let's assume for a moment that these are accurate (and they are not!).

Student Rankings: Is it really positive that almost half the ratings for Business Schools are driven by recruiting? MBA students begin interviewing for jobs and missing classes as early as their first week of school. It is not unusual for students to miss twenty percent of their classes (and perhaps half of their attention span) to activities geared not towards learning, but towards getting a job. I cannot blame the students: if all other students recruit, they need to compete. I cannot blame the recruiters: if all other companies recruit, they, too, need to compete. But constant and early recruiting has reduced the learning experience, and no individual school that cares about its recruiter ranking can afford to say "no" or "later."

Worse, the race for rankings has impacted both admissions and the business curriculum. Business schools have learned that certain characteristics make for higher exit salaries, prominently quoted by almost any ranking of business schools. Among these characteristics is age. Older students earn more and improve exit salary statistics. Thus, although law schools can educate 22-year olds, Business Schools cannot afford any diversity in age anymore. A 24 year old graduate could not be expected to earn over $100,000/year. Thus, the typical number of years of work experience has crept up from about 2 years of work experience in the 1980's to about 5-7 years today. Although I am not advocating an MBA program dominated by 20-year olds, we (society, business schools, students) are effectively deprived of any young MBAs.

Worst, however, is the impact of rankings on the business curriculum. Why do we not ask high school or college students "how satisfied were you with your math classes?" and then rate schools by the answer? Simple: for most students, math "hurts." A motivational speaker will beat a tough accounting or statistics professor any time. Schools and instructors have learned, perhaps by trial and error, that if they just make the math course easier, the education does not hurt so much and their student satisfaction ranking improves. This is a powerful incentive. Students also know that they have a lot of power over the curriculum and their teachers: after all, they are now deemed "customers." So, Business Schools have compromised some intellectual rigor in their quest to satisfy the "customer student." The typical law school today is considerably more demanding than any business school.

In addition to their detrimental effects, the student rankings themselves are doctored and very wrong. (For a quick reality check, ask yourself which student or faculty member would prefer to be at Virginia if they had been admitted to Stanford or UC/Berkeley? [My apologies to the Virginians for using them as an example.] Yet, Virginia ranks 9 while Stanford ranks 11 and Berkeley ranks 18. In Business Week's defense, I have to admit that Business Week has effectively doctored their criteria over the years to come up with rankings that, at least on the surface, are not totally absurd.) See, student satisfaction ratings represent 40% of the Business Week rankings. When students are asked about their experience, in every school, someone (the dean, a faculty member, other students) has warned them that the value of their own degree will depend on how they will rate the school. Necessarily, the Business Week survey cannot be a representative sampling of true student views. I would bet that all schools have excellent median rankings (Business Week does not disclose medians), and schools differ only according to a small vocal (and stupid) minority of disgruntled students. Further, students cannot compare schools: they do not attend Chicago, Stanford, and Yale, and then rank them. They have no idea how good their education was when compared with the education elsewhere.

Recruiter Rankings: Recruiter surveys are another 40% of the Business Week rankings. But most corporations send alumni to recruit at their own schools. Thus, the Wharton graduate will recruit at Wharton, and the Kellogg graduate will recruit at Kellogg. Let's ask the Wharton recruiter or any Wharton alumn to rank the best schools, and chances are the answer will be Wharton. It is not a far-fetched guess that schools in which the recruiters (survey respondents) happen to be alumns fare rather well. How do you rank highly in the corporate poll? Sample (i.e., stumble upon) many alumns! Let's see how "my" own, much simpler, and clearly not quality-related ranking would do. I simply rank schools by enrollment:

Not bad for a ranking without any regard to school quality. The top-5 schools are the same as those ranked by corporate recruiters. There are really very few exceptions. Taking some sampling noise into account, recruiters realize that Texas and NYU are worse and that Duke and Virginia are better. (Duke is misranked on size because they have large off-campus programs that are not counted in their enrollment.)

Among the top 20, my own school, Yale, has the second-smallest MBA program and ranks last in the corporate recruiter survey. Not a big surprise (and therefore in the overall ranking). Does anyone who spends 10 minutes to reflect on these rankings really believe that Michigan or NYU are superior to Stanford and Yale? (PS: Michigan and NYU are fine schools, but they are not superior.)

Conclusion: Is everything rosy in business schools? No. Could some Business School professors teach better? Yes. But, the Business Week survey is as effective as open heart surgery is for curing the common cold.

PS: I hope that this piece will limit the bi-annual soul-searching in most business schools and among most deans: reasonable quality-improvement efforts are very unlikely to much influence the rankings. Maybe it will also reduce some of the chest-pounding among deans in the larger enrollment schools, and some of the despair and misplaced hope and efforts among the deans in the low enrollment schools.

Please also consider reading David Downes Does BusinessWeek Ranking Matter?. David is the MBA director at UC/Berkeley. (There is also a locational bias in the B-Week rankings.)