The Miseducation of Business

NYU Stern alum Bill Tsai’s insider trading charge reveals the fundamental flaw of business school.

Cole Stallone, Opinion Editor

Bill Tsai, former Stern Student Council President, was charged by the SEC on Aug. 12 with insider trading. They allege he gained nearly $100,000 from the sale of stocks he purchased after learning that the company would be bought out by a private equity firm. Many news outlets covering the story point to his experience as student body president as ironic, with Bloomberg’s article highlighting Tsai’s poorly-aged advice for first-year students at Stern: “Hold onto your values.” 

The implication of this focus is that it should be surprising that someone who excelled in a business school environment would then partake in criminal activity in their career. However, despite their image of social entrepreneurship and corporate responsibility, business schools like Stern, at their cores and in their current practices, are incapable of instilling proper ethics. As a result, the role of business schools within a university must be critically examined and ultimately questioned.  

Leonard N. Stern, namesake of the Stern School of Business, is notorious for his cutthroat business tactics. A few years after paying one of the largest out-of-court antitrust settlements at that time — over $42 million — Stern donated $30 million to NYU, which led to the renaming of the business school in an overt attempt to improve his public image. 

Stern’s history isn’t the only aspect that highlights the problem; the theoretical and intellectual content that schools like Stern teach their students also contribute to the current situation. Take Milton Friedman for example, hailed as one of the greatest economists of the 20th century. He advised several world leaders, including U.S. President Ronald Reagan, U.K. Prime Minister Margaret Thatcher, and perhaps most controversially, Chilean military dictator Augusto Pinochet. Friedman also argued in favor of insider trading, as do many other scholars that are oriented towards a free-market ideology. 

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In an experiential and intellectual environment like this, is it any surprise Tsai acted as he did? 

But can the ideas and actions of a few people define an entire industry? Unfortunately, the statistics don’t paint a better picture, especially with regards to insider trading in corporate finance. Professors from Stern and a colleague from McGill University conducted a study which found that “a quarter of all public company deals may involve some form of insider trading.” If true, this widespread prevalence would make it hard for anyone in Tsai’s line of work to avoid partaking in or at least witnessing what he was charged with. 

Contrary to what insider trading advocates would suggest, the widespread prevalence of the act doesn’t mean that the practice itself is justified. Rather, prevailing institutions are structured in a way that makes unethical action necessary. Given the assumed role of higher education in shaping the future workforce, this should be deeply concerning. However, it would be a misconception to consider all Stern students to be overly-ambitious investment bankers, even more so for all business majors in the U.S. 

As the most popular major in the country, many people feel drawn to business to increase their post-graduation salary prospects. While this is a reasonable motivation, especially in the midst of the student debt crisis and a looming recession, the data doesn’t support the supply or the demand. Business majors do fare better in terms of employment, but only by a single percentage point compared to humanities majors. 

In a study at the University of Leeds, a survey of worker cooperatives across the Western Hemisphere and Europe showed they operated more effectively and productively than conventional businesses. What this small piece of evidence shows is that, contrary to the individualistic ethos of business school, prioritizing collectivism and egalitarianism over individualism and profits often leads to better results than expected, even by business standards.  

With the practical benefits of business school obscure, these programs must also address its theoretical deficits. In addition to supporting insider trading, Milton Friedman’s famous business ethos could be summarized as “the business of business is profits.” Unfortunately for business schools, the business of business has seeped into the teaching of business. Rather than pursuing business for the sake of study itself, business has been pursued for extreme wealth at its worst and for financial security at its best. Given the ethical and practical problems of those respective paths, the overall purpose of the business school seems to be left uncertain. 

So what does this mean for business students, especially those here at Stern? No one can decide what to do with their education but themselves, however, the study of business should probably be left to those who have a deep and sincere interest in it. Otherwise, time and money would be better spent learning skills within fields of genuine interest to those who pursue them, while the skills of business can be learned after graduation, in the business world.

Opinions expressed on the editorial pages are not necessarily those of WSN, and our publication of opinions is not an endorsement of them.

A version of this article appeared in the Sunday, Aug. 25, 2019 Welcome Week special issue print edition. Email Cole Stallone at [email protected]

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