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July 1, 2009

INSTRUMENT OF INSPIRATION

Mahendra Gupta was born a businessman and raised to be a manager. But, instead, he chose to be an academic. Now he is driving Washington University’s Olin Business School toward excellence.

Photo by Stefan Hester

Let’s say you’re a young woman with a bachelor’s degree in business and an impeccable, glowing academic record. The job market is recession-terrible. You decide to push on and go for that icon of income, the master’s of business administration degree. Which school do you choose?

Chances are, you’ll ask a favored professor for advice, or a friend or your parents. And, most certainly, you will consult the business school rankings printed annually by those bibles of business, The Wall Street Journal, the Financial TimesBusinessWeekForbes and others.

What you’ll find will remind you of reading the annual pre-season rankings of football teams from various polls: the same old names, listed in mostly the same order, time after time. Chances are, some sports poll will pick USC as No. 1 this year, with Ohio State and Oklahoma or Florida near the top. Chances are, the financial press will very much admire Harvard University’s business school, plus those of Dartmouth, Northwestern University, the University of Chicago and the University of Pennsylvania.

Chances are, they’ll all overlook the Olin Business School at Washington University in St. Louis, Missouri.

“You cannot operate your business based on how analysts are going to react to the earnings announcement you are going to make; you’ve got to have the courage to go and say how you see it and not worry about their reaction,” says Dr. Mahendra Gupta, Olin’s dean and the man most responsible for raising its reputation. “If we allow the rankings to drive our behavior, how people run schools and universities, then you are going to observe knee-jerk reactions and short-term strategies that may not be in our best interests. This is a 162-year-old university, and we want it to be the best for the next 100-some years and not operate it with this year’s thinking.”

Long-term thinking is ingrained in Gupta in the same way that aversion to waste becomes part of a business that adheres to lean manufacturing. The younger son of a well-to-do family in Mumbai, then Bombay, Gupta was born to be a businessman and raised to be a fourth-generation manager for a portfolio of enterprises: a traditional Indian dessert-maker, a plantation that grows amla, a medicinal fruit, plus real estate and business finance holdings.

“Families are companies in India,” he says. “Tata [steel, automobile manufacturing, power generation, etc.] is one example; Birla and Hindalco [aluminum] are another. I remember what my father told me. ‘This business is not for you just to reap the profit and enjoy. This business is for you to manage well and provide the necessary stewardship because you have two great responsibilities. One is that everyone who works for you, they and their families, are your responsibility. The second is that you have a responsibility to build this business and hand it over to your grandson, so it continues to be part of the family.’”

So seriously is this understood that Gupta family employees, some of them also fourth-generation, view the family enterprise as a foundation for their own lives. “We have people who, when their grandchild is born, come to us to let us know that the child will be working for us one day,” says Gupta. “We make a commitment to the people who work for us, and the people have a loyalty back to us.”

It was from this background that young Gupta in 1978 earned a B.S. degree in statistics and economics from the University of Bombay, then gained the family’s permission to study for his master’s degree at Carnegie Mellon University in Pittsburgh, Pennsylvania. His interest was in accounting, a dry subject for some people, but to Gupta a study filled with the romance of enterprise and possibility.

“Accounting is the language of business,” he says. “At the end of the day, everything that business does is translated into accounting numbers. It becomes a common platform that brings everyone in the business together. It doesn’t matter whether you’re doing research and development or marketing or communications or production or operations. Accounting translates all of those activities into numbers and facilitates a discussion among decision-makers about the resources and the business choices they are going to make. People don’t understand the power of this common language and common platform that accounting creates.”

Gupta, who earned an M.S. degree in industrial administration in 1981, was inspired at Carnegie Mellon to consider further study for a Ph.D. But he had promised his father that he would return to India and, as with many young people (he was then 25 years old), he was tired of schooling. He returned to Mumbai and the family enterprises, fulfilling his responsibilities.

Yet the pull of further education was strong. “Once I went back to the business and began to manage it more actively, I appreciated the things that I could learn more,” he says. Stanford University was open to him and, despite opposition from his father, after five years he decided to go.

“My father was aghast,” he recalls. “He was born a businessperson, and that’s all he did all his life. He defined success in terms of building businesses. Writing research papers and teaching students, that was not, in his mind, a success. He also said that he had made a commitment to my wife, when she joined our family, that she was married to a businessperson and would be taken care of in a business family. He was very angry. It was very difficult. Yet when I reflect back, I would have done exactly the same thing in his place.”

Gupta earned his Ph.D. in accounting from Stanford in 1990—and the American Accounting Association’s Outstanding Doctoral Dissertation Award in 1991—and was hired as an assistant professor by Washington University. For the first of 11 times, he won the Reid Teaching Award, for instructional excellence, in the 1997 academic year, made full professor in 2003, and was named dean of the Olin School in 2005.

Gupta has taken the school’s three-part mission—a conceptual tripod—as part of an ongoing effort to establish Olin “as one of the world’s best business schools.” Those goals are to create knowledge, inspire individuals and transform business. To that end, he has hired dozens of talented new professors—27 in the last two years—and broadened the school’s relationships with businesses and other institutions. Last year, Olin formed a partnership with the Indian Institute of Management Calcutta for teaching, research and “cultural understanding.” This new relationship joins on the international roster Olin’s executive MBA program with Fudan University in Shanghai. Begun in 2002, the relationship has produced one of the top 10 executive MBA programs in the world, says the Financial Times, and for the third year in a row in 2008 it was judged the best in mainland China.

Olin reviewed and refined its regular MBA program in 2007 with expanded coursework in team leadership and critical-thinking skills. In collaboration with Washington University’s medical school, Olin last year announced a new health care management major. The school also has unveiled a new course of study in supply chain management.

Earlier this year, the Brookings Institution said Olin will lead management of Brookings’s executive education activities in Washington, D.C.; the two expect to offer joint internships, lectures and other educational opportunities. Robert S. Brookings, a St. Louis businessman, founded the Washington, D.C.-based think tank and was a member of the Washington University governing board for 33 years. (In the interests of full disclosure, the Olin School partners with the Metals Service Center Institute, Forward’s owner, in its Strategic Metals Management course of study for up and coming members of senior executive management.)

Olin students now range far afield. A business plan developed by Olin graduate and undergraduate students, working with project founder Theresa Wilson, has helped to raise $220,000 in funding for Blessing Basket, a not-for-profit that pays at least 2.5 times the “fair trade” value for woven baskets made in such countries as Uganda, Ghana, Indonesia, Madagascar, Bangladesh and Papua New Guinea. The baskets are sold through Whole Foods markets in the Midwest, and by other retailers and online.

“The Olin students have traveled with us, and they found out all kinds of things that we did not know were even happening,” says Wilson, who lives in Granite City, Illinois, a St. Louis suburb. “In Madagascar, they found out how many times local value we were paying for baskets, and it was significantly higher than what we thought. They identified the ripple effect that we were causing in our village there, Mahabo. When you infuse money into a village, there’s an effect on jobs, the price of rice, medical care. They discovered that the new style of weaving that we introduced was being copied by others. They have helped us immensely with our primary goal of putting as much money as we can into the hands of our weavers.”

Blessing Basket work in Madagascar led to a partnership with the Missouri Botanical Garden to preserve forested areas needed for subsistence living. The now-expanded effort includes Washington University students from the law school, Olin and its Skandalaris Center for Entrepreneurial Studies.

“Almost all of the money from Blessing Basket goes back to make a bigger impact for the women who weave the baskets,” says Gupta. “It’s the first time the women have had a voice, the first time they could send their daughters to school, the first time they knew that their daughters will have a chance to be somebody …. It brings tears to your eyes. I can bet you that the students who worked on that will be a different kind of leader. They will be transformed and inspired individuals.”

Business school students also played an important role in establishing a palliative care center at Barnes- Jewish Hospital, the teaching hospital affiliated with Washington University. Dr. Ira Kodner, a surgeon and director of the university’s pan-departmental Center for the Study of Ethics and Human Values, had worked for years with hospital chaplains, nurses and other caregivers to make the case for establishing the center, which provides care and support for patients who require treatment but who cannot be cured. This might include patients in the latter stages of life who suffer from chronic pain, serious heart disease or other conditions.

“Some Olin faculty members devised an elective for their students to examine creating a palliative care center,” says Kodner. “What they found was that about one-third of the patients in our intensive care unit don’t want to be there and don’t benefit from being there. These are the costliest beds in the hospital. The business students showed that by moving [them] into palliative care, the hospital would save $1 million in the first year. And they were right; we did.” Not only did the intensive-care beds become available to patients that needed them, but palliative care patients don’t require costly equipment, medications, tests and other expenses offered to patients in the ICU.

Business students have continued to work with the hospital since the palliative care center was established several years ago, and now are studying ways to boost hospice stays from the current average of three days to something closer to the Medicare maximum of six months. “We think that we should get rid of the word [hospice] and move, instead, to ‘supportive care’ for any care where a cure is not the goal,” says Kodner. “Dean Gupta has kept his faculty and students engaged in this incredible endeavor.”

Forward spoke with Gupta in his St. Louis office about current economic affairs, lessons newly learned for MBA candidates and other topics.

What did you tell your family about the United States before you left the family business to study for a Ph.D.?
It’s a great learning place, and it continues to be the best learning place in the world. When you look at higher education, no country can match the type of knowledge that gets created in this country. The system of universities and higher education is just unbeatable. The world is trying to catch up, but it will take a long time. It’s not that there aren’t universities in India or Singapore or Europe. But I knew what I wanted to do, and if I had the opportunity, I knew that I must go and do it in the United States.

You consider accounting to be the common language of business and a powerful way to understand what’s happening to a business. Yet look at our economy today and the companies that have failed. What was the role of accounting in that?
At the end of the day, when you have the numbers in front of you, you may decide to read them, or not. You can use those numbers to bring the organization together, or you can use them to create risk. We know enough about the games people play using accounting numbers. I would say that it is not a problem with the numbers. The problem is the way that people choose to use those numbers.

If you’re not managing your resources, it’s not just that you are hurting your shareholders or debt holders. You are hurting the people who have given their lives to your company.

If we go back and look at what has happened in the past 12 months, we see people who were either knowingly taking risks or who were not trained enough to understand the risk. Both of these are dangerous situations. People have responsibility but not the necessary training, or they have responsibility without the necessary controls in place to stop excessive risk to the organization.

It is difficult to argue that the banks, investment banks and others don’t understand accounting and don’t have the necessary controls in place.
I do hope that, at least, they understood risk. But the second part is that if you don’t have the necessary discipline or controls in place, you can take risk beyond a certain point. Both sides [businesses and their auditors] failed to exercise their responsibility, the regulations were relaxed or nonexistent, and people just saw the upside. They stopped paying attention to the risk.

When you have one or two companies that do this, the effect on the economy is minimal. But when many companies do it, worldwide, you have got a much bigger problem. There wasn’t a good understanding of the systemic global risk.

Does the business culture itself create that inattentive attitude toward risk?
The business culture that we have created has a very short-term orientation. The attitude seems to be, “Show me the results now or I’m going to penalize you. But if you do show me the results now, I’ll shower you with rewards.”

This short-term orientation is in conflict with doing business the proper way. When you manage the business for the next 50 years, you don’t engage in this kind of behavior.

We today want instant gratification. That culture is the culture of “me,” not the future. To reduce risk in the marketplace, you have to have a very long-term orientation. The most successful companies … focus on a system that rewards individuals for long-term outcomes and doesn’t penalize them for short-term failures.

One example might be Emerson [a global manufacturing and technology company] in St. Louis. Year after year, they have shown growth, but when they take some kind of a hit, their CEO is the one who steps forward with a plan. They don’t try to massage the numbers or sweet-coat the message. They relay the information as they see it, and that gives confidence to their employees and investors.

Doesn’t a long-term orientation go against the tide? How about the situation in Washington, D.C.? Change is happening very rapidly there.
I don’t understand the whole philosophy behind the “first 100 days.” You are putting so many burdens on an incoming president. Well, poverty still exists in this country; what did you expect? This is the kind of culture that pushes leaders to make decisions that are sometimes hasty or risky, and that addresses the immediate need rather than looking at what might be in the best interests for the long-term future.

What impact has the recession had on your students?
Of course they have noticed what’s been happening in a very significant way. I remain optimistic that this young generation will act differently. Here’s one example. Nearly 10% of the students on this campus are interested in joining Teach for America. They want to take a teaching assignment in a difficult city school district. Remember, these are the brightest kids, equipped with a fabulous education. They can be what they want to be, and they have this commitment and notion of service, of trying to make a change. When you see this, you have hope.

As a faculty, considering how this recession could have happened, we think about it and talk about it, debate it endlessly. These are important life lessons. If you duck your head in the sand, then you cannot create a new generation of leaders who may try to avoid making the same mistakes. What happened this time has less to do with what education people got. It is more about how they acted.

No matter what we learn from this, there will be another downturn. There are natural business cycles. But remember, the United States still has the world’s largest economy. It’s not because of businesses that failed. It’s because most businesses do not fail. They’ve got the education, training and intelligence to build and build again in the time of adversity.

The Olin School’s mission of knowledge, inspiration and transformation—can it make a difference?
We fully understand that in two years or four years you cannot teach a person everything they will need to know. But we can inspire them to be what they want to be and help them to understand. We want to open potential for them, to help them discover themselves. If you are coming to Washington University, you are coming to become somebody different. Our faculty, our staff, our researchers, our buildings … they’re all just the instrument of inspiration.