SECTION: Financial Post; Pg. FP1

LENGTH: 1733 words

HEADLINE: Weighing the cost of a Canadian MBA: What's it really worth?

SOURCE: Financial Post

BYLINE: Kate MacNamara

BODY:
Keith Gordon listens attentively to the speaker strutting the auditorium stage. Clad in snakeskin cowboy boots and a striped golf shirt, John Fernandez, a Californian consultant who usually peddles race relations advice to corporate clients like GlaxoSmithKline, is working a room of first-year MBAs at York University's Schulich School of Business. If you want to foster diversity in your office, he asks, which of these skills is most important? The litany includes: to know your own culture; communicate effectively and compassionately; and to be aware of stereotypes.

Mr. Gordon, 33, shakes his long blonde hair. The former sound technician from Winnipeg has erroneously prioritized communication over knowledge of his own culture. "Flip a few pages ahead and see what the experts say," advises Mr. Fernandez, "you see that if we are to interact effectively in settings where a wide range of cultures are represented it is most important to be aware of our own individual culture."

Mr. Fernandez has spent all morning and thousands of Schulich's dollars to deliver the best-known proverb of the ancient Greek world: know thyself. It is the kind of vague management punditry that has attracted MBA programs a chorus of critics. And as the job market of these business grads continues to sour and salaries fall, those dissenters are redoubling their denunciations of what, in Canada, is the most expensive degree on the market. Across campus, Joseph Palumbo, head of Schulich's career centre, attends a more arduous task. Mr. Palumbo's job is to attract recruiters from the most prestigious of companies -- banks, consulting firms, and the large packaged goods firms -- to Schulich's sprawling campus north of Toronto.

But U.S. recruiters with the investment banking jobs so coveted by MBAs cancelled their visits to Canadian campuses last year after the September terrorist attacks. Such New York investment banks as Goldman Sachs, Salomon Smith Barney and J.P. Morgan won't be back this year, either. Such top management consultancies as Bain have also pulled back. "We're waiting to see how many of our former employees completing MBAs will return before we decide whether we'll actively recruit in Canada this year," said Cristina Paquette, spokeswoman for the firm.

Kerrie Cohen, spokeswoman for investment bank Lehman Brothers, said the firm's staff won't grow in the near term, though it's continuing with "select hires." Consequently, Lehman will also give Canadian campuses a miss: "We'll be accepting resumes but we won't be on campus."

Indeed, as financial markets continue to slide, and the job-loss tally in the U.S. mounts, recruiting new MBA graduates has fallen heavily. More than 10% of Schulich's June graduates remain unemployed. And those who have landed jobs have seen their salaries fall an average $10,000 from those commanded by the previous year's grads. For the class of 2001, the typical graduate reporting his salary back to Schulich was hired for an average $89,000, Mr. Palumbo says. That average salary has now dropped to $79,000.

And it's not just Schulich. Although the numbers won't be officially reported until the end of this month, business schools across Canada are witnessing a heavy drop in the average starting salaries of their 2002 MBAs. Murray Bryant, director of MBAs at the Ivey School of Business in London, Ont. -- arguably Canada's best-known business school -- reports that salaries for June grads slipped 10%-15% from 2001 levels.

"We've seen a significant fall in the number of U.S. salaries in particular," Mr. Bryant says. "That makes a difference to our averages, and to be frank, the job market just isn't as strong as it was."

As a result, MBA students' return on investment is shrinking. The diminishing yield is also a function of rising tuition prices, which have climbed steadily at the best-known Canadian schools since deregulation in the 1990s in Ontario. Deregulation was passed in British Columbia earlier this year. McGill's Faculty of Management, and Ecole des Hautes Etudes Commerciales at the Universite de Montreal (both in Quebec, where tuition is regulated) remain the only Canadian business schools of consequence with tuition fees below $10,000 annually. Last year Ivey's tuition was $22,000 a year, this year it's $25,000 and for 2003 entrants it will rise to $28,000, reaching $56,000 for the two-year degree. Students frequently report incurring debt of more than $100,000 to fund the degree. That's steep even before the students factor in lost earnings.

The numbers look still worse when added to the findings of professor Jeffrey Pfeffer. This summer, Mr. Pfeffer, an expert in organizational behaviour at Stanford Business School, concluded research which found that MBAs perform no better, and sometimes worse, than their colleagues from different disciplines in consulting firms and investment banks.

"There is just not much evidence that the actual education does very much; the economic value of the degree is very limited," he says. The content of a typically two-year MBA degree, Mr. Pfeffer suggests, can be successfully taught in two to three weeks, raising serious questions about the utility of the curriculum.

Mr. Pfeffer concedes that admission to an elite school "like Harvard or Stanford, will, by reputation, boost grads' value in the job market." However, most MBAs are awarded by rather less prestigious schools. In Canada there are now 32 schools -- including such little-knowns as Athabasca University, the University of Regina and the University of Windsor -- offering MBAs. In 1991 there were 21, according to the Association of Universities and Colleges of Canada. Furthermore, there are an estimated 500 business schools granting MBAs in North America (not all of them accredited). Class sizes have also expanded, and with recently popularized executive MBA programs also awarding MBA degrees, recruiters estimate that well over 5,000 newly minted MBAs walk into the Canadian job market annually.

"Perhaps there are too many Canadian schools trying to get into the top tier," says Mr. Bryant, who uses an analogy from sport to illustrate his point. "Australia has about half the population of Canada, yet it does much better in international sporting competitions. Their policy says, we'll aggressively fund these sports where we want to concentrate and not just spread the money thinly everywhere. That, unfortunately, is the Canadian way. We say, 'Let's make everyone reasonably happy.' That's what we've got with business schools."

Robin Sears, headhunter for executive search firm Korn/Ferry International, echoes the sentiment. "I'd say there are about 20 [business schools in Canada] too many." But Mr. Sears doesn't think all MBAs have lost value.

"The proliferation of programs makes the top names more valuable and the rest less valuable. What we are seeing is a flight to quality, and in Canada there is really just one top-quality school: Ivey."

Michael Bloom, associate director at the Conference Board of Canada, is more categorical: "The value of an MBA is declining. For a while the dot-com bubble sucked up MBA grads in large numbers, so even as the supply burgeoned, so did the demand. But that demand is now significantly diminished and the supply is still growing."

But there are other, more serious trends devaluating the degrees, warns Mr. Bloom.

"With an emphasis now placed on corporate governance, it is critical that managers have a broader understanding of issues around management and not just technical skills. There is a much stronger tradition in other disciplines of thinking critically and reflecting on choices, on judgment."

Indeed, many recruiters are already shifting their efforts away from business schools. High-end management consultancy McKinsey & Company still places "tremendous value" on MBAs. "But in the last five or six years we've diversified our base of new hires. Proportionately there are fewer MBAs and more lawyers, doctors, engineers, English Lit grads ... people from a wider range of disciplines," says a McKinsey spokeswoman.

Recruiters are also asking whether MBAs have the leadership qualities employers are looking for. "Employers don't want a kid with a spreadsheet who can impress them, they want someone who can lead one of their divisions in 10 years. And that includes putting your hand up when you see something wrong; Where were those people at Anderson Consulting?" wonders one recruiter who asked not to be named.

While banking remains a mainstay industry for MBA grads, many within the community question the value of an MBA relative to other degrees. "I have often advised people not to go back to school and do their MBA; it will actually put you two years behind in your career," said one Bay Street veteran. "In fact, one of the best degrees to have, certainly on the investing side, is engineering. It teaches very strong math skills and the ability to solve complex problems. Whether we hired MBAs, BComs, or engineers, we still had to put in the same amount of time teaching them the ropes. I certainly wouldn't prioritize someone with an MBA over someone with another degree."

With its numerical focus, the Certified Financial Analyst designation, he suggests, might be of greater use than an MBA -- students study under their own steam and the cost is just US$525.

But the critics haven't dampened the hopes of business school aspirants. This year MBA program administrators are boasting record numbers of applicants and bigger class sizes than ever: Trends in applications tend to be counter-cyclical to the market. In the biggest incoming MBA class in the country, Mr. Gordon is taking his place alongside some 400 others. But the amateur race car driver isn't rattled. "Like the tech stocks, I think MBA graduates were probably overpriced in the job market, and the cost of delivering the degree was underpriced. What we're seeing now is a return to more realistic salaries and rising tuition -- which reflects the actual cost of delivering the education."

Still, an MBA remains a good investment, Mr. Gordon maintains. Once earned, he hopes his will catapult him into management at an electronics firm whose equipment he mastered in Winnipeg clubs -- and ultimately one step closer to his dream of managing a Formula One race team.

GRAPHIC: Black & White Photo: Teresa Barbieri, National Post; KEITH GORDON AT SCHULICH: An MBA is fodder for dreams.

LOAD-DATE: September 20, 2002