Dean Rips FT After Falling Out Of Ranking

For the first time ever since taking part in the annual Financial Times (FT) MBA ranking, the Schulich School of Business was not included in FT’s top 100 listing published this week.

The results for all Canadian schools in the 2015 MBA ranking were on the whole disappointing. Every single Canadian school that was in the FT MBA ranking the previous year dropped in the 2015 ranking – part of an ongoing trend that has taken place for nearly a decade now. As a result, today there is no longer a Canadian business school ranked by FT in the top 50, and almost all Canadian schools are now clustered in the bottom rungs of the ranking. Two of the top business schools in Canada, the Ivey School of Business at Western and the Desautels Faculty of Management at McGill, sit on the edge of elimination from the ranking, in 97th and 100th place respectively.

Why are Canadian schools dropping in the FT ranking?

The FT MBA ranking is unique among all major global rankings in that nearly half of its score is based only on salary data (current salary and salary increase since graduation) – a weighting that many consider far too high, especially when measuring a business school’s overall quality. In addition, unlike any other ranking, FT uses a Purchasing Power Parity (PPP) formula to measure salaries rather than converting salaries using a US dollar exchange rate, as the Economist does, or converting salaries to US dollars and then adjusting those salaries by applying a cost-of-living formula on a city-by-city basis, as Forbes does.

I have publicly gone on record for the past five years now stating that Canadian business schools are being disadvantaged in the FT ranking because of the Purchasing Power Parity (PPP) formula that FT uses to calculate salaries. The PPP formula disadvantages Canadian schools in a number of ways. On the one hand, this formula discounts the salaries of graduates working in Canada by approximately 20% percent vis-à-vis graduates working in the US and other developed countries. At the same time, the PPP formula benefits business schools from emerging economies, particularly in Asia, by doubling or even tripling their actual average salaries.

As a result, a growing number of the business schools in the FT ranking are now from emerging economies with inflated salary levels directly resulting from the use of a PPP formula. By using a PPP formula, FT is reporting that the average salaries of graduates from various Chinese and Indian schools are equivalent to $120,000 or higher. This would be tremendous if PPP dollars were real – but they are not. The fact is, these graduates earn less than half of what the graduates of most Canadian business schools earn when using a standard US dollar exchange rate.

Compounding the problem caused by the use of a PPP formula is the fact that average post-MBA salaries earned by graduates working in Canada tend to be substantially less than graduates working in the US and Europe, and the salaries earned by executives working in Canada also tend to be much lower on average. This makes it very difficult for any of Canada’s top business schools to do well in the FT ranking.

Why did Schulich not make this year’s ranking?

The chief reason why Schulich did not make this year’s FT ranking was related to the unusually low average salary and percentage salary increase reported by a segment of the School’s graduating Class of 2011, which is the graduating class that was surveyed by FT this year. The reason I say the reported salaries were unusually low is that we know from published data over the past ten years that Schulich has always been in the top three Canadian schools when it comes to average salaries immediately following graduation. Additionally, we also know that Schulich has always been among the top three or top four Canadian schools for salaries three years after graduation as reported by the Financial Times.

However, when it comes to salary, it is also important to bear in mind that Schulich offers one of the broadest ranges of career opportunities of any business school in the country – everything from non-profit and arts & media management to mining, health, real estate and retail management – and all these various industries and sectors offer very different levels of compensation. As a result, it will always be difficult for us to finish at the top of the salary category, particularly when competing against much smaller schools that focus almost exclusively on investment banking and/or consulting, but I regard our diversity and breadth of career options as a strength and a benefit to our students.

Aside from the issue of salary mentioned earlier, it is difficult to completely understand this year’s unusual FT ranking result. We’ve asked FT several times to see the data they used, and we were hoping to analyze it in greater detail prior to issuing a statement, but FT has indicated that they will not share the survey data they collected with us. Unfortunately, we have no choice but to accept their result.

In almost every other dimension of this year’s survey, Schulich remained at approximately the same level as the year before or in some cases did substantially better (for example, in the category of research productivity). But it was the unusually low salary levels reported by the Class of 2011, coupled with the overwhelming weighting given to salary and the PPP formula used by FT, that dragged Schulich down. To place this year’s ranking result in context, consider this fact: in the past ten years prior to this year’s Financial Times MBA ranking, our School was ranked either 1st or 2nd among Canadian schools on six separate occasions, and we placed among the top three Canadian schools in each of the ten years.

In summary, we believe this year’s result was an anomaly, and that the FT methodology will continue to disadvantage all Canadian schools going forward as a result of the heavy weighting given to salary and other factors such as the use of a PPP formula. In the absence of any changes, it will be increasingly difficult for Canadian schools to do well in this particular ranking.

Schulich remains among the top-ranked business schools both nationally and globally

When it comes to our School’s performance in rankings, I think it is beneficial to take a step back and consider the bigger picture. There are eight major global MBA and EMBA rankings, and in six of these, Schulich is either #1 in Canada or #1 in the world. In the other two rankings, we have always performed well, not only vis-à-vis Canadian schools but also against other top-ranked international schools.

I’m also proud of the fact that Schulich has not only taken part in a few selected rankings where the School performs best, but rather has consistently participated in all credible major global rankings. I’ve always maintained that rankings must be viewed across a broad spectrum of results and over a longer period of time. A broad spectrum of results gives a fuller and truer picture of a business school’s overall quality. Moreover, different rankings measure different aspects or features of a business school. Forbes, for example, looks strictly at the Return on Investment earned by an MBA graduate. The Economist, on the other hand, measures a wide range of categories that students and alumni themselves have determined to be the most important.

It’s important to remember as well that ranking results in any given year are only a snapshot in time: they capture and measure data from a particular year or a particular graduating class, and they can be impacted by numerous factors ranging from changes to a ranking’s particular methodology to more macro-level changes such as fluctuations in the value of a country’s currency (which in turn impacts how salaries are compared and measured). That is why rankings need to be looked at over a longer period of time, as this longer time horizon provides a clearer picture of how well a school is doing.

When you look at our performance across all of the rankings and over an extended period of time, Schulich has done very well and continues to perform at a high level. Despite this year’s extremely unusual result in the Financial Times ranking, our School’s MBA program has been consistently ranked #1 in Canada by a large number of surveys and over a number of years, including the Economist, Forbes and Expansión, and our MBA program was also recently ranked #1 in the world by Corporate Knights. The Kellogg-Schulich Executive MBA, meanwhile, has consistently been ranked #1 in Canada by the Financial Times for nearly a decade now and was rated #1 in the world by the Economist in their first ever ranking of the world’s best EMBAs. That’s a solid record we can all be proud of.

We have worked very hard over the years to build a world-class business school, and we will continue working in the year ahead with all of our stakeholders, including students, faculty, staff and alumni, to continuously improve all aspects of our School.

Sincerely,

Dezsö J. Horváth, PhD, CM

Dean

Tanna H. Schulich Chair in Strategic Management

Schulich School of Business

York University