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Team of Rivals: Corporate America and Academia

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Team of Rivals: Corporate America and Academia
The university model of education emphasizes theory over practice, the opposite of what the corporate model favors. This creates discordance between approaches that alternately emphasize the why and the how. The university model shares clear similarities with the corporate model, but the differences, especially in the compensation structures, deeply divide the two. Rather than attempting to make one domain more like the other, a bridge should be built that allows everyone to benefit from the conceptual approach of academia and the practical know-how corporations earn in the trenches.


In preparation for the publication of Measuring Business Cycles (1946), Arthur Burns and Wesley Mitchell—who helped create the original LEI (Index of Leading Economic Indicators)—sifted through reams of macroeconomic data in search of variables that measure business cycles and predict their turning points. A year after Measuring Business Cycles was published, a renowned Yale economics professor, T. C. Koopmans, wrote “Measurement Without Theory,” a critical review of Burns and Mitchell’s seminal work. Offering a number of complaints, Koopmans (1947, 167) felt that their effort was akin to studying “eruptions of a mysterious volcano whose boiling cauldron could never be penetrated,” and wrote that without theory “conclusions relevant to the guidance about economic policy cannot be drawn.” Despite Koopmans’s criticisms, the index lives on, in revised form, as a respected gauge of macroeconomic activity among finance professionals. (Not only were Burns’s views codified, but the man himself went on to head the Federal Reserve System.) 

Today the academic community continues to embrace Koopmans’ view, attacking corporate America’s reliance on practice at the expense of theory. For example, in A Random Walk Down Wall Street (2007), Princeton economist Burton G. Malkiel is hardly complimentary to technical analysis, an approach devoid of any theoretical underpinnings. In addition, there is not a single mainstream university textbook on investments that does not question the efficacy of fundamental analysis and its reliance on ad hoc financial accounting variables. Yet many security analysts and professional money managers dismiss critiques from academics, relying on the LEI, technical analysis, or a combination of both to recommend and select securities, to weight and rebalance portfolios, and to benchmark their staff’s performance and compensation scales.

In contrast, the academic world believes that the why, or the theory, takes precedence, regardless of the relevance of the how. As a case in point, academic finance specialists would argue that if corporate risk managers had understood the limitations of the VaR (value at risk) models—which Eichengreen (2009) calls “weapons of economic mass destruction”—before applying them, as they did so broadly and indiscriminately, VaR measurements would not have instilled the false sense of security that set the stage for our current financial crisis. 

Given the discordance between the two approaches, we should not be surprised when corporate managers complain that university graduates do not know how to do things (Weinstein et al. 2008), nor when results-driven executives cannot explain their companies’ actions (Eichengreen 2009). Given the importance of being able to explain the why and also describe the how, can we find a healthy balance—preferably a symbiotic relationship—between the two domains? While the US remains a leader in academic research and our corporate research labs have been lauded for both theoretical and practical breakthroughs, corporations and academia have been unable to find grounds for mutual benefit. The financial environment is now firmly global, massively complex, and evolving constantly. Collecting metrics without conceptual underpinnings and suggesting models without context are exhausting the search capacity of both domains. Satisfactory solutions to a host of international issues, such as monetary policy, fiscal policy, and financial regulation, require that both the how and the why be addressed. A combined academic and corporate team may be the only way to find acceptable solutions. The alternative is to rely on luck. 


Like firms in the service sector, private and public universities sell services (the primary one being education) for a price called “tuition.” In the production of these services, they use capital, labor, and land, engage in entrepreneurship, and often issue debt rated by agencies, just as for-profit corporations do. They are integral market participants, competing for resources in the same manner as corporations and generating significant employment and income opportunities for communities. In fact, business schools can be viewed as suppliers of input—the students they graduate—to the corporate sector. But, as Winston (1997) and Robbins (2008) discuss, the similarities end there.

When considering the differences, it is best to begin by contemplating ownership. As not-for-profit entities, universities do not distribute their gains to shareholders, and even if they could, identifying the shareholders would be a complex undertaking. The individuals who most resemble shareholders are students, whose educational rewards are akin to dividends. However, students do not own the university, and therefore their ability to influence high-level university policy is practically nonexistent (an outcome arguably not much different from that of shareholders at large for- profit corporations). But the differences in ownership do not stop there; they extend to the areas of patents and copyrights. Neither professors nor universities own their primary product, graduates. But what about the other products of the university? For the individual professor writing a textbook, the question of copyright and monetary compensation is well established. For the team of researchers using a publicly funded state-of-the-art laboratory to generate its findings, the ownership of patents remains a sticky wicket. 

In addition, the profit motive, while certainly strong among university managers (i.e., administrators), is only one of several competing motivations and may not be the primary one at universities, as it is for corporate managers. For one thing, administrators attach primary importance to process—helping students to realize their potential, creating an active research environment, promoting diversity, and serving as a center for policy. In these respects, admission requirements and credit hours, not profits, are important metrics of a university’s success. Whatever profits might come from a university’s efforts are more of an ancillary outcome than an objective. In contrast, the motivation for corporate managers is simpler and clearer: it is more about results—production and profits—than about process. Helping employees reach their full potential, for example, is important only to the extent that it adds to the bottom line.

As Hansmann (1980) has articulated, universities seek revenue not only through the sale of their products (e.g., charging tuition) but also through donations and government subsidies. The latter, in particular, allow universities to act as financial-aid conduits, reducing tuition costs for students and thus promoting higher enrollment. For-profit corporations only exhibit interest in reducing the cost to customers when it is accretive to the bottom line. The government’s return—ultimately society’s return—is the education of the young. The motivation of the private donor is typically based on a sense of altruism or desire for notoriety, not on an expected return on the investment. 

Academic research is organized and funded for the production of knowledge, with real-world application or product generation a secondary consideration at best. National Science Foundation grants, for example, are first and foremost awarded to projects with a strong emphasis on theory—on explaining why an event has occurred. It is not uncommon to find academic researchers who have only a passing interest in whether their research has any practical relevance, their main focus being the elegance of the theoretical constructs of their arguments and the efficacy with which those arguments lead to a clear and unmistakable conclusion. This is in marked contrast to for-profit corporations, which are solely interested in assessing how the research can be quickly transformed into a profitable product. The health sciences, which are dedicated to finding cures to diseases, come the closest to blurring the line between this distinction. 

Like for-profit corporations, universities are concerned with productivity—in this case with the teaching, research, and service of its faculty—but the reward structure is different. The academic model translates insight into recognition. A professor, either singly, as part of a research team, or as a member of a research center, earns tenure and promotion through a peer-review process based on his or her perceived contribution to the area of expertise (i.e., the publish-or-perish paradigm). The rewards are claimed in job security, enhanced reputation, reduced teaching loads, mobility, and modest increases in compensation. In contrast to public perception, university faculty members mainly teach for the privilege of doing research. While good teaching is laudatory, and service to the university and the profession may be formally recognized, a faculty member’s upward mobility and salary are tied to research productivity, as measured by the amount of grant money awarded, the number of articles published, the prestige of the journals that are the outlets of the research, and the number of citations the research receives. If the idea is sound and well received by a faculty member’s peers, then it is considered of value, regardless of whether it ever translates into a profitable product or becomes an integral component of policy. 

In contrast to the academic model, the corporate model rewards innovation, the introduction of something new. New implies better—lower cost, higher quality, lighter, faster—with the expected result of enhanced profit margins. No matter how good the idea is thought among peers, it is useless to corporate America unless it generates a profit. While knowledge of processes is required for sustainable corporate activity, insight into the theoretical foundations underlying these processes, with few exceptions, is not valued, not required, and not articulated. Ideas leading to profitable production are so closely guarded that corporations, rather than operating by the publish-or-perish paradigm, adhere to a produce- or-perish paradigm with a corollary to protect corporate know- how or be fired. 

In addition to the differences in attitudes toward information sharing, there are the differences in individual compensation. In the academic arena, tenure, promotion, and repeated grant renewals align with intellectual experimentation. Corporate compensation, which often comes with bonuses that are multiples of a base, favors consistent production performance but little out-of-the-box thinking. This difference shows no signs of abating. Although members of the academic community occasionally leave for the higher-paying corporate sector, the job security that comes with tenure is considered golden. On the flip side, the few remaining corporate research labs, which are often owned by foreign-based multinational corporations, have their budgets (and continued ex- istence) tied to their contribution to the bottom line.

Given the inherent differences in the corporate and academic models, it is not ideal to have the corporation play host to a univer- sity research center—or for the university to host a corporate lab. There are, however, sufficient similarities between the two to argue for another alternative. The key is not so much in trying to make one group like the other but in building a two-way bridge between the distinct models. 


Both universities and for-profit firms flourish under capitalism by satisfying a demand, producing output, charging prices, earning income, and paying workers. What is missing is a symbiotic relationship between education and business. That relationship may be fostered through systematic corporate-sponsored research. As some evidence of the efficacy of this relationship, we note the career of Nobel laureate Harry M. Markowitz, who is widely considered to be the father of modern-day finance. Unlike the vast majority of doctorate holders, he chose to begin his career outside academia by working for the Rand Corporation, where he met linear programming pioneer George Dantzig, with whom he did some early work on optimization techniques. Several years later he joined the Cowles Commission at Yale University and developed a solution—now called the critical line algorithm—to the risk- minimization problem described in his dissertation. In 1962, utilizing his combined corporate/academic background, he cofounded the software company CACI International, which provides network, security, and data-information services to the US government. It is safe to say that the combination of his academic and corporate research advanced not only the application of modern portfolio theory and computer simulation techniques but also the research opportunities for other academics—and at a faster pace than if he had gone the traditional academic route. 

Using Markowitz’s career as a backdrop, we note that university research grants promote the movement of capital to knowledge workers. What is missing, however, is a clear definition of the outcome of the research and ownership linked to a market for setting academic product prices. To better understand how to build the bridge, we need to examine the impediments preventing fuller cooperation between the corporate and academic communities. 

First, we encounter the publish-or-perish paradigm. Academic research is packaged for delivery to an academic journal to be read, almost exclusively, by the topic’s academic cognoscenti. As a result, as Eichengreen (2009) cogently expresses, research often fails to harness the full potential of its results. In fact, the academic community is known to discourage the development of marketable products from academic research; such activity is perceived as an attempt at monetary gain rather than as a contribution to knowledge for its own sake. 

Second, in the absence of corporate donations, university projects are typically financed through government grants. For-profit corporations that are the direct beneficiaries of university research, it may be argued, receive a tax-subsidized advantage that competitors would view as unfair. As a result, a clear set of boundaries is needed on what activities tax dollars can support. Although such limitations have been explored for some military and government research, no restrictions regulate the research that benefits businesses. 

Third, the corporate compensation structure for the individual knowledge worker is not always well diffused, if at all, over time. Compensation in the corporate domain is higher than in the academic domain, where employment security makes up for the relatively modest salary and small pay increases. While modest and steady increases in compensation slow the academic’s accumulation of wealth, this compensation structure helps protect the creative experimentation that lies at the heart of the academic model. 

Fourth, rights do not currently allow organizations in the academic and corporate domains to share future royalties. In addition, they do not allow for the dissemination of results, which is integral to the publication process. These points, in particular, are key to the construction of the bridge between the two domains. It requires a small but very significant change in the academic domain by assigning a monetary reward to the development of academic bodies of knowledge. Because the bodies of knowledge might not produce the hoped-for outcomes, the risks and expenses of pursuing this strategy today are too great for a corporate undertaking alone. The sharing of the risks between the two domains would allow the costs of failure to be reduced through diversification. It would also align the rewards with the risks and permit university research centers not only to finance their efforts but also to broaden their scope, deepen their staffs, and enhance their problem-solving abilities.

Fifth, global economic and financial issues (e.g., regulation of financial services, corporate governance laws, global warming, etc.) require an international and interdisciplinary effort that is currently fragmented, whether viewed from the top down or bottom up. For instance, the global financial crisis of 2008–2009 is being handled nationally. Stiglitz (2009) argues that this approach is inadequate because it fails to account for the international impacts of each affected country’s policy responses to the crisis. The result is a slower return to global growth and stability than if the response were coordinated internationally and across academic and corporate domains. 


  1. Universities should set up research centers that serve as the conduits for corporate-sponsored research, allowing for the sharing of the risks of creative endeavor and ultimately blending the why with the how.
  2. University research centers that perform corporate-sponsored research should continue to serve as educational centers for faculty and students, maintaining the context, compensation structure (job security), and values of an academic center of learning.
  3. Corporations should delineate proprietary information into sharable and exclusive ("secret sauce") categories.
  4. Universities should act as fund administrators and contractual co-owners with corporations, as well as acting as primary administrators for international and multi-organizational endeavors.
  5. A combination of market pricing and right of first refusal would provide the mechanism for valuation of fair remuneration between the parties for the duration of the agreement.
  6. Corporations and universities between compensation and the publishing of knowledge so as to maintain the open dialog that improves why while protecting the discovered advantages delivered in how.

The first three suggestions, while required change, are less challenging than the latter three. In particular, motivating the faculty to participate without using corporate compensation as leverage will be the key to success. While individual achievement among academics is to be recognized and rewarded, the compensation cannot be tied so strongly to the individual that academic research centers suffer the same fate as corporate research laboratories.


When exploring the reasons for the discordance between academia and the corporate world, we find that the university model has clear similarities with the corporate model—but the differences, especially in the compensation structures, divide the two domains. In order to build a bridge between the two—and ultimately to enhance the efficacy of the educational experience—universities should set up research centers that serve as the conduits for corporate-sponsored research; corporations should allow the research centers to share in the royalties; and corporations should allow faculty to publish the results of corporate-sponsored research. By opening an exchange between the practical information of corporate America with the conceptual knowledge of academia, everyone benefits.


Burns, Arthur F., and Wesley C. Mitchell. 1946. Measuring Business Cycles. New York, NY. National Bureau of Economic Research.

Eichengreen, Barry. March 30, 2009. "The Last Temptation of Risk." National Interest Online.

Hansmann, Henry. April 1980. "Role of Nonprofit Enterprise." Yale Law Journal, vol. 89, no. 4. 835-891.

Koopmans, Tjallings C. August 1947. "Measurement Without Theory." Review of Economics and Statistics, vol. 29, no. 3. 161-172.

Malkiel, Burton G. 2007. A Random Walk Down Wall Street. 9th ed. New York, NY. W.W. Norton.

Robbins, Jane. February 2008. "Toward a Theory of the University: Mapping the American Research University in Time and Space." American Journal of Education, vol. 114, no. 2. 243-272.

Stiglitz, Joseph. 2009. "The Current Economic Crisis and Lessons for Economic Theory." Presidential Address, Eastern Economic Association Conference, New York, NY.

Weinstein, Larry B., Joseph Castellano, Joseph Petrick, and Robert Vokurka. March/April 2008. "Integrating Six Sigma Concepts in an MBA Quality Management Class." Journal of Education for Business, vol. 83, no. 4. 233-238.

Winston, Gorden. September/October 1997. "Why Can't a College Be More Like a Firm?" Change, vol. 29, no. 5, 32-38.

Anthony Loviscek is an investment advisor with Covington & Associates Inc. and teaches at Seton Hall University. Elven Riley, who has worked on Wall Street for more than 30 years, is the director of the Center for Securities Trading and Analysis at Seton Hall University.

Illustration by Mark Andresen.

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