“Knife. Penis. Town square. Got it.”

Those six words don’t yet mean anything to the 400 MBAs-to-be of storied Stanford Graduate School of Business’s incoming class who rightly believe they have grasped a platinum ticket to the top. But that will change fast as they struggle to understand why Garth Saloner stepped down today as dean of what is widely regarded as the best business school in the world.

In a statement Saloner said: “As many of you know, the university and I have been vigorously defending a baseless and protracted lawsuit related to a contentious divorce between a current and former member of our faculty. I have become increasingly concerned that the ongoing litigation and growing media interest will distract all of you from the important work that you are doing and unfairly impact this stellar school’s deserved reputation.”

He was referring to a wrongful termination suit filed by a fired B-school professor who is in the process of getting divorced from another B-school professor with whom Saloner has been having an affair.

Poets&Quants had asked Saloner on Wednesday of last week for an interview about the allegations, and followed up with a detailed list of questions to the university about the case on Thursday, Sept. 10. Saloner apparently made his decision to resign after declining a request for an interview and viewing the questions related to claims in the lawsuit. Stanford says Saloner will leave the deanship next summer, then resume teaching and research duties as a professor at the Graduate School of Business (GSB).

WHAT LIES BENEATH THE LOFTY IMAGE

Court records in the lawsuit, a letter from staffers to the university, and police investigations suggest that beneath the gilded image of America’s top-ranked business school lies a troubled culture, possible discrimination against women and older employees and a staff revolt over Saloner’s “increasingly brazen” behavior – all happening as Stanford has turned a blind eye.

The professor with whom Saloner embarked on an affair, Deborah Gruenfeld, is a board member of LeanIn.org, the group started by Facebook COO Sheryl Sandberg to offer women “inspiration and support.” In an email exchange revealed in the lawsuit, Saloner advises the professor not to approach her divorce “too much” as a woman.

The professor’s husband, also a professor at the B-school when the affair began, has been fired and now teaches full-time at Apple University, the tech giant’s internal training facility.

THE FALLOUT FOR THE WORLD’S NO. 1 BUSINESS SCHOOL

Details of the court dispute could be especially damaging to Stanford’s business school since they include allegations of professional and financial retribution against Gruenfeld’s husband, Jim Phills, contempt for school rules and policies, and claims that the Graduate School of Business (GSB) is a hostile workplace riven by “personal agendas, favoritism, and fear.”

The lawsuit is only the latest in a series of scandals to besmirch the rise of what is now widely considered to be the world’s top business school. This year, Stanford nudged aside Harvard Business School and Wharton for the undisputed No. 1 spot in the U.S. News rankings. And just last week, Forbes proclaimed Stanford No. 1 for the second consecutive time.

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