The ‘Barbarian’ At Harvard Business School’s Gate

Author Duff McDonald criticizes Harvard Business School for its promotion of money and greed over values and morals

From the very beginning, the Harvard Business School treated Duff McDonald as a barbarian at the gate. A veteran journalist and author, McDonald first approached the school about cooperating with him on a book in late February of 2013. But the guardians of HBS’ history, myths and truths quickly slammed the door shut, preventing access to all administrators, staff and faculty, even the school’s own historical archives.

The school, says McDonald, rebuffed at least a half dozen requests for cooperation, though the author was able to visit the Harvard Business School campus on four occasions. Now, more than three years later, McDonald’s The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite will be published by Harper Business on April 25. As the lengthy title suggests, HBS stakeholders aren’t likely to enjoy what they will read in the book’s formidable 672 pages.

McDonald’s conclusion is that the Harvard Business School has abysmally failed the goal of its founders who sought “the multiplication of men who will handle their current business problems in socially constructive ways.” While HBS graduates tend to be very good at whatever they do, McDonald claims, that is rarely the doing of good.

READERS WILL ‘COME AWAY WITH A STENCH OF AFFLUENT DECADENCE’

Instead, believes the author who spent two and one-half years reporting and writing The Golden Passport, HBS is an institution that promotes money, greed and immorality above society’s needs, a school whose teachings are complicit in the moral failings of Western capitalism. It is the most critical work on HBS since the publication of the New York Times’ bestseller Ahead of the Curve by Philip Delves Broughton who chronicled his two-year experience as an MBA at the school.

Among those who offer up promotional blurbs is noneother than consumer advocate and anti-capitalist Ralph Nader. After reading the book, Nader came away with this assessment: “HBS, while alert to shaping the latest management techniques, is largely indifferent to the ongoing corporate crime wave and other criminogenic behavior and externalities corrosive of fundamental civic values and economic equities. Readers can bury their noses in this prodigious tome and come away with a stench of affluent decadence.”

Unlike Ahead of the Curve, The Golden Passport is more a history of the school and its influence than it is an immersion in the HBS student experience. The early reviews praise the book for being a massively detailed history of Harvard Business School since its founding in 1908. “Exploring how Harvard Business School became a ticket to the highest echelons of money, power, and influence,” writes a reviewer for Publishers Weekly, “McDonald chronicles the school’s history in an irreverent, cynical, and frequently funny exposé of its pretensions…refreshingly substitutes skepticism for reverence, questioning the limits of business education and of capitalism in general.” On the other hand, another critic at Kirkus Reviews called the book “a tome that alternates between a useful exposé and a slog—best for HBS alumni and business historians.”

WHY DOES MICHAEL JENSEN STILL HAVE A JOB?

What most troubles the author is what he perceives as the unwillingness of the school to address economic inequality in teaching MBAs or to emphasize the greater social responsibility of a business. McDonald, who had written a history of McKinsey & Co. before this latest project, reserves some of his harshest criticism for former Dean John McArthur, who led the school from 1980 to 1995, and tenured finance professor Michael Jensen, who retired from HBS’ active faculty in 2000.

In the book and an excerpt in Newsweek, he assaults McArthur for his decision to hire Jensen from the University of Rochester, where he already had held an endowed chair, and he condemns the professor for his unbridled promotion of the idea that companies should be run to achieve maximum shareholder value, with little regard for its responsibilties to employees, customers or community. “In the 1980s, HBS had abandoned its mission of trying to educate an enlightened managerial class,” writes McDonald. “Instead, it threw its lot in with Wall Street as it was dismantling the edifice of American industry HBS had helped build. HBS had nurtured the professional manager from his birth and then helped to kill him.”

At one point, McDonald openly wonders why Jensen, who earned both his MBA and PhD at the University of Chicago and joined the full-time faculty at HBS in 1985, ever had a job. A course developed by Jensen—The Coordination and Control of Markets and Organizations—was designed “to make students more ‘tough-minded’ and shift them from the ‘stakeholder model’ of organizational purpose,” writes the author. It became one of the most popular electives at the school. All of this had, in McDonald’s view, a profound impact on management thinking. He points out that recent studies by the Aspen Institute show that when students enter business school, they believe that the purpose of a corporation is to produce goods and services for the benefit of society. When they graduate, they believe that it is to maximize shareholder value.

“What did Michael Jensen achieve, in the end?” asks McDonald. “He helped a generation of businesspeople lower its opinion of itself and give in to its baser motives. For all his economic equations and insistence on the testability and refutability of the logic of his opinion—and it was just that, an opinion— he released CEOs, institutional investors and Wall Streeters from the obligation of considering anything but their own narrow wants and needs.”

‘DEAN MCARTHUR THOUGHT THAT HIRING JENSEN WOULD BRING IN DONATIONS FROM WALL STREET’

He notes that when William Lazonick, now a professor of economics at the University of Massachusetts, publicly challenged Jensen’s ideas, sparks flew. “Jensen was king of the hill, and he objected to me…daring to question him,” Lazonick told McDonald. “He was livid that he had been set up in front of all his colleagues to be critiqued by an outsider. He told [HBS professor Thomas] McCraw not to invite me back, and I wasn’t…for another 17 years. Have no doubt about it, the most powerful man at HBS in the early 1990s was Michael Jensen….

“Almost immediately after they hired [Jensen], shareholder value ideology quickly took a dominant position at HBS, even though, from their own experience, the vast majority of faculty members did not believe it. But there was absolutely zero critique. Even from those who should have known better…there wasn’t a peep. It’s quite sad. Both [Harvard President] Derek Bok and [HBS Dean] John McArthur should have known better, but they went out of their way to recruit Jensen,” says Lazonick. “I asked a member of the faculty who is actually still there about it, and he said that McArthur thought that’s where the money was, and hiring Jensen would bring in donations from Wall Street.”

McDonald certainly wasn’t predisposed to this view. He earned his undergraduate degree in finance at the University of Pennsylvania’s Wharton School and was then recruited to Goldman Sachs, quitting after a two-year stint to become a full-time journalist. In an interview with Poets&Quants, McDonald explains how his book came about and how he came to some highly provocative conclusions about the impact—both good and bad—that Harvard Business School has had on business and society.

  • C. Taylor

    Thanks Duff McDonald . . . assuming you are Duff McDonald. Give some individuals’ penchant for fake profiles here, you’ll allow me some skepticism.

    C. Taylor: “capitalism is synonymous with economics-based decision making”
    McDonald: “[a] fool would suggest that capitalism arrived perfect or has achieved perfection . . . We can always do better.

    Your mixing up who is lobbing insults here aside; you appear to suggest “they all just sort of assumed capitalism” is a call to do better at capitalism. Not at all what the phrase suggested, but I’ll take your word for it. McDonald, you cannot do better than economics-based decisions. The primary engine supplying everything desired is very-long-run growth in productivity. We could come up with a better name for capitalism, given the name no longer matches the practice.

    McDonald: “[A strawman] entails a misrepresentation of someone else’s position

    The debates of the time were to tax income vs. imports—the creation of a central bank. We’re talking pre-Harold-Domar here, not to mention Solow and Romer. The founding dean, Edwin F. Gay, recognized explicitly that
    the innovations of actors in a free market offer advantages to all of society.

    McDonald: “historic inequality. Go read Picketty . . . the supporters of unfettered American market-based capitalism have long argued that it will lift all boats in the long-term. And yet here we are, right back where we were a century ago.

    Well, No. We are not. The goal here is increasing incomes above some threshold in a healthy manner. Do you agree? As the Urban Institute study pointed out; over the last 45 years, the economy has raised the number of people in the middle class or higher from 52% to 63%. That’s a liberal think tank, btw. And no, we don’t have unfettered capitalism.

  • Hi, C. Taylor, thanks for your summary dismissals of my motives/efforts. I will dismiss each in turn.

    1. The multiplication of men who will…socially constructive ways. That was the goal HBS set for itself. I don’t know where you get your definition of straw man, but to me, it generally entails a misrepresentation of someone else’s position. Those are their own words. If they didn’t want to be judged against them, they shouldn’t have said them. Your point is invalid.

    2. I went to Wharton and worked on Wall Street, and can play with statistics just as much as anybody, so the single chart you provide below doesn’t squash the idea that we are living during a time of historic inequality. Go read Picketty if you need more on that. But the more important point is that I am not suggesting people don’t have the right to accumulate wealth. It’s that the supporters of unfettered American market-based capitalism have long argued that it will lift all boats in the long-term. And yet here we are, right back where we were a century ago. Where is the progress in that? That’s not ideology, that’s asking why the promised benefits have not yet arrived a century after the fact. And while I appreciate you allowing for the fact that I might not be ignorant but merely ideological, I won’t honor the insult with further reply other than to remind you that I’m an accomplished journalist and author on the subject of business and finance who has shown the ability to both praise corporate actors (see Jamie Dimon, McKinsey) as well as criticize them. You? You’re anonymously lobbing insult grenades on a comment board, and claiming it’s because you value your safety and privacy. That’s the line given by much every other chickensh*t critic hiding out on the Internet.
    3. Only an orthodox fool would suggest that capitalism arrived perfect or has achieved perfection. It’s a human endeavor. To blithely assume away the need for continual self-criticism is arrogant beyond belief. And you betray your own ideology by equating the ignorant with the “ideological left” – to question capitalism is not to advocate for its opposite. We can always do better.

    Regards, Duff McDonald

  • RankingExpert

    Don’t worry, they understand your behavior, at the end it is expected from IMD guy 🙂

  • Wharton Hopeful

    Just your school name, dummy @disqus_JUhWXWJsK8:disqus

  • C. Taylor

    To expand on my equal opportunity point; inflation adjusted, the economy has successfully increased the percentage of the population in the middle class or higher from around 52% of the population 1979 to around 63% of the population today. The current issue is a bifurcation in income growth, and that is what put Trump in office. From Stephen Ross, of the Urban Institute:

    https://uploads.disquscdn.com/images/8e2c9213564e17526c4e55797814f196d5cb1c90d43aef25e99bc5b670ac0310.jpg?w=800&h=596

  • C. Taylor

    To expand on my equal opportunity point; inflation adjusted, the economy has successfully increased the percentage of the population in the middle class or higher from around 52% of the population 1979 to around 63% of the population today. The current issue is a bifurcation in income growth, and that is what put Trump in office. From Stephen Ross, of the Urban Institute:

    https://uploads.disquscdn.com/images/8e2c9213564e17526c4e55797814f196d5cb1c90d43aef25e99bc5b670ac0310.jpg

  • C. Taylor

    anon: ‘I expected an address, academic history, and background; in addition to the name. So insecure.’

    🙂 Forgive me for laughing.

  • Wharton Hopeful

    Agree, didn’t expect him to act like a little girl with his response to my question. Shows his insecurity.

  • Vishay

    By such question: you just inflated his inflated ego to the max. If he was a top MBA, his time will be more precious than to spend it here.

  • C. Taylor

    Hey Wharton Hopeful, thanks for your comment.

    Haha . . I currently avoid providing sufficient personally identifying information. I’ve seen ladies (in relationships) get flowers in the mail from anons and C-suite executives’ kids get harassed in school because someone disagrees. Just look at what Trump puts up with. He tweets something and CNN has a panel of far left people debating for hours with the center left people. No thanks!

    Good luck with your apps!

  • Wharton Hopeful

    Hey C. Taylor! Always see your responses to the articles but never had a chance to ask which program are you currently enrolled in or graduated from? Just curious. Thanks bro/sis!

  • C. Taylor

    Nice of P&Q to post this.

    “the multiplication of men who will handle their current business problems in socially constructive ways”

    MacDonald equivocates here in setting up a straw man to attack in his book.

    “Am I anti-wealth? No . . . . In the last 100 years, inequality in the U.S. started ridiculously high, then got impressively low, and then boomeranged back to being high again.”Ignorance or ideology; one of the two drives his perspective here.

    “they all just sort of assumed capitalism”
    Today, capitalism is synonymous with economics-based decision making. Only the ignorant, leftists, and people alive 200 years ago use the word otherwise.

  • EC

    then it would be boring do-gooders. I enjoy thinking about which of my classmates are going to be infamous. There is a reason TEM not Reimagining Capitalism is in the RC year lol

  • Mission

    Went to HBS and totally agree. John, I posted the mission as HBS is pretty true to it (which is unfortunate IMHO). As long as you follow societal laws your impact can be for better or worse. Would’ve been great if the school had spoken with him. Also would be great if the school modified the mission statement ever so slightly.

  • EC

    I’m about to graduate and as I reflect on my time at HBS, I realize that no, there is absolutely no implied notion that we should make a positive difference in the world, we just need to make a difference that matters. HBS grads have shaped America for good and for ill and in both cases they made a lot of money doing it. The school has embraced both types except for egregious fellows like the Enron dude. I am disappointed the school chose not to engage with this author.

    As to the comment about the scribes in class, that is not cosmetic – it is truly a game changer. The number of balls a professor has to juggle in the case study method means it is very easy for unconscious bias to win the day. Having a scribe record your calling patterns and what people say exposes this to professors and allows them to course correct. In the EC year, scribes are not mandatory and you see the same issues with unconsious bias with professors who don’t have them. I took a class where one professor would have his back to an entire section of the class when looking for someone to call upon next. If you were in that section and did not email him about it, you were screwed for class participation. Having a scribe makes sure that doesn’t happen.

  • You are right. But the implied notion of that mission is that HBS graduates would have a positive influence on the world.

  • Mission

    To be clear, HBS’ mission is “We educate leaders who make a difference in the world”- there is no adjective describing what kind of difference.