Profile: 2. Stanford’s Graduate School of Business

Dean Garth Saloner is an unusual B-school leader. Rarely are deans outstanding teachers and rarely do they teach a wide variety of core MBA courses. Saloner, however, is one of only two Stanford professors to twice win the school’s distinguished teaching award. An economist by training, Saloner has taught management, strategy, entrepreneurship, and e-commerce at GSB. Moreover, he knows at least some of the competition, having taught at both MIT and Harvard Business Schools before joining the Stanford faculty in 1990. Saloner was the key architect of a radical overhaul of the school’s MBA curriculum in 2007 which helped to make him a logical candidate to succeed Robert Joss as dean in September of 2009.

Stanford’s Graduate School of Business, known simply as GSB, is the most selective B-school in the world. The school accepted only 6.5% of the applicants who applied for admission to the Class of 2011, ahead of Berkeley’s 11.0% rate or Harvard’s 12.2%. The selectivity is a function of the school’s relatively small size, with a class of just 380 students, its Silicon Valley location, and its stellar reputation in academic circles. Just as stunning, Stanford has the highest average GMAT scores of any business school in the world: 726 versus Harvard’s 719 and Wharton’s 718. And GSB graduates earn the highest average starting salaries and bonuses: $132,769 for the Class of 2009 versus Harvard’s $131,219 or Dartmouth’s $128,282.

It’s goal is ambitious: to only accept students, who in Saloner’s words, “have the leadership capacity to change the world.” The tagline of the school? “Change Lives, Change Organizations, Change the World.” This lofty mission is taken seriously by the admissions staff which sorts through more than 7,000 applications a year for applicants who already have shown enough of the right stuff to get in. For the Class of 2011, the GSB received a record 7,536 applications for just 385 spots. Only three years earlier, the school got 4,868 applications. So the competition to land one of those few class seats at Stanford is more severe than ever.

And while the average GMAT score for the class was 723, the median was even higher: 730. In 1990, the average GMAT score at Stanford was about 650. So in the past two decades, the number has jumped by 73 full points. “We could fill the class with stunningly high GMATs,” says Saloner. “But it’s not a goal to go higher. It’s an outcome of the quality of the applicant pool.”

It wasn’t always that way. In 1924, at the urging of Herbert Hoover, a group of West Coast business leaders gathered under the redwoods at the exclusive Bohemian Grove north of San Francisco to plot the school’s birth. Hoover, then a Stanford alum and trustee but not yet President, was worried that Harvard, Dartmouth and Wharton were getting all the business talent as the most promising students in the west headed east. Ultimately, Hoover enlisted 125 West Coast business leaders to pony up the cash to fund the school. The GSB opened its doors in the fall of 1925, 25 years after Dartmouth and 17 years after Harvard. Some 16 students enrolled in Stanford’s first class.

The GSB built a strong regional presence, but pretty much went nowhere on the national scene. That was until the late 1950s when the unversity named businessman Ernie Arbuckle as the third dean of the school with a charge to make it “the best business school in the world.” Arbuckle wasted little time. He raided the faculties of other leading B-schools and the GSB’s national reputation began to take shape. Subsequent deans kept the school relatively small, less than half the size of many of its peer schools, including Harvard. Stanford boasts one of the lowest student-to-faculty ratios of any business school, seven-to-one. The school also has long sought to achieve balanced excellence in both teaching and research, but over many years there has been more emphasis on scholarly research than brilliant classroom teaching. One benefit has been a faculty (including emeriti) with three Nobel laureates, three members of the National Academy of Sciences, 15 members of the American Academy of Arts & Sciences, and two winners of the John Bates Clark Medal in Economics.

Ask Saloner how Stanford differs from its competition and he makes the case for significant differences. “Stanford is a very different school, and it’s a little hard to precisely articulate,” he says. “You start with size. It’s an intimate scale. Students here can get to know all of their classmates. It’s a true community. It’s a very collaborative and communal place. There’s an energy that pervades the campus.

“Our students are extremely aspirational. Our mantra is to change the world, and our students believe it. They come to spend two years here not to punch a ticket but for personal growth, to figure out who they are and who they can be. They want to leave here to make a difference in the world. They don’t come to Stanford to check off a box. The curriculum supports that.”

That’s more true today than it was only three years ago. Before Stanford’s overhaul in 2007, students began the program with a set of “tools” courses like they do at most other business schools. MBAs could place out of up to nine core classes with passing grades on placement tests, but students often preferred to move through the program with their classmates. The upshot: many candidates ended up in classes below their background or ability. Shockingly, a survey of grads by Stanford discovered that one-third of the students said their undergraduate degree was more intellectually challenging than Stanford’s MBA program. “There was a lower degree of engagement in academics,” says Saloner. “Professors would have said that students were disinterested. Focus groups of our students showed that the program wasn’t challenging enough, mainly because the population had changed.”