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.
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