Duff McDonald’s new book, The Golden Passport, is receiving much publicity for its blaming of Harvard Business School for most of the wrongs of American capitalism. I commend McDonald on his detailed history of HBS, much of which I recognize. But I criticize him for drawing mostly wrong conclusions. Before I explain why McDonald errs in many ways, I need to declare that I am a product of Harvard Business School—MBA and DBA (supervised by Michael Porter), then Assistant Professor of Marketing, and a regular reader of Harvard Business Review for the last 40 years. On the other hand, my view of MBAs and HBS is informed by my long career on the faculties of seven other top business schools on four continents, as well as my 12 years of business experience. I will not attempt a point by point review of this book but will focus on correcting five errors made by the book about both business schools in general and Harvard Business School in particular.
Correction 1: MBAs did not cause the financial crisis of 2008, PhD’s did.
The recent financial crisis was not caused primarily by the greed of Harvard and other MBAs running banks. The root cause was the unrealistic financial models created by PhDs in economics, finance and statistics, almost none of whom were graduates of HBS. Yes, these PhDs reported to MBAs who had ultimate responsibility, but the free market capitalism of the USA pretty much forced the top managers of banks to use these risky instruments once the “rocket scientists” had created them. As Citigroup CEO, Chuck Prince (a Georgetown University law graduate, not an MBA) put it in 2007 just before the collapse, “…as long as the music is playing, you’ve got to get up and dance.”
Correction 2: Michael Jensen and his agency theory of management are not products of HBS, but of the University of Chicago.
Michael Jensen obtained his PhD in economics at the University of Chicago and then worked at the University of Rochester before he joined HBS at the age of 49, long after he’d done his most influential work. It is primarily the University of Chicago, and Milton Friedman and other Chicago faculty, such as Nobel Prize winner Merton Miller, who should get the credit or blame for developing the theory that only shareholder value matters. And it was a University of Illinois PhD in chemical engineering, Jack Welch, CEO of General Electric, who did the most to lead the corporate charge on shareholder value. He also became the first to apologize after the financial crisis: “on the face of it shareholder value is the dumbest idea in the world” (interview with Financial Times, 12 March 2009).
Correction 3: Harvard MBAs did not cause the short termism of most American companies —the U.S stock market did.
U.S. Senator Mark Warner said last year that the average holding period of American stocks has fallen from eight years in the 1960s to four months now. The ideology of free markets created this system. MBAs are simply very good at winning in whatever system in which they compete. Creating slower equity markets is not the job of business schools, but of governments and politicians, and almost none of the latter have MBAs. By the way, if you want a more constrained form of capitalism, look to France where many jobs are for life, often literally the same job for decades, and where young people find it very hard to get a start in these cushioned, permanent careers.
Correction 4: An MBA education is not a waste of effort, but adds more value than nearly any other type of education.
Top consulting companies, such as McKinsey, who can hire almost anyone they want, hire predominantly MBAs plus a few PhDs in economics, nuclear physics and other scientific subjects. These PhD holders almost certainly have higher IQs than MBA holders but the MBA education more than compensates for the difference in IQ. The author denigrates Amazon relative to exciting high-tech companies such as Google and Facebook, implying that the reason is because Amazon has many more MBAs on its staff. He got his logic the wrong way round. Amazon does not have the technological advantages of Google and Facebook. Therefore it needs MBAs to make up for this lack. The MBA was probably the greatest educational innovation of the 20th century. I found my MBA studies far more stimulating than my undergraduate degree in economics at the University of Cambridge. With the creation of online and blended MBAs, innovation in business education is continuing in the 21st century.
Correction 5: Harvard and other business schools do not ignore their social responsibility, but place high priority on that.
Even if they did not want to, business schools are required by the accreditation bodies to care about social responsibility. AACSB states: “The school must demonstrate a commitment to address, engage, and respond to current and emerging corporate social responsibility issues.” EQUIS states: “The School should have a clear understanding of its role as a ‘globally responsible citizen’ and its contribution to ethics and sustainability.” When I was a dean I served on accreditation panels for both AACSB and EQUIS, and can attest that schools take seriously the teaching of social responsibility. And over the last four decades I have seen increasing proportions of both faculty and students who take social responsibility very seriously. The group pressure of MBA programs that McDonald criticizes now turn their graduates into more rounded and responsible citizens.
To conclude, the world is a better place because of Harvard and other business schools.
George S. Yip is Professor of Marketing and Strategy, and Associate Dean for Executive MBA at Imperial College Business School in London. The Imperial EMBA is a blended program combining on-campus and online study.