MBAs as CEOs: Some troubling evidence22 February 2017
Business schools like to boast about how many of their graduates have become CEOs—Harvard especially, since it has the most. But how do these people do as CEOs: are the skills needed to perform there the same as those that get them there?
MBA students enter the prestigious business schools smart, determined, and often aggressive. There, case studies teach them how to pronounce cleverly on situations they know little about, while analytic techniques give them the impression that they can tackle any problem—no in-depth experience required. With graduation comes the confidence of having been to a proper business school, not to mention the “old boys” network that can boost them to the “top.” Then what?
Some Surprising Evidence This is one question that these centers of research do not research. Some years ago, Joseph Lampel and I made an exception. A decade after its publication in 1990, I looked at a book called Inside the Harvard Business School, by David Ewing, long an insider. (The first line was “The Harvard Business School is probably the most powerful private institution in the world.”) The book listed 19 Harvard alumni who “had made it to the top”—the school’s superstars as of 1990. My attention was drawn to a few of them who would not have been on that list after 1990.
So Joseph Lampel and I studied the post-1990 records of all 19. How did they do? In a word, badly. A majority, 10, seemed clearly to have failed, meaning that their company went bankrupt, they were forced out of the CEO chair, a major merger backfired, and so on. The performance of another 4 we found to be questionable. Some of these 14 CEOs built up or turned around businesses, prominently and dramatically, only to see them weaken or collapse just as dramatically.
Frank Lorenzo experienced major failures with all three airlines that he headed, while Roy Bostock, who for a decade headed up Benton & Bowles, the renowned advertising agency, saw it close down five years after he retired. Perhaps most prominent and dramatic was the story of Bill Agee, CEO of Bendix and later Morrison Knudsen. About a book written by Mary Cunningham, another Harvard MBA, who worked alongside Agee, a Fortune reviewer wrote:
What little discussion there is of actual business consists mainly of genuflecting in front of a deity called The Strategy…. Near as I can tell, it consisted of getting Bendix out of a lot of fuddy-duddy old-fashioned products and into glitzy high tech. What makes this a terribly ingenious idea, let alone a good one, she does not say.1
Another Fortune article elaborated. Agee “was facile with finance and accounting, shrewdly selling assets and investing in other companies…. [But after] Bendix’s ill-conceived effort to go high tech…a takeover attempt…backfired, leading to the sale of Bendix.” Then, at Morrison Knudsen, a construction company, Agee “made some dreadful business decisions.” According to some executives, he used questionable accounting practices to boost earnings by tens of millions of dollars. The writer concluded that “Agee’s fatal flaw was his weakness as a manager.”2
Of course, a couple of years in a classroom does not necessarily destroy someone’s potential for management—there were, after all, those 5 other CEOs who seemed to do well. But the performance of the 14 suggests either that this business school has succeeded in putting some wrong people on the track to that top, or else that its emphasis on cases may have given some right people the wrong impression of management.
More Surprising Still These results were obviously surprising. They did not prove anything, but they certainly deserved consideration: is it possible that the most renowned business school in the world graduated a group of people who performed so dismally at the apex of managerial power?
Hence, more surprising still is what happened next. Nothing.
We hardly hid these results: an initial version appeared in a 2001 Fortune magazine article3 and a later version in my book Managers not MBAs (2004, pp 111-119), which has sold 90,000 copies (presumably to some people who read it). You might think that this would have set off alarm bells, or at least evoked a bit of curiosity. That they do not suggests as much about business schools as do these results about their graduates.
More Troubling Still Since I first posted this lament here in late 2014, two business school professors have weighed in, one of them my first doctoral student, Danny Miller, Director of the Research Center for Business Families at the HEC business school in Montreal, the other Xiaowei Xu of the University of Rhode Island. They authored two articles with much larger samples and even more troubling results.
In “A Fleeting Glory: Self-serving Behavior among Celebrated MBA CEOs”4, they used an ingenious sample: 444 chief executives of American corporations celebrated on the covers of Business Week, Fortune, and Forbes magazines from 1970 to 2008. The research compared the subsequent performance of those companies that were headed by MBAs—one-quarter of the total—with the ones that were not.
Both sets of companies declined in performance after those cover stories—Miller commented later that “it’s hard to stay on top”—but the ones headed by MBAs declined more quickly. This “performance gap remained significant even 7 years after the cover story appeared.” The authors found that “the MBA degree is associated with expedients to achieve growth via acquisitions...[which showed] up in the form of reduced cash flows and inferior return on assets.” Yet the compensation of the MBA CEOs increased, indeed about 15% faster than the others! Apparently they had learned how to play the “self-serving” game, which Miller referred to in a later interview as “costly rapid growth.”5
The second study, entitled “MBA CEOs, Short-term Management and Performance” (20176), used a wider, more recent sample: of 5004 CEOs of major U.S. public corporations from 2003 to 2013. The results were much the same. “…we find that MBA CEOs are more apt than their non-MBA counterparts to engage in short-term strategic expedients such as positive earnings management and suppression of R&D, which in turn are followed by compromised firm market valuations.” Once again, these MBA CEOs were rewarded for this “performance.”
Why does this persist? Business schools have become enormously successful, in some respects deservedly so. They do a great deal of significant research (Harvard now especially so). In universities, they are centers of interdisciplinary work, bringing together psychologists, sociologists, economists, historians, mathematicians, and others. And their MBA programs do well in training for the business functions, such as finance and marketing, if not for management. So why do they persist in promoting this education for management, which, according to mounting evidence, produces so much mismanagement?
The answer is unfortunately obvious: with so many of their graduates getting to the “top”, why change? But there is another answer that is also becoming obvious: because at this top, too many of their graduates are corrupting the economy.7
© 2017 Henry Mintzberg See the last TWOG which described something quite different: management education for practicing managers who reflect on and learn from their own experience. See also The Epidemic of Managing without Soul.
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1 M. Kinsley, “A business soap opera”, Fortune, 25 June, 1984
2 B. O’Reilly, “Agee in exile,” Fortune, 29 May 1995
3 H. Mintzberg and J. Lampel, “Do MBAs make better CEOs?”, Fortune, 19 February 2001
4Journal of Management Inquiry, 30 September, 2015
5 Miller, interviewed in the Harvard Business Review (Nicole Torres, “MBAs are more self-serving than other CEOs”, December 2016)
6Journal of Business Ethics, forthcoming in 2017 (for access now: DOI :10.1007/s10551-017-3450-5.)
7 A second unfortunately obvious answer is that many of the graduates are earning fortunes in financial institutions by serving themselves and their MBA CEO clients more than the economy.