The Golden Passport

by Duff McDonald

  Can HBS lead the way in that regard? It’s not going to happen until the faculty helps eliminate the ideological divide that the School helped create between business and government. And Bales is not entirely optimistic on that front. “Unfortunately, like any aging institution that is losing its mitosis, HBS is conservative by nature, and generally risk-averse. The whole idea of trying to get ahead of change doesn’t really fit their situation. And you know the old conservative maxim: If it isn’t necessary to change, it is necessary not to change. But they’re going to have to at some point.”

  This is urgent stuff—the questions that young alums like Casey Gerald, older ones like Carter Bales, and an increasingly vocal public have posed—especially given that business does indeed reign supreme in modern society. Government does not function as an effective check on corporate interests anymore—not in the United States, or across the globe. Given that a “trans-national capitalist class”4 has grabbed the reins of power in most developed economies in the world, the only remaining check, one might argue, is our collective morality. Which brings us back to HBS. Does HBS have the capacity to lead that change? Perhaps, but it’s also hard to truly improve a system from the inside. While there are many ways to describe HBS, no one has ever called its people outsiders. And while they produce a lot of corporate leaders, they are usually not of the revolutionary sort. They’re conservative by nature, Company Men at heart, and that constrains their ability to truly lead in times of change.

  “Certain things about modern corporate society are unseemly and suboptimal,” says Gerald, “but HBS could play a role in determining the remedy. We need them to, as the only ones who can really untangle these knots are the ones in power.” He then proposes another way to look at it: “HBS professor Clayton Christensen talks about resources, priorities, and processes. The resources are there. But what about the processes people go through from day one at HBS until they graduate? How are they designed? Intention can have huge effects. As for priorities, we need only look at the people they celebrate and recognize. So what are HBS’s priorities?”

  As the nation’s most prominent—and largest—business school for the last century, HBS has shaped—and continues to shape—the direction not just of its graduates’ lives, but also those of the organizations they work for and the economy itself. Harvard University occupies a singular place in the public’s imagination, but Harvard Business School—the child reluctantly adopted by the parent early in the last century—eclipsed its parent in terms of its influence on society long ago. Given its position in the business firmament, anything that happens at HBS (changes in curriculum, in student career choices, in the methods of socialization of its students) has butterfly effects not just in the U.S. economy but globally. The direction they’re all pointed in—as well as the priorities they come to possess—has ramifications for every one of us.

  Before addressing those questions, however, it seems appropriate to dispense with an easy one, the cost-versus-value of a Harvard MBA. While most people focus on the $60,000-plus tuition, the full cost of attending HBS, that is to say, the opportunity cost, can be $500,000 or more. Is it worth it? Of course it is. The lifetime of enhanced opportunity—both pecuniary and otherwise—that a Harvard MBA provides makes the calculation a no-brainer. A Harvard degree guarantees respect; an HBS degree only starts with respect (at least from certain quarters). Its true value is near-guaranteed entrance into Western capitalism’s most powerful realm—the corner offices and boardrooms of the corporate elite. They say there are no sure things in life, but this actually is one: A Harvard MBA really is a golden passport to the land of wealth and influence.

  HBS has proven an enormous success in many respects—it played a major role in distilling, defining, and teaching the fundamentals of business administration; it provides its graduates with unrivaled opportunity; and it is a money machine unto itself. At the same time, it has likewise proven an enormous failure at delivering on the stated goals of its founders. One of them was unattainable from the very start—the misguided pursuit of a “science” of business—but they sure wasted a lot of time and effort trying. The other might have been attainable, but they failed at doing so: “the multiplication of men who will handle their current business problems in socially constructive ways.” In other words, HBS has failed to meet the goals it set for itself. Its graduates tend to be very good at whatever they do, but that is rarely the doing of good, Casey Gerald and a handful of other outliers notwithstanding. The fact that the school worked with Gerald’s MBAs Across America to design a course that put MBAs to work in small communities—and which was taught for the first time in September 2015—is a start, but it’s no more than that.

  Of course, HBS isn’t the only business school that promotes certain ideas or suffers from certain hypocrisies, but as the largest business school in the United States, and long one of its most influential, it must bear the burden of responsibility that comes along with success. It is worth examining closely because it is so outstandingly, breathtakingly good and bad at what it does. HBS both instigates and reflects the paradoxes of modern-day capitalism. Its own history is characterized by spectacular ambition, awe-inspiring single-mindedness, enormous successes, and profound failures. The Golden Passport charts the rise of one of America’s most influential institutions over the course of a century—highlighting both its positive and negative contributions to society—and then postulates on its future.

  Why is it important to do so now? Because modern corporate society is broken. Shareholder capitalism wasn’t the answer; it led to the exploitation of the many for the obscene enrichment of the few. The election of businessman Donald Trump was not an endorsement of business-as-usual, but its opposite: the howl of an electorate deprived of economic opportunity. Business has lost sight of its true function in society, which is to provide a mechanism by which we can work together and with our environment to achieve our common goals. It is not, and never has been, to simply make a profit.

  Another reason is that having first presided over the decimation of America’s manufacturing supremacy and then the distortion of the economy by Wall Street, the MBAs of the world are now invading Silicon Valley. And they are bringing their ruthless culture of winning with them. Consider four of the technology world’s standout companies—Amazon, Apple, Facebook, and Google. Which do you think is most overrun with MBAs? Amazon, of course. A wildly successful company, to be sure, but it’s also not much more than the Wal-Mart of the Internet, and it’s the one that treats its employees most poorly. Amazon, in other words, is the one of those four companies that feels the most like yesterday and the least like tomorrow, a company driven more by cost control than quality creation. But it is also a sign of things to come: The horde of MBAs has turned its conformist gaze toward Silicon Valley, the last redoubt of innovation in America. Whether they crush it in their stampede for money and their desire for success only for the sake of it, only time will tell.

  That’s not to say that HBS and the rest of the business school universe aren’t doing anything right. Indeed, they are doing many things right. But they have drawn—and have always drawn—the wrong conclusions from that success. And that is what makes them dangerous.

  1

  The Experimenters: Charles Eliot and Abbott Lawrence Lowell

  Harvard Business School deserves recognition for a number of firsts. It was the first business school to require an undergraduate college degree for admission. It was the first to focus on the role of the general administrator rather than on narrow technical specialties. It was the first to utilize the case method as a primary means of instruction. The list goes on. It was the first business school to engage in the systematic collection and analysis of industry data. It was the first to offer midcareer training—now known as Executive Education—with a level of resources and commitment commensurate with undergraduate and graduate efforts. And it was the first business school to build a library of any value.

  Charles Eliot and Ab
bott Lawrence Lowell, successive presidents of the university (1869–1909, 1909–1933), receive credit for the first of those firsts—the decision to establish HBS as a graduate school, not an undergraduate one. When it opened its doors in 1908, it wasn’t the first collegiate business school, not by a long shot—the Wharton School of Finance and Economy at the University of Pennsylvania had been around since 1881, the result of a $100,000 gift from industrialist Joseph Wharton. It wasn’t even the first to conceive of business education as a graduate endeavor—Dartmouth’s Tuck School, founded in 1900, required three years of undergrad, followed by two years of graduate studies.

  The idea of a business school wasn’t even a new one at Harvard. Indeed, since being named president in 1869, Eliot had long ignored suggestions to create a professional school of business comparable to Harvard’s medical school (founded in 1782) and its law school (founded in 1817). Eliot wasn’t opposed to educational innovation, by any means. Not only did he reestablish the elective principle at Harvard, but he also put science firmly in the curriculum.1 But his reasoning when it came to business was simple: Harvard saw its mission as teaching students how to live “worthy lives”—and in late-nineteenth-century America, a life in business was no such thing. One literature professor expressed the prevailing sentiment: “What? Sully the robes of Chaucer and Shakespeare with seekers of gold?”2

  It was a view in keeping with its time: For America’s late-century social elite, any money made after abolition was money of a lesser sort—new money. In marked contrast with America’s current celebration of overnight fortunes, you were not welcome in the club if you’d actually made your own money. You had to inherit it. The mark of the upper class, as Alexis de Tocqueville observed, was to “possess, without exertion, an opulence they [had] not earned.”3 Another way of looking at it: It took about three generations for the blood to dry on a fortune’s bills and for people to forget how it had been made.

  But the idea that business was not a worthy pursuit no longer held sway among America’s youth. By the end of the 1800s, more than half of all Harvard College graduates were entering careers in business. Indeed, a nationwide clamoring for collegiate business degrees had begun. So, too, had inquiries into just what a business education should be. In 1893, the American Bankers Association published the transcript of an address by Edmund James—the first director of the Wharton School—to an ABA meeting in Saratoga, New York, in 1890, Education of Business Men–I and II. That was followed by another report by the ABA’s Committee on Schools of Finance and Economy in 1891, and another on Europe’s own experiments in such in 1892.

  Still, by 1900, there were just two elite universities offering business degrees. But if the nation’s prominent academies were tentative in their early efforts toward the subject, its scrappier entrepreneurs had been on the case for decades. By 1893, more than five hundred business colleges already existed across the United States.4 A number of America’s early entrepreneurial success stories attended such colleges, including Henry Ford and John D. Rockefeller. Across the Atlantic, schools of commerce and administration had been around for more than a hundred years, with schools in Portugal, Germany, and France all established in the mid-1700s.5

  Said James in 1890: “One of the most striking facts of modern civilization is the rapidly growing importance of the business, as distinct from the professional classes. This is plain enough even in Europe where it is still kept back by the predominance of the court, the army and the church and where the bar and physic still maintain their high position. It is, however, beyond all doubt true in this country where the great merchant prince, the railroad president, the great manufacturer and banker have succeeded to the place of power once held by the great orator, statesman, lawyer, or clergyman. The professional class is losing ground, the business world gaining it. Whether for weal or woe, the control of government, of society, of education, of the press, yes, even of the church is slipping more and more rapidly into the hands of the business classes, and it is this class which to an ever increasing extent will dominate our political and social life.”6

  James’s point was news to no one. Indeed, as Harvard’s administrators grappled with how to credibly position their new school as the first of its kind, American business was well into a decades-long period of growth and increased cultural prominence. The nation’s rail network grew from 53,000 miles in 1865 to 193,000 miles in 1900. Annual steel production was going through the roof, climbing from 77,000 tons in 1870 to 11.2 million at the turn of the century.7 There were 140,000 factories in the country in 1865; by 1900, there were 512,000. And this was a new kind of factory—whereas an old-school New England mill employed just a few hundred people, the Ford Motor Company’s first plant had 15,000 on the payroll.

  The population was also transforming to meet the needs of the new economy. Between 1870 and 1900, the U.S. population rose from 40 million to 76 million, while the population of its cities grew from 10 million to 30 million. In the second half of the nineteenth century, San Francisco doubled in size, Milwaukee tripled, and Denver grew twentyfold.8 Boston, home to Harvard and already one of America’s most important cities, saw its population surge as well, more than doubling from 250,000 in 1870 to 560,000 by 1900.

  The reach of business grew right along with the spread of the people. The mass market of the United States was in the process of relegating the concept of the “local economy” to the ash heap of history, and almost overnight a new national economy dominated by gigantic megacorporations was doing just as James had observed: threatening the traditional authority structures of the “professions” (law, medicine, clergy, army) while raising a whole host of unprecedented social problems and organizational challenges. In 1888, President Rutherford B. Hayes wrote in his diary of the challenges ahead. “This is a government of the people, by the people, and for the people no longer. It is a government of corporations, by corporations, and for corporations.”9 That included Harvard, which, having been chartered in 1636, was America’s oldest corporation. The next year, in 1889, the Wall Street Journal was founded.

  In the span of a single generation, the United States had been transformed from an agrarian to an industrial society. In 1870, the country accounted for 23 percent of the world’s industrial production. By 1913, it was at 36 percent, more than Great Britain. As historian Alfred Chandler later wrote, the sudden appearance of massive companies of unprecedented complexity “called for the creation of a new type of business enterprise . . . operated by teams of salaried managers.” In his opus Scale and Scope: The Dynamics of Industrial Capitalism, Chandler documents the three-part evolution of large firms into multinational giants that was taking place as Harvard argued with itself over whether true change was truly afoot. Part one: an investment in production facilities large enough to exploit a new technology’s potential economies of scale or scope. Part two: an investment in a national and international marketing and distribution network so that sales could keep pace with production. Part three: an investment in management.

  That’s where HBS came in. Companies suddenly needed managers not just to run the production and distribution mechanisms, but also to monitor and coordinate the two, planning and allocating resources for future production. The larger the firm, the more operating units, and the more managerial oversight required. The era of the professional manager, a character who was neither owner nor labor, but who nevertheless was suddenly sitting on a power base all his own, had begun.10 (Or at least the era of the respectable manager. Historian James Hoopes points out that the 1850 U.S. census reported 18,859 Americans earning their living as slave overseers, the largest group of salaried managers in the world at the time.)

  The convergence of two powerful forces forced Eliot’s hand when it came to the establishment of a business school. The first was one in which Eliot himself played a pivotal role: the evolution of the American university. American culture had always been a little more Roman than Greek, “strong in the arts of engineering and less adeq
uate in the world of creation,”11 and it was only natural that American universities took as their role model the German university, with its emphasis on science and the scientific approach. But Eliot and others had taken the pulse of American can-do practicality, and added separate professional schools with an emphasis on practical application into the mix. (Eliot had helped conceive of Johns Hopkins University in 1876.)

  The second force was the maturing of American industry. The self-made man had been in the limelight in the late nineteenth century. But the increasing complexity and institutionalization of American business enterprises necessitated the education of neither “captains of industry” nor the functionaries that could be trained in vocational colleges, but of a new, broadly trained, managerial caste that understood the view from the very top, even if they weren’t actually the swashbuckling sorts who would get the thing going in the first place.12 In short, “a business career had become a bureaucratic career, and like all such careers it evinced an inevitable proclivity for titles and degrees.”13

  Some three decades into his presidency, then, Eliot had a problem on his hands. Like it or not, a university is in some sense selling a product, and the nation’s most prestigious one suddenly found itself without an offering in what was both the most popular subject and the most pressing social need of the day: surging demand for “managers” to oversee those corporations. Harvard has always liked to think itself above it all, but the forces of supply and demand were impossible to ignore. There was a second factor: the status-related needs of the country’s established elite. If the parents of America’s turn-of-the-century youth (in particular, the Boston Brahmins) were having trouble convincing their sons to enter the established professions because the lure of business was simply too strong, one obvious solution was to extend the reach of one of their most important social signifiers—the Harvard degree—into the realm toward which their sons were headed. If they couldn’t drag their children back into the circle, in other words, then they would expand the circle itself.14