The Golden Passport

by Duff McDonald

  The only problem is that some of the assumptions underlying that belief system were of the unexamined sort. That’s quite all right when you’re just getting going, because when you’re doing something new, mistakes are inevitable, especially in assumptions you might not even know you’d made. But belief systems can and do run into danger when adherents begin to exaggerate the importance of their particular dogma (and by extension, the assumptions it rests on) at the expense of other, equally valid, considerations. The concept of a stock price as the sole measure of a company’s “value” is one recent example. Another: the die-hard capitalist’s immovable position that unfettered capitalism is, was, and shall always be the only answer to our collective challenges. At HBS, this line of thinking truly found purchase during Wallace Donham’s deanship. “I have reached the conclusion that the greatest need of a civilization such as ours,” he wrote in 1927, “if it is to progress in an orderly evolution, is for socially-minded business men.”9 By all accounts, he believed what he was saying. Which was helpful, because it was also what he was selling.

  In a 1927 essay in the Harvard Business Review, Donham laid out his sales pitch clearly: “The social responsibility of the business man . . . is inescapable. Yet in one respect the business group is less favorably situated to solve these problems than the legal group. It lacks a sufficient number of broadly equipped men; it lacks the requisite intellectual background and the large groups of rigorously trained men. Our usual training in business, still carried on mainly within industry itself, is too narrow, too much specialized in the particular concern; it gives too few points of view on the social importance of business.”10 He was right about that, and he never stopped searching for new opportunities to say so. While he was no academic, Donham wrote numerous influential books and papers about business ethics and the social responsibilities of businessmen. He chastised them in the pages of the Harvard Business Review for their role in causing the Great Depression.

  He also did as any good salesman does, which is to refine and improve the pitch. To the idea that HBS could educate a socially minded executive, Donham added the feature of speed: HBS wasn’t just going to teach these executives, they were going to teach them faster than industry could do so itself. In 1920 he wrote, “There is a growing recognition that breadth of training difficult to obtain in a business organization is possible in the business school, and it is probably that this type of training offers the shortest method by which a business enterprise may obtain trained young executives.”11

  If the idea that administration is essentially a decision-making process strikes the modern reader as banal, that’s because schools such as HBS have spent a century effectively communicating that it is so. In Donham’s time, however, the “manager” was still relatively new on the corporate scene, and his responsibilities were still being defined. “If the archetypal figure of the Gilded Age was the robber baron,” write John Micklethwait and Adrian Wooldridge in The Company, “his successor was the professional manager—a more tedious character, perhaps, but one who turned out to be surprisingly controversial.”12

  How so? The professional manager was the denizen of the multidivisional firm, and although his day-to-day decisions don’t scream “controversy”—How many tons of rubber should this division order to make tires? Where should we spend our marketing dollars?—it was the mere fact that he was making those decisions at all that mattered. The professional manager was the human manifestation of a seismic shift in the nexus of power in modern business, during which ownership became separated from control.

  Americans have always idolized their founder-inventors, from Thomas Edison through Steve Jobs. In 2016, being a founder is in: ever-increasing numbers of business school students want to start their own companies rather than work for someone else’s. But that’s also a relatively recent development. For the better part of the past century, the most revered success stories in business school classrooms were not the iconoclasts but rather the professional managers who figured out not just how to build giant companies, but how to run them as well. HBS wasn’t aiming to educate inventors, despite its pretensions to scientific inquiry; it was aiming to educate a technocratic elite.

  Consider the automobile industry, one of the pillars upon which a century of American industrial dominance stood. If swashbuckling entrepreneurialism is your thing, your hero is the iconoclastic genius Henry Ford, despite—or perhaps because of—the man’s many eccentricities. If, however, you lean toward rational decision making, managed growth, and the idea that all problems are essentially problems of management, then your hero is Alfred Sloan, the legendary chief of General Motors from the 1920s to the 1950s. Why? Because genius can’t be taught, but management can. That much is obvious. What isn’t? Whether management can be learned in a classroom, without the benefit of actual experience. From our vantage point a century later, that’s one of those assumptions that doesn’t seem so obvious in retrospect. Although we do know for certain that it can be bought and sold.

  Another way of looking at it: It is a rare MBA who truly understands the underlying fabric of what a business actually makes, whether that’s the steel in cars, the physics of communicating over airwaves, or the source code that powers the latest iPhone app. What the MBA understands is what to do with that thing once it is in hand. In other words, the MBA wants to be Alfred Sloan. As HBS business historian Thomas McCraw put it, “What Ford did for physical machines, Sloan did for human beings.”13

  As Sloan and fellow management pioneers at DuPont and elsewhere blazed new trails in the actual running of companies, HBS followed closely behind, paving the new roads of an emerging managerial ideology. That ideology represented a break with the past not just within industry but at HBS itself: technical competence (that is, the building blocks of any business) would henceforth be subordinated to administrative competence (the running of a business). Considered in more scholastic terms, the related academic disciplines (for example, economics, engineering, accounting) were subordinated to the overarching idea of business administration, that is, the teaching of business as business. As Melvin Copeland put it, “Economics as taught at the School . . . became a tool for business administration rather than business administration becoming an aspect of applied economics.”14 HBS was carving out its own territory.

  This is not to say that Donham did not understand the value of knowledge. But the knowledge he valued was knowledge he wanted HBS to generate, not borrow from others. To that end, he deserves a large part of the credit for standing the human resources movement on its feet, as well as for hiring faculty such as Georges Doriot, inventor of the venture capital industry. The centerpiece of his legacy, however, was his success at convincing enough people that an HBS education would add up to more than the sum of its parts—and that the future of society depended on it.

  Because Donham’s tenure at HBS began at the tail end of the Progressive era in American politics, his opinions on what was good for society are often viewed through a Progressive prism. HBS’s promise to improve the efficiency of America through its “scientific” approach to business was perfectly aligned with the Progressive sentiment that science had the power to address moral problems. But Donham was a Progressive of a particular sort, for whom “the point of social and economic reforms was not to make American society more just . . . but rather to moralize its functioning, make it more predictable and thereby improve the efficiency of the economy.”15 Whereas other Progressives sought to contain corporate power, Donham and his ilk sought to refine it.

  In emphasizing genteel leadership over technical training, Donham drew “a close analogy between the position of the governing class in earlier, simple societies, and that of the business group in our present complex organization.”16 HBS was training its students in the skills of a governing elite,17 taking for granted the fact that they were the right people for the top job. Given the state of flux of the curriculum (and in pedagogical methods), it was a remarkable display of confidence in
their own abilities (and those of their students) that this would be the case. But such is the nature of noblesse oblige.

  In other words, Donham advocated for an elitism, pure and simple, demonstrating both bigotry and “a class arrogance . . . almost incomprehensible by today’s standards.”18 Those are the words of Walter Kiechel, who points out that Donham “ardently believed that an educated managerial cadre, a ‘new managing class,’ was the answer to the nation’s problems: to the Depression, to inept government, to social upheaval. He and others on the banks of the Charles River looked down on the typical worker as a lesser being, one to be manipulated in service of higher purposes. . . .”19 And, all words of being part of the great Harvard community aside, he also looked down at those across the other side. “Donham not only put the School across the river, but would have blown up all the bridges if he had his way,” Harvard president James Conant recalled in 1949. “He tried to isolate the School and ignored the rest of us.”20 The sentiment lingered at the end of the century: In a 1986 article, “And a Harvard MBA Shall Lead Us,” Craig Mellow wrote that the School continued to inspire “a strong ruling class consciousness.”21 It’s still there today.

  If you’re going to mount a hostile takeover of an entire economy, mind you, you should probably make sure your own financial house is in order—as well as your actual house. In the early 1920s, HBS was still without its own buildings at Harvard, faculty were crammed together in cramped offices, and classrooms were scattered around Harvard Yard. There was such limited space on the rest of campus that some HBS classes were being held as early as 8 a.m. or as late at 7 p.m. To Donham, this threatened the very viability of the School’s broader mission. Edwin Gay had managed to keep the School afloat by keeping operating income and expenses roughly in line during his tenure, but Donham argued that it was time to make the capital investments necessary for permanence, both architecturally and intellectually.

  “We can accomplish valuable intellectual results with our administrative and teaching staffs scattered, our classrooms disconnected and disassociated, and our laboratory facilities thoroughly inadequate,” he wrote in 1922. “But we cannot do properly our major task of building in the minds of these young men the clear-cut concept of business as a profession, with all this implies, unless they are living under proper conditions and in such manner that they form a socially and intellectually coherent group. At the present time the living conditions of men in the School are thoroughly unsatisfactory.” The School’s students felt so alienated from the rest of the university, in fact, that they had taken to sitting together at football games and cheering for Harvard’s opponents.

  When he put on the green eyeshades of his former life as a banker, Donham saw a mounting financial need that couldn’t be put off for much longer. The School had spent more than $32,000 in 1921–22 on case collection; he foresaw a need for at least $50,000 a year going forward as well as another $50,000 for a student loan fund. But that was chump change when compared to estimates of $1.5 million for new dormitories and $2 million for administrative buildings. And the space constraints were only going to get worse: Whereas HBS had for a decade had trouble convincing students to return for a second year, that problem had been solved, with nearly 70 percent of students doing so during the early 1920s.22

  The School was expensive even by 1920s standards, and the costs of attendance were also on the rise: In 1919–20, tuition was $250. In 1921–22, it was raised to $400, the first time in Harvard’s history that a graduate school charged tuition that exceeded that of Harvard College. In 1923–24, it went up again, to $500, where it stayed until it was raised to $600 in 1930. But even the doubling of tuition fees in just four years wasn’t going to solve the School’s financial needs. Wallace Donham was trapped in his own nightmarish case study, tasked with maintaining quality while increasing quantity without expanding capacity.

  Read between the lines of Melvin Copeland’s And Mark an Era and you can’t help but see a message about the School’s early years: We had no idea what the curriculum was meant to be. But that didn’t make the Business School project hesitate for a moment. What was Donham’s response to the lack of curriculum? He wrapped the School in saintly virtue.

  Donham knew that the whole “science of business” was a feint, and that the real point was rhetoric, the purpose of a business school to produce people who could walk the walk and talk the talk of management in an exploding economic situation. The essence of rhetoric is to mess with people’s heads—that’s why we’ve been interested in it for three thousand years, and it’s also why it was such a natural fit with business. (Of course, the majority of modern business school professors are nowhere near reflexive enough to realize that they work for schools of rhetoric.) When it adopted the Socratic method as its primary form of teaching, one can only hope that HBS was aware of—and perhaps even extra-sensitive to—Socrates’s warning that unless it is accompanied by a guiding moral philosophy, rhetoric is mere flattery used to persuade for personal gain. Or maybe they weren’t. In any case, the rhetoric has been there from the very start. The moral philosophy? Not so much.

  Management historian J.-C. Spender suggests that management is a creative art form, in which the medium is economic. And he’s not trying to be clever when he says so. If any art form is characterized by the kinds of uncertainty it engages and the ways that we identify a situation into which the creative self can be projected, then management engages economic uncertainty and its creation is “value.” Considered in that light, management might be capitalist democracy’s most important art form of all.

  It follows, then, that the art of leadership is a projection of the self into a managerial context—which simply means that it’s up to you to make a change—and HBS has indeed been teaching that kind of leadership from the very start. The problem with their approach, however, is that it explicitly does not favor projecting oneself into a situation in a way that benefits society over one that delivers maximum reward to oneself. The very essence of the School’s teaching is agnosticism, despite the efforts of Wallace Donham to pretend that it isn’t.

  “The only complaint the most captious critic of the job could make is that it offers more constructive opportunities for accomplishment than should be laid on any one man’s doorstep,”23 Donham said in 1924. Among those constructive opportunities was the construction of an actual campus. Wallace Donham needed a sugar daddy for HBS, and he needed one soon.

  7

  The Benefactors: George Baker, Sr. and Jr.

  If being the second dean of Harvard Business School came with its own unique challenges, including justifying the School’s existence, Wallace Donham also had responsibilities that are common to any dean at any school at any time: He hired faculty, set academic policies, oversaw the School’s budget, and was its chief fundraiser. That last one—hitting up friends of the School for money—has never been the most enjoyable part of the job, but in the 1920s, it came with one important wrinkle: Donham wasn’t going to get very far asking the School’s sum total of a few hundred alumni for money. He had to find it elsewhere.

  Within weeks of his appointment, Donham commissioned a Building Committee of the Faculty to consider the School’s building needs, and on January 13, 1920, submitted his own suggestions. Of course, they could plan as much as they wanted, but nothing was going to happen without money. In late 1922, Charles Eliot, then retired, sent Donham a note: “I notice that you attach importance to getting a dormitory or several dormitories for the students of the School. Is not such a gift one that ought to come from a single individual, or from a family having monumental or memorial purposes in view? Have you any such person or family in sight? Possibly I could help toward getting such a gift or gifts.”1

  One fairly obvious candidate: George F. Baker, the president of New York’s First National Bank as well as one of the richest men in America, with an estimated fortune of more than $100 million. Baker hadn’t attended Harvard, but his son George Jr. had been a classm
ate of Wallace Donham in the College. What’s more, the younger Baker had been drafted by his father’s friend Thomas Lamont to be one of the first subscribers to the Business School in 1908, and Baker Sr. had contributed to the James J. Hill Professorship in 1915. The Bakers had also donated to the Harvard Endowment Fund in 1919, a contribution that established the George Fisher Baker Professorship in Economics.

  So the Bakers were surely on Donham’s short list of potential donors when he asked Lowell for permission to raise $5 million in early 1923. Lowell advised him that the Department of Chemistry, which needed $3 million, was ahead of him in line, and the Department of Fine Arts had also recently been given the go-ahead to raise $2 million for a new museum. Donham convinced Lowell of the merits of combining all three into a $10 million campaign, and on December 24, 1923, the Harvard Corporation agreed to do so, naming Donham executive chairman of a “Committee to Extend the Services of Harvard University.”

  The chairman? The Right Reverend William Lawrence, Bishop of Massachusetts, and a member of the Harvard Corporation. For proof that it was a very small world indeed in Massachusetts at the turn of the century, he was also Lowell’s first cousin once-removed. And a fundraiser nonpareil: In 1904, Lawrence had headed up a $2.5 million campaign to increase Harvard teachers’ salaries. In 1914, he helped raise $2 million for Wellesley College to replace its main building, lost to a fire. The new Harvard campaign opened on March 20, 1924.

  Numerous machinations followed, culminating with a secret meeting at Georgia’s Jekyll Island Club between Lawrence and George Baker Sr., brokered by Thomas Lamont. The club, a turn-of-the-century retreat for the country’s wealthiest families, had its own gamekeeper, who stocked the island with pheasants, turkeys, quail, and deer, as well as an in-house taxidermist. Baker told Lawrence he’d have to talk to his friends Lamont and George Whitney (both partners at J. P. Morgan & Company) as well as his friend Walter Gifford, president of AT&T. All three men had served on HBS’s Visiting Committee.