The Golden Passport

by Duff McDonald

  The one-two punch of too much work on top of the already disorienting nature of learning—and being graded—via the case method left many students distraught, but they found no succor by complaining to their professors, as the confusion was by design. If you never really knew where you stood in the corporate world, the thinking went, you might as well get used to it. It was Boot Camp for Business, where the overall experience counted even more than any particular grades.

  Dean Stanley Teele told students as much when discussing the School’s policy of grading on a curve in December 1947: “All we do is divide the class up into thirds, that’s true,” he began. “But look, the Baker Scholars and the men in the top third of the class—they tend to go into research or to get good academic positions at which they distinguish themselves. So you don’t have to worry if you’re one of them. The men in the middle third, well, they tend to be the well-rounded types—good athletes, sociable, lots of friends—and they go on to do very nicely because they’re such regular fellows. So you don’t have to worry if you’re one of them. And the men in the bottom third—well, they tend to get out of here and go make an awful lot of money. So the point, gentlemen, is this: you’re at the Harvard Business School, and except for making damn sure you pass the course, you really don’t have to lose any sleep about where you stand. Trust me.”2

  Teele could beseech them not to lose any sleep, but they did anyway, and roughly twenty-five students visited the School’s infirmary every single day, with more than 80 percent of them visiting more than three times a year. At a time when scientific advances were proceeding at a breakneck pace outside Soldiers Field, this was one place where science stood still within it. Blaming the students instead of the work, in 1949 Dean David showed that even if Elton Mayo had been ushered out the door a few years before, his legacy remained: “Illness of any kind may be regarded in a sense as failure of adjustment to environmental conditions.” Such pseudomedical mumbo jumbo wasn’t removed from the School’s annual report until the mid-1950s.

  In 1944, Dean David reiterated the overall set of skills the School sought to impart via the case method: “[to diagnose] a particular situation to determine the significant points at issue; to consider the several alternative courses of action; to weight the advantages and disadvantages of the factors, both tangible and intangible, bearing on each significant question; to reach a decision on a course of action in the light of the best information currently available; to recommend methods of carrying out the decision, including consideration of timing and persuasion with a view to securing action; and to establish controls for the purpose of measuring the effectiveness of the action.”3

  The next year, they’d layered some softer stuff on top of it. The Statement of Objectives surrounding the curriculum overhaul included developing “at least the beginnings of an integrated social and economic philosophy” as well as “a unified set of ethical concepts for personal guidance in administration.”4 When students described what they really learned in certain courses, however, the differences were stark.

  Administrative Practices, nicknamed Ad Prac, is described by Professor Melvin Copeland as being “concerned with the problems of executives in securing teamwork and affection action in business organizations.” That sounds reasonable enough, but the students called it Machiavelli for Beginners—“leadership and gamesmanship, politics, negotiation, hardball, and the end run.” Harry Figgie Jr., who later built a gigantic conglomerate that bore his name, described the lessons of Ad Prac this way: “How to saw the rungs out of someone’s ladder without his even knowing it.”5 In short, HBS educated its students using a descriptive rather than a normative view of the workplace—the way things really are rather than the way they perhaps ought to be.

  When describing the value of the course, future Xerox chief Peter McColough later admitted, “For the first time I became aware of the sensitivities required in dealing with people.”6 (At least some of the people. Asked to name the aspect of real-world work that was most surprising, one graduate expressed shock at finding “that there are human beings below the rank of assistant vice president—for at Harvard we never looked at anybody lower than that.”7)

  “The one thing they were unanimous about was that Ad Prac was their most important class,” says Laurence Shames. “It was office politics, careerist maneuvering, how to get the promotion before the next guy—that kind of thing. I wouldn’t want to downplay the importance of any of that in the making of a career, but we’re talking about an institution of higher learning. Is that where the emphasis should be?”8

  As for Public Relations and Responsibilities, it turned out that those relations were of a very specific sort. Whereas Donald David stressed “keeping the proper balance among the real interests of employees, stockholders, suppliers, and all others directly affected by the business,”9 students learned something else. “PR&R, when it dealt with anything at all,” recalled one graduate, “usually addressed questions like whether you’d generate more business by heading up the United Way or being president of the local Rotary.” And so on: Human Relations was “making the contented-cow syndrome work for you” and Advertising was “teaching the native to want.”10

  If the range of courses grew wider and the ways used to describe the overall mission continued to evolve, the core of the postwar HBS approach to business was unmoving. Malcolm McNair, a prominent faculty member who taught marketing, summarized it in just two words: “tough-minded.” While they might talk a good game when it came to the people stuff, it was still the numbers—it’s always been the numbers—that were “the one true moral compass, the deciding point in every decision.”11

  The late 1940s sellers’ market for MBAs drew ever more applicants to the School. Nearly 2,500 applications came across the transom each year for the 600 or so student slots. With about 10 percent set aside for those in the armed forces—in 1945, the School waived the requirement of a bachelor’s degree for returning veterans12—and another 7 percent or so for foreign students, that left only about 500 for everyone else, which translated to a one-in-five chance of admission. HBS even instituted a fifteen-dollar application fee, in part to deter the not-so-serious but also to defray the rising costs of interviewing and processing applicants. It also raised tuition to $800 a year. But they kept on knocking at the door.

  Regardless of what was ostensibly taught and what was actually learned, recruiters showed up in ever-greater numbers as well. While Dean David had expressed the somewhat surprising concern that HBS “tended to turn out men who were more interested in staff positions with large organizations than in the operating problems of small and growing enterprises”—they’d been trying to do so—large organizations themselves naturally didn’t mind. In 1949, a record number of employers conducted 5,113 interviews with just 646 graduating students—nearly 10 apiece. In 1949–50, 200 companies targeted the School’s 500 graduates for 900 open positions. The median starting salary of the class: $3,600.

  It wasn’t only large employers going after HBS grads. The School’s alumni operation was, too. By decade’s end, 7,451 out of 15,990 living alumni were up-to-date on dues. Half of them were “active” in affairs at one of forty-two local HBS clubs, which held a combined 443 meetings during the year, “only ten of which were for strictly social reasons.” Truth be told, that number seems too high, rather than too low: If your life is networking, nothing is strictly social.

  A salary of $3,600 a year wasn’t a ridiculous amount of money, but it was still slightly more than they were worth. But that’s all that was needed to set many of them off on a trajectory that could feed on itself for an entire career. “If you grant the first premise, then the rest more or less makes sense,” said Ernie Henderson, class of ’49. “Since we were overpaid, we had to be given more responsibility to justify it. Since we’d been given more responsibility, we had to be more closely watched by our bosses—and the best short-cut to that first promotion is making sure the boss man knows who the hell you are. The
best shortcut to the second promotion, of course, is the first promotion. . . . So you’re a fast horse because they’ve made you a fast horse, and right away you’re off to the races.”13 Philip Caldwell (’42) was faster than most: He eventually became the first person to run the Ford Motor Company who hadn’t been blessed with the surname Ford, and proceeded to orchestrate one of the most successful corporate turnarounds in history.

  And that, says management historian J.-C. Spender, might just be the most significant contribution that HBS has made to business education, before or since. “By legitimating the nexus between MBA providers (business schools) and MBA consumers (corporate recruiters), HBS made it respectable for even well-run firms to completely outsource their recruitment of the young people expected to head into the C-suite,” says Spender. “That nexus might not have been in place in Donham’s time, but it was one of his greatest achievements. And it’s still in place today despite most MBA programs’ lack of relevance to actual management practice. If corporations were to abandon it and hire undergrads and liberal arts graduates instead, about 50 percent of business schools would be gone in a flash.”14

  They may have legitimated the nexus, but what about the MBAs themselves? While many of the era’s graduates went on to storied individual careers, the collective influence of HBS graduates of the time later proved to be less salutary for the nation. One reason for that was a stubborn insistence on the part of HBS that because their graduates were destined to run things, they shouldn’t be “entrapped” by any particular specialty. “[The] more intensively a man applies himself to a single area,” Dean David wrote in 1948, “the less likely he is to develop the perspective and qualities of mind necessary to think in terms of the social and economic order as a whole.”15 HBS would leave specialization—another word for expertise—to others, and instead simply put a fresh gloss on Teele’s “regular fellows,” the middling academic performers who relied less on their brains than on the fact that they were “well-rounded types—good athletes, sociable, lots of friends”—to succeed.

  In the short term, that positioned HBS quite well in Spender’s nexus—big companies love “regular fellows.” But what about the long term? With a few notable exceptions, HBS graduates of the time took no real risks, founded few new companies. Not that anyone thought it necessary, given the near-total consensus that big business was destined to rule America until further notice. But such a dearth of entrepreneurial energy sapped the economy of vital lifeblood.

  Another result of HBS’s decision to favor a generalist approach was even more disastrous. In Wallace Donham’s era, HBS’s most brazen claims—that management was a transferable skill, and its graduates could literally run anything—had never been truly tested; there simply weren’t enough HBS grads to provide a meaningful sample. But a postwar America that was hiring MBAs in droves was about to do just that, because before long, HBS grads had climbed pretty much every corporate ladder out there. They didn’t reach the top all at once, mind you, nor did they act as one, so it took a few decades for the results of the spread of the Harvard MBA leadership ethos to come in. Some were standouts, but the rest, in the words of a 1980 Harvard Business Review cover story, collectively “[managed] our way to economic decline.”

  “Look,” said one of the ’49ers a few years after the story appeared, “when most of us got to the Business School, we had no idea what we wanted to manage, all we knew was that we wanted to manage. And that seemed fine, because the way it was presented to us was that managing was a skill unto itself. . . . That was the premise that we started with, and we worked from it diligently and in some cases brilliantly. We took that premise about as far as it could possibly be taken. Only problem was, the premise turned out to be wrong.”16

  21

  Organization Man and the Corporate Cocoon

  In the early days of the Cold War, to be antibusiness was to be anti-American, even fictionally speaking. When the House Committee on Un-American Activities opened hearings on subversion in Hollywood in 1947, it focused on “negative portrayals of the wealthy, bankers, big business, or industrialists.”1 Under pressure, one filmmaker even promised, “We’ll have no more pictures that show the banker as a villain.”2 But why would they even want to? As far as management thinkers like Peter Drucker were concerned, “[t]here has never been a more efficient, a more honest, a more capable and conscientious group of rulers than the professional managers of the great American corporations today.”3

  The general public was still somewhat unsure of what the new breed of “professional managers” spent their time doing all day, but that was because they were too busy buying houses, refrigerators, and televisions to dwell on the matter. Fueled by a combination of pent-up consumer spending and new, Cold War–related military expenditures, the U.S. economy, which had nearly doubled in size between 1939 and 1944—from $1.16 trillion to $2.24 trillion—didn’t fall off the feared cliff, instead flatlining for five years before reaching a new high in 1950, at $2.27 trillion.

  If it seemed like big corporations were eating everything in their path, it’s because they were: Between 1947 and 1968, the percentage of American corporate assets owned by the 200 largest industrial companies grew from 47.2 percent to 60.9 percent.4 Read that again: The largest 200 companies in the country controlled nearly two-thirds of its assets. And with that came a confidence about the future. Let Joseph Stalin make his five-year plans; in Drucker’s 1954 book, The Practice of Management, he advised companies to make fifteen- or twenty-year plans.5

  Managerialism had given birth to gigantism. By the late 1960s, General Electric had 360 separate departments, each with its own profit-and-loss statement. The degree of budgeting and control necessary to make sure the center of such an entity held was a source of endless new jobs for graduates of business schools, particularly HBS. But the need to stay on top of endless inward-looking detail would prove to have serious limitations. With all of General Electric’s managers wearing green eyeshades, they weren’t able to keep an eye on the battlefield, and before they realized what was happening, Napoleon—aka Sony—was coming for them! But that was later. In the 1950s and 1960s, it only meant more jobs on top of more growth on top of more jobs on top of more. The ratio of “administrative” to “production” employees in the United States, which stood at just 15.6 percent in 1920, had reached 23.6 percent in 1950, and would reach nearly a third of all jobs, or 30.3 percent, by 1970.6

  Enter Humphrey Bogart. In the thick of the Cold War, Hollywood wasn’t just careful not to directly attack big business in a way that would bring Joseph McCarthy and J. Edgar Hoover after it. Some productions even offered that very articulation of the value of big business to society that Donald David thought lacking among executives themselves. In Billy Wilder’s 1954 film, Sabrina, Linus Larrabee—played by Bogart—presides over the sprawling, GE-like Larrabee Industries. At one point, Linus’s brother David asks him about the motivation of adding yet another acquisition to the corporate pile. Is it just for the money? “What’s money got to do with it?” Linus replies. “If money was all there was to business, it would hardly be worth going into the office. Money is a by-product.” Unsatisfied, David asks again: “What’s the urge?”

  Linus’s reply: “A new product has been found, something of use to the world. So a new industry moves into an undeveloped area. Factories go up, machines are brought in, a harbor is dug, and you’re in business. It’s purely coincidental, of course, that people who never saw a dime before suddenly have a dollar, and barefooted kids wear shoes and have their teeth fixed and their faces washed. What’s wrong with the kind of an urge that gives people libraries, hospitals, baseball diamonds, movies on a Saturday night?” In short, bigger was better. “Larrabee,” writes Northeastern’s Bert Spector, “implicitly represents the capitalist ideal in a world threatened by aggressive global communism.”7

  But communism was just one of many forces threatening the growth of American-style capitalism. There were also politicians and
the ignorance of the public. “Since the depression of the thirties, politicians have successfully used an unsatisfactory general level of business as a lever for federal pump priming and business control legislation,” wrote McKinsey’s Marvin Bower in 1949. “Unless public attitudes change, any substantial and continued decline in the general level of business will be likely to produce a new crop of legislation providing for more restrictions and tighter control of business.” And then the horror: “Unfortunately, this result must now be anticipated despite the fact that the entire weight of history is against it. For history shows that restrictive legislation feeds on itself until such rigid controls must be imposed that the individuals who make up the business enterprises lose their freedom as individuals.”8 The man was clearly writing with passion. But did history really show that? Which history? Perhaps he meant hysteria?

  The American notion of “freedom,” of course, meant more than the narrowly defined version of it coming out of the likes of Harvard Business School—the freedom of business to operate without government interference. It also meant freedom of expression. And so even in the face of actual hysteria—that of Joseph McCarthy and his ilk—Hollywood, novelists, and social scientists began, if haltingly at first, to exercise their freedom to wonder whether a society that seemed on the verge of being utterly consumed by big business was going to be a society worth living in.

  Two of the most influential books of the 1950s—David Riesman’s The Lonely Crowd: A Study of the Changing American Character (1950) and Fortune reporter William H. Whyte’s The Organization Man (1956)—saw menace not outside the nation’s borders but somewhere much closer to home, in the pressure on office workers to conform. But the pressures started even earlier than that. While strains of humanism still bubbled on the margins of business school curricula, much of American business thinking had taken on military overtones, with the manager a loyal lieutenant in the corporate army. One IBM executive proudly told Whyte that the company’s corporate training “makes our men interchangeable.”9