The Golden Passport

by Duff McDonald

  America’s managers, in other words, were taking care of business—in the present. And so they basked under the glow of public acclaim. The proportion of Americans who agreed that “most people can be trusted,” for example, rose from 66 percent during and after the war to a peak of 77 percent in 1964.19 Fortune’s twenty-fifth-anniversary issue in 1955 included the headline “The Age of the Managers.”20 In 1963, Fortune even broke with tradition and put a living person—General Motors chief Alfred Sloan—on the cover for the very first time.21 (The occasion was the publication of Sloan’s My Years with General Motors, a classic of the executive autobiography genre, although it certainly helped that his cowriter was Fortune reporter John McDonald.)

  “More-enlightened managerial attitudes combined with other forces, a democratization of American society following World War II; an explosion of deferred demand for economic goods, to usher in two decades of good spirits and seeming contentment with corporations and their conduct,” says Walter Kiechel. “The number of strikes and other job actions dropped precipitously from the nasty levels seen just after the war. . . . Managerial solicitude was probably stimulated by an unemployment rate that fell below 3% in 1953.”22 When two HBS professors (including future dean Nitin Nohria) wrote a book about the greatest business leaders of the twentieth century in 2005, the only thing they could offer in terms of management challenges at the time was the fact that thirty proxy contests were launched in 1954–55. “Though the 1950s have often been referred to as the decade of business prosperity,” the authors write, “in some respects, it was more difficult to succeed and to retain a steady level of success with a heightened level of public scrutiny.”23 In some respects? What respects? In fact, it was nothing of the sort.

  But what about the future? In Serving America’s Business? Graduate Business Schools and American Business, 1945–60, George Washington University professor Susan Aaronson poses a simple question: How well did business education during that time prepare U.S. managers to make the decisions they are supposed to make? In HBS historian Alfred Chandler’s 1962 book, Strategy and Structure, he notes that the role of managers is to plan and direct the use of corporate resources for both short-term (operational decisions) and long-term (entrepreneurial decisions) developments in the market. If MBA training was comprehensive, says Aaronson, “MBA-educated managers should have been able to respond flexibly to short- and long-term market fluctuations, and to make both operational and entrepreneurial decisions.”24

  Her conclusion: They were successful at the first, much less so at the second. “The post-war generation of MBA-educated executives assumed senior management responsibilities just as their companies began to encounter dramatic changes in markets and technology,” writes Aaronson. “Yet many of these executives thought that the days of American economic dominance would never end.” They were wrong.

  While noting a number of innovative aspects of the HBS curriculum, including its postwar focus on business–government interaction, Aaronson suggests that the School’s “rigid adherence” to the case method had, by that point, begun to cause some problems. Foremost among them: The faculty was inbred. As said so by Dean Stanley Teele himself, the School tended to cherry-pick from the top third of its class, train them as case researchers, nurture them through their doctoral studies, and then put them back in front of the MBA classes from whence they had come. Whereas in its early days, HBS had relied on business practitioners to teach a number of courses, by midcentury, Aaronson points out, the bulk of the faculty was homegrown, and few had any hands-on business experience. Even those who had been hired from outside were forced to teach via the case method, forcing them into the HBS mold.

  Because cases were the only tool used at HBS to teach business, Aaronson adds, “the pool of ideas discussed in HBS classes was circumscribed by what had already happened to the corporations examined in Harvard cases.” And that, she concludes, “probably blinded many of the HBS faculty to the dramatic changes taking place in the world economy.” With case research both centrally controlled and funded by a faculty peer group, too, the research process itself had become ingrown, with an emphasis on tackling immediate business problems instead of longer-term ones.

  In this sense, the School’s peerless alumni relations effort—through the Associates (who funded case research) and the HBS Association (alumni relations)—was also inherently limiting. “It was difficult,” says Aaronson, “for the faculty to use cases to anticipate problems that business had yet to encounter.” In short, “Harvard did not develop a curriculum or research which could prepare executives to anticipate major transitions in world markets or technologies. Consequently, the school provided its students with the confidence, but little of the information and experience, to make entrepreneurial decisions for their future companies.” For every Howard Morgens, in other words, there were dozens, if not hundreds, of other Harvard MBAs who came up far short.

  The inbreeding wasn’t just confined to the faculty. Consider the challenge of admissions. If you’re recruiting for a sports team, you look for athletic ability. But what do you do when you’re recruiting for future leadership potential? HBS looked at a number of things, including academic record, but it also looked for such things as “character” and “seriousness of purpose.” One can have all different sorts of “character,” mind you, so to narrow things down, they simply looked for people . . . like themselves. Or, as C. Wright Mills put it: “By definition, they had ‘what it takes.’ The real question accordingly is: what does it take? And the only answer one can find anywhere is: the sound judgment, as gauged by the men of sound judgment who select them. The fit survive, and fitness means, not formal competence—there probably is no such thing for top executive positions—but conformity with the criteria of those who have already succeeded. . . . Their programs are designed to meet the felt need for perpetuation of the corporate hierarchy.”25

  As early as 1945, in fact, Donald David noted that “[o]ur alumni group is coming of age . . . an increasing number of alumni are attaining positions of responsibility in business, government, and education.” Indeed, with thirteen thousand living alumni, the School created the new full-time position of alumni director in 1947,26 and thereafter began constructing one of the most robust alumni relations programs the world has ever seen. The School held conferences for them that served to inform but also to reiterate, again and again, their view of themselves—in 1948, six hundred alums attended one at Soldiers Field on “The Responsibilities of Business Leadership.” By 1950, the HBS Association (its alumni relations organization) had ten committees—Budget, Bulletin, Career Counseling, Class Relations, HBS Fund, June Conference, Membership, Nominations, Placement, and Regional Clubs.

  By the mid-1950s, the School had institutionalized its alumni fundraising apparatus, with “class agents” appointed for each MBA and AMP class. And is it really any surprise that it was easy to nurture a competitive spirit among business school graduates when it came to class year donations? In 1954–55, for example, the School announced that “[u]nder the leadership of Roger Elton, vice president of the Manufacturers Trust Company, the 25th AMP class led all other Business School classes, with a 99.4% participation figure.” Only one member of the class didn’t donate. All told, alumni donated nearly a quarter of a million dollars to the School, nearly four times the amount of five years previous. That year, Jervis Babb (’24), chairman of Lever Brothers, took over as chairman of the HBS Fund. Yes, that Lever Brothers, the one that hired as many HBS grads as Wall Street did in 1949. Again, they had constructed a feedback loop of enviable throughput.

  But success eventually breeds arrogance. And by the mid-1950s, HBS was a success by any measure. The result? According to Susan Aaronson, it “imbued [its] graduates with the arrogant notion that if one knows how to manage, one can manage anything and anyone at any time.”27 When the postwar shortage of capable executive talent resulted in MBAs’ accelerated climb up the corporate ladder, few saw it as the luck of timing
; rather it was a confirmation of their own self-regard. Most of us can agree that leadership is an emergent quality; it reveals itself in the moment, and you either rise to the challenge or you don’t. The problem with HBS is that it tells its graduates that they already are leaders, that the only challenge is for the rest of us to realize that it is so. (As far back as 1942, HBS professor Howard T. Lewis had gone so far as to claim that HBS alumni were “a force for good.”28)

  “[In] the 1950s and early ’60s, leaders were generally thought of as being commanding and controlling,” writes Barbara Kellerman in her 2012 book, The End of Leadership. “First they decided what was to be done and how. And then they declared their decision, without any obligation to provide any explanation. Participation by, or engagement of, followers was minimal, and complete compliance was expected. Leadership scholar Joseph Rost called this the ‘industrial paradigm’ of leadership. It was management oriented and goal dominated, authoritative and quantitative, short-term and cost-benefit driven, hierarchical and technical, rational, pragmatic, materialistic, and male.”29 In other words, it was leadership as practiced by the Harvard MBA.

  This is where we come back to J.-C. Spender’s nexus and C. Wright Mills’s notion of the business schools having been “employed” by business itself. Despite there being zero evidence that there was a direct relationship between management education and corporate competitiveness, corporate America in the 1950s decided to outsource the training of its future leaders to the country’s business schools, HBS foremost among them. In doing so, they made a mockery of the fledgling “human resources” movement, or, rather, revealed it for what it really was—a feigned interest in the human side of corporate life. Can you really claim to be interested in your people when you can’t even be bothered to train those designated as tomorrow’s leaders? (Germany and Japan, with far fewer business schools between them, kept much of that training in-house. The results of the differing approaches soon became apparent.)

  But here’s the real irony: HBS has long claimed that its teachings are like time-release medicine. Its students don’t reap the full benefits of their education, the School has argued, until about fifteen years after their graduation. At the close of the 1950s, corporate America took them at their word, and HBS graduates continued to infiltrate the ranks of corporate America through the end of the 1970s. By 1975, one in eight HBS alumni—a total of 5,187—held the title of “president” or “chairman” of the companies they worked for.30 By 1977, more than 20 percent of the top three officers of each of the Fortune 500 companies were graduates of HBS. It might seem an outrageous notion to take credit for something a decade and a half after a graduate interacted with you, but so be it—let us take them at their word.

  The remarkable thing about the above statistics—which the Associates wheeled out in response to Harvard’s president sending some gentle constructive criticism the School’s way—is that to HBS, that was the proof of its inherent value. But that’s another inward-looking mistake. It might be proof of the value to its students. After all, what MBA doesn’t want to be the boss? But the value to the rest of us is something else entirely; it’s where they took us once they finally got their collective hands on the economy’s wheel that ought to serve as proof of their assertion. And unfortunately, the full benefit of their training—its time-release value, in other words—wasn’t what HBS said it would be. Because they drove the economy right into a wall.

  23

  The Hidden Hand

  Marvin Bower (’30) is a legend in American business. The longtime managing director of McKinsey & Company led that august institution to global greatness. Bower was the very first Harvard Law graduate to later attend the business school and only the second person to hold both degrees. While others may have given HBS more money over the years, Bower’s influence on the School is unrivaled. No other alumnus comes close.

  How so? For starters, Bower’s McKinsey has hired more HBS alums than any other company in the history of the School, and continues to do so to this very day. While HBS declines to identify the top recruiters of its MBAs each year, in 2010 one alum tapped the School’s database to demonstrate just how far ahead of the pack McKinsey stands. As of that year, some 500 HBS grads were working for McKinsey, whereas fewer than 300 worked for its closest recruiting rivals, which include Goldman Sachs, Google, and Microsoft.1 But Bower also worked relentlessly behind the scenes at HBS. He had a hand in the selection of at least one dean and even helped defend its case method from serious attack. What did he ask for in return? Officially, nothing. Unofficially, he used that influence as well as McKinsey’s money (and his own) to tilt the recruiting playing field at the School in McKinsey’s favor.1

  The management consulting industry has been joined at the hip to the business school complex—and in particular, HBS—almost since the founding days of each. That’s because the fit couldn’t be more perfect. A student studying by the case method at HBS is studying a company from a distance, but is still encouraged to think that even from that distance, they can know all they really need to know about that company. The same goes for the entire management consulting industry. While consultants have an advantage over MBA students in that they tend to actually visit the companies they consult for, much of their work is still conducted at the same remove from the actual business at hand. The HBS graduate, in other words, is ready to do what McKinsey & Company consultants do when they walk through the door on their very first day on the job.

  An irony: It was none other than Franklin Delano Roosevelt—the scourge of the laissez-faire crowd at HBS—who helped bring about the rise of McKinsey and its ilk. From the end of the nineteenth century through the 1930s, Washington had been making periodic regulatory efforts to curb the power of big business, including the 1890 Sherman Antitrust Act, the Federal Trade Commission Act and Clayton Antitrust Act, both in 1914, and, ultimately, the Glass-Steagall Act of 1933. The intended effect of these measures was to prevent corporations from colluding with one another to manipulate markets. But the unintended effect, according to historian Christopher McKenna, was to accelerate the creation of an informal—but legal—way of sharing information between oligopolists. Who could do that? Consultants.2 So Roosevelt—the man who stood for everything that HBS stood against—big government, a strong regulatory apparatus, and a corporate-sponsored social safety net—also paved the way for the rise of the company that would hire more Harvard MBAs than any other. In this instance, at least, regulation was the mother of innovation.

  Marvin Bower might be the only graduate of Harvard Law School who needed a Harvard Business School degree to help him get a job at a law firm. Born in Cincinnati, his dream had been to work for the most prestigious law firm in Cleveland, Jones Day. But his law school grades weren’t high enough to get him the job, and he enrolled at HBS instead. He apparently buckled down: Named a Baker Scholar at HBS, a designation given to the top 5 percent of each class, he was welcomed with open arms at Jones Day when he emerged with his MBA.

  But Bower soon found that the dream wasn’t as he’d expected. He spent most of his time working on restructuring failing companies—it was the Depression, after all—and while he enjoyed the creative aspects of the job, he hated the more humdrum legal aspects. One of his HBS professors suggested he might want to meet James O. McKinsey, who by that point had started his own consulting firm. McKinsey was doing the fun stuff and leaving the humdrum stuff to the lawyers. The two men hit it off, and Bower joined McKinsey’s fledgling consultancy in late 1933. Among his first displays of brownnosing: He told his new boss that he had become treasurer of the Harvard Business School Club of New York and was making “social plans” for developing new business.

  The rest, as they say, is history. After James McKinsey’s untimely death in 1937 from pneumonia, the company was cleaved in two, with Bower emerging as a leader of the New York–based McKinsey & Company. Just like James O. McKinsey before him, Bower saw the value of a brand in exactly the same way that HBS
did. If you could establish yourself as a premium product, then you could charge more. And the way they decided to do that was exactly how Wallace Donham had done it—they would make McKinsey & Company a “professional” firm, with all the accoutrements that came along with it.

  Bower wasn’t interested in hiring HBS grads at first, even though he’d been one himself. In the 1930s and 1940s, consulting firms generally hired experienced executives to advise other experienced executives. (“You’re a maker of air conditioners and aren’t sure how to expand your territory? Well, we’ve got the guy who used to run the largest air conditioner company in the country on our payroll. We think you’ll be interested in what he has to say.”) A young HBS grad with practically zero business experience had no place in that model.

  But that didn’t mean Bower wasn’t milking the HBS network for all it was worth. Shortly after the 1935 Wagner Act mandated collective bargaining with unions, Bower attended a conference at HBS where he noted the “complete bewilderment of most managements” in the area. “The solution,” Bower concluded, imbibing heavily from the human relations school of thinking then prevalent at HBS, “must go beyond increasing wages and improving working conditions, since these methods . . . are temporary expedients only and offer no permanent solution.” In October 1939, Bower hired Paul Cherington, the marketing expert who had been on the HBS faculty from 1908 to 1919, and whose 1935 book, Consumer Needs and How to Satisfy Them, had laid out, for the first time, the notion of the product life cycle.3

  Everything changed in the 1950s, when McKinsey began hiring new associates directly from HBS. Because it was a clear departure from the practice of hiring seasoned executives, it wasn’t without controversy. Roger Morrison, later head of McKinsey’s London office from 1972 to 1985, was one of the first two hires from HBS, along with John Macomber. “When . . . Marvin interviewed me,” Morrison recalled years later, “he spent the entire time telling me why it was impossible for someone without experience to be an effective consultant.”4 When Morrison told Bower that he had also interviewed with John Whitehead and Gus Levy of Goldman Sachs, however, he remembers Bower “suddenly [deciding] that maybe I wouldn’t be such a problem after all.”