The Golden Passport

by Duff McDonald

  The consulting firm had in effect decided that from that point forth, it was going to grow its own talent—and it was going to buy its seeds from HBS.5 Between 1950 and 1959, the proportion of consultants at McKinsey with MBAs climbed from 20 percent to over 80 percent, and the median age of McKinsey consultants dropped by almost ten years.6 There’s no other way to describe the decision than this: brilliant. McKinsey had stumbled on the perfect model of personnel development. First, hire young and inexperienced MBAs for a pittance. Then make your clients pay for their further education.

  Why HBS, in particular? Because Bower had gone there, for starters. Also, because of the case method, McKinsey could rest easy that HBS grads had been trained to think on their feet. “Other graduates from the best schools, Dartmouth, Wharton, and Stanford, were at least as smart as those from Harvard, but they were often not as articulate,” writes J. Paul Mark in The Empire Builders. “Harvard’s case system forced students to be glib because their grades depended on how well they spoke in class . . . [and] McKinsey consultants’ main talent was an ability to use words to persuade, a skill they learned in hundreds of hours of case discussions at HBS. The other advantage that Harvard MBAs had over their rivals was that they had been taught to dive into the middle of confusing and unfamiliar business situations, also the product of learning by cases rather than by textbooks and lectures.”

  But what if they didn’t know what they were talking about? The case method was helpful there, too. “Baker Scholars tended to be intelligent generalists who could expound on any issue, and whose natural inclination to remain silent on topics they had no background in had been systematically broken down,” writes Mark. “In effect, McKinsey paid a premium for students who were good at ‘winging it.’”7

  McKinsey’s move started a virtuous cycle that provided substantial reciprocal benefits for both parties. More than perhaps any other firm, McKinsey legitimized the Harvard MBA, giving it cachet that was real and enduring. By the 1950s, hiring McKinsey & Company was seen as a sign of affluence. Their raw material at HBS? It must have been the stuff of affluence as well. In return, HBS voluntarily transformed itself into a breeding ground of future McKinsey consultants, who understood the firm’s values and principles long before they start working there. In 1968, when the firm made offers to 27 HBS grads, 14 accepted.8 When HBS began admitting females, McKinsey followed suit. The first female it hired as a consultant, Barbara Minto (’63), came from HBS, as did the next three—Jacqueline Browne, Jane S. Lack, and Joan E. Griewank, all class of 1964.

  “There were precious few companies willing to interview female MBAs, much less to offer them opportunities equivalent to those offered the men,” Griewank later recalled, “so McKinsey was a notable standout.”9 In more ways than one: In 1961, says Christopher McKenna, the average pay for starting consultants graduating from Harvard was $8,348, 12 percent more than the $7,500 starting salary for accountants from Harvard or associates at the top corporate law firms in New York.10 In 1969, McKinsey offered $18,000 as a starting salary to at least one HBS graduate, well above the class average.

  Just a decade into the HBS experiment, the HBS grad turned McKinsey consultant was so ubiquitous at the firm that when the consultants mocked their own conformity in The Consultants’ Coloring Book in 1962, they didn’t even need to mention the name of their alma mater. Everybody already knew it:

  This is the School.

  Everyone Went to the School.

  Except Clients—And My Wife.

  Draw in the Client—Color Him Unimpressed.

  Draw in My Wife—Color Her Bored.

  In the 1950s and 1960s, too, when McKinsey consultants were busy spreading the gospel of American management to a rebuilding Europe, they were said to be armed with a copy of future HBS historian Alfred Chandler’s Strategy and Structure, a text that would have been quite familiar to HBS graduates, and which we’ll return to in chapter 28. The work, writes HBS historian Thomas McCraw, served as “a book of parables demonstrating how [managers] had arrived at whatever the current dilemma they found themselves in: a book that explained the sea to the fish who swam in it.”11 Chandler’s book laid out how a number of prominent American corporations had maximized their potential through the use of the multidivisional, or M-form, of organizational structure. McKinsey consultants promised their clients they could help them do the same.

  Truth be told, while HBS has long claimed a closeness to “practitioners” and an ability to actually influence management behavior, they don’t, really. But McKinsey does. So when the consulting firm took to proselytizing its way across Europe with a copy of Chandler’s book in hand, that’s when the embrace of the M-form really took hold. Or not: Sociologist Mauro Guillen points out that McKinsey’s decision not to open an office in Spain until 1977 meant that not a single Spanish company adopted the decentralized organizational form until the 1980s.12 Alfred Chandler’s influence spread only as far as McKinsey was willing to spread it.

  Marvin Bower was also obsessed with appearances. So even if they didn’t know what they were talking about, the firm’s junior consultants still had to look and act the part. When author George MacDonald Fraser began his multi-title chronicle of the cad Harry Plaget Flashman in 1969, he described his antihero in the precise terms one might think Bower looked for in recruits: “His eyes [were] blue and prominent and unwinking—they looked out on the world with that serenity which marks the nobleman whose uttermost ancestor was born a nobleman, too. It is the look that your parvenu would give half his fortune for, that unrufflable gaze of the spoiled child of fortune who knows with unshakeable certainty that he is right and that the world is exactly ordered for his satisfaction and pleasure.”13

  What Fraser was describing was self-confidence, and that was one thing that HBS graduates had in spades. “Like shamans, consultants also know that an outrageously unjustified level of self-confidence can add several points to one’s perceived expertise quotient,” writes author Matthew Stewart. “This may help explain the preternatural self-regard that characterizes many young MBAs, especially those who wind up at the most expensive consulting companies. The unshakable conviction in one’s own rightness increases the probability that others will follow and so can sometimes make for effective leaders. (Of course, it can also make for exceptionally obnoxious people.)”14

  Marvin Bower did more than just hire HBS grads. His behind-the-scenes contributions included the delivery of at least one endowed chair to the School, pretty much on a silver platter. In a 1980 meeting with then-dean John McArthur, Bower asked him where he thought the School’s research efforts would be focused in the 1980s. The dean replied that one obvious focal point would be the rise of Japanese industry. “What would you say, John,” Bower asked, “if I were able to arrange for a Japanese company to finance a new chair for the School to study Japanese industry?” McArthur’s unsurprising reply: “I’d say that was great, Marvin.” The price? Just $1 million or two.

  In the previous three years, writes J. Paul Mark, McKinsey & Company had been instrumental in saving Sumitomo, Japan’s third-largest bank, from failure. Bower told McArthur that the bank’s honorary chairman, Shozo Hotta, owed him a favor, and offered to use it on behalf of HBS. “If they were to donate a new chair to you, John, I think it would, in a subtle way, get your new job off to a good start,” said Bower. “What do you think?” McArthur agreed, and asked him what he had to do to make it happen. “I’ll take care of everything,” Bower replied.15

  Bower ran into problems when Hotta told him in December 1980 that he didn’t think he deserved the honor of such a distinction. But Hotta offered to talk to his friend Konosuke Matsushita, the wealthiest man in Japan, to see if he would accept such an honor. That conversation took place in January 1981, and Matsushita accepted. In November 1981, McArthur visited Matsushita in Japan to pick up the check, and the Matsushita Chair of Leadership was born.

  Earlier that year, Bower had also been instrumental in defending the case meth
od from an attack by Harvard president Derek Bok. We will return to this episode in chapter 38, but for now suffice it to say that not much of major import happened at HBS without Bower’s involvement. “McArthur was Marvin Bower’s dean, not Derek Bok’s,” writes Mark, “a fact that became more obvious with time.”16

  So what did Bower ask for in exchange for such crucial favors? He wanted graduates, and he wanted a lot of them. By 1967, more than a third of the 358 consultants at McKinsey—121 in total—held a Harvard MBA. By 1978, when the professional staff was approaching 700, HBS graduates still accounted for more than a quarter of all consultants.17 One estimate has McKinsey hiring more than 1,000 Baker Scholars over the years,18 prompting author Martin Kihn to coin the term McHarvard. Bower had institutionalized McKinsey’s link to HBS,19 and when the firm came recruiting, he wanted a look at the thirty-five or so Baker Scholars most of all. HBS was only happy to oblige. Did that include McKinsey being given an unfair advantage when it comes to recruiting? HBS says no. But Mark, author of The Empire Builders, says yes.

  Bower’s notable degree of involvement in the early 1980s wasn’t happenstance. While McKinsey almost had the pick of the Baker Scholar litter to itself in the 1960s and early 1970s, by the end of that decade, emerging rivals in the strategic management space, most notably the Boston Consulting Group (BCG) and Bain Consulting, were proving potent rivals in recruiting at HBS as well. Not only that: They were offering more money.

  At the time, according to Mark, McKinsey was paying fresh hires $55,000 a year. But Bain and BCG had upped the ante, and were luring an alarming number of HBS grads away from McKinsey by offering $65,000 a year, nearly 20 percent more. Bower wasn’t interested in competitive bidding—he thought a job at McKinsey was worth far more than a starting salary alone—but he also couldn’t expect HBS to intervene and force his competition to lower their offers. McArthur did what he could. That December, he told the faculty that “McKinsey . . . has been very nice to the school, and . . . the school ought to be nice to McKinsey,” writes Mark. “They weren’t stupid; they knew exactly what McArthur’s intent was.” But it didn’t work. In 1982 and 1983, McKinsey’s share of Baker Scholars kept falling.

  BCG, in particular, was eating into McKinsey’s commanding position. To some extent, this reflected the influence of newer, sexier ideas that appealed as much to impressionable young MBAs as to clients. BCG founder Bruce Henderson’s “experience curve” and “growth-share matrix” were all the rage in consulting. And whereas McKinsey self-consciously avoided talking about its competitors, they did not return the favor. BCG recruiters, for example, would characterize McKinsey as the natty, old-fashioned consultants who wore high socks and carried umbrellas. “McKinsey is a fine old name but, really, it’s not the future, it’s the past,” they told one future McKinsey consultant when he interviewed at BCG in 1979. “[BCG] hurt us by out recruiting us, and for a while we weren’t even in the contest,”20 one McKinsey insider told BusinessWeek.

  McKinsey was so alarmed by the incursion that in 1978, it consolidated all HBS recruiting under a single director, Carter Bales, who agreed to devote at least half his time to it. Bales took several steps to reverse the slide in the firm’s reputation at HBS. First, he made sure that directors were involved in the early rounds of interviewing. This was the policy at the best professional firms of the late 1970s and 1980s, such as Goldman Sachs and Latham & Watkins, and it had been McKinsey’s policy in the 1950s and 1960s, when Marvin Bower did much of the firm’s recruiting himself. Bales also spent time on campus talking with leading professors, who continued to influence students’ opinions of postgraduate employment. The firm also revitalized its twenty-year-old summer associate program, lavishing renewed attention on students between their first and second years.

  Bower became further incensed when Bain began offering “exploding bonuses” in 1980, which offered students a high bonus if they accepted a job offer within twenty-four hours, after which point the bonus declined with each passing day. “The high-pressure strategy was the most effective tool ever used by a firm recruiting at HBS,” writes Mark, “and in its first year eighteen out of eighteen Baker Scholars who were offered the bonuses accepted them immediately.”21

  Bower demanded that McArthur force Bain to end what he considered an unprofessional practice. But McArthur felt his hands were tied, and suggested that McKinsey compete with Bain by making similar offers. Bower refused, and the most McArthur was able to manage was to “disinvite” Bain from a recruiting presentation that year. Making matters worse, star HBS professor Michael Porter had launched his own consulting firm, Monitor Company, and he was siphoning off top Baker Scholars himself. There wasn’t much McArthur could do about that, either.

  By 1984, according to Mark’s account, Bower had had enough. He told McArthur that year that he would like to create an “exploding fellowship program.” Starting with an endowment of $2 million, Bower promised that in years that McKinsey reached its desired quota of Baker Scholars, he would add another $500,000. If McKinsey didn’t reach its quota, then nothing would be added. The details were not publicly announced, of course, with the program described instead as a way to pay for four junior faculty members from other schools to come to HBS each year.

  Baker Scholars are a driven bunch, and HBS had found over the years that those students who were top of their class after just one semester were highly likely to be top of their class after two years. Bower knew that, and he wanted McKinsey to get a first look at the Baker Scholars after the first semester of their first year. McKinsey could then make summer job offers (between their first and second years) to the ones it wanted, and it would have a very good chance of keeping those same students when they graduated.

  But how to give McKinsey advantage without enraging the rest of the School’s corporate recruiters? The answer: In 1985, approximately one hundred of the top students, across all sections, received recruiting invitations from McKinsey on the very first day of recruiting season. Invitations from other firms came in the days that followed, but McKinsey had a leg up on them, and that summer, it had more of the top students from HBS working for it than it had the year before. On July 9, 1986, the Bower Fellowship Program, now $2.5 million in size, announced its selections for the 1986–87 fellows.22 What goes around, comes around, even if it’s not necessarily visible to the naked eye.

  Of course, in the mid-1980s, McKinsey had more competition than just other consulting firms at the School. Wall Street was starting to embark on what would prove to be a twenty-year bull market, and the money-seeking missiles that are MBAs were showing their “leadership” in redirecting their job-seeking energies toward investment banking and trading before Michael Douglas had even graced the big screen as Gordon Gekko in 1987. Of the class of 1986, 29.4 percent took jobs on the Street, versus 17.5 percent who went into consulting.

  The HBS-McKinsey route has produced a number of standouts. A handful of the business world’s most prominent CEOs have made their way to the top right through it. At McKinsey itself, four managing directors have come that way: Marvin Bower, Ron Daniel, Al McDonald, and Rajat Gupta. Rod Carnegie, a star at both HBS and McKinsey, later led mining giant Rio Tinto. Lou Gerstner (’65), one of the most celebrated CEOs of the second half of the twentieth century, started at McKinsey before successive CEO jobs at RJR Nabisco, IBM, and buyout behemoth the Carlyle Group. (The only reason a decade-long stint at American Express post-McKinsey didn’t result in Gerstner running that company was that another HBS grad—James Robinson III (’61)—wasn’t ready to give up the CEO seat himself.)

  But does it really add up to much? According to one consultant who worked closely with both McKinsey and HBS graduates for many years, the notion that you need two years of graduate school to do something as mindless as what most business executives do is beyond the pale. “You can’t teach business,” he says. “It’s about confidence and dominance. It’s a matter of personality. All places like HBS do is act as barriers to entry to
a closed club. At McKinsey, you were discriminated against if you didn’t have an HBS MBA. They defend them like crazy. Because without those credentials, there’s really nothing there.” Or, as management historian Christopher McKenna puts it, “For those students who couldn’t yet decide what to do with their lives, but did not want to appear directionless, management consulting promised the credentialed path to future glory.”23 There’s a reason that McKinsey, BCG, and Bain have been collectively referred to as “M/B/B”—a job at any of the three is as much an MBA-like credential as it is anything else.

  For all of HBS’s own pretensions, the fact of the matter is that Marvin Bower’s McKinsey effectively swallowed HBS. By the end of the twentieth century, HBS—along with the rest of the elite business schools—had, for all intents and purposes, become captive to the needs of the consulting industry. But what about the needs of the consulting firms’ clients? The evidence that MBAs make for better consultants has never been overwhelming, even at McKinsey. When the consulting powerhouse grew so large by the end of the century that it was forced to broaden its recruiting sources just to keep up with its own growth, with doctors, lawyers, and even philosophers joining its ranks, the firm’s own internal reviews showed that they performed no worse than their business school counterparts. Indeed, by 2000, the New York Times reported that non-MBAs at McKinsey were promoted faster than MBAs,24 on average.