The Golden Passport

by Duff McDonald

  Indeed, management historian J.-C. Spender argues that the whole point of the HBS curriculum is to serve as another indoctrination, to mask the politics that are buried underneath it. By promoting the idea that management is rational, quasi-scientific, and objective, it attempts to depoliticize it, when it is evident to even the lowliest of employees that management is indeed highly political. “How can the transformation of labor into profit be non-political?” asks Spender. “How on earth can anyone argue that the machinery of democratic capitalism is politically neutral and ‘fair’?”

  Spender is no anticapitalist. Indeed, as both a former top corporate executive as well as a former business school dean, he is nothing but sympathetic to these sorts of educational challenges. He is simply pointing out that the benefits of Western capitalism have come with a complicated and wholly political set of trade-offs. The reason French economist Thomas Piketty’s 2014 book, Capital in the Twenty-First Century, took off like a rocket was that he examined some of those trade-offs, such as economic inequality, and put forth well-researched arguments that they might not be sustainable, either socially or politically. The point here isn’t whether Piketty is correct, it’s that a book of that importance has never come out of the Harvard Business School. When HBS turns its eye to inequality, it is merely to make the corporatist assertion that it is a problem that business itself can solve. Which makes it all the more remarkable, argues Spender, that we’ve come to believe that HBS is anything but a capitalist madrassa, part of an economy-wide project to select able and committed people and then mess with their political and ethical minds. “How can we complain about Islamic madrassas and ignore our own?” he asks. The fact that the Ford Foundation, which was effectively a propaganda machine for American capitalism in the 1950s and 1960s, financed the dissemination of HBS cases speaks volumes.

  HBS still teaches the vast majority of its curriculum using the case method, including some courses (introductory finance and accounting come to mind) that would be much more effectively taught using other methods. In other words, they’ve taken things to an extreme that is unhelpful, starting with the fact that cases encourage mimicry, hardly the most compelling of decision-making criteria. “The best of what this kind of teaching can do is to encourage people to copy what other companies do,” says Christopher Grey of the University of London. “That’s not a recipe for creativity or success. At best, you’ll end up with homogeneity. At worst, you provide an object lesson at how to fail in the future. Because the one thing you can confidently say about companies that are currently successful is that in five years they will be seen as having failed.”9

  If one sets aside the unspoken teachings of the case method, there is also the question of whether all that “research” being conducted by HBS professors and that shows up in cases—business journalism by another name, but without good writing or editing—is even worth the time, effort, and expense that Harvard has poured into it. HBS has always insisted that, like scientific research, the effects of its research are cumulative. But are they really? The School trumpeted the “best practices” of Enron in five glowing case studies right up to a few months before the revelation that it was a complete and total fraud. What’s cumulative about that?

  HBS has also claimed that its case-related “findings” have been “tested in a scientific manner.”10 But that’s absurd. There’s nothing scientific about conducting research via the case method. The only people who believe that are HBS’s own faculty, for reasons of academic self-respect. “[They] tell themselves that they [are] helping to build a new intellectual edifice by the time-honored means of deductive reasoning,”11 says author Laurence Shames. He’s not being complimentary.

  Spender asks which have proved more valuable to financial services: the invention of the capital asset pricing model, portfolio management and options theories (none of which emerged from HBS), or twenty thousand instances of “ex ante relevance [that] is actually irrelevant to the quality business schools because the objective of their research and education is to develop new knowledge, anticipate change, and so force business beyond present practice.” While the occasional HBS faculty member does reshape the thinking and language through which business school students are being inducted into the religion of capitalism, most of them are simply fellow travelers.

  All that said, virtually every business school in the world teaches some courses using cases, and usually HBS cases at that. That points to the real reason HBS remains stuck on cases: the money. The business of selling cases has gotten so huge for the School that they can’t help but keep producing them, leaving other schools with the option to use the cases for those classes where it is appropriate and to do research as they see fit.

  Consider the University of Toronto’s Rotman School of Management. Roger Martin (’71), a longtime friend of HBS—he served on its Visiting Committee—was dean of Rotman from 1998 to 2013. He sees value in the case method, but by the end of his tenure only about 35 percent of Rotman’s courses were taught using cases. And the percentage of time Rotman professors spent doing case-based research? Zero. All of this creates the oddest of enabling relationships between HBS and the rest of the business school universe. Most professors outside HBS argue that if the School disappeared tomorrow, no one would notice the lost “research.” But they would notice the missing cases. The symbiosis is such that the rest of the business school academy hates HBS but loves their cases.

  There are some unbelievably timeless cases that teach timeless truths at HBS, such as Jeffrey Miller and R. Paul Olsen’s 1974 case on the National Cranberry Cooperative. The case addresses questions of production and utilization—what do you do when all the cranberries show up at the processor on the same day?—but it’s arguably unnecessary to update a case like that for a company like National Semiconductor, just to make it more modern and up-to-date. Utilization is utilization, whether you’re selling cranberry juice or computers.

  HBS will admit that they don’t conduct traditional academic research, but what they won’t admit is that they care more about sophistry than actual knowledge. They promote an image of rigor, a concomitance of rigor, and every class ends with the professor drenched in sweat and blackboards covered in words. They all feel they’ve really accomplished something, but it’s ludicrous on the face of it that this would be good training for anything but being glib.

  The School has also argued that case-based research distinguishes itself by breeding in the faculty “a dominant respect for the facts and a restless curiosity about them.” But of what facts, in particular? The short answer is only those facts to which their corporate sponsors provide access, and the stories they wish to tell. That’s how you end up with a 2001 case study on the rapid rise of JetBlue Airways that focuses on how its “values-centered approach to managing people” provided a competitive advantage, rather than that which actually did—low fares, which it was able to offer given the newness of its fleet (and therefore, low maintenance costs), some timely hedging of fuel prices, and a nonunionized workforce.

  The School has likewise trumpeted the “independence” of its research, but that’s also a crock. The faculty is obliged to be not only respectful but also groveling toward its corporate constituency, whereas tenured professors elsewhere are free to treat their subjects with skepticism. A professor at Yale Law School, for example, is not required to suck up to the lawyers at Cravath, Swaine & Moore. But when you’re not much more than a courtier, you have to be careful that others don’t suspect you of subversion. Even Shakespeare was respectful of the illegitimate Tudors, masking his political criticism in stories of kingdoms far away or long gone. But Shakespeare wasn’t consulting for the Tudors, either.

  33

  A Decade in Review: 1960–1969

  When Dean Stanley Teele took the opportunity in 1961 to reflect on growing public and government concern about the behavior of the nation’s corporate elite, he came to a remarkable if not entirely surprising conclusion: The concern was misplac
ed.

  Whereas most people looking at the flurry of antitrust issues, expense-account-related tax dodging, and instances of commercial bribery as the 1960s started saw a potentially disturbing trend, Teele saw its opposite. “There is a natural and normal tendency for us who are so close to and a part of the business world to observe what is probably correct,” he wrote, “namely that ethical standards of business are surely as high as those of most groups in our society and have improved immensely over the decades.”

  While even Teele might not have known exactly what it was that he’d said—can one even have a tendency to observe something that is both probably and surely correct?—the gist of it was clear enough. Those criticizing business best look in the mirror themselves, he seemed to be saying. Either that or, If you think we’re bad now, you should have seen what we used to be like!

  Prompted at least in part by new attorney general Robert Kennedy’s stated intention to enforce laws against price-fixing, Teele’s remarks were typical of what Kennedy himself referred to as “an ideological reflex”1—the tendency of big businessmen to recoil in horror from even the most corporate-friendly of Democratic administrations. And it was a reflex—President John F. Kennedy handed corporate America a significant tax cut, and his administration’s actual performance (as opposed to its posturing) when it came to price-fixing, particularly in the pharmaceutical industry, was anemic.

  With the benefit of hindsight, it seems that Teele may simply have been putting on a brave face, because at that very moment, HBS was engulfed in a heated debate about proposed changes in its curriculum that had been prompted by the foundation reports of just a few years before. Specifically, there was concern among a substantial part of the faculty that the committee behind the changes wanted to reduce the centrality of the School’s case method in the curriculum. “Faculty nerves were raw,” writes John Cruikshank. Within months, Teele retired unexpectedly, “his health broken in part by the acrimony and ill will surrounding the debate.”2

  Teele’s successor, George P. Baker, was plainspoken in summarizing one of the main issues in the internal debate: “We . . . have the obvious problem of competition between individual courses and disciplines. If we decide to devote more time to a particular area during the first year of the program, we must take away an equal amount of time from some courses or courses now offered.”3 In other words, it was a turf war, and some of the faculty barons had showed themselves so powerful as to force the dean out of his job as part of their defense.

  The heart of the issue was more prosaic. If science had been employed in the prewar years as a means of discovery, in the 1950s and 1960s it was employed as a means of prescribing policy. “Science now challenged genteel decision-making skills, as cultivated at [HBS], as the key to managerial choice,” writes Steven A. Sass in “The Managerial Ideology in Collegiate Business Education.” “Insofar as such policymaking sciences were valid, the essential managerial skills became not judgment and mastery of fact, but skill in the application of theory.”

  With newly ascendant “systems theorists” pushing a new “management science,” Sass points out that the place of HBS’s “liberally educated gentlemen” at the top of the corporate hierarchy was suddenly under threat by engineers and social scientists more adept at working the new technical machinery of decision making.

  In the fifty-plus years of its existence to that point, HBS had helped lay the foundations of marketing, both for business and business education. It had played a part in the field of human relations in business. And it had put the case method at the forefront of teaching business, both at HBS and well beyond. In 1965, Dean Baker spelled out HBS’s plans to take a leadership position on several new fronts, including the administration of research and development, mathematical decision making, and the responsibilities of business to society.

  While the School made an effort to broaden both the background of its faculty and the content of its curriculum, it never did achieve any of those goals. Indeed, the triumph of the old guard and its obsession with “character”—essentially code for “similar to us”—at the expense of more technical abilities marked what can only be characterized as the beginning of the erosion of HBS’s dominant position at the top of the management education hierarchy.

  But they didn’t know that at the time. What they did know: Their salaries needed to be higher, and to bring that about, tuition needed to be raised again. In 1962, they did just that, with an increase from $1,500 to $1,750. But it was an increase that could easily be justified. While the all-in cost of two years at the School had risen from $3,100 in 1941 to $6,400 in 1961, when compared to starting salaries of HBS graduates, in “real terms,” the costs had fallen substantially. Whereas in 1941, it took 20 months of starting salary to cover the costs of their education, in 1961, it only took 10. In other words, the payoff of an HBS degree had risen twice as fast as the cost of one.4

  One thing that tuition increase helped pay for: a working model of a teaching machine, called INCADIS, or Individual Case Discussion Simulator, a programmable machine that the faculty thought might “be adapted to the use of an individual . . . who, through various circumstances, cannot avail themselves of the School.”5 In 1961, in other words, HBS was working on an ancestor to today’s MOOC, or massive open online course. In 1962, the School rolled out a computer model of a business enterprise in the context of the overall economy, the Harbus II.

  Another thing the administration was intently focused on during the 1960s was the institutionalization of its alumni relations function, and the results showed. Each year, some 40 percent of alumni contributed hundreds of thousands of dollars to the School’s HBS Fund. There is no graduate school in the world with a more finely tuned alumni fundraising operation than HBS, in part because they’ve been refining their methods for decades. By the early 1960s, the School had sixty-two regional HBS Clubs operating around the country. In 1962, Dean Baker even asked HBS’s man behind the curtain, McKinsey’s Marvin Bower, to put his consultants to work studying the “relationship” between the Alumni Office, the HBS Association, and the dean’s office. In 1963, the School also introduced a “Bequest Program” to encourage alumni to include the School in their wills, as well as “Bequest Chairmen” for each class. One can hardly think of a less appealing job, but given that this is a group of people who all want to be “chairman” of something, it seems likely that there was no shortage of volunteers.

  The men of HBS had finally shown themselves able to accommodate women in their midst by the late 1960s, albeit barely so: The School admitted just twelve women into the class of 1967. The School’s conservatism naturally keeps it a few steps behind the rest of society when it comes to real change. But why would they want to, anyway? As late as 1974, the two hundred largest U.S. manufacturing companies controlled two-thirds of the country’s manufacturing assets and more than three-fifths of both its sales and jobs.

  By that point, as John Kenneth Galbraith pointed out, corporate America was used to bending society to its goals, not the other way around. Wilson Bryan Key’s 1973 book, Subliminal Seduction, even claimed that the advertising industry was burying images of sex and death and bestiality in their ads to influence behavior. It was as if the HBS ethos of “control” had extended its reach all the way into the nation’s mind.

  In other words, if the 1960s is remembered by most people as a time of great social upheaval, they weren’t quite feeling it in the executive suite. The number of chaired professorships at the School increased from 13 to 35 during Dean Baker’s tenure, which ran from 1962 through 1970, as good an indication as any other that the whole ecosystem was in a vibrant state—more and more people wanted to get a Harvard MBA, more companies wanted to hire them, more Harvard MBAs climbed to the top of those companies, and, to complete the cycle, more corporate largesse rained down on HBS as a result. By the end of the 1960s, the annual budget of HBS was approaching $20 million and the School had six hundred people on its payroll.6 At that point, HBS
wasn’t just a business school—it was a business, period.

  When the HBS Club of New York celebrated its fiftieth anniversary in February 1970 with a black-tie reception at New York’s Americana Hotel, it also honored George P. Baker on the occasion of his retirement as dean—he received the club’s Business Statesman Award, its highest honor. (The previous year’s winner: Robert McNamara.) The guest list read like a who’s who of New York power players, including Governor Nelson Rockefeller; George Smith, president of UPS; Neil McElroy, chairman of P&G; J. Paul Austin, president of Coca-Cola; L. Emery Katzenbach, managing partner of White, Weld & Company; George Roeder, vice chairman of Chase Manhattan; Ernest Molloy, president of R. H. Macy & Company; Sidney Raab, chairman of Stop & Shop; John Brooks, president of Celanese Corporation; John Weinberg of Goldman Sachs; Donald C. Cook, president of American Electric Power; Thomas Carroll, president of Lever Brothers; George Spater, president of American Airlines; Marvin Bower of McKinsey; William Eberle, president of American Standard; T. Vincent Learson, president of IBM; and Sylvan Coleman, chairman of E. F. Hutton.

  Baker had also managed to burrow his way into the corporate boardrooms of America, serving on the boards of Mobil Oil, Lockheed Aircraft, First National Bank of Boston, American Research and Development, Jewel Companies, Indian Head, and UPS. And why wouldn’t he? HBS and the rest of the elite graduate business schools did as anyone would have done during a time when American corporate performance was as impressive as it was after the war: They yoked themselves as tightly to that success as they could. Superficially, at least, they did seem to have a point. More MBAs were running America’s most important—and successful—companies than ever before. What else did you need to know?

  One stimulating question: Would things have played out pretty much the same way if the MBA invasion of the corporate suite had never taken place? Of course, that’s counterfactual history, which means there is no way of knowing the answer. In lieu of that, one could simply survey any available evidence of whether MBAs really were worth all that. One Harvard Business School professor did just that in 1971, and the results weren’t pretty.