The Golden Passport

by Duff McDonald

  34

  The Myth of the Well-Educated Manager

  When the January 1971 edition of the Harvard Business Review arrived in the mailboxes of America’s corporate elite, it was the equivalent of waking up on Christmas Day and finding a lump of coal in your stocking. That lump was an article written by J. Sterling Livingston, a member of the HBS faculty since 1941. Entitled “The Myth of the Well-Educated Manager,” the story concluded, in no uncertain terms, that the management education industry was failing to deliver the promised goods: more effective managers. It was nothing less than an act of apostasy.

  Livingston also left the School later that same year, and it’s difficult to see how the two events could have been unrelated. Either the fallout from the piece made his continued presence at the School untenable, or he waited until he was on his way out the door to write the piece that would have made his continued presence there untenable. In any case, he got straight to the point in the very first sentence: “How effectively a manager will perform on the job cannot be predicted by the number of degrees he holds, the grades he receives in school, or the formal management education programs he attends.”1

  He took aim at some of HBS’s most cherished notions. “Managers are not taught in formal education programs what they most need to know to build successful careers in management,” Livingston wrote, and those who failed to learn the knowledge and skills that they did need to know through subsequent experience were doomed to underperform. In other words, business schools weren’t just failing to teach; they also served as an impediment to future learning.

  And then there was the What the hell are we doing here, anyway? remark: “Lack of correlation between scholastic standing and success in business may be surprising to those who place a premium on academic achievement. But grades in neither undergraduate nor graduate school predict how well an individual will perform in management.”

  Livingston also pointed to a trend that had been going on for two decades but which had reached alarming levels by the end of the 1960s: increased job turnover. Studying the personnel records of a sample of large companies, Livingston found that turnover among men holding master’s degrees in management from well-known schools was over 50 percent in the first five years of employment, one of the highest rates of any group of employees in the companies surveyed. The charitable explanation of that kind of statistic is that MBAs are impatient for responsibility and are quick to move on when they don’t get it. The less than charitable one: They’re moving on because they failed to live up to expectations regarding the responsibilities they already had. “They leave not so much because the grass is greener on the other side of the fence,” wrote Livingston, “but because it is definitely brown on their side.”

  Knocking the legs out from under the explanation that job-hopping was motivated by the availability of a higher salary elsewhere, Livingston also cited surveys of HBS classes that indicated that men who stayed with their first employer tended to earn more than those who didn’t. More often than not, job-hopping was a sign of arrested career progress and nothing more.

  HBS has always emphasized that the case method imbues in its students a bias to action, and a peerless ability to make decisions under time pressure and with incomplete information. In doing so, however, they have contributed to the notion that management is simply decision making. But it’s much more than that, up to and including actually making sure that the decisions made achieve the desired results.

  And what Livingston was reporting was that management education was distorting the potential for managerial growth by overdeveloping analytical skills while underdeveloping the ability to actually get things done. What’s more, by reducing problem solving in the classroom to an entirely rational process, the schools were setting students up for failure when that teaching eventually collided with the frequently irrational and ethically murky environment that is real corporate life.

  Livingston pointed to the unexpected drop in earnings of a number of the nation’s conglomerates in 1968 and 1969 as evidence that managers were deficient in dealing with problems before they become critical. Specifically, he pointed to the surprisingly poor performance of Litton Industries—the CEO of which was HBS’s longtime friend Tex Thornton. At the same time, Livingston also echoed management scholar Peter Drucker’s observation that an overemphasis on efficiency had resulted in an inability to find opportunity. “The pertinent question is not how to do things right,” says Drucker, “but how to find the right things to do.”2

  Livingston also pointed to another emerging trend at the time: A growing proportion of HBS graduates were eschewing first-line management jobs for staff or specialized nonmanagerial positions. Whereas in the years 1957 to 1959, only 3 percent of HBS graduates became consultants, a decade later some 10 percent did. That desire to act in an advisory capacity, rather than in a supervisory, or managerial one, wrote Livingston, was revealing: “Their aspirations are high, but their need to take responsibility for the productivity of other people is low.”

  Most business schools are adept at the teaching of so-called respondent behavior—solving problems that have already been identified and using facts gathered by someone else. But the sniffing out and exploiting of opportunity is another thing entirely—“operant behavior”—and that’s something that can really only be learned by doing. In raising this point, Livingston joined what eventually became a loud chorus of those who claim that management education is indeed wasted on the young, that the only truly effective teacher is experience itself.

  The article may have caused a stir in the management education community, but it didn’t prompt wholesale revolution of the way its members went about their business. Twenty years later, a group of researchers identified six commonly cited problems with MBA graduates: an inability to work well in groups, an inability to communicate, an over-orientation toward analytical versus action-oriented modes, and exceedingly high expectations upon graduation.3 In other words, not much had changed.

  35

  Harvard Business Review: Origins, Heyday, and Scandal

  The Harvard Business School stands out among educational institutions for the remarkably successful creation, cultivation, and burnishing of its brand over more than a century. It’s difficult to think of any that have done a better job—and over such a long period of time—save perhaps Oxford, Cambridge, or Harvard itself. One of the most important ways it has done so has been through the most successful brand extension of any school in history, bar none—the Harvard Business Review.

  The original plan was to have part of the magazine, which started in October 1922 as a quarterly journal, edited by the faculty, and another part edited by students, similar to the Harvard Law Review. (That plan was soon jettisoned, in part because of the appalling writing skills of HBS students in its early years.) The intent was to run a mix of stories written by HBS faculty as well as others, but in the early years the balance lay heavily with the former. Longtime HBS friend Arch Shaw agreed to publish the magazine and hand over any net profits.

  Professor Neil Borden was named faculty editor, the first in a long list of HBS professors to lead the magazine. Some of those professors distinguished themselves by publishing an excellent journal, while others demonstrated a lack of either managerial ability or editorial instincts—or both. In recent years, the School has entrusted the day-to-day running of the magazine to professional editors, only one of whom has been forced to resign for having an affair with the married subject of a cover story. But that’s getting ahead of the story.

  It began modestly enough: The first issue had a paid circulation of 4,420 copies. The fourth, a year later: 5,200. For the first decade, one of the most frequent contributors was none other than Wallace Donham, who used the review as a cudgel to beat his ideas about enlightened management into America’s delinquent executive class—or at least the few hundred of them who bothered to read it. The titles of his contributions, while showcasing his seriousness of purpose, certainly
weren’t going to compete with the Saturday Evening Post or Harper’s Magazine on the basis of catchy headline writing: “Essential Groundwork for a Broad Executive Theory” (1922), “The Emerging Profession of Business” (1927), “The Social Significance of Business” (1927), “Business Ethics—A General Survey” (1929), “Can American Business Meet the Present Emergency?” (1931), “The Attack on Depressions” (1932), “The Failure of Business Leadership and the Responsibility of the Universities” (1933), and “Nationalist Ideals and Internationalist Idols” (1933).

  Demonstrating early on a fundamental misunderstanding of at least one aspect of magazine marketing, the School had proudly announced, “No effort has been made or will be made to secure an extensive list of readers to the Harvard Business Review. The policy has been simply to announce to American business executives, bankers, business specialists, and others, the nature of this magazine, its purpose, and the service it renders.”1 They got what they asked for: In 1942, the twentieth anniversary of HBR, the magazine had a mere two thousand subscribers, and it hadn’t earned a profit since 1923.

  But was it any wonder? Wallace Donham was a true believer so convinced of the rightness of his cause that the only conclusion he could countenance for not converting readers to it was that they hadn’t heard what he’d said. And so he kept repeating it, over and over. While that’s a fantastic way to build a cultural foundation for an institution, it’s hardly the best way to attract subscribers to a magazine, no matter how serious its purpose. And even if your publishing partner is a close friend of the School, and they promise to return any net profit, how much profit can you reasonably expect them to produce? That the journal skimmed along at breakeven for twenty years was just about the best outcome one could have asked for.

  Donald David had other plans. In July 1945, “after a careful study of the management problems and circulation of the magazine,” the School took over publishing of HBR from what had become McGraw-Hill. Between 1943 and 1946, HBR’s subscriber list grew sevenfold, to 14,000. David tried to sell the dramatic increase as the result of “editorial changes,”2 but its growth was more likely caused by his decision to jettison of the “policy” of simply waiting for the world to discover the excellence of the journal. In short, they began to market the thing.

  At that point, two things happened. The first is that the numbers began to improve in dramatic fashion. Paid circulation hit 20,000 in 1948; 25,000 in 1952; 35,000 in 1953; 50,000 in 1955; 95,000 in 1967. Second, the School realized one of the rules of successful magazine marketing, which is that when the numbers don’t tell you what you want to hear, you do one of two things—you claim that they’re not telling the whole story or you look at some other numbers instead.

  In 1948, for example, they broke readership down into too-small increments, and found that only 20 percent of readers were presidents or board chairmen. By 1952, such fine-grained detail was gone, and a larger category of subscribers “in top management” had replaced it, with a remarkable 89 percent of subscribers qualifying as such. When the magazine discovered in 1948 that only 10 percent of subscribers were alumni, the paltry proportion was explained away: “[Presumably] a much larger number read the magazine through company subscriptions.”3

  That is, if they weren’t reading Fortune. Henry Luce’s pioneering business magazine, first published in February 1930, was crushing HBR in the marketplace of business ideas through a combination of higher-profile contributors (for example, John Kenneth Galbraith), superior writers (James Agee, Archibald MacLeish), and the photography of Margaret Bourke-White. By the 1950s, with HBR stuck under 60,000 circulation, Fortune had more than 300,000 subscribers.

  How to explain such a gap? HBS professors have always had a preposterously exaggerated sense of the quality of their own writing, so they told themselves that the discrepancy was due to the fact that HBR was more engaging than the alternatives, not less: “The average subscriber devotes more time to the Review and finds it of more assistance in making business decisions than the other general business magazines or news magazines to which he subscribes.”4

  But they need not have fretted so, as the one thing that distinguishes any serious magazine—memorable articles about important topics—eventually found its way into HBR as well. Add some actual editorial talent to the mix and you end up with staying power. The breakthrough came in 1960, with Ted Levitt’s “Marketing Myopia.” In 1967, requests for article reprints topped a million for the first time. Save for a few notable misfires, such as Ralph Lewis’s 1957 article “Never Overestimate the Power of the Computer,” the publication hummed along until the 1970s, when it finally began turning out influential articles with some regularity.

  If you’re in the business of publishing, one of the choices you need to make is whether your goal is prestige or profit, with only the rarest of cases offering both. Until the 1980s, the editors of HBR were unwavering about their commitment to the former, whereas in more recent years their allegiance has undoubtedly been to the latter, and the decline in editorial quality could not be more stark. The last truly influential idea to come out of HBS came courtesy of Michael Porter, in the early 1980s. The same could be said for HBR as well.

  Indeed, the heyday of HBR, at least as far as its editorial content is concerned, was in the 1970s and early 1980s, under the leadership of Professor Kenneth Andrews, first as editorial chairman (1972–79) and then as the actual editor of the journal (1979–85). Andrews’s view of HBR was that it was an arm of the School that carried its mission to people who weren’t in a position to attend HBS itself. But with a publication schedule of just six times a year, too, being timely wasn’t an option. And so Andrews decided to make it important, a magazine with shelf life. And it was: Under Andrews, reprint requests made more money than sales of the magazine itself. That’s no longer the case.

  He started by putting an end to the magazine’s tendency to allow company presidents to use the publication as a public relations vehicle. “We like to have articles by company presidents,” Andrews’s predecessor Edward Bursk told BusinessWeek in 1970, and then proudly proclaimed to have asked Henry Ford II for a revision of a piece on the value of stock options as an executive incentive. Under Bursk, Eli Goldston of Eastern Gas & Fuel Associates wrote about his company’s program for ghetto housing rehabilitation, George Champion of Chase Manhattan wrote about his company’s role in meeting social crises, and so on.5

  By serving as a translator of important research for consumption by actual practitioners, Andrews wanted the best pieces in HBR to become the centerpiece around which a conversation could be convened within a company or even an industry. Andrews wasn’t interested in one-off stories, either. He wanted a team that could hit the important veins—the Japanese manufacturing challenge, for example—and then mine them for years. Under Andrews, HBR was going to be serious and rigorous, a little like the man himself.

  While there would still be a heavy presence of HBS-originated content, the fact that a nontrivial percentage of the articles were written by outsiders meant that the editorial staff of the magazine had to be, in Andrews’s mind, experts themselves. The editors he inherited had journalistic backgrounds, however. What Andrews wanted were academics who could also write. And so he hired people like Alan Kantrow, who had earned his PhD in the history of American civilization from Harvard, to cover manufacturing, production, and technology. Kantrow is the kind of thinker/writer who can go toe to toe with any professor HBS might serve up. Andrews also took a flier on Davis Dyer, a young researcher at the School who also had a Harvard PhD, and tasked him with covering human relations and strategy.

  They did what he asked them to do: Kantrow, for example, heard that Robert S. Kaplan, the dean of Carnegie Mellon’s business school, was doing interesting work on the failures of management accounting in the early 1980s. He began a dialogue that resulted in Kaplan’s July 1984 article, “Yesterday’s Accounting Undermines Production.” Kaplan joined the HBS faculty in 1984. His 1987 book with H.
Thomas Johnson, Relevance Lost: The Rise and Fall of Management Accounting, is a classic, and his Balanced Scorecard changed the way that executives measure success.

  The list of important articles published during the Andrews era is a long one, but it includes “Double Loop Learning in Organizations” (Chris Argyris, September 1977); “Zen and the Art of Management” (Richard Pascale, March 1978); “The Strategy-Technology Connection” (Alan Kantrow, July 1980); “Managing As If Tomorrow Mattered” (Robert Hayes and David Garvin, May 1982); “Quality On the Line” (David Garvin, September 1983); “Takeovers: Folklore and Science” (Michael Jensen, November 1984); “How Competitive Forces Shape Strategy” (Michael Porter, March 1979); and “Managing Our Way to Economic Decline” (William Abernathy and Robert Hayes, January 1980).

  Michael Porter’s article on strategy heralded not just a new way of thinking about strategy but also the emergence of the professor who would go on to be the most famous HBS has ever produced. And the piece by Abernathy and Hayes, published just a year later, signaled the end of an era, not the start of one. In one of the most important articles in the magazine’s history, the two HBS professors announced what everyone knew but nobody was willing to say out loud. (More on Porter’s article in chapter 46 and Abernathy and Hayes’s in chapter 39).

  The best piece written by Andrews himself? That came in 1989, when the introduction he had written to a book, Ethics in Practice: Managing the Moral Corporation, was repurposed for the September–October issue. The article, a trenchant discourse on the challenges of managing ethically, also had the ring of rueful nostalgia of a man watching the values he has spent his career championing being swept aside in a flurry of greed. He didn’t name names, but the piece can be read as a direct shot at finance professor Michael Jensen, who had joined the faculty in 1985 and who championed the notion of shareholder capitalism. “What [attracts] students—in large numbers—is economics,” wrote Andrews, “with its theory of human behavior that relates all motivation to personal pleasure, satisfaction, and self-interest. And since self-interest is more easily served than not by muscling aside the self-interest of others, the Darwinian implications of conventional economic theory are essentially immoral.” But it was too late. At that point, the entirety of HBS had been taken over by greed.