The Golden Passport

by Duff McDonald

  Consider a 2007 Harvard Business Review article cowritten by George, “Discovering Your Authentic Leadership.” The piece, which purported to distill the secrets of authenticity by interviewing 125 leaders and “analyzing” the resulting three thousand pages of transcripts, comes across as one part sincere investigation and one part leadership hucksterism. “These findings are extremely encouraging,” the article promises. “You do not have to be born with specific characteristics or traits of a leader. You do not have to wait for a tap on the shoulder. You do not have to be at the top of your organization. Instead, you can discover your potential right now.”

  What follows seems less a road map to authentic leadership—whatever that actually is—and more of a catalog of the moments when once-hard-driving MBAs realized that there is more to life than a headlong rush for promotions and possessions. The article advises common sense—don’t let your job take over your life—while also offering psychobabble on the importance of “integrating” one’s own life with itself.

  It’s not that the ideas that George is pushing are particularly offensive—he’s a proponent of the value of meditation and mindfulness for the executive class, for example, which could hardly be anything but helpful—but that he’s just the latest in a long string of HBS thinkers to help paper over the inherent arbitrariness of managerial power by cloaking it in moral authority. The authentic leader finds the answers to vexing questions such as who gets laid off this round not by playing spreadsheet roulette, but by looking within, and finding the answer in their own heart.

  “For authentic leaders, there are special rewards,” the article continues. “No individual achievement can equal the pleasure of leading a group of people to achieve a worthy goal. When you cross the finish line together, all the pain and suffering you may have experienced quickly vanishes. It is replaced by a deep inner satisfaction that you have empowered others and thus made the world a better place. That’s the challenge and the fulfillment of authentic leadership.”18

  In other words, being the boss doesn’t just come with the inherent satisfaction of . . . being the boss. It’s also an opportunity to use one’s gifts for the “empowerment” of all those who must do as the boss tells them to do. Bill George, like many before him, seeks to deny that such power might not have been earned but simply given (or taken).

  He’s not the only one. “Today’s multitudinous teachers of leadership place ever greater emphasis on the generous character and personality of the manager and precious little on the use of authority and power,” writes James Hoopes in False Prophets: The Gurus Who Created Modern Management and Why Their Ideas Are Bad for Business Today. “The alert new manager picks up almost by breathing the tempting idea that the way to take hold is to let go. The Harvard Business Review recently devoted an entire issue to leadership, and it scarcely contained the word ‘power.’”19 In their own 2012 book on management, What Management Is: How It Works and Why It’s Everyone’s Business, former Harvard Business Review editors Joan Magretta and Nan Stone make the silly claim that “[i]n fact, the real insight about managing people is that, ultimately, you don’t.”20 But ultimately, you do. At least in a traditional hierarchical organization, of which the majority of American corporations still are.

  Hoopes is no enemy of the modern manager. But he thinks it’s fine time that the managerial cadre come to honest grips with the fact that its power hasn’t been earned through soul-searching, as painful as the discovery of commonsense notions such as “money won’t buy you happiness” might be for some MBAs. “There is an unwitting moral arrogance in much of the contemporary thinking about managing by culture and leading by moral authority,”21 he writes. Add Stanford’s Pfeffer to that chorus: “[The] last thing a leader needs to be at crucial moments is ‘authentic’—at least if authentic means being both in touch with and exhibiting their true feelings. In fact, being authentic is pretty much the opposite of what leaders must do. Leaders do not need to be true to themselves. Rather, leaders need to be true to what the situation and what those around them want and need from them.”22

  Undeterred, in the January 2015 edition of HBR, George asserted that “[a]uthenticity has become the gold standard for leadership.” At the very least, it has become so for Bill George. No wonder. All at once, he gets to dabble in the fascinations of psychology, continue to consort with (and arguably have a gratifying impact on) people of prominence, and bring in some lucrative consulting fees for good measure.

  When it comes to HBS’s ability to produce (or mold) leaders, looming large is the inconvenient fact that HBS graduates tend to horde together, lurching from one industry to the next based solely on the size of the most recent financial windfalls. Throughout the late 1980s and early 1990s, for example, more than 40 percent of all HBS graduates took jobs in either investment banking23 or consulting.24 That would suggest that they’re more followers than anything else, raising an ironic counterclaim to HBS’s claim to groom “leaders.” The cult of leadership might better be considered a cult of conformism.

  In its early years, HBS promised to produce effective managers. But effectiveness is a “show-me, not tell-me” trait. What HBS actually did was to certify its graduates as members of a network-based managerial class, and their effectiveness was ultimately proved wanting. Today, HBS promises to educate leaders who make a difference in the world. But again, leadership isn’t something you can buy over the counter. You will find out whether you have it when it’s needed, with no guarantee simply because HBS has granted you inclusion into the “leadership class.” As for making a difference in the world? That’s certainly true. But for the better?

  37

  Can Entrepreneurship Be Learned?

  In the history of the Harvard Business School, critics of the School have gotten a number of things right. The most important of those criticisms populate various chapters in this book. In two specific instances, however, the critics have it dead wrong. The first is the conventional wisdom that HBS has been nothing but a peripheral player in Silicon Valley. The second is that the School has been less than spectacular at producing entrepreneurs. Neither of those criticisms is even remotely true.

  The two points are related. HBS graduates have played a pioneering—and continuing—role in the financing of technology-related startups since the earliest days of such, with a handful of them playing a part in the creation of what we think of as Silicon Valley itself. Entrepreneurial HBS graduates were both early players in and shapers of what we think of as the American venture capital community, not to mention founders of a variety of other successful, nontechnology companies from coast to coast.

  The list begins with Arthur Rock (’51), one of Silicon Valley’s most legendary investors. Working as an investment banker at Hayden, Stone & Company in New York after graduating, Rock was first bitten by the venture investing bug in 1957, when he funded a group of eight pioneering scientists working on silicon semiconductors when they bolted from their current employer, the Shockley Semiconductor Laboratory. Rock helped attract an investment from Sherman Fairchild, one of the largest shareholders of IBM, which led to the creation of Fairchild Semiconductor. Rock soon bolted from his own employer himself, leaving Hayden, Stone for the West Coast. (Depending on who you ask, the eight scientists are either the “Fairchild Eight” or the “Traitorous Eight.”)

  When Rock and partner Tommy Davis established Davis & Rock in 1961, they weren’t just trailblazers in identifying and investing in promising young technology companies; they also pioneered the model by which it would be done: Theirs was a partnership with profits split 80/20 between its limited partners (that is, its passive investors) and its general partners (that is, Rock and Davis). That model has been mimicked by almost every venture capital firm that followed it, most of whom would love to mimic its performance as well: Funded with just $5 million, by the time the firm was dissolved just seven years later, it had generated 54 percent annual returns, generating some $90 million in capital gains for its inves
tors.1 One of their investments was Silicon Valley’s first-ever unicorn: Scientific Data Systems, which sold to Xerox for $1 billion in 1965.

  But Rock was just getting started. In 1968, he funded two of the Fairchild Eight once again, kicking in $300,000 (along with Venrock’s Peter Crisp, below) when Bob Noyce and Gordon Moore bolted Fairchild to found Intel. A subsequent call from former Intel employee Mike Markkula led Rock to invest in Apple Computer. Interestingly, the HBS-bred Rock never found a true connection with the iconoclastic Steve Jobs, and supported the hiring of Pepsi-Cola president John Sculley to replace Jobs as CEO of Apple in 1983. Sculley’s tenure was marked by both highs (for example, the introduction of the PowerBook) and lows (for example, the ouster of Jobs, the commitment to the PowerPC chip), but Apple didn’t truly soar until its visionary cofounder returned. There are some things that the MBA crowd cannot do.

  In 2003, HBS renamed South Hall the Arthur Rock Center for Entrepreneurship, the result of a $25 million gift from Rock. When the gift was announced, Rock gave HBS its due: “The future of this nation lies with new ventures. They supply the new projects, the new technologies, and the new jobs. Harvard Business School has long been at the forefront in understanding the many facets of the entrepreneurial process—from the intricacies of finance to the art of leadership—and I am delighted to be able to do something that supports those efforts, both now and for the future.”2

  It all makes sense, though, if you think about it. Venture capital (and, lately, private equity) is the financial world’s ultimate network, where your value is a direct function of the quality of your connections. Not only that, the best venture capitalists are essentially pattern matchers, a largely analytical task, which makes MBAs particularly well suited for the job. It only gets confusing if you buy into the Silicon Valley myth that it’s a job requirement that you’ve reinvented the wheel at least once in your life. The legends of Silicon Valley have surely done so, but for the other 99.99 percent of them, their job is simply to figure out how to build, market, and sell the hell out of that new wheel.

  There is Jim Breyer (’87) of Accel Partners. Breyer, who earned his BS from Stanford, worked for both Hewlett-Packard and Apple during college. He then worked for McKinsey & Company in New York for two years before earning his MBA from HBS—as a Baker Scholar—at which point he joined Accel, where he became a partner just three years later. His most successful investment wasn’t until 2005, however, when Accel took an 11 percent stake in Facebook with a $12.7 million investment at a $98 million valuation. As of 2015, that stake was worth more than $30 billion.

  There is William Draper III (’54), son of General Draper, cofounder of the pioneering VC firm Draper, Gaither & Anderson. Draper III first worked for Inland Steel, then his father’s VC firm, and then started his own—the Draper & Johnson Investment Company—along with HBS grad Pitch Johnson (’52). The firm was later subsumed into Sutter Hill Capital, which generated average annual returns of 35 percent over the next three decades.

  There is Tim Draper (’84), son of William Draper III. Another Stanford undergraduate who earned his MBA at HBS, Draper took a job at investment bank Alex, Brown & Sons after graduating but left just one year later to start his own venture capital firm, where he was joined by partners John Fisher and Steve Jurvetson. The three pioneered the “spray and pray” approach of making a large number of investments in promising young firms. The approach—making one hundred bets in the hopes that a few “ten-baggers” pay for all the losers—has been widely emulated by VCs and angel investors since. Among DFJ’s winners: Tesla Motors, Skype, Baidu, and SolarCity.

  There is Tom Perkins (’57), the former director of corporate development of Hewlett-Packard who founded Kleiner Perkins along with Gene Kleiner, one of the Fairchild Eight, with $8.4 million in outside capital in 1972. Early investment winners in Tandem Computers and Genentech helped establish Kleiner as the first highly-visible VC brand, which led to expansion and further HBS recruits, including Frank Caufield (’68). The firm, which changed its name in 1977 to Kleiner Perkins Caufield & Byers, dominated the venture market for twenty years. Their most crucial hire: John Doerr (’76), who led investments in Compaq, Netscape, and Amazon.com.3 Theirs is the template that next-generation firms such as Andreessen Horowitz, Sequoia, and all others have followed.

  There is Dick Kramlich (’60) of New Enterprise Associates. Taking a bead off Kleiner’s success with venture investing at scale, Kramlich and his partners (including Chuck Newhall, ’71), built NEA into the dominant mega–venture capital firm with superlarge funds. The firm’s first fund was just $8 million; its eighth was $550 million.4 While that size constrained the ability of the funds to achieve the spectacularly high returns of smaller funds, it likewise opened venture capital to a wide variety of pension fund and other institutional investors.

  There is Peter Crisp (’60), hired by Laurance Rockefeller in 1960 to help with the Rockefeller family’s informal venture investments. Crisp played a pivotal role in the 1969 creation of Venrock, which transformed an informal angel group into one of the first professional family-office venture operations. Along with the Phippses and the Whitneys, Venrock set the bar for professionalized venture investing. Over the thirty years through 1999, Venrock, which began with just $7.5 million in capital, invested in 272 companies, of which 152 were winners (with gains of $1.9 billion), 71 were losers (losses of $93 million), and 72 still in play. Crisp was helped in the effort by HBS grads Red McCourtney (’66), Anthony Sun (’79), and Ray Rothrock (’88).5

  There is John Castle (’65), chairman and CEO of DLJ Capital, who oversaw the launch of DLJ’s Sprout Fund in 1969 with $11.5 million in funding—the first venture fund directly sponsored and controlled by an investment bank. Along with Stephen Fillo (’63), L. Robert Johnson (’65), and Kenneth Yarnell (’69), Castle focused on later-stage financing and financial engineering—they were based in New York, after all—and had a number of big wins, including an investment in future semiconductor giant Advanced Micro Devices.6

  There is Bill Elfers (’43), who founded Greylock Partners in 1965 after spending almost two decades at Georges Doriot’s ARD. One of his first big winners: cable television pioneer Continental Cablevision, run by HBS grads Amos Hostetter Jr. (’61) and H. Irving Grousbeck (’60). Everywhere you turned at Greylock, you found an HBS grad: Eleven of its first 14 partner-track hires were HBS grads, including Daniel Gregory (’57), Charles Waite (’59), Henry McCance (’66).7

  There is Bill Bowes (’52), who cofounded Amgen in 1980 and venture firm USVP in 1981. Amgen has since grown into the largest biotechnology company in the world, with $20 billion in sales in 2014. USVP, which has raised $2.7 billion in total funds, has invested in the likes of Sun Microsystems, PetSmart, Callaway Golf, and SanDisk.

  In short, HBS hasn’t just been a player in Silicon Valley and the venture capital community; its graduates constitute the most influential group of venture capitalists in history, a heritage that goes all the way back to Georges Doriot and extends through today. The School recently conducted an analysis of the presence of HBS grads in the venture capital community. Of 4,386 VC partners it could identify, some 2,082 of them—47 percent—had attended business school. A full 13 percent of all VC partners had attended HBS, compared to just 6 percent who had attended Stanford. Among those VC partners who had attended business school, more than a quarter of them had HBS degrees.

  Likewise, the study and teaching of entrepreneurialism—and of the management of small companies in general—has been going on at HBS for nearly seventy-five years. That so few people realize this—and most wouldn’t believe it anyway—has been a source of enduring frustration for HBS. It got so bad that in 1997 the School commissioned a book on the subject. When the project got under way, they found so much rich material that it took almost a decade before they were done; the result, Jeffrey Cruikshank’s Shaping the Waves: A History of Entrepreneurship at Harvard Business School, was published in 2005.

  The Sc
hool offered its first course explicitly aimed at entrepreneurship in 1947—Myles Mace’s second-year elective, Management of New Enterprises. “[Intended] primarily for students who contemplate going into business for themselves,” the class was taught using cases based on management issues “faced by individual entrepreneurs.”8 It was the first time the word entrepreneur appeared in an HBS course description.

  It wasn’t the most obvious of ideas. “Large corporations controlled the resources that were needed to help the School survive in its underendowed infancy,” writes Cruikshank. Donald David, the dean at the time, couldn’t have been more pro–big business if he’d tried, although in a 1944 speech he wondered out loud about whether HBS alums were putting too many eggs in one career path basket. “To be perfectly frank,” he said, “I am afraid that over a period of years the Harvard Business School has turned out far too many men who have sought the shelter and security of positions in large corporations . . . the environment at our school has, I am afraid, discouraged rather than encouraged a venturesome spirit and a willingness to take risks.”9

  He wasn’t kidding. Ned Dewey, a ’49er, later described an utter lack of entrepreneurial drive among his classmates, a fact that hadn’t been helped at all by the content of their coursework: “When push came to shove, most of us either didn’t have the nerve to go it alone or couldn’t come up with an idea that seemed worth chasing,” he said. “And those of us that did found out that the School hadn’t prepared us at all for the day-to-day mucking around with a start-up business.”10