The Golden Passport

by Duff McDonald

  “I’m not sure that we can always neatly categorize the contributions that the Harvard Business School makes to your success,” Stemberg said in 2001. “To be sure, it’s often the informal things, the mentorship from, in my case, individuals like Walt Salmon, who played such a huge role, and Ben Shapiro, a legendary marketing professor. They played a huge role in shaping my career and advising me when I was about to start [Staples.] And later on, there have been individuals like Bill Sahlman and Kim Clark who have helped in many ways.”

  And what of his classmates? “Your section-mates also contribute in many ways to your success over many years,” he said. “Some of them have served as investment bankers or other forms of advisors. And I think that at the end of the day, the stuff in the classroom pays off too, though it’s not nearly as obvious right away. I remember once discussing pricing structure in a certain industry with a particular chief executive, and I explained his problem as the Butcher Polish case, which was the original marketing case I had in school. And our company had exactly the same problem as this company did. So the HBS education does pay off a lot over time, I believe.”31

  The one thing it can’t do? Prevent competition. When asked how it felt to be the father of the office supply warehouse industry, including dozens of Staples look-alikes, Stemberg replied, “I wish I had worn a condom.”32

  38

  The Second Broadside: Derek Bok

  Derek Bok was the twenty-fifth president of Harvard University, serving from 1971 to 1991. The school held him in such high esteem that when Lawrence Summers resigned under pressure on July 1, 2006, the powers that be at Harvard asked Bok to return and serve as president on an interim basis, which he did until Drew Gilpin Faust, Harvard’s current president, took office on July 1, 2007.

  Born in 1930 to well-to-do parents in Bryn Mawr, Pennsylvania, Bok received a BA from Stanford in 1951 and graduated from Harvard Law School in 1954, where his classmates included Michael Dukakis and Antonin Scalia. He taught law at Harvard starting in 1958, and went on to become the seventh dean of the law school, serving from 1968 to 1971, at which time he was tapped to lead Harvard itself in the midst of campus-wide student protests.

  Bok left the business school to its own devices for his first few years as Harvard’s president. He had other, more pressing challenges to deal with, and the fact that HBS students were less prone to join in the protests that were rocking the rest of campus—and the country—surely allowed him to defer taking a good hard look at what was going on across the Charles River. At the end of the 1970s, however, when he turned his attention to the Business School, he clearly didn’t like what he saw. Bok articulated, in very public fashion, what he considered the school’s shortcomings.

  The school did not take the criticisms—many viewed them as attacks—sitting down. And the whole episode stands as an example of what happens when an outsider—even an outsider who happens to be the president of Harvard—tries to meddle in what HBS considers its own internal affairs. It might have taken the unstinting support of a Harvard president to bring HBS into existence in 1908, but three-quarters of a century later, HBS no longer relied on the support of Harvard proper or its president. And it certainly wouldn’t stand for public criticism therefrom.

  Bok never established a fruitful relationship with HBS’s then-dean Lawrence Fouraker, who had been appointed by Bok’s predecessor, Nathan Pusey. Born in 1923, Fouraker was also seven years older than Bok, who was only forty-one when he was appointed Harvard’s president, the youngest in its history. It’s perhaps not surprising that Fouraker wasn’t that interested in cultivating a man nearly a decade his junior and who hadn’t even appointed him to his job. And why think otherwise? The sole power of a president of Harvard over HBS is to select its dean, and the possibility that Bok might actually depose a sitting dean such as himself probably never even occurred to Fouraker.

  That was a mistake. Bok is an intellectual through-and-through, and has written books on subjects ranging from nuclear weaponry to the interplay of race and college admissions to the politics of happiness. But what he found in Fouraker was the opposite, a man more interested in boardroom chumminess and motivated to run HBS the way pals like Walter Wriston of Citibank ran their empires: with global ambition and first-class air travel. (Bok flew coach.)

  That HBS deans have “monetized” their privileged positions by taking on paid outside corporate roles while in office is enough to raise the eyebrows not just of puritans of academia—even setting aside the question of ethics, one can only wonder how they find the time for outside commitments while running the most prestigious business school in the world. Whatever one’s position on the matter, what must have rankled Bok is just how far Fouraker went when it came to having his hand in the corporate till. At one point during his time as dean, Fouraker was on the boards of eight public companies. And not small ones, either: Citibank, RCA, Gillette, Jewel Companies, R. H. Macy, NBC, New England Mutual Life Insurance, and Texas Eastern Transmission.

  Fouraker was a master of raising money, but beyond that, he was the living, breathing fruition of any anti-HBS Harvard faculty member’s worst fears: a proudly anti-intellectual corporate glad-hander who was selling Harvard’s good name out the side door for pennies on the dollar. Wealthy businessmen the world over were attending sessions that could be as short as one week, paying corporate big bucks in exchange for a Harvard degree. Harvard’s president couldn’t even get his hands on those monies, either, as Harvard’s individual schools operate on an eat-what-you-kill basis, keeping any and all monies raised to themselves. That makes it all the more ironic that the older, supposedly more business-savvy dean was dispatched by Harvard’s president in what amounts to nothing less than a classic case study of modern organizational jujitsu.

  Bok’s 1978 annual report was mostly given over to a finely grained analysis of the Business School. While largely complimentary, it also included a catalog of what Bok considered serious weaknesses. He touched all the nerves: the school’s ongoing challenge at teaching ethics, its reticence on corporate social responsibility issues, as well as its lack of focus on the management of government and not-for-profit organizations. That, and the never-resolved question of the proper division of power between the government and the corporation.

  Bok also took aim at the school’s unstinting devotion to the case method—not suggesting that they dump their signature pedagogical approach but that they consider expanding their portfolio of teaching tools because of the method’s shortcomings. An important one, as far as Bok was concerned, was that if you started “discussing” things before you’d actually learned them, you were constructing a storehouse of supposed knowledge on decidedly flimsy foundations. “Although the case is an excellent device for teaching students to apply theory and technique,” he wrote, “it does not provide an ideal way of communicating concepts and analytic methods in the first instance.”

  If Fouraker couldn’t read the writing on the wall when that report began circulating in 1978, he surely read it in the paper on January 19, 1979, when the Wall Street Journal ran an article titled, “To Some at Harvard, Telling Lies Becomes a Matter of Course.” The article focused on an HBS course, Competitive Decision Making, in which professor Howard Raiffa taught the dark arts of “strategic misrepresentation”—not teaching students to lie, the professor insisted, but preparing them for the fact that they may be lied to. Reaction to the story, purportedly a scandalous scoop—THEY TEACH HBS STUDENTS TO LIE!—wasn’t defused by the fact that anybody who’s ever worked for a for-profit company knows that in business negotiations, the act of bluffing—or “strategic misrepresentation”—is as old as business itself.

  But it couldn’t have come at a worse time for Fouraker, considering the man sitting in the president’s office at Harvard. Derek Bok’s wife, Sissela Bok, taught an ethics course at Harvard and in March 1978 had published a book titled Lying: Moral Choice in Public and Private Life. In it, she made the argument that all those seemingly
inconsequential white lies we allow ourselves individually eventually add up to some very consequential collective societal problems. It really didn’t matter that the idea of a businessman telling everyone he negotiated with every day the truth, the whole truth, and nothing but the truth was absurd on its face. This was Bok’s opportunity, and he summoned Fouraker to his office and demanded to know how the school would respond. He found Fouraker’s response wanting, and demanded his resignation. It wasn’t as if he wasn’t ready to start recruiting a new dean, either: The HBS portion of his annual report was arguably a twenty-three-page “Help Wanted” ad.

  At that point, things just had to run their course. Fouraker announced his early retirement, and the release of the Annual Report on April 29, 1979 was followed by a front-page story in the New York Times the next day in which Bok said, “The report is a first step in a long process of selecting a new dean for the school.”

  But Fouraker went down swinging, telling Fortune’s Walter Kiechel (JD/MBA, ’77) that he didn’t think Bok had ever even been to an HBS case study class. (Bok’s reply: “I have sat in on an occasional class.”) And then in June, to the Washington Post: “One thing that troubles me and many of the faculty is the implication in his report that Bok doesn’t have a high opinion of businessmen. If businessmen are not appropriate models for business students, we shouldn’t be here.”1 That wouldn’t be a problem for Fouraker, as he’d be out of a job by year-end. But Bok soon found himself up against a far more formidable adversary: Marvin Bower, HBS class of ’30, and the longtime managing director of McKinsey & Company.

  The case method teaches students to think on their feet and to argue with conviction, even if they don’t entirely know what they’re talking about. That’s what management consultants do, too. So when Bok questioned the merits of the case method, he wasn’t just engaging in bureaucratic infighting at Harvard; he was threatening the talent-sourcing pool of the business world’s savviest behind-the-scenes operator.

  Bower’s biographer puts forth a version of events in which Fouraker hadn’t even seen the Bok Report before the story appeared in the New York Times in April 1979. Bok says that’s false—that he showed a draft of the report to Fouraker and his deputy, John McArthur, neither of whom expressed any problem with it.2 But the day the Times story did come out also happened to be the day of a meeting of the board of directors of the Associates of HBS—those four-hundred-plus companies that had long-standing financial ties to the School. And they took offense to it, regardless of the fact that Fouraker himself had not. “Larry, you have been attacked by your boss,” said one. “This is awful.”3

  On May 21, 1979, Bower convened a subsequent meeting of the board of the Associates. A task force was created to respond to Bok’s report, and Bower and Albert Gordon, HBS class of ’25 and the chairman of Kidder Peabody from 1957 to 1986, were chosen to head it. Gordon later recalled with awe how the methodical Bower took on the legally trained Bok, a master of argument himself. “Marvin and I had a couple of interviews with [Bok]. They were rather stormy interviews. Before we would go into meetings . . . Marvin would review what he thought Bok’s logic would be. We would discuss our responses. Marvin could think like Bok, he almost always anticipated his responses. We rehearsed what we were going to do. We had a plan. We executed it.”4 The task force—which was in large part peopled by McKinsey consultants—marshaled a murderers’ row of corporate chieftains—the CEOs of Ford, AT&T, and the like—to endorse the case method’s ability to prepare HBS graduates for their real-world postgraduation responsibilities.

  Bower also had his eye out for Fouraker’s replacement, and it had settled on John H. McArthur, a self-effacing former football player and Fouraker’s deputy. On the surface, this was change. McArthur was Fouraker’s antithesis: a team player who would make up for a decade of high-flying absentee management. Underneath, though, McArthur represented the status quo that the school’s faculty and Associates remained wedded to. When Bower communicated his thoughts on the matter to Bok, he stressed the more superficial notion that McArthur represented a break with the past, at least as far as personalities were concerned.

  In November 1979, Bok appointed McArthur as Fouraker’s replacement. A month later, on December 3, the task force issued its own report, “The Success of a Strategy,” a fifty-two-page discourse that could just as easily have been summarized in a few words: Why mess with success?

  “Our general conclusions can be simply stated,” its authors wrote. “The school has been remarkably sensitive to external forces, and its educational responses have usually been timely, effective, and adequate. Although in hindsight some of the responses might have come earlier or been more complete, many have been so forward-looking as to provide leadership for other graduate business schools, and a few have been so substantial as to build knowledge bases that constitute a national resource—for example, in the areas of organizational behavior, the multinational corporation, and energy policy.”5

  While the report did acknowledge that some of Bok’s criticisms had merit, it claimed that those problems were being addressed, many before Bok had articulated them himself. But when it came to the case method, the committee offered a full-throated defense of the practice, adding that the answer wasn’t to curtail it but to spread its gospel even further afield: “A careful examination of the case method convinces us that this distinctive, student-centered learning instrument is superior to the lecture in preparing general managers. This method is especially well-suited to teaching decision-making skills, but is not limited to that. Although it is supplemented by other learning instruments—student study groups, lectures and notes on theory, audiovisual materials, and computer games—we urge the school to keep the case method dominant. We also suggest that it make a greater effort to promote understanding of the case method outside the School. Were the method better understood, we believe that its value as a learning instrument would be even more widely recognized.”6

  “The Success of a Strategy” reframed the debate over the merits of HBS on its own terms. It was also typical of a long tradition at HBS, that of surveying its own, collecting data on how satisfied they are with themselves and their HBS experience, and presenting those “findings” as if they were the final say on the matter. And it simply ignored those issues it deemed irrelevant. Bok’s point about public sector management, for example, was a fundamental one, but it elicited no response whatsoever. Historian J.-C. Spender suggests that the lack of focus on public sector management is inherent in U.S. business schools’ ultimate status as private sector madrassas—as opposed to their European counterparts’ educational focus on navigating (and improving on) the mixed economies that make up twenty-first-century capitalism. Thus, instead of the combined HBS–Kennedy School model originally envisioned by Donham et al., we ended up with two separate parts that Spender argues “do not even recognize each others’ existence, let alone talk to each other.” That, he adds, is paralleled by business schools’ apparent unawareness of schools of education.

  Years later, McArthur was complimentary when recalling the report that played a central role in his elevation to the deanship of the school. As he told Bower’s biographer, “The [Bok] report itself was good. It forced our generation to come to grips. I was trying to say, ‘Look, gang, in a lot of different ways, we can fix the things that need fixing.’ The research wasn’t OK. And we weren’t open enough to other people’s ideas about management and where the important questions were.” But that’s the generosity of a victor over a defeated foe. Harvard’s president had taken on HBS and HBS had fought back. With its full forces marshaled, the faculty had protected its cherished case method and its men behind the curtain had gotten the dean they desired.

  Bower was also satisfied with the outcome. “Over the subsequent 15 years,” he later said, “McArthur addressed a number of the issues that the Bok report outlined—he created a real PhD program, rather than just the DBA program; he connected the school; and he created joint progra
ms with a plethora of other departments at Harvard . . . and he kept the teaching centered around the case method. Anyway, it all worked out, and I believe the business school is better for having appointed McArthur the dean.”7

  And then it was back to business. Not long after he was named Fouraker’s replacement, McArthur upgraded his own board memberships to those befitting a dean—from Buckeye Pipe Line and National Aviation and Technology to Chase Manhattan, Teradyne, Rohm & Haas, and People Express Airlines.8 (Derek Bok may have lanced a boil in the person of Fouraker, but the underlying infection was clearly still strong.) Five years after the brouhaha, when McArthur was informed that a previously scheduled interview with a New York Times reporter about the school’s seventy-fifth anniversary would include questions about the Bok report, he canceled the interview forty-five minutes before it was supposed to begin.9

  39

  Managing Our Way to Economic Decline

  In his 1967 book, The New Industrial State, John Kenneth Galbraith proclaimed that corporate power was no longer in the hands of the shareholder. It was no longer in the hands of the board. It was in the hands of “the association of men of diverse technical knowledge, experience or other talent which modern industrial technology and planning require. It extends from the leadership of modern industrial enterprise down to just short of the labor force and embraces a large number of people and a large variety of talent.” In other words, management. And not just management, but talented management, which he called the “technostructure.” Galbraith was writing the coda for an era, however, because in 1967, writes Lawrence Freedman in Strategy: A History, that claim was “almost the last point when it could carry conviction.”1