The Golden Passport

by Duff McDonald

  It should come as no surprise that HBS students who adopt one of those “alternative” lines of thinking generally come to view themselves as revolutionaries, and to overstate their commitment to whatever slightly deviant-from-the-rest-of-HBS perspective they entertain. In 2014, when cosmetics giant L’Oréal sent an internship posting to HBS student Jessica Assaf, a self-described “activist” in the fight against chemicals in consumer goods, she haughtily and self-righteously replied, “I guess you didn’t get a chance to review my resume before sending this email. If you had, you would have realized that I am definitely not the right candidate for an internship at L’Oréal.”

  “I came here to cause a stir,” the twenty-four-year-old told the website Poets & Quants while ginning up fifteen minutes of Internet fame as a result of the interaction. “You can be like this crazy activist that doesn’t fit into any boxes and still have something to contribute.”3 There is, of course, a societal “box” called “activist,” if not one at HBS, and the act of protesting the chemical content of consumer goods is not a new one, nor is it particularly “crazy.” Assaf told P&Q she is developing “a business plan to try and disrupt the beauty industry.”4

  Looking back in 2015, Van Maanen thinks he went a little soft on the social engineering going on at HBS. “It legitimized a class of people we now call leaders, who because of family connections, wealth, and the honing of a set of Gatsby-like skills, were able to come, see, and conquer,” he says. “The number of CEOs who are HBS grads dwarfs that of any other institution. It became a legitimate stamp of authority. Is it a stretch to say that the state of the U.S. economy is partly their fault? It would be a stretch not to say it. Have they left the world a better place? No, they’ve left it a much worse place. There is great inequality, less accountability, a sense of meritocracy that is narrowly defined, a focus on show and not performance, and very narrow definitions for business success—efficiency and profitability. Their focus on metrics at all costs—the idea that if you can’t measure it, it’s not important—has made us the poorer for it.”

  More to the point, the unstinting emphasis on moral agnosticism in the case method has deluded legions of HBS grads into thinking that the thought process ranks on par with the thought itself, that there is always room for debate. “The case method as it emerged in the 1970s and 1980s was all about to deliberately refuse to give students the answer,” says Julian Birkinshaw, “and to require any sort of theoretical framework emerge from the discussion rather than to be imposed. . . . The professor was not allowed to impose a point of view in the discussion. That’s a very unusual perspective in any sort of teaching, because most professors believe the frameworks they develop have merits and one of their jobs is to get them across to their students. But the HBS model was to pull back from that and let students figure it all out for themselves. That philosophy endures at HBS, but it’s safe to say most other business schools have backtracked to a hybrid model where we both get them to discuss stuff but also explicitly guide them toward a better and less good answer.”

  Whatever the merits of the case system, one thing is undoubtedly true: The section system, which throws students together for a year of grinding through roughly 30 cases per course in 10 courses, for a total of 300 cases, builds lasting bonds. In his 1974 book, The Gospel According to the Harvard Business School, Peter Cohen put it succinctly: “The Harvard Business School invented the method; the Harvard Business School succeeded with it; the Harvard Business School swears by it, and we have to put up with it, every grinding minute of every grinding day.”5 It shouldn’t be surprising that the sections come together in their shared misery. As Bob Dylan sings in his epic song “Brownsville Girl,” “[People] who have suffered together have stronger connections than those who are most content.” Although, to quote another bard, the dubious nature of the “real-world experience” that HBS insists is given through cases can also bring about a sense of victory without ever having fought, the kind that Shakespeare was referring to in Romeo and Juliet when he wrote, “He jests at scars that have never felt a wound.”

  The wounds that the HBS student runs the risk of experiencing are the wounds of ego, not the wounds of experience. In a 1951 case on the case method itself—you can see how this thing starts to eat its own tail—Professor Charles Gragg explained the social aspect of case learning. “A significant aspect of democracy in the classroom is that it provides a new access for personal relationships,” Gragg wrote in “Because Wisdom Can’t Be Told.” “No longer is the situation that of the teacher on the one hand and a body of students on the other. The students find their attention transferred from the teacher to each other. It is not a question of dealing more or less en masse with an elder; it is a question of dealing with a rather large number of equals and contemporaries whose criticisms must be faced and whose contributions need to be comprehended and used. Everyone is on a par and everyone is in competition. The basis is provided for strong give and take, both inside and outside the classroom. The valuable art of exchanging ideas is cultivated, with the object of building up some mutually satisfactory and superior notion. Such an exchange stimulates thought, provides a lesson in how to learn from others, and also gives experience in effective transmission of one’s own ideas. . . . [T]he important question under the circumstances is not whether the student pleases the instructor but whether he can either support his views against the counterattacks and disagreements of others in the group, or failing to do so, can accept cooperatively the merits of his antagonists’ reasoning.”6

  In other words, it is not simply the content of the cases, or the pedagogical nature of the case method, that is the difference at HBS. It is also the section system. “By the time they learn what is expected of them in the case-method classroom,” wrote Assistant Professor Charles Orth in his 1963 book, Social Structure and Learning Climate: The First Year at the Harvard Business School, “they are no longer reacting simply as individuals, but rather as members of an organized social system (the section), which profoundly influences their behavior.”7

  There’s a contradiction at the heart of this method, however: In its efforts to teach students how to be “leaders,” the School has placed them in a social situation that pushes the collective (that is, the section) toward mediocrity and conformity. The School defends the section system, despite the pathologies that might arise, because it gives the faculty an opportunity to introduce social processes as an important learning experience. The retort to such a position is that from the beginning of time, people have been able to learn those things themselves, and that the School might be better off focusing more on the actual content of its cases than on congratulating itself for expanding the scope of its teaching and learning from the page to the peer group.

  HBS is so enamored with the case method of teaching and its cute spin on traditional education (we teach them how to think, not what to think) that the School has repeatedly taken their eye off the ball of the very obvious fact that what they think does matter. And it matters a lot. Not only that, but the claims that the case method is “superior” to other forms of learning are just that—claims. There is no way of telling whether a particular student in a particular academic milieu has learned as much as he or she might have learned by other means. At this point, HBS is asking the world to take it on faith that its claims are indeed true.

  45

  Monetizing It

  In its earliest days, Harvard Business School’s primary personnel problem was the same as at any unproven startup: how to convince talented people to come and work for it. Before long, however, that problem had been flipped on its head: how to convince talented people to stick around. While that’s a problem for any university, at HBS it came with a new wrinkle. It wasn’t just other schools that might poach its faculty, but the business world itself. And the business world paid a whole lot better than HBS did—or could. That problem was only compounded in later decades when the School’s graduates began pulling down salaries in their very f
irst jobs that exceeded—by a wide margin—those of the professors who had taught them.

  Under Wallace Donham, the School quickly landed on at least one solution to the siren song of corporate cash. HBS decided to allow its professors to engage in outside consulting work. While Donham did acknowledge that “such work lessens the risk that men will leave to take business opportunities,” he still couldn’t resist doing as HBS always does, which was to try to paint the decision in a more principled color, arguing that consulting allowed them to “correlate their training with practical everyday life in business” while also offering “an excellent opportunity for . . . personal development.”

  The question of whether it is appropriate for business school professors to engage in outside consulting work was settled long ago, at least as far as the academy is concerned. Every business school on the planet allows it. To argue that it should not be acceptable, at HBS or elsewhere, would be futile. One question that can be asked, however, is whether and by how much those corporate relationships influence the self-proclaimed “independence” of its research. Another is whether a line can be drawn between acceptable clients and unacceptable ones. And a third: whether the fact that HBS is swimming in an ocean of outside consulting fees has affected decisions not just at HBS but at Harvard University as well.

  Few people noticed—or cared—about outside consulting arrangements in the first half of the twentieth century. But by 1960, the take from outside work was beginning to dwarf professors’ salaries, and even Time magazine began to raise polite questions. In a December article that year titled “Where Are the Professors?,” the magazine pointed out that two-thirds of HBS’s 108-man faculty were engaged in outside consulting. Professor Paul Cherington chaired his own “science-management” firm, United Research Inc., and Professor Malcolm McNair was said to earn more than $40,000 a year advising retailers. Asked about the growing importance of outside earnings, Boston attorney Francis H. Burr, a member of the Harvard Corporation, was quoted as saying, “a lot of people are concerned and so are we.”1 If that was true, although it seems unlikely, they certainly didn’t do anything about it.

  In the late 1980s, the Ralph Nader–sponsored Harvard Watch found that academics held 202 board seats in the country’s 200 largest companies, nearly four times their representation in 1969. Professors and universities had become beholden to corporations, the group argued, and had lost their capacity for dispassionate analysis. At the time, full professors made about $100,000 a year at HBS, but they made multiples of that by consulting. What’s more, author David Ewing revealed that inside HBS, the unbalanced nature of professors’ total compensation wasn’t looked at with even the slightest bit of concern but as a point of pride. “Anytime that I don’t earn twice as much of my salary from outside work,” said one tenured professor, “something is wrong.”2 In the lingo of Wall Street, faculty at HBS were “monetizing” their positions, and anyone who wasn’t able to do so was looked down on with pity, as a failure.

  Those professors who manage to “monetize” on behalf of HBS itself are inevitably rewarded for their efforts. Consider the case of Thomas Piper (’62). After graduating, Piper spent eight years in the DBA program, and was made a full professor in 1977. Two years previous to that, he had met Richard Marriott (’65) at an alumni function. Marriott was a vice president at the hotel chain founded by his parents, and when the two hit it off, Piper was put on a consulting retainer for the company. The story of their close relationship is detailed by J. Paul Mark in The Empire Builders.

  Here’s how monetization happens: In addition to its hotel business, Marriott was in the food service business. Piper thought they would be a good candidate to overhaul the dining facilities in HBS’s Kresge Hall, which had been built in 1950 and were woefully out of date. A deal was struck in which HBS and Marriott shared the cost of renovation, in return for which Marriott would receive a food service contract for the dining hall, the faculty club, two snack bars, and all HBS functions. Valued at $4.5 million a year, the papers were signed in September 1981. Veteran food service workers at HBS were invited to join Marriott’s new operation, provided they renounced their union membership. (It was the Reagan era, after all.)

  Piper, who had been making multiple visits per month to the Bethesda, Maryland, headquarters of Marriott, decided that writing a case study on the company was the best way to write off the cost of those visits. This “field” research cost $35,000, and a brand-new case study landed on students’ desks in December 1981.3 Ostensibly a case about the wisdom of issuing debt in order to buy back shares, it was also a big wet kiss to the company’s management team, particularly the Marriott family.

  Just one month later, Piper was named to Marriott’s seven-member board, with compensation of $12,000 per year and $900 per meeting attended. In December 1983, Dean John McArthur named Piper a senior associate dean, and the first Industrial Bank of Japan Professor in June 1984.4 Piper sat on Marriott’s board for a decade, but resigned in 1992 in protest of what was clearly an ethically dubious move by management. In April and May of that year, the company had raised $400 million in investment-grade debt. Just five months later, it announced a plan to split the company in two, leaving all the debt in just one entity, effectively downgrading it to junk status, shafting the company’s debtors in favor of its shareholders.

  One of the School’s “experts” on ethics, as well as one of its most prolific case writers, Piper apparently saw no reason to update his case, even though his position on the company’s board—and decision to resign from it—provided an ideal opportunity to give an insider’s view of a challenging ethical situation. Perhaps he was too busy co-editing a book that came out the next year, Can Ethics Be Taught?

  If HBS professors generally refuse to talk about how much money they make on the side, they can still summon righteous anger when someone else does. When author J. Paul Mark’s 1987 book, The Empire Builders: Power, Money & Ethics Inside the Harvard Business School, was released, Dean John McArthur claimed it contained “hundreds of factual errors and fabricated events.” But there are court records behind accusations that Michael Porter lifted ideas from his own students when consulting for the National Football League. That gig, for which Porter’s Monitor Group was paid a mere $3,000, became a huge headache for Porter when he was drawn into the short-lived USFL’s antitrust lawsuit against the NFL, in which it accused the larger league of trying to drive it out of business. Much of the lawsuit hinged on a presentation Porter made to NFL executives in February 1984 regarding certain “strategies”—among them encouraging the unionization of the USFL so as to drive up player costs—that the USFL saw as evidence of collusion.

  When confronted with the suggestion that he was participating in that collusion, Porter couldn’t find enough ways to discount the value of his own work. “I just happened to get invited to give a speech, which I did, and did a moderate amount of tailoring of it to the football industry,”5 he said in a deposition. In other words, it was cookie-cutter consulting, not unlike the 25 or 30 other presentations he gave annually, although he admitted that he had at least tried to “modify” it for the football executives. It wasn’t a “strategy” he was offering, he insisted, despite the word frequently appearing in the presentation, but rather “a framework for analysis” containing not much more than a few “notions.”6

  But notions pay well, too. When HBS finance professor Robert Glauber accepted an appointment in President George H. W. Bush’s Treasury Department in 1989, he was required to disclose his personal finances. In 1988, Glauber’s noninvestment income was $874,445, of which a mere $120,000 was his salary from HBS. His consulting fees, on the other hand, were $515,750, for a broad range of clients that included Morgan Guaranty Trust, Aetna Life Insurance, Excel Insurance, Dreyfus funds, Dillon Read & Company, Circuit City Stores, Quantum Chemical, Avon Products, and Sunbelt Coca-Cola Bottling.7

  It doesn’t get more egregious, though, than the case of Rosabeth Moss Kanter, who has been e
xtolling the virtues of IBM for decades while being on the company’s payroll as a senior advisor at least part of the time.8 On the very first page of her 2009 book, SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good, she doesn’t hold back: “IBM is . . . among the progressive companies . . . that have achieved the seemingly impossible: high levels of business performance—innovation, growth and profit—and social good. They have mastered the tough challenge: building a resilient culture to flourish in turbulent times while leaving a positive mark on the world.”9 She was referring to a company that has laid off 159,000 of 230,000 American employees between the 1980s and 2015 in an effort to please shareholders above all else.

  In 2008, when IBM CEO Sam Palmisano proposed a technology-fueled economic recovery plan, there was Kanter, ready to talk about how excellent it all was. “What seems different and noteworthy about the IBM approach is its sweeping comprehensiveness and message,” she told a reporter. “Putting the pieces together under one inclusive and rather bold label can stimulate discussion and innovation.”10 In late 2014, when CEO Ginni Rometty was under fire for IBM being a laggard in cloud computing, there was the ever-helpful Kanter, letting the Financial Times know that it wasn’t Rometty’s fault: “She’s been working on getting more entrepreneurial hustle,” said Kanter. “But it’s hard for people inside such a big company.”11