The Golden Passport

by Duff McDonald

  (Valeant may ultimately prove the Waterloo of more than one HBS grad. In March 2016, Robert Goldfarb [’71] resigned from the Sequoia Fund in part due to losses in the stock.34 As Bloomberg’s Matt Levine pointed out, “[If] you wanted to create an imaginary company to illustrate the evils of shareholder value, you’d probably end up with something that looks a lot like Valeant. Tax inversion to Canada! Raising drug prices to exploit insurance! Cutting back on research and development! Lots of leverage! Financial engineering and occasionally aggressive accounting! It is a greatest-hits album of distasteful corporate choices.”35 At the 2016 annual meeting of Buffett’s Berkshire Hathaway, both Buffett and Charlie Munger laid in to Valeant, with Munger calling the company “a sewer.”)

  Some at Ackman’s alma mater disagree with his tactics, arguing that when companies are forced to spend so much time and resources defending against the likes of Ackman, it distracts them from the larger goal. “We need strong companies to compete in the global economy,” HBS professor Bill George told Bloomberg. “It’s not good for America; it’s not good for society.” The former CEO of Medtronic, Bill George comes from the CEO side of the HBS alumni equation, so it’s not surprising that he feels that way. But the blanket of moral certainty that covers all HBS alumni does not discriminate. Per the case method, Bill George is right and Bill Ackman is, too.

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  The Thorn in Their Side

  The list of Henry Mintzberg’s criticisms of the modern MBA is so long that to enumerate them in their entirety would fill a book. Mintzberg did so himself in a blistering critique of management education, 2004’s Managers Not MBAs: A Hard Look at the Soft Practice of Managing and Management Development. And he’s not afraid to name names: The McGill University professor of management saves his most pointed criticism for the Harvard Business School and the crown jewel of its pedagogical approach, the case method.

  To its credit, HBR has published many of those very criticisms. Indeed, Mintzberg staked out his claim that modern management education is misguided in a 1990 article in HBR, “The Manager’s Job: Folklore and Fact.” The piece garnered a flood of reprint requests and turned the relatively unknown Canadian professor of management into a force to be reckoned with. In a subsequent 1996 article in HBR titled “Musings on Management,” he suggested that the managerial world’s obsession with hierarchy had resulted in a distorted view of what a company actually is. “The only thing a chief executive sits atop is an organization chart,” he says. “And all that silly document does is demonstrate how mesmerized we are with the abstraction called management. The next time you look at one of these charts, cover the name of the organization and try to figure out what it actually does for a living. This most prominent of all corporate artifacts never gets down to real products and real services, let alone the people who deal with them every day. It’s as if the organization exists for the management.”1

  Instead, he proposed, we should picture the organization as a circle. “In the middle is the central management. And around the outer edges are those people who develop, produce, and deliver the products and services—the people with the knowledge of the daily operations. The latter see with complete clarity because they are closest to the action. But they do so only narrowly, for all they can see are their own little segments. The managers at the center see widely—all around the circle—but they don’t see clearly because they are distant from the operations. The trick, therefore, is to connect the two groups. And for that, most organizations need informed managers in between, people who can see the outer edge and then swing around and talk about it to those at the center. You know—the people we used to call middle managers, the ones who are mostly gone.”

  Mintzberg scoffs at HBS’s claim that its curriculum produces graduates with an unmatched capacity for strategizing. “We take young people with little business experience—hardly selected for their creativity, let alone their generosity—and drill them in case after case in which they play the great strategists sitting atop institutions they know nothing about,” he writes. “An hour or two the night before to read 20 pithy pages on Gargantuan Industries and its nuclear reactors and then off to 80 supercharged minutes in the classroom to decide what Gargantuan must do with itself into the next millennium. Is it any wonder that we end up with case studies in the executive suites—disguised as strategic thinking?” The problem, he argues, is the false notion of “experience,” one that echoes Peter Drucker’s remark, “Classrooms construct wonderful models of a non-world.” Says Mintzberg: “[It’s] superficial and disconnected. It’s somebody else’s world. You read twenty pages the night before and pronounce the next morning. Business schools using cases, like Harvard, train managers to be glib, that’s all.”2 In summary: “Business schools train people to sit in their offices and look for case studies. The more Harvard succeeds, the more business fails.”3

  Robert Chia, a professor of management at the University of Glasgow, agrees wholeheartedly. “The HBS case study approach is not what they think it is,” he says. “They have these case studies made up, twenty to twenty-five pages with detailed documentation with companies, circumstances, and so forth. Somebody who is a researcher has gone through the whole thing and drawn out all the seemingly pertinent information and this is provided for MBA students as a case study. It becomes a kind of problem solving education, because more or less the problems have been set out. What is missing from this in the approach is the need for the students themselves to actually make sense out of the ambiguity of real life circumstances. . . . We need to prepare managers for an ambiguous and uncertain and ever-changing world. And the most critical challenge is this: Before you solve the problem, you have to find the problem, and establish what is problematic.”4

  In a 2012 interview with the New York Times titled “The Anti-MBA,” Mintzberg called the business school–trained MBA “a menace to society,” and then placed the blame squarely for that menace on the case method. According to Mintzberg: “[The case method] gives you the ability to sound off on something you know nothing about.”5 Thankfully, he adds, “[w]hile Harvard itself maintains a rather strong commitment to case study teaching, it has few real clones left. Thirty years ago, a number of schools copied its every move; today few do.”6

  In a 2015 interview, Mintzberg repeated the same thing he’s been repeating for years. “The practice of management, as evidenced in a lot of big corporations and banks, is utterly dreadful,” he said. “Take Harvard, which has been running ads for its executive education programs, showing an executive-looking lady who is saying something like: ‘We studied four companies a day. This isn’t theory. This is experience.’ You’ve got to look at that and laugh. Four cases a day is experience? We do one case through the whole master’s degree [at McGill] and that’s based on your own situation and your experience. It’s extremely powerful. To do a case where everybody is shooting their mouth off about something they barely know, that’s not significant education.”7

  Mintzberg is a fervent detractor of almost everything that is sacred at HBS, starting with what you might call the cult of the measurable. Take efficiency. On first blush, it’s hard to argue with the notion of efficiency. Who wants to be inefficient? And you can be sure that HBS professors consider efficiency a value-free, neutral concept. But Mintzberg disagrees. For one, it favors that which can be measured over that which cannot. And because costs are usually easier to measure than benefits, he argues, the efficiency-obsessed manager ends up cutting measurable costs at the expense of less measurable benefits. What’s more, it favors the measurement of economic costs over other types of costs, including social ones, and the cutting of the former can often result in an escalation of the latter.

  Mintzberg points to a September 2011 Harvard Business Review article, “How to Solve the Cost Crisis in Health Care,” by two of HBS’s leading lights, Michael Porter and Robert S. Kaplan, to demonstrate his frustration. (Porter long ago graduated from solving management problems to solving everything.
) In the fourth paragraph of the piece, the authors state, unequivocally, “It is a well-known management axiom that what is not measured cannot be managed or improved.”8 Mintzberg’s take? “That’s an idiotic statement. The most interesting things about management don’t lend themselves to measurement at all. Including measurement itself. Whoever proved empirically that measurement pays?”9

  “Division chiefs—and headquarters controllers looking over their shoulders—get very fidgety about surprises and impatient for numerical results. And the best way to ensure quick, expected results is never to do anything interesting; always cut, never create. That is how the rationalization of costs has become to today’s manager what bloodletting was to the medieval physician: the cure for every illness. As a consequence of all this (de)centralizing and (de)layering, measurement has emerged as the religion of management. But how much sensible business behavior has been distorted as people have been pushed to meet the numbers instead of the customers?”10

  And don’t even get him started on “leadership.” In a 2004 HBR article, “Enough Leadership,” he put the lie to the claims of the leadership class. “Leadership. We all know what that is. It stimulates teamwork. Takes the long view. Builds trust. And more. Right? So let me ask you a few questions: If leadership is about stimulating teamwork, how are the stock options distributed in your company? If leadership is about taking the long view, how many of those stock options can be cashed in in the short run? If leadership is about building trust, if people really are your ‘greatest assets,’ how many of these assets have been shown the door in recent years? And how much trust has that engendered among those who remain?”11

  “What’s really quite remarkable about HBS is that they’re compounding the mistake,” he says. “HBS now says, ‘We don’t waste our time training managers, we train real leaders.’ Well, the most dangerous part about the MBA is that people think they’ve actually been trained to be managers. They haven’t. HBS is worse—they even pooh-pooh managers. That’s dangerous stuff. . . . I’m not saying that there aren’t lots of morally concerned, socially responsible faculty at HBS. I’m sure there are. The problem lies in the pedagogy and the people that they are educating. They’re not training them to manage whatsoever, and they’re putting them on a fast track they don’t deserve to be on.”12

  Recall that the Business Roundtable, back when Michael Jensen was king, suggested that “[t]he notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors. It is, moreover, an unworkable notion because it would leave the board with no criteria for resolving conflicts between the interest of stockholders and other stakeholders or among different groups of stakeholders.” Mintzberg: “No criteria indeed—except judgment! Some time between 1981 and 1998, by their own account, this collection of America’s most prominent CEOs lost their capacity for judgment. If you want to understand what has been underlying the economic crisis in America, here you have it in a nutshell: the judgment of its so-called leaders.”13

  Mintzberg advocates many solutions that are well within the grasp of the leadership class that has emerged from HBS but which it has failed to tackle.

  1.Stop undermining the sense of community necessary for an organization to operate effectively, starting with treating human beings as human beings, instead of firing them in great numbers when a company has not met performance targets but remains solidly profitable.

  2.Stop tolerating obscene compensation packages for CEOs, including retention bonuses, golden parachutes, and the like. “Any CEO who allows himself to be paid 400 or 500 times more than the workers is not a leader but an exploiter,” he says. “Of course, you can make a lot of money by being an exploiter.”14

  3.Stop overemphasizing individual “leadership” as if the CEO were some sort of hero. He or she is simply the most senior manager in a company made up of dozens, hundreds, if not thousands of people.

  4.Stop telling twenty-three-year-olds that they are America’s leaders. They’re not. They’re twenty-three-year-olds. “Management is not a profession, management is not a science,” he told HBR in 2009. “You can’t learn it the way you learn surgery or engineering. Management is a practice. And you learn management by practicing management. Experience is critically important.”15

  In 1996, Mintzberg called for closing down conventional MBA programs.16 A man of his word, Mintzberg stopped teaching traditional MBA students more than twenty-five years ago. Today he focuses on helping experienced managers build on that experience, part of his mandate running McGill’s International Masters in Practicing Management program as well as its International Masters in Health Leadership. It’s much more rooted in reality, he says, and you can handle topics such as ethical decision making the only way you should—with real people who know what real-life ethical conundrums are, not students who’ve never faced a truly confounding ethical decision in their lives.

  Short of closing down MBA programs altogether, Mintzberg argues, “MBA programs should be recognized for what they are, which is excellent training in management functions—great for finance and marketing, but not to manage. . . . Management is a practice where art, craft, and science meet. Craft is critically important because it’s experience-based; art is fundamental to doing new things because it’s creativity and insight-based; science is useful in the form of analysis, but we have very little scientific evidence about what works in management.”17

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  A Decade in Review: 1990–1999

  The 1990s were the same as the 1980s, but different. The period from 1982 to 1987 currently stands as the sixth-longest bull market in equities in U.S. history. The longest one came right after that, after a quick timeout to deal with a stock market crash. The next leg up lasted thirteen years. In that, the two decades are very much the same. The stock market boomed, and with it the wealth of HBS, its faculty, and many of its graduates.

  What changed was the language that we used to describe it. If the 1980s have been judged a selfish decade, the 1990s were going to be something different. They were going to be about change. Not only that, but the very language used to describe those changes was going to be changing too. And if you’re going to learn a new language, you’re probably going to have to read a book. That’s where HBS came in. With the launch of Harvard Business School Publishing in 1993, the School served notice that it was no longer simply in the business of teaching its own students. Henceforth, it would be educating the rest of us as well.

  What did they teach us? In One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy, Thomas Frank details just how much of the ideology of the “New Economy” was nothing more than snake oil, and the ways in which the likes of HBS helped sell it. In awe of the booming stock market, Americans swallowed the dubious notion that simply because we, too, could own stocks, then we were all in it together, even when faced with overwhelming evidence to the contrary. “[The] manager sets out to re-enchant the world,” writes Nigel Thrift in Knowing Capitalism. “The rational company man of the 1950s and 1960s, skilled in the highways and byways of bureaucracy, [became] the corporate social persona of the 1990s, skilled in the arts of social presentation and ‘change management.’ And the giant multidivisional corporation of the 1950s and 1960s [became] a ‘leaner,’ ‘networked,’ ‘post bureaucratic,’ ‘virtual,’ or even ‘poststructuralist’ organization, a looser form of business which can act like a net floating on an ocean, able to ride the swell and still go forward.”1

  But that oceangoing net didn’t have room for everybody. The wages of the average American worker had a historically strong connection to productivity—the former rising when the latter did—but in the 1990s that connection disappeared. Productivity grew at a rate not seen since the 1960s, and yet wages remained stagnant. So where did all the profit go? To shareholders, of course. “The booming stock market of the nineties did not democratize wealth,” observes Fra
nk. “It concentrated it.”2 Consider Dennis Kozlowski, the disgraced former chief of Tyco International. Kozlowski made $300 million in just his last four years at Tyco. What did HBS think of that? “I’d go to Harvard Business School and get a standing ovation when I was introduced as the highest-paid CEO in the country,”3 he told the New York Times in 2015.

  How did we miss the glaring contradiction at the heart of the decade? Again, it was the language—specifically, the language of empowerment and change. “[The] corporate anxiety to ‘change’ in accordance with some management theory or other could sometimes reach a truly remarkable pitch of desperation,”4 writes Frank. He points to the 1997 book The Individualized Corporation: A Fundamentally New Approach to Management, by former HBS professor Sumantra Ghoshal and current professor Christopher Bartlett as an example of the kind of organizational pathos that anxiety produced. “In the aftermath of a major restructuring, the new CEO embarked on a series of visioning retreats,” the professors wrote. “One outcome was a senior-management endorsed definition of the company’s core competencies that was then handed to a task force to recommend how they might be more effectively developed and managed. Meanwhile, the newly appointed chief knowledge officer launched an initiative to help the company become a more efficient learning organization. And in a separate but contemporaneous initiative, consultants were called in to help design a reengineering program.”5

  The polite way to describe that passage is that it contains too much jargon. But it’s also unfair to pick on Ghoshal and Bartlett. The entire how-to-be-a-better-manager genre requires that its authors use whatever mumbo jumbo is currently in vogue, and the 1990s were overrun with it. After all, you can only sell The Five Essential Truths About Business once. The next time you do so, they’ve got to be new and improved. The result, observes Frank, is that business schools have become nothing more than “processing plants for the faking of intellectual authority.”6