Dedication
For Pat and Caroline,
the two mothers whose efforts mean the most to me.
Contents
Cover
Title Page
Dedication
Introduction
1. The Experimenters: Charles Eliot and Abbott Lawrence Lowell
2. A Search for Mission and Method: Edwin Gay
3. The “Scientist”: Frederick W. Taylor
4. The First Decade: 1910–1919
5. The Case for the Case Method
6. The Idealist: Wallace Brett Donham
7. The Benefactors: George Baker, Sr. and Jr.
8. Doctor Who? Elton Mayo
9. A Decade in Review: 1920–1929
10. The First Broadside: Abraham Flexner
11. Friends in High Places
12. The Marriage of Moral Authority and Managerial Control
13. The Venture Capitalist: Georges Doriot
14. A Decade in Review: 1930–1939
15. The West Point of Capitalism
16. The Darling of the Business Elite: Donald David
17. From the “Retreads” to the Crème de la Crème
18. Temporary Support of the Workingman
19. The Class the Dollars Fell On: The ’49ers
20. A Decade in Review: 1940–1949
21. Organization Man and the Corporate Cocoon
22. The Power Elite
23. The Hidden Hand
24. The Specialists: Robert Schlaifer and Howard Raiffa
25. The Philanthropist: Henry Ford II
26. Spreading the Gospel
27. Gentlemen (and a Few Ladies)
28. The Legitimizer: Alfred Chandler
29. A Decade in Review: 1950–1959
30. Peak Influence
31. The Good, the Bad, and the Ugly
32. The Case Against the Case Method
33. A Decade in Review: 1960–1969
34. The Myth of the Well-Educated Manager
35. Harvard Business Review: Origins, Heyday, and Scandal
36. Can Leaders Be Manufactured?
37. Can Entrepreneurship Be Learned?
38. The Second Broadside: Derek Bok
39. Managing Our Way to Economic Decline
40. A Decade in Review: 1970–1979
41. The Subversive Nature of a Social Conscience
42. The Murder of Managerialism
43. Managerialism Was Already Dead
44. The Kindergarten Class Play
45. Monetizing It
46. The Monopolist: Michael Porter
47. Self-Interest, with a Side Dish of Ethics
48. Life Out of Balance
49. A Decade in Review: 1980–1989
50. The Money Mill
51. The Thorn in Their Side
52. A Decade in Review: 1990–1999
53. The Microsoft of Business Schools
54. The Men Who Would Be President
55. The Shame: Jeff Skilling
56. The High Art of Self-Congratulation
57. The Loyalty Program
58. The CEO Pay Gap
59. A Decade in Review: 2000–2009
60. The Next Generation
61. Nitin Nohria for President
Epilogue: Can HBS Lead the Way Forward?
Author’s Note
Notes
Index
About the Author
Also by Duff McDonald
Credits
Copyright
About the Publisher
Introduction
Casey Gerald stood at the podium during Harvard Business School’s 2014 Class Day and gave what one commentator later referred to as “the most stirring speech ever by an MBA.”1 Gerald, the student speaker for his graduating class, recalled how he’d come to the world’s best-known business school in Boston, Massachusetts, with the simple goal of getting his MBA and using it the way the New York Times described it in 1978: as a “golden passport” to the good life. But here he was, on the cusp of graduation, and he’d concluded that the good life could wait. Unlike so many of his peers, Gerald wasn’t taking a job at a private equity firm for $175,000 a year. Instead, he and three classmates were launching a nonprofit startup called MBAs Across America, with the aim of putting energetic and idealistic MBAs such as themselves together with mission-driven businesses across the United States.
His final words were a rousing ratification of HBS’s claim to “educate leaders who make a difference in the world.” An impassioned Gerald beseeched his classmates, “In your hands, as well as mine, lies the hope for a new generation of business leaders in which each of us becomes a pioneer, in which each of us decides to travel unknown roads in search of unsolved challenges, in which each of us commits our time and talent not just to the treasures of today but to the frontier of tomorrow, where new dreams and new hopes and new possibilities are waiting for us to pull them from the darkness. Yes, we have more work to do. . . . Hard work, frightening work, uncertain work, unending work, work that may test us, work that may defeat us . . . but work on which the whole world depends. The time is short and the odds are long, but I believe that we are ready nonetheless. With the love of those who raised us, with the lessons of those who taught us, with the strength of those who stand beside us as we face what lies ahead, I say, let us begin.”
The eighteen-minute speech has been viewed more than 200,000 times—certifiably viral, at least as far as business school Class Day videos are concerned. It was also timely, at least as far as HBS was concerned. Long regarded with reverence and skepticism in equal measure, in 2014 the School was in need of a love poem like the one Gerald had just written to it. In the wake of the 2008 financial crisis, it had endured the latest of its periodic raking over the coals in the media, which had specifically accused it of grooming the kinds of behaviors that had brought the global economy to the brink. And suddenly here was Gerald, who had entered HBS with an eye on his own wants but had emerged with an eye on others’ needs. He is a handsome man reeking of “leadership qualities,” and his face quickly found its way onto both the cover of Fast Company magazine and HBS fundraising posters. He became a poster boy—literally—for the idea that capitalism really can be a force for good.
“Products” like Casey Gerald (it is a business school, after all) allow Harvard Business School to claim with a straight face that it is developing leaders who will make a difference in the world. It can look its naysayers in the eye and say that it isn’t just about the money. It can trumpet its dedication to diversity, too. Gerald’s ambitions were made even more remarkable—and marketable by HBS—given his personal narrative: an African-American who was raised by his grandmother in the down-at-its-heels Dallas neighborhood of Oak Cliff. (Sure, he had arrived at HBS via Yale, but the point still stands—he isn’t the typical Harvard MBA, at least not the type that exists in the public imagination.) And it can assert that it is delivering on a self-imposed mandate that it has doggedly reiterated over the years, one that was expressed by its dean in the early 1930s as follows: “In training a student for [a career] in business, this School has aimed to stress in all its work the responsibility of business to the community as a whole.”2
Less publicly, it can also take pride in the fact that Casey Gerald’s speech was convincing. Because that’s another thing that Harvard Business School sells: a form of rhetoric. Watch the speech and you’ll find it hard not to root for Gerald. You might even be ready to believe that the place does impart more than just the secret password to the club of the chosen—things like values and a social conscience. It’s not really up for debate whether HBS grads are highly likely to end up both comically wealthy and immensely powerful. But the example of Casey Gera
ld can be put forth as living proof that they really do intend to use that power for the good of us all.
And yet.
And yet, talk to Casey Gerald a few years later, and he’ll tell you that if that’s the message you took away from his speech, then you are mistaken. Yes, he says, there are many people at HBS, both students and faculty, who truly put the interests of others ahead of—or at least on par with—their own, but they’re still a distinct minority at the school.
“If all you do at HBS for two years is spend two hours on every case and try to answer the discussion questions—taking an off-the-rack approach—it’s not going to change your life,” he tells me over a coffee in Brooklyn in early 2015. “For a whole semester, for example, the school is basically bought and paid for by the consulting firms. You can’t go to lunch without seeing someone from Bain, Boston Consulting Group, or McKinsey. It’s not a bad thing to work in consulting or finance, but it’s a terrible thing to tell eighteen hundred people who are purportedly the brightest minds of their generation that they only have two careers to choose from. In fact, it’s unconscionably unimaginative.”
I ask him whether he’s concerned about accusations of heresy, whether he’s at risk of being run out of the vaunted HBS network—the more than 76,000 living alumni in 167 countries around the world, quite likely the most powerful and active alumni organization that has ever existed. We’re meeting in Brooklyn, after all, because MBAs Across America is working out of the nearby offices of Tough Mudder, which was founded by fellow HBS alumni. Not in the slightest. “It’s like what James Baldwin said about America,” says Gerald. “He said, ‘I love America more than any other country in this world, and, exactly for this reason, I insist on the right to criticize her perpetually.’ I feel the very same way about Harvard Business School.
“What I think HBS does, and does very well,” says Gerald, “is train people to, in situations of ambiguity, to take imperfect information, uncertain outcomes, and tight deadlines and figure out what to do in the most effective, efficient, and powerful way. But the tragedy of the Business School is that you can use that ability to do two things at once, to build great companies and destroy the planet in the process. Or its people. Robert S. McNamara was an HBS alum. He helped turn around Ford Motor Company, and then went on to wreak destruction in Vietnam. We have to have a conversation about which one we’re doing—and why we should be doing one and not the other. There’s nothing ambiguous about it.”
Debates like this, Gerald points out, don’t happen that often at Harvard Business School, even if they do raise, and ought to raise, fundamental questions about what institutions like HBS are actually good for and good at. An example: Should the role of a professional school extend to taking responsibility for its graduates’ spiritual life? On the one hand, their incoming students are adults when they arrive. On the other, if they came in fully made, they wouldn’t need to pay $250,000 for a two-year “education.” They are, by nature, risk-averse. And they need guidance. “In a way, it’s therapy,” says Gerald. “You don’t bring people into therapy and then tell them to figure it out on their own.”
If there’s a case to be made that HBS is failing to adequately address the spiritual component of an education in business, there’s an even more damning one on top of that, which is that the school has failed to sustain engagement with the intellectual challenge that’s been staring it in the face from the very start, which is to foster a meaningful ongoing discussion of the nature of capitalist society and the role of the firm within it. Consider the school’s approach to the concept of “social enterprise”: It misses the point entirely by treating it as a distinct field of study. That’s absurd. Every business is a social enterprise—there has never been a socially neutral business in the history of the world. And every single business “makes a difference”—the only question is whether they’re making a positive or a negative one.
There’s no question that the school got off to a promising start, sustained by the vision of a few singular individuals. People like Wallace Donham, the school’s second dean, realized that the intellectual purpose of a business school should be to do what economists had not, which was to develop a viable “theory of the firm.” Most economists don’t bother with what happens inside actual companies; they simply assume that all managers are rational beings. But we’re not. And that was the opportunity for the likes of HBS, to create an empirically, philosophically, and morally defensible understanding of how we act—and how we should act—when we engage in business. And for a time, they seemed to have landed on one, which was a judgment-based theory of general management developed through the school’s lauded case method. More than any other business school, HBS regarded the judgment of managers as central to the running of a business.
And then they pretty much walked away from it all. Around the time of its seventy-fifth anniversary, in 1984, HBS abdicated any meaningful pursuit of that task, although it had by that point already ceded crucial intellectual ground first to those who sought to turn management into a computational exercise and later to neoliberal economists, who view managers as nothing more than high-priced whores. The moment of peak paradox for HBS came when it hired the economist Michael Jensen in 1985. His ideologically driven hijacking of the study of finance served as a cynical repudiation of everything that had come before him at the school.
How did it happen? The way it always does: The money got too good. The Harvard Business School became (and remains) so intoxicated with its own importance that it blithely assumed away one of the most important questions it could ask, which was whether the capitalist system it was uniquely positioned to help improve was designed properly for the long term. Today, in 2016, with economic inequality at a hundred-year high and meaningful progress on climate change and other social and environmental issues embarrassingly paltry, the answer to that question is obvious. It is not. That a single French economist, Thomas Piketty, has done more in the last decade to focus the world on the first of those issues—inequality—than the entire faculty of the wealthiest business school on the planet is as concise an indictment of the institution as one could ask for.
Equally embarrassing is the scant contribution HBS has made toward resolving a problem that they helped create, and which lies at the heart of America’s inability to effectively address those social and environmental challenges—an unnecessarily antagonistic relationship between business and government that eclipses that of the majority of industrialized countries on the planet. It’s not as if they don’t understand the problem, either. At the very least, their more enlightened alumni do. Consider the case of Carter Bales (’65).
Bales worked at McKinsey & Company for thirty-three years, including two years as the firm’s recruiting officer at HBS. During that time he also served as acting assistant budget director for the City of New York, where he led the development of New York City’s air pollution, solid waste management, and water supply programs. He has served on the boards of a number of environmental organizations, including the North Shore Land Alliance, Grand Canyon Trust, Adirondack Nature Conservancy, Center for Market Innovation at the Natural Resources Defense Council, and advisory council to Resources for the Future. He was vice chairman of the board of governors of the Nature Conservancy and chairman of the board of trustees of the Nature Conservancy of New York, too. So the man has environmental bona fides.
In 2009, Bales cofounded NewWorld Capital Group, an investment firm focused on environmental opportunities, with special focus on clean energy, energy efficiency, water resources and reclamation, waste-to-value, and environmental services. He is among those who reject “shareholder capitalism” in favor of “stakeholder” capitalism, with the environment itself one of those stakeholders, as he sees no trade-off in seeking maximum economic returns from investing while also enjoying what he calls “free rider” societal co-benefits. This is not an academic issue: A recent report sponsored by the United Nations Environment Programme found that if externali
zed costs are taken into account, none of the world’s largest industries are actually profitable.3 Their shareholders, in other words, are living off the future.
Bales credits HBS with providing him with a durable network of influential contacts, as well as having a profound influence on the way that he thinks. Specifically, he credits the case method for its power in teaching him how to frame problems, how to find side ways and crab walks into problems. “Most academics seek insights, but leaders seek outcomes,” he says. “The case method helps you to understand the relative importance of problems, the interconnectedness of problems, how to characterize a desired outcome, and how to marshal resources to get things done.”
What he can’t credit HBS with is giving him any sense of the limits of capitalism, and how a country like the United States can operate within those limits so as to prevent it from driving itself into a profitable gutter. The problem at the heart of the HBS curriculum, he believes, is its historical failure to develop a sympathetic view of the right and proper role of government in the economy. “To separate business with a bright line from the policy structure, the regulatory structure, the incentive structure that business lives within, which is frankly dictated by politics, policy, and government, is very incomplete,” he says. “The Kennedy School has a lot of people who go work for NGOs. But I bet if you look at the top thousand or so federal government employees, none of them will have gone to HBS.”
It is that lack of a dialogue, he thinks, that has gotten the nation into the environmental fix that it is in. “Businesspeople respond to incentives,” he says. “They don’t break new paths. Why have we gotten nowhere on climate change in this country? Because corporations have no incentive to change. To speak to their heart is bullshit. Quarterly capitalism is the ruling reality. If you’re going to change business, you are not going to do it by jawboning. The only thing that works is incentives. And the only people that can really engineer incentives are government. And look where we are with that: Currently, state, local, and the federal governments provide billions of dollars of incentives to the hydrocarbon industries that will, in the end, destroy the world. Incentives for renewables? Almost nothing. Here’s a case of government being successfully operated by business. The claim that we live in a free market is a crock. What we have is free subsidies and implicit unstated monopolies and collaborative action in oligopolistic situations. It’s heading us toward a cliff with respect to hydrocarbon energy.” In an essay he wrote describing the mandate of NewWorld, “Impact Investing: Trading Up, Not Trading Off,” Bales concludes: “Without changing the behavior of Corporate America, there is little prospect of curing certain environmental problems and many other societal ills.”
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