The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite, by Duff McDonald (HarperBusiness, £25)
On the Harvard Business School (HBS) website, for the modest outlay of $8.95, you can download a case study entitled The Royal Bank of Scotland: Masters of Integration. Co-authored in 2003 by Nitin Nohria, the current Dean of the School, it is larded with extravagant praise for the management team of the time. If you are prepared to double your money you can read a similarly enthusiastic companion piece about RBS’s human resources management system.
Somehow I doubt whether they are to be found on the current curriculum at Harvard, in spite of their eminent authorship. And I hope that they are not much downloaded by strategy professors at those many schools that adopt and adapt HBS material—except for use as cautionary tales of overreach. On that score, though, they are trumped by a breathlessly enthusiastic London Business School case from 2004 entitled RBS: The Strategy of Not Having a Strategy, which, it turns out, was the secret of the bank’s “success” at the time.
The journalist Duff McDonald, whose focus in his new book The Golden Passport is almost exclusively American, does not cite these examples. But he does attack “the case method” of teaching the art of management, pioneered and maintained for decades on the banks of the Charles River. As a moment spent reflecting on RBS shows, the lessons to be drawn from such cases can often look very different with the passage of time. He also points to the common practice of professors doing paid consulting work for the companies they study, and to other murky commercial links. At the time, RBS and Harvard were partners in a management education project in Edinburgh. These practices make objectivity hard to demonstrate.
That is just one of the many charges laid against the HBS in The Golden Passport. To call it a hatchet job does not do justice to the destructive glee with which McDonald sets about his task. The case study problem is a flesh wound compared to the dismemberment that follows. Hands, arms and legs are lopped off, and the necks of several Deans, especially the incumbent, are put on the block. Harvard is blamed for the excessive focus on quarterly results and shareholder value, for rising income inequality, for the financialisation of the United States’s economy, for extinguishing morality in business, for the global financial crisis and the Vietnam War. Of all the misfortunes to befall America in recent decades, only the dreadful cabin service on US airlines is not explicitly laid at Harvard’s hallowed door, though there is probably a case study about it somewhere.
Before parsing these arguments, and offering a view on their validity, I should declare an interest or two. I have not studied at HBS, graduating instead from Stanford Business School. Stanford and Harvard are the Oxford and Cambridge of US Business Schools, with the affection for each other that any self-respecting dog feels for the next door cat. Stanford does take a different view on the case method, but in other respects it is in essentially the same business 3,000 miles away, and a similar charge sheet could be prepared against it. There is enough mud flying for some of it to reach the West Coast. (One of my sons did in fact attend HBS, but obviously we are no longer on speaking terms as a result, so that potential conflict does not apply.)
McDonald advances some interesting and challenging points, which I’ll come back to, but as a polemic designed to convince the reader of his argument, it has to be regarded a failure, for four reasons. First, the tone is so relentlessly hostile, and the accusations so broad and at times absurd, that he is unlikely to convince anyone who is not predisposed to his view. I hold no brief for US Secretary of Defence Robert McNamara, but to say that his “approach to Vietnam had HBS written all over it” and that America’s spectacular misadventure was a repudiation of “the entire way of thinking on which they are based” begs a few questions. His assault on Michael Jensen, one of the fathers of modern finance theory (which is a target ripe for attack) ends with the claim that “he helped an entire generation of businesspeople lower its opinion of itself, and give in to its baser motives.” A more measured approach might have taken more prisoners.
He plods through the decades, listing the manifold sins and wickednesses of long-forgotten deans and professors. On p579 he unwisely observes: “If you’ve gotten this far in this book, you will realise that it’s extremely difficult not to be critical of the School.” I do not expect many companions to be still with him on p579, on this side of the Atlantic at least, to witness this glimmer of self-awareness.
Thirdly, he falls into the trap of many journalists who become obsessed with a target. He thinks HBS is far more important and interesting than it is. Curiously in this he does exactly what the School, and others, love to do. Academic institutions have a tendency to lay claim to all the success achieved by their graduates. Many people are well aware that their years at college were helpful, and sometimes formative, but the idea that for the next 40 years you are faithfully implementing what you were taught there flies in the face of reality. For McDonald, if you went to HBS everything you do thereafter is their fault, whether it is offering dodgy consultancy advice, or prosecuting a war. The fundraisers will love that assumption.
And fourthly, it is poorly written: 600 lively pages might be tolerable; 600 turgid ones are not. Sometimes it is quite hard to know what he is on about. So, “HBS will never escape articulating and propagating an ideology that buttresses the present socio-political situation until it articulates a more pertinent and relevant theory of the firm.” Or again: “Once we allowed them to sell us on the idea that dealing in abstractions is a suitable alternative to dealing with the real thing—which is the essence not just of the case method but of financialisation in general—the loss of purpose wasn’t far behind. And if you don’t have a deeper purpose, then you really need to pay attention to the numbers, or you won’t have anything to guide you. That’s when you become a networker.” I beg to disagree: that’s when someone should have reached for the editorial pencil.
But that is something of an aesthetic reaction to the book. What about the arguments?
His objections to case studies are somewhat confused. Sometimes he doesn’t like it because it is backward-looking, sometimes because of the small-time corruption involved. But then, as in the passage quoted above, it becomes “dealing in abstractions,” a point I do not understand. My Stanford-inspired prejudices tell me that case studies are a poor way of teaching accounting and finance, but a decent way into strategy. However, I cannot get worked up about it one way or another.
The argument that HBS and other comparable schools have created a cult of management, by constructing a broad discipline of general management and erecting a species of theoretical superstructure around it is more worthy of attention. It may be that it is a contributory factor to the remarkable growth in senior executives’ earnings in relation to the rest of the workforce. Analysts of inequality tend to look at other factors like technology and global competition, but there is something cosy about the way recent Harvard grads recruit the next generation of MBAs and convince them and themselves that they deserve a large uplift in salary just for having been there. The key element in Business School rankings is the premium between the earnings of entrants and their enhanced starting salary on graduation. That is, at the least, an unappetising way of measuring the added value of education. But it does allow the School to continue to push up its fees, by 31 per cent over five years, at a time of very low inflation.
McDonald also acknowledges that when the top dogs in US business were the CEOs of manufacturing companies, Harvard trained people for those jobs. There is an argument, which runs through the book, that HBS has been the prime mover in the promotion of the belief that shareholder value is the sole objective function for a public corporation. And, linked to that, Michael Jensen’s views on executive remuneration, promoting the use of stock options supposedly to align the interests of management and shareholders, are seen as having contributed to the explosion of executive pay.
I think the general point that, as a result, executive pay, especially in the US, has escalated beyond any reasonable comparison with economic contribution is well made. But I cannot see that HBS has had a unique role in that development. They can take their share of the blame, but there are plenty of others with a strong claim.
The most powerful academic critic of the way executives are rewarded, Lucian Bebchuk, is also a Harvard Professor, but at the Law School. One of McDonald’s most powerful points, which will resonate at Harvard and at other universities in the US and elsewhere, is that Business Schools have drifted away from their parent institutions. Their faculty are paid differently (and typically a lot more) and they have developed their own facilities in a way that cuts them off from others. That cannot be a healthy development. Management faculty can benefit from the challenge of other academics who are not primarily concerned about their next consulting assignment. That is increasingly rare in American Schools, and the trend is observable here too. The Oxford Business School is well away from the rest of the university, on the station approach, very handily placed for the train to London. The symbolism is clear.
It is a pity that The Golden Passport is not a better book. McDonald includes so many exaggerations and non-points that it will be easy for the targets to dismiss it, as Dean Nohria has already done (without reading it, he curiously acknowledged). There is a case for the prosecution to be made, but it needs a more forensic lawyer to make it.
On the Harvard Business School (HBS) website, for the modest outlay of $8.95, you can download a case study entitled The Royal Bank of Scotland: Masters of Integration. Co-authored in 2003 by Nitin Nohria, the current Dean of the School, it is larded with extravagant praise for the management team of the time. If you are prepared to double your money you can read a similarly enthusiastic companion piece about RBS’s human resources management system.
Somehow I doubt whether they are to be found on the current curriculum at Harvard, in spite of their eminent authorship. And I hope that they are not much downloaded by strategy professors at those many schools that adopt and adapt HBS material—except for use as cautionary tales of overreach. On that score, though, they are trumped by a breathlessly enthusiastic London Business School case from 2004 entitled RBS: The Strategy of Not Having a Strategy, which, it turns out, was the secret of the bank’s “success” at the time.
The journalist Duff McDonald, whose focus in his new book The Golden Passport is almost exclusively American, does not cite these examples. But he does attack “the case method” of teaching the art of management, pioneered and maintained for decades on the banks of the Charles River. As a moment spent reflecting on RBS shows, the lessons to be drawn from such cases can often look very different with the passage of time. He also points to the common practice of professors doing paid consulting work for the companies they study, and to other murky commercial links. At the time, RBS and Harvard were partners in a management education project in Edinburgh. These practices make objectivity hard to demonstrate.
That is just one of the many charges laid against the HBS in The Golden Passport. To call it a hatchet job does not do justice to the destructive glee with which McDonald sets about his task. The case study problem is a flesh wound compared to the dismemberment that follows. Hands, arms and legs are lopped off, and the necks of several Deans, especially the incumbent, are put on the block. Harvard is blamed for the excessive focus on quarterly results and shareholder value, for rising income inequality, for the financialisation of the United States’s economy, for extinguishing morality in business, for the global financial crisis and the Vietnam War. Of all the misfortunes to befall America in recent decades, only the dreadful cabin service on US airlines is not explicitly laid at Harvard’s hallowed door, though there is probably a case study about it somewhere.
Before parsing these arguments, and offering a view on their validity, I should declare an interest or two. I have not studied at HBS, graduating instead from Stanford Business School. Stanford and Harvard are the Oxford and Cambridge of US Business Schools, with the affection for each other that any self-respecting dog feels for the next door cat. Stanford does take a different view on the case method, but in other respects it is in essentially the same business 3,000 miles away, and a similar charge sheet could be prepared against it. There is enough mud flying for some of it to reach the West Coast. (One of my sons did in fact attend HBS, but obviously we are no longer on speaking terms as a result, so that potential conflict does not apply.)
McDonald advances some interesting and challenging points, which I’ll come back to, but as a polemic designed to convince the reader of his argument, it has to be regarded a failure, for four reasons. First, the tone is so relentlessly hostile, and the accusations so broad and at times absurd, that he is unlikely to convince anyone who is not predisposed to his view. I hold no brief for US Secretary of Defence Robert McNamara, but to say that his “approach to Vietnam had HBS written all over it” and that America’s spectacular misadventure was a repudiation of “the entire way of thinking on which they are based” begs a few questions. His assault on Michael Jensen, one of the fathers of modern finance theory (which is a target ripe for attack) ends with the claim that “he helped an entire generation of businesspeople lower its opinion of itself, and give in to its baser motives.” A more measured approach might have taken more prisoners.
"For Mcdonald, if you went to HBS everything you do afterwards is their fault, whether it is offering dodgy advice or prosecuting a war"Secondly, it has all the hallmarks of being a cuttings job. He has had no access to the current leadership (though not for want of trying) and the book is padded with unoriginal stories of celebrated missteps by alumni. The cases of Rajat Gupta of McKinsey and then Goldman Sachs, and Jeff Skilling of McKinsey and Enron, are covered, but nothing original is added. (McDonald is also the author of The Firm: The Inside Story of McKinsey.)
He plods through the decades, listing the manifold sins and wickednesses of long-forgotten deans and professors. On p579 he unwisely observes: “If you’ve gotten this far in this book, you will realise that it’s extremely difficult not to be critical of the School.” I do not expect many companions to be still with him on p579, on this side of the Atlantic at least, to witness this glimmer of self-awareness.
Thirdly, he falls into the trap of many journalists who become obsessed with a target. He thinks HBS is far more important and interesting than it is. Curiously in this he does exactly what the School, and others, love to do. Academic institutions have a tendency to lay claim to all the success achieved by their graduates. Many people are well aware that their years at college were helpful, and sometimes formative, but the idea that for the next 40 years you are faithfully implementing what you were taught there flies in the face of reality. For McDonald, if you went to HBS everything you do thereafter is their fault, whether it is offering dodgy consultancy advice, or prosecuting a war. The fundraisers will love that assumption.
And fourthly, it is poorly written: 600 lively pages might be tolerable; 600 turgid ones are not. Sometimes it is quite hard to know what he is on about. So, “HBS will never escape articulating and propagating an ideology that buttresses the present socio-political situation until it articulates a more pertinent and relevant theory of the firm.” Or again: “Once we allowed them to sell us on the idea that dealing in abstractions is a suitable alternative to dealing with the real thing—which is the essence not just of the case method but of financialisation in general—the loss of purpose wasn’t far behind. And if you don’t have a deeper purpose, then you really need to pay attention to the numbers, or you won’t have anything to guide you. That’s when you become a networker.” I beg to disagree: that’s when someone should have reached for the editorial pencil.
But that is something of an aesthetic reaction to the book. What about the arguments?
His objections to case studies are somewhat confused. Sometimes he doesn’t like it because it is backward-looking, sometimes because of the small-time corruption involved. But then, as in the passage quoted above, it becomes “dealing in abstractions,” a point I do not understand. My Stanford-inspired prejudices tell me that case studies are a poor way of teaching accounting and finance, but a decent way into strategy. However, I cannot get worked up about it one way or another.
The argument that HBS and other comparable schools have created a cult of management, by constructing a broad discipline of general management and erecting a species of theoretical superstructure around it is more worthy of attention. It may be that it is a contributory factor to the remarkable growth in senior executives’ earnings in relation to the rest of the workforce. Analysts of inequality tend to look at other factors like technology and global competition, but there is something cosy about the way recent Harvard grads recruit the next generation of MBAs and convince them and themselves that they deserve a large uplift in salary just for having been there. The key element in Business School rankings is the premium between the earnings of entrants and their enhanced starting salary on graduation. That is, at the least, an unappetising way of measuring the added value of education. But it does allow the School to continue to push up its fees, by 31 per cent over five years, at a time of very low inflation.
"There is something cosy about the way recent Harvard grads recruit the next generation of MBAs"Can one go beyond that and show that HBS has also contributed to the financialisation of the US economy, and then to the financial crisis itself? It is certainly true that Harvard graduates were all over the institutions that ran into trouble. But so were other people. It is also the case that more and more alumni have gone to Wall Street. In a clunky passage McDonald tries to explain why. “The reason isn’t quite so simple as the money, although that’s the reason. It’s about prestige, and the types of success that garner it in America.”
McDonald also acknowledges that when the top dogs in US business were the CEOs of manufacturing companies, Harvard trained people for those jobs. There is an argument, which runs through the book, that HBS has been the prime mover in the promotion of the belief that shareholder value is the sole objective function for a public corporation. And, linked to that, Michael Jensen’s views on executive remuneration, promoting the use of stock options supposedly to align the interests of management and shareholders, are seen as having contributed to the explosion of executive pay.
I think the general point that, as a result, executive pay, especially in the US, has escalated beyond any reasonable comparison with economic contribution is well made. But I cannot see that HBS has had a unique role in that development. They can take their share of the blame, but there are plenty of others with a strong claim.
The most powerful academic critic of the way executives are rewarded, Lucian Bebchuk, is also a Harvard Professor, but at the Law School. One of McDonald’s most powerful points, which will resonate at Harvard and at other universities in the US and elsewhere, is that Business Schools have drifted away from their parent institutions. Their faculty are paid differently (and typically a lot more) and they have developed their own facilities in a way that cuts them off from others. That cannot be a healthy development. Management faculty can benefit from the challenge of other academics who are not primarily concerned about their next consulting assignment. That is increasingly rare in American Schools, and the trend is observable here too. The Oxford Business School is well away from the rest of the university, on the station approach, very handily placed for the train to London. The symbolism is clear.
It is a pity that The Golden Passport is not a better book. McDonald includes so many exaggerations and non-points that it will be easy for the targets to dismiss it, as Dean Nohria has already done (without reading it, he curiously acknowledged). There is a case for the prosecution to be made, but it needs a more forensic lawyer to make it.
