The ‘Barbarian’ At Harvard Business School’s Gate  

From the very beginning, the Harvard Business School (HBS) treated Duff McDonald as a barbarian at the gate. A veteran journalist and author, McDonald first approached the school about cooperating with him on a book in late February of 2013. But the guardians of HBS’ history, myths and truths quickly slammed the door shut, preventing access to all administrators, staff and faculty, even the school’s own historical archives.

The school, says McDonald, rebuffed at least a half dozen requests for cooperation, though the author was able to visit the Harvard Business School campus on four occasions. Now, more than three years later, McDonald’s The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite will be published by Harper Business on 25 April. As the lengthy title suggests, HBS stakeholders aren’t likely to enjoy what they will read in the book’s formidable 672 pages.

McDonald’s conclusion is that the Harvard Business School has abysmally failed the goal of its founders who sought “the multiplication of men who will handle their current business problems in socially constructive ways.” While HBS graduates tend to be very good at whatever they do, McDonald claims, that is rarely the doing of good.

Readers will ‘come away with a stench of affluent decadence’

Instead, believes the author who spent two and one-half years reporting and writing The Golden Passport, HBS is an institution that promotes money, greed and immorality above society’s needs, a school whose teachings are complicit in the moral failings of Western capitalism. It is the most critical work on HBS since the publication of the New York Times’ bestseller Ahead of the Curve by Philip Delves Broughton who chronicled his two-year experience as an MBA at the school.

Among those who offer up promotional blurbs is none other than consumer advocate and anti-capitalist Ralph Nader. After reading the book, Nader came away with this assessment: “HBS, while alert to shaping the latest management techniques, is largely indifferent to the ongoing corporate crime wave and other criminogenic behaviour and externalities corrosive of fundamental civic values and economic equities. Readers can bury their noses in this prodigious tome and come away with a stench of affluent decadence.”

Unlike Ahead of the Curve, The Golden Passport is more a history of the school and its influence than it is an immersion in the HBS student experience. The early reviews praise the book for being a massively detailed history of Harvard Business School since its founding in 1908. “Exploring how Harvard Business School became a ticket to the highest echelons of money, power, and influence,” writes a reviewer for Publishers Weekly, “McDonald chronicles the school’s history in an irreverent, cynical, and frequently funny expose of its pretensions…refreshingly substitutes skepticism for reverence, questioning the limits of business education and of capitalism in general.” On the other hand, another critic at Kirkus Reviews called the book “a tome that alternates between a useful expose and a slog — best for HBS alumni and business historians.”

Why does Michael Jensen still have a job?

What most troubles the author is what he perceives as the unwillingness of the school to address economic inequality in teaching MBAs or to emphasise the greater social responsibility of a business. McDonald, who had written a history of McKinsey & Co. before this latest project, reserves some of his harshest criticism for former Dean John McArthur, who led the school from 1980 to 1995, and tenured finance professor Michael Jensen, who retired from HBS’ active faculty in 2000.

In the book and an excerpt in Newsweek, he assaults McArthur for his decision to hire Jensen from the University of Rochester, where he already had held an endowed chair, and he condemns the professor for his unbridled promotion of the idea that companies should be run to achieve maximum shareholder value, with little regard for its responsibilties to employees, customers or community. “In the 1980s, HBS had abandoned its mission of trying to educate an enlightened managerial class,” writes McDonald. “Instead, it threw its lot in with Wall Street as it was dismantling the edifice of American industry HBS had helped build. HBS had nurtured the professional manager from his birth and then helped to kill him.”

At one point, McDonald openly wonders why Jensen, who earned both his MBA and PhD at the University of Chicago and joined the full-time faculty at HBS in 1985, ever had a job. A course developed by Jensen — The Coordination and Control of Markets and Organisations — was designed “to make students more ‘tough-minded’ and shift them from the ‘stakeholder model’ of organizational purpose,” writes the author. It became one of the most popular electives at the school. All of this had, in McDonald’s view, a profound impact on management thinking. He points out that recent studies by the Aspen Institute show that when students enter business school, they believe that the purpose of a corporation is to produce goods and services for the benefit of society. When they graduate, they believe that it is to maximise shareholder value.

“What did Michael Jensen achieve, in the end?” asks McDonald. “He helped a generation of businesspeople lower its opinion of itself and give in to its baser motives. For all his economic equations and insistence on the testability and refutability of the logic of his opinion — and it was just that, an opinion — he released CEOs, institutional investors and Wall Streeters from the obligation of considering anything but their own narrow wants and needs.”

‘Dean McAruther thought that hiring Jensen would bring in donations from Wall Street’

He notes that when William Lazonick, now a professor of economics at the University of Massachusetts, publicly challenged Jensen’s ideas, sparks flew. “Jensen was king of the hill, and he objected to me…daring to question him,” Lazonick told McDonald. “He was livid that he had been set up in front of all his colleagues to be critiqued by an outsider. He told [HBS professor Thomas] McCraw not to invite me back, and I wasn’t…for another 17 years. Have no doubt about it, the most powerful man at HBS in the early 1990s was Michael Jensen….

“Almost immediately after they hired [Jensen], shareholder value ideology quickly took a dominant position at HBS, even though, from their own experience, the vast majority of faculty members did not believe it. But there was absolutely zero critique. Even from those who should have known better…there wasn’t a peep. It’s quite sad. Both [Harvard President] Derek Bok and [HBS Dean] John McArthur should have known better, but they went out of their way to recruit Jensen,” says Lazonick. “I asked a member of the faculty who is actually still there about it, and he said that McArthur thought that’s where the money was, and hiring Jensen would bring in donations from Wall Street.”

McDonald certainly wasn’t predisposed to this view. He earned his undergraduate degree in finance at the University of Pennsylvania’s Wharton School and was then recruited to Goldman Sachs, quitting after a two-year stint to become a full-time journalist.

In an interview with Poets&Quants, McDonald explains how his book came about and how he came to some highly provocative conclusions about the impact —both good and bad — that Harvard Business School has had on business and society.

So why did you decide to write about the Harvard Business School?

I was having dinner with someone when The Firm (his book on McKinsey & Co.) came out and I said to him, ‘I don’t know what to do next.’ He said, ‘Isn’t it obvious?’ And I replied, ‘Not to me.’ He looked at me and said, ‘Harvard Business School. Close the circle.’ When I heard it, it instantly made sense to me. I don’t think there could have been any book that I would have been more ready to write than this one given the previous two books. It was all cumulative.

But why now?

One of the things that people miss in their discussion of Donald Trump is it gets centered on the crazy stuff. The reason the electorate was open to taking a flyer on such an outlier of a candidate was because of the handling of the economy by the people that had been charge of it. I’m talking about MBAs. HBS played a huge role in getting us to where we are today.

Were you surprised that HBS decided not to cooperate with you?

When I sold the book to Harper Collins in late 2013, I told them that we could do it with or without the school’s cooperation. It didn’t matter. It’s a worthwhile project, either way. I put the first feelers out to HBS in late February of 2014 and set up a meeting on campus about six weeks later. It did not give me a whole lot of optimism. I also wrote a letter to the dean, but he didn’t respond to it.

When I came up to campus, they were fairly curt with me. And the reason wasn’t a mystery: Jodi Kantor’s piece in the New York Times on gender equity had come out in late 2013 and they were still stinging from that clearly. I think they were wary of any outside inquiries. We talked about my idea for the book and I said I would approach it the same way as The Firm, nominally as a history of school but also as a broader look on the impact and influence of the MBA in general. Overall, the discussion gave me the sense that the odds weren’t great. For one, they asked me to write another letter to the dean. I asked them what they thought I should put in it that I hadn’t already said in the first one. But the face was, they felt betrayed by Jodi Kantor. I told them to contact McKinsey to see if they felt the same way after they decided to cooperate with me. After that, it took another six weeks to get them to decide, and they finally said we decided no, we are not talking to you at all.

Did anyone at HBS explain the reason for that decision?

Not really. I got a sense that their experience with Jodi Kantor had left such a bad taste in their mouth and that whatever it was they concluded about me didn’t sway them back into a more welcoming attitude.

Duff, what was your original intent with the book?

When I started I was under the mistaken impression that business schools had a philosophical point of view around capitalism. I had no idea what it might be but I was operating under the impression that business schools would have explicit views around around capitalism, similar to the different schools of economics. So when I started I actually thought the first thing I would do was wrap my arms around that. I came to the belated realisation that is wasn’t the case – they all just sort of assumed capitalism, without too much question about it and had simply moved on to the question of how to optimize one’s own place in it.

Ultimately, what I was looking for — just like with McKinsey — was that HBS was a foundational and influential institution in modern management and business education. My question to myself was what is the nature of that influence? I had some people say it would have been better if you started your book where you end your book, that it’s today’s influence that matters, but I love the history of it all.. I was more fascinated with how this changed over time. My ultimate goal was to speak to a lay reader. I’m sure business historians or people involved in the business school world may or may not find something in here that is interesting. But I wanted to speak to my mother or a friend who didn’t go to business school and doesn’t read The Wall Street Journal.

And what were your big impressions as you began to research the book?

I did not know the extent of the military connection with HBS, in particular how the school helped the US in World War Two. While it wasn’t surprising in the sense that I never would have believed it, I had never been exposed to the idea. The fact that HBS played a significant role was news to me. That was one thing.

The other thing I didn’t realise was just how complete and total the school’s embrace of the case method really is. I went to Wharton as an undergraduate with a specialty in finance so the bulk of my business courses were in finance and were about allocation models and discounted cash flows. While I know you learn those as well at Harvard, I knew the case method was their differentiator. But I had no idea how complete and important the school’s embrace of that method was to both itself and its teaching and also the way its graduates go about making their way into the world. I had simply assumed it was just another way of being taught something in school. I had no idea of how deep and important the case method was to everything about the place. That was a revelation.

And I’m sure you are aware of the past criticism of the case method, often heard from Canadian academic Henry Mintzberg.

Yes, Mintzberg thinks it is absurd. But I interviewed two dozen of the most prominent currently sitting CEOs in the world today, including Stephen Schwarzman (of the Blackstone Group) and Jaime Dimon (of JPMorgan Chase). To a man, they gave the case study method credit for the way they think. It definitely leaves an imprint and a very positive one. They all talk about how it increased the effectiveness of problem solving in a way that sets them apart from others.

I never sat through a case teaching class. It sounds far more interesting than a typical lecture, but I also think it has a bunch of downsides to it. One is a positive bias because they (HBS) let the subjects of cases tell the story they want to be told. And there is a selection bias as well and there is a risk of the cult of the CEO. There are some money issues there, too. The school is dependent on corporate donations to support the case research process itself. You can get yourself into a tangle there about what money can do. While I admire the idea of insisting that students understand that it’s not about what your answer is, it’s about how well thought out and articulated your answer is, that leaves you open to an immoral underbelly to your teachings. The leap from there is not the ‘right answer’ in the class – which is used to encourage students to speak and not be terrified. It can make people blind to the fact that in many life situations some answers are absolutely more right than others.

Many readers will think you have written a negative book about HBS. Have you?

Is this a critical book about HBS? Sure. But am I anti-business school? No. Am I anti-wealth? No. Am I anti-greed? Well, greed is pregnant with its own connotations but as long as that greed doesn’t result in something that is illegal or immoral I don’t care if some people want money more than others do. What bothers me is hypocrisy. I think this is a story of a squandered opportunity. I think I’ve written a book of constructive criticism. Some people who read it will want to simply conclude that it’s nothing more than a cynical attack but that is not what it is.

What really bothered me was that the founding members had an idea in mind of what HBS could and should be. The school’s original role in American business would be to help improve itself by creating a more enlightened group of business people. They failed at that, not for lack of trying. And then, in the 1980s with the hiring of Michael Jensen, they basically threw in the towel and said fuck it, let’s go for the money.

The second thing that bothered me is their insistence that they have always and continue to meet their higher goal of educating leaders who make a positive difference in the world. That is complete bullshit. The net result has pushed the influence of the school away from what it could have been and toward what it shouldn’t be. They had the chance to be important to capitalism and what they are is important to themselves. Instead, the school went the path of least resistance and took the money. At the end of the 1970s, they had a couple of choices and by hiring Jensen they picked the most lucrative one and the wrong one. In Jensen, McArthur was hunting big game and he got exactly what he expected.

You also seem to lay some blame at least for the 2008-2010 implosion of the economy at the hands of the Harvard Business School. Is that really fair?

I think so. Consider the misguided attempt on the part of graduate business schools to gain academic respectability through ‘scientific rigor.’ We can all process the equations of macroeconomic theory. But they took their desire to model things too far, to the human level. When you get to the level that Jensen is operating at, it sounds like a physics experiment and it’s not.

People are not equations. And don’t even get me started on his insistence that 100 years of research in economics have shown that ‘in the absence of externalities,’ selfishness on the part of individuals somehow all adds up to a wondrous world for all. I don’t give a shit about what your theory says in the abstract. In the last 100 years, inequality in the US started ridiculously high, then got impressively low, and then boomeranged back to being high again. I don’t think the model is working. And it’s because reality is far more complex than the basic algebra that economics professors love to hide behind. If you bring in people who insist on taking a hard position, like Jensen, it will turn out wrong. Like everything in life, the answer is not on either end of a spectrum, it is somewhere in between.

While Jensen’s ideas may have been stamped out of Harvard, the bigger issue is that the damage is done. The pressure to meet your numbers as a corporate executive is as high as it has ever been. So while they may be talking about stakeholders vs. shareholders agian, they are just talking because you still have to meet your numbers.

McArthur does come off as a villain of sorts in your book. Obviously, your view of him is coloured by his decision to bring Jensen to the school. But what about the totality of his decisions as dean?

I would say that of all the deans my sense of McArthur’s stewardship of the school was the laziest. By lazy I don’t mean he didn’t do a lot of things, but lazy because he didn’t think through what he did. At the very least, he didn’t seem to be thinking them through using any sort of prism that wasn’t about bringing in more and more money for the school. (Former SEC Chairman and HBS alum) John Shad’s donation to ethics was the biggest single donation to the creation of ethical instruction in history. I think he kind of whiffed on that. The school did not do a good enough job at providing a sense of values to the masters of the universe they trained. They didn’t have a full course on ethics until 2003 or something. In the last 30 years, it would seem that the seriousness with which they have approached the ethical issue has gone in the right direction but I don’t know of an institution taking 100 years to try to figure out how to do something like that.

So do you think the world would have been better off if the Harvard Business School didn’t exist?

No. I think the school has done some wonderful things. It helped establish the era of American manufacturing prowess. It helped to codify management. The faculty there has come up with some revolutionary ideas, including the need for and use of venture capital. So they have had an amazing positive influence on this country and on the world. I don’t think the world is worse off for their having been created. I think the tragedy is that they let it get away from them and the rest of us. There is a better version of the world with them in it than the one we currently live in.

There are way too many instances in the history of HBS where money dominated the decisions in a way that it shouldn’t have. I think I know why that is. When I was at Goldman Sachs after Wharton, I quickly realised when I was there that I like money just as much as anybody else does but I don’t want the product of my life to be money. I didn’t want to go to work and think about money as part of my day job so i made a decision to leave it. But for those who work there, money can quickly become the most important thing to you. If what you’re selling is money, in other words, then you come to put a higher premium on it than most other people would.

At HBS, the product isn’t money per se but it is close. When you spend all your time thinking about money, you obviously become more vulnerable to decisions where money is overemphasised. Harvard itself claims it is not all about money. But when your own actions demonstrate that ‘oh no, it might be about money,’ then you have failed everyone.

What’s in your book that might be interesting to people who may want to go to Harvard Business School?

My discussion of the case method could prove very valuable. I have no doubt that its impact is long lasting on students, but it also has some risks associated with it. If you are an MBA student, money is seductive, and if you’re not careful, it can warp the way you start to think about things. The case method can facilitate that. One of the reasons I left Wall Street after two years is that I doubted I would leave after the third year. There was just too much money.

What’s your take on the current students at Harvard?

Clearly, the makeup of the curriculum is shifting in a Millennial direction. It’s more progressive with considerations other than finance. I think there is optimism on that front. And they have obviously pushed the school toward a more entrepreneurial orientation. There is a clear desire of people to work for themselves and not for large organisations anymore.

How do you think your book will be received by HBS stakeholders?

When Derek Bok had the audacity to suggest they could do a few things better in the 80s, the reaction can only be described as disproportionate. I would not be surprised by an outright dismissal and condemnation of the entire project. But if you speak to individual people, including people on the faculty who are afraid to say something out loud, everyone there thinks there are ways the school could be doing things that might be better than the current approach. One professor was outraged that the school denied me access to their archives. I am sure it is going to be painted as something approaching a takedown which it is not. It is critical but it is critically constructive. They may not like the tone but you can’t do anything about that.

I want to say that this is not a takedown. HBS has the power to do good. I’m not advocating for the abolishment of the school. I am commending them for their positive contributions to the world as we know it, criticising them for their negative ones, and chastising them to stay focused. In no way would I want to suggest that everyone associated with this school is of like mind.

What do you make of Jodi Kantor’s criticism that the school’s culture brought to the fore significant gender equity issues?

I do agree with Kantor that the school’s solutions to its gender problems were too quick and too superficial. When Dean Nitin Norhia went on Charlie Rose, he first claimed that unequal treatment of women wasn’t just a problem at HBS. It was a societal one. But then he claimed to have eradicated it at HBS in just a few short years. They did nothing of the sort. All they did was put an additional person in the room to help the professors do something that they’d seemed incapable of previously, which was keeping track of strong class participation by women. That doesn’t sound like a solution to the problem to me. It sounds like an adjustment for it after the fact.

And then you had Professor Frances Frei coming out and insisting that HBS was leading the world on gender equality. Oh my God. How could you possibly say that just after you’ve been busted in the 21st century for having utterly failed to treat your female students and faculty the same way you treat your men? But they are so self-congratulatory. Their relentless claims to trail blazing are so funny as to be hilarious.

Arguably the most famous HBS professor of our generation is Michael Porter. What do you think of his contributions?

I make the point in the book that given his outsized presence and success, H W Perry much serves as an example of the best and worst of what HBS has to offer. He has the widest latitude that any professor has ever had there. He clearly brought some new thinking into HBS and some rigour. He is obviously a brilliant guy who helped changed the way people think about strategy. At the same time, Michael Porter’s conception of the theory of the firm as being in competition with everything around it at all times may not be the greatest contribution of what the point of a firm is. Antagonism is built into his model. Some of Porter’s decisions as a consultant also make you wonder about their sense of values and money. The work of his consulting firm, Monitor, for Libya was shameful.

But I think there are more shameful things than that., Take professor Bill George and his cherished idea of authentic leadership. It is so offensive as to be mind blowing. What were you teaching before you added the word authentic to it? The idea that this is a new and improved version of leadership means that you were actually teaching something else before. Shame on you if that was the case. But that’s a problem at HBS. They do a lot of mind-numbingly obvious stuff.

We look to our institutions to help us navigate and improve on our collective lot. They are letting us down on that front and they don’t need to. You can be wealthy and seek accomplishment and social benefit all at the same time. It’s not that hard.

This article was originally published on Poets & Quants and has been republished with permission.