How Harvard influenced capitalism

In The Golden Passport, Duff McDonald's determined to call the Harvard Business School to account

THE GOLDEN PASSPORT 

Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite 

Duff McDonald 

Harper Business/ HarperCollins Publishers

657 pages; $35

When the Harvard Business School was founded in 1908, the first entirely graduate-level professional business programme in the country was described by the future Harvard president Abbott Lawrence Lowell as a “great” but “delicate experiment.” Today the school is indisputably great, but hardly delicate. It accepted just 12 per cent of nearly 10,000 MBA applicants in 2016. Eighty-nine per cent of those who were accepted attended, which means that Harvard remains the overwhelming first choice among graduate schools of business, despite occasional rankings that put Stanford, Yale or Northwestern ahead of it. There are more than 76,000 living Harvard MBA alumni, 33 per cent of whom live outside the United States, forming what is very likely the most potent network of any graduate school.

The marriage of Harvard’s prestige and intellectual pedigree to overtly moneymaking pursuits has yielded an institution that not only teaches the fundamentals of business education but also provides its soon-to-be-wealthy graduates with “unrivaled opportunity,” and has become a “money machine unto itself,” as Duff McDonald puts it in his sweeping survey of the school’s history and influence.

But how and why that might be the case isn’t really what interests McDonald, the author of previous books about McKinsey, the consulting firm, and JPMorgan’s chief executive, Jamie Dimon. In The Golden Passport, he’s determined to call the Harvard Business School to account, citing its founding doctrine, which was to develop “a heightened sense of responsibility among businessmen” (and eventually women) who “will handle their current business problems in socially constructive ways.” In that regard, McDonald is scathing in his critique: Harvard Business School has not only “proven an enormous failure,” but its very success has made it positively “dangerous.”  He drives home the point in chapter after chapter, picking up steam in more recent decades: Harvard, he maintains, provided the ideological underpinnings for the junk-bond-induced takeover mania and resulting scandals of the 1980s; the corporate scandals of the 2000s; the egregious increase in the pay gap between chief executives and ordinary employees; the real estate mortgage bubble and ensuing financial crisis; even the election of Donald Trump. 

In virtually every instance, McDonald contends, Harvard has obsessively pursued money, sending a disproportionate number of its graduates to consulting firms beginning in the 1950s (it was all but synonymous with McKinsey), to Wall Street in the 1980s and to entrepreneurial start-ups once initial public offerings became the rage in the 1990s — and provided intellectual justifications for its actions. Much of that wealth found its way back to the school itself. Its professors earn enormous sums as consultants to businesses populated by their former students, who also give generously to their alma mater: Its endowment stood at $3.3 billion by 2015, a dedicated portion of the university’s enormous $32.7 billion.

McDonald’s criticism of Michael Jensen, now an emeritus professor, is especially withering. As he sees it, Jensen bears major responsibility for the rapacious hostile takeovers and the obsession with stock prices and short-term results that led to the Enron and WorldCom scandals, as well as for the emergence of outlandishly high chief executive pay. Jensen came to the business school in 1984, just as the junk-bond-fuelled takeover boom was gaining steam, and he became a full-time faculty member in 1989. Undeniably one of the most influential business theorists of modern times, he advocated an “agency” theory of management in which management’s sole duty was to maximize shareholder value. 

Jensen’s theories had simplicity and consistency: If all that matters is shareholder value, then hostile takeovers, leveraged buyouts and other forms of financial engineering, are fine as long as they boost share prices. Jensen is just one of many examples of the insidious relationship between Harvard Business School theory and real-world calamities in The Golden Passport, but it seems worth asking: Is McDonald’s broadside fair? It’s hard to fault McDonald, who reports that Harvard Business School “shut me out entirely” when he sought cooperation, and pretty much shut down everyone who works there. That seems a shame. McDonald insists he isn’t “anti-business-school” (he attended Wharton), nor is he “anti-wealth.” Nonetheless, he says he found the rejection “liberating.”

But I missed a greater sense of balance. It doesn’t seem fair, to take one major example, to blame Harvard for the recent financial crisis. While their actions remain a subject of spirited debate, the HBS graduates assembled by McDonald — starting with former President George W Bush, former Treasury Secretary Hank Paulson and former SEC Chairman Christopher Cox — are credited by many with mitigating the damage and saving the country from an even worse catastrophe. Given the large number of Harvard Business grads in high-ranking executive positions, it’s inevitable that many would be ensnared in what turned into a global catastrophe. It’s a shame that some of them didn’t see the looming disaster and sound an alarm. But hardly anyone did, including graduates of every other business school.

I suspect McDonald won’t be invited to campus anytime soon, but perhaps he should be: Agree with him or not, he deserves credit for raising questions that every business school needs to be asking. It’s hard to quarrel with his concluding plea: “HBS should — and can — play a part in helping more people who think about business rediscover a purpose other than profit.” As he puts it: “It needs to graduate more people who are motivated to solve problems, and fewer people who create them.”

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