Harvard Business School, Heal Thyself

Recently I wrote about a study performed by Harvard Business School assessing the way American business leaders feel about inequality in America. Somewhat surprisingly, HBS alumni indicated it’s a problem.

As a piece at Al Jazeera put it, alumni believed that “the weaknesses in elements that drive prosperity for the average American indicate that the American economy requires a strategy in order to do its full job.”

But former U.S. Secretary of Labor Robert Reich has an interesting point to make in reaction to the same study. As the headline in an article he wrote for Salon put it bluntly: “Harvard Business School is ruining America.” Reich:

…The authors neglected to include a discussion about how Harvard Business School should change what it teaches future CEOs with regard to this “profound stake.” HBS has made some changes over the years in response to earlier crises, but has not gone nearly far enough with courses that critically examine the goals of the modern corporation and the role that top executives play in achieving them.

A half-century ago, CEOs typically managed companies for the benefit of all their stakeholders – not just shareholders, but also their employees, communities, and the nation as a whole.

We know this story, right, how the American CEO changed?

But starting in the late 1970s, a new vision of the corporation and the role of CEOs emerged – prodded by corporate “raiders,” hostile takeovers, junk bonds, and leveraged buyouts. Shareholders began to predominate over other stakeholders. And CEOs began to view their primary role as driving up share prices.

As Reich emphasizes, however, HBS has a lot to do with this new model.

So it would seem worthwhile for the faculty and students of Harvard Business School, as well as those at every other major business school in America, to assess this transformation, and ask whether maximizing shareholder value… continues to be the proper goal for the modern corporation.

They learn a lot of these tactics at schools like HBS.

He points out that this inequality is not some independent unfortunate occurrence in reaction to which HBS alums can just sit around bemoaning the mysterious problem. Oh, goodness, how did this darn thing happen?

Um, the grand thinkers at Harvard Business School kind of caused this.

For years, some of the nation’s most talented young people have flocked to Harvard Business School and other elite graduate schools of business in order to take up positions at the top rungs of American corporations, or on Wall Street, or management consulting.

Now, it’s not specifically Harvard’s fault so much as it is a general trend in economics and business that favors maximizing shareholder interests and ignoring everyone else’s. And Reich, at any rate, is a professor at the University of California, Berkeley is also is home to the Haas School of business, which is equally at fault in this predicament.

But it’s not that business schools dramatically changed to produce CEOs who were worse. Prior to the late 1970s the average American CEO didn’t go to business school at all. HBS was founded in 1908, but the glory of HBS, and the proliferation of American business schools, dates from the latter half of the 20th century. The corporate raider CEO grew up at the same time all of these aspiring businessmen decided an MBA was a good idea. American capitalism seemed to get along pretty well without any damn MBAs.

Is it really “worthwhile for the faculty and students of Harvard Business School… to assess this transformation?” Should they even exist? The transformation is not just tied up in the intellectual work of American business schools; it appears pretty closely connected to such institutions’ very existence.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer