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Business schools like to boast about how many of their graduates have become CEOs—Harvard especially, since it has the most. But how do these people do as CEOs: are the skills needed to perform there the same as those that get them there?
MBA students enter the prestigious business schools smart, determined, and often aggressive. There, case studies teach them how to pronounce cleverly on situations they know little about, while analytic techniques give them the impression that they can tackle any problem—no in-depth experience required. With graduation comes the confidence of having been to a proper business school, not to mention the "old boys" network that can boost them to the "top." Then what?
[...] Joseph Lampel and I studied the post-1990 records of all 19. How did they do? In a word, badly. A majority, 10, seemed clearly to have failed, meaning that their company went bankrupt, they were forced out of the CEO chair, a major merger backfired, and so on. The performance of another 4 we found to be questionable. Some of these 14 CEOs built up or turned around businesses, prominently and dramatically, only to see them weaken or collapse just as dramatically.
[...] Both sets of companies declined in performance after those cover stories—Miller commented later that "it's hard to stay on top"—but the ones headed by MBAs declined more quickly. This "performance gap remained significant even 7 years after the cover story appeared." The authors found that "the MBA degree is associated with expedients to achieve growth via acquisitions...[which showed] up in the form of reduced cash flows and inferior return on assets." Yet the compensation of the MBA CEOs increased, indeed about 15% faster than the others! Apparently they had learned how to play the "self-serving" game, which Miller referred to in a later interview as "costly rapid growth."
[...] MBA programs do well in training for the business functions, such as finance and marketing, if not for management. So why do they persist in promoting this education for management, which, according to mounting evidence, produces so much mismanagement?
The answer is unfortunately obvious: with so many of their graduates getting to the "top", why change? But there is another answer that is also becoming obvious: because at this top, too many of their graduates are corrupting the economy.
MBAs are good for you personally, but bad for companies, bad for the economy, and bad for the country.
(Score: 5, Insightful) by Nerdfest on Sunday April 02 2017, @03:18AM (4 children)
They seem to only be taught how to manage for the next quarter, to make the stockholders happy in the short term. There seems to be a near complete lack of long-term planning. or vision. Of course, I guess the CEOs figure they'll be moving along to their next gig in a year or two max, so even if they know their actions will tank the company long-term, why bring it up.
People are both greedy and stupid. I call it "Death by MBA", the collapse of the western economy.
(Score: 1, Insightful) by Anonymous Coward on Sunday April 02 2017, @03:51AM (3 children)
Suppose a decision has a 50% chance of killing the company, a 40% chance of little change, and a 10% chance of a big win. Take the initial value of the company to be V.
The simple and wrong way: 0*V*.50 + 1*V*.40 + 6*V*.10 comes out equal to V, so the required "big win" is a factor of 6. If the company would be worth more than 6x what it started as, the decision is good.
Many things mess with this ideal.
A big one is the fact that we're assuming a dead company should have a value of 0 and will in fact get a value of 0. The reality is that bad decisions can mean that a company should have a value below zero, perhaps from lawsuit liabilities or other unpaid debt, but bankruptcy prevents negative values. The upside is unlimited, but the downside is never worse than 0. Large employers and other important companies get an even better deal. They can essentially blackmail congress into a bailout. This means that there is little if any downside. One can take the risk with only trivial consequences. If the risk works out OK, keep all of the win.
Another issue is CEO compensation. This works in a similar way: big payout if the stock price goes up, but no punishment if it goes down. The CEO can be boring and not get paid, or he can take crazy risks and maybe get paid. It's like a lottery ticket with a purchase price of 0.
(Score: 2) by jimtheowl on Sunday April 02 2017, @07:21AM
Those statistics risk being slanted to reflect wishful thinking, self serving greed and serve the MBA far more than the "company".
(Score: 2) by jmorris on Sunday April 02 2017, @05:55PM (1 child)
I think you are close to the truth here, that it is, at the root, a math problem with the publicly traded corporation model. You can have a negative net worth, a company can have a negative net worth, a corporation can't. If you buy a thousand shares of [evil corp] it doesn't matter what they do, you aren't responsible for anything but the money you spent on those shares. If they are caught engaging in human trafficking, mulching puppies, intentionally polluting the Mississippi River, whatever, there is no penalty that can be applied to them that will cost you more than the initial investment. It doesn't matter if what they are doing is something that "everybody knew about" and that you should have known when you bought the stock. Worst case is bankruptcy, wiping out the shareholders and selling off any viable assets to someone else. This socializes loss and privatizes profit and that incentive structure ends up driving pretty much every decision a corporation makes.
Now examine how a CEO is compensated. He gets big bonuses if the stock value goes up, usually gets a bonus if the accountants can be convinced to report a profit. But he gets a big base pay even if the news is bad. So risk isn't punished much and reward is lavishly rewarded. So CEOs take risks because they are smart enough to realize the system was designed to encourage them to. Now go back to the previous paragraph and realize that just as the shareholder is isolated from liability, so long as the CEO takes a few precautions to maintain plausible deniability they too can be pretty lawless in the pursuit of short term gain and even if they happen to still be CEO when the news hits the front page they have a good chance of escaping jail and at worst lose any stock that was part of their compensation if the corporation goes full Enron. So not only is the shareholder not responsible, the management isn't either.
Those structural flaws have existed since the first Corporation was chartered. Remember, corporations are ALL government creations and nothing in the inherent nature of Capitalism requires them. We could either totally eliminate them or scale them back to short term entities to finance large capital investments, as they were originally intended to serve.
Now we get the modern problem. Most of the MBA types we all have in mind when we are discussing how incompetent, idiotic and short sighted they are tend to come from Harvard and Yale. Unless you have been hiding under a rock the last hundred years you know those institutions are the source of the infection the world suffers from. The School of Business might have resisted the infection a little better than the rest but those institutions are Communist in everything but name and increasingly they aren't even ashamed to fly the red flag. So when you see a CEO doing some idiotic thing so destructive to shareholder value that it makes you wonder whether he even understands Capitalism, realize the answer is no. He was taught Marxist economics and believes it. It brought ruin to the Soviets and is bring ruin to us, ruin is all it can ever bring. The only difference is that there wasn't a lot of ruin left in Russia when the Communists took over while there is a LOT of stored up wealth (economic and social capital) in the West so it is taking longer.
Why do you think SJW type social initiatives find such fertile ground in the corporate world? Those future corporate leaders didn't just read Marx's Capital, they were taught Cultural Marxism as well. Which is of course another reason why most corporations are failing economically, the Impossibility of Social Justice Convergence. It is an existential threat to our entire civilization and nobody really wants to even think about it and nobody has proposed any sort of solution with a snowballs chance in Hell of working, even if it could be implemented.
(Score: 2) by rondon on Monday April 03 2017, @03:05PM
I was going to mod this insightful, because I think jmorris makes a fine point in the first few 'graphs. But then we have to throw around our SJW's and Cultural Marxisms... so I have to qualify my support for your post, j.
If I may suggest, you made two different points in the post. The second point, relating to the "Impossibility of Social Justice Convergence," should probably be its own post. Also, what does that even mean?