Why Harvard Business School is under fire

By P.F. | NEW YORK

HARVARD BUSINESS SCHOOL (HBS) has come under the cosh this month. A new book, “The Golden Passport” by Duff McDonald, argues that HBS has lost its crown as the top business school in America and also become a breeding ground for toxic behaviour, with conflicts of interests rife within the school, and its alumni responsible for pushing a rapacious form of capitalism that explains many of the ills of the world’s biggest economy. Mr McDonald is a well-regarded author whose previous books, on McKinsey & Company, a consultancy, and JPMorgan Chase, a bank, were authoritative. Why is he attacking the school, and does he have a point?

HBS, founded in 1908, and part of Harvard University, has played an important role in American business. It had a big influence over the formation of large corporations in the early 20th century and it helped create the industrial base that allowed the Allies to win the second world war. In the past few decades its MBA graduates have filled the corridors of the elite management-consulting and Wall Street firms. Even in Silicon Valley, where HBS is relatively weak, about 10% of “Unicorns”—private startups worth over $1bn—have at least one HBS MBA as a founder. The school’s students pay high fees in order to learn from its “case study” method of teaching, which is based on real-life examples, and also to buy the right to use the Harvard brand and the HBS alumni network to get high-paid jobs.

The idea that HBS is responsible for the ills of Western civilisation is far-fetched. The school is better thought of as an aggressive business that has grown fast, cut too many corners and lost its competitive edge. Sales have risen by a compound rate of 8% over the past decade and costs by 7%. It has failed to manage conflicts of interest adequately: for example it gives companies a veto over case studies written about them and academics can be paid by the companies they teach about. The school has tried to diversify its intake of pupils, but even after adjusting for the financial aid it gives out, the effective average fee for an MBA course has risen by about 30% in five years. It has established big thinkers such as Michael Porter on its staff but has so far not produced a new generation of stars.

HBS has two options. One would be to focus more on the quality and objectivity of its ideas and spend less time raising money from donors and sucking up to companies. But this might force the school to become less extravagant and require its faculty to adhere to tighter rules on conflicts of interest. The other option for HBS would be to acknowledge its status as a business, not a temple of scholarship. If it could trim back costs to their level of five years ago and if it were valued on an average stockmarket price-earnings multiple, it would be worth about $5bn. If it were listed on public markets, Harvard University would receive a large special dividend which it could put to philanthropic use and HBS could be liberated to pursue its own self-interest as ruthlessly as its graduates do.