How Bosses With MBAs Boost Their Profits

HARVARD BUSINESS SCHOOL is all about the “lifetime impact” of its graduates on society. INSEAD urges its alumni to “conduct business as a force for good”. Believe them and others MBA prospectus, and a student arriving as an ordinary human being will leave as a virtuous benefactor. Such claims have always tested credulity. A new working paper by Daron Acemoglu, Alex He and Daniel le Maire, a trio of economists, quantifies the disbelief.

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The authors look at the new nominees CEOs in America and Denmark. They find those with MBAs increase the return on assets in the five years following their appointment, by an average of three percentage points in the United States and 1.5 points in Denmark. But that’s not because they drive sales, increase investment, or increase productivity. The higher returns are instead the result of the suppression of worker wages, which fall by 6% in the United States and 3% in Denmark in the five years following a MBA supports. In short, inaugurating MBAs in corner offices seems to increase shareholder value by cutting the cake in certain ways, not by making it bigger.

Researchers attribute this phenomenon to changes in business school curricula. MBA The programs, He says, have become less focused on the technical aspects of finance and management over the years, and more obsessed with maximizing shareholder value and leaning the business. The result, he and his colleagues say, is that workers are increasingly viewed as “costs to be cut” rather than an investment in human capital.

people attracted to MBA courses in the first place can, of course, simply be more ruthless than other degree holders. But there may be something in the assumption of the program. Business leaders who have earned their MBAs after 1980 were more likely to focus on employees than graduates from earlier years MBA Classes. If the general shareholder-friendly zeitgeist that took hold at that time was the only explanation for this intergenerational difference, then MBAs and no-MBAs should also be affected. The study shows that was not the case. Further work will be needed to see if the power supply MBAs modules such as “Reimagining Capitalism” (Harvard) and “Business and Society” (INSEAD) is doing everything to reverse the trend.

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This article appeared in the Business section of the print edition under the headline “Degrees of recklessness”

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