Posted by: Louis Lavelle on January 14, 2010
For anyone who’s missed it, there’s a really terrific story in Harvard Business Review this month. Three professors from INSEAD (Morten T. Hansen, Hermina Ibarra, and Urs Peyer) examined the long-term performance of more than 1,200 global companies in an attempt to compile a list of CEOs who delivered the most shareholder value over the course of their tenures. Spoiler alert: the “Best Performing CEO in the World” is none other than Apple’s Steve Jobs. Okay, so no surprise there.
What’s really interesting about the study is that it compared the performance of CEOs who have MBAs and those who do not. The MBAs came out on top. By a lot. From the article:
In the aftermath of the financial crisis, pundits criticized MBAs, arguing that business schools had fostered destructive greedy behavior and taught executives the wrong models of management. So we decided to see whether CEOs with MBAs did any better or worse. When we looked at the CEOs from companies based in Germany, Britain, France, and the United States, where reliable information on degrees is available (1,109 CEOs in total) we found that the 32% of CEOs who had an MBA ranked, on average, 40 places better than the CEOs without an MBA. Even in the beleaguered financial sector, the MBAS tended to rank better than the non-MBAs. This finding suggests that MBA CEOs have not destroyed value, as some critics would have it.
Among the the 50 CEOs listed in the HBR article, only 14 have MBAs—the highest ranked CEO with the degree is Cisco Systems’ John Chambers, who comes in at No. 4 with $152 billion in shareholder value generated during his 15-year tenure, more than any other CEO on the list. But fully half of the top 10 have MBAs including Reliance Industries’ Mukesh Ambani (No. 5, $72 billion), eBay’s Meg Whitman (No. 8, $37 billion), and Monsanto’s Hugh Grant (No. 10, $35 billion). The non-MBAs in the top 10 include Jobs, Amazon.com’s Jeff Bezos, and Google’s Eric Schmidt.
Frankly, I’m a little surprised by these results. When I did a similar (unpublished) study a few years back the data was leading me to the opposite conclusion. I looked at the long-term performance of S&P 500 companies, comparing those with lots of MBAs in senior management to those with few or none, and on many metrics the “MBA-heavy” companies were handily out-performed by the “MBA-light” companies. It made some sense to me at the time. After all, non-MBAs may have skills honed in the school of hard knocks, learning more on their way up the ladder than they might pick up at b-school. And after decades of MBAs in the workplace (not to mention graduates of non-degree executive education programs), any special b-school imparted skills they brought to the party are now more or less common knowledge, even to managers who never set foot inside a b-school. To paraphrase Bob Dylan, you don’t need an MBA to know which way the wind blows.
At any rate, my study was far from perfect. Some of the data I relied on was out of date, or wrong, and that was a deal-breaker for me. I just couldn’t trust the conclusions so it was never published.
I’ve asked the professors to write a column about their MBA findings that will be posted on the business schools channel as soon as it’s ready. But until then I would love to here from readers: does the basic conclusion ring true?