Posted by: Louis Lavelle on December 21, 2010
It’s probably not too much of a sweeping generalization to say that if business schools serve any purpose at all it’s to prepare graduates to be better stewards of their organizations. But something I ran across recently suggests they may be falling down on the job.
Every year, Chief Executive Magazine ranks S&P 500 chief executives who have at least three years under their belts based on the extent to which they do (or don’t) create wealth. The methodology used to do this is a little opaque, but the formula uses the ratio of market value to invested capital, a second measure called “economic margins” (the degree to which the company is making money in excess of its risk-adjusted capital costs) and several others.
The result: a list of the S&P 500’s top 10 “wealth creators” and top 10 “wealth destroyers.” I did a quick back-of-the-envelope calculation and discovered that the top 10 wealth creators included exactly one MBA, Daniel Hamburger at DeVry, a graduate of Harvard Business School (Harvard Full-Time MBA Profile).
But the wealth destroyers list? That’s a different story. There were two MBAs: Michael Laphen of Computer Sciences, an alum of Wharton (Wharton Full-Time MBA Profile); and James Hackett of Anadarko Petroleum, another member of the Harvard club. In addition, there’s Irene Rosenfeld of Kraft Foods, who has an MS in Business from Cornell (Johnson Full-Time MBA Profile), and two others with undergraduate business degrees from St. John’s (Allegheny Energy’s Paul Evanson) and the University of Cincinnati (J.C. Penney’s Myron Ullman III).
So what gives? There’s been a lot of research lately looking at the question of whether CEOs with MBAs perform better than those without the degree. Three professors from INSEAD looked at the performance of CEOs at 1,200 global companies and concluded that MBAs have an advantage. Another study by researchers at the University of Colorado at Boulder, University of New Hampshire, and Georgia State University looked at the performance of 1,500 companies from 1992 to 2007 and concluded that they don’t. Are MBAs better than non-MBAs at running companies, or aren’t they? And if they’re not, then why should prospective students bother? And what, exactly, are companies paying for?
(Deletes name of CVS Caremark CEO Thomas Ryan from fourth paragraph. Ryan does not have an MBA as was previously reported.)