Myth of MBA pierced

20 February 2023

Myth of MBA pierced

An MBA degree continues to represent an important step up the career ladder for many corporate executives. Graduates not only benefit themselves (especially financially), but also their company can only become stronger, more performing, more successful as a result. At least that is the common belief. Recent scientific research punctures this myth. Important: CEOs must get "among the people."

In particular, this month the Financial Times discusses the topic in its supplement on the most important MBA programs in the world. American programs (Columbia Business School or Harvard Business School) lead the list, with European programs (Insead, HEC Paris) also appearing at the top. Vlerick Business School is the only Belgian school in the top 100. Every year, these business schools provide tens of thousands of young, ambitious executives with a very expensive, but equally highly sought-after diploma that allows them to climb up the corporate hierarchy. MBA graduates are heavily represented in the boardrooms of many of the largest companies. Sometimes it is an almost necessary condition to postulate for a higher position, inside or outside one's own company. After all, a popular belief has reigned for many decades that more knowledge and a good education make for more innovative and productive leaders and greater returns to shareholders, and in recent years, even a better world.

But has MBA actually lived up to its promise? In FT, professors from MIT and the University of Copenhagen report on scientific research into differences between an MBA graduate who makes it to CEO of a company succeeding a predecessor without an MBA degree. The results are disconcerting, to say the least. The researchers found no evidence that CEOs with an MBA would cause an increase in sales, productivity, investment or exports compared to their predecessors. The biggest shift was a 3 to 6 percent decrease in corporate payroll costs. In the short term, shareholders benefit from the arrival of a CEO with an MBA. CEOs themselves also saw their own pay packages increase. In contrast, companies without a CEO with an MBA are more likely to share higher earnings and profits with their employees.

For an explanation, the American and Danish researchers point to the still-popular doctrine of economist Milton Friedman who posited in the 1970s that "social responsibility of business is to increase its profits." Many MBA programs still focus on getting companies to increase their profits by cutting personnel expenses and other forms of so-called business re-engineering. Another assumption is that a large majority of MBA students form a small, closed, exclusive club that has little contact or touch with the world of workers or clerks in the workplace.

The results of this study may come hard to many MBA graduates. However, some nuance is necessary. The researchers themselves note that a majority of the CEO's in the study had already earned the MBA degree before the year 2000. Meanwhile, the world of CEOs, including those with an MBA degree, is evolving. The interests of shareholders are increasingly aligned with the interests of stakeholders, including their own employees, or societal interests (sustainability, diversity, ethics). Many MBA programs have made this change in recent years, or have led the way. It would be good, however, if future MBA graduates themselves would get more "under the people" on the shop floor, beyond the obligatory "town hall meetings", or informal "CEO Talks". That gap still remains large.