How Harvard Business School Has Reshaped American Capitalism

In virtually every instance, McDonald contends, Harvard has obsessively pursued money, sending a disproportionate number of its graduates to consulting firms beginning in the 1950s (it was all but synonymous with McKinsey), to Wall Street in the 1980s and to entrepreneurial start-ups once initial public offerings became the rage in the 1990s — and provided intellectual justifications for its actions. Much of that wealth found its way back to the school itself. Its professors earn enormous sums as consultants to businesses populated by their former students, who also give generously to their alma mater: Its endowment stood at $3.3 billion by 2015, a dedicated portion of the university’s enormous $32.7 billion.

McDonald’s criticism of Michael Jensen, now an emeritus professor, is especially withering. As he sees it, Jensen bears major responsibility for the rapacious hostile takeovers and the obsession with stock prices and short-term results that led to the Enron and WorldCom scandals, as well as for the emergence of outlandishly high chief executive pay.

Jensen came to the business school in 1984, just as the junk-bond-fueled takeover boom was gaining steam, and he became a full-time faculty member in 1989. Undeniably one of the most influential business theorists of modern times, he advocated an “agency” theory of management in which management’s sole duty was to maximize shareholder value. This upended the long-held “stakeholder” model, in which management was seen as having broader obligations to a corporation’s workers, customers and communities.

Jensen’s theories had simplicity and consistency: If all that matters is shareholder value, then hostile takeovers, leveraged buyouts and other forms of financial engineering are fine as long as they boost share prices, no matter that battalions of workers have to be fired and community relations damaged. Jensen also championed share-based executive compensation on the grounds that no matter how much executives were paid, shareholders benefited. This was an idea that swept corporate America. McDonald notes that in 1992, the C.E.O.s of Fortune 500 firms made an average of $2.7 million a year. By 2000, the average was $14 million.

Just about every premise of the “agency” model, McDonald says, has now been punctured, but only long after the damage has been done. An obsession with stock prices and short-term results was the motive for many of the accounting scandals of the 2000s, which were designed to prop up share prices, and as a result, high executive pay. Even Jensen eventually had to concede that the liberal use of stock options as executive compensation had become “managerial heroin.”

Jensen is just one of many examples of the insidious relationship between Harvard Business School theory and real-world calamities in ”The Golden Passport,” but it seems worth asking: Is McDonald’s broadside fair? Apart from a few brief quotations from his published work, we don’t hear from Jensen himself, or any of the other still-living culprits McDonald identifies. It’s hard to fault McDonald, who reports that Harvard Business School “shut me out entirely” when he sought cooperation, and pretty much shut down everyone who works there. That seems a shame. McDonald insists he isn’t “anti-business-school” (he attended Wharton), nor is he “anti-wealth.” Nonetheless, he says he found the rejection “liberating.”

But I missed a greater sense of balance. It doesn’t seem fair, to take one major example, to blame Harvard for the recent financial crisis. While their actions remain a subject of spirited debate, the H.B.S. graduates assembled by McDonald — starting with former President George W. Bush, former Treasury Secretary Hank Paulson and former S.E.C. Chairman Christopher Cox — are credited by many with mitigating the damage and saving the country from an even worse catastrophe. To take just one counterexample, the young former Goldman Sachs investment banker Fabrice Tourre, one of the few Wall Street figures actually found guilty of civil fraud for his role in the kind of complex mortgage deals that contributed to the crisis, is a graduate of France’s École Centrale and Stanford University. (France’s prestigious “Grandes Écoles” — not H.B.S. — appear to have generated a disproportionate number of the financial engineers who unwittingly helped cause the crisis.) Given the large number of Harvard Business grads in high-ranking executive positions, it’s inevitable that many would be ensnared in what turned into a global catastrophe. It’s a shame that some of them didn’t see the looming disaster and sound an alarm. But hardly anyone did, including graduates of every other business school.

McDonald bookends his long and impressively researched account with a portrait of Casey Gerald, an African-American who delivered a 2014 Class Day speech that’s been viewed online over 200,000 times, and is featured on the school’s “Making a Difference” website. Gerald turned his back on a lucrative career in private equity to co-found a public interest organization to connect M.B.A. graduates with mission-driven businesses. This may suggest to some that it is hard to generalize about Harvard’s students, though McDonald isn’t stopped: He sees Gerald as one of a handful of “outliers,” the exception that proves the rule that most graduates are morally detached, single-minded fortune seekers.

I suspect McDonald won’t be invited to campus anytime soon, but perhaps he should be: Agree with him or not, he deserves credit for raising questions that every business school needs to be asking. It’s hard to quarrel with his concluding plea: “H.B.S. should — and can — play a part in helping more people who think about business rediscover a purpose other than profit.” As he puts it: “It needs to graduate more people who are motivated to solve problems, and fewer people who create them.”