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MBA Follies: Two Years at Harvard Business
These Harvard business gurus will ruin us all
By Philip Delves Broughton
Last updated at 10:10 PM on 16th August 2008
'If you can't explain it to your mother, you don't understand what you're talking about.' That was one of my Harvard professor's top rules of finance - and one our beleaguered captains of industry would do well to follow.
Perhaps if a sensible fiftysomething mother presided over the City or Wall Street, she might have been able to stop the madness currently gripping our financial markets.
Earlier this month, the Royal Bank of Scotland announced the second largest quarterly loss ever for a British bank: £691million.
On Wall Street, Merrill Lynch has written off billions of pounds of assets - and yet its chief executive, Stan O'Neill, who led the bank into its present inferno, left with an £80million retirement package.
Wall Street's HBS-educated powers are growing ever more cynical
O'Neill is an MBA - he has a master's degree in business administration - from Harvard Business School (HBS). So, too, is his successor, John Thain.
HBS is arguably the world's most influential graduate institution. Its alumni include George W. Bush, US Treasury Secretary Henry Paulson and New York Mayor Michael Bloomberg, not to mention dozens of chief executives of international companies. HBS graduates also dominate the newer industries of private equity and hedge funds.
Harvard MBAs, and MBAs in general, decide how we work, how much we earn, even how much holiday we have.
I gained a sobering insight into the high-achieving world of finance while studying at HBS from 2004 until 2006.
My fellow students were a ferociously talented bunch who referred to themselves as 'insecure overachievers'. Even by their late 20s, their CVs were a glittering list of academic and professional achievements.
Yet their greatest fear was not living up to their potential. A classmate called HBS a 'factory for unhappy people'. They were graduating racked with fear of not becoming wealthy or powerful, or of seeing their personal lives wrecked by work.
At Harvard, I had expected an education in business basics. What I got was something more akin to a two-year session on the capitalists' career couch, surrounded by 900 classmates.
Masters of the universe: George Bush and his US Treasury Secretary Henry Paulson are both Harvard Business School graduates
My peers divided into two groups. The first was made up of 'finance motorheads', the ones who had come from Wall Street, were going straight back and wanted lots of money. For them, classes came second to parties, holidays and drinking.
I noticed some of them had expensive cars. When I asked about it, I was told that they emptied their accounts by buying a $20,000 car so they could qualify for grants - of about $20,000. Cars didn't have to be declared on their financial aid forms, so HBS was basically buying them BMWs.
The second group of students included the 'ethical jihadists', the pious types who acted as though business was free of the trickery and cruelty that has defined it throughout history. They talked about 'corporate social responsibility' as if it was something for which we should be grateful.
Of course, such high-minded morals rarely exist. In fact, two sets of economic laws now apply: one for the MBA elite and one for everyone else.
For instance, the elite use bogus arguments to justify their vast incomes. It's a competitive market for executives, they say, so you have to pay for the best.
Nonsense. No one begrudges great entrepreneurs their wealth, but paying millions to a mediocre careerist to lead his company to near oblivion? It doesn't make sense.
One of the main reasons Britain and America are in an economic mess is because business has driven a wedge between itself and the rest of society.
Businessmen talk of 'leverage' when they mean debt and 'outsourcing' when they mean cutting jobs at home. They talk of 'off-sites' when they mean executives loafing around a hotel supposedly coming up with ideas.
Even at HBS students talked about ' takeaways' rather than lessons, 'going forward' instead of the future, and 'consensus building' rather than agreeing.
When talking during a lesson about a company having to make more greetings cards, a fellow student actually said: 'We need to do a deep dive on production to improve our metrics.'
Management consultants and bankers have forgotten how to talk in paragraphs but communicate in bullet points and PowerPoint presentations.
If you can make business seem like voodoo, you can charge more for helping people to understand it. Except it isn't voodoo. Business is just not that complicated.
How can you take a mortgage, sell it in ten pieces and then keep on selling it and borrowing against it? How can it make sense to lend to people who don't even have a payslip?
These are not difficult questions. Yet none of the geniuses who run the financial universe seems to have asked them before the credit crunch hit us all.
The truth is that the further the business world drifts from normality, the more cynical it becomes.
I've lost count of the number of management consultants who have told me their work is bogus. Or the bankers who say their job is not to help clients, but win big fees by forcing them into a deal.
All too often, these people are MBAs - and the consequences of having these insecure overachievers running our economies are becoming more pronounced every day.
• Philip Delves Broughton's book, What They Teach You At Harvard Business School, is published by Viking. To order your copy at £12.99 with free p&p call The Review Bookstore on 0845 155 0713.