Patrick George

The research: Danny Miller, a research professor at HEC Montreal, partnered with Xiaowei Xu, an assistant professor at the University of Rhode Island, to analyze the performance of 444 celebrated U.S. CEOs—those featured on Fortune, Forbes, and BusinessWeek covers from 1970 to 2008. Miller and Xu tracked their firms’ growth strategies and performance and the CEOs’ compensation, and found that CEOs with MBAs were more likely to engage in behavior that benefited them but hurt their companies. Specifically, they pursued costlier growth strategies and were less able to sustain superior performance than their non-MBA counterparts.

The challenge: Does having an MBA make you likely to put your own interests first? Should boards be wary of executives who’ve gone to business school? Professor Miller, defend your research.

Miller: It would have been nice to find that MBAs were more effective and responsible managers than their counterparts without the degree. At worst, we expected no effect. Alas, that was not the case. CEOs with MBAs made up a quarter of our sample, and in the three years after they appeared on a magazine cover, their firms saw a market value decline that was 20% greater than that of firms run by non-MBAs. This performance gap remained significant even seven years after a cover story.

In addition, MBAs’ expenditures on acquisitions were almost twice those of non-MBAs, after factoring in all our control variables, such as firm size and leverage. And in the year prior to their cover stories, the MBAs’ firms had lower levels of cash flow and inferior returns on assets, which suggests that MBAs tended to pursue costly rapid growth.

HBR: How do those outcomes signal self-serving behavior?

We argue that in companies, three elements constitute self-serving behavior on the part of the CEO: (1) success is achieved via rapid, hazardous expedients, such as some acquisitions; (2) that success is especially short-lived; and (3) the executive gains personally from it through unusually steep compensation increases.

Did the MBAs in your study get raises?

Yes. Despite their poorer performance, their compensation increased more than that of non-MBAs after their cover stories ran. On average, the MBAs saw their compensation rise about 15% faster than non-MBAs’ in the three years after a cover story ran, and they were paid about $1 million more each year.

Your study goes back to 1970. Are there more CEOs with MBAs today? Has an MBA become more important to business success?

MBAs are far more common now than in 1970. Today the percentage of CEOs who have them exceeds 30%, whereas in the ’70s it was about 12%, and in the ’80s and ’90s about 20%.

Why focus on people who were on magazine covers? Can that sample really represent all CEOs?

We chose to examine executives who were successful enough to be celebrated publicly and who also had the opportunity to personally exploit that success. In this kind of sample there is significant scope for self-serving behavior.

Of course, although this is a large sample, it involves just major, successful public companies, many of which are well known. Our findings may not apply to smaller, less prominent, or private companies.

Other research has found that age, founder status, education quality, and even gender may influence CEO behavior and performance. Did you test to see if any of those had an effect?

Yes. Our analyses controlled for all those factors and more. The only two that seemed to relate to changes in performance after the CEO was on the cover were the quality of the schools people had attended and prior firm performance. Higher school quality led to better performance post-cover for all CEOs, and better firm performance prior to the cover led to worse performance after it for all CEOs—it is hard to stay on top. But firms of non-MBAs did not fall nearly as fast. We also saw that founders and MBAs did more acquisitions and that CEOs who went to better schools did fewer.

We discovered no gender differences, perhaps because there were so few women in our sample. However, we could not measure personality traits, which may play an important role.

Does business school promote self-serving behavior?

It could be that. Many MBA programs emphasize bottom-line performance, financial and accounting measures and levers, stock prices, competition, and personal economic success. They place less emphasis on creative and scientific skills, intrinsic job satisfaction, social contribution, and the ethical treatment of stakeholders. On the other hand, it might be not the curricula but self-selection that explains our findings. Perhaps people with self-serving proclivities are more inclined to go into business programs than, say, the arts or sciences.

Also, our results could be driven in part by how others react to CEOs’ behavior. Research suggests that making acquisitions is a more hazardous strategy than growing organically, and it may be that investors are more apt to penalize firms that grow by buying other firms.

Most important is that we do not claim that an MBA education causes CEOs to behave in negative ways. Our analysis establishes only association, not causality. We took pains to make that point in the paper.

How can organizations combat self-serving behavior?

A good culture can reduce it. The values reflected in company goals, HR practices, socialization rituals, and how a company deals with its stakeholders will help ensure that the right kind of CEO—MBA or not—is appointed. Cultures also determine the criteria against which CEOs are evaluated. Isabelle Le Breton-Miller and I have been studying “thick cultures” in long-lived family businesses. There, an MBA degree is unlikely to have any bearing on CEOs’ strategic conduct and their tendency to manage for the long run.

Incentive systems are also important. When CEOs are rewarded disproportionately for short-term performance, it reinforces exactly the kind of behavior we found. Tying pay to long-term results, financial as well as nonfinancial, is probably the way to go.

What should future research look at?

Xiaowei Xu and I are now trying to extend our research to a broader sample of enterprises. It would also be useful to look into how much the content of specific MBA programs will mitigate the effects we found. For example, would a greater focus on sustainability, stakeholder service, and corporate social responsibility dampen self-serving instincts? Finally, we all have different personalities. How do those interact with education to drive managerial behavior?

So it’s too soon to say, “Don’t let MBAs run your company.”

A good deal has been written about the self-serving nature of MBAs, and Xiaowei and I were wondering whether or not the accusation was justified. After all, we do work for business schools. I have an MBA, and many of our colleagues have MBAs and are capable, ethical people. So don’t use our study to disparage MBAs. But do be on the lookout for evidence of the kinds of opportunistic behavior we described, regardless of who the CEO is.