01/19/10

MBA, a Variable of CEO’s Poor Performance?

In the podcast episode of Harvard Business IdeaCast, Ranking the World’s Best CEOs, an interesting topic was discussed: Impact of having an MBA to CEOs’ performance. Apparently, because of the way of financial crisis, a lot of critiques have been made of MBA CEOs for destroying value rather than creating it, so the value of having an MBA is questioned.

The research included MBA as one variable into analysis of CEO performance. The data shows having  an MBA giving CEOs a small edge. However, it doesn’t mean MBA education is correlated to CEO’s performance. Because MBA degree has been so incredibly wide spread that it’s common for people seeking a career in business to obtain a MBA. Hence there are more good and bad CEOs in general with MBA degree. The companies in trouble have many CEO with MBA just because there are more MBAs in the market now, and there are also many MBA CEOs delivering good performance.

I have a MBA so this analysis sounds a little bit funny to me. This podcast reminds me of an example from a company I worked for in the past. The company has a great business model with significant market share and growth rate. Nevertheless, the shareholders asked for a higher margin. The business involves a lot of repairing and recycling activities. In order to reduce the operating cost, the former CEO took a radical step to mandate a lower repair rate. In the short term, he achieved a rosy performance of achieving cost reduction. However, the products which were supposed to be repaired were delivered to the customers without proper repairing. It didn’t take too long for customers to notice the products with lower quality and switch to the competitors. As a result, the CEO was let go, but the damage of reputation and market share was difficult to remedy even when the company injected huge amount of money to improve quality. The former CEO has a MBA from a top-ranked program famous for its rigid ethical codes and catholic background. In this case, is his MBA degree a cause for his failure? I don’t think so.

A MBA degree is a great channel to enhance business knowledge and develop management skills through intensive study and team work. There are plenty of curriculums emphasizing the importance of ethics in every MBA program. Unfortunately, MBA degree can’t change the fact that many CEOs or businesses face pressure from shareholders, which sometimes results in unethical behaviors or decisions based on short-term benefits but hurting the business and their shareholders in the long term. Ultimately, with or without a MBA, human mentality and behavior are the critical variables to either create or destroy value.