Tesla’s chief executive blames business schools for lack of innovation; deans are firing back
PUBLISHED : 11 DEC 2020
WRITER: PATRICK THOMAS
What is wrong with American corporations? Elon Musk says too many M.B.A.s. are polluting companies’ ability to think creatively and give customers what they really want.
His comments criticizing M.B.A.s came amid a broader conversation about leadership before an online audience during The Wall Street Journal’s CEO Council annual summit, where he also encouraged executives to step away from their spreadsheets and get out of the boardroom and onto the factory floor.
“I think there might be too many M.B.A.s running companies,” the Tesla Inc. chief executive said. “There’s the M.B.A.-ization of America, which I think is maybe not that great. There should be more focus on the product or service itself, less time on board meetings, less time on financials.”
Many business-school leaders shot back, saying that Mr. Musk’s comments don’t match the reality of what is taught in M.B.A. programs and that more students than ever who are pursuing the graduate degree are interested in entrepreneurship and tech rather than Wall Street.
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“I have nothing but the utmost respect for Elon, but he’s wrong to focus the blame on M.B.A.s,” said Robert Siegel, a lecturer in management at the Stanford Graduate School of Business.
“I think he’s got a strong element of truth of what leaders should be focused on, but he is completely off base talking about M.B.A.s.”
Mr. Siegel said Stanford offers students a variety of business-school courses on product development and customer engagement.
There are also opportunities for budding entrepreneurs to pitch their business plans for capital as well as to work with professors and other departments, such as the engineering school, to help launch their ideas, he added.
Glenn Hubbard, the former dean of Columbia Business School, said an M.B.A. gives entrepreneurs the foundation needed to succeed, including imagining a product for a customer’s needs, developing a strategy, putting together a financing plan and building a team.
“He is a visionary, but many CEOs do well at vision and execution with the benefit of an M.B.A., or with a strong team of M.B.A.s.”
Among the top 100 CEOs in the Fortune 500, roughly a third holds a master’s in business administration, according to the U.S. News Best Business School rankings.
Five M.B.A. programs have trained more than one Fortune 100 CEO, including Harvard Business School, which counts JPMorgan Chase & Co. chief James Dimon and Lawrence Culp Jr., the CEO of General Electric Co., among its alums, and Stanford, where General Motors Co. CEO Mary Barra and Capital One Financial Corp. CEO Richard Fairbank went to business school.
Not all Fortune 100 CEOs with an M.B.A. attended a highly ranked program, the report says. For instance, Stephen Squeri, CEO at American Express Co., earned his degree from Manhattan College’s O’Malley School of Business.
Raj Echambadi, the dean of Northeastern University’s D’Amore-McKim School of Business, questioned Mr. Musk’s assertion that CEOs shouldn’t be attuned to their company profitability, adding that an M.B.A. can give corporate leaders a holistic understanding of business, from the supply chain, operations and manufacturing to marketing, customer service and human resources.
“Do we really think that investor focus on financials is an MBA-education problem?” said Rich Lyons, the former dean of the University of California, Berkeley’s Haas School of Business.
“Do firms with fewer M.B.A.s on their boards and senior teams have shorter meetings? I’m skeptical. Might Musk’s rightful emphasis on product be more a function of the science-driven industry he’s in, as opposed to valid generalization?”
Some critics of the M.B.A applauded Mr. Musk. Dan Rasmussen, a partner at investment firm Verdad Advisers in Boston, said he was delighted by Mr. Musk questioning the value proposition of business education.
Mr. Rasmussen wrote a report published in 2019 in Institutional Investor that found M.B.A. programs don’t produce CEOs who are better at running companies when their performance is measured by stock-price return.
“What Musk is pointing out here is rewarding doers rather than focusing on airy concepts such as management,” Mr. Rasmussen said. “I’m in favor of a society that favors doing and action rather than pedigree. People devoted to the company might be better or equal to a star M.B.A. that got head-hunted into the company.”
This wasn’t the first time Mr. Musk or other tech leaders have criticized the M.B.A.
In a 2013 interview with the American Physical Society, a nonprofit professional organization for people in physics-related industries, Mr. Musk said: “I hire people in spite of an M.B.A., not because of one.”
Peter Thiel, the venture capitalist who started PayPal Holdings Inc. with Mr. Musk and others two decades ago, once said: “Never ever hire an M.B.A.; they will ruin your company.”
Tesla is one of the most sought-after places to work for young graduates and many business-school students, according to Handshake, a student career-services website that college graduates use to look for work.
For the past five years, the electric-car maker has consistently ranked among the top three employers receiving the most job applications
Jeff Bezos, the longtime head of Amazon.com Inc., has criticized M.B.A.s. in the past. But as the e-commerce retailer has grown over the past decade, it has become one of the biggest employers of M.B.A. graduates.
M.B.A. programs have faced criticism over whether their often hefty price tags are worth it. Some of the highest-ranked M.B.A. programs can cost six figures without any living expenses added in or factoring for the opportunity costs of taking two years out of a career to pursue the degree.
Kai Thompson, a recent M.B.A. graduate of the University of Minnesota’s Carlson School of Management who works as a consultant, said his education was worth it.
“The assumption of Mr. Musk that all M.B.A.s care more about finances, spreadsheets, PowerPoint presentations, and board meetings than delivering quality products and services to customers is just simply inaccurate,” he said.