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Do CEOs with MBAs perform better?


CEO MBA runningThis article also appeared in Finweek Magazine in their 17-Jan-2013 issue

In recent years MBA programmes have received a lot of criticism: teaching flawed financial thinking, ignoring business ethics, hiding from the real world of business and sheltering MBA students in academic theory. And so, as the argument goes, MBA business leaders are ruled by greed and short-term gain. Hence much of the blame for the global financial crisis fell on high-profile MBA alumni like Lehman Brothers’ Richard Fuld (Stern’s MBA of 1973), and Merrill Lynch’s John Thain (Harvard 1979). Let’s not forget Jeff Skilling of Enron, who had an MBA, while Bill Gates and Steve Jobs didn’t even complete university.

With these criticisms in mind, do MBA-degreed CEOs perform better than their non-MBA peers? The effect of a CEO’s MBA (or lack of one) on the business’ performance is very much contested ground, with evidence to support both sides.


In the YES corner:

1. CEOs with MBAs tend to do better than those without MBAs. Recently, Chief Executive magazine and Applied Finance Group, a Chicago equity research and valuation company, compiled a list of 359  of the best and worst CEOs from S&P 500 companies, on the basis of how much money their firms earn. Bloomberg Businessweek examined this list and learned that around 50% of the top 10 CEOs on the list have an MBA. Of the bottom 10 CEOs, only two had MBAs (i.e. 20%). Compare this to Spencer Stuart’s findings, where approximately 40% of S&P 500 CEOs have MBA degrees in any given year. Harvard’s Professor William Sahlman said: “The fact that there is a disproportionate number of CEOs with an MBA at the top of the list compared to the bottom of the list, suggests that they do perform better with an MBA. But it’s only suggestive [bearing in mind that the sample size was small].”

2. According to a 2010 study by three Insead professors, CEOs with MBAs create far more shareholder wealth than those without an MBA. This research was carried out on over 1,100 CEOs in the US and Europe.

3. MBAs make better CEOs than non-MBAs. These were the research findings of Herminia Ibarra, Morten Hansen and Urs Peyer, the authors of a Harvard Business Review article rating the top 100 CEOs worldwide. They examined the educational records of 1,109 out of 1,999 top-performing CEOs. Even though less than one-third were MBAs, this MBA minority had some noteworthy stats in their corner:

  • CEOs with an MBA ranked an average of 40 places higher in the list;
  • shareholder returns of CEOs with MBAs averaged 93%, compared to 81% for their non-MBA peers;
  • 100 of the MBAs became CEOs by age 50, as versus only 40 in the non-MBA segment;
  • Five of the top 10 CEOs studied MBA degrees (however only four graduated).

So why might the MBA degree be a CEO’s secret sauce? Here are some thoughts that the researchers offered:

  • MBAs have better skills, adding “right-brain creativity and warmth to left-brain logic and financial acumen. Or vice versa. It can even help get the hard and soft skills working together,” they suggested;
  • MBAs’ networks “pay out” returns during the entire duration of their post-MBA careers;
  • MBAs may be more prepared to work on themselves and to consider new ideas;
  • MBAs develop wider outlooks.

4. In the US, CEOs with MBAs seem to earn more than CEOs without. The MBA is a “finishing school” for the C-suite, especially for the generation of executives who graduated in the Eighties and Nineties and are now at the peak of their careers. CEOs like Apple’s Tim Cook who was awarded a sizeable $378m package in 2011 and graduated from business school in 1988. A remarkable 40 of the 100 highest paid CEOs in America in 2011 have an MBA. This is according to the Forbes list of America’s Highest Paid Chief Executives. Harvard comes in first place, with an impressive twelve Harvard MBA graduates among the top 50 best paid CEOs in corporate America in 2011. Aside from developing strong leadership skills, such a showing speaks volumes about the negotiation skills that future CEOs build during the Harvard MBA. However, looking at it another way, it could also suggest that Harvard excels at selecting MBA students with the highest potential as CEOs.


In the NO corner:

1. CEOs with MBAs tend to do better than those without MBAs. Research in 2010 by Bhagat, Bolton and Subramanian found that, while CEOs with MBAs produce short-term performance gains, there is no link between the MBA degree and long-term improvements. According to the authors, “CEO education does not seem to be an appropriate proxy for CEO ability.”

2. Except for the most prestigious MBA programmes, having an MBA or attaining top marks in business school doesn’t correlate with career success. This is according to one of the most prominent – and possibly unexpected – opponents of MBA programmes, Jeffrey Pfeffer, a professor of organisational behaviour at Stanford. These findings are based on a provocative study by Pfeffer and Stanford doctoral student Christina Fong.

3. Critics always mention the many successful CEOs and entrepreneurs who never went to business school, or even completed college. Famous college dropouts include: Facebook’s Mark Zuckerberg, Michael Dell of Dell, Larry Ellison of Oracle, Virgin’s Sir Richard Branson, Steve Jobs of Apple, and Microsoft’s Bill Gates.

4. On its own, is the MBA the route to super riches? Not if you are an entrepreneur. As the Forbes Wealthiest Billionaires list indicates, the über-rich are more likely to have dropped out of school (Gates, Ellison, Dell, Zuckerberg and Jobs from the US, Eike Batista from Brazil, India’s Mukesh Ambani, and Li-Kashing from Hong Kong). In the Forbes 2011 list, steel tycoon Alexei Mordashov from Russia is the wealthiest MBA at 29th spot, just in front of Harvard MBA Michael Bloomberg. The only other MBAs to make it into the top 50 are Harvard alumnus and hedge fund guru John Paulson, and Germany’s Susanne Klatten, an IMD MBA and family heir of BMW Pharmaceuticals.
You have a much better chance of making the Billionaire List if you started from scratch and had something to prove (or at least a garage and a great idea), were in line to a family fortune (Carlos Slim from Mexico, Christy Walton and other Walmart clan, and Liliane Bettencourt of L’Oréal), or have your fingers on oil, metals and other commodities in Russia. If you do go to business school, a Masters in Science seems to be a strong bet (Warren Buffett, Bernard Arnault of LVMH, the Koch brothers, and Google’s Larry Page and Sergey Brin are all in the top 50).

5. Do directorships and the MBA go together? Surprisingly, not really. Most of us study an MBA to advance our careers. In support of this, there is a common belief that directors are likely to have MBA degrees. But is this true? In 2011 the SA Institute of Chartered Accountants (SAICA) conducted an interesting survey that revealed otherwise. SAICA’s survey found that about a third of the chief executives of the 194 top listed companies on the JSE were chartered accountants. SAICA completed a comprehensive update of the JSE’s database of directorships which showed that 32% of CEOs and a further 32%, or 692, of directors at the top listings were qualified CAs. In contrast, only 10% of board directors held an MBA, which is much lower than expected.

6. Are CEOs with MBAs stronger leaders than non-MBA CEOs? It depends on the CEO’s age. Motivated by the rampant argument over the role of MBAs in the global crisis, Herminia Ibarra and Morten Hansen explored whether having an MBA affects overall CEO performance. In an extensive study of CEO performance since taking office, they found that MBA CEOs performed only marginally better than their non-MBA peers. Investigating the performance of 2,000 CEOs worldwide, those with an MBA on average ranked 40 places higher than CEOs without an MBA (a statistically significant difference). However this hinged on the CEO’s age. The median age of becoming a CEO was 52 years old. When they limited the sample to CEOs who began when they were under 50, the ranking advantage for having an MBA rose: it was an even bigger advantage of having an MBA in the sub-50 group (from 40 to 100 places higher on our list). Thus, in this “younger” group, CEOs with an MBA tended to perform better than their non-MBA peers. The researchers also ranked the CEOs who began before 2000, as versus those who started in or after 2000. In the pre-2000 group, CEOs with an MBA tended to perform better than those without an MBA. So the MBA advantage is bigger for CEOs who started before year 2000 (from 40 to 108 places higher in the ranking). So, if you were “young” (less than 50 when becoming CEO) and became CEO before 2000, you got a greater return for your MBA degree. For older CEOs, the advantage of an MBA was there prior to 2000, but not after 2000. This raises a key question: over time, is the MBA becoming less and less valuable for aspiring leaders?

7. An MBA is only worth as much as what you make of it. “An MBA is great, but it’s no substitute for real world experience,” says US HR expert Lori Kocon. “While it certainly won’t hurt your chances for getting hired or for advancement, an MBA alone – even from Harvard – doesn’t open doors the way it once did. Whether an MBA would pay off for you depends on a lot of factors including the industry, company and job you are targeting, as well as how artfully you apply what you learn. It can definitely give you an edge, but you need to go into it with realistic expectations and realize that in the end, an MBA is worth what you make of it.”


And so, do CEOs with MBAs perform better than their non-MBA peers? The answer to this important question is still undecided, with findings to support both sides. When looking at the research, one complicating factor to bear in mind is that the MBA degree itself may actually attract people who are particularly motivated, ambitious, driven and willing to learn. The results may reflect these traits rather than the effect of the MBA degree itself. More research is needed to settle the debate.

Author: Colette Symanowitz

Director of FraudCracker. Passionate about entrepreneurship, personal branding and networking. I also tweet under @FraudCracker

7 thoughts on “Do CEOs with MBAs perform better?

  1. Also worth keeping in mind that some of the MBA programs are very competitive (Harvard, for example). Only those who are already likely to succeed get accepted – correlation does not imply causation.

  2. Hi Colette, interesting subject. I got my MBA degree at INSEAD (European ranking among the “top 5” MBA programs) and we did some statistical analyzes of MBA graduates data. and agree with your post: there was no correlation with grades and future success (as well as MBA and future success or knowledge and future success). What we concluded is that you could probably end all top MBA courses and leave only the admission committee to filter people (similar to the point brought by Alan, above). However, you also have a network that you can’t measure.
    I would say that a) if you already have a fast paced career b) finance and business training c) international, multicultural experience d) strong network (in you home country and abroad; in you expertise and out of it), you probably need only as a “sign of commitment” to development.
    Having said that, having a degree like that in Brazil opens many doors (because MBAs are not that common) – and in my case, having studied hardcore finance and going to work in HR helps more. 🙂

  3. Thanks Alexandre, sounds like us MBAs need to head to Brazil, because MBAs are becoming a commodity everywhere else.

    You should connect with my hubby Gavin Symanowitz, like you he has a finance background (actuary with PhD in stats) and is an HR entrepreneur. His site and contacts are at http:// http://www.feedbackrocket.com

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