In this company article, Susan Dunn shares findings from a MIT study that highlights the problems that arise when companies hire MBA CEOs.
A landmark study reveals MBA CEOs take short-term view
Between 1981 and 2019, the share of major US companies led by MBA CEOs nearly doubled, from 27% to 45%. We’ve decided business school credentials create better leaders. But a groundbreaking MIT study reveals an uncomfortable truth: MBA CEOs cut worker wages significantly—6% in five years in the US—while delivering zero improvement in company performance.
Same Performance, Lower Wages
Researchers examined every business metric imaginable. Revenue growth? Identical between MBA and non-MBA CEOs. Productivity? The same. Innovation and R&D? No difference. Investment? Equal. Employment growth? Similar.
MBA CEOs don’t grow companies faster or invest more wisely. They simply pay workers less and give the difference to shareholders. The companies weren’t struggling beforehand. They don’t improve afterward. Workers just earn less.
The Two-Year Trick
Here’s what does change: Stock prices jump 5% within two years of an MBA appointment. Dividends and buybacks increase immediately. Return on assets improves quickly. But there’s no corresponding improvement in revenue growth, innovation, or productivity—outcomes that take years to develop and represent genuine value creation.
This is short-term optimization in action: deliver immediate returns by cutting labor costs, not by building something better. It works brilliantly for quarterly targets. It does nothing for long-term competitiveness. Meanwhile, the best workers—those with options—start leaving. But that cost is invisible in quarterly reports, showing up years later as reduced innovation and weakened capability.
When Fortune Strikes, Who Benefits?
The study examined what happens when companies get lucky—when market conditions suddenly improve.
Non-MBA CEOs share the windfall. When profits jump 10%, they raise wages about 1%. When the company does well, everyone benefits. MBA CEOs? They share nothing. Zero wage increase despite identical profit gains. Every dollar goes to shareholders.
This reveals different time horizons. Sharing profits builds loyalty and reduces turnover—benefits that materialize over years. But if you’re focused on this quarter’s earnings, why make that investment? Tellingly, during downturns both CEO types avoid wage cuts. The difference appears only when there’s success to distribute. Non-MBAs share it. MBAs capture it immediately for shareholders.
Key points include:
- What Business School Teaches
- The Investment That Doesn’t Happen
- The Quarterly Capitalism Trap
Read the full article, The MBA Problem, on ThirdThought.com.