Do MBAs Make Better Managers?

New Evidence Suggests the Degree May Be Overrated—and Could Even Be Hurting Workers

The MBA has become an increasingly popular credential in recent decades. In the U.S., the number of MBA degrees awarded annually has more than tripled from around 60,000 in the early 1980s to over 200,000 today. As a result, MBAs are now far more common in the corner office. In 1980, only about 14% of CEOs at large U.S. firms held a MBA. Today, that figure has climbed to nearly 40%.

But is this shift actually beneficial for companies, workers, and the economy as a whole? Tesla and SpaceX CEO Elon Musk, for one, has his doubts. "I think there might be too many MBAs running companies," Musk said in a 2020 interview with the Wall Street Journal. He argued that MBA-trained leaders often focus too heavily on the financial side of the business, at the expense of understanding and improving the actual products and services a company provides.

A clever study by economists Daron Acemoglu, Alex He, and Daniel le Maire provides compelling evidence that Musk may be onto something. The researchers analyzed detailed data from both U.S. and Danish companies, focusing specifically on firms that transitioned from non-MBA to MBA leadership. To identify the causal impact of having an MBA in the corner office, the trio employed a range of creative techniques to isolate the effect of MBA leadership from potential confounding variables. For instance, they looked at CEO changes prompted by retirements or deaths, where the incoming leader's MBA status was plausibly unrelated to the company's prior performance.

The researchers found that transitioning to an MBA CEO had little impact on sales, productivity, employment, or investment. But workers' fortunes changed markedly. Within five years of the leadership change, employees' wages fell by an average of 6% in the U.S. and 3% in Denmark, while labor's overall share of company earnings declined by 5 percentage points in the U.S. and 3 points in Denmark. The researchers estimate that the proliferation of MBA-trained leaders has likely contributed to wage stagnation and the declining labor share in the U.S., accounting for around 16% of the decline in labor share of national income and 15% of the slowdown in wage growth since 1980.

MBA-led firms were more successful in generating earnings—they were about 1.5 percentage points more profitable in terms of return on assets. But rather than being reinvested or shared with workers, the extra profits were largely funneled to shareholders through increased dividends and buybacks.

The authors went on to examine how MBA CEOs differed from their non-MBA peers in their responses to shifting business conditions. Zeroing in on Danish exporters, they found that when firms experienced one-time boosts in overseas sales, non-MBA leaders tended to share the resulting gains with employees. On average, a 10% increase in a company's value added per worker translated into a 1.7% bump in worker pay. By contrast, under MBA leadership, such rewards were more likely to be passed on to shareholders.

The researchers also analyzed the language companies used in the “Management Discussion and Analysis” section of their annual reports. Using textual analysis techniques, they found that firms led by MBAs became significantly more likely to emphasize cost-cutting, efficiency, and "shareholder value," while reducing references to employees.

This interesting study has two big implications. First, it provides more evidence for the pressing need to rethink business school education, challenging entrenched ideas like considering labor as just another input. Second, it supports the view of Musk and many others about the perils of managing via financial abstractions and cookie-cutter recipes, often developed by HQ staffers detached from marketplace realities. I’ve written about the damage of this managerialist mindset has done at GM and 3M. A whole mini-literature has recently emerged on Boeing (see here, here, or here).

As Peter Drucker once quipped: "Management is doing things right; leadership is doing the right things." Ultimately, doing right by a company means recognizing that its health depends on more than financial metrics like ROI and IRR. Long-term success is powered by people—and fostering an environment where they can do their best work. No MBA required.