Why an MBA Doesn't Make a Better CEO

by Vault Education Editors | December 03, 2010

  • My Vault

Apple's Steve Jobs, Amazon's Jeff Bezos and Google's Eric Schmidt all became wildly successful CEOs without going to business school. In fact, less than half of the 50 top-earning CEOs don't have MBAs, according to a story in Businesweek. And only nine of the top 25 received their MBAs from programs ranked in the publication's top 10.

So, "Do people need MBAs—particularly degrees from elite b-schools—to become successful chief executive officers with hefty paychecks?" Probably not, but why not?

One explanation given for why so many CEOs are MBA-less is that b-schools simply don't supply the right skills to run a large company well. Aron Gottesman, an author of a recent study that found no relationship between company performance and CEO education, said, "Business schools tend to focus on technical skills," Gottesman wrote in an e-mail, "while success at the executive level is a function of broader, more subtle skills such as communication skills, interpersonal skills, and the ability to make bold decisions quickly." The latter two skills, it turns out, were considered the most valuable job skill, according to the 2009 GMAC Alumni Perspectives Survey. The problem is that such skills can be hard to identify and measure, let alone teach.

Another explanation offered—one that makes a great deal of sense with respect to BW's report—has less to do with the value of an MBA and more to do with an inherent problem with the data set: "many executives on the highest-paid list received MBAs in the 1970s and 1980s, long before the degree became a near-certain ticket to instant riches." So, it's not that the MBA isn't useful, it just wasn't useful to these particular men of a certain age.

But let's go back to the broader question of whether a CEO's education in general impacts the long-term performance of a company. This has been studied recently as well. The consensus among these inquiries is that there's no real evidence that a CEO's degree has much to do with the long-term performance of a company.

From CEO Education, CEO Turnover, and Firm Performance (August 3, 2010):

We analyze the relationships between CEO education, CEO turnover and firm performance using a relatively comprehensive dataset on CEO educational characteristics. We show that CEO education is not significantly related to firm performance. Our results suggest that education is a poor proxy for CEO ability. Nevertheless education does play an important role in CEO hiring decisions; boards still use educational qualifications as criteria in evaluating potential CEOs. We considered 6 primary measures of CEO education (22 in total), for the largest 1,500 U.S. firms during 1993-2007. The results show that firm performance is the dominant factor in determining disciplinary CEO turnover; however, CEO education might play a role. CEOs with a Top-20 law degree are less likely to experience disciplinary turnover, and, given poor performance, CEOs with a Top-20 undergraduate degree are more likely to experience disciplinary turnover. Interestingly, firms look to replace a CEO with a new CEO who has the same education-type background as the former CEO – especially following disciplinary turnover. This suggests that boards believe that the individual's educational pedigree is an important qualification for meeting the requirements of being CEO at their firm, but that they don't necessarily believe that the former CEO's education is at all responsible for his/her failures (or else they would have looked to hire a new CEO with a different education).

Then why do boards still use education as a factor in hiring CEOs? Findings from the same study shed some light on this. Absent easy-to-measure qualities, board members tend to rely on the kind of information that you'd find on a resume: work experience, track record and education. (There does, however, seem to be a correlation between the education levels of CEOs with MBAs and short-term operating improvements.)

The takeaway, I guess, is that an MBA won't help make you a better CEO, but it will help you get hired as one because boards think it does?

Filed Under: Education

Close button

Get tips on interviewing, networking, resumes, and more directly to your inbox.

No Thanks

Get Our Career Newsletter

Interview, resume and job search tips emailed directly to you.