Friday, December 03, 2010

Do You Need an MBA to Become a CEO?

Compensation consultants from Equilar have conducted an interesting study for Business Week. They evaluated the 50 highest-paid CEOs among a list of companies with more than $1 billion in revenue. Here are a few of the key findings:

1. Less than 50% of those CEOs had earned MBA degrees.

2. Only 9 of the top 25 highest-paid CEOs received MBAs from schools ranked in the top 10 by Business Week in 2010.

3. 7 of the top 25 received MBAs from schools ranked outside the top 30 by Business Week, or they did not receive an MBA at all.

Am I surprised? Not really. We've always known that many of the most successful CEOs lack MBAs. Jack Welch and Andy Grove had PhDs. Steve Jobs and Bill Gates dropped out of college.

Having said that, what else might explain the findings, particularly given the growth in MBA programs over the past few decades? First, the magazine does note that many of today's CEOs went to school during a time when the MBA degree was not as widespread as it is today. Perhaps the percentage of chief executives with MBAs will rise if we conduct the analysis ten years from now.

Second, Business Week points to another interesting study by two scholars that highlights the value, or lack thereof, associated with an MBA. Professors Aron Gottesman and Matthew More of Pace University's Lubin School of Business published a study in the Journal of Applied Finance in which they report no relationship between company performance and a CEO's educational background. The authors explain that executives who have not earned degrees from top schools may make up for that by simply outworking others on their way to the top. Gottesman also explains, "Business schools tend to focus on technical skills, 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."


Unknown said...

Have to wonder if selection bias plays a role here. MBAs generally are groomed for general management roles with established companies. If we eliminated founders (ex.- Steve Jobs) would the results be the same?

Michael Roberto said...

Good point, though I would note that most large business schools claim to have strong entrepreneurship programs that are supposed to be creating all these folks who go out and build great new companies.

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