For MBAs, a Year of Infamy
By Louis Lavelle
An unraveling economy is bound to
generate more than its share of failures.
But this one has generated an odd sort
of culling of the herd. Instead of taking
down the low-hanging fruit—executives
with no business training and fewer
financial smarts—the current economic
crisis has claimed as casualties some
highly trained business practitioners
who ought to know better: MBAs.
By almost any measure, it has been a bad
year for the MBA brand. The list of Bschool alumni who have come under
withering criticism includes those from
the worlds of business, government, even
academia. The reputations of few top Bschools were left unscathed as the titans
of the financial world fell like dominoes:
Lehman Brothers' Richard Fuld (NYU,
1973), Merrill Lynch's Stan O'Neal
(Harvard, 1978), and Wachovia's Ken
Thompson (Wake Forest, 1975) among
them.
It's worth noting that non-MBAs didn't
have such a great year either. In fact,
Jim Cayne at Bear Stearns, Franklin
Raines at Fannie Mae, and Martin
Sullivan at AIG never set foot in a Bschool. And while some might think
Bernie Madoff had an MBA, with a
concentration in pillaging, he is in fact
a poli sci graduate of Hofstra—to the
relief of B-school deans everywhere.
What follows is a highly subjective list of
failed MBAs. The vast majority toppled
in the past year or so. But the final halfdozen (slides 17-22), which predate the
current crisis, have earned a place in the
Hall of Shame by virtue of their criminal
records or the enormity of their
misdeeds.
George W. Bush
Former U.S. President
MBA: Harvard
A 1975 graduate of Harvard Business
School, Bush left a record managing
foreign wars, the federal budget deficit,
and the economy that made him the least
popular President in modern history. Bschool critic Henry Mintzberg thinks that's
no coincidence. He points to the case
study method that has dominated the HBS
curriculum for nearly a century, and
suggests that Bush's management style is
the result.
Good managers are decisive, and so good
management students must take a stand,"
Mintzberg writes. "That is the key premise
behind the case study method…the student
reads a 20-page case one day and declares
on the next what the company should do.
Refuse to do so with the claim that this is a
superficial exercise and you are shown the
door. George W. Bush was not shown the
door. So it may not be coincidental that his
decision making about Iraq has resembled a
case study. Certainly no one has accused
[Bush] of lacking decisiveness."
"
Christopher Cox
Former SEC Chief
MBA: Harvard
The chairman of the Securities &
Exchange Commission under Bush,
Cox has been criticized for missing the
signs that Wall Street was poised for a
meltdown, for his long-standing
support of deregulated markets, and for
ignoring multiple warnings about the
Bernie Madoff scandal. Cox, like Bush,
is a graduate of Harvard B-School,
where the ability of free markets to selfregulate is, as is in most business
schools, an article of faith.
Richard Fuld
Former Lehman Brothers CEO
MBA: NYU, Stern School of Business
A 1973 graduate of New York University
B-School, Fuld took over Lehman
Brothers when it was spun off from
American Express in 1994 and held the
position until Lehman's collapse in
2008. Ignoring warning signs, Fuld took
on outsize risk from subprime
mortgages that ultimately destroyed
the company.
Andy Hornby
Former CEO of HBOS
MBA: Harvard
Hornby led HBOS, one of Britain's
largest banks, to the brink of collapse
before his resignation in January.
The bank, which suffered massive
losses in 2008, was ultimately taken
over by Lloyds TSB.
Jeff Immelt
General Electric CEO
MBA: Harvard
Once the golden boy tapped to
succeed the legendary Jack Welch,
this Harvard graduate has fallen on
hard times. With troubles mounting at
General Electric's finance arm, GE's
stock has been battered, with $300
billion in market cap disappearing
since late 2007.
Kerry Killinger
Former CEO of Washington Mutual
MBA: Iowa, Tippie School of Business
For 18 years, Killinger led Washington
Mutual, building it into a retail banking
behemoth. But by last year its shaky
foundations were becoming apparent.
With losses from subprime mortgages
mounting, this 1971 Iowa MBA
graduate was fired as CEO on Sept. 8.
A few weeks later, WaMu was siezed
by the FDIC and its assets sold off to
JPMorgan Chase.
Edward Liddy
CEO of American International Group
MBA: George Washington University
Liddy, a 1972 MBA graduate of George
Washington University, doesn't get the blame for
AIG's near-demise and the collapse of the
economic house of cards that followed. (That
goes to his predecessors, Martin Sullivan and
Hank Greenberg, who don't sport a B-school
credential.) Liddy's flaw: defending a $440,000
corporate retreat for AIG executives at the posh
St. Regis Resort in Monarch Beach, Calif., that
took place after the U.S. saved the company from
insolvency with $84 billion in loans. To his credit,
Liddy has urged executives who received $165
billion in bonuses to return the cash.
Stan O'Neal
Former CEO of Merrill Lynch
MBA: Harvard
As its CEO for five years, O'Neal
transformed Merrill Lynch into an
overleveraged firm awash in toxic assets
that was eventually forced into a shotgun
marriage with Bank of America. Under
O'Neal, who received his MBA from
Harvard B-School in 1978, Merrill Lynch
became one of the biggest underwriters of
mortgage-backed securities on Wall
Street. When those bets went sour with
the end of the housing boom, so did
O'Neal's career. He called it quits in
October 2007.
Vikram Pandit
CEO of Citigroup
MBA: Columbia
Under Pandit's watch since December
2007, heavy exposure to collateralized
debt obligations inherited from his
predecessor crippled Citigroup, forcing
it to make tens of thousands of job cuts
and accept a $25 billion federal bailout.
Since mid-2007, Citigroup lost more than
90% of its market cap. Pandit got his
MBA from Columbia in 1980.
Hank Paulson
Former Treasury Secretary
MBA: Harvard
As the Bush Administration's point man
on the financial crisis since 2006, the
former head of Goldman Sachs pushed
through the federal takeover of Fannie
Mae and Freddie Mac, and saved AIG
from collapse with an $85 billion loan.
But his rescue plan was hopelessly
inadequate, and the decision to let
Lehman fail made a bad situation worse.
He received his MBA in 1970.
Marion Sandler
Co-CEO of Golden West Financial
MBA: NYU, Stern School of Business
With her husband, Herbert, this MBA
graduate of New York University BSchool for many years ran Golden West
Financial, once the nation's secondlargest savings and loan. Golden West's
World Savings Bank pioneered the use of
the option ARM mortgage with low teaser
rates. The couple sold World Savings to
Wachovia at the peak of the housing
boom in 2006, and when many of those
loans went south with housing market,
they took Wachovia with it.
Myron Scholes
Stanford Professor
MBA: Chicago, Booth School of Business
The Nobel Prize winner in economics, who with
Fischer Black and Robert Merton created the
Black-Scholes formula for valuing stock
options, was a co-founder of Long Term Capital
Management. That hedge fund blew up in 1998
in the wake of the Russian financial crisis and
required a massive bailout by major banks.
Since the Black-Scholes formula provides the
underpinning for modern derivative markets,
Scholes also has been called the "intellectual
godfather" of credit default swaps, the complex
derivative contracts that led to AIG's downfall.
Scholes received an MBA from Chicago in
1964.
John Thain
Former CEO of Merrill Lynch
MBA: Harvard
Merrill Lynch's problems began long before
Thain took the helm from predecessor and
fellow Harvard grad Stan O'Neal. But Thain
certainly didn't help on the PR front. Thain
approved early bonuses of nearly $4 billion to
Merrill employees following a $15 billion fourthquarter loss and shortly before the firm's
distressed sale to Bank of America—it's unclear
if federal bailout funds were used. That,
combined with a $1.2 million office renovation
that included a $1,400 wastebasket (all costs
subsequently covered by Thain) portray Thain
as a tone-deaf leader. Bank of America CEO Ken
Lewis gave Thain his walking papers in January.
Ken Thompson
Former CEO of Wachovia
MBA: Wake Forest, Babcock Graduate School of Management
Thompson, who holds an MBA from Wake
Forest, was ousted as CEO of Wachovia
last year after the bank reported steep
mortgage-related losses. In one sense,
Thompson was not to blame: Many of the
losses stemmed from the subprime loan
portfolio Wachovia took over as part of
the company's $25 billion acquisition of
Golden West Financial in 2006. In another,
however, it was: After all, it was
Thompson's deal. After Thompson's
departure in July, Wachovia was
ultimately sold to Wells Fargo.
Rick Wagoner
Former CEO of General Motors
MBA: Harvard
A GM lifer since 1977, the year he
received his MBA from Harvard,
Wagoner has been CEO since 2000. On
his watch, GM's market share has
slipped from 28% to 18.6%. And, despite
the elimination of nearly 70,000 jobs
since 2005, the company has been
operating in the red for the past four
years—losing $31.5 billion in 2008 alone.
Wagoner failed to restructure GM and
change its culture fast enough to
prepare it for the swift downturn of last
year that pushed the automaker toward
bankruptcy. He killed Oldsmobile, but
also engineered the purchase of
Hummer, which hasn't worked out. And
he hung on to moribund Swedish brand
Saab past its sell-by date.
At the end, the company was surviving
on government loans. With President
Obama threatening to withhold
additional cash unless Wagoner left, he
did just that in March.
Andrew Fastow
Former Enron CFO
MBA: Northwestern, Kellogg School of Management
Hall of Shame Claim to Fame:
Indicted by a federal grand jury in Texas in 2002 for
his role in the Enron collapse, the company's former
CFO was charged with 78 counts including fraud,
money laundering, and conspiracy. In 2004, he
pleaded guilty to two counts of wire and securities
fraud, agreeing to serve a 10-year prison sentence. In
exchange for his cooperation with federal authorities
investigating other former Enron executives, his
sentence was reduced to six years. His wife, Lea
Weingarten, who served a one-year prison term
following her guilty plea to a misdemeanor tax charge
stemming from the Enron scandal, also has an MBA
from Kellogg.
John Meriwether
Founder Long-Term Capital Management
MBA: Chicago, Booth School of Business
Hall of Shame Claim to Fame:
A pioneer in fixed-income arbitrage while at
Solomon Brothers in the 1980s, Meriwether
founded Long-Term Capital Management in
1994. The hedge fund's collapse four years
later, on the heels of the Russian financial
crisis, threatened to destabilize the global
economy. The Federal Reserve Bank of New
York organized a $3.6 billion bailout by LTCM's
major creditors, avoiding a wider collapse of
financial markets.
Michael Milken
Former "Junk Bond King" at Drexel Burnham Lambert
MBA: Wharton
Hall of Shame Claim to Fame:
In 1989, following a lengthy investigation into
Milken's trading activities during the 1980s buyout
boom, a federal grand jury indicted him on 98
counts of racketeering and fraud, including insider
trading, tax evasion, and other charges. The
following year, he pleaded guilty to six felonies,
agreed to pay $200 million in fines, and accepted a
lifetime ban from the securities industry. He
ultimately served 22 months in prison.
Joseph Nacchio
Former CEO of Qwest Communications
MBA: NYU, Stern School of Business
Hall of Shame Claim to Fame:
CEO of Qwest from 1997 to 2002, Nacchio was
convicted of 19 counts of insider trading in Qwest
stock in 2007. He was ordered to pay more than
$70 million in fines and other penalties and was
sentenced to six years in federal prison. An
appeals court overturned the conviction in 2008
and ordered a new trial. In addition to his MBA
from New York University, Nacchio has an MS in
management from Massachussets Institute of
Technology's Sloan School of Management.
Frank Quattrone
A former investment banker at Credit Suisse First Boston
MBA: Stanford
Hall of Shame Claim to Fame:
Quattrone was prosecuted for allegedly
interfering with the government's probe into
the allocation of hot IPOs at Credit Suisse,
where he helped take dozens of companies
public during the 1990s tech boom,
including Netscape, Cisco, and
Amazon.com. His May 2004 conviction was
overturned on appeal. As part of a 2006
deferred prosecution deal, Quattrone will
not be retried.
Jeff Skilling
Former CEO of Enron
MBA: Harvard
Hall of Shame Claim to Fame:
After graduating near the top of his class at
Harvard, Skilling went on to work for
McKinsey, where Enron was a client. Hired by
Ken Lay in 1990, he became CEO in 2001.
Five years later he was convicted of multiple
felony counts in connection with Enron's
financial collapse. He is currently serving a
24-year, 4-month term at a federal prison in
Colorado.