Does an MBA Make You a Better CEO?

by Herminia Ibarra and Morten T. Hansen  

Are CEOs with MBAs actually stronger leaders? The answer might depend on the age of the CEO.

Inspired by the raging debate last year over the role of MBAs in the financial crisis, we tried to analyze whether having an MBA influences overall CEO performance. In a large-scale study of CEO performance since they took office, we found that other things equal, MBA CEOs had a slight performance edge over their non-MBA peers. In our analysis and ranking of the performance of 2,000 CEOs around the globe, CEOs who had an MBA on average ranked 40 places higher than CEOs who didn't have an MBA (a statistically significant effect).

Why the positive effect? Is it as simple as CEOs with MBA training are, in fact, better equipped to lead companies? Does this, in effect, vindicate MBAs programs battered by criticism in the past year about their role in the ethical and strategic lapses that, in turn, led to the current economic crisis?

Perhaps it's not that simple. Thinking through this question, we reflected on changes in MBA programs over the past couple of decades. As eloquently documented by Rakesh Khurana, there was a massive influx into MBA programs over the past 20 years. And, curriculum and faculty foci underwent a transformation from generalist topics taught by faculty grounded in the world of business to a specialized (read: analytic) curriculum taught by a research faculty increasingly disconnected from the practice of management.

So, we wondered if the MBA would be different for different age cohorts of CEOs. One hypothesis is that having an MBA might have given an edge to CEOs getting them when it was less of a commodity, and when business education was more of a generalist, "art rather than science" course of study. Has the performance value of an MBA decreased over time? That's one hypothesis. The competing one would be that over-time the value of the MBA has increased: thus, the tens of thousands of students rushing to business schools are reading the market signals right. Which one is your guess?

Let's take a look at age. The median age of becoming CEO was 52 years old. When we restricted the sample to CEOs who started when they were less than 50 years old, the ranking advantage for having an MBA increased: it was an even bigger advantage of having an MBA in the sub-50 group (from 40 to 100 places higher on our list). That is, in this "younger" crowd, CEOs who had an MBA tended to perform better than those who didn't have the degree.

We also divided the sample by year that the CEO took charge, splitting the sample at the year 2000 (i.e., ranking of CEOs who started before versus in or after 2000). We find that the MBA advantage is bigger for CEOs who started before year 2000 (from 40 to 108 places higher in the ranking). That is, in the pre-2000 group, CEOs who had an MBA tended to perform that much better than those who didn't have an MBA.

So, if you were "young" (less than 50 when becoming CEO) and started the chief job before 2000, you got more bang for the buck for your degree.

For older CEOs, the benefit of an MBA was there before 2000, but not after 2000.

The year-effect raises an important question: Is the value of the MBA for aspiring leaders declining? Or is it more important than ever as we dive into a highly global and uncertain business world this new decade?

Morten T. Hansen (morten.hansen@insead.edu) is a management professor at the University of California, Berkeley, School of Information, and at Insead. Herminia Ibarra (herminia.ibarra@insead.edu) is a professor of organizational behavior and the Cora Chaired Professor of Learning at Insead
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