You couldn’t make it up if you tried. First, recall the behaviour of the bosses of P&O Ferries, who last month sacked 800 staff, many via a pre-recorded Zoom call. P&O was probably in breach of UK employment law and certainly in breach of decency. You’ll remember it. The boss of the firm, Peter Hebblethwaite, was asked by a House of Commons committee if he was a “shameless criminal” and told by a Scottish Parliament committee that he was the most hated man in Britain.
Now go to the 2021 annual report of P&O’s parent, DP World. There, you can find the Dubai-based company soothingly explain that “we have a duty of care for the welfare of our employees and would like to ensure that their wellbeing is prioritised in all aspects of their work and life”. Surely as unequivocal proof, the report adds that during 2021 P&O Ferries “hosted bespoke sessions (for employees) on several physical and mental health topics like mindfulness, depression, burn-out and suicide awareness”.
Doubtless, it was a mark of the success of these sessions that Hebblethwaite and his pals running P&O Ferries felt it was okay to do away with the niceties of a redundancy programme for the affected workers, such as consultation periods. “No problem, Pete,” said the HR director. “Those boys and girls have done the sessions. They’re overloaded with mindfulness. They’ll know how to cope. You just get on with the Zoom recording. I’ll do the text messages.”
Sure, we can dismiss the sententiousness of DP World’s annual report as standard corporate spin. Much the same might be said of the garbage on P&O Ferries’ website telling us that “our vision” (clearly a delusional one) is to “lead the industry in setting the standards for best practice in wellbeing”. But if corporate social responsibility means anything it is that companies and the bosses who run them behave, so far as possible, in the way that their spin claims.
All of which prompts the thought, does the P&O Ferries boss hold a business degree? My guess is 'no', although the company isn’t saying. The question is related to P&O’s shameful episode because a new research paper, jointly authored by one of the world’s mostly highly rated economists, suggests companies run by bosses with a business degree are more likely to be nasty to employees’ compared with companies led by people without one.
The economist is Daron Acemoglu, best known as the joint author of Why Nations Fail, a 2012 study that explains the interlocking factors determining a nation’s success or failure. Rather more parochially, his March 2022 paper deals with bosses’ attitudes towards generating and sharing company profits. Based on research in the US and Denmark, the paper claims three main findings:
● When a chief executive with a business degree (let’s assume it’s an MBA) takes over from a non-MBA manager there is a significant decline in wages in the following five years. In the US, on average, wages fell by 6 per cent and payroll took a five percentage point drop in its share of company profits. In Denmark, with its social-democratic orientation, the declines were smaller (3 per cent and three percentage points) but still evident.
● MBA bosses were less likely to share out excess profits to employees than bosses without an MBA. By focusing on companies with lots of export sales, the study found no evidence that MBA-led firms were more productive than others. Thus there was no implication that bosses with business degrees were somehow more capable. Yet when these companies generated excess export revenues, there was zero impact on the wages of those led by MBAs. Under the same conditions, at companies run by non-MBAs on average a 10 per cent rise in value-added per worker resulted in a 1.9 per cent increase in wages.
● Focusing on Denmark, the study asks whether nature or nurture is more likely to make MBA managers take a mean line. In other words, are those who take business degrees more inclined to be mean or do they become mean as a result of taking the course? Nurture looks the more likely. Using high-school records of Danish bosses, the study shows that rising numbers of students opting for a business degree prompt a further rise in numbers the following year, thus implying that students’ enthusiasm for a business degree is a form of fashion.
True, the research does not explain which way causality runs. Are companies that need to cut costs more likely to hire MBA bosses or is it that MBA bosses are more likely to take an axe to costs than those without a business degree? Whichever, the study finds that pay cuts put into effect by MBA chiefs lead to an increase in company profits; by three percentage points in the US and 1.5 points in Denmark.
Arguably more relevant for investors, in the US appointing a boss with a business degree on average led to a 5 per cent rise in stock market value. That would still give investors a wide choice. Between 1980 and 2020, the share of US companies with such bosses rose from 26 per cent to 43 per cent. And in the UK, the most recent time we looked – 'Get the measure of management', IC, 11 March 2016 – 22 of the FTSE 100’s constituent companies were run by folk with an MBA.
Not that this fully explains why MBA bosses behave as they do. Possibly, they cut costs aggressively because that is the easiest way they can affect company performance. Improving a company’s products or services, for example, or opening new markets are much more difficult tricks to pull than hacking out costs. As a result, cost cutting is more likely to be successful.
Yet such behaviour is at odds with the corporate spirit of the times, which emphasises the importance of being a good corporate citizen. It may be that the findings of the Acemoglu study are simply out of date since it starts at a time when, to caricature, greed was still good and the famous Milton Friedman doctrine still applied – “the prime responsibility of business is to increase profits”. Nowadays that seems as dated as the power fashions of the 1980s. Today, all we hear about is corporate social responsibility, ESG, inclusion and diversity. Although we are told these are the route to win-win situations, they are, perhaps, only good-time corporate strategies; full of feel-good and virtuous signals, but hollow at the core. When the going gets tough, the Peter Hebblethwaites of this world get going, MBA qualification or not.