When an MBA Might Do More Harm Than Good

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A new academic year began in September, and with it came a new campus recruiting season. As recruiters renew the annual ritual of courting MBA candidates, graduate programs in business are falling under a media spotlight via the competing rankings published by The Wall Street Journal, U.S. News and World Report, BusinessWeek and other publications.

However, the New York Times upstaged the widely followed rankings with a Sept. 16th story that declared MBA degrees increasingly irrelevant to the most promising career tracks on Wall Street and in fund management.

It's not exactly news that more aspiring bankers and portfolio managers find it hard to justify leaving high-paying jobs to pursue a graduate business degree. Indeed, eFC readers often say just that when they comment on our articles.

But the Times story goes further. It suggests that in some situations, an employer might view even a Harvard MBA as signaling not elite intelligence, but an early-career setback that forced an applicant to take such a detour.

That's the view of 28-year old hedge fund manager Gabriel Hammond, who left Goldman Sachs to launch Alerian Capital Management in 2004. Hammond tells the Times that, if faced with a job candidate who'd gone through Goldman's two-year analyst program and then attended Harvard Business School, he would suspect the person must have done something "wrong" to miss out on promotion at Goldman or an attractive slot in a private equity or hedge fund.

Indeed, the Times observes that "(instead) of pushing all their young employees into M.B.A. programs," leading investment banks now "are telling the best ones to stay put."

For instance, Citigroup's campus recruiting chief estimates that only about 50 percent of Citi's analyst classes end up attending business school now, compared with 85 to 90 percent some 15 years ago. In a similar vein, Credit Suisse's U.S. recruiting head, 28-year old Julie Kalish, told the paper, "Strong performers we want to keep at the firm for as long as possible. The amount of analysts that we try to keep for the associate promotion process has grown over recent years."

That goes double for hedge funds, though MBA degrees never carried much weight in those to begin with. "If someone is doing well at a hedge fund, they absolutely do not encourage their employees to go off to business school," Glocap executive Adam Zoia said.

On the other hand, the Times says an MBA can open doors for people coming from an international background, career changers, and others aiming to break into finance. An MBA also carries weight for management consulting and for management careers in many large corporations. There were 142,600 MBA degrees granted in 2005, nearly twice as many as in 1991.

What's more, recent surveys suggest that corporate America continues to recruit new MBAs as aggressively as ever. Richard Schmalensee, former dean of the M.I.T. Sloan School of Management, told the Times: "I don't think you will see M.B.A.'s less represented in executive suites, but you may see M.B.A.'s less represented in the lists of the world's richest people."