By Larry C. Farrell

Published in the "Across The Board" magazine - May 1993

In everyone's climb up the corporate ladder, there comes that defining moment when the last set of heavy oak doors swing open - and you know you've entered the inner sanctum.  My moment came in the closing hours of the '70s.  I had just been named president of the company.  The chairman, the chief financial officer, and I were scheduled for a closed-door session with Towers, Perrin, Foster and Crosby (TPF&C), the bluest of the blue-chip consultants.  TPF&C is the worldwide authority on management compensation, and no subject gets management's attention like management compensation.  The purpose of the annual get together: to set our pay packages for the following year

The TPF&C consultant addressed us from the head of the board-room table.  Smooth as silk, he laid out the scenario.  As his charts and graphs demonstrated, executive compensation was rising across the board, even faster than TPF&C had forecast.  Next year it was certain to go still higher.  The range for our industry and our jobs would therefore be "X."  To remain competitive, we'd have to go with substantial raises.  Stock options were becoming standard practice, and we'd also have to take a serious look at this.  We all nodded.  The articulate consultant sat down and that was that.

In the ensuing shuffling of papers, it slowly dawned on me that we had just awarded ourselves fat increases for the year.  Of course the details would have to be approved by the board's compensation committee, but that was just a formality.  TPF&C had shown us what we had to do to keep up with everyone else - to remain competitive, as the consultants called it.  This truly was the inter sanctum.  The three highest-paid people in the company, got to set their own salaries.  No wonder most of the Fortune 1,000 use TPF&C.  That a great system!

So great, in fact, that it has propelled executive pay in America into the stratosphere.  In his born-again confessional In Search of Excess, Graef Crystal, TPF&C's former top guru, describes exactly how CEO pay in the United States has leapt from 34 times the average worker's pay to the current obscene ratio of 150. (The ratio in Japan and Germany, by the way, is only 15 to 20.) Admits Crystal: "I helped create the phenomenon we see today: huge and surging pay for good performance, and huge surging pay for bad performance too. . . . I acted in full realization that if I didn't please a client, I wouldn't have that client for long.

An "Expert" Opinion

So there you have it:  An ever-spiraling system in which CEOs pay good money to hear what they want to hear, and the consultant's job is to sanctify the spiral and keep everyone on top.  It's worth noting that Crystal has come clean only now that he has retired from TPF&C into the relative security of the University of California, Berkeley.  While Crystal is no hero in all this, his kiss-and-tell account of the consultant as highly paid co-conspirator in the surreal world of executive pay brings us to the broader issue.

That issue is the rapidly growing sideshow of "experts" who influence professional managers and live very handsomely off the carcass of big business.  From consulting firms to investment bankers to business schools, just about everyone has their hand in the corporate till.  How and why big business has spawned such and industry of helpers is a puzzle.  No one really knows how much these experts suck out of big business each year, but it's in the tens of billions.  One consulting house alone, the venerable McKinsey & Co., is approaching a billion dollars in annual billings to clients.

This pervasive industry of corporate helpers has its roots in the Americans' fascination with the profession of management.  But the lure of high-priced help is apparently so powerful that big business around the world is now lining up to get helped.  This is nothing short of amazing, given the utter lack of evidence that all these helping hands have ever helped their American clients actually make better products and sell to more customers.

The variety of expensive helpers is wide.  At one extreme, we have the crusaders of office automation with their sophisticated gadgets and systems.  Big companies have been loaded up with electronic tools for decades, from underused computers to conversation-stopping recorded messages in place of real customer service.

There is mounting suspicion today over whether any of this stuff has ever produced office efficiency, yet alone business growth.  Take the simplest and most persuasive of such tools, the photocopier.  Copiers have destroyed the carbon paper business, but what they have really done for office efficiency? Before 1946 (the invention of the copier), interoffice memos were usually typed with one carbon copy for the file.  Today, memos with copies to 20 managers are common-sort of a shotgun "FYI" method of communicating.  Say five or 10 of those managers feel the need to reply - and they recopy the original 20.  One insignificant message can create a blizzard, blowing around the office for weeks.  Why do we do this? Because we need all this paper to run the business?  No, because everyone has a photocopier.

The list goes on.  The 1950's saw the rise of planning gurus, who converted a simple three-step process called Management By Objectives into five-pound planning books that take months to fill out.  By the 1960's, any company worth its salt had to have several behavioral psychologists advising the personnel department.  These essentially anti-business do-gooders brought sensitivity training and group therapy to corporations - and in the process, brought many good companies to their knees.  The cast of corporate helpers just goes on and on, right up through the '80s, when Wall Street wizards dominated the scene and junk bonds became the currency of go-go companies everywhere.

MBA, Anyone?

At 38, I entered Harvard University's "school for presidents," its expensive and much ballyhooed advanced management program.  Over a period of two years, my classmates and I observed one of the great ironies of American education:  Business school are overflowing with condescension and disdain for real business and real businesspeople.  Their heroes are not great enterprisers, but great professors.  Producing great products is not nearly as important as producing great theories.  And since management education is essentially an American export, the same holier-than-thou attitude exists in the faculties of most schools in other countries.

Certainly studding the grungy, dirty business of entrepreneurship, the backbone of every economy, has been virtually nonexistent at prestigious schools.  The top professors much prefer finance, big-company strategy, and organization theory.  Of course, there's very little outside consulting at the corner grocery store.

It's very difficult to show that studying business at any university has any value whatsoever.  The U.S. obsession with business schools and MBAs defies logic.  Japan and Germany have been beating the socks off U.S. companies for the past 20 years without business schools or MBAs.

On the other hand, it's easy to spot major flaws in the uniquely American idea.  The most obvious is the original, dubious concept that training general managers is what business really needs.  Steve Jobs said it best in his waning days at Apple Computer Inc.  All the experts had him convinced he needed professional managers.  His frustrated comment: "We hired a bunch of professional managers - sure, they knew how to manage - but they couldn't do anything."

A more scientific flaw has to do with curriculum.  Simply stated, there's too much attention on how to count the money versus how to make the money.  Finance has become the dominant subject at almost every business school.  Wickam Skinner has been for many years the guru of production strategy at the Harvard Business School.  He must also be a very lonely man.  Few MBAs today have much interest in learning how to make things or getting their fingernails dirty in a factory.  Skinner is a brilliant teacher and something of an anomaly at Harvard:  He actually had a real job, as head of manufacturing at Honeywell Inc. before he joined the faculty.  But the lectures on finance at Harvard are overflowing, while Skinner's classes on making products are attended sparsely.

Finally, and most seriously, business schools have taken on a life of their own, dreaming up and propagating all manner of exotic theories and untested fads.  This is downright dangerous.  Most professors exhibit utter disregard for "doing thing in a very simple way, doing them regularly and never neglecting to do them."  These words of William Lever, Britain's 19th-century master of enterprise, need to be taken to heart by 20th-century management theorists.  If we must have business schools, let's at least learn the basics from the masters.  Understanding the simple practices of Lever, Walt Disney, and Konosuke Matsushita has got to be at least as valuable as mastering the latest hot theory from Harvard and Stanford University and the London Business School.

At the end of the day, we still have to answer the central question: Does the United States (or anyone else) really need 650 business schools producing 75,000 MBAs a year - more each year than were graduated in the entire decade of the '60s?   What is the point when two-thirds of these young MBAs become bankers and consultants?  What's happening to the spirit of enterprise while we're producing legions of bright, young general managers who know how to manage but can't do anything?  We're left to wonder.

Magicians in Three-Piece Suits

Consultants think like professors, but they wear three-piece suits and make a lot more money.  They're experts at packaged solutions, and once inside the door, they're off on a billable witch-hunt to find some problems - problems you usually don't even know you have.

Make no mistake about it, consulting is a great job.  It's a giant ego trip and the pay is outrageous.  This is why it's career of choice for MBAs everywhere.  Most consultants work incredibly hard and they love what they do.  That is, they're able to advise about.  None of them has much, if any, real experience in real jobs.  Fewer still have the foggiest idea of what it takes to create a Honda Motor Co. Ltd. or a Wal-Mart Stores Inc. and build it from scratch.  They are mostly young MBAs, armed with all manner of charts and theories;  it's fair to say they contribute little to growth and the spirit of enterprise in their clients.

In a now classic article published several years ago, BusinessWeek traced the history of business fads and the consultants behind them.  The conclusion: "Consultants have always had a role in launching fads...but they have been working overtime since the 1970's.  The result is a mad, almost aimless scramble for instant solutions.  The search has fueled an industry of instant management gurus, new-idea consultants, and an endless stream of books promising the latest quick fix."

Nothing has changed.  From Fredrick Taylor's time and motion studies to the corporate psychiatrist's sensitivity training to today's corporate-ethics gurus, the search for magic solutions to basic business problems marches on.

Anyone who crawled around on his hands and knees in the dark in a '60s T-Group session has earned the right to be skeptical of all consultants.  As one American corporate executive lamented: "If we got as excited about our products and customers as we do about the latest nonsense from our consultants, we might actually be able to grow this business."

Out of this bubbling pot comes two troubling questions.  The first has to do with the consultants themselves, and the second is directed at the companies that hire them. 

First where do the consultants come from and where do they get their ideas?  Take strategy consulting, for example. The rage of the consulting business used to be the Boston Consulting Group (BCG).  The technique is used was actually inspired by the straightforward planning process used at General Electric Co.  Not content with GE's plodding emphasis on cost and market share, BCG gave it a fancy name - learning-curve theory - and a memorable matrix with stars, cash cows, and dogs.  It was a master stroke of form over substance.

In it's heyday, business was so good at BCG that it was desperate to hire as many bright-eyed MBAs as it could get its hands on.  The company (and others) employed the infamous "negative offer" at Harvard and other leading business schools to secure its share of young stars and starlets.  When the company's managers saw someone they liked, they made an immediate offer, say $45,000, and the offer dropped by $1,000 a day until the student accepted.

Well, the heyday is over.  Today BCG is in shambles; the strategy ma

trix ist sold has been discredited widely.  Clients became disenchanted with the BCG approach, for good reason - it rarely delivered the growth the clients wanted.