Why Do Only Top MBA Programs Practice Grade Non-Disclosure?

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Last spring while I was finishing my fellowship at Columbia Business School, much of the student body was busy trying to overturn the school’s grade disclosure policy. Back then, Columbia was one of the few top MBA programs that did not practice grade non-disclosure, meaning recruiters were allowed to ask Columbia students about their grades. By the end of the year, the issue had passed a student referendum, and this semester Columbia became the latest business school to have a grade non-disclosure policy, which encourages students not to disclose their grades to employers until they’ve been hired.

Grade non-disclosure policies are a quirk of MBA programs. You won’t find them in medical or law school. In fact, the only place you do find them is among top business schools. Of the 15 most selective MBA programs, 9 of them have some form of a grade non-disclosure policy. But of the schools ranked from 20 to 50, none do.

A new paper from a pair of Wharton economists examines why this is. Wharton, it should be noted, has grade non-disclosure, and while the faculty (according to the authors) is fairly vocal in its opposition to the policy, it’s typically approved by the students each year by a wide majority. The paper begins with a discussion of what economists call signalling, where trusted information is transferred through signals we send. The job market is one of the leading areas where we do this, as explored by economist Michael Spence in his 1973 signalling model. The idea is that without knowing whether you’re good at a job like valuing bonds or putting together marketing proposals, employers rely on the signal we send by way of an MBA from a top business school.

The authors argue that students at these schools “reduce the accuracy of their signal by passing grade non-disclosure policies.” Why would they do that? Students typically argue that non-disclosure policies allow them to take greater risks and harder courses without having to worry about an embarrassing transcript. But in the face of evidence that self reported levels of learning have mostly fallen since the introduction of grade non-disclosure policies, this seems a little dubious. According to a Wharton Journal article, surveys showed a 22% decline in the time students spent on academics during the first four years after the school passes a grade non-disclosure policy.

The authors say the real reason behind grade non-disclosure goes back to signalling, and the risk-management properties of pooling:

We show that students at elite schools are the most likely to adopt a non-disclosure policy, subsequently reducing their effort. Intuitively, a non-disclosure policy allows the median voter to study less and then pool to receive the expected (mean) wage, which might be more valuable to her than receiving the median wage with effort. For plausible wage distributions, the desire to pool becomes more valuable at more selective schools.

A vote for non-disclosure, however, allows the median voter to essentially “free ride” off of the expected pooled wage, which will be advantageous when there are enough students who are more productive than the median voter.

Since the signal they’re sending to employers is already strong, students at top b-schools are more likely to vote for non-disclosure if it reduces their effort without substantially reducing their perceived value to employers, which is already pretty high as they were able to get into a top program. Students at less-selective schools, though, don’t feel they have that luxury.

In response to grade non-disclosure, some schools have implemented minimum grade requirements to encourage effort, or at least punish an egregious lack of it. For example, Wharton students are dismissed if they score in the bottom decile in at least five credit unit courses during their first year, or eight credit unit courses over two years. Strangely though, the authors find that minimum grade requirements actually increase student support for grade non-disclosure by enhancing the incentive for collusion, and decreasing the value for students to compete against each other.

As long as employers keep valuing a degree from Harvard Business School over MBA’s from mid-tier programs, grade non-disclosure policies aren’t likely to go away. Are we surprised then that the smartest business students in the country have figured out a way to game the system in their favor?

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  1. Jody says:

    I’m not often impressed at all by Harvard Business School graduate. In fact, I am shocked that most of them made Ivy League to begin with.

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  2. Tristan Cordier says:

    Awesome Article. Didn’t know about the GND agreements. Very interesting.

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  3. Dan Labrecque says:

    I read that article and basically it illustrates that the “elites” in society (since most that get MBAs from here come from the “job creater” class in this country) can get float by while the others have to work hard to prove themselves. If you are in the club, a good life is generally guaranteed for minimal effort.

    Well-loved. Like or Dislike: Thumb up 39 Thumb down 26
    • Paul says:

      Seriously? I’m sure there are a handful of people that can get into these programs based on family background, but the majority of people bust their ass in undergrad to get a good job, work hard for 2-7 years, spend tons of time studying to get an exceptional GMAT score and then still work very hard once at school to get a great job post B-School.

      I don’t care if you’re at HBS, Stanford, Wharton or wherever, you still need to put in a ton of work at school to be successful.

      Having the attitude of “I wasn’t born with a silver spoon so why bother trying” has become an all too common attitude. Stop complaining about it and do something about it. It might be harder for some, but it’s attainable, and much more rewarding when you get there.

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      • Ivan says:

        I agree that you need to do a ton of work to get into a top MBA program. Once you are in, you do not, however, need to do very much work to get the degree.

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      • Shaun says:

        Are you, or have you been in a top program Ivan? I am – and that is simply not true.

        Not just for business school – I would expect vigorous schooling for any top program of their respective field. They got to the top for a reason – training their students to be better than other schools.

        Hot debate. What do you think? Thumb up 27 Thumb down 23
      • Not Sure says:

        I’d guess the gap in course work isn’t as wide as you may think. All MBA’s essentially learn the same things, but the state school professor didn’t write “Freakonomics” or earn a Noble Prize.

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      • atimoshenko says:

        Getting privilege is always significantly more difficult than keeping privilege. This is critical for any elite that wants to keep society highly stratified.

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  4. Ben says:

    Of course I was all for it as a beneficiary, but yeah, grade non-disclosure is your basic collusion. Benefits the sellers (students) and hurts the buyers (employers).

    However, with very few exceptions, top-MBAers are no slackers so with that extra time not needed for studying most of them are doing productive things like trying to start a new company, organizing trips to Silicon Valley, etc.

    - MIT sloan MBA

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  5. matt says:

    Wall street and related industries are filled with top MBA students, who are then paid a premium over equally qualified candidates from other schools. The skills and abilities (competencies) of a top trader making $3M in annual bonus is the same as the top corn feed salesperson working for a midwest co-op making $100K, but the market (and society) deems traders a more exclusive and lucrative position. If employers pulled their heads out of their you-know-whats and started making decisions based on data and statistics, they would quickly find a more level playing field when measuring candidates vs. their school and vs. relative GPAs. The IVY MBA’s are making more because they demand more (due to the name on the diploma) and unfortunately employers acquiesce to it.

    Hot debate. What do you think? Thumb up 22 Thumb down 20
    • Michael Peters says:

      It’s not just that employers aren’t looking at the value of other schools, it’s that the employers themselves came from those programs so they want to hire their own. Not only is it comforting to be surrounded by similar people but it also reinforces the validity of their own past choices if their selection continues that bias.

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  6. James says:

    Seems as though it’s a case of brand marketing: potential employers have been persuaded (gawd knows why) that a degree from Big Name School is in and of itself worth more than one from State U. So the students at BNS benefit by colluding to hide their individual mediocrity behind the brand label, while State U students benefit by showing their individual ability.

    So this all seems pretty obvious. The interesting question is why employers don’t seem to have caught on to the scam.

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    • ed says:

      I don’t understand. How is this a scam? If everyone knows that employers prefer students with degrees from big name schools, shouldn’t everyone be trying to get into those big name schools? Based on number of applications, acceptance rates, average gpas and average SAT/GMAT scores, this IS the case. Seems like even if the education sucks at these schools (which I assume is what people are saying), it is an effective sorting mechanism in the country. If its a competition to get the best jobs, then it is a competition to get into these schools. Other than a competitive education system, how else can you effectively funnel the 300 million people in this country into those jobs that they are most effective?

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      • James says:

        The scam is the created (and, I expect, provably false) belief that graduates of Big Name Schools are of uniformly better quality than graduates of lesser schools.

        Thumb up 7 Thumb down 11
      • Mutt says:

        If what happens *at* the school doesn’t actually matter, and employers only care about the skills necessary to get into the school, why not cut out the middleman? Put “admitted to Wharton” on your resume and save yourself tons of money. Better yet, why don’t we shut down every part of Wharton except the admissions department and put all the freed up capital to productive use.

        Thumb up 3 Thumb down 1
    • Roy says:

      They have not caught on because HR staff screen candidates and the most simple minded group of people at most companies are in the HR department. A big name school is a simple way of screening through people without a lot of tought.

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  7. mhenner says:

    Are you sure top law schools also don’t do this, by simply having eliminated grades altogether.

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  8. Jon says:

    Yale’s law school has a similar policy for recruiting (and no grades or GPA, a model that other law schools are moving toward); my impression is that the historical reason for the no-grade system is an attempt to create more cohesiveness among the student body. That’s probably especially valuable at business schools.

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