Transcript Document

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The Aspen Institute Corporate
Governance and Accountability Project
Rethinking MBA Curriculum in the Finance Discipline II:
Sustainability and Stakeholders in the Finance Curriculum
Presented by: John R. Becker-Blease, Ph.D.
Assistant Professor – Finance
Oregon State University
Moderated by
Dr. Elizabeth K. Keating, CPA
Lecturer in Accounting, Boston University
Incorporating Stakeholders into the
Corporate Finance Curriculum
Overview of Today’s Discussion
 Review “Problems in Finance” course material.
http://www.caseplace.org/d.asp?d=2853
 Offer lessons learned through three years of teaching
this course.
 Describe strategies for adopting elements of course
into other curricula.
 Share ideas.
Guiding Quotes
 “Teaching Finance correctly integrates ethics into
the business curriculum naturally, without selfconsciousness or embarrassment” Stuart Greenbaum in
“Corporate Governance and the Reinvention of Finance”
 “We cannot maximize the long-term market value of
an organization if we ignore or mistreat any
important constituency” Michael Jensen in “Value Maximization,
Stakeholder Theory, and the Corporate Objective Function”
Genesis of Course
 Washington State University, Vancouver.
 Stakeholder-based MBA Curriculum.
 The MBA Program at WSU Vancouver emphasizes a
stakeholder focus that drives sustained business success.
– Stakeholder-focused leadership requires: understanding
the vital interdependence between businesses and critical
stakeholders such as employees, investors, customers,
suppliers, and public constituencies,
– adopting an executive level perspective in making
decisions and taking actions that build strong long-term
relationships with stakeholders,
– and applying theory to solve practical problems.
WSU MBA Curriculum
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Mktg 565
Acct 533
MgtOp 590
MgtOp 591
MIS 580
FIN 526
MgtOp 593
Mktg 506
MgtOp 589
MgtOp 585
MgtOp 587
MgtOp 702
Managing for Long-Term Performance
Administrative Control and Managerial Accounting
Strategy Formulation and Organizational Design
Statistical Analysis for Business Decisions
Information Systems Management
Problems in Financial Management
Managerial Leadership and Productivity
Marketing Management and Administrative Policy
Managing Value-Chain Partnerships
Negotiations
Business Ethics
Final Oral Exam
Objective of Course
 Review critical core finance topics such as time-value,
capital budgeting, the risk-reward relation, and cost
of capital.
 Present advanced corporate topics
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Advanced valuation techniques
Capital structure theory
Payout Policy
Agency conflicts
Governance policies
Mergers & Acquisitions
Corporate Structure
Limitations
 Limitations
 One 15-week course.
 Students are almost exclusively part-time with
full-time jobs.
 Resulting Course
 Predominantly lecture-based (80%).
 Reading list is substantial.
 Cases are discussed but typically not formally
prepared.
Course Modules
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Module 1: Review
Module 2: Goal of the Corporation
Module 3: Valuation
Module 4: Capital Structure
Module 5: Agency Theory & Governance
Module 6: Payout Policy
Module 7: M&A and Corporate Structure
Module Contents
 Available at Caseplace.org
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Learning Goals
Required and Optional Readings
Additional Materials
Pedagogical Purpose & Notes
Additional Talking Points
References
Module 1: Review
 Learning Goals
 Review basic concepts of time value, project and firm valuation,
capital budgeting, risk-reward, market efficiency.
 Review market structures, short and long-term equilibrium,
competition, normal and excess profit, barriers to entry,
monopolies and monopsonies.
 Readings
 Brealey, Myers, and Allen (BMA) CHs 1-12. (review of intro finance
course)
 Goodwin, Neva. “The limitations of markets: background essay”.
 Graham and Harvey (2001) “The theory and practice of corporate
finance: evidence from the field” (particularly pages 187-209).
Module 2: Goal of the Corporation
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Learning Goals
 Describe shareholder/stakeholder models
 Describe perfect market assumptions
 Long-term vs. Short-term view of the firm.
 Legal framework for managerial decision making.
Readings
 Winkler, Adam, “Corporate laws or the law of business?: Stakeholders and corporate
governance at the end of history”.
 Stout, Lynn, 2002, “Bad and not-so-bad arguments for stakeholder primacy”.
 Clement (2005). The lessons from stakeholder theory for U.S. business leaders
 Barry, Norman, 2002. “The stakeholder concept of corporate control is illogical and
impractical”.
 Jensen, Michael, “Value Maximization, Stakeholder Theory, and the Corporate
Objective Function”.
 Bird, Ron, A.D. Hall, F. Momente, and F. Reggiani “What corporate social
responsibility activities are valued by the market?”
Module 3: Valuation
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Learning Goals
Cover assumptions of adjusted weighted average cost of capital
Introduce Adjusted Present Value (APV)
Internalization of externalities.
Overview of financial options including binomial and Black-Scholes
valuation techniques.
 Fundamentals of Real Option Valuation
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Required Readings
 BMA CH 19-22.
 Luehrman, Timothy A., “Using APV: A better tool for valuing operations”.
 Luehrman, Timothy A., “Investment Opportunities as real options: getting
started with the numbers”.
 Luehrman, Timothy A., “Strategy as a portfolio of real options”
Module 4: Capital Structure
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Learning Goals
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Understand how the choice of capital structure can affect the value of assets.
Begin to identify the pervasive nature of information asymmetries and their impact on
decision-making.
Trade-Off and Pecking Order theories of capital structure
Identify how choice of capital structure can affect various stakeholders and these
stakeholders’ response.
Readings
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BMA Chs 17-18.
Graham and Harvey (2001) “The theory and practice of corporate finance: evidence
form the field” (pages 209-243).
Wruck (1990) “Financial distress, reorganization, and organizational efficiency”.
Patrick, Steven C. “Three pieces to the capital structure puzzle: The cases of Alco
Standard, Comdisco, and Revco”.
Bronars, S. and D. Deere, 1991. “The threat of unionization, the use of debt, and the
preservation of shareholder wealth”
Noronha and Singal (2004) “Financial Health and Airline Safety”
Module 5: Agency & Governance
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Learning Goals
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Understanding the nature of a principal-agent conflict and identify the various conflicts
that exist among the stakeholder of a firm.
Understand the role of contracting and monitoring in addressing the agency issue and
the challenges that exist for efficient contracting.
Readings
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BMA Ch 12.
Jensen (1986), “Agency costs of free cash flow, corporate finance, and takeovers”.
Brewer, Chandra, and Hock (1999) “Economic Value Added (EVA): Its uses and
limitations”
Hall (2003), “Six challenges in designing equity-based pay”.
Jensen (2003) “Paying people to lie: the truth about the budgeting process.”
Bryne, John “The best and worst boards” BusinessWeek Dec, 1997.
McCafferty, Joseph 2008 “Building an exceptional board” BusinessWeek 4-17-2008.
Stout, Lynn. 2007. “The mythical benefits of shareholder control”
Module 6: Payout Policy
 Learning Goals
 Payout Policy relevance and irrelevance
 Readings
 BMA: CH 16.
 Brav, Graham, Harvey, and Michaely (2005) “Payout policy
in the 21st century”.
Module 7: M&A and Corporate
Control
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Learning Goals
 Description of the various forms of restructuring and the importance of the market for
corporate control.
 Coverage of traditional economic rationales for M&As, both compelling and not so
compelling.
 Understand the motivations for corporate diversification and the nature of the evidence
surrounding this issue.
 Understand the term “managerial entrenchment”, how this is accomplished, and good
and bad economic rationales for entrenchment.
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Readings
 BMA Ch 32-34.
 Holmstrom and Kaplan (2001) “Corporate governance and merger activity in the United
States: Making sense of the 1980s and 1990s”.
 Jensen (1986), “Agency costs of free cash flow, corporate finance, and takeovers”
 Fee and Thomas (2004) “Sources of gains in horizontal mergers: evidence from
customer, supplier, and rival firms”.
 Strine (2002), “The social responsibility of boards of directors and stockholders in
change of control transactions: is there any ‘there’ there?”.
 Harford (2003) “Takeover bids and target directors’ incentives: the impact of a bid on
directors’ wealth and board seats”.
 Gompers, Ishii, and Metrick (2003) “Corporate governance and equity prices”
Lessons Learned
 Very time intensive for both faculty & students.
 Importance of system buy-in
 Presenting stakeholder model.
 Student’s discussion of consequences of diversification.
 Importance of student buy-in
 Non-business majors vs. business majors.
 Managers vs. non-managers.
 Framing course around market-failures.
 Success of student project.
Student Project
 Students track a single firm (typically their current
employer). During semester, students must:
 Prepare a 3-5 pages description of company, its markets, industry,
and workforce.
 For Modules 3-7, students must analyze their firm’s environment
and strategic decisions related to each topic.
 For example, “What is your firm’s capital structure? How has it
evolved through time/conditions? Is its structure similar to
industry-peers? What challenges or opportunities does its current
structure present?”.
 Stress the importance of describing impact on all stakeholders, not
simply shareholders.
Modifying for Other Curricula
 Oregon State University
 Traditional MBAs (full-time, younger, more
limited experience compared to WSUV).
 Wider range of electives offered.
 Larger classes.
 Quarter-system.
 Sustainability-focused
Course Content
 (caveat) This course is a work-in-progress
until winter quarter.
 Modules 1-5
 Omit payout policy, corporate structure, and
mergers and acquisitions.
 More thorough coverage of Modules 1 & 2.
 Greater emphasis on core concepts of valuation, cost of
capital, and capital budgeting.
 More careful articulation of stakeholder view.
Questions & Sharing Ideas
 Experiences teaching finance with a CSR,
sustainability, stakeholder, or ethical
framing?
 Particular coursework that draws students’
interest?
 How to integrate lessons from the global
economic & financial crisis?
 Thank You.
The Aspen Institute Corporate
Governance and Accountability Project
Rethinking MBA Curriculum in the Finance Discipline
Presented by: John R. Becker-Blease, Ph.D.
Assistant Professor – Finance
Oregon State University
Moderated by
Dr. Elizabeth K. Keating, CPA
Lecturer in Accounting, Boston University