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Welcome!This web conference will begin at 12 noon
Easterntime.
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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, CPALecturer in Accounting, Boston University
The Aspen Institute Corporate Governance and Accountability Project
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 self-consciousness 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
Mktg 565 Managing for Long-Term Performance Acct 533 Administrative Control and Managerial
Accounting MgtOp 590 Strategy Formulation and Organizational Design MgtOp 591 Statistical Analysis for Business Decisions MIS 580 Information Systems Management FIN 526 Problems in Financial Management MgtOp 593 Managerial Leadership and Productivity Mktg 506 Marketing Management and Administrative Policy MgtOp 589 Managing Value-Chain Partnerships MgtOp 585 Negotiations MgtOp 587 Business Ethics MgtOp 702 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 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
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 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
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
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
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
Learning Goals 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
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
Learning Goals 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 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
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.
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.
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, CPALecturer in Accounting, Boston University
The Aspen Institute Corporate Governance and Accountability Project