Welcome! This web conference will begin at 12 noon Eastern time. If you have not already done so, please sync your telephone and computer as detailed in.

Welcome!This web conference will begin at 12 noon

Easterntime.

If you have not already done so, please “sync”your telephone and computer as detailed in the“voice connection” tab at the bottom right-handcorner of your screen.

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