The Aspen Institute Corporate Governance and Accountability Project:

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The Aspen Institute Corporate Governance and
Accountability Project
Rethinking MBA Curriculum in the Finance
Discipline Supported by the Alfred P. Sloan
Foundation Presented by John R. Becker-Blease,
Ph.D. Assistant Professor Finance Washington
State University, Vancouver Moderated by
Maureen Scully, Professor of Management,
University of Massachusetts, Boston and
Consultant to the Aspen Institute CGA Project,
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Incorporating Stakeholders into the Corporate
Finance Curriculum

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Goals of WSUVs Stakeholder-Engagement Model

• 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.

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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

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Financial Intermediation Research Society

• Teaching business ethics, always something of an
  embarrassment, may simply come to be teaching
  Finance well!
• Teaching Finance correctly integrates ethics
  into the business curriculum naturally, without
  self-consciousness or embarrassment
• Stuart Greenbaum Corporate Governance and the
  Reinvention of Finance

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Objective Function

• We cannot maximize the long-term market value of
  an organization if we ignore or mistreat any
  important constituency
• Michael Jensen Value Maximization, Stakeholder
  Theory, and the Corporate Objective Function

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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 MA and Corporate Structure

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Teachable Questions

• Under what conditions is short-term stock
  performance the equivalent to maximizing
  shareholder value?
• Who are shareholders and what are their
  interests?
• How can markets perform efficiently if
  information is intentionally distorted?
• What role should businesses play in determining
  governments protection of the commons?

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Module Contents

• Learning Goals
• Required and Optional Readings
• Additional Materials
• Pedagogical Purpose Notes
• Additional Talking Points
• References

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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
• 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).

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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?

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Module 3 Valuation

• Learning Goals
• Cover assumptions of adjusted weighted average
  cost of capital
• Introduce 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

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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

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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

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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.

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Module 7 MA 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
  MAs, 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

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• Q A

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Concluding Remarks

• jblease_at_vancouver.wsu.edu
• Financial Education Association
• Sept 18-20th, 2008 (Hilton Head, SC)
• Financial Management Association
• Oct 8th-11th, 2008 (Dallas, TX)