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Faculty Perspectives in the Core

Corporate Finance | Leadership | Managerial Accounting | Managerial Statistics | Managing Marketing Programs | Marketing Strategy | Strategy Formulation | Financial Accounting

Corporate Finance

What We Cover

The question, “Should managers act to maximize shareholder value?” is central to my course and is at the intersection of IBS and corporate finance. The answer I promote is yes. My conviction that maximizing shareholder value is the right corporate goal comes from the basic assumption in economics of profit maximization. However, I stress that profits are rarely maximized when customers, employees and society as a whole are unhappy with the company. Thus, I emphasize shareholder value maximization subject to the constraints of laws and ethics—and the idea that such practices as safer products, good employee benefits or protecting the environment may very well maximize shareholder value.

Why It Matters

Managers must ask themselves everyday, “What is my goal?” Those managers who choose not to maximize shareholder value will not be around very long: A free and competitive business environment creates jobs and opportunities, making us all better off. Those companies who cannot compete are replaced. Therefore, creating shareholder value is the way for managers, their companies, and society to prosper.

Shareholder value comes from the present value of the future. Those managers who cheat or take shortcuts—even if they have yet to be discovered by the market—are destroying shareholder value, because they will eventually be caught.

Managers must recognize that maximizing shareholder value does not mean doing the wrong thing. In fact, such actions as corporate charitable giving or recalling a potentially defective product may very well be in the shareholders’ best interest. Maximizing shareholder value can also mean maximizing societal value, simultaneously doing well by the company and “doing the right thing.”

What Students Learn

Students learn what it means to maximize shareholder value. They drop the notion of a fundamentally evil corporation that is almost incompatible with society as a whole and replace it with the idea that companies are run by people who are very much like them. Inside a corporation “making the world better” is not an idealistic notion but rather something to be achieved by maximizing shareholder value. Once resources are maximized, individuals, and society as a whole have the luxury of deciding how to use those resources.

Leadership

What We Cover

Leadership involves making tough choices. Should an administrative assistant be fired for stealing office supplies? Is it okay to look at employees’ e-mail correspondence without their permission? Should employees with children be allowed to avoid working late shifts during a tough project? Is it ethical to mislead, or even lie to, employees about important strategic business plans? In the core course on Leadership, students discuss their own views on such issues as well as the underlying principles (e.g., when should leaders make exceptions to publicly shared rules, and what are the consequences?). Just as importantly, students discuss expectations about how coworkers and employees would view these choices.

Why It Matters

Expectations about how others view tough choices are important, but not because leadership is a popularity contest or because ethical decisions should be majority-rule. Rather, leaders must be able to gauge how others will react to their decisions so that they can effectively persuade followers and implement decisions.

What Students Learn

Students discuss their own views about a series of tough choices and hear arguments that support different positions. We also review the dynamics of leaders’ assumptions about others’ views and how these assumptions often go astray, including the consequences of misjudging followers. We conclude with ideas for improving such judgments.

Managerial Accounting

What We Cover

Managerial Accounting (Accounting II) studies how managers use information from accounting systems, internal and external financial reports, and other sources. Central to the course is the idea that bad information leads to bad decisions. However, there are tradeoffs in determining which information is bad and how to make it better. For example, most companies use absorption costing in their efforts to match both fixed and variable costs with the revenues of products sold. This approach may lead to more accurate measurement of long-term product profitability, but it distorts short-run decisions and provides incentives to make current profitability appear better by producing more than is necessary. An alternative to absorption costing is variable costing, which eliminates incentives to overproduce but could create a mismatch between revenues and the resources needed to create those revenues—and hence poor information about long-term product profitability.

Why It Matters

Accounting information affects individuals in a business as well as the relationship between businesses and society. Understanding how to systematically think about tradeoffs involved in making accounting information better has the potential to improve decision making, corporate control and, ultimately, the contribution of business to both its shareholders and society.

What Students Learn

Students learn that all accounting numbers contain three elements: the true number, measurement error, and discretion. While the discretion could be used to produce better information, it can also be used to manipulate. Students also learn that using discretion to manipulate accounting numbers is myopic because accrual accounting manipulations reverse out over time; if you manipulate to look better now, you will look worse later.

Managerial Statistics

What We Cover

The Managerial Statistics course offers an overview of statistical tools and methodologies that are useful in understanding and modeling uncertainty. In the context of IBS, we address two topics. The first involves ethical considerations in the collection and presentation of data. The second focuses on the use of statistical methods to test the ability to draw statistically signficant conclusions on the basis of observed data. The latter is presented through examples that illustrate the mechanics of these tools and introduce the concept of statistical significance. They also highlight the nature of conclusions that one can draw based on supporting (data-driven) evidence.

Why It Matters

How should we test whether research analysts’ recommendations are biased? How much evidence do we need in order to detect racial or gender discrimination? Do doctors with financial interests in medical facilities tend to refer patients for subsequent tests and procedures more often than independent doctors? This is but a small collection of examples of issues that we face as individuals, corporations, and society in our everyday life. Addressing such questions involves the analysis of data and requires a systematic (statistical) framework, which will allow us to identify in a rigorous (and defendable) fashion the set of conclusions that are supported by the data in each case. The results of such analyses may substantiialy impact our individual or collective decisions.

What Students Learn

Students learn the mechanics of hypothesis testing and subsequently apply these tools to a variety of real problems in which one tries to detect conflict of interest, bias or unethical behavior. Apart from serving as illustrative examples of how to use statistical tools, these cases also showcase subtleties associated with performing such analysis based on real data. This develops the students’ intuition and supports critical thinking with regard to the relevance, accuracy, and significance of data-driven statements and empirical observations.

Managing Marketing Programs

What We Cover

This course focuses on decisions that managers make and the tools they use to implement marketing strategies. Successful marketing implementation requires the managed introduction of new products, optimal price structuring, effective communication of product value and the distribution of products through intermediaries. In the context of IBS, we address various ethical and legal issues pertaining to pricing decisions by managers. We focus on two broad categories of ethical and legal issues. The first category includes such anti-competitive practices as price fixing, predatory pricing, price discrimination and resale-price maintenance. The second category, fairness in consumer pricing, focuses on the effects of pricing decisions on the end consumer. Here we discuss misleading pricing tactics that firms commonly employ.

Why It Matters

How should firms interact with intermediaries and competitors in the setting of prices? Can consumers successfully compare prices offered by different firms? When is a sale a sale? How should information about prices be communicated to enhance consumer comprehension and their perceptions of fairness? Is it okay to charge different prices to different groups of consumers? Consumers, firms, and intermediaries face a number of such issues and tradeoffs in implementing pricing strategies. Managers need to understand such tradeoffs from the competing viewpoints of various stakeholders before making pricing decisions.

What Students Learn

Through a series of simple scenarios that exemplify various pricing tactics, students learn to analyze different situations from the viewpoint of consumers, retailers, and managers. These scenarios highlight how social norms and aspects of the legal framework regulate and constrain managerial actions; students learn to discern the intent behind such constraints.

Marketing Strategy

What We Cover

This course emphasizes the role of marketing in creating value for customers, which in turn leads to value for other stakeholders in a firm (e.g., owners, shareholders, employees, and society at large). It also covers such issues as value of products, customers, and brands, methods for analyzing customers and competitors, customer segmentation, product positioning, and the role of new technology.

Why It Matters

Marketing has evolved to have a much more customer-centric focus. Our emphasis on value to the customer, customer satisfaction, and customer lifetime value suggest it is not just good to provide quality goods and services to customers, but good business sense as well.

What Students Learn

Tradeoffs exist when considering what to sell, how to sell it, who to sell it to, and what customers do with it once they have it. Truth in advertising, use of customer information, and pricing and price discrimination (e.g., on the basis of ability to pay for pharmaceuticals) are all issues of how to (or not to) sell. The central concepts of segmentation and targeting directly address the question of who to sell to. Thus, almost all marketing decisions have a tradeoff associated with them. Our job is to make sure students are aware of the tradeoffs being made in terms of impact on not only the business but on a broader set of stakeholders as well.

Strategy Formulation

What We Cover

One of the most important recent developments in business strategy is the realization that nonmarket actors—governments, nongovernmental organizations (NGOs), and the court of public opinion—can be as important as competitors, customers, and suppliers in determining firm performance. This is especially the case when the activities of the companies in an industry are central to the public welfare. In the core strategy class, we study these problems in the context of the pharmaceutical industry’s response to the AIDS crisis in Africa.

Why It Matters

Business leaders in many industries now invest considerable resources in formulating nonmarket strategies. In the particular case of the AIDS crisis, the pharmaceutical industry’s response is significant on many levels. First, the availability of medications to combat communicable diseases has tremendous consequences for public health and economic development in all nations of the world. Second, the pharmaceutical industry’s response may be critical to its own long-term prospects, as the AIDS pandemic continues to cause governments and NGOs to question the virtues of systems for protecting intellectual property rights for human therapeutics.

What Students Learn

Students discover ways to think about formulating a nonmarket strategy and integrating it with the overall strategy of the firm.

Financial Accounting

What we cover

This course examines the generally accepted accounting principles (GAAP) underlying the financial statements and their implementation in practice. We put more emphasis on how to understand and evaluate the information (a user perspective), as opposed to how to prepare it (a bookkeeping perspective). In the context of IBS, we discuss the incentives, opportunities, and constraints as well as possible detections of earnings management, and the implications of earnings management for different individuals (e.g., executives, investors), for the business as well as for the society. We also address the roles of accounting ethics when there are conflicts of interest among individuals, business, and society.

Why it matters

The quality of financial reporting affects the efficiency of capital allocation in the society. Recently, widely publicized cases of misleading financial statements have shaken the public's confidence in corporate financial reporting. When some managers manipulate the financial reporting process to gain personal benefits, it is at the cost of the investors, business as well as the society. It is therefore essential for managers to provide quality and transparent financial information for various decision-making purposes.

What students learn

Students learn the accounting framework with an understanding of key accounting assumptions, accounting process, and major financial statements. They learn to analyze the financial statements and supplemental information to assess the quality of financial reporting and identify potential earnings management. They also learn to understand the role of accounting rules, corporate governance, as well as regulators, among other things, in improving the quality and transparency of financial reporting.

 

Financial Innovation: A Risky Business?

Watch the trailer for our interactive debate exploring the value of financial markets, the interaction between government and innovation, and what role markets should play in society.

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This event was presented by Fred Friendly Seminars in partnership with the Sanford C. Bernstein & Co. Center for Leadership and Ethics, and was part of Columbia Business School’s Individual, Business and Society (IBS) curriculum.

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2014 Klion Forum

When: April 15th, 2014 6:00 PM-8:00 PM
Where: 3022 Broadway
Calder Lounge, Uris Hall (1st Floor)
New York, NY 10027

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Join Ms. Denise Morrison, CEO of Campbell Soup, and Ms. Ellen Kaden, chief legal and government affairs officer of Campbell Soup, for a fireside chat moderated by Professor Bruce Kogut on board governance and maintaining high ethical principles in a competitive market.

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Featured Video

With rapidly changing consumer tastes, many food companies are looking to expand their markets at home and overseas. How does an iconic American company stay relevant?

Featured Research

The Small Worlds of Corporate Governance
Identifies "structural breaks" — privatization, for example, or globalization — and assesses why powerful actors across countries behave similarly or differently in terms of network properties and corporate governance.

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Program Brochure

View the Bernstein Center brochure, Ethical Challenges in Business

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