In the Core

In the Core

Choices and tradeoffs, in a variety of forms, are manifest in business. Recognizing that, sessions developed under the aegis of the Sanford C. Bernstein & Co. Center for Leadership and Ethics provide the framework needed to thoughtfully address these issues. The topics are integrated throughout the School’s core curriculum.

A sampling of representative topics is listed below.

Corporate Finance

Faculty perspective

Topics addressed: Should managers maximize shareholder value? Should it be the sole or primary objective? Is this equivalent to maximizing the current stock price? What if this involves manipulating the stock price? Is there a short-run versus long-run distinction?

Shareholder value comes from the present value of the future. 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.

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.

Creating Effective Organizations

Faculty perspective

Topics addressed: Culture, structure and incentives: How can managers create an organization that respects individual values? What organizational structures lead to corporate social responsibility?

Reading accounts of white-collar crimes in the papers, we concur that we would do the right thing if we were in their place. Unfortunately, organizational life complicates this moral. Fast growth, high turnover and rapidly changing environments — common factors of organizational life in many industries today — make it hard to discern the right course of action. In organizations with strong cultures, it is often difficult to voice concerns when personal definitions of “the right thing” conflict with commonly accepted company, professional or industry practice. Organizational boundaries and hierarchies make it hard to determine whose responsibility it is to act.

Fortunately, however, there are organizational tools that managers can use to make it easier to detect potential conflicts of interest, discourage them from happening and address them before they get out of hand. In this course, we focus on these tools and how one can use them at different levels of an organization.

Decision Models

Topics addressed: Equity versus efficiency in setting “optimal” prices and taxes. Contrasting market mechanisms and central planning in pollution control.

Today’s managers are inundated with information. To be effective, they must use this information wisely and creatively. A model provides a structured way to use information to support managerial decision making. Models are used routinely in a wide range of businesses, both for strategic and tactical decision making (e.g. in the petroleum, airline and financial services industries). Many managers today work directly with models; many more regularly use their results. While modern, computer-based models are powerful managerial tools, using them effectively requires an understanding of both their strengths and limitations. This course provides students with the skills necessary to develop basic spreadsheet-based decision models for their own use as well as the critical understanding necessary to work effectively with experts to implement large-scale, sophisticated modeling systems.

The course covers CO2 emissions credits and trading vs. emissions taxes as a means of achieving a reduction in global greenhouse gas emissions.  Additional tools and concepts taught include integer programming: project funding, plant location, bidding/assignment problems, foreign currency risk management, and optimization under uncertainty: portfolio optimization.

Financial Accounting

Faculty perspective

Earnings management: What does GAAP allow? Should earnings be managed within GAAP? What are the pressures to do so (e.g., analysts’ forecasts)? Where are the boundaries?

Financial statements are meant to enable the reader to evaluate the performance of an enterprise, analyze its cash flows, and assess its financial position. Recently, widely publicized cases of misleading statements, which were nevertheless attested as to their fairness by outside auditors, resulted in improper revenue recognition, overstatement of income, and misrepresentation of financial position. There is now a growing awareness of the importance of honest reporting as the foundation for investors’ confidence in the integrity and proper functioning of the financial markets.

This course examines the generally accepted accounting principles underlying the financial statements, their implementation in practice and the role of the independent auditors. Note is also made of the limitations of financial reports, their evolution in response to changing business conditions, current accounting controversies, and the constraints that limit the freedom and influence the course of action of rule makers and regulators.

Global Economic Environment

Global income inequality: Should wealthier nations forgive the debts of poorer nations? What are the costs and benefits?

This course analyzes various issues of income and wealth distribution, both within and across countries. It explores the fundamentals of national competitiveness, productivity, and growth. It studies the forces that determine production, consumption, savings, and investment. It introduces the problem of variable foreign exchange rates and their impact on policy, performance and finance. And it explores the complex relationships among government policies and private-sector performance in a global setting.

The Debt Jubilee case documents the extent of income inequality across the world and the various approaches to mitigate it. In particular, it is concerned with the questions: Should wealthier nations forgive the debts of the poorer nations? What are the costs and benefits?

Another case, Income Inequality and Taxes: What’s Fair? documents the extent of income inequality in the United States, addresses the extent to which it should be alleviated, and analyses the dilemmas confronting the design of income redistribution through income tax.

Leadership

Faculty perspective

Leadership and values: Leadership involves not only tough choices, but also selling and implementing the resulting decisions in organizations. How do leaders judge how others will react to their ethical decisions? How do these assumptions go wrong, and how can they be improved?

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.

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

Faculty perspective

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.

This course addresses social and environmental issues:

Social issues – The course examines and develops an understanding of accounting and how accounting information is used. By doing so, it creates “educated” consumers of information who assess information wisely. We often hear about people investing on information such as “hot tips,” usually with bad consequences (e.g., losing savings, retirement, etc.). Being educated to assess accounting information helps people make better choices and improves social welfare.

Environmental issues – We focus on the firm’s objectives from the perspective of many: stakeholders, shareholders, managers, employees, society, and the environment. Hence we use such techniques as cost analysis to consider costs from these perspectives.

Specific topics that relate to both social and environmental concerns are:

• Full cost accounting
• Differential accounting standards
• Integrity and accountability reporting
• Potential conflicts in accounting
• Sarbanes Oxley

Managerial Economics

Topics addressed: Externalities: property rights and private versus social cost. Predatory pricing. Is a monopoly ever socially optimal?

This course focuses on the problem of business decisions, making extensive use of cases. Topics include basic supply-demand theory and marginal analysis, the structure of decision problems, the impact of the market setting (i.e., competitive, oligopolistic or monopolistic structures), and strategic interactions among firms using game theory. The emphasis throughout is on the use of economic reasoning to solve actual business decision problems.

Managerial Statistics

Faculty perspective

Topics addressed: Ethical considerations in the collection and presentation of data. Use of statistical methods in detecting discrimination and in evaluating evidence of a conflict of interest.

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 substantially impact our individual or collective decisions.

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.

Managing Marketing Programs

Faculty perspective

Fairness in pricing: Should elements of “fairness” enter a firm’s pricing decision? If so, how would managers determine a fair price? What are the legal boundaries?

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. The course addresses 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.

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

Faculty perspective

Topics covered: Social responsibility, marketing and customer value: Does marketing create or uncover demand? Are there limits to appropriate marketing of legal but potentially dangerous products?

Faculty perspective: 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.

Operations Management

The debate over offshoring: Outsourcing versus offshoring. Costs and benefits of offshoring in the overall context of a supply chain.

Provides a fundamental understanding of manufacturing and service operations and their role in the organization. Surveys a wide range of operations topics, including process flow analysis, inventory management, capacity planning, facilities location, total quality management, human resource management, technology management, and manufacturing and service strategy. Deals with these topics through a managerial, applications-oriented perspective. Special emphasis is placed on the international dimensions of operations. The course is integrative in nature, emphasizing the fit and relationship of operations with other functions of the firm.

Strategy Formulation

Faculty perspective

Topics covered: Nonmarket strategy: How firms can formulate strategies to deal with regulation, politics and public opinion. The effect of nonmarket agents on firm performance. Integrating nonmarket strategy with the overall strategy of the firm.

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 and two main impacts. 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.