Vanderbilt Business

Author: Ryan Underwood

  • It all comes down to the four P’s

    It all comes down to the four P’s

    Nasdaq CEO Adena Friedman, MBA’93, uses her finely honed product management experience to keep the company competitive in a rapidly changing industry

    photo by Daniel Dubois

    If anyone doubts the value of a business degree, look no further than Nasdaq CEO Adena Testa Friedman.

    At nearly every step of her career, starting as an intern at Nasdaq after graduating with her Vanderbilt MBA in 1993, she has consistently drawn on the skills she honed in Management Hall. From working through real-world business cases in former Owen professor David Rados’ marketing class to learning about valuation models with Bill Christie, the Frances Hampton Currey Professor of Management in Finance, Friedman says her business education has played a vital role in her success.

    “If you want to make it to the top of an organization, and if you want to have a broad mandate, an MBA is the best education that you can bring to the table,” says Friedman, who assumed the CEO role at the start of 2017. “If you need to hire someone with legal expertise, you hire a lawyer, but if you’re looking for someone who’s an up-and-comer who brings a variety of financial and business skills, and someone whom you want to bring up the organization, you hire an MBA.”

    Yet, Friedman’s introduction to a graduate business degree came about almost by accident.

    The summer before her senior year at Williams College, the political science major assumed she was destined for a career on Capitol Hill and secured an internship at Al Gore’s Senate field office in Nashville. In part, she came to be with her boyfriend at the time (now husband), Michael Friedman, JD’93, who had just completed his first year at Vanderbilt Law School.

    Once she returned to Williams for her senior year, Friedman’s perspective had shifted dramatically.

    “I think I realized a few things,” she says. “I asked, what’s the first job you get out of college when you come and work on the Hill? It’s basically that you become a database entry person, at least back then. You’d take all those postcards and letters people would write and just enter them into databases all day long.

    “That didn’t sound particularly compelling and, literally at the time, the pay was $15,000 a year. You couldn’t earn a living. That was a little bit shocking. The second thing was that I realized government wasn’t quite as idealistic as I thought it was.”

    Adena Friedman in her NYC Nasdaq office (Daniel Dubois)

    That’s when she turned to the idea of business school. She applied only to Vanderbilt so that should could spend the next two years with Michael as he finished law school. “I was really lucky to get in because otherwise I wasn’t quite sure what I’d do after I graduated,” she says.

    From the beginning, Friedman was hooked on business school, joining numerous clubs focused on many of the same types of international topics she studied as an undergraduate. And with the small class size, she was able to get to know fellow classmates and faculty members.

    “Business school just clicked with me right away,” Friedman says. “I felt like Owen was the first time I went to school every day and loved everything I was learning. It felt very different from college, where it was important to put yourself in uncomfortable situations—taking classes that were interesting but outside of your comfort zone and figuring out what you like.”

    She also found the amount of group work to be surprising. “But the tools I learned while working in groups were extremely valuable and ones that I have applied to my career countless times over,” she says.

    Friedman also stood out to her business-school peers and professors. Maria Pugeda Connor, MBA’92, recalls meeting Friedman while working on a project for one of their marketing classes. The two soon discovered they both lived in the same apartment building (20th and Grand) and have been friends ever since.

    “She’s like a gentle giant. She has an enormous ability to get things done and be successful,” says Connor, now an executive with Cox Automotive in Atlanta. “But unlike some others in business school, she didn’t have to put herself above others to make it to the top.”

    Christie recalls Friedman as someone who made a lasting impression. “I remember her being exactly the kind of person she is now, which is intense, but in a really good way,” Christie says. “She always knew what she was talking about. She was very articulate and just a joy to be around.”

    While Friedman took her share of finance classes, she found herself increasingly drawn to marketing, specifically product management. She says the “four P’s” of marketing (pricing, promotion, place and product) offered her a window through which she could better understand the inner workings of a business. “I just found it so fascinating,” Friedman says. “At the end of the day, I look at being a product manager like being the CEO of your own little company within a larger company.”

    Most people who become product managers, however, oversee sales of consumer products like cereal or dish soap. That held no interest for Friedman. Instead, she took a cue from her father’s career at T. Rowe Price and started thinking about how to apply the skills she’d learned as a product manager to the financial services industry.

    “That’s when I got the idea that Nasdaq is a little bit more like a product company,” Friedman says, adding that she targeted her post-MBA job search for the Washington, D.C., area. “The product is the market. Is there a way for me to get involved there?”

    Adena Friedman celebrates with PayPal executives as PayPal goes public. (© 2015 Nasdaq OMX. All Rights Reserved.)

    Charting a career at Nasdaq

    When Friedman joined Nasdaq in the summer of 1993, at first as an intern, the company itself was in the midst of explosive growth that had transformed it from an automated quotation system used by a patchwork of broker-dealers to one of the world’s most dynamic financial exchanges.

    Despite the heady times, Friedman’s first boss pointed her to a sleepy corner of the business that involved marketing a handful of trading products for which Nasdaq had received SEC approval, though the company hadn’t done much with them.

    “We’d built up all these systems and different capabilities for clients, but we hadn’t really optimized them from a product perspective,” Friedman says.

    Drawing on her MBA education, Friedman wrote a business plan mapping out a successful sales strategy. By the time she turned 27, Friedman had become a product manager overseeing three new Nasdaq products. After McKinsey & Co. helped reorganize the company in the late 1990s, Nasdaq was left with four distinct divisions: trading, listing, indexing and data. Out of that new structure, Friedman was tapped to lead the data division in 2000. “Becoming head of the data product division was, on the one hand, a big step. But on the other hand, it was very much a continuation of what I had been doing,” she explains, “which was to develop products and bring them to market, price them, promote them, and make sure they’re being distributed the right way.”

    Friedman’s CEO predecessor, Robert Greifeld, was appointed in 2003, and one of his first priorities was to change the way Nasdaq set the closing price of shares. It was an important project that needed to be done correctly with as little disruption as possible for Nasdaq-listed companies, brokers and investors. Because data played a big role in the shift, Friedman volunteered to take on the task.

    “Frankly, it was a very successful project,” she says. “I think that project gave Bob [Greifeld] the confidence to say, ‘I think you’re really good at project management.’ And a large part of corporate strategy is project management.”

    Recognizing her potential, Greifeld named Friedman head of Nasdaq’s corporate strategy in addition to her role leading the company’s data division. While many of her new responsibilities fit comfortably into Friedman’s wheelhouse, she also would now be in charge of acquiring other companies. For that, she had to brush up on the finance skills she had learned at Owen, which included modeling companies to determine a fair price range at which to buy them. “That was the big stretch for me,” Friedman says. But it also increased her exposure to Nasdaq’s financial and operational side, setting her up to take over as the company’s chief financial officer in 2009.

    Two years later global private equity giant The Carlyle Group snatched Friedman away from Nasdaq to become its CFO. She then returned to Nasdaq as president in 2014, establishing her path to become CEO.

    Adena Friedman spoke at Bloomberg Invest about the future of financial technology. (© 2017 Bloomberg Finance LP)

    Riding the waves of change

    Now that she’s running Nasdaq, which has become a publicly traded company itself, listing more than 3,500 companies on its exchanges around the world, Friedman wants to build upon the company’s roots as a technology innovator, exploring ways to improve how capital markets function for all the players involved. The key to doing that lies in its products.

    Speaking at a Silicon Valley conference in April, Friedman told the entrepreneur-heavy crowd: “We were, in fact, probably a very early fin-tech [financial technology] company. … We then grew into becoming more of an exchange company. I would argue today we’ve grown and matured again back into much more of a multinational financial technology company.”

    Friedman says she sees four interrelated technologies that will reshape markets and financial services going forward. The first is the continued rise of cloud computing, giving organizations the ability to access computing power and storage on demand. That in turn will help facilitate the second major wave she sees coming: machine intelligence.

    “I think it changes the way people make investment decisions, how they access the markets, and it allows us to give our clients much more sophisticated capabilities,” Friedman says. Layered onto both of these areas will be quantum computing, which is poised to offer market participants unprecedented processing capacity to model various business outcomes in real time, leading to quicker and more advanced decision-making.

    The fourth area that likely will have a significant impact on the financial services industry lies with the blockchain. This is a robust record-keeping system—a secure digital ledger, essentially—that is best known for powering the cryptocurrency Bitcoin. While Bitcoin itself doesn’t enjoy a pristine reputation, blockchain technology is already being explored and used by industries ranging from health care to banking.

    “Many of the biggest payment-processing firms and banks are creating this concept of a digital currency that allows for them to transfer cash, create digital cash, and then transfer that money through a new mechanism,” Friedman explains. When that same technology is applied to recording market transactions, she says, it could streamline many back-office functions.

    One key example involves issuing equity to employees at privately held startup companies. Today people still get a physical certificate of ownership—but the blockchain makes all of that electronic, Friedman says, “allowing you to keep a perfect record of ownership.”

    As futuristic as Friedman may sound at times, the premise underlying her plans for the company really harken back in some ways to the four P’s she learned in business school. In other words, she looks at Nasdaq as she has since the time she graduated from Vanderbilt—as a products company.

    “You own your own destiny” as a product manager, Friedman says. “And within a company like Nasdaq that’s a great way to help bring the business forward.”

  • Owen’s origins

    Owen’s origins

    The idea of establishing a business school at Vanderbilt was first broached in the late 1800s. Decades later, a dauntless group of university trustees took up the mantle to get the school approved. Owen’s story includes a Carnegie report, a cocktail-party caucus and decades of dogged dedication.

    Images provided by Vanderbilt University Special Collections and University Archives

    This is the first in a series of articles leading up to the 50th anniversary of the opening of Vanderbilt’s Owen Graduate School of Management in 1969.

    Board of Trust member David K. Wilson in 1976, announcing a $150 million capital campaign for Vanderbilt University as Chancellor Alexander Heard looks on

    Fifty years ago, in May 1967, Chancellor Alexander Heard acquiesced to a group of trustees who for years had been pushing Vanderbilt to establish a “first-class” graduate school of business.

    “The University will be taking a calculated risk, based on interest that has been shown in the School, and will be agreeing to use funds, if necessary, that would be otherwise available for the existing budgets of the University,” Heard warned the Board of Trust just before it voted to approve the measure.

    Despite Heard’s cautionary nod of assent, the board’s action marked the first real steps Vanderbilt took in launching what ultimately became the Owen Graduate School of Management. It also capped an internal discussion at the university that had stretched as far back as 1881.

    That was the year the University of Pennsylvania opened its Wharton School of Finance and Economics, sending a ripple of interest in business education throughout American universities, including Vanderbilt. Yet, an early proposal to open a “Commercial College Department” at Vanderbilt failed to gain traction. The question languished until the late 1950s, when a postwar economic boom once again prompted American universities to explore management programs.

    It was against this backdrop that Chancellor Harvie Branscomb formed a Board of Trust committee in 1957 to begin investigating whether Vanderbilt could sustain a business school and, if so, what it might look like in terms of curriculum, student population and staffing. The group consisted mainly of prominent Nashville businessmen and was chaired by Eldon Stevenson Jr., a 1914 Vanderbilt graduate who rose to become president of National Life & Accident Insurance Co. Other committee members included Sam Fleming, a 1928 graduate and president of Third National Bank (now part of SunTrust); O.H. “Hank” Ingram, founder of today’s Ingram Industries; Maxey Jarman, CEO of Genesco; and Justin “Jet” Potter, a 1919 alumnus of the College of Arts and Science and founder of Nashville Coal Co. Branscomb and Associate Professor David Steine, who taught in the business administration program, also sat on the committee.

    Stevenson in 1951

    In addition to assessing the university’s undergraduate business major, which at the time resided in the economics department and was the most popular course of study on campus, the committee surveyed local and national business leaders, including “more than fifty corporation personnel officers who regularly recruit Vanderbilt graduates,” according to the minutes. Members also spoke with current students and Vanderbilt alumni who had majored in business administration within the previous decade.

    One of the most pressing questions, however, was informed by an ongoing study that had been commissioned by the Carnegie Corp. to examine the state of business education in the United States. That watershed report, written by Swarthmore economics chairman Frank Pierson and eventually published in book form in 1959, sharply criticized American business schools for their low academic standards and urged the adoption of more theoretical, research-based curricula. In fact, one of the major concerns of the 1957 Vanderbilt committee was that any business education program not be too “vocational” in nature.

    By May 1958 the committee was ready to issue its findings at a meeting of the Board of Trust. “It is … recommended that as rapidly as funds can be secured, the University strengthen its present undergraduate curriculum and proceed with the establishment of a graduate program in Business Administration,” the group reported. “Your committee is convinced that as a University dedicated to the needs of the community at large, Vanderbilt has a responsibility in this area of education, and, by its educational stature and geographical position, is uniquely equipped to meet the challenge.”

    So while the desire was there, the seemingly innocuous phrase—“as rapidly as funds can be secured”—wound up becoming a major sticking point that slowed momentum for establishing a business school during the remainder of Branscomb’s leadership.

    Heard took the reins as chancellor in 1963 and was soon overseeing a major campus development plan and fundraising campaign on the one hand while coping with social upheaval and racial integration issues on the other. The idea of launching a new business school was crowded out by more pressing needs early in Heard’s tenure.

    A core group of trustees, however, was not quite ready to abandon the idea of a separate Vanderbilt business school or the work done by the 1957 committee. At a 1965 Board of Trust retreat in Hot Springs, Virginia, this group hatched a half-joking plan over cocktails to launch the school themselves, voluntarily serving as faculty members.

    Wigginton

    According to a history of the Owen School commissioned by Dean Sam Richmond in the mid-1980s and written by the Nashville-born novelist Madison Smartt Bell, the plan went as follows: William Waller would chair Corporate Law, Ralph “Peck” Owen would oversee Finance, Madison “Matt” Wigginton would be in charge of Marketing and Merchandising, while Sam Fleming and Andrew Benedict would take on Banking. “Well, of course that was just strictly cocktail talk and never would get off the ground,” Wigginton recounted to Bell.

    But it did revive interest in pursuing a business school. This time around, though, the task had moved from exploring philosophical questions of curriculum design to figuring out how to gather the necessary funds to hire a dean, open a new building and absorb financial losses for the first several years of the school’s existence.

    Yet another Board of Trust committee was appointed to answer this question, and it determined that the university would need about $5 million to $7 million ($40 million to $55 million in today’s dollars). Heard and some other board members felt that was an unrealistically low estimate of the true costs.

    During the first day of Board of Trust meetings in the summer of 1965, Heard accepted the committee’s findings but recommended no action be taken. However, the next day other board members bristled at the short shrift given to discussion of the business school. Frank K. Houston, a 1904 Vanderbilt graduate and New York banker, lamented the “crying need” for a high-quality business school in the South. Wigginton and Waller spoke of the feasibility of starting a “small, but excellent” business school at Vanderbilt.

    During the next few months, plans for the business school began to grow more concrete, with trustees citing recent successes by the University of Virginia and Tulane University in launching programs, saying well-heeled alumni were inclined to support these new business schools. Heard, meanwhile, continued to parry these arguments, suggesting that a 1964 Fortune magazine article found that business schools did not augment university fundraising and that deans of other Vanderbilt schools may ultimately lose funds for years to come as the university kept a new business school afloat.

    At this point, Vanderbilt had reached a kind of chicken-and-egg stalemate. Positions hardened.

    Heard insisted that starting a business school would not be prudent until sufficient funds could be raised without cannibalizing other donations to the university. He wanted enough funding to open and operate a business school for at least five years that could compete with the likes of Harvard, Wharton and Dartmouth. Fleming and others suggested that the people who were in a position to provide the kind of funding Heard envisioned would not do so unless they could see a strong upfront commitment by the university, such as hiring a prominent business school dean and several core faculty members.

    Board of Trust member Sam Fleming poses with a portrait of Chancellor Alexander Heard.

    Finally, it was Fleming, Wigginton and David K. Wilson (a son-in-law of Justin Potter) who broke through the impasse. They met privately with Heard in the spring of 1966 and each promised to be responsible for raising $250,000 per year in the first few years of the business school’s existence. Heard, questioning the three businessmen on why a school was even necessary when they all succeeded just fine, finally gave in and agreed to support the effort. He also agreed to make the business school one of the signature items in a $55 million capital campaign that began in 1966 and was chaired by Fleming.

    Within a year the full Board of Trust was presented with a detailed proposal to start a new business school outlining the education objectives and a funding plan. Trustee Robert L. Garner, a 1916 Vanderbilt graduate who became a vice president at the World Bank, abstained from voting, while Dr. Rudolph A. Light, graduate of Vanderbilt School of Medicine and a surgeon—Light Hall is his namesake—provided the single “no” vote.

    It was the otherwise unanimous board action, however, that set the wheels in motion for Vanderbilt to begin recruiting its first business school dean and establish the school’s two-year Master of Management (MMgt) degree, which led to today’s flagship Master of Business Administration (MBA) program. The school opened its doors in 1969 and graduated its first class in 1971.

  • Intellectual Capital: Jessica Kennedy busts the myth that women are bad negotiators

    Intellectual Capital: Jessica Kennedy busts the myth that women are bad negotiators

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    Who: Jessica Kennedy is an assistant professor in organization studies who came to Vanderbilt in 2014, following two years as a postdoctoral fellow at the University of Pennsylvania’s Wharton School, which is also her undergraduate alma mater. Before embarking on an academic career, Kennedy worked as an analyst with Lazard and Goldman Sachs. It was her investment banking experience, in fact, that propelled her toward pursuing a Ph.D. studying how organizations impact behavior.

    “I never expected to be working on these topics, I’ll admit, because I studied business for undergrad and was really interested in finance,” Kennedy says. “But I then went and worked in investment banking for a few years, and while the deals were really interesting, I also saw these dynamics surrounding how groups accorded power and status and how people made decisions—and how those factors were driving performance in teams.”

    Ultimately, she got so interested in these questions that she went back and talked with professors from her undergraduate days about their research projects before enrolling in University of California-Berkeley’s Haas School of Business, where she received her doctorate in 2012.

    What she’s researching: Kennedy’s research falls into two main areas. One involves studying power and status hierarchies, examining the factors that elevate individuals within organizations and how that influences their decision-making. “In organizations there are a lot of social dynamics that make the pursuit of excellence in one’s work more complicated. I think that competition for social status is one such factor,” she says. “Hierarchies can also hinder decision-making. For instance, I have research currently under review that looks at how holding a position higher in the hierarchy influences a person’s willingness to express disagreement with an unethical course of action embraced by a group.”

    The other key topic Kennedy explores is the role of gender in career and negotiation outcomes. In a study from 2014, Kennedy looked at how gender affected the likelihood a person would be the target of deception in negotiation. She and her co-authors found evidence of a stereotype about women being more easily misled than men, and it corresponded with more unethical behavior in negotiations with women. “We found that men and women alike were targeting women with more deception than men,” Kennedy says, explaining that low expectations about a negotiator’s competence (not high expectations for warmth) drove deceptive intent.

    In one of the experiments, MBA students held mock real estate negotiations where buyers decided whether to reveal that the “real” intention for the use of the land in question contradicted the seller’s wishes. Buyers admitted to being deceitful to 22 percent of female sellers, compared to 5 percent of male sellers.

    While stereotypes are difficult to “disconfirm,” as Kennedy puts it, she suggests there are things women can do in negotiation to avoid deception. These include persistently questioning information, asking for verification from multiple sources, writing critical terms in contracts and signaling a willingness to retaliate against deception.

    Kennedy’s most recent paper on this topic argues that the perception of women as inherently bad negotiators is a myth. Instead, women possess the same inherent skills as men, but they face various impediments that negatively affect outcomes. One barrier that Kennedy identifies is “cognitive.” Building on her earlier research that stereotypes about women in negotiations lead to more deception, Kennedy says that negative stereotypes about women negotiators depress their confidence and create a cycle of self-fulfilling prophecies that undermine women’s performance.

    Another impediment that women face in negotiations is created by negotiating counterparts’ motivations. This speaks to the psychological need for negotiation counterparts to believe that women lack skills in this area as a way to explain why women are often underpaid compared to men. “We generally need to believe that we live within a fair, stable, understandable, controllable social order,” Kennedy says. “The idea that people doing the same type of job—and performing equally well at it—get paid differently is really threatening to most people.”

    The third bias facing women in negotiation has to do with the way research has been conducted in this domain. Kennedy says studies in negotiation are often conducted using short-term contexts in which only economic outcomes matter. “In the real world, of course, we care about the relationships that we build through negotiation,” she says. “Because our negotiation simulations aren’t capturing the value that positive relationships bring within longer-term, higher-stakes environments, we may be underselling women’s negotiating abilities.”

    Why it’s important: The field of organizational behavior—which draws from disciplines like political science, sociology and psychology—started in part because researchers realized that people in organizations often don’t behave in rational ways that maximize self-interest. Kennedy says they bring a variety of other motives that affect their behavior and attitudes toward others.

    In terms of her work on gender and negotiations, Kennedy says there are significant real-world issues involved. There is an economic toll in the sense that women may receive a lower salary or have to pay more for high-cost items like a house or a car. There is also a psychological toll in the sense that negotiators are less satisfied with their working relationships when deception is part of the interaction. Ultimately, biases against women negotiators damage relationship building and undermine the satisfaction of both parties with the outcome of the interaction. Because relationships are such an important part of why people enjoy working in business, these biases could ultimately reduce interest in the work at hand.

    Although she hopes to encourage negotiators to identify and correct the biases that may undermine women’s performance, Kennedy has a few recommendations to help empower women negotiators. “Women perform as well as men in negotiations when they believe that negotiating skills are a product of hard work, rather than innate ability,” Kennedy says. “Women negotiators should keep in mind that negotiating skills can be developed, and that a single negotiation isn’t a test of their skill. Instead, it’s a learning opportunity that can help them overcome the impact of some of these negative stereotypes that they face about their abilities.”

  • The ties that bind

    The ties that bind

    As the inaugural member of a new corporate partnership program at Owen, Cardinal Health’s relationship with the school has moved beyond year-to-year hiring

    Read McNamara, MA’76, (left)assistant dean for corporate partnerships at Owen’s Career Management Center and Sam Samad, senior vice president and treasurer at Cardinal Health and a member of Owen’s Board of Visitors. Photo Credit: John Russell

    Just over a decade ago, when Jeff Greer, BA’94, MBA’00, decided to leave the world of management consulting, he called a contact at Cardinal Health, one of the world’s leading global health services and products companies, to explore new career opportunities. Having worked on past engagements at the Dublin, Ohio-based company, he’d come to appreciate Cardinal Health’s rare combination of maintaining a collegial, collaborative feel within the setting of a company consistently ranked in the top 25 of the Fortune 500.

    “One of the things I’ve loved about Cardinal Health is that it reminds me of the atmosphere at Owen,” says Greer, who is now vice president of enterprise architecture and IT strategy at Cardinal Health, and believes he was the first alumnus from Vanderbilt’s MBA program to land at the company. He has been a member of the Owen recruiting team ever since.

    “In business school, I never felt like there was cutthroat competition among classmates, nor were there barriers to getting access to the people or resources you needed,” he says. “I find that things are very much the same at Cardinal Health.”

    Greer isn’t the only one who has recognized the similarities between Cardinal Health and Vanderbilt’s Owen School. This fall, Cardinal Health became the inaugural member of a new corporate partnership program at Owen designed to deepen ties between the school and companies that recruit Vanderbilt business talent.

    “This partnership formalizes a lot of what we were already doing with Owen, but takes it to the next level,” says Sam Samad, senior vice president and treasurer at Cardinal Health and a member of Owen’s Board of Visitors. “It puts the things we’re doing together in a bit more of a strategic context.”

    Read McNamara, MA’76, assistant dean for corporate partnerships at Owen’s Career Management Center, says Cardinal Health is an ideal company to help launch the new initiative—a program he hopes to grow to about 25 companies. The genesis for the idea came in 2013 around the time M. Eric Johnson was named dean of the business school.

    “I’d begun to network with my peers at other top-25 business schools and learned about engagement programs they had with corporate recruiters,” McNamara says, citing Harvard Business School’s longstanding partnership with P&G as an example. “There are many different routes a program like this could take, but Dean Johnson and I decided that developing qualitative engagements—things like mentoring opportunities with executives, speaker opportunities, case competitions, joint research projects—would be the cornerstone of our partnership program.”

    The primary goal is to attract companies to campus in a way that goes “above and beyond” the cyclical, transactional nature of simply recruiting graduates, McNamara says.

    That’s a trajectory Cardinal Health has followed since the company began recruiting Owen graduates on campus in 2011, Samad says, noting that the lone Vanderbilt graduate who went to Cardinal Health that year, Eric Messinger, MBA’12, continues to thrive at the company.

    In the years since then, Cardinal Health has extended its ties to Vanderbilt in numerous ways that go beyond hiring—though that role is growing too as the company has augmented its internship program and broadened its MBA recruiting pool from strictly finance majors to graduates concentrating in areas like strategy and marketing.

    Some of those nonrecruiting activities included former Cardinal Health CFO Jeff Henderson joining the Board of Visitors (Samad has taken over his place on the BOV); Cardinal Health CEO George Barrett delivering a keynote address in 2014 for the student-run Vanderbilt Health Care Conference; and Cardinal Health partnering with Vanderbilt’s Executive Development Institute to develop courses for high-potential executives within the company.

    “The foundational element in all of this is that you need people who enjoy working with each other,” Samad says. “Once we started working with the team at Owen, we realized we had a very strong cultural fit. We saw that from day one.”

    A Good Deal for Both Sides

    The partnership between Owen and Cardinal Health is not just about mutual admiration, however. Like any good business deal, both sides stand to gain.

    Samad participates in his first Owen Board of Visitors meeting with Dean Eric Johnson in November. Photo Credit: John Russell

    One big advantage for Cardinal Health’s involvement with Owen is that it helps sell the students on the company. That’s important, Samad says, because in the next year alone he hopes to double the number of interns from Owen, as well as the number of graduates coming into full-time roles at Cardinal Health.

    Another critical benefit: diversity. “Cultivating a diverse and inclusive work environment is crucial to our success,” says Samad. “In our efforts to ensure diversity in the workplace, Cardinal Health strives for a workplace that accurately reflects the communities where we live and do business. As I look at the list of Vanderbilt MBAs that we’ve hired, there is a lot of gender and ethnic diversity, which helps us thrive as an organization.”

    Internally, Cardinal Health has been exploring ways to put more structure around its internal leadership development efforts to foster a pipeline of homegrown executive talent, and MBA recruiting plays an important role in that. “If we attract somebody into finance, if we attract somebody into strategy, we want them to have the expectation that they’ll be rotating,” Samad says. “They need to understand that they’re not coming into a strategy firm. At the end of the day, they’re joining a health care company.”

    The other key area for Cardinal Health is tapping into Owen’s teaching and research. Samad says the company wants to continue to develop customized learning programs for the company’s internal use, as well as access to cutting-edge research around the health care industry, especially now that Cardinal Health has operations in Nashville that include a distribution center and a recently acquired health care services company, naviHealth.

    For Owen, having high-quality companies on campus regularly recruiting graduates is a key motivator for entering these kinds of partnerships, McNamara says. Developing a stable group of top companies with which Owen has formalized partnerships helps recruit students for admissions, and ideally helps guard against severe hiring dips during economic downturns.

    These partnerships also create opportunities for students and companies to get a much better feel for working together before either side commits to a full-time job.

    McNamara says case competitions offer a good example. “They are perhaps one of the most productive forms of the kind of qualitative engagement we have in mind,” he says. “Over a two-day period, the company—which ideally provides the judges for the competition—will get a really good look at our talent.” Even watching how the students organize, market and run the competitions offers employers valuable insight, McNamara says. Similarly, case competitions let students get a good feel for a company’s culture and values in a way that an hourlong interview in a library conference room can’t replicate.

    McNamara says Deloitte’s annual Human Capital Case Competition, hosted at Owen, has been a great success for students in the Human and Organizational Performance track. He’d like to see those efforts replicated with other companies in different management concentrations, such as finance, health care, marketing and operations.

    Summer interns and current MBA students Mark Fergason, BA’08, Kartik Varma, and Sid Shetty, join Cardinal Health CEO George Barrett (third from left) for a group photo. Fergason and Shetty will join Cardinal after graduation, while Varma is joining American Airlines, another company that enjoys a strong Owen alumni network. Photo Credit: Sid Shetty

    One other key outcome Vanderbilt hopes to see emerge from the corporate partnership program is the creation of an executive-in-residence position. McNamara and Melinda Allen, executive director of the Owen School’s Leadership Development Program, are putting the final touches on that initiative. “This would involve a senior executive from a corporate partner spending anywhere between 48 and 72 hours here on campus meeting with small groups of students, faculty and administrators,” McNamara says. “That would give the company a terrific look—at a very senior level—at the range of talent and research Vanderbilt has to offer.” For students it would also help reinforce the school’s close-knit, collaborative culture.

    McNamara says each organization that becomes a corporate partner should include a few common components, such as a history of recruiting Owen students in good times and bad; a willingness to hire international graduates; a leadership development program at their organization; and a willingness to engage with Owen through things like speaker series or case competitions.

    In exchange, companies designated as corporate partners will receive preferential timing for on-campus interview and information sessions; priority for event sponsorship; and invitations to participate in an annual dean’s dinner for corporate partners that will offer an inside look at Owen’s plans and priorities.

    “Companies like Cardinal Health—and many others Owen has had fantastic relationships with over the years—have expressed a real desire to be involved with the school, whether it’s related to curriculum, hiring students, or working with faculty on teaching and research projects. Usually it’s all of those things and more,” Johnson says. “Read and the executives he is talking to for this corporate partnership program have done a wonderful job putting a structure and strategy around a set of mutually beneficial engagement activities. I look forward to seeing this grow into a meaningful, productive program that leads to long-term success for everyone involved.”

    Editor’s note: As this issue of Vanderbilt Business magazine was going to press, Sam Samad was named senior vice president and chief financial officer of Illumina, a global leader in the field of genomics.

     

  • Masters of marketing

    Masters of marketing

    Fourteen students embarked on Vanderbilt’s inaugural one-year Master of Marketing degree program this fall. Announced in November 2015, the program joins Owen’s one-year master’s programs in finance and accounting, all designed to give recent college graduates an edge in the business world. The Master of Marketing program equips students will skills in digital marketing, analytics, consumer insights, brand management and more. The program also includes two immersion-based independent study programs that help graduates achieve their career goals. Photo Credit: Daniel Dubois
  • Vanderbilt’s Man in Japan

    Vanderbilt’s Man in Japan

    Heiki Miki travels the globe as Shinagawa Refractories’ executive officer and general manager of overseas business for Americas, Europe/Middle East and Oceania—and as one of Vanderbilt’s most visible and appreciated international supporters.
    Heiki Miki travels the globe as Shinagawa Refractories’ executive officer and general manager of overseas business for Americas, Europe/Middle East and Oceania—and as one of Vanderbilt’s most visible and appreciated international supporters.

    Need someone to staff an MBA fair in Tokyo? Call Heiki. Want to meet with top Japanese executives about hiring (or sponsoring) Owen students? Call Heiki. Trying to connect with Japanese alumni from other Vanderbilt schools? Call Heiki.

    Anyone who’s spent time around the Owen Graduate School of Management in recent years will know that Heiki Miki, MBA’96, is a globe-trotting force to be reckoned with, the type of uber-alumnus who steps off a 24-hour flight from Asia to Houston and instinctively starts organizing a gathering of local Vanderbilt graduates. “It’s like nothing I’ve ever seen,” says Dean Eric Johnson. “Heiki is better than the best networker, even one on steroids.”

    Asked what fuels his enthusiasm for Vanderbilt, Miki, recipient of Owen’s 2015 Distinguished Alumni Award, replies with a mixture of gratitude for his business school experience and concern that Vanderbilt’s name is not as well-known as it should be outside the U.S., particularly in Asia.

    “People in Japan know Harvard and they know schools that have their location as part of the name, like UCLA,” says Miki during an early morning (for him) Skype chat from his Tokyo apartment, decorated, naturally, with Vanderbilt pennants. “But Vanderbilt isn’t well-known here. People ask, what is Vanderbilt?”

    Miki, who manages global business for Shinagawa Refractories, a leading refractory manufacturing company in Japan, says he’s on a mission to raise Vanderbilt’s profile abroad. That was one of his chief concerns while serving for more than 10 years on Owen’s Alumni Board. Recently, he organized and inaugurated Vanderbilt’s first Alumni Association chapter in Japan, bringing together graduates from across the university. Beyond his formal roles within the university, Miki looks for any opportunity to help his alma mater, whether it’s mentoring international students—he recently convinced an Indian friend’s daughter to attend Owen—or organizing sushi dinners for Vanderbilt faculty and staff as they pass through Tokyo.

    Discovering Owen

    Miki discovered Vanderbilt in 1994 when he was part of a wave of Japanese managers coming to top U.S. business schools to help fill a shortage of homegrown managerial talent. Miki, who was only the fifth Japanese student to graduate from Owen when he received his MBA in 1996, wanted to attend a small program but one that was ranked in the top 25. The school also needed to have a great marketing faculty. Vanderbilt matched his criteria perfectly.

    “I didn’t want to go to a big city with a lot of other Japanese students,” says Miki, who had spent six years in Los Angeles as a child. “My wife and sons—who were 2 and 6 at the time—were coming with me, so I wanted a place that would be right for them.” (He didn’t realize Japanese automaker Nissan had such a significant presence in the Nashville area until after he arrived.)

    The cultural shift may have been more dramatic than in more cosmopolitan cities, but Miki says everyone at Owen was very generous in welcoming his family and helping them get settled. Inside the classroom, Miki says the MBA curriculum helped him expand upon and connect the dots in areas where he’d already had some experience, like finance, marketing and operations.

    His true education, however, came from interacting with classmates on teams carefully assembled by professors to expose students to a wide variety of people from different professional and cultural backgrounds. That tight-knit atmosphere—fostered by regular social events, including Thursday afternoons sipping beers together—also gave Miki and other international students a chance to practice their multilingual schmoozing skills, something that has been integral to his internationally focused sales career in the manufacturing sector.

    Reconnecting

    Alumnus Aaron Fung, MBA’12 (left), congratulates Heiki Miki on receiving Owen’s 2015 Distinguished Alumni Award.
    Alumnus Aaron Fung, MBA’12 (left), congratulates Heiki Miki on receiving Owen’s 2015 Distinguished Alumni Award.

    Once Miki left Nashville, staying connected to Vanderbilt became much harder, if for no other reason than the logistics of travel. Even following the Commodores in sports proved difficult given the time-zone difference. In 1999, however, an Owen representative contacted Miki about helping to arrange a Vanderbilt delegation’s visit to Japan. That experience, which turned out to be a great success, inspired him to reconnect with the school. A year later he joined Owen’s Alumni Board, the same year he and his family moved from Japan to Connecticut. Today, Miki splits his time between the U.S. and Japan.

    “It’s one thing to attend Owen as a student,” Miki says. “But after working with the Alumni Board, you look at the school in a completely different way. How do we market the brand name Vanderbilt? What is our global reputation? You’re always looking for ways to convey what’s unique about Vanderbilt.”

    His experience with the Alumni Board also gave him the opportunity to work alongside fellow alumni that he’d never known in school, people such as Nancy Abbott, EMBA’91, the global HR leader at GE Capital Real Estate; Smoke Wallin, MBA’93, founder and CEO of Taliera, which invests in new food and beverage brands; and Brent Turner, MBA’99, chief operating officer of Rover, an innovative provider of dog boarding, sitting and walking services. After rolling off the board for a term, Miki recently was asked—and agreed—to serve on it again.

    He continues to stay in close contact with Owen alumni, faculty and staff. Kim Killingsworth, director of international recruiting and relations at Owen, says his work has been invaluable to her efforts in Japan to recruit students and open doors at companies. On one of her recent trips through Asia, Killingsworth traveled from Tokyo to Seoul for a recruiting event. Miki made the same trip. “As soon as he landed he came straight to the MBA fair and joined in, recruiting Korean candidates while he was there on a business trip,” says Killingsworth, noting that Miki often helps guide international students through the MBA admissions process. “He really goes above and beyond. I joke with him that he even beats us to the punch posting photos to Facebook, usually before an event is over.”

    Most recently, Miki has focused on expanding the Vanderbilt network in Japan, which led to the June launch of the first official Japanese Alumni Association chapter. That first event drew about 50 people from nearly 200 who have been identified throughout that country as having a Vanderbilt affiliation. Plans are in the works for the chapter to host other events including a holiday party in December.

    It was at the first gathering, however, that Miki knew his work was paying off. “I got to the venue a couple of hours early and saw an older gentleman sitting near the door,” Miki says. “He approached me and said ‘I graduated from Vanderbilt Medical School 40 years ago and have been waiting for something like this for a long time.’”
    Miki looked at him and replied, “Me too.” ■

  • Intellectual Capital

    Steve Hoeffler

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently considering.

    Steve Hoeffler

    Who: Associate Professor of Marketing Steve Hoeffler. Don’t let the well-worn La-Z-Boy in the middle of Hoeffler’s office fool you. Infused with a laid-back demeanor that hints at his California upbringing, Hoeffler uses the chair as a kind of oasis away from his computer where he can concentrate more intensely on his work. At the same time, the overstuffed recliner speaks to his goal of avoiding the stereotype of a stuffy academic. “I distinctly remember sitting in an economics lecture as an undergrad, thinking, ‘yeah, the professor knows his stuff but the people in this class aren’t going to get it with the way he’s explaining it.’ He was just so technical,” Hoeffler recalls.

    After completing his MBA at University of California, Davis, Hoeffler contemplated going to UCLA or University of California, Berkeley, to study consumer marketing. He was drawn instead to the other side of the country to work with renowned marketing scholar James Bettman at Duke University. Hoeffler finished his Ph.D. there in 2000, but had already started teaching across town at University of North Carolina at Chapel Hill. Drawn to Vanderbilt by his former Duke colleague, Associate Marketing Professor Jennifer Escalas, Hoeffler joined the Owen School in 2006.

    What he’s researching: The common theme unifying Hoeffler’s research is consumer behavior around “really new products.” Hoeffler classifies these items as anything that allows consumers to do something that they have never done before, not just improved versions of an existing product. For example, the iPhone qualifies as a really new—or radically new—product since it introduced an ecosystem of apps that required learning new behavior. Contrast that, Hoeffler says, with a product that simply uses new technology, like a refrigerator with a new cooling mechanism. At the end of the day, it still keeps food cold inside a metal box and doesn’t require new consumer learning.

    In many ways, Hoeffler’s work follows a traditional line of marketing research: What are the factors that influence purchasing decisions? What is it about the products themselves and how they’re marketed that compels people to buy? “Normally it’s easy,” Hoeffler says. “You ask people in focus groups whether they’d use a product and go on from there. But without having a pre-existing mental model of how to use something, you can’t do that.”

    One recent study conducted by Hoeffler and co-authors looks at the role different analogies play in helping consumers evaluate really new products. For example, does a product like Google Glass benefit from a straightforward comparison like, “It’s a wearable smartphone”? Or would it be more meaningful for an audience to compare the function in Google Glass that constantly records what you’re seeing to pensieves, devices featured in the popular Harry Potter series to view bottled memories?

    One of the next projects on Hoeffler’s agenda is working with Owen colleague Larry Van Horn, a health care economist, to examine the ways consumers value medical care. “Many people have never had to think about health care as a consumer product,” Hoeffler says. “But now with health care reform, and insurers asking patients to shoulder more costs, more people are starting to evaluate things like pricing, which is completely unfamiliar to them.”

    Why it’s important: As new products are created, more companies need tools to help discern what products and services actually improve the lives of consumers—and will sell—versus what’s just cool, new technology. But Hoeffler’s research does not revolve solely around marketing the latest in consumer electronics. He’s working with an interdisciplinary group of researchers to examine ways to improve package safety. “We’ve seen that things like laundry detergent pods and e-cigarettes have led to a spike in childhood poisonings,” he says. “And yet, there’s been no real breakthroughs in package safety since childproof caps for medicine bottles were developed.”

    Ranga RamanujamRanga Ramanujam

    Who: Professor of Management Rangaraj “Ranga” Ramanujam. He joined the Owen faculty in 2008 and soon was recognized for his skills in the classroom and for his prodigious research. Ramanujam received his Ph.D. from Carnegie Mellon in 2000 and taught at Purdue University before coming to Vanderbilt. Prior to academic life, Ramanujam worked at Standard Chartered Bank, where an internal fraud that cost the company millions of dollars prompted his interest in studying how such calamities happen.

    What he’s researching: Officially, Ramanujam studies issues linked to operational failures. Less formally, he studies a kind of organizational physics that examines how internal structures lead to catastrophic problems like faulty ignition switches or persistent medical errors. “I could see that there were very strong, but invisible, effects impeding organizational effectiveness,” Ramanujam says. “From a business viewpoint, it’s obvious why this is important. But I don’t think the reasons for such organizational failure are adequately appreciated.”

    In many ways, what Ramanujam has been doing is carefully teasing apart how organizational catastrophes happen. What are the preceding conditions and subsequent consequences that surround a serious failure? How do specific features of an organizational structure contribute to problems? And how do organizations learn and improve in a meaningful way in the wake of disasters?

    Just as Ramanujam saw his own employer narrowly avoid collapse due to a lapse of internal controls, his early academic research looked at how risk played a role in diverging from accepted policies and procedures at financial services firms. “These failures can certainly be attributed to individual actions like a rogue trader,” he says. “But we know the organizational context matters.” For example, GM’s ignition switch recall can be traced to unspoken company rules that strongly discouraged employees from classifying problems as safety concerns to avoid additional costs. Similarly, intense schedule pressures affected NASA’s ability to respond effectively to early signs of the problems that eventually caused the explosions of space shuttles Challenger and Columbia.

    This area of inquiry on organizational safety and effectiveness ultimately led Ramanujam to health care. It’s not just that hospitals face life-or-death stakes when errors or intentional rule violations occur, but also because health care organizations have a wealth of data available to analyze. Ramanujam began by examining how much, when and why medical students report medical errors. That led him to look at work-satisfaction rates among nurses and the role that burnout played on a person’s willingness to speak out about problems.

    These days, Ramanujam is seeking answers to fundamental questions surrounding organizations. For example, one of his studies uses restaurant health score data from Los Angeles County as a way to detect the elements that comprise a good rule—or at least one that’s not routinely ignored. Another area Ramanujam thinks about is communication within an organization, specifically when employee silence (not to be confused with a lack of talking) introduces wider risks.

    Why it’s important: The public has grown less tolerant of safety violations. Previously, an ignition switch problem like the one that GM encountered last year would not have been such a big deal. Today, it warrants a massive recall that cost GM more than $4 million. For managers, Ramanujam’s research homes in on the specific actions that make for more effective teams and employees. On its widest scale, creating safety-conscious organizations simply benefits everyone.

  • New Frontiers in Finance

    New Frontiers in Finance

    FMRC meeting
    Robert Whaley, the Valere Blair Potter Professor of Management (standing), looks to expand the conference’s role as a forum for the world’s top financial experts to explore and discuss significant financial topics.

    When Hans R. Stoll, the Anne Marie and Thomas B. Walker Jr. Professor of Finance, launched the Financial Markets Research Center’s first annual conference in the spring of 1988, he did so in the spirit of wanting to more fully understand the previous year’s sudden stock market crash. Bringing leading academic figures, top government regulators and industry executives to Vanderbilt University for that first conference, Stoll began a rich tradition of assembling thought leaders to explore some of the most pressing topics in finance.

    It’s a tradition that Robert Whaley, the Valere Blair Potter Professor of Management, hopes to strengthen and grow as sole director of the FMRC.

    “We have the opportunity to play an even larger role in the world of finance,” says Whaley, a renowned scholar and creator of the closely watched Market Volatility Index (VIX) who previously served as co-director of the FMRC alongside Stoll.

    “In addition to the top-tier research and expertise from our own faculty, we are able to attract leading thinkers from around the world—from industry, from major regulatory agencies, and from top academic institutions—to discuss the most important topics facing today’s financial markets.”

    Internationally known speakers

    Over the years, Vanderbilt’s annual FMRC conference has hosted speakers such as former Fed Chairmen Paul Volcker and Alan Greenspan; Nobel Memorial Prize winners Eugene Fama, Robert Merton, Merton Miller, Robert Shiller and Myron Scholes; and industry leaders like Leo Melamed, chairman emeritus of CME Group; William Brodsky, longtime chairman and CEO of the Chicago Board Options Exchange; and Thomas Peterffy, founder of Interactive Brokers.

    The conference attracts leading thinkers from around the world to discuss the most important topics regarding financial markets.

    Participants have been drawn to the event by the school’s distinguished finance faculty. In addition to Stoll and Whaley, Owen Graduate School of Management professors include Bill Christie, whose paper on NASDAQ broker collusion led to a significant regulatory overhaul; Craig Lewis, who most recently served as chief economist of the SEC; and Nicolas Bollen, one of the world’s foremost experts on hedge funds.

    Additionally, Dewey Daane, the Frank K. Houston Professor of Finance, Emeritus, who served as a Federal Reserve Board governor from 1963 to 1974, continues to attract many distinguished guest speakers to campus. Most recently, he helped bring Edward J. DeMarco, who ran the federal agency overseeing Fannie Mae and Freddie Mac, to Vanderbilt. In addition to serving as a visiting professor, DeMarco was a 2012 FMRC keynote speaker.

    Compelling topics ahead

    Whaley says he is already mapping out topics for future FMRC conferences. In October, finance professor Nicholas Crain hosted a conference on private equity which included a keynote by Bruce Evans, a member of Vanderbilt’s Board of Trust and managing director of Summit Partners in Boston. And for the 2015 FMRC spring conference, Whaley is starting to assemble a group to discuss the role that options and other derivatives have played in reshaping markets. “We’re intent on bringing the very best people we can find to the conferences we host,” Whaley says.

    Modern finance legends attend the spring 2014 FMRC
    Three of modern finance’s legends—colleagues with Hans Stoll at the University of Chicago during the 1960s—joined him at the May conference. From left, Eugene Fama, Myron Scholes, Stoll and Richard Roll. Fama and Scholes both received the Nobel Memorial Prize in Economic Studies.

  • Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

    Yasin Alan

    Yasin AlanWho: Assistant Professor of Operations Management Yasin Alan. He arrived at Vanderbilt in 2012 after receiving his Ph.D. in production and operations management from Cornell University’s Johnson Graduate School of Management. He currently teaches the core operations management course and an elective course in supply chain management in Vanderbilt’s full-time MBA program. Alan holds two patents in inventory and systems management.

    What he’s researching: When Alan tells nonacademics that he studies the relationship between a company’s inventory performance and its finances, he quietly braces for the inevitable question: Isn’t that obvious? If a company is selling its goods quickly, the stock should go up; if not, watch out for financial distress. But the relationship is not as straightforward as it sounds—and proving so with real data is even harder.

    “Yes, there are lots of correlations, but showing a causal relation is very difficult,” Alan says. In particular, Alan wants to know if there are early signals about a company’s financial performance that investors can glean from inventory metrics.

    For example, a recent paper Alan co-authored for the journal Management Science involved ranking retail companies according to their rate of inventory turnover in several different retail segments. The study then tested a portfolio strategy that involved buying stocks in companies in the top 40 percent of the segments—the high performers—and selling the bottom 40 percent in each segment. The result: The portfolio showed a 1 percent average monthly gain over market benchmarks. The results stayed consistent over a 25-year period.

    The study also found that there tends to be a 1-to 2-year lag between the time a company makes inventory information public and when it gets reflected in the stock price. For Alan, this helped confirm earlier studies showing that market participants do not fully understand how to incorporate inventory information into their trading strategies and consequently are leaving money on the table.

    Alan’s work gets at the interplay of inventory and company performance in other ways as well. One ongoing study examines how inventory indicators may serve as an early warning for bankruptcy. Similar to his work on stock returns, Alan wants to know if there are key operational metrics that could suggest bankruptcy risk long before a negative stock price or earning trend becomes apparent. The study is still in progress, but Alan has seen indications that bolster his hypothesis.

    Another avenue of Alan’s research may seem obvious until you dig deeper into the questions being posed and answered. In this case, he’s working with Owen faculty colleagues Michael Lapré and Gary Scudder to understand what operational dimensions have the most impact on airline profitability. “Is it pricing? Is it managing connections? Is it labor? Fuel?” he asks. “We want to know which components have the biggest effects on profitability.” Alan explains that a low-cost airline like Southwest—rising during the same period that many legacy carriers faced bankruptcy—offers an ideal case study to tease out which operational functions play the biggest roles in profitability.

    Why it’s important: Alan’s work is part of an emerging field that ties together traditional operations management and finance. At its core, his research topics revolve in many ways around identifying and managing risk. Alan is also exploring how banks value the inventory collateral they use for loans. Currently, banks tend to use rules of thumb to place a value on inventory. Alan wants to develop a more refined, informative approach for banks to value inventory collateral fairly.


    Catherine F. Lee

    Who: Catherine Lee joined the school’s accounting group in 2013, in what is somewhat of a return home. She grew up in Middle Tennessee and attended Nashville’s Hume-Fogg Academic High School before going to Princeton University to study engineering. From there she worked as an investment banking associate in renewable energies for JPMorgan Chase. She later earned her MBA and Ph.D. from the University of Chicago. “I really enjoyed working on Wall Street,” she says. “But building investment models for clients all day didn’t involve a lot of thinking about the bigger questions.”

    Catherine LeeWhat she’s researching: Disclosures. That may seem like a pretty dry topic for someone interested in the “bigger questions” of accounting and finance, but Lee relishes the opportunity to explore seemingly mundane topics in new and different ways. For example, she enjoys guiding her accounting students through CEO shareholder letters.

    “It’s kind of like finding the meaning in a novel. It’s amazing what little gems are there,” she says, fully acknowledging that only a true accounting nerd could say something like that. Lee says shareholder letters often drop key hints about the future direction of large public companies. One example she likes to discuss with students is a letter written by Starbucks CEO Howard Schultz just before the company announced a return to its roots and a major retrenchment of its rapid growth strategy. “He starts with this wistful recounting of the company’s original Pike Place location in Seattle,” she says. “Then several months later, they began closing stores. It’s pretty fascinating.” Along the same lines, Lee is starting to look at how material disclosures made in social media—not just by companies themselves, but by clients, partners and suppliers—can affect stock performance.

    In another line of research, Lee examines the political influence corporations have on accounting policies and regulation. She says the lobbying money spent by companies to influence the outcome of the 2004 American Jobs Creation Act offers a window into how certain kinds of companies react to changes in accounting regulations. “There aren’t many opportunities to measure how much companies care about certain accounting policies,” she says. “Normally, a company either submits comments to FASB (Financial Accounting Standards Board) or they don’t. With the 2004 Jobs Act, we can see the magnitude—based on how much money is spent on lobbying—to which managers are concerned about how the changes will affect their financial statements.” But asked whether companies or their executives should be required to disclose more of their lobbying activities in financial statements, Lee comes down as a firm “no.” For starters, she says that information is already publicly available through campaign finance laws for any investor who wants to find it. And making political expenditures part of a financial statement, she says, may infect the financial markets with the same caustic elements currently bedeviling the political arena.

    Why it’s important: Lee initially decided to pursue a Ph.D. in accounting because it offers the tools and language to understand what’s really happening in a company. That’s still the common thread that underlies her research: Discovering new ways to view a firm’s internal economics. “I’ve always been interested in understanding what motivates managers to make the choices they do. Accounting is a tool that allows me to do that.”

  • Three Pillars

    Three Pillars

    Chess figures in leadership phalanxThere are a few things all graduates from a top MBA program will pick up in the course of their studies, including accounting skills, a class or two on business strategy, and at least some instruction in leadership.

    While accounting and strategy are pretty straightforward, leadership can be anything but. Great minds, stretching from Aristotle to Steve Jobs, have come up with a variety of different ways to define the essence of leadership. And there’s certainly no shortage of books on the topic, ranging from the truly inspirational to absolute junk.

    So how does Vanderbilt set about teaching a topic that has so many different meanings for so many different people?

    It comes down to three important pillars: A classroom curriculum designed to transform natural leadership instincts into systematic, smart decision making; a highly personalized leadership development program offering a Korn Ferry-based skills assessment followed by one-on-one executive coaching; and a small, supportive environment where student leaders have the opportunity to make a big impact.

    Then there’s Owen’s size. The school is small enough to be able to “invest in students at an individual level,” says Eric Johnson, dean of the Owen School. But it’s also a top institution offering the kinds of opportunities available at its elite peers. “For example, we have many of the same clubs and student organizations that Wharton does,” Johnson says.

    This multidimensional, hands-on approach to leadership offers students a robust platform from which they can continue to hone their leadership skills long after they’ve left school.

    So how does Vanderbilt set about teaching a topic that has so many different meanings for so many different people?

    In the classroom

    All full-time MBA students start with the class Leading Teams and Organizations, a required course that is taught in the first mod each year.

    And every year, Associate Professor Tim Vogus, who has taught the course for the past decade, braces for an onslaught of generalizations and vague leadership platitudes coming from students.

    “One of my primary goals is to get students thinking in terms of specific decisions they’d make in tough situations,” Vogus says.

    Among the cases and simulations the class examines is one that imagines students serving at the helm of Mission Control at NASA. The scenario says that after many hours carrying out grueling, mindless tasks ordered by commanders on the ground, a group of astronauts in midorbit demands to conduct a few scientific experiments of their own. If they’re denied, the astronauts say they’ll go on strike.

    Students in Vogus' class
    Associate Professor Tim Vogus’ organization studies classes require students to consider leadership in all its forms.

    Vogus says responses to the astronauts’ demands vary—with one student going so far as threatening to cut off the ship’s oxygen supply—but at the very least he wants to force students to consider the crew’s perspective. “These astronauts are all highly trained scientists and they’re being given about as much autonomy as a fry cook at McDonalds,” he explains. “What makes their work meaningful? How do we keep them motivated? They just want to be treated as individuals with autonomy, not robots.”

    While there is no correct answer for how to handle this simulated strike in space, Vogus says the goal is for students to understand how to transform their gut reactions into thoughtful decisions executed in a systematic way. This involves developing not only a sense of self-awareness about how a person reacts in certain situations, but also understanding how a decision’s consequences ripple far beyond one’s immediate field of vision.

    Rules for leadership

    Vogus also tries to get students to think about leadership as something beyond the traditional notion of a Jack Welch-styled executive barking out orders from behind a wood-paneled desk. “Leadership comes in many different forms,” Vogus says. “It’s not just about where you are on the corporate ladder.”

    Leading is learning … and vice versa

    For Associate Professor Ranga Ramanujam, leading is inseparable from learning. This is the primary message in his popular leadership course, Organizational Learning and Effectiveness, developed in 2011 after years of teaching Leading Teams and Organizations.

    “How do you intentionally and continuously learn to be a better leader? You learn from experience, from others, from experiments and from failure. It’s ultimately not an academic exercise,” Ramanujam says. Nevertheless, he says, there are three key areas that a person must continuously learn to manage to become an effective leader:

    1. Yourself—How do your actions help achieve results?
    2. Information—What data can you harness to make better decisions?
    3. People—How do you influence others in a way that gets the job done?

    “This is management in the true sense of the word,” Ramanujam says. “I tell MBA students not to shortchange the degree they’re getting by defining themselves narrowly in terms of a function. First and foremost, you are a manager, no matter what area you specialize in. Being a manager is a multifaceted and complex role.”

    Students in organization class
    Discussion in Negotiation class

    Even seemingly trite tasks such as forming teams and splitting work assignments can offer opportunities to learn about effective management, Ramanujam says. In class, he instructs students to group themselves into two sets of non-overlapping teams and then observes how they select team members. Students typically group themselves with others in their same areas of concentration or with whom they have worked previously, forgoing opportunities to expand their networks. “At one point, I developed a map of the class to show the students what was happening,” Ramanujam says, pointing out that it was also an example of how he tries to find actionable data in everyday situations.

    He is surprised, too, by the tendency of students to divide project work among team members in equal portions out of a sense of fairness without also considering what will produce the best final outcome.

    “What makes an effective leader is defined by what you pay attention to,” Ramanujam says. “There are so many things that affect an organization. So how you allocate your attention makes a significant difference because you can’t pay attention to everything.”

    Leader, know thyself

    If leading does come down to learning, Owen students have ample opportunity to delve deep into their own leadership strengths and weaknesses through the school’s highly rated Leadership Development program.

    Over the years, the program has added strategic partnerships with global talent management firm Korn Ferry and Hogan Assessments. MBA students begin by taking Hogan LEAD Assessments, a diagnostic tool used by a majority of Fortune 500 companies. It offers students a detailed roadmap of their working styles and points out unique capabilities, as well as challenges and areas for potential development. “We believe that self-awareness is the key to long-term leader success,” says Melinda Allen, executive director of LDP. “That’s why the assessment serves as an instrumental starting point.”

    Melinda Allen and student Charles Schreiner
    Melinda Allen, with first-year MBA student Charles Schreiner, leads Owen’s highly rated Leadership Development Program.

    Students can tailor their LDP experience from a range of different approaches. The program includes an individual approach, which provides students with four one-on-one sessions with a vetted executive coach as well as a full 360-degree assessment. A shared approach that includes group coaching sessions and assessment tools is available for students who prefer working in groups. Alternatively, students can pick a flex option that provides two one-on-one coaching sessions at the timing of their choice in the first year. Students can also simply choose programming on an a la carte basis to best suit their needs. Nearly 80 percent of the most recent class of first-year MBAs participated in one of these approaches.

    Fazulul Haque Sheik, MBA'14
    Fazulul Haque Sheik, MBA’14

    “For me, LDP defined the term ‘self-aware’ in a whole new way. We are all self-aware—I thought. How much could there be about myself that I don’t know already?” says Fazulul Haque Sheik, MBA’14. “But a few sessions into the program I realized that I knew very little about myself. LDP helped me identify my shortcomings, built a structure to help me overcome challenges, and most important, taught me the skills to replicate this structure anytime, anywhere to sustain the learning process.”

    Allen says the program offers the type of personalized, in-depth leadership training normally reserved for rising corporate executives who have been identified as having high leadership potential. “Our students come out of school having completed the same program many people wait years to have access to,” she says.

    Vogus says LDP adds a complementary layer to what he and others are teaching in the classroom. “In both LDP and in the classroom, we are able to meet the students where they are in terms of developing their leadership abilities,” he says.

    Leadership as contact sport

    As anyone at Owen—and elsewhere—is quick to point out, there’s only so much one can learn about leadership in the classroom or even an LDP program. Johnson likes to say that leadership is a contact sport, and that it’s Owen’s obligation to provide students with opportunities to lead in an environment that’s both safe and supportive.

    “We want to figure out and expand ways to empower students to take ownership of things related to the school. We want to be there to support them, and if needed, to help pick up the pieces when things don’t go right,” Johnson says.

    Megan Eberhard and Kristen O'Neill
    Megan Eberhard, MBA’14, and Kristen O’Neill, MBA’14, Vanderbilt Health Care Conference co-chairs, 2013

    As a prime example, he points to the annual student-run Vanderbilt Health Care Conference, which has attracted top speakers and health care recruiters for the past eight years. While members of Owen’s staff, as well as faculty members like Larry Van Horn, executive director of health affairs at Owen, lent their support and contacts for the conference, it is ultimately the students that pull the event together.

    “The two women who ran last year’s conference—Megan Eberhard and Kristen O’Neill—they absolutely owned that conference,” Johnson says. The dean says he sees similar examples all around Owen, from the roles taken on by student government and club leaders to those involved with service organizations like Project Pyramid and 100% Owen.

    “Leadership, in the end, is about being able to positively influence and achieve objectives through other people,” Johnson says. “Many MBA students haven’t had that opportunity before coming to business school. Sure, we can teach about leadership—and we do that well—but we must also provide opportunities to get real experience.”

    Leadership across Owen

    Students in Vanderbilt’s full-time MBA program aren’t the only ones to benefit from the school’s Leadership Development Program. All degree-seeking students experience LDP programming in a manner relevant to their professional goals. Read on for executive program details —information for those just launching a career is here (lead and succeed)

    Executive MBA
    Vanderbilt’s MBA for Executives program takes a four-prong approach to honing an executive edge in leadership. This involves interactive leadership workshops; resources and support designed to help students learn from their cross-functional C-team group experience; leadership assessments and coaching sessions with experienced executive coaches; and support to help the students develop individualized leadership development plans.

    Master of Management in Health Care
    The Leadership Development Program is woven throughout the MMHC program. It includes both an executive coach, who helps students develop a personalized leadership development action plan, and a team coach who supports teams throughout their capstone projects when they manage real-world projects for health care organizations.

    Recommended reading from Owen classes

    Give and Take: Why Helping Others Drives Our Success
    by Adam Grant

    Lift: Becoming a Positive Force in Any Situation
    by Ryan W. Quinn and Robert E. Quinn

    Managing
    by Henry Mintzberg

  • Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

    Bart Victor

    Bart VictorWho: Bart Victor, Cal Turner Professor of Moral Leadership. Victor joined Owen in 1999 after serving as a faculty member at the Institute for Management Development in Lausanne, Switzerland, and before that, at the University of North Carolina’s Kenan-Flagler Business School. In addition to his scholarly research, Victor has served as the faculty sponsor for Project Pyramid since 2004, teaching the classroom component of the cross-disciplinary student initiative focused on addressing poverty around the world.

    What he’s researching: Poverty—specifically, the role that corporations, business leaders and nongovernmental agencies can play in helping alleviate it. Emblematic of the types of issues he researches is Victor’s work examining how resource-poor populations view loans versus charitable donations. When faced with a choice between working off a loan and receiving a charitable donation, many people would opt for the loan, he says. “Accepting a charitable gift is part of a transaction that has certain costs. It’s costly for a person to demonstrate a need; it’s costly to find ways to show gratitude.”

    Similar insights led Victor into business as an academic discipline in the first place. Working as a community organizer in Chicago in the 1970s—“before it was the cool thing to do,” he quips—Victor saw that no matter how many well-meaning people and agencies stepped into his rough neighborhood offering help, the single most reliable factor to improve life was when someone got a good job. “Then one day I looked around and realized that the only person getting a good job from what I was doing happened to be me. That’s when I got interested in business,” he says. In addition to starting several companies, Victor went on to receive his Ph.D. in Business Administration from UNC’s Kenan-Flagler in 1985.

    Why it’s important: At first glance, it might seem odd to find someone researching poverty at a business school—institutions traditionally focused on wealth creation. But Victor says his work simply explores the other side of a significant resource asymmetry that exists in the world. For example, he recently started a project with Mark Ratchford, assistant professor of marketing, and Miguel Palacios, assistant professor of finance, examining people’s behavior in the Ultimatum Game. In this scenario, strangers bargain over how to split a particular amount of money. If one person makes an offer and the other accepts it, both get to keep the money; if the offer is rejected, nobody gets anything. Under a rational actor model, a person should be able to offer a small amount, even as little as $1, since both participants would be better off than they started. But researchers have found that people typically offer around $400 to help ensure the deal is accepted, a decidedly irrational outcome. Victor and his fellow Owen researchers now want to flip that experiment on its head, looking at how behavior changes a person who has to ask for money outright, rather than bargain over it.

    Why this perspective matters: Just ask Facebook, which recently paid $15 billion to acquire the instant message system WhatsApp, mainly to acquire large swaths of users in emerging markets. Victor says that’s part of a longer continuum that includes companies like Coca-Cola, whose global strategy started with the premise that a Coke should be within arm’s reach anywhere in the world. Implicit in such a strategy lies a strong moral component: “If you believe people are without potential, why would you bother wanting to reach them?”

    Mumin Kurtulus

    Mumin KurtulusWho: Associate Professor of Operations Management Mumin Kurtulus joined Owen in 2005 after receiving his Ph.D. from INSEAD, located near Paris. Born in Bulgaria, Kurtulus lived in Turkey and France before coming to Nashville. Last year he won Owen’s Research Productivity Award and in 2012, was a finalist for the school’s James A. Webb Jr. Teaching Award.

    What he’s researching: Much of the work Kurtulus has done involves retail supply chains. Within those networks, he has focused on a specific kind of collaboration between manufacturers and retailers known as category captainship. This is a practice in which a retail chain turns over control of its shelf space in a particular category (e.g., cosmetics) to a dominant manufacturer. “I want to identify the conditions where not only the manufacturer—the category captain—and the retailer benefit from this,” he says, “but the other manufacturers can benefit from this approach too.”

    Why it’s important: To many observers, a set-up in which a single manufacturer is responsible for deciding which items to display, how to display them, and how to price them may seem like an egregious breach of competitive principles. But Kurtulus finds that in an ideal scenario, a strong category captain can help lift the tides of both the retailer and other brands within the same segment. “Over the past 30 years or so, the retailing business has become very challenging. Many retailers today operate on razor-thin margins,” Kurtulus says. Category captainship—a practice that started with a handful of large retailers, but is now growing among smaller companies—has proven to be an effective way to grow margins.

    One of his recent papers uses the example of Kashi, a division of Kellogg’s. Because of the manufacturer’s efforts to develop a better retail display strategy while helping educate consumers about natural and organic products, the entire category saw a boost, with at least one retail company reporting a 15.5 percent sales increase across the category. Of course, that’s an ideal outcome. What matters to Kurtulus is understanding what variables contribute to a mutually successful collaboration between retailers and suppliers. Conversely, he wants to know what pitfalls companies and manufacturers should avoid.

  • Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

    Kelly Haws

    Kelly HawsWho:
    Kelly Haws, associate professor of marketing. Haws is one of five new faculty members who joined Owen in 2013. Previously, she served as assistant professor of marketing and Mays Research Fellow at Texas A&M University’s Mays Business School, where she was a three-time winner of the student-selected SLATE Teaching Excellence Award. The Association of Consumer Research presented her with this year’s Early Career Award for recognized contributions to consumer research.

    What she’s researching:
    Food. More precisely, Haws looks at the consumer psychology surrounding how we decide to purchase and consume food. One of her latest studies examines the trade-off effects of supersize pricing. She says consumers typically go into a restaurant with a mindset balanced between financial and health concerns—they don’t want to spend too much money and they want to make good food choices. But when faced with the skewed prospect of paying just 50 cents more for an item that’s 50 percent larger, the thrill of getting a good deal tends to completely overwhelm any previously held notions of eating well. “The good news is that we can use this effect for good as well as evil,” she says, pointing out that offering supersize pricing on carrots works like it does with more hedonistic items such as French fries.

    Although the influence of supersized pricing seems to be quite powerful, a study Haws conducted with a research colleague found that simple reminders about healthy eating can help reduce the appeal of the cheaper-per-unit larger sizes and curb overconsumption. Haws and her co-author hung or removed a poster at a sporting event concession stand reminding customers that “Calories In = Calories Out.” Snack purchasers who saw the poster were more likely to forgo the deal associated with supersized pricing than were those who didn’t see the health message. When it comes to posting nutritional information like calorie counts in restaurants, however, the jury is still out. “Even though it seems like there is clarity on that issue, in that providing information is better than not doing so, the findings are still pretty mixed in terms of actual impact on consumer decision making,” she says.

    Why it’s important: Haws boils her two main research interests down to these: decisions about our finances and decisions about our health, particularly when it comes to food. Asked how she became interested in these two topics, Haws says she first started thinking about issues of bad decision making when she worked in the subprime mortgage industry after receiving her MBA. “I still remember working with a woman who was paying for a crib she’d purchased on a credit card for her son—who was in college at the time,” Haws says. As for her focus on food, Haws says research from a variety of disciplines—including marketing, nutrition and medicine—has exploded in the last decade. It’s a booming business, plus as a researcher, Haws finds there are plenty of rich data sets.

    One of the major questions underpinning all the work in understanding how consumers make food decisions is whether it’s best to follow a path of moderation or abstention. Haws says she approaches that idea in an agnostic way, instead looking at what effect either route has on larger patterns of behavior. “If I were to get on my soapbox, I’d say it doesn’t really matter what choices you make on any particular day,” she says. “What I want to know is how those choices affect the overall pattern of decision making.”

    Jesse Blocher

    Jesse BlocherWho:
    Jesse Blocher, assistant professor of finance. Blocher joined Owen in 2012 after completing his Ph.D. at the University of North Carolina’s Kenan-Flagler Business School. Prior to working on his doctorate, Blocher worked at TIAA-CREF and Accenture.

    What he’s researching: Interconnectedness in financial markets, a topic that was thrust into the spotlight following the 2008-2009 financial crisis. In particular, Blocher examines the spillover effects that mutual funds and other investment vehicles have on each other. “To use an analogy from real estate, if you buy a house and someone buys the house across the street from you and improves it, your home value goes up,” he says. “What I do with mutual funds is show that if I’m a mutual fund manager and someone else buys the securities of another fund that’s similar to mine, the fact that they’re buying those makes their value go up, which also helps me.”

    Why it’s important: It’s tempting to associate Blocher’s work with a kind of herd mentality among investors. But actually, Blocher says he looks at what are called crowded trades. In other words, once the investment herd has adopted a popular position—something like Apple, or more recently, Tesla—what are the impacts of that? Perhaps not surprisingly, Blocher has already come up with some findings showing that these crowded trades cause both positive and negative market swings that aren’t necessarily tied to fundamentals. What is less understood is exactly how this phenomenon plays out across the market, not just at individual institutions or funds. For example, where is the point at which panicked selling begins to spill over to other funds? “In many ways mutual funds can behave almost like banks, where you can get a kind of bank run on funds, whether those are mutual funds, hedge funds or whatever,” Blocher says.

    Since coming to Vanderbilt, Blocher has started working with Robert Whaley, the Valere Blair Potter Professor of Management, on securities lending—that is, when something like an exchange-traded fund or mutual fund will loan out stocks or bonds and collect rental income on those assets. “Not much is known about this practice, but how much of this income is retained by financial services companies and how much is passed on to investors is still somewhat controversial,” Blocher says. In addition, Blocher and Whaley are investigating the potential risks to investors when their portfolios are lent out, which include poor returns on collateral invested or even an inability to recall the lent shares when needed. Who would bear these losses is not always clear—if investors bear the risk, it doesn’t seem that they are compensated for it.

    The common theme for Blocher in both of these areas of research is the new linkages that are being created among banks. “We can understand ‘too big to fail,’ ” he says. “But to the extent that the big banks get smaller—which I think would be a good idea—and get more interconnected with each other, it may be that we’ve taken a problem concentrated in a few large entities and instead distributed it to a lot of smaller entities that then start to behave like one large entity. I think that would be a problem.”

    Watch video at vu.edu/owenresearch-video

  • Not So Safe

    InBusiness_Volatility Ahead-iStock_450

    The original premise of a “hedged fund,” as a financial journalist originally described the concept in 1949, was simple: A portfolio balanced between long and short positions could profit in nearly any market.

    That idea may have taken a while to seep into the mainstream, but as it has over the past decade, the hedge fund industry has exploded, rocketing from $310 billion in assets under management in 2002 to more than $2 trillion today. Institutional investors and high net-worth individuals flocked to these largely unregulated, nonpublic funds in no small part because they offered access to assets and trading strategies that are all but impossible to replicate.

    But new research from Nicolas Bollen, the E. Bronson Ingram Professor of Finance, says those hedge funds that are hardest to imitate—something investors look for and for which they often pay a premium—are the ones most prone to failure.

    In addition, Bollen finds that these types of funds contain a significant amount of volatility, indicating that they are vulnerable to the type of risks they are supposed to guard against. “This result suggests the presence of an omitted but potentially catastrophic risk factor in funds for which standard regression analysis fails,” Bollen writes in the study, forthcoming in the Journal of Financial and Quantitative Analysis.

    Those previously undetected risks raise the annual probability of failure for hard-to-replicate funds from 10 percent to 12 percent. The findings have implications for investors who rely on statistical models to screen funds for heightened risk factors as part of their due diligence process.

    Determining Hedge-fund Performance

    The difficulty in assessing hedge fund performance lies in the industry’s opacity. Fund managers report returns publicly at their discretion, leaving wide gaps of data about holdings, accuracy, and even whether a fund is still operating. (In October 2011, hedge funds with more than $1.5 billion in assets under management were required to start disclosing fund details to U.S. regulators, but that information will not be made public.)

    As hedge funds have grown, academic researchers have developed statistical models designed to correlate hedge fund returns with known investment strategies. Using these models, along with data from a broad cross section of funds from 1994-2008, Bollen found that more than one-third of all funds cannot be correlated to known style factors. The phenomenon becomes even more pronounced in funds with short histories.

    Bollen suggests those results indicate that using hedge fund regression models to learn about a fund manager’s trading style and selection of assets may be even weaker than previously thought. Further, he says it may be a Sisyphean task to try to develop a complete set of risk factors, especially those representing catastrophic losses during rare events.

    Where does that leave investors? For the time being, relying more heavily on qualitative judgments about things like a fund manager’s background and strategy mix than the quantitative analyses of econometricians.

    A version of this article originally appeared in VB Intelligence.

  • Q & A with Financial Markets Expert Hans Stoll

    In May 2012 Vanderbilt’s Financial Markets Research Center hosted its 25th annual spring conference, which featured presentations by former Vice Chairman of the U.S. Federal Reserve Donald Kohn and several other prominent regulators and key industry executives. In honor of the anniversary, Professor Hans Stoll shared some thoughts with Vanderbilt Business about the FMRC’s past quarter century and where it goes from here.

    Hans Stoll
    Hans Stoll

    Q. What was the world of finance like when you first began thinking about opening the Financial Markets Research Center?

    A. It was the mid-1980s, and derivatives were pretty new. At the time, Bob Whaley, who is now the Valere Blair Potter Professor of Management in Finance, and I had developed a bit of a reputation for doing work in this area. But there were a lot of changes, questions and suspicions about derivatives and other newfangled instruments. In 1986 we had just completed a study of the triple witching hour—when three kinds of derivative securities expire at the same time—which we undertook for the major options and futures markets at the behest of the Securities and Exchange Commission. I then went to Chicago to answer questions being raised by those in the industry. That study helped establish Vanderbilt’s reputation in derivatives and provided a path to the FMRC, which I started in 1987.

    Derivatives were pretty sleepy then—mostly related to agriculture—until the exchanges developed into financial derivatives, which caused a lot of controversy and discussion about how they work and how you set up a market for them. The other thing that was going on in the 1980s was in the market microstructures area. Stock commissions were under pressure since being deregulated in 1975. At the time, the New York Stock Exchange set fixed prices for commissions, and they had a lot of rules and regulations in place that protected them. All that was in flux.

    So there was this sense that there were new instruments, new innovations like derivatives, the securitizing of mortgage-backed securities, and portfolio insurance, which played a big role in the ’87 crash. That was the atmosphere when the FMRC started.

    “Derivatives have helped make markets more resilient, deeper,
    better, cheaper. Have we protected ourselves against every accident
    or mistake? No. There will be future problems. Whenever you innovate, you don’t do it right the first time.”

    —Hans Stoll

    Q. What was the original goal of the FMRC?

    A. The idea was that the academic world could help clarify and bring further understanding to new financial markets. We wanted to be a link to the real world. We wanted to have relationships with companies that would help us understand what was going on and we would help them understand what was going on with our research. Second, we wanted to be connected to the regulators because they were determining exactly what could be done with these new instruments and what constraints they had.

    Q. How did the idea for the annual conference come about?

    A. I didn’t state it publicly, but my commitment was to have a conference every year. And in fact, it proved to be more successful than I’d anticipated, at least in the sense that it gave the industry an opportunity to talk to academics and also to each other. It provided a kind of neutral territory for everyone.

    After several years of the conferences, I was talking to one of the FMRC members and said, “I’m not sure I want to do this conference each year.” And he said, “The conference is the thing. That’s really what makes the FMRC. If you don’t have a conference, you’ll lose the members.” He was right. The conference is what members enjoy, and it’s where the FMRC makes a contribution. We bring together interesting people who are in the trenches when it comes to some of these issues.

    Q. So the 1987 crash just happened to provide the perfect topic for the first conference?

    A. It wasn’t a full-fledged conference like we have today, more like a panel. But yes, that was the first topic. We held the discussion—and I think a dinner—in April 1988. The title was “Stock Market Crash of ’87: What Have We Learned?” We hadn’t had much time to reflect. So 10 years later, we had the same title.

    Paul Volcker, former Chairman of the U.S. Federal Reserve, discussed the Great Recession at the 2009 conference.
    Paul Volcker, former Chairman of the U.S. Federal Reserve, discussed the Great Recession at the 2009 conference.

    Q. And what were some of the key lessons about the ’87 crash that emerged at the discussion?

    A. The issue came down to whether the crash was caused by new futures and options instruments or by something more fundamental. Was it Chicago, or was it New York? You had this big battle going on.

    For the FMRC, the benefit of the industry panel discussion was that the participants conveyed a sense of the terror that people in the exchanges and the futures markets felt when prices were crashing. I mean it was phenomenal—this was a 20 percent drop in one day. There’s been nothing like that since. I was sitting down in the lobby, and the TV stations were interviewing me. It was remarkable.

    So what did we learn? There were opinions. I’m not sure anybody learned anything. But I distill the lessons as follows:

    • It wasn’t the futures markets. It was a fundamental misevaluation of the stock market. Interest rates had gone up, and when that happens, stock prices usually go down. They went up instead. I think the market realized this and said we’re overvalued, we’ve got to sell. But since the quickest way to get out of the market is to sell stock index futures, that made it look like the futures market was the cause. But it wasn’t. It was just an easier way to trade.
    • The other instrument that was a problem was portfolio insurance. It was designed to give investors the right to switch from equity to debt when their portfolios started to fall. That caused a self-cumulative effect that caused stocks to fall some more. Portfolio insurance lost its charm after that.

    Q. How did the conferences progress from there?

    A. They didn’t get too much bigger. It was always about 50 people—industry people and others from Vanderbilt, professors, students and the like. We also began to have FMRC members like the Chicago Board Options Exchange and the New York Stock Exchange.

    The topics have been reasonably narrow for the most part—things like securities markets transaction costs, world financial markets and global risk. In 1999 we had a conference on coping with global volatility. This was two years after the Asian and Russian currency crises and the Long Term Capital Management disaster. Peter Fisher of the Federal Reserve Bank of New York spoke. He was the person who had the meeting with the 10 biggest investors to settle the thing with LTCM before it spread to the markets.

    The conferences honoring Dewey Daane, the Frank K. Houston Professor of Finance, Emeritus, always drew big names. We had one in 1989 that Paul Volcker, former Chairman of the Federal Reserve, attended. The Fed Chairman at the time, Alan Greenspan, was there as well, but he only stayed for cocktails. Dewey worked hard to put that conference together. I was impressed. Of course, we had a second Dewey conference in 2009, and Paul Volcker came to that one as well.

    Edward DeMarco, Acting Director of the Federal Housing Finance Agency, addressed mortgage reform at the 2011 conference.
    Edward DeMarco, Acting Director of the Federal Housing Finance Agency, addressed mortgage reform at the 2011 conference.

    Q. One of the conferences lives in infamy as “financial wrestle-mania.” Explain what happened.

    A. That was in 1995, on the topic of odd-eighths and what to do about spreads on the NASDAQ market. Bill Christie, now the Frances Hampton Currey Professor of Finance, had written a paper about the topic (which led to a $1 billion settlement against NASDAQ), and he presented it at the conference. We thought it would be just a normal academic conference. Oh, no. There were lawyers and regulators, and all these people came out of the woodwork that we never invited. I looked up and there were three lawyers sitting in the back—you could tell they were lawyers by the way they were dressed. I said, “Who are you?” They said, “We represent the defendant, NASDAQ. We just wanted to see what was going on here.” Nobel Prize-winner Merton Miller had been hired by NASDAQ to present their point of view, which he did at the conference. His line was, “You don’t buy three-eighths of a pound of bologna, you buy a quarter-pound or half-pound.” Things got pretty heated. The local paper called it “financial wrestle-mania.”

    Q. Looking over 25 years of conferences, what are your big takeaways? How has the world of finance changed in that time?

    A. It’s dramatic how the market microstructure work that we’ve done here and elsewhere has had an influence on the sweeping changes that have occurred in the business of trading securities. The automated exchanges, the decline in the bid-ask spread, the position of the New York Stock Exchange—the fact that some European company is ready to buy it is a phenomenal event when we think that here’s an exchange that was founded in 1792 under a buttonwood tree. And suddenly it’s gone as an institution that had so much power. Ultimately I think it’s a good thing that some of that power has declined. Look at commissions: You can trade for $8 what used to cost you $800. That’s a tremendous reduction in cost and increase in efficiency.

    The other big change that we’ve been involved in is derivatives. I think they have helped make markets more resilient, deeper, better, cheaper. Have we protected ourselves against every accident or mistake? No. There will be future problems. Whenever you innovate, you don’t do it right the first time. So the crash of ’87 was an equity crash, and the crash of 2008–2009 was a fixed income and banking thing. They’re different. You don’t learn very much about one from the other. You just have to be ready to handle whatever comes, to have the mechanisms in place and have resilient markets that can withstand these shocks.

    Q. What’s next for the FMRC?
    Another 25 years?

    A. I don’t know. The future of the FMRC is on good footing in terms of its endowment. It can do interesting things, and I think it will. I don’t want to do conferences just for the sake of doing conferences. They should be interesting, and if people find that they’re not interesting then we should stop and do something else. But my guess—my hope—is that they’ll continue. I don’t know who’s going to do them or how we’re going to do them, but I suspect we’ll try to continue the conferences. The FMRC will continue for sure. This school and this finance group are well-respected and well-connected in the real world of industry and regulators. We have this important link to what’s going on in the business world. The FMRC helps maintain that.