FinanceProfessor.com interview with Robert Bruner

Interview conducted August 2002 By Jim Mahar

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FinanceProfessor.com interview of the month

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FinanceProfessor News August 13, 2002

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FinanceProfessor.com

Bringing the Real World to the Classroom and vice versa!

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Hi everyone!

We really have a treat today. It is the interview of the month. With the new semester getting ready to start, I think it is a good time to turn our attention back to teaching, so today’s guest is none other than Robert Bruner, the man who is arguably more associated with Teaching Finance than anyone.

Dr. Bruner has published research work in many of the top financial journals as well being the author of Case Studies in Finance (which is widely seen as the best case book for MBA students), the Co-author of The Portable MBA (3rd.edition), and the Co-editor of FEN Educator series at FEN.

Not only is Dr. Bruner widely published, but he has also won numerous awards. It would be impossible to list them all, but a few include The Harrison Award for Overall Teaching Excellence, Darden’s Distinguished Case Writer Award, the INSEAD’s award for “outstanding teacher in Elective courses, and winner of the “European Case of the year.”

http://www.ssrn.com/update/fen/fen_educator.html

But rather than me going on and on about what a great teacher and researcher he is, let me quote some others:

From the Darden’s website:

Robert Bruner is “long regarded as one of Darden's most demanding instructors, Bruner is rated as a 5 on a scale of 1 5 on annual evaluations and his classes are consistently over enrolled. "Students flock to his classes ... and he is legendary for developing in students a love of finance and learning."

Gabriel Hawawini the Dean of INSEAD:

Robert Bruner “exemplifies the practice-oriented scholar who has a vision of finance in a global arena. He travels widely, listens wherever he goes, and translates his learnings into material that is accessible both to the serious practitioner and the novice in finance.”

In an effort to help readers of the FinanceProfessor, Dr. Bruner has graciously been kind enough to take time to be interviewed about teaching, research, and even the current corporate governance crisis. I am sure you will enjoy it and find many of his comments to be very useful and insightful for your own classes (whether you are teaching the class or taking the class!)

Thanks!

Jim

BTW there will also be a newsletter this week (I think). I am almost done with it and while I do not want to hit you with too much in a single week, but since the interview is a “special event” I guess it will be OK.

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FinanceProfessor.com interview of the month

Robert Bruner

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Jim: While I really do not think you need an introduction, why don’t you briefly start out by telling us a bit about yourself? Where did you go to school, where do you teach now, etc.?

Robert Bruner: I grew up in Racine, Wisconsin, did my undergraduate studies at Yale, and then went to Harvard’s MBA program. HBS was a transforming experience: I had some terrific teachers. Two things really clicked into place for me: the case method of learning, and Finance. I discuss this a little in my book, Socrates’ Muse: Reflections on Excellence in Case Discussion Leadership

(http://papers.ssrn.com/sol3/papers.cfm?abstract_id=320808).

After the MBA, I worked at First Chicago Corporation as a venture capital analyst and loan officer. It was very interesting work, but I felt the call to teach and write. So I returned to HBS to enter the doctoral program in Finance. The University of Virginia’s Darden School hired me in 1982, and I’ve been here ever since. Today I teach in the MBA and executive programs, and am the Executive Director of the Batten Institute (for more on the Batten Institute, see http://www.darden.virginia.edu/batten/main.htm).

Jim: It is obvious by both your actions and your words, that you enjoy teaching. What do you like so much about it?

Robert Bruner: Lots of things, but here are three for starters. I like the look of "Aha!" in students' eyes, the moment of “I get it” about some big surprising idea that changes the way they think about the world. I like the sense of play with ideas--here I'm talking about intellectual exercise, struggle, and discovery. Finally, I like teaching when it is interactive. Lecturing bores me. Conversation, on the other hand is lively, surprising, and usually instructive.

Jim: So why Finance?

Robert Bruner: Finance makes a difference. It is based on economic ideas that have big implications for corporations and individuals. Money is fascinating to a wide audience. Teaching finance can have a real impact. Finance is quantitative which means we can model and measure—this suits my style. And finally, the practice of Finance is extremely interesting to follow: fear, greed, incompetence, and incomplete information promise to make the subject relentlessly relevant—these days the news gives us a steady stream of opportunities to learn, teach, and write.

Jim: Why do you think that many students have the perception that finance is so difficult and so male-dominated?

Robert Bruner: Let’s not mince words: finance is hard. This is not something to apologize for. Nor is it a reality we can evade. If you aim to promote learning, you must avoid the twin dangers of dumbing-down the subject and overwhelming the student. The tasks for the teacher are to present learning experiences appropriate for the level of the student, to coach, to listen hard, to cheerlead and to create energy. We need to stretch the student, but also give some support.

The gender balance issue is very knotty and justifiably a concern to financial managers and academicians. I see three promising trends, however: greater attention to work-life balance, greater attention to gender patterns in math training in grade school and high school, and the rise of some excellent professional women in business and academia who might provide prominent role models.

Jim: As the result of the many cases you have published and your book of cases (now in the 4th edition), your name is almost synonymous with the case method. Why do you like it so much?

Robert Bruner: In Socrates’ Muse I survey seven “whys”:

1. The discussion method is effective. One learns best that which one teaches oneself. True learning is a process of self-discovery, as opposed to passive absorption of what others say.

2. The discussion method builds the capacity for critical thinking. Neil Postman said that all knowledge starts with a question. Instructors model skills of questioning. Discussions exercise skills of debate and challenge. The case method engages students in this process of exposure. We want professionals who are capable of thinking critically.

3. The discussion method exercises judgment and action-taking. If the goal of professional education is to enhance the effectiveness of decision-makers, then it is important to exercise students in the practicalities of analysis and decision-making. The best way to do this is to demand that recommendations always accompany analyses.

4. The discussion classroom models a learning environment. Through this, the student can learn how to achieve trust, respect, risk-taking, high quality of debate, and tough-mindedness in other professional settings. While much has been said about the “learning organization” in recent years, companies continue to grope slowly toward that goal. Whatever it finally emerges to be, a culture of high-quality dialogue will probably be at its core.

5. The discussion method models learning-from-experience that adults will use throughout their lives. Thus, the method prepares the student for life-long learning and for being a useful participant in a learning organization. As Walter Wriston said, “Good judgment comes from experience. Experience comes from bad judgment.”

6. The teacher learns too. The teacher can encounter fresh perspectives on old problems, or test classic solutions to new problems. As Charles I. Gragg wrote years ago, “Not all the teaching should be done by the teacher. Not all the learning should be done by the student.”

7. The discussion method is fun. It motivates students and energizes the instructor. Direct debate over practical problems stimulates student effort.

Jim: I agree, that cases are a great learning experience (both student and teacher alike) and that they have their role, but if you were teaching an introductory finance class, do you resort to lectures? I use cases for about 75% of the classes in the cap-stone finance course I teach, but use very few cases in introductory classes.

Robert Bruner: I teach with cases whenever I can, but I lecture when it’s the best path to the learning objectives. It’s fruitless to teach cases to a class of 300 students who can’t see or hear each other or the teacher. A basic rule is that one always should adapt to the needs of the students and the learning objectives. Your use of the case method is fairly typical among US business schools. But Darden, Harvard, Ivey, and others have had great success in using cases at the introductory level. I don’t think it’s ever too early to start teaching with cases—just be sure to pick the right cases and tailor the classroom experience to the needs of the student.

Currently I teach Darden’s course on mergers and acquisitions—the syllabus is on my website (see http://faculty.darden.edu/brunerb/). This is aimed at MBA students and occurs in the final quarter of the program. Thus, the course is tailored to be a capstone experience, synthesizing a range of skills and ideas acquired earlier, and giving special grounding in M&A. You’ll see that I use a blend of cases, simulations, team projects, and lectures.

M&A is an enduring interest of mine. But I think the premier teaching assignment is the introductory Finance course. The “Aha!” factor is greater there, and I enjoy the challenge of teaching a diverse audience.

Jim: And how do you use the cases? For example, is it a group discussion or does each student hand in a case write-up? FWIW I use groups. With two groups going at a time: typically management and consultants, but occasionally financial planner and client, or investment banker and firm officials etc

Robert Bruner: Occasionally I’ll ask a student or team to hand in a case write-up, but I have had good results with the basic group discussion format--it’s interesting, spontaneous, and emphasizes the value to the student of knowing what he or she is talking about. I use team reports where the case is especially complicated and/or I’m confident that the writing part of the task will promote real learning. Avoid assigning papers as make-work; it just enervates the class. The other problem with team write-ups is free-riding. It’s hard to know who really did the work, and it may signal a day off to others in the class who didn’t have to write up the case. I routinely use team peer evaluations to get a sense of contribution within the teams. And generally, I address the free-riding problem through strong course norms: the expectation is that everyone should come prepared to every class and should participate in the discussion. The final problem with case write-ups is the grading burden on the instructor. If it’s an interesting case and a meaningful part of the course grade, the student will find the paper worthwhile to write, and the teacher to grade.

Jim: In one of your works you write about answering the question: “If you are so smart, why aren’t you rich?” Well I have another question that I have heard: “Don’t you get sick of teaching the same stuff every year?” I actually have an answer for it, but before I give you my answer, let me ask you, how do you keep teaching fresh and exciting for both for you and the student?

Robert Bruner: Renewal is very important. Don’t make it exactly the same stuff. I turn over perhaps a third of my teaching materials each year. Also don’t feel a need to teach the old stuff in exactly the same way. One year you could teach it as a regular case; the second year you could run it as a simulation; the third year, ask teams to give presentations, etc. Finally, always remember that though the material may repeat itself, the students always change—look for the new and different ways in which they engage the material.

(Editors note: I honestly did answer this before reading his response, and then included it as well)

Jim: My answer: I don’t teach the same things. Every class is composed of different students and that forces the material to change however slightly. Moreover, the material is constantly being updated with new papers, new findings, etc. Far from being boring, it is fascinating, ever changing, and fun!

Robert Bruner: Bingo!

Jim: Judging from the cases you have published, you too must constantly be changing material and incorporating current events.

Robert Bruner: Yes, most of my ideas for new case studies and research articles come from current events. Students value the practical application of classroom ideas to the world in motion around them. The best way to consider inserting current events into a course is to ask, “What’s the deep idea embedded in this event, and how does it relate to my course?” If you can’t answer that question very well, then you may not know enough about it, and/or it may not fit. Every course should have a value proposition for the student, and the teacher should drive relentlessly to deliver on that proposition--students appreciate it when you do.

Jim: Speaking of current events, what should Finance Professors be teaching about the current “corporate crisis”?

Robert Bruner: What’s happened is simply tragic. Worse, we don’t know enough yet about the problems of Enron, Tyco, Worldcom, Adelphia, and Global Crossing and the rest to draw detailed lessons. Based on what you read in the newspapers, it’s safe to guess that the lessons will be complicated. Victor Hugo said, “A great blunder, like a large rope, has many fibers.” The first thing teachers need to do is to promote intellectual honesty about the crisis. We need to let the investigations and litigation run their course. It may be a decade before we get a really clear picture. Part of the tragedy is the incredible rush to judgment by intelligent, well-informed people. I’m reminded of Woody Allen’s anecdote that he took a speed reading course and then read Tolstoy’s War and Peace. All he could say was, “It’s about Russia.”

Here are some teachable points that one could use with students:

Focus on economic reality. Accounting cosmetics can hurt. Finance teaches that we should focus on flows of cash adjusted for time and risk, not the illusions created by accrual accounting. The crisis cases offered earnings hyping, hiding of liabilities, looting, and/or tax evasion, all to some extent assisted by the wide range of choice under GAAP. Expect to see very big changes here.
Governance and control systems are very important. This, too, has been a basic tenet of Finance, at least since Jensen and Meckling (1976). Initial evidence in these cases points to breakdowns in the way boards of directors monitored their managers. Expect to see very big changes here.
Innovation is still good. Economic research suggests that society is wealthier where there is more innovation. An element in some of these cases was that the company invented a new product or service, or tried to do business in a different way. Enron pioneered the trading of tailored energy contracts—this innovation was not the proximate cause of Enron’s demise but some would like to roll the clock back. Suppression of innovation would leave us all poorer. The better idea would be to work toward the development of agile governance, monitoring, and control systems that can adapt to innovations as they come along.
Business is risky. Big companies can fail. Many innovations fizzle. Markets can move sharply. Sober up. Reflecting on the risk/return paradigm of Modern Finance is a good place to start.
Diversification is good. The concentration of pension and 401(k) assets in the stocks of these companies is a grim reminder of the importance of Nobel Laureate Harry Markowitz’ discovery in the 1950s.
Personal integrity is vital. The problem of moral hazard is well-known in economics, finance, and insurance. Concepts from behavioral finance may help us understand how good and rational people could have compromised themselves. Here’s where it’s especially important to let the investigative process finish.

Jim: do you think the problems have gotten worse?

Robert Bruner: It appears so, though appearances can be deceiving. The business failures are certainly much bigger. But so is the US economy. I can’t remember executive self-enrichment filling the headlines this much. And the negative shift in attitudes about CEOs and business as a profession seems more pronounced. But headlines always chase crises and consumer attitudes bounce around quite a bit. Through all this noise I think there are three signals worth remembering:

We’ve discovered room for improvement in business practice and are taking action. Transparency, democratic process, rule of law, property rights, freedom of the press, academic inquiry, and other features of US society are powerful instruments of improvement.
Innovation and self-interest in the market economy will continue to explore the limits of monitoring and control systems. A 1930s-style re-regulation of the business economy merely treats 1930s-style problems. The business economy today is much bigger, more complex, and more dynamic than then—in this sense, the problem is worse today than before. The solution may lie in inventing much more agile governance, monitoring, and control systems. For instance, an idea that has merit is to post executive stock sales on the Internet immediately upon execution. This uses new technology to improve monitoring and transparency.
The political and economic news would be bad even if there were no spectacular business failures. War, national security, and recession hardly reassure the public. Against this backdrop it takes great discipline to study the crisis carefully.

Jim: What guilt must be placed on the finance profession? At some point we can’t just continue to blame managers and accountants.

Robert Bruner: There’s nothing to feel good about in these business collapses. But I’m reluctant to assign collective blame because can it damage innocent people and shield the truly guilty. For instance, was everyone at Arthur Andersen guilty? I doubt it. However, recent developments should prompt finance practitioners to reflect on the never-ending strife within firms and markets between economic reality and a culture of illusion—a culture that promotes illusory growth (e.g., through revenue recognition games), illusory capitalization (e.g., through special purpose entities), etc.

This would be an appropriate moment for Finance teachers to reflect. As my six teaching points suggest, teachers have been advancing concepts for decades that warn and condemn the practices now alleged in the press. We can probably respond further. The core concepts of finance are more important than ever—teach them with vigor. Never stop with tools and techniques. Extend them to implications for the manager and investor. Alert students to the messiness of practice. The world is loaded with choice, which students must understand the difficulty of confronting. The easy or attractive choice is often times the wrong one. The high-impact way of doing this is to put the student in the shoes of a decision-maker subject to intense pressure, powerful incentives, incomplete information, and so on—cases and simulations are ideal for this.

Jim: if you don’t mind let’s change tack and look at research a bit. A few months ago I had the pleasure to kick off these monthly interviews with one of my favorite teachers I ever had Cliff Smith. In the interview we got speaking on two of the main roles a professor plays. One being a teacher and the second being a researcher. Many in the field feel the two are at odds with one another since there are only so many hours in a day. If you could, would you speak to this issue.

Robert Bruner:

I don’t think the two are at odds at all. I discuss this in Socrates’ Muse. Here is the outline of my argument about why research matters for teaching.

Curiosity and an attitude of discovery are vital attributes of good teachers. It builds a teacher’s passion and sense of engagement with a subject field—students can sense a teacher’s personal engagement with a subject, which only increases the odds of animated classroom discussions.
There are strong parallels between the discovery process in research, and the discovery process of finding an “aha” in the student’s mind.
Don’t discount the value of academic debate. Though the academy (like legislatures, corporations, and other large bodies) may move slowly to reject false ideas, the process is inexorable.
Research promotes teachers’ and students’ capacities for critical thinking. Professional development of teachers that focuses only on an accepted canon of ideas easily degrades into rote teaching.
Research is vital for establishing even the “basics” to which teachers might return. Without the processes of research and peer-reviewed publication, the “basics” would be whatever bureaucrats or special interest groups say they should be.
Research refreshes the teachers. It keeps them intellectually alive and alert to news and its implications.
Teaching and research are similar in the sense that they both address an audience. To do research and get it published entails a set of skills that help develop one for the classroom.
Finally, an instructor’s interest in research exemplifies for students the attributes necessary to confront a world awash in research, some of it good, much of it indifferent or bad.

The key attribute here is the ability to think critically about questions, hypotheses, data, tests, and interpretation of results. Nobel Laureate Richard P. Feynman said, “The questions of students are often the source of new research…they remind me of a problem by asking questions in the neighborhood of that problem. It’s not so easy to remind yourself of these things…I would never accept any position in which somebody has invented a happy situation for me where I don’t have to teach. Never.”

Jim: As an example to all young professors, what advice do you have with regard to research?

Robert Bruner: Seek teaching assignments within your research interests, but be careful to remain student-centered. Listen very hard to the questions of your students—these are great leads to research issues. Co-teach with someone else who has similar research interests to yours. The intellectual synergy from co-teaching can be impressive. Get a view. Form your own opinion about the issues in the field. Be careful of the knee-jerk tendency to reject ideas that seem difficult or counterintuitive, and of the opposite knee-jerk tendency to accept views promoted by leading textbooks. Having a view means having a critical perspective on received wisdom.

Jim: You have written widely both in what I would call pure financial research as well as more education-based research. Both are obviously important. Do you feel that we in finance are guilty of emphasizing the basic research and ignoring the presentation to a degree? Are there enough outlets for research on teaching finance?

Robert Bruner: Research and presentation are complements, yin and yang. In my previous answer I argued that teachers need to hold a research mind-set. The complement is true for researchers. A great idea with no guidance about its implications for the practitioner, or about its possible application won’t find much of an audience or have much impact. In The Tipping Point, Malcolm Gladwell argues that ideas spread virally—dissemination depends on a sticky message, favorable conditions, and carriers. Teachers, case writers, textbook writers, and consultants serve the vital function of carrying ideas. Other carriers are electronic journals like this one, or like FEN Educator: Courses, Cases, and Teaching Abstracts, which I edit with Peter Tufano and Kent Womack

http://www.ssrn.com/update/fen/fen_educator.html

Jim: As we approach the beginning of a new semester, I think it is worthy to remind everyone that you have a survey work on “Opening a Course.” Briefly give all of the professors a few pieces of advice so that they can be ready for the class.

Robert Bruner: Here are four suggestions:

Start shaping students’ expectations even before the course starts. This sets the “classroom contract,” a vitally important notion. Your syllabus, a website with frequently asked questions, and suggestions on how you want them to prepare have a big influence. See my “Note to the Student: How to Study Cases.” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=274201
Communicate a solid value proposition to the students. Don’t expect them to figure it out for themselves. And don’t get legalistic (e.g., if you do X I’ll do Y). Motivate the course. Make some meaning about the work you’ll be asking them to do. And feed their imagination about how the course can help them.
Get your mind and body ready. It’s August. You should be getting some rest before the Fall push. Great actors tell us about the importance of getting mentally prepared to play a role. You should be thinking ahead about your role, especially what you would like to do differently this time than you did last time.
It ain’t over ‘till it’s over. You haven’t finished opening the course until it has hit its stride. You may need to remind students several times about how you want them to come prepared to class. It may take you three weeks just to learn everyone’s name (which I urge you to do.) A classic blunder by novices is to assume that once one has handed out a syllabus and discussed office hours that the course has been opened. Instead the shaping process that necessarily constitutes “opening a course” probably goes on for a while. Be patient and use every device you can to get the course shaped the right way.

The SSRN website contains a number of short essays on this. See especially, “Opening a Course” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=178748. Also, Socrates’ Muse devotes a few chapters and mini-cases to this.

Jim: what about for students? Do you have any advice for them? Either for the beginning of class or for the course.

Robert Bruner: I encourage students to get ready in three ways. First, get a good attitude. A lot of problems stem from fatigue, discouragement, or confusion about why they’re taking the course. A teacher can help a little to motivate a good attitude, but a lot of it has to come from within. Second, get good infrastructure: a quiet place to study, a computer that works, a business dictionary, a business newspaper, etc. Joining a study group is an extremely helpful bit of infrastructure, as is developing a positive relationship with the teacher. Third, execute the assignments well: come to class each day prepared to talk, participate actively, and follow up quickly to resolve any points of confusion. I expand on these three tips in my “Note to the Student: How to Study and Discuss Cases.”

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=274201

Jim: One thing that I feel is important is to allow your students to know you as a person and not just as a nameless person who gets to stand up in class. Judging from your web-site, you agree with that strategy. What you may not know it, but we actually have quite a bit in common in our non-finance interests. For example, biking, reading, and Thomas Jefferson. I find it helpful for students to know me and to be able to relate to me. Would you agree?

Robert Bruner: Teachers are given a community; the choice is whether to participate. I think the answer is pretty clear. The poet, T.S. Eliot, said, “There is no life not lived in community.” How to live in the community is the big question. Here are some tips for engaging students:

On your own terms. I don’t enjoy large beer parties or coffee hours. I’m pretty busy, so I don’t hang out with students. But I do like dinner parties for 8-10 people. My wife and I entertain three or four groups of students a year for the sheer pleasure of it (it’s certainly not in the job description, and won’t get you tenure.) Years later the students (now alumni) fondly recall the dinners; so do I. Do not canvass for votes. You’re not soliciting proxies or campaigning for office. Students can leap quickly to assume that you’re insincere, and can damage your effort to join the community.
Open up. Professors are typically private personalities (I am). The distance may feel comfortable, but it also erodes your engagement with students. Look for ways to open up to them: Be natural. Share some of your life outside of work. Listen instead of talking. Look for points of mutual interest. All of this is hardest for the most senior professors whose age and position may throw up barriers, and for the most junior professors who may rely on the distance to achieve control in the classroom. Mentioning personal interests on your home page works well in bringing like-minded students into your circle of acquaintance.
Follow your instinct. Life is too short to spend with repellent people. But make an effort to get to know well those students with whom there is some resonance. Avoid the appearance and fact of creating a “teacher’s pet.” Within the bounds of accepted professional conduct, make friends. Swap cartoons and newspaper clippings. Offer advice (when solicited). Carve out some time. You’ll be making a friend for life.

Jim: Well speaking about life, I should let you get on with yours and rest up some before the semester. I know while I love teaching, the summers do go too fast. Please accept my thanks and the thanks of the readers for your interesting answers. There is no doubt that many people around the US and the globe will find them interesting and helpful.

Robert Bruner: You are welcome. I am glad could help.

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Here are some helpful links about Robert Bruner as well as to articles discussed in the interview:

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HOME PAGE: http://faculty.darden.edu/brunerb/

Abstract: Socrates’ Muse: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=320808

Case: Enron 1986-2001 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=302155

Case: Enron’s Weather Derivatives http://papers.ssrn.com/sol3/papers.cfm?abstract_id=274195

Note to the Student: How to Study and Discuss Cases; http://papers.ssrn.com/sol3/papers.cfm?abstract_id=274201

Essay: “Opening a Course:” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=178748

Essay: “Setting expectations”: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=274203

Case Studies in Finance, Fourth Edition

http://www.amazon.com/exec/obidos/ASIN/0072338628/finpapers/104-9378365-5272442

A complete listing for Robert Bruner on SSRN: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=66030

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