Introduction
Theo Vermaelen is the Schroders professor of international finance and asset management at INSEAD, Fontainebleau, where he teaches Corporate Financial Strategy in Global Markets. He is a graduate of the Department of Applied Economics at the Catholic University of Leuven and obtained an MBA and PhD in finance from the Graduate School of Business, University of Chicago. He has taught at the University of British Columbia, the Catholic University of Leuven, the London Business School, UCLA, and the University of Chicago. Vermaelen has published articles on corporate finance and investment in leading academic journals, including the Journal of Finance, the Journal of Financial Economics and the Journal of Banking and Finance. He is coeditor of the Journal of Empirical Finance and associate editor of the Journal of Corporate Finance and the European Financial Review. He is also a consultant to various corporations and government agencies and program director of the Amsterdam Institute of Finance.
Finance Courses Today
The CEO of a major consulting firm recently gave a speech at INSEAD in which he argued that the financial crisis has shown that finance professors should no longer teach the concept of maximization of shareholder value. When I asked him afterwards how he could say such a thing, considering that the shareholders of Lehman Brothers lost all their money, he replied that “they were maximizing profits to maximize their bonuses.”
This exchange convinced me that there is a lot of ignorance and confusion about what is taught and what should be taught in finance courses. In this case, the consulting firm boss seemed to have confused profits and the pursuit of bonuses with shareholder-value maximization. Ignorance can only be defeated by education. Many CEOs of major companies have completely forgotten what they were taught in MBA programs, which is an argument for sending them back to school. Actually, shareholders should insist that money spent on CEO training should at least be partially devoted to acquiring financial knowledge. Currently, I have the impression that CEOs prefer to attend leadership courses where they are taught how to manage people, rather than how to forecast cash flows and value their businesses.
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