A Cup of Coupa With … Amit Seru
Maria will interview distinguished citizens of the GSB in this new column. First: Amit Seru, named by last year’s MBAs for their distinguished teaching award. He is teaching an MBA class (FIN 207) and a PhD class this Spring.
Maria: Your first-year finance class last year featured such memorable moments as a live musical performance of “We’re in the Money,” hundreds of Kit Kats tossed to the students and live action skits. Why did you take this novel teaching approach?
Amit: If you teach finance in a very strait-laced fashion (which Josh Rauh and I have done for almost a decade) it’s not as much fun. It’s hard to do a core class and make it interesting, because you have to stay close to the prescribed curriculum. So we decided to deliver the content differently. When teaching valuation, for example, we could have just said: here are the valuation methods, here’s cash flows, here’s discounting. But instead, we decided to start the class with a “cold open” where there was bantering between me and an investment banker (Josh) about the Snapchat valuation gone wrong, with me questioning why the hell he’s getting paid so much, especially because all these numbers are made up. That’s a more interesting way to discuss the real world applicability of an otherwise ridiculous looking valuation.
Tell us more about the Kit Kats….
We used Kit Kats to explain the concept of information asymmetry and how it ties to a firm’s decision of whether to pay out cash to its shareholders or keep investing. There is a huge debate over if and how a firm should distribute cash generated from operations. There is a wide dispersion in what firms do, even in similar sectors. For example, Google doesn’t pay out much money but Microsoft does. We wanted to tie this dispersion to information about future projects that firms might have but the market might not (information asymmetry). So we threw Kit Kats (“cash”) from two boxes (“firms”). One box was see-through but the other box was taped up so you could not see how many Kit Kats were inside. Often, we have no idea how much cash is inside a firm, so it’s like the taped box. If the firm suddenly starts throwing Kit Kats, you think, “I don’t know how much money is inside, but the fact they are paying me now means they must have a lot of good assets and a plan for future financing.” The act of sending Kit Kats from the taped box conveyed information that outsiders did not otherwise have. So the market is happy and reacts positively to such information, just like you all were happy when you got a Kit Kat.
Do all of your students like your quirky teaching methods?
We have 400 + students at the GSB every year and each student is unique. To say all of the students liked the methods would be an incredible accomplishment. And it did almost occur when we started FIN 207. Then we got emails from some students who wanted a more conventional approach. To respond to them, we dialed the class down. But then we got a larger number of emails that said: why have you dialed down? You should go back to doing what you were doing (unconventional teaching) and do more of this. In the end it is an experimental process. You try something and hope it balances the needs of various students. If it doesn’t, you keep trying. I don’t know if we’ve managed to get the right balance yet, but we’ll eventually get there.
When you were named teacher of the year last spring, it was noted that you made time for coffee with each and every student. Was it worth it?
When I was teaching my first class here (FIN 214), I had around 50 students. Many students looked very tired and unenthusiastic, despite me teaching what I thought was interesting and real world-relevant material. I was reminded of a common perception among many at the GSB that maybe students didn’t like finance. But this was an elective class, and as I said, I thought the material was interesting. So out of curiosity I reached out to a few students for a chat over coffee to gauge what was going on. I didn’t intend to talk to everyone, but once I talked to a few, I realized that the picture was not entirely clear. At that stage I said, let me just talk to everyone to see if I can complete the picture. The feedback was incredibly useful. In general, it is not easy for us to come up with new offerings if we don’t know what students really want. It’s one thing to hear from three representatives who are on the Academic Committee, and totally different to talk to students directly. In my conversations I found that students were much more open and direct. That feedback laid the foundation for what you saw in the new class I developed with Josh.
What did you learn from the students you met with?
I realized that students were taking a lot of classes in a quarter. More than I had seen students take, or heard they took in other peer institutions. Maybe I should have been aware of that already, but I wasn’t. That immediately explained why it was difficult for students to stay consistently enthusiastic. Whether taking seven or eight classes is the right number is something that is being discussed by deans and such. Until such discussions are complete, I realized that we have to come up with new ways of teaching. That is why in FIN 207, Josh and I decided to do short two or three-page dossiers and not long cases. Our belief was that to communicate a concept, you don’t necessarily need 25 pages. We also came up with the idea of a cold open at the start of every class to inject enthusiasm and suspense.
How do you balance teaching and research?
Because FIN 207 was taught for the first time last spring and because of the new way we taught it, it was difficult to actively do research during that quarter. Having said that, research did inform many of the aspects we presented in the class. In general, the criteria for faculty at a top institution to get tenure is that you need to demonstrate you’re a leader on research. That implies devoting sufficient time towards research at all times. But on the teaching side, the school and you all expect us to deliver good content. Typically, younger faculty devote more of their time to research while older experienced faculty spend more of their time developing new courses and redesigning classes or curriculum. I fall in the latter category. But I think the best solution is usually to teach something that has synergies with your research, which happens to be the case for me.
You also taught at Chicago Booth. How does it differ from the GSB?
Because of the interactions with Silicon Valley alumni and startups, GSB students are more tightly connected with activity in the investing space. That means students are much more interested in aspects like ESG and impact investing than what I saw at Booth. There is also a wider diversity in terms of backgrounds of students here that encourages different sorts of discussions. People are actively debating here whether markets are the right way of allocating resources, when they can or can’t work, and if they don’t work, what we can do to improve allocation. In Chicago it was more like “let’s get the concept and mechanisms, and we’ll figure out how some of these other things like ESG fit together when we get into the real world.”
You ran a study that collected the disciplinary records of financial advisers and found that almost half of those who lost their jobs because of misconduct found work at another firm within a year. What can be done about that?
You would think firms wouldn’t hire these people because they are doing bad stuff. But we can track 1.2 million U.S. advisers for 15–20 years using big data. In the data, you can see that these advisers are re-employed by “boutique firms” that specialize in hiring crooks. You might ask, how do these firms survive? We found that these firms survive by targeting elderly, wealthy, less sophisticated individuals. Going forward, I think the simplest solution is in better disclosure policies and financial education by regulators like the Consumer Finance Protection Bureau. This would require resources but CFPB has not been in favor with The Trump Administration and has had its budget cut drastically.
Do male and female advisors get penalized in the same way for misconduct?
We have found in a study (When Harry Fired Sally) that women advisors get penalized significantly more than male advisors for the same misconduct. We call it the “gender punishment gap.” This is especially the case in firms where the management decision makers are mainly men. Serena Williams recently made the argument at the U.S. Open that referees were penalizing her more relative to men for the same offense, because she is a woman. Our research suggests that such a phenomenon is not implausible and was happening in the advisory industry during the twenty odd years we analyze in our study.
Quickfire
Favorite book: “Bad Blood”
Favourite movie: “Shawshank Redemption” and “Moneyball”
Favorite fountain on Stanford campus: Hoover Tower fountain
If you were a vegetable, what would you be and why? Celery, because most people hate it but the only way to go in perception is up
With whom would you most want a cup of coupa? My wife
What’s missing from the Coupa menu? A tasting flight of Californian wines
If you had to name all the squirrels at Stanford, what would you call the first three? Athos, Porthos and Aramis
What tree do you most fear? The Redwood, because it makes you feel so inconsequential.
