By J. Michael Lillich

The Krannert School's finance faculty team gives undergraduate, master's, and doctoral students a hard-hitting education that has won recognition throughout the industry.

Playing it right:  The finance faculty team members are (from left): John McConnell, Michael Cliff, Keith Smith, Diane Denis, Charlene Sullivan, Bill Lewellen, Raghu Rau, Dave Denis, and Mike Cooper.

Finance is at the heart of business -- capital allocation, compensation, company value, the bottom line. Investors buy and sell based upon financial data and its presentation.

For these fundamental reasons, the field of finance has been looking at essentially the same issues for 30 years. Ask Wilbur "Bill" Lewellen, Herbert C. Krannert Professor of Management and director of Krannert Executive Education Programs (KEEP), about his research when he came to Purdue from MIT in 1964 (he received his PhD in 1967). He'll talk about his two books on executive compensation, his texts on capital structure, and in 2000, his book "Financial Management and Introduction to Principles and Practice." When you say those are the big topics in today's financial news, Lewellen, a man whose views have been vindicated by history, smiles wryly.

"In the '90s, portfolio management and security analysis were the dominant topics, but lately there has been a resurgence in interest in corporate finance topics," Lewellen says. "I am pleased that corporate finance topics have again become the focus."

"Purdue is a Midwestern engineering school. Corporate recruiters came to Purdue from the big industrial companies. In the '60s, Bob Johnson and I did our research on industrial corporations, not banks and financial institutions. There really wasn't any other way for us or for Krannert to go."

Meet the players

In 1964, when Lewellen arrived at Krannert from MIT, he joined Robert Johnson in finance. The two became the finance department.

"Arnie Cooper introduced me to the case method of teaching early on," Lewellen says. "I liked it and have been doing it ever since."

Krannert graduates during the years of the '60s and '70s will remember finance professor Keith Smith, who went on to become dean from 1979-83, and still teaches at Krannert. John McConnell received his PhD in finance from Krannert in 1974 and joined the faculty in 1976. Charlene Sullivan joined the faculty in 1978 after completing her PhD in finance at Krannert that year.

David and Diane Denis, who both received their PhDs from the University of Michigan, came to West Lafayette in 1995. In the past five years, Krannert's finance area has added young faculty on the investment side. Michael Cooper and Michael Cliff came from the University of North Carolina, and Raghavendra (Raghu) Rau from Insead in Paris.

High marks in research

Both the quantity and quality of Krannert's finance faculty research have been high. Financial Management, a prominent academic journal, published a paper on citations of 12,500 professors in the top three finance journals over the past 25 years. Of those, Krannert was the only Big Ten school that had two in the top 100 -- Lewellen and McConnell. No other Big Ten school had more than one. Seven Big Ten schools, including Indiana University, which was known for finance, had none.

The Eastern Finance Association named McConnell the EFA Distinguished Scholar of 2002. Of the 12 previous winners of the EFA award, five have been Nobel Laureates.

The Denises have pursued research in corporate ownership and governance, diversification, management turnover, and downsizing. Cooper's research focuses on investments. He's been the advisor for Krannert's Student Managed Investment Fund (SMIF) since 1999. The fund made real profits of $70,000 -- more than 50% on its investment portfolio -- in the first month of 2001. This year, two of his SMIF students were highlighted in Business Week and interviewed by CNBC as part of their prize for winning a national investment fund competition (see story on p. 10).

Rau studies market reactions to corporate events, such as mergers, acquisitions, and divestitures. His research considers how information enters and affects markets, and he questions whether markets are indeed rational.

"I look at finance from an international perspective," says Rau, who prefers London's Financial Times over The Wall Street Journal for contemporary cases. "I'll consider an issue such as stock share repurchase in the United Kingdom and reflect and compare it to American business."

The investment focus of Cooper and Rau, and Michael Cliff, another North Carolina PhD, who came to Krannert in 2000, augments the corporate intellectual center of the department with senior faculty members Lewellen, McConnell, Smith, Sullivan and the Denises.

Academic culture

In theory, research and teaching inform and invigorate one another. But tenure and advancement have traditionally depended upon the publication of one's research in academic journals.

"Ten or 15 years ago, a faculty member might have been a great researcher and a lousy teacher and still could have received tenure, but no longer," says Rau.

Teaching has become more important in the last decade or so in decisions to grant tenure, which generally is conferred after a faculty member works six years as an assistant professor. From the young professor's point of view, tenure means security in terms of guaranteed employment, salary, and freedom to pursue research of one's own choosing. For the institution, tenure means a professor has passed the test, joined the order, and become a full-fledged member of the professorate. So the entry-level, tenure-track professor must figure out how to divide his or her time and attention in the tenure-teaching equation.

"Bringing in Cooper and Cliff in investments was a conscious decision," says Diane Denis. "All of our students -- undergraduates, MBAs and PhDs -- need to understand investments. At each level, the teaching requirements are very different."

Denis says at the MBA level, more than half the students elect an option in finance. "We [the finance department] teach the most MBA students by a long shot," she says.

"We put in a great deal of thought about what we're doing with the students and the curriculum," Denis says. "We also pay a ton of attention to how well our young professors go over with the students."

The MBA is center stage for business school, so Denis says the senior faculty is careful and almost parental about turning over classes to junior faculty. Before Rau taught a second class in a finance sequence, McConnell brought him in to the first class and introduced him to the students.

"In the finance area, we want our teaching output to be as good as possible across the board -- undergraduate, MBA, PhD, executive programs and in our partnership with GISMA," says Rau, referring to the German International Graduate School of Management and Administration, which is staffed with Krannert faculty. "There are no egos involved here."

Rau came out of the classic European sage-on-the-stage, lecture mode of education, and his students' evaluations in his first year ranged 1.8-2.0 on a 5.0 scale.

"I had to make myself a teacher," he says. He introduced props such as bull and bear puppets and green M&Ms. He uses a pizza to illustrate the theory of corporate capital structure. "Finance can be intimidating enough as it is," he says. "I realized I needed to make it fun." His evaluations now average 4.8, and he won Krannert's Undergraduate Teaching Award in 2001.

Rau says his colleagues' supportive attitudes extend from teaching into research. "Finance is a close-knit group," Rau says. "For a new faculty member, the single most important factor for success is supportive senior faculty. As an entry-level professor, you have to learn how to write papers for academic journals. I can give a 30-page paper to Dave, Diane, or John, and they'll give it back to me in a couple of days with detailed comments."

Rau admits that the finance area is "an odd economic organization. You do good work for yourself, and every person in the group is playing his or her own game. My responsibility is to be a good teacher and a good researcher. To do this, I need good colleagues."

Finance in the field

After getting his BSIM from Krannert in 1971, Charles B. "Brad" Hintz went on to become the youngest corporate treasurer of a Fortune 500 company at age 35, a partner at Morgan Stanley, and the CFO of Lehman Bothers. He tells a story about his senior-year finance class, taught by Bill Lewellen, which may have been his intellectual making. Lewellen gave Hintz an "F" on the midterm. Hintz, who'd always scored well on standardized tests, went to see Lewellen about the grade.

Lewellen looked up steely-eyed from his reading and said, "Mr. Hintz, I am indifferent to your success or failure." Taking it as a challenge, Hintz went on to read "everything Lewellen ever wrote." He aced the final, but much to his surprise, Lewellen averaged the two grades and awarded Hintz a "C" in the class.

After a tour in Vietnam, a master's degree in systems management at the University of Southern California, a master's degree in finance from the Wharton School, and stints at Standard Oil of California and the Northern Trust Co., Hintz became the treasurer of Anderson Clayton & Company (a Fortune 200 consumer product company in Houston). Upon this event, he wrote Lewellen a note reminding him of the first finance course and the final grade, and thanked him for his start in finance. Lewellen wrote back, tongue firmly in cheek, "I am still indifferent to your success or failure, Mr. Hintz."

Hintz laughs at the memory. "We're fast friends. I love Lewellen's dry sense of humor. Bill's a real player in corporate finance; there is no one who knows capital markets asset pricing theory as well as he does, and no one who can explain it as clearly."

Hintz's career then led him to a 13-year stay on Wall Street, first at Morgan Stanley Group, where he became a partner of the firm in charge of funding and financing, and then as CFO at Lehman Brothers in 1996. He took a buyout from Lehman and spent a year in semi-retirement, "being a dad to my 10-year-old son" and "making up for all the dinners I had missed with my wife over the years," he says, adding, "Frankly, of all the things I've done I am most proud of having won the Cub Scout Pinewood Derby with my son that year."

Hintz is now a sell-side analyst for Sanford C. Bernstein & Co. LLC in New York covering the securities industry.

"I'm every CEO's worst dream -- a CFO who has become an equity analyst," he says. "I'm following an industry I've learned to love -- but not take too seriously."

He has used Prof. Mike Cooper's SMIF participants for help on a project to forecast the growth of European capital markets over the next five years and on a project to predict when Goldman Sachs' common stock would be included in the S&P 500 index.

"The Krannert students are well-trained, very quantitative and so comfortable with the numbers," he says. "That's the basis of finance -- and a tradition at Krannert."

From theStreet.com to GE Capital

Andrew Greta, MBA '99, received his bachelor's degree in economics from Purdue in 1992 and became a broker at Prudential Securities. He didn't think he'd be back.

"I decided I wanted a higher order of intellectual challenge and started looking at MBA programs," Greta says. "I got accepted at the University of Chicago and then came down to talk to Logan Jordan (Krannert School associate dean), who was one of my clients, and Alan Ferrell (Krannert's graduate career services director).

"They were very upfront about what I could and couldn't do with a degree in finance from Krannert. With the emphasis on corporate finance, Wall Street didn't come looking for Krannert MBAs." However, in corporate finance, there are still plenty of opportunities to be involved with investing.

Before he graduated in 1999, he found his own way to Wall Street by doing consulting work for theStreet.com, then in a joint venture with the New York Times and Fox News on a London expansion. The expansion never launched, and soon the bloom was off the dot-com rose.

"I never thought e-business was an end in itself," Greta says. "Finance, on the other hand, is the cornerstone language of business stability and growth."

Greta, now based in Stamford, Conn., works in GE Capital's global business acquisition unit. "I do pro forma analysis to make sure the deals make financial sense," he says.

Working with international students on cases while getting his Krannert MBA has helped Greta in his job today.

"That was the first real experience I'd had working with people from other cultures and backgrounds," he says. "This morning at GE Capital, I took a call from a project in India. Yesterday it was the United Kingdom."

"There's a growing awareness in the business world that Krannert finance graduates deliver great value," Greta says, referring to the 2002 survey published in The Wall Street Journal, in which Krannert's overall MBA program ranked No. 11 internationally.

Greta says that at GE Capital, rotation through finance is one of the paths to upward career advancement.

"In the post-Enron world, there will be more and more scrutiny," he says. "And as corporations expand and globalize, finance will become even more central."

Doctoral dimensions

While the MBA is the glamour business degree, among academics, the doctorate is king. And among the various areas of study, finance is intellectually the nearest to economics, the mother discipline of business. Then, there's the business side of being a professor.

"Generally, people don't understand what professors do," says Kenneth M. Eades, PhD '80, who now teaches and leads the first-year MBA finance program at the University of Virginia's Darden School.

"I had a pretty good vision that I wanted to be a professor, but I didn't know that much about the profession. What I got from Krannert -- and specifically from witnessing John McConnell's victories with editors, his thorough understanding of his subject matter, and his being so well armed -- was a real insider's look at what it took to be competitive and successful in research.

"Publishing is always an uphill battle. At Krannert, we doctoral students felt like colleagues. This gave us a real advantage because we entered into the debates in the field and embraced our research role early. This is part of the Krannert culture, and it is not true everyplace."

Eades refers to Lewellen as his teaching model, although through unusual circumstances. Normally, there is one MBA finance case class in the curriculum. When Eades took his first teaching job at the University of Michigan, he was assigned the finance case class because he was the only new professor who had had a case class as a student -- Lewellen's.

"It was a tremendous amount of work for a rookie professor," Eades says. "I taught both MBA students and Ford managers at night in Dearborn. So here I was taking a four- or five-page, company-specific article to experienced managers when I was fresh out of school and 30 years old."

Despite his initial intimidation, he says, he became known as "a guy who taught case courses, which is powerful both as a methodology and a pedagogy, in a field where 90 percent of the classes are passive lectures." Developing the case approach eventually brought Eades to Darden in 1988.

Eades says Krannert is known in the academic world of finance as producing quality doctoral graduates.

"Purdue is as good as any school, and better than most," he says. "Certainly Krannert is in the top tier of Big Ten schools."

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One-Stop Shop - John McConnell

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Finance Department Web site