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What is the Deal with Finance?

The Germans have always been pretty good at engineering, and Porsche is no exception. It is a fabulous company, with a reputation for producing bona fide sports cars that can also masquerade as your “every day” run-about. Wall Street’s and Canary Wharf’s many car parks are full of 911s, as bankers seek to spend their hard-earned cash on something that is not only practical and good to drive but also a suitable gimmick for impressing the ladies.

And Porsche has played up to the brand, with a range of very capable vehicles, the 911 (with all its variants) is a complete, era-defining masterpiece. The Boxster is not bad either-clearly a car for poseurs that care more about brand than actually owning or knowing anything about genuine supercars, but nonetheless very good at what it does, and certainly the best car to drive in the “emasculated idiot” category. Even the Cayenne is good-a beast that drives like a car half it’s size and is generally capable of some serious off-roading (although it is particularly sad that most Cayennes will never see anything other than supermarkets, high-schools, or the baseball little league).

Three great models aiming at three different markets have created one of the most respected and capable brands in today’s luxury car segment. It would seem that Porsche has everything going for it, and can do no wrong. Very strange then, that a company that so deeply understands and covets its niche with consumers has produced something so bizarre, wayward, and lost as the Porsche Cayman.

The Cayman is one of the biggest transport disappointments since the Segway.* Basically a Boxster with a hard top, the extra weight the car carries totally hinders its ability to drive properly, and the extra power Porsche has given the car is not enough to compensate for it. It is not fast enough to be a 911, and it is not as much fun as a Boxster. There is no reason to buy this car apart from the fact that it is a Porsche.

The sad thing is it could have been so good-all the Porsche engineers had to do was to keep the car in production for another six months. Then they may have realized that without better handling, better seats, or an improved power to weight ratio (all of which are fairly simple fixes) this was a car that was bound to disappoint. But Porsche pressed ahead anyway, ignoring critics along the way, and produced a fiasco. For Porsche, the Cayman is a case of “so near yet so far.” It is a complete disaster, the Achilles heel of a great brand.

And like the Porsche Cayman has not helped Porsche, so the first term Finance Course has not helped HBS.

If only so I stay in school, it is important to stress that what follows is not aimed at any specific member of the finance faculty. In fact, our section finance professor is very good. He is extremely knowledgeable, with an enjoyably sarcastic sense of humor. He is a good teacher and gets concepts across effectively. However, our section’s learning is significantly hampered by the fact we are not given access to any of the model’s that are produced in class. As a result, the concepts we are taught stay in students heads for about a day. For some reason the HBS finance faculty has seen fit to clearly state that students are not allowed access to any of the models that have been built in class. This decision is all the more bizarre when you consider these facts:

Fact 1: It is a commonly accepted fact that HBS graduates are bad at financial modeling. They are “very good at thinking”, but “not very good at doing,” according to recruiters. Now, I totally accept that this leaves us far better placed than most business schools to lead organizations and manage hundreds of people in the future, but that is an advantage that will not manifest itself for about 10 years-it is not likely to be our first job, is it? Given that a large proportion of the year will start jobs which will involve a considerable amount of modeling, a more detailed lesson in how financial concepts work in Excel would be useful.

Fact 2: Stanford offers a Financial Modeling course. Despite whatever the most recent set of completely arbitrary league tables may contain, Stanford is our main rival. Its brand is arguably our equal and whenever HBS loses successful applicants, they invariably head off to the west coast for surfing and sunsets.

Fact 3: About a third of the HBS intake each year comprises people from interesting jobs (i.e. not banking or consultancy). As such, their exposure to Microsoft excel is limited. While the book we were posted in August may have served as a very rudimentary introduction to the absolute joy of spreadsheets, fellow bankers will agree that the best way to get good at Excel is to use it. And to use it constantly.

Given these facts, there is a strong argument to include some sort of mandatory financial modeling or valuation course in the RC year as opposed to just an optional one in the EC year. We would be better placed to perform well at the first stage of our next job, and a broader RC course might possibly remove one of the reasons why applicants choose Stanford over HBS. Most importantly however, is the fact that students can only really, truly understand finance when they see how everything works, how every input feeds into others, and how issues around finance interrelate and affect each other. As much as pure theory is helpful, the practical aspects of finance-best demonstrated with Excel-complete the picture.

The HBS grapevine told me that this issue had just been raised with the Finance faculty. I was happy when I heard this. Surely the Faculty would realize that there is nothing to be lost by allowing students to have access to the models that are built in class? And surely the only reason one couldn’t get them in the first place was due to some oversight or mistake made previously?

No. The Finance Faculty’s response to various enquiries was completely the opposite. Like Porsche, they have ignored suggestions and chosen the bizarre. Unless you are part of a very small study group or learning team, models that have been built by students cannot be circulated to others after class. That means even if you have spent 80 minutes following every move that has been made on the projector in front of you (meaning that you have both ignored the HBS laptop rule and also have not really spent time listening in class), you will not be allowed to email it to fellow classmates that are having some serious problems. Furthermore, a recent email was circulated by faculty suggesting that models built by professors would be left up on the section computer “for a short period, usually until the following day”, but that emailing it out electronically “will be viewed to be inconsistent with HBS Community Values.” So if you want to see a model, you will need to huddle around with half your section after class to see it. A concession? Vaguely. Practical? No.

Now, I find the logic of this completely and utterly ridiculous. Not getting the models means that students cannot really see how finance works and not being able to email them around to classmates seems to be in total contradiction to the co-operative learning environment that HBS so prides. Furthermore, the sharing of section review materials is also not allowed to be shared with other sections-it is viewed as a violation of community standards. But surely this nullifies the advantages inherent in having a professor who cares enough to go the extra mile to create review materials?

What’s the reason for this? I don’t know, but it cannot be that the learning teams are meant to be the process by which knowledge is shared. That is too easy an excuse, plus if this were the case, learning teams would be mandatory and there would be a banker in every one of them. Sadly, this is far from the truth. In fact, nearly 25% of the learning teams are rumored to no longer meet, leaving the non-finance students among them to figure finance out all on their own.

Nor can the reason be that the Finance Facu
lty does not want us to email the models to the next RC year. Firstly, if this is indeed the reason, what is the point in community standards? By signing these, HBS is rightly trusting us to not hamper other people’s learning. By adding an additional failsafe and preventing us from downloading the models, the faculty is both hindering our understanding of finance and also sending the implicit message that is does not trust us. Moreover, is there really a problem if next year’s students do get hold of the models? They are not exactly self-explanatory-you still need to do the work and go to class to actually understand what exactly is going on. Finally, if this is indeed the reason for not getting access to excel solutions, it would also assume that students are coming to HBS not to improve their understanding of various issues, but simply to have a good time. We are not undergraduates-this is simply not the case. The vast majority of students at HBS would do the work around finance to increase their knowledge, irrespective of whether they have the class solutions or not.

What is particularly annoying is that this could all be fixed so easily. The problem is not in the quality of the faculty (which is the best in the world) or the content of the course (which is relevant and in the most cases, interesting). The very obvious fact is that students are having trouble understanding concepts because they cannot see how the models work. And you absolutely need to see the Excel to understand Finance. Otherwise, people would become instant experts in valuation, investment management, and portfolio theory simply by reading Brealey & Myers.

I could be totally wrong about FIN1. There could be a perfectly good reason for the lack of Excel support we are getting, and the RC year could be in the middle of exactly the right financial education for the future. But if there is a reason, the students are oblivious to it, and the students deserve to know what it is. Using community standards as a reason for everything is like trying to justify a rule by saying “because that’s the rule.”

Until then, I will say this. Please give us the models. Please. That way, students can focus on finance concepts in class and support their learning with some Excel later. Currently, the HBS teaching experience is truly exceptional, but is let down by some truly strange Finance rules. FIN1 is Porsche Cayman to HBS-a case of “so near yet so far.” Simple fixes have been ignored, and a brand that is both known for excellence and understanding its consumers so deeply is being let down by a single product.

*Incidentally, to the person that is grooving around campus with one of those, you look a bit ridiculous, sorry.

What do you think? Would having the finance models help or hinder the HBS learning process? Express your views in a letter to the Editor and email it to letters@harbus.org. Please state whether you would like your letter to be published anonymously.

November 6, 2006
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