Positive news, for example, increasing your company stock price by
about 37% in one year tends to get popularity.
Because this is exactly what the CEO did, happy anniversary.
Again, this is another news, the final one.
During O'Reilly's ten year reign as CEO, Chevron's stock price has
gained about 60% with the company outperforming the S&P 500.
So you can always see the media accounts and also the investors at large
typically use a reference point which is usually the CEO's entrance price point.
We thought, well, that might actually have a huge psychological impact on us.
>> Right. >> We always know, when we first join,
we sort of join a company, join a school,
join a department, you set a mental marker there and
say, here's where I joined, let's look at the performance over this run.
So that price becomes a salient point in everyone's mind in that one sense.
The other thing is which is a little bit more subtle but is also very important is
when the CEO actually joins the firm, they get a big stock option grant.
>> Stock options would be tied to that price when they joined.
It's more than a subtle point, this is like where my dollars are.
>> Exactly.
People typically outside, they don't realize this point right away.
>> Yeah. >> But because we look at CEO data,
compensation data, so much,
we immediately realized that's actually a big wealthy factor right there.
>> So that's actually an interesting source of variation.
We all might have this, hey, I have this reference point when I joined.
Some COs might also have a bunch of stock options that have an exercise price
at that price when they joined.
Did you ever look to see how variation, having a lot of stock options with
that exercise price mattered for this reference point?
>> Right, definitely, we looked at that.
Unfortunately, in the data, maybe the variation's not that much.
>> Everyone is getting a bunch of options.
>> Exactly, everyone.
It turns out that What we find is that at the beginning,
when you actually get those options, typically it's for all of the CEOs.
That counts for the majority of your stock option grants at the beginning.
And then over the course of your CEO tenure, of course, you get more.
However, with that said, the effect is probably concentrated in that first year,
that's what we find.
>> I see, I see.
So we can think of this behavioral bias on the part of the CEO,
it's kind of like an agency problem for the firm.
When I'm looking at firm decisions going forward as a shareholder,
I could care less what the stock price was when the CEO joined.
I just want you to make the best decisions given the economic environment today.
If I'm sitting on a board or if I'm a shareholder, how can we try and
reduce these agency problems due to the behavioral bias of the CEO?
>> Right, that's a very interesting question.
So we actually wanted to invest this question.
We thought about this as well.
On one hand I want to point out, a lot of these,
because it's behavioral psychological biases, sometimes it's very hard for
the firm to address, simply because people are not even aware of it.
Maybe the CEO doesn't even know there's a bias there.
Maybe the board doesn't even know there's a bias there.
>> But now they'll know it because of your research
>> That's what we aim to do,
to uncover these biases so people can look at this.
One example would be the overconfident CEO, because they don't know that they
are making bad decisions due to overconfidence.
Here it's the same.
So first of all it's to recognize this problem, secondly corporate governance.
When we look at the cross section, for
example, there's not a lot of variation between firms.
So a CEO at a firm with a very good set of corporate governance practices would
still be subject to this kind of biases, just like a CEO at a poorly governed firm.
So what's happening is that, after people start to realize this,
maybe the board can do something.
One thing goes back to what we talked about, the compensation.
Maybe think about the compensation structure, right?
How do you spread out the incentives throughout their careers so
that they don't have to be concentrated on that beginning?
Also another thing is when they evaluate the CEO, when the board evaluates the CEO,
or when the outside investment community looks at the CEO.
Maybe it's not just going back to that price point when he first joined,
because there's a lot of things with influence on that price point.
For example, a forced turnover CEO might join a firm at the low point,
which makes the stock rise a little bit easier than someone joining at
the peak of the firm and then you will see this gradual decline in stock price.
So this is all something to keep in mind.
How do you evaluate the CEO?
How do you design the compensation package to actually guide the CEO's behavior
in the right direction?
>> And just kind of prep the board members to say, hey, I know you may feel like you
don't want to sell stock because the prices fell a lot right after you joined.
But let's not let that kind of personal bias affect our decision making.
I thought of tech firms right before the NASDAQ bubble collapsed.
>> Right.
>> You joined in 1999, NASDAQ falls a gigantic amount in 2000,
it's kind of not your fault as CEO, right?
>> Right, [LAUGH] exactly.
It's like you came into this situation, it's not the performer but
the situation itself.
>> Exactly, exactly.
So I was thinking of a follow-on project here.
Would you have the same results for looking at firm debt issues?
Where we're not looking at kind of stock price changes, but
we're looking at maybe a change in credit quality.
So you can examine whether firms issue less debt if
the credit rating is now less than when the CEO joined.
>> Yeah, definitely.
That's a very interesting idea.
We actually looked at this in the data.
>> You did?
>> We tried to look at this in the data, it did not pan out.
Partly it's because there's not a lot of credit events, downgrade or
upgrade events, for us to look at.
And secondly is that debt prices are not as available as the stock prices,
which is daily.
>> Right. >> We get that data really easily across
a great cross section of firms.
So that did not work out, but I think- >> Just have like A to B,
not that many changes, >> Exactly, but the idea, though,
that there is a reference point can be used in other research settings.
I think you had some very interesting papers on this as well.
>> Well, right on cue here.
So it's a mutual admiration society here.
>> Right, [LAUGH] it is.
>> So your work here was actually very influential on some of my work with
Dean Brown, who was on our first Faculty Focus episode.
And so we're bringing all the heavyweights here, right?
We start out with Dean Brown, now we have Yuhai Xuan.
>> Everyone wants to be on this segment.
>> Yes, but it's just a coincidence that I'm bringing these leaders, my bosses,
here like the Dean, the Academic Director of the iMBA.
It's just a coincidence that they're featured here as interviews.
But your research was actually very instrumental on a paper that I wrote with
Jeff and Steve Dimmock and Jun-Koo Kang, where we were looking at payout decisions
of university endowments paying money to the university.
And one of the factors that was very important is what's the level of
the university endowment relative to the level of the endowment when the current
president joined?
And that was totally motivated by your work.
So I have to thank you and Malcolm quite a bit, because I think that was
key to our paper getting published and led to some interesting findings.
>> No, that's definitely a very interesting finding.
When we looked at this and were thinking, that's a very nice setting to apply this.
And of course, you know as researchers, we always aim to inspire ideas and
this is a very nice paper, once again.
>> Right, and you get the little reward of the citation in our paper.
Academics kind of don't have the stock price publication,
number of publications and citations.
>> Exactly, that's our stock price.
>> Exactly, got you an additional one there.
>> Right, that's good. >> Well,
you wear many hats in the college.
One of them is Academic Director of the iMBA program.
So we're making use of this great studio we're in here.
You have the fantastic iMBA with the orange and blue displayed prominently,
it looks like a Chinese throwing star or something like that.
Could you tell us a little bit for our viewers, our learners, a little bit about
the iMBA program, what it offers in addition to the Coursera courses?
>> Of course, the iMBA is a big thing, as you know, for a college now.
>> That right.
>> And we're so proud of it and we're also all working so hard towards this.
And we have some of the best faculty members that we have, such like Scott.
>> Someone told me the professors are underpaid.
No, I'm joking, I'm joking.
>> Such as Scott, the best professors here, teaching in the program.
And that's a conversation that we should have with Dean Brown at some point.
>> No, I'm joking.
You might want to edit that out.
>> Right, exactly [LAUGH].
The iMBA program itself now, as we know, we have two cohorts now.
And we have about 275 enrolled students already.
>> One that's joined in January and ones that join in August.
>> January, the other was August, exactly.
Altogether about 275 students now, and that's representing about 23 countries.
>> Wow.
>> It's already very global.
>> I'm started to get nervous.
I'm very proud that I've traveled to a little over 30 countries,
where pretty soon the iMBA's going to shoot right through that.
>> Yeah, and also be mindful that a lot of people now from different culture
backgrounds might not even get the US reference that we sometimes use so
much in our classroom.
>> That's right, but they can Google it.
>> Exactly, for sure.
It's a very global program now, and what's interesting is that the as program
just started, it's getting very popular and it's also very selective program.
In that following sense that if you look at our acceptance rate,
look at how much we retain in the program, and look at what's the yield?
And it's all actually right now beating what the top rank schools like
Harvard have.
>> Really? >> Our yield right now is
95%, for example.
>> Wow.
>> That's sort of unheard of in the academic world.
So that's that, but more important, I think,
what we find is that we are really doing something great here.
So what attracts our students here is what we call a trifecta.
The trifecta being, one, it is a high quality program
that's from a school with a very good reputation out there.
And the second thing is that it's completely online,
therefore it's very flexible.
Now that's a very key point.
>> It's flexible but not easy.
>> We never aim for easy, we want to hold everything to the high standard.
Flexible in the sense that a lot of people find themselves unable to
go away from their work for two years.
>> Of course.
>> Or come here for an MBA program.
This, you can do anywhere in the world according to your own schedule, or
somewhat according to your own schedule.
You still have to do the assignments and everything, the exams schedule.
So that's the second thing.
And the final thing is affordability.
We really think that education should be more accessible to more people,
a larger segment of the population.
So this program is affordable.
So all those three factors together makes it really, we hope that it will be a great
success for everybody- >> Yes.
>> Involved, not only just the students- >> It's really a democratizing education
at the MBA level.
>> Definitely, and
what's interesting also, you said with the Coursera part and this part.
A course, as we know, in the iMBA program is two parts.
One is on the Coursera part.
>> Yeah. >> What everyone is doing now.
So you have those videos- >> In fact,
some iMBA students may be watching this video right now.
>> Right, exactly.
You're watching this video right now.
So on the Coursera part you have the, what we call,
it's more thought of as an interactive textbook, video textbook.
So you have some basic readings there, some quizzes there, and
the interactive videos.
But what's important is the other component in addition to the Coursera part
which is a high engagement portion, which adds so much more value, I would say.
Like this segment, for example, right.
It's in high engagement section.
Where the high engagement section really allows students to have this
live interaction with faculty members through a virtual video based classroom.
>> Yeah. >> Right?
And then you can do- >> We have live sessions right in
this studio.
>> Exactly, you can do group assignments, you can then do more advanced quizzes.
You can have office hours with faculty and TA.
So it's really this high engagement and
the educational content bringing it together that really mimics or
even we can do everything that a brick and
motor school classroom can actually do but we offer everything completely online.
>> Well, in fact, one thing that is starting to teach in this is that I think
is underestimated is the students working with each other, teaching other,
like the professors are there, the teaching assistants.
But the students and their interactions is actually better, I think,
than like a regular brick and mortar.
>> Exactly, and also it's from all over the world now.
>> That's right. >> It's a virtual, and
another thing I want to add, I think it's a very important point,
is that the iMBA program, curriculum aside, in addition to that,
once you actually join iMBA program, you now become a part of the network.
It's much more than what Coursera- >> You're going to be wearing a lot of
orange in your wardrobe to be part of the Illinois network now.
>> Exactly, that's our color right?
>> Exactly. >> So
what happens is that what you see is that several things are made available to you.
You now get accessibility to faculty, to leaders, to your peers and to the huge
alumni network which is always valuable to any MBA students that's broadening their
professional career and trying to broaden their network capabilities.
So we actually have several things that's already launched and others in the works.
For example, there's eminent speaker series that would actually bring
prominent Illinois alumnis to give speaker series and
students can actually ask questions live and receive answers.
And then there's also the iMBA TV that's already being launched.
And that's going to be interviewing faculty members,
interviewing leaders like Dean Brown, and to basically talk about current events,
but around the iMBA curriculum, around the courses that is being offered.
That's a center on that.
And also there has already been going around a lot of you guys taking the class
probably have had the opportunity already, attending some events and
some meet-ups all over the world.
And the leadership team actually have travelled around the world to
meet with students, and students meet with each other, with alumni.
So that huge network is adding a lot of values [CROSSTALK]
>> I saw your pictures on Twitter
recently.
>> Exactly, exactly.
>> So this studio, I have to say, held some live sessions in here.
It's like pretty cool, right?
Whenever I'm here I always feel like I'm on CNN or ESPN.
Now as we are filming this interview, the Cubs have just won the World Series and
we're less than a week away from the big US presidential election,
Hillary Clinton versus Donald Trump.
I feel like I want to be here at the big board talking about states or
talking about the Cubs.
It's so awesome, it's like you're in a new studio here when you're projecting your
live sessions for the iMBA.
>> Yes, it's so cool here.
I love to be here.
And I've always wanted to do this, and I would say something and
then I can use the phrase and say, back to you.
[LAUGH] >> There we go.
Not to mention these cool mics, right.
>> Right. >> I feel like I'm in
a Mission Impossible movie.
>> Definitely, definitely.
It's a very nice place.
>> So this has been very great.
I was wondering if you could indulge us for one final segment, and
that segment is called the Awkward Moment!
It's a favorite of ours.
Do you think you'd be up for it?
>> Of course, but I'm excited to see what this is about.
>> You're excited to see- >> Yes.
>> This like cartoon.
>> Yes. >> It looks like it should say, Bam!
>> Yeah. >> But instead it says Awkward Moment.
>> Hopefully this is not going to make me awkward.
>> We'll see.
>> We'll see, yes.
>> Usually, I'm always awkward, so usually it just kind of emphasizes my awkwardness.
>> Okay, I'm sport.
>> You're sport?
>> Yeah. >> Excellent, this is great news.
So we look forward to the Awkward Moment with so stay tuned.
We'll take a quick break and then we'll be right back.
