executive program in business finance

executive program in business finance

The Essential Guide to Executive Programs in Business Finance

1. Introduction to Executive Programs in Business Finance

If business has become more exacting, running a business has certainly become vastly more complicated. Business executives do not need to be chartered accountants or investment bankers, but they must have a wide understanding of what these professions are about; in fact, on certain lines, they must be able to talk to the experts in their own language, so that their problems are properly understood. Every executive with responsibility for a business or group of businesses, large or small, must be grounded in sound financial principles. He must understand what finance is and what it can do. He must appreciate the possibilities and limitations of money. He must be able to satisfy his company’s requirements for funds, in all their complexity.

There was a time when a man could put together a business with household tools just because he had a feeling that it would be a success. Today, to run a business, there is no need for the owner to be a chemist, an engineer, a statistician, or even an expert on money. It is true that many men with none of these great qualifications do manage to make a success of a business: they simply do not understand either the potentialities of their companies, the finance that must be found, or the money that can be made. These men might have missed qualified financial advice, but need it just the same.

2. Key Concepts and Theories in Business Finance

An important point when using the shareholder wealth as an objective is that it considers the risk and the value of the firm as well as the timing of the returning cash flows. This objective allows shareholder desires to predominate as a firm’s primary goal. Pursuing this goal will result in maximizing the firm’s future earnings, which translates into a higher market value for the stock. The incentives that motivate managers to work for the realization of the goal satisfy the same three objectives that shareholders desire: maximization of the firm’s future earnings, maximization of future dividend growth, and maximization of future market capitalization.

A corporation is a business organization in which a group of people acts through a policy-making board of directors with the chief executive officer acting as the board’s agent. Historically, shareholders elected the board of directors as their agents to make policy decisions for the corporation. All business approaches have an implicit or explicit objective. The current management approach in the corporate sector requires that management use shareholder wealth maximization as their objective. The other approaches include social responsibilities, sales maximization, and profit maximization. Shareholder wealth basically means the market price of the stock, which gives the shareholders the right to do whatever they want with their stock (e.g. sell, buy, not vote, etc.).

3. Strategies for Financial Management in Executive Roles

All organizational success hinges on a manager’s ability to interact with the environment. Joseph Schumpeter’s well-known description of business – economically creative “gale of creative destruction” that reshapes capitalism at the firm and industry levels – very clearly captures this idea. Corporate financial policy, however, virtually ignores the firm’s environment except insofar as it requires information and capital from that environment. Managers guide money and information through their self-contained, solvable spheres of production, pricing, and investment. Because that guidance – internal financial mechanics – becomes an internal matter, executives often pay it only passing attention. Few executive programs devote much time, if any, to their own financial policy, which at first glance appears to offer little more than a dull internal accounting problem.

As an executive, your mission in financial management will differ significantly from your finance manager’s responsibilities, yet you will need an informed perspective to effectively oversee financial policy. Whether financial matters occupy a significant portion of your time or only an occasional concern, several broad strategies can help you fulfill your role. Together, these strategies offer a clear ethical challenge: Instead of enforcing the strict constraints of an efficient market’s “invisible hand” – as if society were segregated by anonymous economic transactions – executives should adapt and expand the guiding hand of finance, maintaining an active role in allocating resources. Properly employed, these strategies can also foster increased economic justice by shaping corporate and investor interests to include the broader public interest, recognizing the majority stakes that a healthy global economy holds for almost every “stakeholder.”

4. Case Studies and Real-World Applications

The theme is developed by considering four interconnected issues. The first issue is that, despite 20 years of experience, many managers still sound like broken records when discussing their companies. They restate the same stereotypes as everyone else without really knowing what these stereotypes mean. Secondly, the business world was changed 30 years ago by the publication of “The Practice of Management,” with its fundamental message that there was no place for guesswork in management. This statement was true in 1954, and it is just as true today. The difference is that today we have some powerful techniques beyond the control systems which Drucker had in mind. We can now generalize these techniques and understand companies as well as practitioners can understand specialized processes, such as aircraft navigation or chemical plant production. The third issue is the prevalence of corporate failures. Finally, the last issue is concerned with a relatively neglected area in business economics, the psychological, sociological, organizational side of how a company is successfully managed.

The framework used in this program sees companies as a sequence of contracting relationships between individuals, departments, and other organizations. These contracts and other formal controls need to be supplemented by less formal behavior patterns of employees, which are determined as much by company culture as by any other factor in the organization. The session deals with the interrelationship of culture, strategy, and viability. Intentionally avoiding the philosophical implications of corporate viability, the focus of this session is on how viable companies operate. The message is that the historical focus of business strategy on where to play should be supplemented by a modern focus on how to play and that in any event, one has to come before the other.

5. The Future of Business Finance in Executive Leadership

This subtle but nonetheless critical change of emphasis in the business finance function and its leadership has come at a high and deeply traumatic cost. Many long-established firms are now shadows of the enterprises to which they aspired and adopted as their declared missions a decade or so ago. Indeed, many of these historic firms have sprawled far beyond the core competencies which both complemented each other and contributed to the prolonged periods of fashion in the 1970s and 1980s squandered the unique perspectives, competencies and core values and missions of the enterprises. By making them indistinguishable one from the other. As both academics and seasoned enterprises recognize there are good business reasons for companies to embrace significant diversification in industry space. Research has repeatedly demonstrated that the catalyst for the elevation of business segment performance has been the emergence of corporate competencies which converge with and complement each other in addressing customers across segments.

In delivering the studies about business finance regularly to thousands of executive participants, a sharp picture has evolved of the purposes and the needs of the top financial leaders. It is tantalizing to let visions of tomorrow stand in the way of the hard work of today. But there are major challenges and demands for our top financial leaders in coming to grips with the profound and rapid changes that both the international and global economies are undergoing. Prime among the issues is that the financial function in today’s corporation has moved from being a service department with essentially supporting responsibilities to being a partner in the strategies for corporate growth and development. Indeed, in some firms the focus of financial management has moved from the numbers, per se, to the capacity and wealth generating powers of the strategic objectives.