The Making of Modern Corporate Finance

When I think of the CFO’s role, a few questions emerge: What will we invest in and reinvest in? How will we finance those investments? What about risk management? And what is the role of corporate governance in these activities? Not only does Don Chew answer those questions in his new book, The Making of Modern Corporate Finance, but he also avoids complex formulas, which keeps this book from being too obtuse and abstract.

Episode Highlights

1. What makes America great? And, “Hire her.”
2. Several chapters could be an entire book from The Making of Modern Corporate Finance.
3. The primary audience for the book.
4. Don’t skip the prologue.
5. Don’s most straightforward definition of finance and why it can be offputting for the general business reader.
6. Comparing and contrasting old-fashioned and modern finance.
7. The fascinating rise of Merton Miller.
8. “Not all growth is good – not all debt is bad.”
9. Japan, what went wrong and why?
10. Risk management 101 and why it’s essential.
11. EVA revised and its knockoffs.
12. Don’s explanation of agency costs.
13. The perfect pay plan that lasted for years at GM.
14. What Michael Milken surprisingly got right.
15. The next book Mark wants Don to write.

Book Club Questions

This is book club material for young finance professionals. If you can find a group of 3-4 other people, consider the following ten questions in no particular order during your book meetups.

1. Is your employer still practicing old-fashioned finance or the modern version? Explain your reasoning. Does it matter?
2. Revisit Don’s nine lessons on modern corporate finance early in the book. Which statements stand out the most to you?
3. Merton Miller taught his first finance class when he turned 33. That got me thinking about my first finance course, which was numbers-centric. Looking back, do you wish your finance course could have been more like the material in Don’s book?
4. Is EVA relevant in the small business? This podcast host says yes, he has two variations for small organizations. How would you revise it for a company with revenues less than $100 million (hint: this is where university professors fall way short by ignoring the Paul Downs of the world).
5. Ruth Porat is mentioned in the book once. She left her CFO role at Morgan Stanley for a similar position at Google, where she stated she would be investment-focused, not cost-focused. What does that mean?
6. Regarding Morgan Stanley, Don compared them to Goldman Sachs, which had higher earnings. Yet Morgan Stanley had the higher market capitalization at the time of the book’s release. How was that so? Does that insight change the way you will evaluate businesses in the future?
7. Before reading Don’s book, I had not read about British Petroleum’s strategic thinking on risk management and insurance. Do you agree with their thinking at the time?
8. Regarding risk management, comparative advantage may have been reawakened in your mind. What is it and why does it matter? Does your company enjoy a comparative advantage?
9. What did you think about GM’s perfect pay plan? What does the ideal rewards plan look like in your company? Need ideas? Start here.
10. “Not all growth is good.” Can you think of growth examples in your company where that statement has rung true?

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Books Mentioned

• Middlemarch by George Eliot
• To The Lighthouse by Virginia Woolf
• The Hedgehog and the Fox by Isaiah Berlin

Episode Pairings