Q&A With Professor Alex Edmans: The Purpose Of A Finance Professor

Alex Edmans LBS

Alex Edmans, professor of finance at London Business School. (Courtesy photo)

There’s often an awkward moment at conference dinners, just before the speakers begin, when attendees just sort of mill around, everyone waiting for everyone else to find a table. At one such conference, Alex Edmans remembers overhearing a senior professor whisper to his PhD students: “Wait for people to sit down at dinner, and then sit down next to the big shots.”

“It’s so strategic,” Edmans, a professor of finance at London Business School,  tells Poets&Quants. “Everyone wants to stand close to the big shot so that when he or she sits down, you can sit next to them. No one sits first because you feel like you might lose that opportunity.”

In October, the Financial Management Association (FMA) invited Edmans to give the keynote address at its annual meeting. Instead of presenting his latest research, Edmans gave a talk he titled “The Purpose of a Finance Professor.” He talked about how the profession can be more relevant by pursuing things like passion and societal good, as opposed to, say, searching for personal opportunities at the best table at a conference dinner. If the role of a professor is to create and disseminate knowledge, then a purposeful finance professor (or any business school professor for that matter) should devote as much, if not more, effort into teaching as publishing their latest research in another top journal.

This spring, the talk was published as the lead article in Financial Management, the FMA’s academic journal.  You can watch the keynote here or read the article here.

RESEARCHING ESG BEFORE IT WAS AN ACRONYM

Edmans is a pioneer in ESG and CSR research, publishing one of the first papers around the topics before they even had an acronym. In 2011, as an assistant professor at Wharton, Edmans published “Does the stock market fully value intangibles? Employee satisfaction and equity prices.” In it, he set out to study the business case for treating employees well, finding that companies listed on Fortune magazine’s “100 Best Companies to Work For in America” were more profitable in the long run than companies that didn’t make the list.

Edmans is also managing editor of Review of Finance, non-executive director of The Investor Forum, and Poets&Quants’ 2021 Professor of the Year.

In the interview below, we talk with Edmans about purpose, impact, and the significant role luck can play in career advancement. Our conversation has been edited for length and clarity.

You mentioned that normally at FMA, keynote speakers present their own research. Why did you want to talk about the purpose of the finance professor instead? I don’t know if it was a risk, per se, but why did you want to go down this path?

Yes, it indeed was a risk. Being invited to give a keynote is a huge honor. If you want to present research, you can do it in a regular session even without a keynote.  So I thought this was an opportunity for me to say something to the profession that I might not otherwise be able to say. I just thought it was really important to think about all the positive aspects of the profession and for the profession to become more collegial.

Alex Edmans

This profession is great in many ways —it’s why I chose to do this instead of investment banking — but once you get into the profession, there’s a lot of struggles and there can be infighting. So I thought, “Well, how can we make the profession more collegial, in terms of helping each other within research, but also more impactful?”

Nowadays, there’s just much less attention paid to academic research. There’s research which comes from consultancies, which might have some financial incentives, and I wanted to make sure that the huge positive impact that we have on the wider world is something that we are not forgetting. It was just being more outward facing in terms of being more impactful, but internally, to make us more collegial rather than competitive.

I understand that this was your one shot to give the keynote at FMA?

You only ever got one keynote, I was so honored to be given an invitation at all. Most of the people who’ve given keynotes are right at the top of their professions, and this was my only shot, so it was my one opportunity to speak on this. If I didn’t take that risk, I would not have an opportunity for this organization. There’s probably about four or five major conferences where you might be able to give a keynote, but I knew the opportunity might not come back again.

When you talk about congeniality, what do you mean? What are the benefits of finance professors working together instead of competing against each other?

Well, I think you just get better research. One of the aspects of collegiality that I was highlighting is that we should be willing to provide feedback on each other’s research. When I started as a junior, I just sent papers to other people, they’d comment, they’d send papers to me and I’d do the same. It just makes our work better, and I think producing great research is something that we want to do.

It also means that you get feedback in ways which are much more inclusive, and much less costly to the environment. So what I mean by that is, historically, how people got feedback was they presented at a conference, and that requires you to fly sometimes halfway around the world, which is going to leave a carbon footprint. If you’re a parent with young kids that might be difficult for you to do, and this is something which I think particularly may be a big challenge to women. I’m not saying conferences are not useful, and there’s still a big social aspect to them, but we should be able to get feedback on our work in other ways.

Some of the collegiality can be external as well. I often tweet or write posts on LinkedIn about research done by other people, because I’d like to market it, whereas other faculty might only just give airtime to their own research. Why is that good for the profession? We’re in a world where there’s information from everywhere, and people like to think about some simple sound bites for a journalistic article or maybe a McKinsey study, but their studies are somewhat partisan, because you will only release a study which shows what people would like to hear. But as academics, we want to look at where the science takes us without any ideology. That is more challenging right now, because often the articles which have the simple conclusions are the ones that are liked and shared and retweeted. I want to make sure that academia has a bigger impact on the real world, and I think being collegial and not just tooting your own horn but sort of tooting others is a way of doing that.

You talk about how the profession of finance professors should strive to be more relevant. What are the most important aspects of your paper that speak to this?

So I think one of the things that we can absolutely focus on in the profession is teaching, and hopefully this will be of interest to your particular audience. We are really lucky that we get to teach hundreds of bright young minds every year, and yet, we are not rewarded for that at all. At universities, when you’re trying to get tenure, almost zero weight is put on your teaching.

When I started at my first school, Wharton, I asked the deputy dean how much weight they put on teaching in tenure decisions and they said negative weight, because of the idea that if you’re spending too much time on teaching, it must be at the expense of research. I thought, “This is terrible.” I view students as our clients, they pay our salary. If you’re an attorney, and you’re up for law partner, and that is completely unaffected by what your clients think of you, that would be crazy. Yet we are in a profession in which it’s so internally focused and navel gazing that the only people who decide this are just other professors reading your research, not what the students think about your teaching.

Finance isn’t necessarily the first subject that comes to mind when thinking about purpose. Were you nervous about delivering such a high-minded keynote to a more quantitative crowd?

A little bit, but I think that’s what made it exciting. There was a risk, and anything with a risk has the potential to have an impact. What made it a bit less nerve wracking was that I had to give it online. I was still giving it verbally, so the nuance of voice hopefully made clear that I was not preaching.

You’re right that maybe finance isn’t the first subject that you come to when we think about purpose, but I think the audience of finance professors was more perceptive. Why do people choose to be professors, rather than investment bankers or traders? Presumably, they do like teaching students, they do think about research which is disseminating knowledge to other people. Maybe later on, when they get caught up in the rat race of tenure, they forget about what made them become a professor to begin with. But what I wanted to do is remind them and sort of unlock the purpose that they already had. I think they all have purpose, it’s why they chose the profession.

What do you say to those who believe this is all too idealistic, that professors have to publish relevant research to get published, to get tenure etc. How does this work in the real world?

I’d like to say that, actually, purpose is not at the expense of success. My main work was how a company which thinks about serving society ultimately ends up being successful and profitable. I do think that this is the case for academia as well.

So what does it mean to be purposeful? It means to go after research questions that you’re passionate about, that you think are exciting, not just the ones that you think are going to be published. That allows you to be innovative.

I first worked on my papers on ESG 15 years ago, before it became popular. Nowadays, everybody’s wanting to write about it, but to do the first work on that was something that, to me, was driven by purpose. I think if you are teaching, and putting a lot of effort into that, that helps you be a good speaker and a good presenter. If you can do that, then you speak at academic conferences and you then become more impactful. If I’m in the habit of commenting on other people’s papers, that then makes me a better critic of my own papers, and I think that also helped me then become an editor of a journal at quite an early age. So even if you do things for purely intrinsic and altruistic reasons, there might unexpectedly be some benefit down the line.

NEXT PAGE: The role of luck + Growing the Pie

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