Harvard Professor Fritz Foley on tax, trade, business, academia and more


From the rise of multinational corporations and potential tax policy implications to the role of CFOs and the importance of investor relations, Harvard Business School professor and corporate finance expert Fritz Foley has researched and taught it all. On the latest Walker Webcast, Professor Foley discusses all of these topics, as well as the future of business education.


The episode begins as Willy introduces today's guest, Fritz Foley, André R. Jakurski Professor of Business Administration at Harvard Business School. He has authored and co-authored over 34  academic papers and 40 case studies. As the conversation begins, Willy asks Fritz to discuss why he chose a career in academia. Fritz said it was an easy choice for him, explaining his long-standing interest in academics. He goes on to discuss his role at HBS, the day-to-day case study methodology, and how he aims to serve more as a guide for discussion rather than teach a strict curriculum. 

Fritz has taught students from a huge array of different backgrounds and tries to live his life by not stereotyping. He describes the MBA classroom as a place that encourages speculations and the creation of hypotheses and the joy he finds in seeing medical students embrace this environment. 

The discussion then shifts to discussing the topic of Fritz’s upcoming book release, which will document his research into multinational corporations. Willy asks Fritz if he believes such corporations are on the decline. Over the last few decades, Fritz explains, the data reveals their presence has been constant in the U.S. economy, providing a large fraction of economic activity. He believes they will always play a large presence in the market. Then, they discuss the emergence of China and the inevitability of companies coming and going on the market. China is simply growing at a much faster rate than any other country therefore taking up a larger fraction of global economic activity. 

Discussing tax havens, Fritz says there are many unfair accusations and in fact, the presence of such havens could actually be a positive thing for the U.S. and Europe. However, there is a need for corporations to follow the rules and be morally just. Then, Willy asks whether multinational corporations have the responsibility to continue investing in research and development. Fritz explains the incentives in place for performing R&D and the U.S. is overall in a good place in this area. 

Next, they discuss the emergence of HBS Online, which Fritz considers a platform business with content and formats that can serve all types of learners. He predicts different teaching methods will be combined on the platform in new ways to make it a compelling experience. The business has taken off considerably and is predicted to continue growing in that way. 

On average, HBS publishing makes around $200 million each year in revenue. Fritz explains case writing to be much like doing research and admits he has never focused much on the overall expenses they entail. Cases are an invaluable way to study business and tend to be a great way to ignite discussion and exhibit points. 

Finally, they discuss what the pandemic has done for the world of MBA and executive education. Overall, there continues to be a strong demand for the MBA program and virtual programming. 


Learn more about Fritz Foley.
Learn more about HBS Online

Key Ideas:

3:00 - Willy introduces his guest Fritz Foley.
3:55 - Why Fritz chose a career in academia. 
6:00 - The day-to-day case method at HBS.
8:10 - Different backgrounds of Fritz’s students. 
11:40 - Fritz’s favorite cases to teach. 
14:14 - Differences in discussions between executive ed and MBA classrooms. 
18:13 - Are multinational corporations on the decline? 
20:56 - The emergence of China. 
23:35 - Business taxations. 
29:13 - Risk-neutral expense. 
35:30 - Fritz’s most effective way of teaching. 
38:05 - The future of business education. 
45:00 - The cost and implications of case writing.
49:08 - What role does guidance play?  
54:00 - Impacts of the pandemic. 

Webcast Transcript:

Willy Walker: Thank you Susan and good afternoon everyone. It is a real pleasure to have my friend Fritz Foley on the Walker Webcast this week and I will dive in in a second to an introduction of Fritz and then our conversation about corporate finance, business education, and a host of other issues that are of mind today. 

A couple things before I begin. First of all, I’m in New York today so I can actually say to you good afternoon.  And I will just tell you that New York is coming back. Anybody who doesn't, believe it or to travel here. When we were booking my travel we went to my go to hotel they were booked, we went to my second go to hotel they were booked, we went to my third go to hotel they were booked, so I’m staying at my fourth hotel please don't tell the owner of that hotel that they're my fourth choice.  Getting a dinner reservation last night was extremely difficult and the restaurant that we went to was packed both indoors and outdoors and you can really see a revitalization of the city.  I went over to visit with some of our large clients both yesterday and this morning and office buildings are opening up, the protocols to get into the office buildings are still reasonably strict as it relates to proof of vaccination, and standing in lines, and going through questionnaires, but all that is changing. As I said, to a group of business leaders in Denver yesterday, when I was on a webcast back there, don't spend too much time figuring out what your memo on back to work says, because by the time you've edited it and put it out there, the world is going to have changed.  Things are evolving exceedingly quickly, and we are getting back at it very, very quickly, and so it's fun to see and it's fun to be on the road.  

The next thing I’d just say is next week I have David Faber from CNBC coming on and we're going to turn the camera around on David and talk to David about the markets and since David has the great pleasure of everyday talking to some of the most insightful people on market commentary across the world, to be able to turn around and say to David okay you've spoken all these people, what do you actually think is going on will be a lot of fun next week. So that'll be the Walker Webcast next Wednesday.  

So, today's guest portfolio is the Andre Jakurski professor of Business Administration at Harvard Business School.  He is also the Senior Associate Dean for Strategic Financial Planning. He has authored or co-authored over 34 academic papers and 40 case studies.  And sits on the boards of the Epiphany school and Belmont Day School in Boston.  Dr. Foley received his BA from Yale University, Magna Cum Laude, his AM in Economics from Harvard University, and his PhD in business economics from Harvard University.  He was a Fulbright Scholar and won the Robert F. Greenhill award in 2019 given annually by the Dean of Harvard Business School to the member of the HBS community who contributes to the school in significant ways.  

So, Fritz first of all thanks for joining me. I got to start here, which is you're clearly whip smart and other than the fact that you finished your PhD in 2002 which was not a great year for the job market, why did you pick a career in academia, rather than being CFO of Microsoft or the lead partner at McKinsey?

Fritz Foley: Yeah well, it's great to be here so thanks so much for having me. For me, this was not a hard choice actually.  A long-standing interest in academics and I’ve always been drawn to having a lot of time to think deeply about whatever question intrigued me most at a particular moment, and so, in my current job, I have a lot of flexibility to focus on things that that really intrigue me and that I think are important big questions.  I also have a lot of time in the summer that I wouldn't have if I were CFO at some organization and had to worry about closing quarters and keeping the street happy.

Willy Walker: If you were CFO at Microsoft, you'd still be coming to Sun Valley in the summertime for the Allen & Company Conference so I’m sure you and I would be able to see each other there.  So, you went off to Michigan Business School for two years after getting your PhD from Harvard and then you returned to HBS as an Assistant Professor and then became an Associate Professor three years later, and then a Professor five years later, is that the typical tenure track for academics who go and teach in business schools of sort of an Assistant Professor, into Associate, into tenure in sort of an eight-to-nine-year period?

Fritz Foley: Yeah, that's I would say pretty standard. There's a fair amount of variation school to school. Some schools have shorter tenure clocks.  At HBS it's a fairly long clock. It's a rigorous process, and I would say yeah, I’m a common person on the Faculty who has an academic background.  We also have a number of people on our faculty who come from practice, and I really liked the balance of working closely with people who have been CEOs like yourself or CFOs who can balance my understanding of the theory and the sort of more academic side of issues with day to day. What does it take to actually do and implement some of the ideas that we'll talk about in class?

Willy Walker: So, talk about the day to day and the case method HBS.  What was it like when you first entered the pit as a young Assistant Professor for your first class in front of 90 HBS students to go teach? Talk about that first day and what it was like when you're not teaching a set curriculum or lecturing but actually being there guiding a conversation on a case study?

Fritz Foley: Yes, I’ve had some advantage in that I had seen a lot of cases as a student in the program that I was in. We did a number of business school courses in my PhD Program.  But I had been teaching at Michigan for a couple of years, and when I was on the Faculty there, I had developed a set of slides, a set of lectures and could come into class on autopilot and walk through the material that we needed to cover in a particular day. There weren't many surprises and prep time was also minimized by the time I was in my second year at Michigan.  Walking into the pit for the first time; so these look a little bit like Greek theaters right so that you're sort of down in this pit and there are rows of students about 90 of them, and each of the rows has a different name, so the lowest row is the worm deck that top row is the sky deck.  There's a lot of pomp and circumstance that comes with even starting class and, at the beginning, I was pretty much terrified. I think like anything you get better the more experience you get doing this, doing the act of teaching and in a discussion-based way where you can't really predict what's going to happen. For me at this point it’s sort of part sharing knowledge and getting students to share knowledge with each other, part improv comedy almost or acting, and part just being part of a community. I really enjoy getting to know the students and learning about their perspectives and then having them bring their perspectives to bear on whatever matter we're discussing on a particular day and this diversity of opinion and thought leads to some really robust discussions that I think I think, really, let us get some deep insights about whatever matter we're discussing.

Willy Walker: So, you've taught students from all over the globe. You've taught students who went to Ivy league universities, the military academies, non-Ivy league schools. You've taught students in their mid-20s, mid 30s, mid 60s, and you've taught students who had a finance background, a consulting background, consumer products background, etc, etc.  To the degree possible, any generalizations that you would draw as it relates to those students that you regard as being the strongest students you've taught?

Fritz Foley: Yeah, I mean I think one of the things that I’ve learned and tried to live by is not to stereotype. Really on any dimension.  I’m always amazed by people who maybe I don't know did Teach for America before coming to HBS. I might think they might not know finance, as well as the person who has just left a big Investment Bank.  But boy am I surprised every day by what people bring in the views that they that they have and the effort that they put into learn material. So, I think there are, I mean there certainly are some behaviors that are probably more common for people with some kinds of training. I think one of my, one group I like working with is we have we have some students who are M.D. MBA students. So, they're getting medical degrees, at the same time they're getting MBAs. The MBA classroom is a classroom where you're allowed to speculate, right. You can come up with hypotheses, some of which are sort of wild hypotheses about what may be going on at a company or in an industry and M.D. students are not taught to speculate well. You don't want your Doctor to tell you oh, you know maybe you have cancer or maybe it's some other terrible disease that they're very deliberate and guarded before coming up with these and so sometimes people have different training like that there's a little bit of work to convince them to say you know I know over the medical that Medical School they've been teaching you to be careful, but we can be a little bit fast and loose in this discussion in here, so please let it rip.

Willy Walker: I’m very pleased about that program. That program didn't exist when I was at HBS and the fact that you're training doctors on how to be managers is… I’m on the board of Children's Hospital in Washington, D.C and our CEO is a Physician by training and only 5% of hospitals and medical systems in America are run by physicians and MDs and I would just say from having watched Kurt Newman run Children's Hospital in Washington DC, having an MD run the hospital is just such a hugely important sort of in so many different ways it's just so valuable to have someone who understands what the doctors and nurses and care givers are going through every single day. So, I love that HBS is focused on that and trying to train MDs to also be businesspeople, at the same time.

Fritz Foley: Yeah, yeah, there's huge opportunities in that space, in hospital administration like you're describing. But just more generally, a huge fraction of our economy is tied up in health care and people who can bring both the medical perspective and a good business sense together to address issues in that space are invaluable.

Willy Walker: Before I move on to talking about multinational corporations, which you've done a lot of research on, and have just written a book on, is there one case, Fritz, that you like teaching the most? That it's just kind of, you know, when it comes up on your teaching schedule, you're like, that is going to be a really fun case. And if so, what makes it such a great case?

Fritz Foley: Yeah, yeah. It's a great question.  I mean, so for me, at this point in my career, you can almost give me any case and I’ll have fun with it.  I’ll find some way to lead to some intriguing questions. There's a couple things come to mind quickly. One of the cases I really enjoy is a case in which you need to value the royalty stream associated with ENBREL, which is a drug for a particular kind of arthritis. And in this case, it's all about trying to understand the perspective of different investors, whether they're diversified or not.  But in teaching this case, one of the things I love to do is get students to vote on how they’d go about this. And over the course of an 80-minute session, basically get them to flip their vote three times. So, you start out and be like: Well, how would you do this? You do it this way, where I can get some student. Okay, how many people agree with Bob? This is the way to do it.  80% of people raise their hand. and then you get kind of part of the way in the discussion and reveal some perspectives that make you think that that's not the right way to do it.  Ask again. People flip. And at the end they're just like, Wow. This was an intellectual journey in 80 minutes, and as a consequence, I really understand the issues at play and how diversification matters in a way that I otherwise wouldn't. So, for me, that's super fun. But it's a little bit of almost playing with the audience.  

The other classic that you probably remember, Willy, from your time at HBS is Butler Lumber, which is a classic lumberyard case.  It's a, you could say, what are we going to learn from some guy running a lumberyard? It's not a big business and the case itself is about two pages long. But you can cover a ton of ground and get into all kinds of issues that relate. First, just the basics of finance; what ratios to look at. But by the end, you're sort of thinking like, Well, what should Mark Butler…he should raise prices here? Or He should do any one of a number of things, that become very strategic in nature.  So, it's a very fun place to teach.  I really can’t say enough about how much I enjoy it.

Willy Walker: I will tell you this:  Butler Lumber is doing really well right now, with where lumber prices are [laughs].

Fritz Foley: [laughs] Yes.

Willy Walker: I guess I have one more question as it relates to the MBA program before I move on to Multinational, which is just this: You teach both executive ed as well as the MBA Program.  As you think about that case study that you were just talking about, about what are the future cash flows and getting the teams to sort of go from one side of the argument to the next side of argument during it, any marked difference as you teach between executive ed and MBA students, as it relates to the depth of discussions?  I would hope, as someone who's been out of Business School now for unfortunately 25 years, that I’m much better today at asking the right questions and understanding what the key issues at hand are than I was 25 years ago as a student.  And at the same time, there's also something that says to me, you know the questions that were asked, and the solutions that we came to in the classroom 25 years ago were pretty insightful. Anything as it relates to your teaching in the executive ed program versus the MBA, where the discussion gets deeper? Or they’re things that seasoned managers and professionals will bring out of a case that MBA students won't?

Fritz Foley: Yeah, yeah, so, they definitely have a different, the discussions have a different feel to them.  I would say, often you’d probably hit on 80 to 90% of the same material in executive education settings. It's much more likely for people to say, Well, I already valued 10 other royalty streams, and so this one's going to be a little different and here's why. And let me tell you about the negotiation that will take place in the process of trying to come up with valuation if I’m selling this off to one of these sort of buyers of royalty streams.  And let me explain how that market works. So, there'll be a lot more institutional knowledge, a lot more wisdom that comes with experience.  But the executive education students are also much less likely to roll up their sleeves and dive deeply into some Excel analysis which can be really insightful. And so, the MBA students often have these great perspectives. And MBA students also, I feel like, often have a little bit more variation in a class. So, I’ll hear perspectives that are a little bit broader than if I’m teaching in, say, some program where there's a lot of pharma people maybe. Maybe they're all going to have sort of a pharma perspective on something.  But it's a great question.  I think one thing that's exciting about the technologies that we have now is there are more opportunities to combine these things, right. So, I could imagine if I were teaching, for example, a Real Estate fintech class, and I can beam you onto the wall now at relatively low cost. And towards the end of class we turned and said: All right, Willy, like, you've heard this discussion. This isn't your company…But, like, help us understand: do these guys have a viable business model here or not? And we'd be able to leverage the perspectives of executives in the MBA class.  I think that that's probably really where the big benefit is, and to some extent, go the other way as well.

Willy Walker: It's interesting Fritz that one of the big advantages, I think, that HBS has is that the kind of the pull of the not only the university, but the case method routinely CEOs would be in the classroom teaching a case, are there to listen to the classroom discuss it and then come up and give us kind of the “what the company actually did.” And that that was one of the big draws.  It's interesting now that we've gone through the pandemic, how you could beam a CEO basically into any classroom, at any school, and whether that actually changes a little bit of the unique niche that Harvard has, of being able to pull these people in who will travel. Whereas if, I don't know, I’m not going to disparage anybody, but you know, if Darden called me up and said they're doing a case on real estate fintech, would you beam in for an hour? And I’d say, Sure. I probably am not going to travel all the way to Charlottesville to do it, but I can now do it via Zoom. Whereas two years ago, I wouldn’t even think about it, and they wouldn’t probably invite me via Zoom.  So, it'll be interesting to see how that dynamic plays out in business education going forward, and also all the investments HBS has made as it relates to HBS “X” and all of that.

Fritz Foley: Yup, yeah, for sure, for sure. I think that there will be more – overall, I’m happy it's happening.  I’m happy that this access is occurring. And just sort think it will make business education better.  So, I realized it.

Willy Walker: So, let's transition for a second to your new book. You've got a book coming out with James Hines and Raymond Mataloni and David Wessel on multinational corporations. I guess the question I’d start with is this:  Are multinational corporations on the decline?

Fritz Foley: So, I don't think they're on the decline. I think that, historically, in the beginning there was a fear that they may take over the world, that these are super-efficient organizations.  The data at least indicate that over the last few decades, their presence has been fairly constant in the U.S. economy; at least their share of, you say, capital expenditures or employment, they provide a very large fraction of most measures of economic activity.  But even firms that have emerged as tech firms and maybe at one point where U.S. Centric are now becoming multinational, so I feel like they'll always be big presence and I don't see much retrenchment in flows of capital or trade.

Willy Walker: So, it's interesting given both technology and the transformation of particularly the U.S. economy from not a manufacturing it was never a majority manufacturing economy in our lifetimes but moving more and more towards a services economy and a technology-based economy.  The multinational used to be able to use its economies of scale, the ability to invest in PP&E to go into new markets, dominate those markets and really spread their brands and their products. And you would think that, given the transformation of the U.S. economy, that that role would have diminished somewhat. And then the other piece to it is political pressures of going from having global trade, free markets, and now increasingly a protectionist view globally, as it relates to U.S. versus China, etc., etc.  Which one of those two kind of currents is most inhibiting the growth of multinationals today?

Fritz Foley: Hmm, yeah. So, I mean, I think even with services, there's no shortage of big multinational service firms. The banks are big banks tend to be quite international.  Consulting firms, accounting firms, those types of sectors are quite international.  I think there are certainly concerns about U.S./China relations; in particular, how that will play out.  But overall, if we compare the amount of economic engagement we have with China now, relative to 30 years ago, there's just so much more now that I think, even if there's some retrenchment there, that it still wouldn't take away from the importance of multinationals and international economic activity of firms more generally.

Willy Walker: Talk about the emergence of China. Because in your book you point out the fact that if you go back to the Fortune list of the world's largest corporations in 1988, of the top 15, 9 were in the U.S., 5 Europe; and 1 Japanese. There was not a single Chinese company in the top 50 companies in the world. And you fast forward to 2019, and of the top 15, you have 7 in the U.S., 3 in Europe, 3 Chinese, 1 Japanese, 1 Saudi Arabian, and 12 Chinese companies in the top 50.  And the other piece to it, Fritz, that I thought was so interesting that you pointed out as well, is that half of the top 50 major, largest corporations in the world didn't exist in their current form back in 1978. Talk about those two things: a) emerging China and b) how you know, Jeff Bezos talks a lot about the fact that one day Amazon won’t be around. For all of us who feel like Amazon’s in our life every other minute, it's hard to believe that the world might exist without Amazon, but I think Bezos is basically saying what we all know, which is companies do come and go.

Fritz Foley: Yeah, yeah. So, I mean the China story, I think, is one that many people are probably familiar with. It's just a huge economy. If you have a huge economy to begin with and you're growing at 7%-8%+ a year, you're going to just take up a larger and larger fraction of global economic activity. The rest of the world's not growing that quickly. And, you know, I would say historically it's been a super attractive market for U.S. multinationals who saw lots of opportunity there. But as capabilities and business practices have evolved in China, I think we'll continue to see a number of large, highly successful firms be domiciled there and be serving the world from there.  So, I think that's here to stay.  

On the turnover of firms, yeah; I mean, this is a reality of life. The half-life of successful strategies is actually just not that long.  And so, we're going to just see more and more, you know the extent to which you have turnover that that also, I think, is a just a feature of the economy and a healthy one. I think it's a part of the beauty of a well-functioning, market-based economy is that firms that are successful can raise resources, grow, and come to dominate ones that maybe make some missteps or had been pursuing an approach that is no longer as viable as it once was.

Willy Walker: So, you're an expert on tax policy and you've done a lot of… You've spoken to the U.S. trade representative and you've done testimony on Capitol Hill as it relates to taxation.  There are a lot of sort of allegations, if you will, as it relates to U.S. multinationals dodging taxes by investing in tax havens, running compensation through tax havens, etc., etc. From you and your colleagues research, is that a fair narrative?

Fritz Foley: So, this is a very thorny issue. I would say that much of what I read, or I’ve read many things that I think are a little bit unfair, right? So, it's quite easy to paint multinational firms, in particular, as being organizations that dodge taxes, avoid their fair share of taxes, pay a low rate of taxes, but I think we need to be quite careful about casting those allegations and thinking about the issues that are behind them. So, on the outside, I think it's important to recognize yeah, we, I think, have a high demand for government services; need to find a good way to cover the costs of those, and think about ways that corporate taxes can contribute to meeting the revenue needs of governments. It is the case that about half of U.S. multinational firms have a presence in a country that is kind of designated to be tax havens, and these are everything from countries like the Bahamas, as well as places like Ireland. But I think we need to be really careful and thinking about what happens in those countries and exactly what multinationals are doing. So, it's easy to neglect the possibility that having presence in a tax haven for example actually makes you want to do more activity in the U.S. and Europe, and other parts of the world, and so from a jobs perspective, the presence of havens may actually be good for Europe, the U.S., and other places like this.  And I think it's also important to think through how we get here, and there are a number of countries that are competing on the basis of taxes and Ireland is an example of this, where the strategy has weighed explicitly been we are going to be a low tax jurisdiction and attract a lot of activity as a consequence of that. So, I’m quite curious to see how negotiations will unfold within the EU and even just more generally G7, G20 countries begin to try to impose some kind of minimum global tax on firms.  

The other issue I should mention briefly is just this issue of like well who bears the corporate taxes, another big question. It's easy to conclude that we should just tax companies because they are making a lot of profits, but I think it's really important to think through if we tax a company, what's the company going to do, is this going to come out of the returns that would go to shareholders? Is this is going to come out of the returns that would go to labor? Who bears the incidence of that? This isn't to say that multinationals have been able to avoid paying taxes that they probably should. I think there are a number of, you know, you read about some of the structures that existed in the past, like the double-Dutch Irish sandwich kind of thing. That does not seem like the intended reason for laws being the way that they are, and so there's I think a need for firms to do their fair share, but it's easy to cast allegations that are not true and not fair.

Willy Walker: Yeah, I think that point that you just made that only 50% of multinationals actually operate in countries that are deemed to be tax havens says that it's not that easy. I mean, 100% would do if it was that easy to just shift your tax burdens to that tax haven and shield taxes. So, the fact that only 50% of them are actually there and then some of the percentages you put in your book make it seem as if they're you know, there are clearly some creative accounting practices being used by certain corporations, but it clearly from reading your book, doesn't seem to be something that is that widespread. 

There are a couple other, I guess, either misconceptions or accurate statements about multinationals that you also focus on in your book, for instance. The first one is multinationals being job exporters, and I thought it was interesting that from your research because multinationals both export, as well as import jobs, that your research says there is no effect of actually exporting of jobs by U.S. multinational firms and that there's no data to support that. And then the other one was wages that multinational firms pay, and that multinational firms on average pay higher wages for the same job than domestically focused firms do.

Fritz Foley: Yeah, no, that was something that was quite surprising in the research that we did was we sort of looked at firms that were expanding abroad and tried to see, this was U.S. multinationals, are they expanding domestically as well, or contracting domestically? The story in the press often is that they're expanding abroad and cutting jobs at home and in fact, the firms that are expanding abroad are also expanding at home on average, that's the more common trend. Having said that, there certainly are distributional consequences of the ways that employment opportunities have shifted. Not everyone's a winner when it comes to multinational activity, and I think we probably do need to be better as a country at providing assistance to people who are displaced when their job, in particular, may be moved offshore or if they're affected by international trade or, for that matter of technological change or other things that can reshape the labor market. It would be helpful if we were better at doing that than we currently are.

Willy Walker: One of the things that you point out in the book is also on R&D and given that we're just coming out of a pandemic where the major pharmaceutical companies moved at sort of lightning speed from an R&D standpoint to develop these vaccines. You mentioned that 70% of R&D spending in the United States is done by multinational corporations.  Any thoughts on what we can do to, I mean, should it all be on the backs of multinational? Should multinationals be getting more incentives to continue to invest in R&D? Or do you think that from your research we're in a pretty good state on that? Because I was surprised that 70% of R&D is coming from multinational firms. 

Fritz Foley: Yeah, I know it's easy to think like, “Oh, when I hear innovation, I think, small startup firm,” but I think the reality is that these huge firms if they're doing you know sort of some percentage of sales spent on R&D, they wind up doing a ton of R&D. We haven't placed a number of policies to promote R&D and so there's no R&D tax credits, there are other ways that one can engage in cost-sharing arrangements to minimize the cost if you will have of performing R&D in the U.S.  And I think that there will always be sort of a healthy debate as to whether or not those incentives are strong enough or not strong enough. My sense right now is that the U.S. is just an amazing place when it comes to innovation and the extent to which entrepreneurs and individuals, and big firms are willing to make speculative investments in uncertain technologies and products. So, I think we're in a good place but there are risks that those incentives would go away or change for sure.

Willy Walker: So final question on multinationals, which is that, as we think about these behemoth tech companies that are predominantly based in the United States, one of the things that you and your colleagues write about is the way that these tech firms become global multinational corporations, but with exceedingly centralized operations and you all focus on Facebook, for instance. You talk about the growth of Facebook, but the lion's share of Facebook, the entire company, marketing, programming, everything that goes on at Facebook is actually domiciled in the United States. Isn't that a dream come true for our government as it relates to jobs and tax revenues and things of that nature and that we ought to be focused on trying to make sure that that model is sort of replicated more? Because I think about it and you sort of say, okay, do we want, I’ll just pick it, Exxon Mobil for instance, a company that needs to go around the globe, needs to invest significantly in drilling all over the world, wouldn't you sit there and say from a tax return, employment return standpoint, just through the lens of the United States Government, you would actually want to see Facebook grow faster than Exxon just because Facebook is predominantly domiciled in the United States and is doing all that here versus Exxon that has to go to foreign markets, invest in those foreign markets, and employ people and pay wages abroad?

Fritz Foley: Yeah, so, I certainly see that view. I mean it's good that that view is going to be challenged. One aspect of tax policy that's being debated now is whether or not taxes should be on a kind of sales basis, like where Facebook is earning or booking revenues, in which case some of those revenues would go elsewhere around the world if depending on how those negotiations on tax policy go. But yes, it would be nice if we were the home to a lot of this economic activity that then is being enjoyed elsewhere and consumed elsewhere around the world. Yeah, but I think I also have a view of like, there needs to be some balance there, and I think about not just the production side, but the consumption side as well. So, I like to think that multinational firms play a role in the economic development of the countries where they do have activity and so I’m not sure how happy I’d be with a world in which all companies did all things in the U.S., and there were some consumption elsewhere around the world that that maybe it's at a lower level than it would otherwise be if there weren't as much real economic activity happening in those other places as well.

Willy Walker: So, let's switch gears to the course you teach at HBS called Corporate Financial Operations where you're really focusing on the role of the CFO and the critical decisions that he or she makes. How prevalent is, if you will, corporate finance as it relates to setting the strategy and the sort of the operations of a major U.S. corporation? I guess, I break it down to this; when you study the role of a CFO do you study it from the perspective of a CFO at a publicly-traded company, and or is that the most insightful type of case? Or is it a private equity firm that has come in from a financial engineering standpoint and really is the one that's kind of controlling the strategy and what they measure in marketing? Is there anything there for its as it relates to what's an easier thing for students, for you to teach and for students to learn?

Fritz Foley: Yeah, so I think when I started doing a lot of work on CFO’s, I thought I was going to learn about a group of individuals that knew a lot about accounting, and wore like a green visor to work, and sat there and kind of kept the books at the organizations where they operate. And, and what I found instead is that people who are good at this job, are true strategic partners of the CEO, and I think that that's true across the kinds of organizations that you're describing. Across public companies, across private equity portfolio firms, across just private smaller businesses that have done well. You as a CFO can really inform the likely outcomes of different strategic choices and help the other people on the senior management team get to the best set of choices when it comes to strategic and operating decisions.

Willy Walker: So, in your course, I look through your curriculum and there's a module in your course that focuses on risk and regulation, and you've got some cases on world common ENRON.  That made me want to ask you, the question is, what's more impactful for students? Showing them what to do, or showing them what not to do?

Fritz Foley: You know it's a great question! I would say one of my favorite sessions of the course from the last couple of years, we've had Andy Fastow who was the CFO of Enron come to class I find him to be completely compelling. And you know midway through this session I’m sort of drawn thinking like, okay, if Andy pulled me aside right now and said, “Fritz come work with me on some new venture. We're going to win we are going to do this huge thing,” I’d jumped right in, probably, with him.  And so, hearing the way that he thought about the choices he was making and some of the actions that he took, I think really makes me, and I think the students in class step back and really reflect on “Okay if I were in this situation, if I were at Enron at the time, or if I had been at Worldcom at the time, how would I act?”  So, I think there is something really powerful about seeing people who have done things that in hindsight, have been kind of shown to be problematic, and sort of understanding how they got there.

Willy Walker: So, you mentioned the role of the CFO and being sort of integral to a CEOs vision for where the enterprise is going to go. Dean Nitin Nohria asked you a number of years ago to join the Dean’s management group at HBS to focus on the future economic conditions that could pose potential risk to the future economic health of HBS. First of all, what a daunting job, given the number of great finance minds running around the campus at HBS for you to take a leadership role on that. I guess the first place I got to ask you is as you were looking at future economic conditions that could pose a risk of the school, did you identify a pandemic in 2020?

Fritz Foley: No! That one was not really on the radar. We had done a bunch of recession planning, so and typical HBS mode when we want to consider some issue, we decide we should write a case about it, right? So, we wrote a case about a make-believe recession and tried to think through how we would be impacted by it, but no not in our wildest dreams, did we think there'd be a pandemic that would take our executive education business, which was kind of roughly a $250-million-dollar business of on-campus lots of international students to a grinding halt.

Willy Walker: Talk that through a little bit because I think the future of business education is super important and interesting topic and given how transparent HBS is, as it relates to not only publishing an annual report that shows everybody what the university did, but also in the size and scale of the operations. And so, you've got the MBA, roughly speaking, you've got the MBA total revenues of about $800 million, you got the MBA program that's about 200 of that. It's kind of like a quarter, quarter, quarter, right? MBA programs like a quarter of revenues, the executive education program is a quarter of revenues, HBS publishing is a quarter of revenues and then the gifts and the money you make off of the endowment is about a quarter of the revenues and it is a profit-making enterprise. So, as you sat there and looked at that and sort of said okay, we've been growing revenues at HBS, I think the number that you have in the case study that you did on this, was that revenues have been growing at a compound annual growth rate of about 6%, I believe, since the turn of the century. And your comment was, not sure we can continue to get 6% growth out of all these revenue streams. As you look at those revenue streams and opportunities for an institution like HBS, where's the focus?

Fritz Foley: A couple things come to mind, first, one other important part of our business where I think there is considerable opportunity and we see a lot of growth is the online business which started and you mentioned was HBX, what we originally called it and now is HBS Online.  So, we now have a pretty extensive asynchronous online business, which is very interactive and differentiated from what you get in one of the mooc or massive open online courses or even offerings from other schools.

Willy Walker: Sorry, for two seconds I want to cut across on that.  Did that investment and did that studio actually differentiate your product during the pandemic or did everything just goes Zoom because there was no way to use that studio in that investment in technology on a scale basis?

Fritz Foley: Yeah, so you're mentioning the studio. We have these live, online studios which let us basically replicate teaching a class In a way that I find it to be a little bit better than Zoom but it's similar, at least those classrooms are that way. But the HBS Online business is a separate, pure online course where you might enroll in a course, say, on entrepreneurship or finance and you would be able to take this course on your own, fitting it into your own schedule, it is asynchronous, but the material is delivered in a way so that it's still quite interactive.  And so, I think that that's new and that business actually did very well during the pandemic. Having those classrooms that you mentioned also helped because we could quickly shift to teaching in them, we also started doing a lot of teaching over Zoom but I think one of the things that we learned, the other opportunity, is that now that we have these different modes of delivering content, I think we can begin to think about HBS like a platform business, right. We have content, we have a bunch of different ways to deliver this content.  How can we best serve learners? There are going to be some people that may like to learn in asynchronous way and want to pace things themselves, there are others who would benefit a lot from the in-person on campus experience.  And so, I think we're going to be able to combine some of these modes of delivering content in ways that we haven't before, to make it a more compelling experience for learners.  I think the core MBA program probably won't change much, but even that I could imagine, back to the example of beaming you into class to hear, “okay, Willy, what's your perspective on this business we just looked at?” Like these guys have something here or not.  And to do that with other alumni and other experts in the industry of our network and community, I think will be really compelling.

Willy Walker: And so, in 2017 I think HBSX had revenues of $12 million, was that a head of projection, below projection? I think about all of us talking about investing in new businesses and so at W&D, if we're going to invest in a new business it better very well be $100 million business pretty soon, or else it doesn't really, it doesn't stand on its own. And so, given that you're an $800 million revenue enterprise and you're getting $12 million of revenue from HBS, is that going to grow to be $100 million business or do you think that online is relatively small, because the on-campus experience of executive education in the MBA program is just so unique.

Fritz Foley: That business has taken off and it's doing quite well, I think it will grow and scale that way. And in part, it was a bet that I will say early on, I remember talking to Nitin Nohria, who is our Dean, he asked me like well do you think there's anything to this online education and I was like, no we love being in-person, talking with each other, being in that room, having this discussion, that's core to us. And, over time, my views have really evolved. I think that there is a lot of learning that can happen in an asynchronous online way. There is a lot of learning that can happen in a synchronous but not in the same room way.  And we're building out our expertise capabilities in that space and the online businesses is much bigger than it was. But as you're describing standing up the business, one of the things I used to do when I first started in my role in strategic financial planning was each of the parts of the school has to put out a five-year projection of what they're going to do. So, if you take a number of these five years sets of projections and then overlay them with the actual revenues and actual costs that people have experienced, it's super interesting to see how different parts of the school perform. And when we were standing up the online business, there certainly was over optimism about how quickly we get to certain revenue targets and how easy it would be to control costs.  Fortunately, that was balanced by other parts of the school that tended to be run more conservatively in our executive education business. For example, we tend to be pretty conservative about what we think revenues will be and over the last decade or so have been doing typically better than expected. So, those things have evened out. But the realities that come with trying to stand up a new business at a business school are very similar than what is experienced in the private sector as well.

Willy Walker: A couple of final things on the MBA program before we move off of that and back to corporate finance and that would be HBS Publishing makes about $200 million a year in revenues. You're selling case studies to corporations, to other business schools, etc, etc.  What's it cost, obviously it depends on where the company is and the amount of research, but what's the average cost of writing a case?

Fritz Foley: That’s such a great question.  And, the kind of question that when I started in my role, I thought there be some very clear answer, and we would be able to do some analysis and you might be able to say, well, half the cases you should never write because they're too expensive relative to the revenues.  In reality, we tend not to focus much on that. Cases are a little bit like doing research and to be honest, there have been a bunch of cases I’ll get involved in and think they're going to be terrific and begin to learn about the issues and learn that there's not as much as you thought. So, we don't want to sort of discourage case writing in that way. And the other reason I’m kind of laughing about your question is we are as with other organizations right, this republishing numbers or the publishing numbers, but it's sort of hard to do a full allocation of alright, what are the costs of writing a case? Well it's partly my time, partly my IT costs, partly my office costs. If we did one of these full allocations, I think we would find that the publishing, sort of the publishing numbers that are in our annual report, there's some other allocations, one might want to attribute on the cost side to them.  Having said that, I think that they make really invaluable contributions to the teaching of business education, not just at HBS but the cases are used very widely and tend to be just a great way of exhibiting points and igniting discussion on really central management questions. And so, I can't imagine doing much to try to optimize them from a financial standpoint, there's a little bit of like this is part of our R&D.

Willy Walker: In a number of your case studies that you've written Fritz, in a number of them, you talk about issues of corporate strategy through the lens of investor relations.  And so, you'll kind of tee up the question in the context of a team, a CEO, a CFO, a head of IR, meeting with investors to talk about the new strategy for Microsoft or GoDaddy.com or what have you and I find it to be interesting in that many of us who are public companies, I can only speak for myself, but I have a sense of some of my other public company CEOs, view investor relations as sort of the tail of the dog, it doesn't wag the dog, it's the dog wagging the tail and that IR kind of follows along our corporate strategy, our investment decisions, etc., etc. and that's sort of the output. You seem to turn that on its head and say that it’s actually, it should lead the process, why is that?

Fritz Foley: I’m reluctant to say it leads the process, but I think one can look at an IR set of practices and learn a ton about other things that are going on at a firm, right. So, firms that do IR well, they tend to have really good forecasting ability.  The sort of guidance that they're giving is sensible and on the mark.  They tend to have a good strategic planning process and that they're able to tell their story in a compelling, consistent way. It's one story they're telling the investor, they're telling their employees some unified explanation of what the future holds and what the opportunities are.  And they're good at communicating more generally, what they do and how they do it.  So, I’m not sure I  necessarily think that the head of IR is like the secret CEO of the firm, but I think that when I see firms where the IR function isn't neglected, isn't sort of treated like the last place to invest in and make sure is running well, but in fact it is sort of like an integrator of these other processes and the story. I’m always really impressed by firms that are able to do that well, it sort of signals to me that they're good across the board at these other activities.

Willy Walker: It's interesting that you lead with they're good at forecasting and guidance, because you also wrote a paper on “Is Guidance Dead” and interestingly a stat out of that paper was that only 29% of S&P 500 companies over the last 15 years have actually provided guidance so about a third of the S&P 500.

Fritz Foley: I mean, be careful, that’s provided quarterly EPS guidance.  I tend to think of guidance much more broadly, and so I think there is kind of this ongoing debate of like should firms give guidance or not.  And I think for me that really is a debate about should you give quarterly EPS guidance as opposed to guidance on any number of other items that people do, which is everything from what my sales are going to be to what products I have in some patent pipeline or drug approval pipeline.  More generally, I think it is important to give guidance, I think that the value of firms is all about the future cash flows that they're going to generate and guidance is a way to let people make informed choices, whether those be employees who are thinking of staying at a firm or not or taking there comp in the form of stock or any owners of the firm that are thinking of trading their ownership stakes as well.

Willy Walker: But your research looks at publicly traded companies that do and don't provide guidance and did you find anything that says that those that actually do provide guidance actually outperform those that don't?

Fritz Foley: You know it's a really hard thing to pin down, right, I think if we were to just say, do you do better if you give guidance or not there's all kinds of selection and endogeneity issues running around in that. And I think it's tougher to really measure what would better be.  I can certainly tell lots of stories, although that's a dangerous form of research, about firms that have been very clear about articulating their strategy, providing a clear sense of where they're headed, and as a consequence, been rewarded with high valuations in the marketplace and able to actually execute on their plans.

Willy Walker: Yeah, I think that the underlying piece that you're talking about there is setting a vision, setting a plan, setting a financial model behind it in, regardless of how much of that financial model you share whether it's quarterly EPS guidance, or whether its annual growth numbers on either top line or bottom line. It's that visioning process of where you're going that is the one thing that in the public markets, you must be expert at and in the private markets you don't need to be expert at because your investors don't demand it of you.  But anytime I ever talked to my friends who run private companies, I focus in on that specific skill as it relates to leading an organization forward of setting tangible targets, a plan that you can go execute on, and then setting the team out on that plan. And that's really, going from being a private company to a public company, of all the things that I think we do a lot of stuff well, that's been the one thing that is a maturation process as you move from being a private company to be public company that is fundamental.

Fritz Foley: Yeah, for sure.

Willy Walker: So, a final couple questions as we wrap up here. You did a case study on GoDaddy and in your case study on GoDaddy you measured the number of hits to their website after Super Bowl ads.  Just curious, is buying super bowl ad space actually worth the cost?

Fritz Foley: You know so in the early days of GoDaddy which you probably remember their schlocky, inappropriate ads from super bowls of a bygone era, they just needed to grow. This was a little bit of a land grab situation and so I think for them that ended up working out well, those costs were worth incurring.  In the early phases, it was all about customer acquisition.  One of things I really liked about working on that case, is I hadn't done a lot of work on firms that they spent a lot of time thinking about the lifetime value of customers. So, any kind of software as a service type business, or subscription type business, like this is a commonplace metric.  And working on the GoDaddy case made me realize that framework of thinking all right, what are the revenues I’m going to get from a new customer? What are the gross margins I’ll get from that new customer? What are the costs of acquiring that customer? How long will they stay with you? How frequently they turn out? Working through those numbers and thinking about the lifetime value of a customer is just a super powerful lens and one that, back to a discussion we were just having, is provide some metrics that you really can begin to shape a strategy and have a long-term view on in ways that don't just matter in software as a service. I kind of talked to people that did this in the mattress business and in a number of other businesses as well.

Willy Walker: So, my final question for you Fritz is, that the pandemic is sort of turned a lot of things on its head, everything from the housing markets, to kids living at home with parents now coming out getting their first apartment because when they got out of college last year, they moved home during the midst of the pandemic. It took college applications through the roof this year because universities you didn't need to have the ACT’s or the SAT’s to apply to a lot of highly selective schools, and so they got inundated with applications.  What's the pandemic done to the album for MBA and Executive ED? 

First of all, do you have the MBA side applications up dramatically because people didn't get that job coming out of school and want to go back to school or not?  And then on the Executive Education standpoint you have tens of thousands of Executive Education people who now missed, for all practical purposes, 18 months of Executive Education. My assumption would be, like me trying to get a hotel room in New York these past couple days, that there's a long line of people who want to get in and get the education that a university like a HBS can give them. Where are those two things from a trending standpoint right now?

Fritz Foley: Yeah, great question. I think the other aspect of this, I think, is that the pandemic did learn, did show people that you can learn remotely.  So, for on campus programs, I think that there is this substitute that’s emerging and probably emerging a little bit faster than it otherwise would.  My sense is that we're seeing strong demand for the MBA program and the Executive Education business has yet to come back. A lot of that is international, so there's still a lot of travel restrictions and uncertainty there.  I think we've seen strong demand for our virtual programming for Executive Education, but I hope you're right in that, boy I really want to hear the voices, see the people, feel the energy of being on a crowded campus again because it's been a little lonely around school with more limited numbers.

Willy Walker: Well, Fritz, it has been great. I’m super appreciative of you spending the time and sharing your insights on multinational corporations, the role of the CFO of the company and sort of the inner workings of Harvard Business School and both the opportunities and challenges for such an incredible institution as HBS.  Thank you for taking the time. 

To everyone who joined us today, thank you all for joining us. And as I said at the top, my guest next week will be David Faber of CNBC and we'll see what David has to say about the markets and any insight he wants to share with us. 

So, I wish everyone a very happy Wednesday. Thanks again Fritz and I hope everyone has a great day.

Fritz Foley: Thank you very much for having me, it's a real pleasure.

Willy Walker: Take care.

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