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09 Sep 2015

George W. Kester, Washington and Lee University

Gregory J. Cooper, Washington and Lee University

Roger A. Dean, Washington and Lee University

Peter T. Gianiodis, Clemson University

Michael G. Goldsby, Ball State University

ABSTRACT

This paper describes how Hollywood movies can be used in the classroom to bring finance and business ethics alive in ways that that are difficult to achieve in traditional lectures, assignments and written case studies. The use of seven popular full length motion pictures, four fictional and three based upon actual events, are discussed along with an approach that uses selected excerpts (film clips) in the classroom.

"Anyone who tries to make a distinction between education and entertainment doesn't know the first thing about either."

Marshall McLuhan

INTRODUCTION

Teaching finance and other business disciplines poses the continuous challenge of linking the wide variety of theories to the “real world” and providing students with an organizational frame of reference that helps them understand and appreciate the relevance and context within which the subject matter applies. It is also challenging to include the human dimensions of our disciplines. It is ultimately men and women who practice finance and business, people who are motivated by egos, desire for career success, lust, money, job security, excitement, competition, greed, and power.

There is a growing body of literature that describes how business faculty can effectively use movies to teach a variety of difficult topics in the classroom. Many students, but in particular undergraduate students, do not have the business experience and organizational context within which to place much of what is learned in the classroom. This is especially the case when studying the managerial motivations (e.g., personalities, egos, and greed) surrounding strategic decisions such as corporate takeovers and proxy fights or malfeasance such as insider trading, and fraud. As demonstrated by Serey (1992), who uses the movie Dead Poets Society to teach management and organizational behavior and Harrington and Griffin (1989), who use the popular science fiction movie Aliens to teach leadership and power, movies are able to bring situations and people to life in ways that lectures, cases, and text books simply cannot.

Building upon this foundation, this paper describes how movies can be used in the classroom to facilitate learning on subjects as varied as leveraged buyouts, perverse employee incentive systems, fraudulent accounting practices, and rogue financial trading. The paper is organized as follows. The first section provides overviews of seven popular Hollywood motion pictures and how they can be integrated into finance and business courses to reinforce, illustrate, and help bring subjects alive: Barbarians at the Gate, Boiler Room, Enron: The Smartest Guys in the Room, Glengarry Glen Ross, Other People’s Money, Rogue Trader and Wall Street. The second section further elaborates the benefits of using movies in the classroom, to both substitute as well as complement traditional learning tools. The third section discusses the use of selected excerpts (film clips) from movies or television productions as an alternative to showing full length movies in the classroom.

THE MOVIES

Barbarians at the Gate (1993, 107 minutes) The HBO movie Barbarians at the Gate is based upon the bestselling book Barbarians at the Gate: The Fall of RJR Nabisco by Bryan Burrough and John Helyar (1991) that chronicles the history of RJ Reynolds Tobacco Company from its inception in 1875, to its numerous food company acquisitions in the 1970’s and 1980s, its acquisition of Nabisco Brands, Inc. in 1985, and the historical takeover battle and leveraged buyout of the company in 1988.

Starring James Garner as F. Ross Johnson, CEO of RJR Nabisco, Jonathan Pryce as Henry Kravis of Kohlberg, Kravis, Roberts & Co. (KKR), Fred Thompson as James Robinson, CEO of American Express, and Peter Riegert as Peter Cohen, CEO of Shearson Lehman Hutton, the movie focuses upon the events, executives, lawyers and investment bankers who were drawn into one of the largest leveraged buyouts in history. After learning that the company’s new smokeless cigarette called Premier is likely to fail in the market, F. Ross Johnson decides to take the RJR Nabisco private by buying out existing shareholders. Although Johnson was originally introduced to the idea of a leveraged buyout (LBO) by Henry Kravis, he decides to instead work with the Shearson Lehman Hutton division of American Express. Feeling betrayed and not too be out done and dethroned as the king of LBO’s, Kravis decides to submit a bid for the company and a highly-publicized bidding contest ensues between KKR and the Johnson management group. Whereas the management group’s strategy was to sell the company’s food businesses and retain its tobacco business, KKR’s strategy was to retain the tobacco business as well as many of the food businesses. Ultimately, KKR prevails, but at an inflated purchase price financed by an enormous amount of debt.

The story of the buyout of RJR Nabisco portrayed in the movie combines colorful personalities, power, greed, ethics, and egos – a combination guaranteed to capture the interest of students. Students are fascinated with the lavish lifestyle, fraternal mentality, and motivation of F. Ross Johnson, and the shrewdness of KKR’s Henry Kravis. Their reactions to Johnson and Kravis range from repulsion to attraction. For some students, the RJR Nabisco buyout saga reinforces their desire to pursue careers in finance and investment banking. For others, it causes them to reconsider their career plans and goals.

As described by Nofsinger (1995) and Peterson and Philpot (1997), Barbarians at the Gate can be effectively used to prompt discussions of issues related to valuation, ethics, agency theory, leveraged buyouts, capital structure, and social responsibility. They suggest discussion questions that can be used during or after the movie to stimulate discussion by students of these and other issues. Kester (2008) discusses how the movie can be combined with Burrough’s and Helyar’s book, a Harvard Business School case that focuses on the valuations of RJR Nabisco, and articles in the popular press to provide students with a multidisciplinary (and multimedia) perspective into the one of the largest leveraged buyouts in history.

Boiler Room (2000, 120 minutes)

Boiler Room is drama about the world of aggressive, unscrupulous stock brokerage firms. The movie focuses upon Seth Davis (portrayed by Giovanni Ribisi), who has dropped out of college and runs a casino out of his apartment for college students. Recruited by a friend who works for the brokerage firm J.T. Marlin, Davis quickly learns how to cold call prospects over the telephone and use aggressive sales tactics to generate clients for the firm.

Although he becomes quite good at his job, he learns that the firm’s business model is just a “pump and dump” scam. Davis and the other brokers are paid high commissions to convince affluent investors (whales) to purchase shares of near-defunct companies, thereby inflating the prices so that the current owners can sell the shares at the high prices before the companies actually collapse. When the firm is finished pumping the stocks, the new investors are stuck with shares with no buyers and the price drops leaving them with worthless stock and substantial losses. Ultimately, the FBI confronts Davis and pressures him to cooperate in bringing down the firm.

Boiler Room, which also stars Vin Diesel, Nia Long, Nikki Katt and Ben Affleck, is a classic story of greed, excess, and unethical business practices. It can be used in courses in investments, organizational behavior, or business ethics to expose students to the use of perverse incentive systems and unscrupulous brokerage and sales practices that seem to be far removed from practices of traditional brokerage firms. At the same time, however, the sales tactics and single-minded pursuit of trading commissions seem uncomfortably familiar. As with Barbarians at the Gate, the themes depicted in Boiler Room penetrate students to the point where some rethink their future career choices.

Enron: The Smartest Guys in the Room (2005, 110 minutes)

Enron: The Smartest Guys in the Room is the academy award-nominated documentary based on the best-selling book by Fortune reporters Bethany McLean and Peter Elkind (2003). It chronicles the demise of Enron Corporation, one of the largest corporate frauds in history. Narrated by actor Peter Coyote, the documentary features interviews with former Enron executives and employees, reporters, traders, and security analysts. It examines the moral vacuum, excesses, and obsessive pursuit of profit at any cost that that eventually resulted in the company’s bankruptcy. Also examined in the movie is Enron’s involvement in the California electricity and state-wide blackout.

Hatfield and Buchko (2008) discuss how Enron: The Smartest Guys in the Room, can be used to enhance discussions of financial and ethical issues related to this well known business scandal that “has become synonymous with bad management, corruption, and management failure.” (p. 68). They provide discussion questions and suggested additional readings that can be used to enhance discussion in the areas of agency theory, capital budgeting, capital structure, bankruptcy, corporate takeovers, information asymmetries, stock valuation, corporate governance, and ethics. In particular, the film is an excellent tool to teach students how a strong organizational culture (i.e., perverse inventive systems, strong risk appetite, loose corporate controls, etc.) can lead to disastrous organizational outcomes.

Glengarry Glen Ross (1992, 100 minutes)

Critically acclaimed Glengarry Glen Ross is an independent film based on the Pulitzer Prize and Tony Award-winning play by David Mamet. Starring Al Pacino, Jack Lemmon, Alec Baldwin, Ed Harris, Alan Arkin, Kevin Spacey and Jonathan Pryce, the movie focuses upon two days in the lives of four real estate agents and their response when the company’s corporate headquarters attempts to motivate sales by announcing that in one week, all but the top two salesmen in the office will be fired. The title of the movie is based on the names of two real estate developments being promoted by the company – Gl