Michael Milken is unfit to be in a classroom corrupting young, impressionable minds--or so we are told by Doonesbury cartoonist Garry Trudeau and others. As the professor who invited Milken to participate with me in a graduate course in corporate finance and financial markets, I would like to explain why Milken belongs in this particular classroom.
First, let's clear up some misconceptions about the course, the students and the role he is playing. The average student in the class is 28 years old, with five years of work experience. These are second-year MBA students, with outstanding academic qualifications, who are studying finance. None are undergraduates. They are hardly impressionable children who will parrot back whatever Milken says without drawing their own conclusions. They are in the class to hear what he has to say about the financing of American corporations and financial markets--subjects on which he is a leading authority.
He and I both offer our perspectives to the class on topics of modern financial economic theory. I meet with Milken before each class to review the course material, and I am in the classroom with him the entire time. Other guests from the business world also participate in the class, although to a more limited extent. They include the editor in chief of Forbes magazine, the vice chairman of Paine Webber, the chairman and chief executive officer of Mirage Resorts and the chief executives of other major American corporations.
Do the students benefit from hearing Milken, and couldn't they get the same perspective from some other business executive instead?
Milken's practical experience in finance is virtually unequaled. He essentially created the high-yield bond market, built Drexel Burnham into a Wall Street powerhouse and was involved in almost half of the innovative financing deals between 1980 and 1987. If you are teaching students about heart surgery, you would like the surgeon who has performed all the complicated operations to speak to the class. If you are teaching about the development of the broadcast media, you would want Ted Turner, and if you are teaching my class, you want Milken.
Over the past 20 years, university economists have spent literally millions of hours grappling with the kinds of questions my course addresses and have developed numerous academic theories. But are the theories correct? Despite the time devoted to this research effort, the major theories are frequently criticized as esoteric and unrealistic abstractions that do not work well in the real world.
Many critics have argued that the problem is so severe that MBA education needs to be restructured entirely because business-school graduates cannot evaluate which theories, if any, apply in practical business settings. Milken's experience is extremely well-suited to help bridge this gap between practice and theory.
This is not a class on business ethics. UCLA is not saying that Milken is a role model whose business practices should be admired or copied, but his practical experience and knowledge about the workings of American capital markets--the topics of this graduate class--are unparalleled.
In the class, I present the theoretical views on the questions we are studying--such as whether the stock market is efficient or whether corporate capital structure matters--and Milken and other guest speakers discuss whether the theories make sense in practice. More than 1,000 pages of assigned reading supplement the class discussions.
What about the moral question: Should Milken be disqualified from teaching in any capacity, despite his expertise and qualifications, because he pleaded guilty to a felony?
I don't think the university's job is to serve as a second court on Michael Milken. The decision of whether to allow him to participate in the education of graduate students of finance should focus on what he has to offer in that setting. His views about financial markets are clearly relevant and important for students in this class to hear.
America's future depends on the strength, depth and competitiveness of its capital markets. Many experts believe that financial shocks can lead to significant recessions. They clearly destroy vast amounts of wealth. During the stock market crash of October, 1987, more than $500 billion was lost in one day. The question of whether current theories of finance are applicable in the real world is critical, and one that Milken is uniquely qualified to help answer. The students in this class possess the maturity and judgment to evaluate, and not blindly accept, Milken's views.