Thought Leadership At UC-Davis Graduate School Of Management: Professor Paul Griffin On Business Risks

Paul A. Griffin loves risks. He has spent the vast majority of his life as an academic studying business risks, from scandals and wildfires to climate change and the impact of disclosure rules. Emeritus Distinguished Professor at the Graduate School of Management at the University of California-Davis, his scholarly research into risks has kept him intellectually curious for decades.

“It makes me continually interested in looking at issues and thinking about ways to address them with the tools and the knowledge I have,” says Griffin. “It keeps my mind 100% alive and interested, interested in research, interested in using research to answer questions. Hopefully some of those questions could have policy implications or investor implications. Intellectual curiosity, I think is just a fantastic driver to make you feel alive, to make you feel you want to get up in the morning and you want to get down and just work hard on something.”

Griffin has long been a mainstay of UC-Davis’ Graduate School of Management. One of the longest-serving faculty members, Griffin has been at the GSM since it was established in 1981. During those many years, Griffin emerged as a leading international authority in accounting, financial information, and disclosures. His research has largely focused on the unpriced risks of climate change in financial markets. In a recently published  study with colleagues from several other universities, Griffin examined 944 shareholder proposals submitted to 343 U.S. firms on climate change issues during 2009–2022. The scholars examined whether climate-related proposals affect investor returns and how they relate to firms’ future environmental performance and greenhouse gas emissions. 

Son of two high school teachers, he had earned both his Ph.D. in accounting and his M.A. in operations research and economic theory from The Ohio State University.

In this wide-ranging conversation, part of the Thought Leadership Series at UC Davis Graduate School of Management, Griffin looks back on his career and the insights he has developed about risks. He is interviewed by former Businessweek Executive Editor and Poets&Quants Editor-in-Chief John A. Byrne.

John A. Byrne: Paul, what inspired you in the very beginning to become an academic?

Paul A. Griffin: I didn’t really know what inspired me at the time. But looking back, my father and mother were both teachers in high school. My oldest brother, who was 12 years older than me, became an accountant. I looked up to him because he was so cool. He wore a suit and carried around a briefcase. So I studied accounting. But then within a few years, my parental instincts got to me. So I moved from the practice of accounting into the academic world, and 50 years later, I’m still here. That’s sort of the way that this all happened.

Byrne: So your parents inspired you to become a teacher, and your brother inspired you to study the field of accounting.

Griffin: In a household where your mother and father are teachers, there’s always this implicit emphasis on education. Have you done your homework? You don’t have to do the dishes, because homework was more important. So a lot of those things we didn’t realize at the time, but they really do make a difference to the life span of your work.

Byrne: And you’ve had a very productive academic career. You’ve published over 80 articles in leading journals. What was the initial focus of your research?

Griffin: It was in accounting. My advisor at the time was a University of Chicago person, and so they were very much steeped in the new finance that was coming out of Chicago. I ended up doing a dissertation on accounting, but accounting in terms of the way it was presenting or measuring risks associated with a business that would be important to investors. So a lot of the emphasis that’s been part of my research has  been on how accounting tells investors, creditors, and the public about the risks businesses face?

Byrne: That’s a fascinating area. As a young business journalist, one of the first things you learn is how to interpret financial accounting. How did that topic evolve during the course of your career? 

Griffin: I have in the broader sense. But if you think about risk, it’s multi-faceted. Risk could be the probability that the stock market will crash. Risk could be the probability that the product doesn’t sell well. And those are what we call traditional financial risks. Today, the risks are entirely different. They deal with sustainability; they deal with the threat of climate change. They deal with issues of operations in different countries where there could be food shortages, famines, uprisings and so forth. So businesses face very different risks today, but they’re just as important as those old-fashioned traditional risks. They are under-reported because they’re unregulated or much less regulated. So one of my missions is to get the word out such that people recognize these risks, why they’re important, and why we should pay more attention to them.

Byrne: Given the level of uncertainty of those kinds of risks, I would imagine it’s very difficult to put a tangible number on a specific risk to a business. What is the discount on a given stock or a company’s earnings if, in fact, X occurs. A wildfire in California, if I’m an insurance company. Or an earthquake or a flood or a tsunami in Asia. That would be quite difficult, wouldn’t it?

Griffin: Difficulty has never been a problem for me. Difficulty is a challenge. And it’s a sort of thing that academics are and should be doing. We should be confronting difficult issues and presenting options and solutions to those issues. And so when you come to something like a wildfire, I’ve actually had a couple of recent publications on that risk. With the wildfire, we’re able to combine a lot of geospatial information. We now have these massive databases on where firms are located and what the conditions are in those locations. And we can map that in and marry that to financial data.

So I can look at the linkage between climate data, wild fire incidents, and how that is actually relates to financial statements. So it’s really neat. I mean, these are the things we couldn’t do a few years back. We can do them now. And I believe I have the capability and the talent to be able to get that into written communications and in various journals. So it’s very exciting for me.

Byrne: And it’s very topical. Paul, you mentioned earlier that your approach to teaching these topics is to seize on a news event and to bring the accounting and financial principles to bear on a given event, whether it would’ve been the Enron scandal or Waste Management scandal. There’s always a scandal, isn’t there?

Griffin: Absolutely. Going back a few years, the very first scandal that I thought about and actually did research on was the Lockheed bribery scandal in the 1970s. That was an interesting scandal because these are from very small amounts in terms of billion-dollar companies, but they’re very important to investors. The Securities & Exchange Commission (SEC) got involved in a disclosure program, and at the time, I was fortunate to be called upon by the SEC to actually help them do a study on how firms were responding and what the market was saying about these particular disclosures. So my interest in social or environmental disclosures goes back to the Lockheed scandal.

Byrne: Of all the research you’ve done over the years, is there one study or finding that most resonates with you in terms of what you found?

Griffin: Well, it’s evolved over time. Some of the early work I did, I thought was interesting, but it was only through the passage of time that you see how it relates to what other people are doing. Some of the work  About 10 years ago, I started to focus on climate risk disclosure in financial statements. What were firms telling the public about their climate risks. I think that’s been most rewarding to me because I could see how regulation and how firms are now moving towards a solution that we were thinking about a decade or so ago, to get more disclosure, to be more open and transparent about these particular risks.

Byrne: How did you know 10 years ago that this would be so significant that it would warrant your devotion and your time?

Griffin: Well, it was pretty clear from the science, which was becoming evident back in the early ’80s, that we faced an issue in terms of burning too much carbon, and we were going to heat the planet up too much if we continued to burn it in the usual way.

I thought, well, that is a risk, but how do we measure that risk in terms of its impact on the company? And that was unclear. But around that time, some voluntary disclosure was occurring that was surrounding what carbon firms were emitting. And so we were able then to look at firms’ carbon emissions and ask the question, ‘Are investors concerned? Do they worry about firms’ carbon emissions?’

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