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CHICAGO BOOTH MAGAZINE VOL. 34, NO. 2, SUMMER 2012

The University of Chicago Booth School of Business 5807 South Woodlawn Avenue Chicago, Illinois 60637

The University of Chicago Booth School of Business Summer 2012

Critical Dialogues Dean Sunil Kumar gets the inside track on Zipcar from CEO Scott Griffith, ’90

Temptation’s Siren Song Research by Wilhelm Hofmann investigates desire, willpower, and self-control

Good Energy Experts discuss fueling the future at the 60th Annual Management Conference

Opening New Routes How Scott Griffith, ’90, CEO of Zipcar, drove car sharing to the mainstream

Chicago Booth Magazine… Accessorize with Booth: It all started when David Booth, ’71, suggested that the school should have a signature tie. The student-led Dean’s Marketing Advisory Committee offered to help run a design contest, which concluded in May, with a $300 check and bragging rights for the best overall design going to ﬁrst-year Full-Time student Joseph Ryu. Meenakshi Dash, ’08, won $100 for the most original design and Mark Zmijewski, Leon Carroll Marshall Professor of Accounting, won $100 for scoring the most “likes” on Facebook. The ﬁve-judge panel evaluated the designs for originality, suitability for a business setting, and ease of manufacturing. To view all 60 design submissions, visit the Booth Community Facebook page at Facebook.com/ChicagoBoothBusiness.

to Go! Stay connected to alumni stories, faculty news, and more— wherever you are. Get Chicago Booth Magazine on your iPad or iPhone by downloading the new complimentary Booth app.

Get it now Download the new Chicago Booth app at ChicagoBooth.edu/Boothapp.

From left to right: David Booth, Meenakshi Dash, Joseph Ryu, and dean Sunil Kumar. Not pictured: Mark Zmijewski.

Chicago Booth Magazine The University of Chicago Booth School of Business Vol. 34, No. 2, Summer 2012

FEATURES

Dean Sunil Kumar

Balancing Desire and Self-Control in Everyday Life

Editor Judith Crown Associate Editor Kate Fratar Creative Director Michael Rezac Designer Brian Ross Print Production Manager Kristen Lewis Contributors Kate Ancell Paul Audia Kalliope Dimitrakopoulos Dan Dry Allan Friedman Matthew Gilson Dan Kedmey Chris Lake Duncan Moore Erin O’Neill Mary Sue Penn Rick Popely Beth Rooney Molly Schultz John Slania Gerta Sorensen Chris Strong Vanessa Sumo Chelsea Vail

Chicago Booth Magazine (ISSN 1072-7612) is published by

Faculty Digest

A new paper by Wilhelm Hofmann investigates the temptations we struggle with the most—from indulging in food and sleep to compulsively checking email—and why we respond to them in the ways that we do. By Erin O’Neill

Capital Ideas: Consumption Strikes Back

Research by John Heaton on the correlation between stock returns and expected future consumption offers a measure of long-run risk that proves fundamentals can drive risk premiums in the stock market. By Vanessa Sumo

Cover Critical Dialogues

Zipcar CEO Scott Grifﬁth, ’90, tells dean Sunil Kumar about his journey steering an idealistic Boston-area start-up into an inﬂuential public company. Edited by Judith Crown

Management Conference 2012

Chicago Booth faculty and industry experts considered the future of alternative fuels and the challenge of reducing greenhouse gas emissions. Breakout sessions discussed corporate tax policy and how data is best used to understand consumer shopping habits. By Rick Popely, John Slania, and Duncan Moore

IN EVERY ISSUE

Letters & News

Back Story Chad Syverson . . . . . . . . . . . . . . . . . . . . 64

From the Dean . . . . . . . . . . . . . . . . . . . . . . 2 News Update . . . . . . . . . . . . . . . . . . . . . . . . 5

Alumni News The University of Chicago Booth School of Business editor@ChicagoBooth.edu ChicagoBooth.edu/magazine

Alumni News . . . . . . . . . . . . . . . . . . . . . . 35 Career News . . . . . . . . . . . . . . . . . . . . . . . 39 In Memoriam . . . . . . . . . . . . . . . . . . . . . . . 63

Summer 2012 Chicago Booth Magazine

Letter from the Dean

Matthew Gilson

The New Crop

Sunil Kumar, Dean and George Pratt Shultz Professor of Operations Management

The pomp of convocation is behind us, yet summer brings its own excitement as we welcome the next crop of faculty and students to Chicago Booth, as well as the newest group of graduates to our alumni community. It is a time when the institution renews itself in a fundamental way. As new people enter our campuses, the topics studied and taught change and the methods used to study and teach change; the intellectual conversation changes in a lasting way. That said, if we have done our job well recruiting faculty and students, our new crop will easily live up to our standards of rigor, evidence, and open debate. Thus far we have 12 new faculty members joining us in the next academic year: one full professor and 11 assistant professors. Factoring in departures, we expect a net gain of seven faculty members. They come from fields ranging from accounting and economics to marketing and statistics. There is no doubt in my mind that our new crop will help enhance and broaden the school’s intellectual footprint. Two of our “rookie” hires were offered jobs at Booth last year. They chose to defer joining so that they could spend a year in industry bolstering the applied side of their work. They spent last year at eBay and Google, respectively, acquiring practical insights to complement their outstanding academic training. I see this approach, where new members of the faculty invest significant time at the beginning of their careers in industry, as a very positive development. Summer is bittersweet. We congratulate and bid adieu to our graduating students. In turn, we welcome our latest alumni. As you will read in this issue of Chicago Booth Magazine, the career choices of Booth graduates continue to diversify (page 39), with marketing, e-commerce, entrepreneurship, and general management featuring prominently in addition to consulting and financial services. The last two industries continue to account for more than half of the class job placements, but graduates’ interests— and their options—are broadening. At the time of writing this letter, we have not yet finished admitting the class of 2014. All indications are that this will be another excellent class in terms of objective metrics like the median GMAT score and GPA. Matriculating students not only come from a variety of backgrounds and have diverse work experiences, but they also intend to use their Booth experience in a variety of ways to support their aspirations. So far, our incoming students hail from 50 different countries. Finally, summer is a good time to experiment with new ideas. One such idea is LaunchPad, a workshop intended to help younger alumni with entrepreneurial ambitions get started on putting their plans together. More experienced alumni serve as mentors and judges; Booth faculty run the workshop. We have done a few such workshops in Chicago, and, this year, we are experimenting globally. This summer we will run a LaunchPad workshop at the University of

“Matriculating students not only come from a variety of backgrounds and have diverse work experiences, but they also intend to use their Booth experience in a variety of ways to support their aspirations.”

Chicago Booth Magazine Summer 2012

Letter from the Dean

Chicago’s Beijing Center and one at Booth’s London campus. We see this initiative as one effective way to support younger alumni globally and bring them closer to more experienced alumni and the school. While Chicago Booth is in great shape, we cannot afford to sit still. Given the breadth of career aspirations of our students and alumni, and the range of issues confronting businesses today, it is evident to me that for Chicago Booth to get better, we have to get broader. It is important we do this without sacrificing our strengths and values. Each year, the new crop brings us closer to this end. Please join me in welcoming our new faculty, students, and alumni. I eagerly look forward to our community’s future accomplishments.

Sunil Kumar

Dean and George Pratt Shultz Professor of Operations Management dean.kumar@ChicagoBooth.edu

Summer 2012 Chicago Booth Magazine

“There is a level of engagement, hard work, and enthusiasm among the students that is absolutely infectious.” —Anne Thomas, W. Allen Wallis Distinguished Fellow

Chicago Booth attracts the best and brightest students. The Annual Fund opens doors for many of them, including students such as Anne Thomas. With your continued support, there is no limit to what Chicago Booth can achieve. ChicagoBooth.edu/possibilities

Chicago Booth Magazine Summer 2012

Booth Receives $3.5 Million in Gifts New Deputy Deans Appointed Booth TV Studio Debuts

HEARD AT CHICAGO BOOTH

Consulting is a wonderful thing to do, but if you want to be the hero, it might not be the right thing for you. Punit Renjen, chairman of the board, Deloitte LLP Renjen sat down for a “fireside chat” with dean Sunil Kumar and 100 Booth students on a visit to Gleacher Center in January. Renjen discussed how Deloitte has managed to grow its consulting business by double digits in four of the past five years, despite a challenging economy. For complete coverage of the event, go to ChicagoBooth.edu/ontheweb and enter the keyword “Renjen.”

Beth Rooney

Summer 2012 Chicago Booth Magazine

News Update APPOINTMENTS

Two Deans to Fill Leftwich’s Shoes

John Heaton, Joseph L. Gidwitz Professor of Finance, on Booth’s accreditation as a registered education provider for Certified Investment Management Analyst (CIMA) certification. Heaton will serve as faculty director for the new program. Booth joins Wharton in offering the educational component for CIMA certification, which is designed for advanced investment advisors and consultants.

Chicago Booth Magazine Summer 2012

Dan Dry

New Chief Information Officer Leads Information Technology Kevin Boyd has joined Booth as senior director, information tech-

Courtesy of Kevin Boyd

Beth Rooney

As one of the world’s leading business schools in finance, Booth has the faculty capabilities, cuttingedge application, and research to thoroughly cover the CIMA curriculum and bring it to life.

Beth Rooney

H E A R D AT C H I C A G O B O O T H

Dean Sunil Kumar named two deputy deans for faculty to replace Richard Leftwich, who has held the post for the past eight years and plans to step down on July 31. The Richard Leftwich Steven Davis John Heaton second deputy dean is being added as a result of the growth in faculty, Kumar said, and in order to accommodate the expected future increase in demand. Steven Davis, William H. Abbott Professor of International Business and Economics, began sharing responsibilities with Leftwich on April 1. John Heaton, Joseph L. Gidwitz Professor of Finance, will succeed Leftwich on August 1. Leftwich, Fuji Bank and Heller Professor of Accounting and Finance, joined Booth in 1979 and will continue to serve as a member of the faculty. Under his leadership as deputy dean, the number of tenure-track faculty grew from 113 to 130, with 12 new hires for the 2012–13 school year. Overall, the number of teaching faculty grew from 169 to 197 during his tenure. Davis, who joined the Booth faculty in 1985, is an applied economist with research publications on employment and wage behavior, worker mobility, job loss, and other topics. He is the former editor of the American Economic Journal: Macroeconomics, a research associate with the National Bureau of Economic Research, an economic advisor to the US Congressional Budget Office, and a visiting scholar at the Federal Reserve Bank of Chicago. Heaton studies asset pricing, portfolio allocation, and time-series economics. His research in these areas has earned him numerous fellowships, including an Alfred P. Sloan Research Fellowship, and a National Science Foundation Fellowship. Before joining Booth in 2000, he was the Nathan S. and Mary P. Sharp Distinguished Professor of Finance at the Northwestern University Kellogg School of Management. He is a former editor of the Review of Financial Studies.—Chicago Booth Staff

nology, and chief information officer. He has overall technical responsibility for the school’s campuses in Chicago, London, and Singapore, and manages a staff of 45 in operations, application development, and project and service management. He replaced Ligia Moreno, who retired after more than eight years at Booth. Kevin Boyd For the past two years, Boyd was director of the project management office at the General Board of Pensions (Wespath) in Glenview, Illinois. Earlier in his career, he held technical leadership positions at Tribune Company, CNA Financial Corp., United Airlines, Bank One Corp, and W.W.Grainger, Inc. Boyd taught e-commerce at Northwestern University as an adjunct faculty member from 2003 to 2012. He has a master’s degree in communications systems, strategy, and management from Northwestern and a bachelor’s degree from Marquette University.—Chicago Booth Staff

News Update PHILANTHROPY

Gifts Support Entrepreneurship, Energy Research Two contributions to Chicago Booth will enable the school to develop new initiatives in the fields of entrepreneurship and energy. A $2 million gift from Edward L. Kaplan, ’71, will endow the New Venture Challenge (NVC), of which he has been the title sponsor since its first competition in 1996. A $1.5 million gift to the Energy Policy Institute at Chicago from the Fuel Freedom Foundation will be used to explore economic and policy questions surrounding transportation fuels. The NVC endowment, once fully funded, will enable the competition to be selfsustaining for years to come. Hosted by the Polsky Center for Entrepreneurship, the NVC has helped launch scores of companies, including GrubHub, Inc., Braintree, and BenchPrep, all based in Chicago. Kaplan is cofounder of Lincolnshire, Illinois–based Zebra Technologies Corp., a pioneering company in barcode technology that went public in 1991. “Ed was an important catalyst for the New Venture Challenge and, more broadly, for the Polsky Center,” said Steven Kaplan, Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance and faculty director of the Polsky Center. “In the mid-1990s, he was one of a few alums who advocated that Booth should develop a strong entrepreneurship program.” The NVC’s influence has extended to the University of Chicago campus and beyond. The more-than 75 alumni companies whose founders participated in the competition have raised more than $242 million in equity capital collectively and have created more than 1,000 jobs. This year, the NVC received a record 119 applications, up from 89 entries in 2011. “It is one of the country’s most successful venues for creating new business ventures,” said Ellen Rudnick, clinical professor of entrepreneurship and executive director of the Polsky Center. “The endowment now being created by the Kaplan Foundation will insure the long-term viability of the NVC and enable it to expand beyond its current limits,” Rudnick said. “We are thrilled that Ed’s name will be forever linked to this capstone program at Booth.” Another flourishing discipline at Booth gained recognition with a gift from the California-based Fuel Freedom Foundation to the Energy Policy Institute at Chicago (EPIC). Founded in 2011, EPIC is an interdisciplinary joint enterprise of Chicago Booth and the Harris School of Public Policy that focuses on economic and social policy questions related to energy. The gift will help launch the Initiative on the Future of Transportation Fuels. “This generous gift will help EPIC conduct the data-driven research that policy makers and business leaders need to make sound, evidence-based energy policy decisions,” said Robert Topel, codirector of the center and Isidore Brown and Gladys J. Brown Distinguished Service Professor in Urban and Labor Economics.—Kate Fratar

BY THE NUMBERS

Booth Faculty on the Air In early March, Booth opened the Harper Center TV studio. Professors were soon interviewed on topics ranging from sports to the European debt crisis and US monetary policy.

Number of faculty appearances as of late May

Number of professors interviewed: John Cochrane Austan Goolsbee Randall Kroszner Tobias Moskowitz Raghuram Rajan Luigi Zingales

Number of networks:

To learn more about companies involved with the New Venture Challenge, visit ChicagoBooth.edu/nvc. Summer 2012 Chicago Booth Magazine

FOR OVER 50 YEARS, CRSP HAS EMPOWERED THE WORLD OF FINANCE.

WE’RE NOT DONE YET. Find out more at www.crsp.ChicagoBooth.edu.

Chicago Booth Magazine Summer 2012

IQ and Investing Prowess Two Sides to Innovation Why Brand Preferences Vary

IN THE HEADLINES

It’s very clear that the outside world is rethinking the India story. Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance and Charles M. Harper Faculty Fellow India’s business boosters have been consistent in promoting the potential of “brand India,” especially at prestigious venues such as the World Economic Forum in Davos, Switzerland, where Rajan, who is economic advisor to India’s prime minister, spoke on the issue. But India’s country-with-great-potential story is wearing thin among international business and political leaders, according to Rajan and others, a view that was cited in a February column in the Hindu Business Line. To learn more about Rajan’s research, visit ChicagoBooth.edu/magazine/facultylinks.

Dan Dry

Summer 2012 Chicago Booth Magazine

Faculty Digest

Balancing Desire and Self-Control in Everyday Life Professor Wilhelm Hofmann investigates the temptations we struggle with most, and why we respond to them in the ways that we do. t happens to the best of us. We vow to lose 10 pounds. We swear that this vacation, we won’t check email. But then, after a few weeks, or days—or even minutes—we give in to temptation. But why? In his recent paper, “What People Desire, Feel Conflicted About, and Try to Resist in Everyday Life,” published in Psychological Science, Wilhelm Hofmann, assistant professor of behavioral science—along with two colleagues—found that some desires are harder to resist than others. “Self-regulation is important for both theoretical and practical reasons,” the authors wrote. “Yet, the majority of research on self-regulation occurs in the laboratory.” In order to better understand the interplay among desire, motivation, and self-control in everyday life, the researchers used smartphone experience sampling to closely monitor desire experiences in a sample of 205 adults over the period of a week. Using this technique, the researchers collected information on more than 7,000 desire episodes in people’s daily lives, and thus were able to directly compare various human desires in frequency, strength, conflict, and controllability with each other. Not surprisingly, the single most frequently mentioned desire was that for food. Desires for nonalcoholic drinks, sleep, media, leisure, and social contact also made it to the top of the list. In terms of desire strength, the most potent desires were for sleep, sex, and social contact, among others. Surprisingly, desires for substances long considered to be highly addictive—such as tobacco and alcohol—were among the weakest in average strength. In terms of conflicting desires, participants reported having the highest levels of conflict in regard to leisure activities and sleep, followed by spending, media use, and tobacco. Yet, despite the strength and frequency of many of their urges, participants were generally able to exhibit impressive rates of self-control in resisting those desires that were experienced as problematic. But when it came to media desires (such as watching TV, checking emails, or surfing Facebook) and desires for work—their willpower often faltered.

Chicago Booth Magazine Summer 2012

Not surprisingly, the single most frequently mentioned desire was that for food. On average, participants enacted 42 percent of the media desires they had actively attempted to resist. Hofmann credited this fascinating soft spot to societal norms and our general feelings about the cost-benefit analysis of these activities. “Modern life is a welter of assorted desires, marked by frequent conflict and resistance—the latter with uneven success,” Hofmann explained. “With cigarettes and alcohol, there are more costs—long-term, as well as monetary—and the opportunity [to consume] may not always be the right one. Desires for media may be comparatively harder to resist because of their high levels of availability and also because it feels like it does not ‘cost much’ to engage in these activities, even though one wants to resist.” But, as vices go, aren’t work and media-usage relatively good ones to have? According to Hofmann, it depends on your overall goals. The study warns of the potential for media habits to develop into abuse and noted, “Whether underregulation of media use causes serious problems for Westerners is an intriguing issue.” So, while compulsively checking email or spending time on Facebook offers a quick fix for boredom and one’s need for connectedness, doing so comes with its own pitfalls. “Even though giving in to media desires is certainly less consequential,” Hofmann said, “the frequent media use may still ‘steal’ a lot of people’s time and attention away from other things that matter.”—Erin O’Neill

Faculty Digest IN THE NEWS AND JOURNALS

Chris Lake

Jonathan Rogers,

associate professor of accounting, Sarah Sarah Zechman Zechman, assistant professor of accounting, and a colleague at Ohio State University. In their study, “Disclosure Tone and Shareholder Litigation,” which was published in the November 2011 issue of the Accounting Review, the researchers used a dictionary-based measure of optimism in order to gauge the tone of company statements. Sued companies used “measurably more optimistic” language in their disclosures as compared to peers who weren’t sued. “These results indicate a strong link between disclosure tone and litigation,” the authors concluded. Further, said the researchers, the link between tone and litigation became even stronger when managers engaged in insider selling that contradicted the optimism of their statements. Therefore, according to Rogers and Zechman, in order to mitigate legal risk, managers should avoid overstating the company’s performance, particularly when selling off their own shares and assets.

IQ and Investing Prowess Are smarter people instinctively better investors? For decades, economists have debated the root of the “participation Juhani Linnainmaa puzzle,” in struggling to understand why such a small percentage of the population takes advantage of stock investments—which generally produce a higher rate of return than traditional savings. Juhani Linnainmaa, associate professor of finance, and two colleagues tackled this question in two papers: “IQ, Trading Behavior, and Performance,” published in the May Journal of Financial Economics; and “IQ and Stock Market Participation,” published in the December 2011 issue of the Journal of Finance. The studies found evidence of a direct correlation between an investor’s IQ and decisions to invest in the stock market. In the first paper, the researchers collected two decades–worth of scores from a mandatory army intelligence test administered to Finnish men who are required to enlist for nine months to a year. They analyzed this data along with records regarding equity return, trade, and limit-order book data. They found that higher IQ scores increased the likelihood of later stock ownership by 21 percent, even after being controlled for environmental factors such as wealth, income, age, and profession.

When Brand Loyalty Is Divided

Chris Lake

Jonathan Rogers

When a company discloses information to shareholders, it should watch its language. An overly optimistic tone can expose it to lawsuits from angry shareholders, according to a new paper by

The subsequent research showed that high-IQ investors are less subject to the disposition effect, the tendency to sell winning investments but hold on to assets that have dropped in value. These investors are also “more aggressive about tax-loss trading, and more likely to supply liquidity when stocks experience a one-month high,” the research found. The study also found that investors with higher IQ scores “exhibit superior market timing, stock-picking skill, and trade execution.” “It’s difficult to justify why someone wouldn’t have invested in the stock market, knowing what a good deal it has been,” Linnainmaa wrote. “It’s not just that it may be expensive to buy stocks and mutual funds, but people may not have enough knowledge about them.”—Erin O’Neill

They stated, “insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic.”—Dan Kedmey

Beth Rooney

Dan Dry

How Word Choice Can Land a Company in Legal Hot Water

Why does a Budweiser-guzzling couch potato suddenly switch to Heineken when he’s at a cocktail party with friends? Pradeep Chintagunta That’s just what Pradeep Chintagunta, Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing, and his coauthor set out to answer in their paper, “Investigating Brand Preferences Across Social Groups and Consumption Contexts, ” published in Quantitative Marketing & Economics. Drinkers choose different brands depending on what they’re doing (for example, either bowling or sitting on a

Summer 2012 Chicago Booth Magazine

Faculty Digest

—Erin O’Neill and Dan Kedmey

Dan Dry

The Consequences of Innovation

There are two sides to innovation. The bright side is that innovative firms are able to produce more, which in turn raises Stavros Panageas their output, consumption, and wages. The dark side is that less nimble competitors can be forced to slash pay and lay off older workers, who are less able to adapt to the innovation of the firms. This dark side, which is called “displacement risk,” is the subject of a new study by Stavros Panageas, assistant professor of finance, and two colleagues. In their paper, “Displacement Risk and Asset Returns,” which is scheduled to be published in the Journal of Finan-

Chicago Booth Magazine Summer 2012

Finding Combinations That Satisfy

cial Economics, and which won the Best-Paper Award at the Utah Winter Finance Conference 2011, the authors measure the magnitude of displacement risk by looking at consumption data across generations. The authors find

The dark side is that less nimble competitors can be forced to slash pay and lay off older workers, who are less able to adapt to the innovation of the ﬁrms. that, because “innovation benefits the young at the expense of the old,” growth firms—which derive a large part of their value from future inventions—are a good hedge against displacement risk, as opposed to less-innovative “value firms.” Finally, the authors “identify innovation shocks through their effect on the consumption of individual cohorts and show that inter-generational differences in consumption correlate with the return differences between value and growth stocks.”—Dan Kedmey

Dan Dry

couch) and whom they’re with (alone or among friends). These shifts in consumption could provide valuable information to marketers, but the data for many of these scenarios tends to be scarce. Chintagunta and his coauthor worked around this scarcity by developing a more parsimonious model of context-based consumption. The model reveals that context plays a powerful role in brand selection. Smaller companies could increase their market share by marketing to a highly-targeted “context or social group setting.” (Think the Corona-onthe-beach ad campaign.) Ultimately, the study suggests “marketers should” indeed consider how consumers’ preferences can vary across social group and consumption context scenarios when designing their marketing programs.”

In his paper, “The Combinatorial Assignment Problem: Approximate Competitive Equilibrium from Equal Eric Budish Incomes,” published in the Journal of Political Economy, Eric Budish, assistant professor of economics, tackled the problem of how to design a market-like resource allocation system in settings where there are legal or moral restrictions against using real money to figure out who gets what. He devised a new “Competitive Equilibrium from Equal Incomes” (CEEI) mechanism that could be applied, for instance, to course allocation at educational institutions: which students get to take the most popular professors’ courses at Booth? It also could be applied to shift allocation at companies: which employees have to work Thanksgiving or Christmas this year?

Previously proposed systems for these kinds of problems, from both theory and practice, have fairness problems, incentives problems, or often both.

Faculty Digest AWARDS AND HONORS

Rajan and Weber Appointed to G30

Jacob Jacob Frenkel, Frenkel, chairman chairman of of thethe G30 G30 Board of Trustees. Frenkel is also chairman of JPMorgan Chase International. “The appointment of Raghuram Rajan and Axel Weber to the G30 is further recognition of their stature as leaders in the field,” said dean Sunil Kumar. “It also shows that Booth’s faculty influence is growing even stronger in the public debate over key issues affecting the world economy.”—Allan Friedman

Eric J. Gleacher Distinguished Service Professor of Finance and Charles M. Harper Faculty FelRaghuram Rajan low, and Axel Weber, visiting professor of economics, have been appointed to the Group of Thirty (G30), an international body that Axel Weber examines the impact of financial and economic decisions in the public and private sectors. The group also includes Mario Draghi, president of the European Central Bank, Mervyn King, governor of the Bank of England, and other senior participants from public and private sectors and academia.

“The appointment of Raghuram Rajan and Axel Weber to the G30 is further recognition of their stature as leaders in the ﬁeld.” —Sunil Kumar “The effectiveness of the G30 depends fundamentally upon the quality and stature of the group’s members, and our new colleagues bring a wealth of experience and professional accomplishment to the group,” said

Cochrane Named Guggenheim Fellow John Cochrane, AQR

Dan Dry

Raghuram Rajan,

Courtesy of Axel Weber

T The CEEI system works as follows. First, the participants log their preferences to a computer program. For example, taking a particular professor’s class is worth 100 “utils.” Second, the program assigns each participant an equal amount of an artificial currency—say, 10,000 points, plus a small random amount extra. Third, a computer finds a “competitive equilibrium”—prices such that, when each participant “purchases” the set of goods she likes best at these prices, subject to not spending more than her budget of artificial currency, the market clears, so that supply equals demand. The reason for the random amount of extra budget in step two is to ensure that competitive equilibrium prices always exist in step three. Budish teamed up with computer scientists at Carnegie Mellon University to develop a computational procedure capable of finding these prices. Budish showed that CEEI is attractive on three dimensions: efficiency, fairness, and incentives. Here, efficiency means that welfare-improving trades aren’t left on the table. Fairness means that the participants don’t envy each others’ allocations, or, if they do, their envy is small: I may envy you if you get one of the top professors and I don’t, but you won’t get two of the top professors while I get neither. Incentives mean that it is in each participant’s interest to report preferences truthfully to the computer in step one—that is, it is impossible to “game the system.” Budish argued that all other previously proposed systems for these kinds of problems, from both theory and practice, have fairness problems, incentives problems, or often both.—Kalliope Dimitrakopoulos

Capital Management Distinguished Service Professor of Finance, has been named a 2012 Guggenheim John Cochrane Fellow by the John Simon Guggenheim Memorial Foundation of New York. He is among 181 scholars, artists, writers, and scientists who received the honor this year. The winners were selected from nearly 3,000 applicants on the basis of prior achievement and exceptional promise. Cochrane’s monetary economics publications include articles on the relationship between deficits and inflation, the effects of monetary policy, and the fiscal theory of the price level. The Guggenheim Fellowship was awarded for his further work on the fiscal theory. Cochrane has served as an editor of the Journal of Political Economy and associate editor of several journals, including the Journal of Monetary Economics, the Journal of Business, and the Journal of Economic Dynamics and Control. His recent awards include the TIAA-CREF Institute Paul A. Samuelson Award for his book, Asset Pricing, the Chookazian (continued on page 15) Summer 2012 Chicago Booth Magazine

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Chicago Booth Magazine Summer 2012

Faculty Digest (continued from page 15)

Bertrand and Zingales elected to American Academy of Arts and Sciences

Endowed Risk Management Prize, and the Faculty Excellence Award for MBA teaching.—Allan Friedman

Hofmann Wins Early Career Award

Dan Dry

Chris Lake

assistant professor of behavioral science, received this year’s 2012 Social Cognition Early Career Wilhelm Hofmann Award, which recognizes contributions to the study of social cognition by junior scientists. It was presented to him by the International Social Cognition Network. Hofmann has received several other awards in his burgeoning career, including the 2009 William Stern Award of the German Psychological Society, and the 2010 Distinguished Young Scientist Award (Heinz-Maier-Leibnitz Award) of the German Science Foundation. His work has appeared in numerous psychological journals, including Psychological Science and the Journal of Personality and Social Psychology. His work has also been featured in Scientific American Mind, Discovery News, the New York Times, Financial Times, the Guardian, the Telegraph, and Forbes, as well as many broadcast outlets including ABC, NBC, CBC, and Fox News. Hofmann also serves on the editorial boards of Social Psychological and Personality Science and the European Journal of Personality.—Kate Ancell

Beth Rooney

Wilhelm Hofmann,

Marianne Bertrand

Luigi Zingales

Marianne Bertrand, Chris P. Dialynas

Professor of Economics and Richard N. Rosett Faculty Fellow, and Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance and David G. Booth Faculty Fellow, have been elected fellows of the

American Academy of Arts and Sciences, one of the nation’s most prestigious honorary societies and a leading center for independent policy research. They are among more than 200 leaders in business, science, the humanities, the arts, and other fields to be recognized this year. “Election to the academy is both an honor for extraordinary accomplishment and a call to serve,” academy president Leslie Berlowitz said. “We look forward to drawing on the knowledge and expertise of these distinguished men and women to advance solutions to the pressing policy challenges of the day.”—Allan Friedman

Among Their Peers Bertrand and Zingales join nine other Booth faculty who earlier were elected fellows of the Academy of Arts and Sciences Gary Becker, University Professor of Economics and Sociology

Kevin Murphy, George J. Stigler Distinguished Service Professor of Economics

Douglas Diamond, Merton H. Miller Distinguished Service Professor of Finance and Richard N. Rosett Faculty Fellow

Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance and Charles M. Harper Faculty Fellow

Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance

Richard Thaler, Ralph and Dorothy Keller Distinguished Service Professor of Behavioral Science and Economics

Robert Fogel, Charles R. Walgreen Distinguished Service Professor of American Institutions

Robert Vishny, Myron S. Scholes Distinguished Service Professor of Finance

Reid Hastie, Robert S. Hamada Professor of Behavioral Science

Summer 2012 Chicago Booth Magazine

Feature Capital Ideas

JOHN HEATON Joseph L. Gidwitz Professor of Finance Award Winner Hoover Institution National Fellow (1993–94) Sloan Foundation Fellowship (1993–95) National Science Fellowships (1993–98) Specializes in asset pricing, portfolio allocation, and timeseries economics Teaches investments, ﬁnancial instruments, and topics in empirical ﬁnance Previous Education PhD in economics, University of Chicago MA in economics, University of Western Ontario BA in commerce, University of Windsor

Chicago Booth Magazine Summer 2012

This article was originally published in the May 2012 issue of Capital Ideas, a publication highlighting faculty research at Chicago Booth. This issue featured selected papers on investment management. For more information, visit ChicagoBooth.edu/CapIdeas.

Consumption

Strikes Back

hen investors think about the risk of investing in the stock market, one of the things they pay attention to is how stocks and the underlying earnings of companies are affected by movements in the economy. Stocks that closely follow the ups and downs of business cycles are considered riskier, because these stocks will typically fall at the first hint of a downturn and rise faster as the economy recovers. From the investorsâ&#x20AC;&#x2122; perspective, then, stocks of companies whose earnings are most affected by economic conditions should promise a bigger return. The high returns observed in the stock market would therefore suggest that its performance is strongly related to business cycles. Indeed, many people think that an economic recession goes hand in hand with a bear market. However, John Heaton, Joseph L. Gidwitz Professor of

Matthew Gilson

Fundamental economic variables regain importance in explaining risk premiums in stock markets By Vanessa Sumo

Finance, says this often has not been true in the past. â&#x20AC;&#x153;There have been a lot of settings where stocks have come down but the economy has not moved,â&#x20AC;? says Heaton. Why, then, would investors demand high risk premiums in the stock market? Perhaps equally baffling is why value stocks, which are stocks with low market values relative to the fundamental factors that determine their price, have had consistently higher returns than growth stocks, which are stocks whose earnings are expected to grow rapidly. This difference in average returns arises even though the returns on both types of portfolios are about equally correlated with business cycles. It is unclear from simply looking at the correlation between the returns of different portfolios and the state of the economy why investors would ask for a higher return for holding value stocks.

Summer 2012 Chicago Booth Magazine

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These puzzling observations have overlooked the fact that investors are concerned not only about the impact of shortterm fluctuations in business cycles on stock prices, but also about how an uncertain economic future might affect their investments, according to a recent paper by Heaton, Lars Peter Hansen, a professor in the Department of Economics at the University of Chicago, and Nan Li, a professor at National University of Singapore, titled “Consumption Strikes Back? Measuring Long-Run Risk.” In particular, a decline in the stock market today may reflect an underlying shock to the economy that will not dissipate quickly and will have an impact over a long horizon. “Maybe what’s really happening is that when the stock market goes down today, investors think that this is telling them a lot about the state of the economy in the future,” Heaton says. If investors perceive that economic conditions will be worse in the future, then investors will likely ask for a higher return on stocks today to compensate them for that higher risk.

“When the stock market goes down today, investors think that this is telling them a lot about the state of the economy in the future.” —John Heaton

Chicago Booth Magazine Summer 2012

Measuring Long-Run Risk Hansen, Heaton, and Li develop a theory that captures longrun risk, or the risk that arises from the uncertainty about the long-run growth of the economy. They show also how to appropriately measure the relationship between current stock market returns and future economic conditions—a relationship that leads to differences in required returns. Under this theory, stocks that have higher predicted required returns should have lower prices to reflect the additional return needed to persuade investors to buy those stocks. An economic downturn can raise uncertainty about the pace of future economic growth in several ways. For instance, a number of people who lose their jobs in a recession will not find work again and will leave the labor force, permanently reducing the economy’s productive capacity. Other bad shocks that investors may see as threats to future economic growth include a widening government deficit that raises the prospect of higher taxes in the future or a recession that makes politicians feel more protectionist in terms of international trade. As a result, a recession today can make investors think hard about the risk that the economy may no longer return to its long-run growth path. Hansen, Heaton, and Li use their theory to understand whether an exposure to long-run risk can help explain the difference in returns of value and growth portfolios. In particular, if the cash flows generated by value stocks are more highly correlated with future economic conditions compared with those of growth stocks, then investors would demand a higher return to hold a value portfolio that they perceive to have a higher exposure to long-run risk. Indeed, the study finds that the cash flows of value portfolios are strongly correlated in the long run with macroeconomic shocks, while growth portfolios show little correlation. The results confirm the authors’ argument that investors are concerned not just about the short-term impact of business fluctuations, but also about how these disturbances will affect economic prospects years from now. Investors see the long run as an important source of risk, which they consider when accepting a price for the assets they buy.

“Using fundamentals like consumption to measure risk can actually work if you look at a longer horizon.” —John Heaton

Consumption Makes a Comeback Before Hansen, Heaton, and Li’s study, researchers had somewhat abandoned the idea that stock prices largely reflect the relationship between the aggregate economy and the stock market. The economic models that researchers typically use did not adequately explain the consistently high equity premiums observed in the data, leading academics toward behavioral biases and transactions costs to account for this shortcoming. But by figuring out how to accurately measure long-run risk, Hansen, Heaton, and Li have made it possible for fundamental economic variables to once again play a key role in determining asset prices. That’s the story behind the paper’s title. “What we’re saying is that using fundamentals like consumption to measure risk can actually work if you look at a longer horizon,” says Heaton.

Consumption is the largest component of gross domestic product and is an important indicator of economic wellbeing. By looking at the correlation between stock returns and expected future consumption, Hansen, Heaton, and Li were able to come up with a measure of long-run risk that—when linked to the economic shocks that investors see today— proves that fundamentals can indeed drive risk premiums in the stock market. ■ “Consumption Strikes Back? Measuring Long-Run Risk.” Lars Peter Hansen, John Heaton, and Nan Li. Journal of Political Economy, April 2008. To watch a video of John Heaton explaining his research, visit ChicagoBooth.edu/CapIdeas.

Summer 2012 Chicago Booth Magazine

Feature Critical Dialoggues is a series of conversations with members of the Chicago Booth community who play key roles in shaping business and economic policy worldwide.

Edited by Judith Crown | Photos by Matthew Gilson

In early 2003, following the internet boom, Scott Griffith, ’90, had the experience of running two start-ups under his belt and was looking for his next endeavor. He was intrigued by Cambridge, Massachusetts–based Zipcar, the young company that pioneered the big idea of car sharing. The concept was simple. In large cities, where car ownership was costly, Zipcar members could rent a Honda Civic or a Volkswagen Beetle to run errands or head for a weekend getaway, all for much less than the cost of a conventional car rental. And the venture was irresistibly green. Reducing the number of vehicles downtown would lower pollution, parking demand, and gridlock. But the company was inefficient and losing money, so when Griffith stepped in as chief executive, he applied the kind of rigorous data-driven analysis he first learned at Booth. He nurtured a performance-based culture, launched hyper-local marketing campaigns, expanded the vehicle fleet, and targeted new markets, growing the company to 18 metropolitan areas and 250 college campuses. He also broadened the appeal of the brand from utilitarian to fun. Membership at Zipcar has grown to more than 700,000, and the company boasts a fleet of more than 9,000 vehicles, not just Civics, but Mini Coopers, BMWs, Fords, and even hybrid and all-electric vehicles. The company went public in April 2011 and its stock is traded on the NASDAQ under the symbol ZIP. Griffith recently discussed his Zipcar journey with dean Sunil Kumar in a Critical Dialogues conversation.

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“When we focused on Chelsea with our concentrated ﬂeet and hyper-local marketing approach, our membership tripled in a month and a half. That was a goose-bump moment.” —Scott Grifﬁth

For example, when I arrived, there was a move afoot to do a major media buy to place ads on trains and in bus shelters. It didn’t go well because you can’t explain what Zipcar is about on a bus ad. But out of failure came a better idea—very localized zone marketing. We created print materials that we placed in card holders at dry cleaners and cafés. We put grassroots marketers on the sidewalks with collateral. I even rode through neighborhoods on a flatbed semi with Zipcars on it and used a bullhorn to explain what Zipcar was about. Also, when I joined the company, we had 60 cars in New York City, but they were spread out, so efficient marketing was difficult. We moved all the cars to the Chelsea area, a hip, young neighborhood in lower midtown, where we were able to target our message. At the time, we were growing at a 15-percent rate, but when we focused on Chelsea with our concentrated fleet and hyper-local marketing approach, our membership tripled in a month and a half. That was a goose-bump moment.

Kumar: When you were first recruited to join the team at Zipcar, what attracted you to the company’s idea and business? What were some of the things you considered in making the decision? Grifﬁth: I like to think of Zipcar as my own personal sweet spot because it brought together three of my passions: innovation, transportation, and cities. I grew up in Pittsburgh and saw the incredible impact that innovation and technology had in turning that city around after the death of the steel industry. I had moved back to Boston after running two internet start-ups. I was a cancer survivor, and I wanted to do something that made a difference. In 2002, I started watching Zipcar and saw a huge idea. When I was offered the CEO role in early 2003, I knew I was taking a tremendous risk, but I loved the vision. Kumar: What kinds of changes did you have to make to move the company forward? Grifﬁth: We’ve been able to build the brand by being very specific and deliberate in our business model and the processes for everything from fleet management to hyper-local marketing.

Kumar: Did you have to change the brand’s positioning? Grifﬁth: At the start the image was too basic, too green. We offered mostly white or silver Honda Civics and VW Beetles. To reach a broader audience, we needed to offer more variety and make the brand about lifestyle. In 2004, we started adding colorful Mini Coopers, Mazdas, and BMWs, even SUVs. That generated some good press and expanded the appeal to a much broader audience of users. Kumar: Why did you make the decision to go public last year? Grifﬁth: Although we went public last year, the strategy was set years earlier when we decided to be a global company. The car-sharing business traditionally has been divided into two camps: smaller local operators with a tight geographic focus,

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“We knew that to achieve our long-term business goals we would need a funding model that involved the public markets given the asset intensity of the business.” —Scott Grifﬁth

and larger global companies like Zipcar with operations in many cities. The capital needs for each model are incredibly different. We knew that to achieve our long-term business goals we would need a funding model that involved the public markets given the asset intensity of the business. While we don’t necessarily need a lot of equity capital, going public has enhanced our ability has extra time in the day to spend doing something new. You to tap more deeply into the asset-backed securities market to have to figure out, what do I need to hold onto, and what can I support our fleet growth with a low-cost leveraged model. delegate to others on my team?

Kumar: What has been the biggest challenge for you and the company since going public last year?

Kumar: Has the emphasis on quarterly earnings affected the way that you and your team manage the business?

Grifﬁth: On a personal level, becoming a public company CEO has challenged me to step up my game. The bar has been raised and so have the expectations of many more people. I’ve needed to get better at time and team management. No CEO

Grifﬁth: To some extent, yes. As a private company, you talk to small groups of investors in business meetings. We now have a much larger group of shareholders in the public market to whom we have a fiduciary duty. They can be pretty focused on

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the short term, so we’re trying to make sure they understand our strategy of investing for long-term category leadership. You have to get consistent messages across in one or two sentences through the media; I’m learning the art of the sound bite. Kumar: Car sharing makes a lot of sense, especially for city dwellers and college students. But the model is still young. What will it take for sharing to become mainstream, and when do you expect that to happen? Grifﬁth: With more than 700,000 members—including governments and businesses—sharing nearly 10,000 cars in the US, Canada, the UK, and Spain, I’d say that Zipcar is

Zipcar at a glance 2011 revenue: $ $242 million Membership: 700,000 Fleet size: 9,000 vehicles Metro areas: 18 College campuses: 250

moving into the mainstream. With 10 million people who can walk to a Zipcar in less than 10 minutes, we have substantial room for growth in our existing markets, but compared to when I took the wheel in 2003, this industry is no longer considered a niche play. Kumar: How do you stay in touch with your customers? Grifﬁth: I think both members and employees believe that we are all part of something much bigger than ourselves. So we engage with our customers, whom we call Zipsters, virtually and physically. As a global company, we strive to maintain a

local appeal, with storefront offices in our major cities where Zipsters can meet employees for business and social purposes. For instance, our San Francisco office has frequent events where members can play Xbox, foosball, and other games with employees at the office. We also have an active social media program, with Twitter, which has more than 30,000 followers, and Facebook, which has more than 100,000 likes. We’re big believers in the Net Promoter Score, in which customers rate their experience on a scale of 1 to 10, and we use this feedback loop extensively to track and measure customer satisfaction and loyalty. If there are detractors, we call them to find out what happened and what we can do better. Sometimes I call them personally. Kumar: What are the challenges of your business model that still must be overcome? In particular, how do you plan to improve profitability? Grifﬁth: There have been a lot of questions about the profitability of our model. Zipcar previously has reported that it expects to be profitable on a GAAP basis for 2012. In our established markets, our first four cities of Boston, New York, Washington DC, and San Francisco, Zipcar achieved 22-percent growth in 2011 while producing earnings before tax of 23 percent of revenue. We have a long-term business model that gets us to a very exciting corporate margin structure as we scale the global operation. We learned early on that the model could be profitable. In July 2004, a young controller came into my office with results from Boston, New York, and Washington DC. They were all bottom line positive. That was a game-changing moment, when we learned we could make money in individual cities. That’s when I knew we could attract venture capital investors. Kumar: Some worry that deep-pocketed competitors will come along and dominate the market. How do you defend against that? Grifﬁth: We think that larger companies getting into the space validates what we’ve known for years: that car sharing is a multibillion dollar opportunity. But car sharing is

Summer 2012 Chicago Booth Magazine

Feature Critical Dialogues

fundamentally different from car ownership and car rental, in much the same way that streaming video on a smartphone is fundamentally different from renting DVDs at a store. Zipcar pioneered the category in the US and we continue to lead it. With our first-to-scale advantage, our unparalleled knowledge base, a brand that has become synonymous with the category, and a fantastic team, we’re in a great position.

Grifﬁth: You have to do the math and get the business model right. And one way to do that is to follow the Booth approach, using data to drive decision making. This is an enduring lesson. And Zipcar certainly is a treasure trove of data. How many cars do you need in a city to make money? In the beginning, the staff didn’t know. How many people are needed to run the business? What is the cost to acquire a new member?

Kumar: You have a relatively new partnership with Ford Motor Co. Can you share any lessons of how a young, small company can develop strategic relationships with an establishment icon?

Professor Harry Davis was inspiring to me, given the impact of his insights on the critical importance of product development and on how customer research and data can drive great products. Of course, he built on that platform with his research on the importance of leadership development—how great leaders lead great companies and develop great cultures.

Grifﬁth: We share a vision of the future of mobility. Bill Ford himself said a few years ago that he believes the future of transportation would be a mix of privately owned cars, public transit, and Zipcar. In this venture, we both brought something to the table. Ford brought some great vehicles and a willingness to help accelerate adoption of car sharing on campuses, and we brought a powerful brand among millennials and urban dwellers, as well as our decade of experience in car sharing. I don’t think we would have been able to do this deal five years ago given our size and reach and the overall state of the industry. Timing plays a big role when smaller companies want to do deals with large global players. They’re looking for reach and we had to achieve some scale before we could offer that to a partner. Kumar: What are some of the lessons from your Booth years that still resonate?

Kumar: How do you recruit and retain top talent? Grifﬁth: Zipcar is an innovative, disruptive technology company, and, as such, we look to hire innovators and leaders capable of thinking about the traditional issues of car ownership—congestion and sustainability—in nontraditional and innovative ways. I think the biggest reason people come to and stay at Zipcar is because they share our vision and are motivated by our mission. They want to be a part of something that is larger than themselves. People come to work at Zipcar because they feel passionately about our values, are proud of the brand, and want to see Zipcar succeed. Employees know that they can have an impact, and that is meaningful. Of course, rewards do matter—pay and benefits, stock options, and long-term

The road to an IPO

2000

2003

2004

2005

Entrepreneurs Antje Danielson and Robin Chase start Zipcar.

Scott Grifﬁth replaces Robin Chase as CEO.

Company expands ﬂeet; core cities of Boston, New York, and Washington DC turn a proﬁt.

Zipcar raises $10 million in its ﬁrst venture capital round from investor group led by Benchmark Capital.

Chicago Booth Magazine Summer 2012

incentives are important factors. But if they are the primary motivators, it’s a red flag for me. Kumar: What entrepreneurs or business leaders do you most admire and why? Grifﬁth: We live in a world where genuine leadership and high integrity are the hallmarks of great CEOs. CEOs with these qualities are ones that I tend to admire. Jeff Bezos, with his long run revolutionizing retail, online commerce, and brand building, is inspirational. I think Ford is one of the greatest turnarounds and one of the most interesting business success stories of the past decade. I admire Bill Ford’s and Alan Mulally’s vision, guts, leadership, and business acumen. Kumar: What do you read for business—websites and print publications, including business books? What do you read to unwind? Grifﬁth: I am constantly reading periodicals such as Fortune, Bloomberg Businessweek, the Wall Street Journal, Time, and Wired, probably to a fault. My team will tell you their inboxes are full of links to articles I find interesting. If I read business books, they tend to be on or about great leaders. I thought Walter Isaacson’s biography of Steve Jobs was interesting. Other than that, I’m reading

a lot about big data. I really liked Thinking Fast and Slow by Daniel Kahneman. As for unwinding, believe it or not, I enjoy reading about vintage cars and browsing them on eBay. If you grew up in the late 1970s in Pittsburgh—or maybe anywhere in the US—you know what I’m talking about! Kumar: What keeps you up late at night? Grifﬁth: I think the biggest thing for me right now is how to take what has made us successful and extend it as the company grows. The culture we developed during the past decade as well as our relentless focus on the member experience has made us successful. We’ve got to find a way to keep this intact as we expand our global footprint. So, how do we foster and keep the company culture across a broader and broader set of operations and geographies; but also, how do we continue to find and recruit new team members globally that can help us execute? Looking back over the past nine years, we’ve seen Zipcar grow something like 7,000 percent. I know that I can’t keep up with this if I’m only growing at 15 percent per year. I know I have to up my game through developing self-awareness and selfinnovation. I find that the wee small hours of the morning are a good time to take stock of myself, my work, and some of the things I need to do to be a better leader. Self-innovation is the most important innovation of all. ■

2007

2008

2010

2011

Zipcar acquires Seattle-based rival Flexcar.

Company announces membership has doubled in past year to 225,000.

Company ﬁles with SEC for initial public offering.

Zipcar acquires London-based Streetcar; raises $174 million in an IPO and begins NASDAQ trading on April 14.

Summer 2012 Chicago Booth Magazine

Feature 60th Annual Management Conference

Chicago Booth Magazine Summer 2012

THE ELUSIVE COURSE TO ALTERNATIVE FUELS By Rick Popely | Photos by Matthew Gilson

US motorists won’t be abandoning the gas station for battery chargers anytime soon, industry experts agreed in a keynote panel that considered the future of transportation. Chevron Corp.’s Michael Wirth (left) said that it will take decades to reduce dependence on conventional fossil fuels, just as today’s energy market took a century to evolve and trillions of dollars of investment.

Internal combustion engines and petroleumbased fuels will dominate transportation for decades to come for a compelling reason: the gas tank on a Toyota Prius weighs about 40 pounds, takes ﬁve minutes to ﬁll, holds enough energy to travel 400 miles, and costs $400 to manufacture. The battery to power an electric car, on the other hand, weighs more than 800 pounds, requires several hours to recharge, travels 100 miles, and costs 25 times more to make.

Summer 2012 Chicago Booth Magazine

Feature 60th Annual Management Conference

This was the assessment of Toyota engineer Bill Reinert during the 60th Annual Management Conference keynote panel, a wide-ranging discussion that also covered the prospect of reducing greenhouse gas emissions, the influence of world economic growth on energy consumption, and the government’s role in energy policy. This year, 600 alumni, students, and business leaders gathered at the Hyatt Regency Chicago for the keynote presentation on May 11, while hundreds more viewers from 39 countries watched a live simulcast of the event. Breakout sessions at Gleacher Center continued the day’s dialogue on business topics, which included an evaluation of US tax policy (see page 30) and an examination of the use of data in understanding consumer behavior (see page 33). Moderator Robert Topel, Isidore Brown and Gladys J. Brown Distinguished Service Professor in Urban and Labor Economics, prodded panelists Reinert—a member of the team that developed the Prius—and Michael Wirth, executive vice president of downstream and chemicals for San Ramon, California–based Chevron Corp., to explore the prospects for Jetson-style ﬂying cars and vehicles that drive themselves. Reinert and Wirth served with Topel on the National Petroleum Council, a task force that studied the future of transportation and fuels in the United States. According to Reinert, earthbound vehicles are here to stay. “As long as there’s a three-ton pickup with a drunk behind the wheel, there’s going to be liability issues with an automated car,” said Reinert, national manager of the advanced technology

Chicago Booth Magazine Summer 2012

group for Toyota Motor Sales, USA, Inc., in Torrance, California. Driverless cars aside, Reinert said he does not see customer demand for electric cars outside of urban areas. “We’re going to be using oil and gas for quite a while—decades out. I know a lot of people thought that batteries were going to work, but if you try to make a business case for a pure, battery-electric car, it’s really, really tough,” Reinert said. To underscore the difficulty of bringing electric vehicles (EVs) to market, Reinert discussed plans for Toyota’s RAV4, a battery-powered SUV that the automaker will sell initially in California and then offer in other states if demand warrants. The base price of the RAV4 EV is $49,800—twice that of the Prius— and Toyota has set a sales goal of just 2,600 units over three years. Toyota sold nearly 61,000 gas-powered Prius hybrids in the United States in the fi rst three months of 2012 alone. Wirth said that petroleum fuels will dominate transportation for the foreseeable future, because they

deliver more efficiency than any other alternative. The energy density, portability, and shelf life of a gallon of gasoline “beats everything else by a long way,” Wirth explained. When it comes to fueling everyday transportation, it is a matter of thermodynamics and physics. Vehicles have to provide utility and convenience for the owner—and be affordable—he added, and filling passenger or cargo space with a battery or a fuel tank for hydrogen or natural gas runs counter to that philosophy. “The reality is, most people buy a vehicle for utilitarian reasons, and if they can’t get the stroller in the trunk, that car’s not very useful,” Wirth said. “I think the real challenge is recognizing that these technologies ultimately have to serve the customer.” Though neither panelist saw a revolution in transportation technology on the horizon, they agreed that costcompetitive alternative vehicles and fuels will emerge over time. In the meantime, they said, government’s role should be to promote research that will

lead to innovation, rather than to dictate what people should drive or use for fuel. In California, for instance, a state mandate for zero-emission vehicles has pushed automakers to roll out several

EV models. As many as 10 other states have similar emissions regulations and could adopt the same rules. In addition to designing EVs, manufacturers plan to meet these mandates with plug-in

“It’s extraordinarily frustrating to work as collaborators with US science right now, because of the cycles of funding.” —Bill Reinert

hybrids that run on battery power for short distances—so-called partial zero-emission vehicles— and with hydrogen-powered fuelcell vehicles. Instead of setting the industry standard, government should identify targets and give industry the latitude to meet them, the panelists said. “Picking winners in technology, even if government were completely uninfluenced by interest groups, is damn hard,” Wirth said. Rather, government should provide ample and sustained funding through its national laboratories to support basic research into technologies that will help reduce fuel consumption and greenhouse gas emissions. These initiatives include developing alternative fuels, such as hydrogen; refining fuel manufacturing and distribution systems; and finding weight-saving materials for vehicles. (continued on page 31)

Left: more than 600 guests gathered for the keynote session at the Hyatt Regency Chicago; Toyota’s Bill Reinert (top) said research on alternative fuels depends on uncertain funding from Washington; moderator Robert Topel (above) posed the question whether Jetson-style ﬂying cars are in the future.

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Feature 60th Annual Management Conference TAX CODE NEEDS AN OVERHAUL Experts agree high corporate rates discourage investment The corporate tax system in the United States is such a disaster that tax attorneys routinely tell student entrepreneurs to start their businesses offshore. As a result, multinationals are investing outside the country’s borders, which suppresses economic growth at home. “Do not develop your international capital in the US. Get free of these onerous tax policies,” said Merle Erickson, professor of accounting and moderator of the breakout session panel on corporate tax policy. “This is the advice we’re giving to our best business developers in this country.” With that as prologue, three corporate tax experts delved into the technical problems that the US tax code presents to large enterprises. “We would take the tax system of any other country over the tax system we have,” said David Lewis, vice president for global taxes at Eli Lilly & Co. in Indianapolis. The nominal corporate tax rate of 35 percent is too high to be competitive with other advanced countries, he asserted. In addition, US tax law is too convoluted. It allows double taxation on foreign income, and it discourages spending on research and development, a vital issue for the pharmaceutical industry, he said. The present tax system is the product of a compromise made between the Kennedy administration and Congress in 1962, said Rod Donnelly, a partner with Morgan Lewis, LLC, in Palo Alto, California. It was suboptimal from the start, he said, and has only gotten worse. US trading partners around the world have reduced and reformed their corporate income tax structures; Canada, for instance, makes it a deliberate policy to undercut US corporate tax rates, Donnelly said. In 1981, the statutory US tax rate was roughly even with that of the rest of the countries in the Organisation for Economic Cooperation and Development (OECD). “Over time, we’ve become the last high-rate jurisdiction out there,” said Jeff Maydew, a partner at Baker & McKenzie, LLC in Chicago. The huge tax burden inhibits multinationals from repatriating foreign-earned income. To avoid the taxes, firms have preferred to let $1.2 trillion in offshore earnings pile up abroad, money that won’t be invested in the domestic economy.

Lewis noted that the United States lags in subsidizing research and development through tax incentives, registering at 24 among 38 of its trading partners. The rest of the world seems to understand the importance of such government support. Other countries set lower rates and “allow capital to be deployed around the world as a business sees fit.” By doing so, “they incentivize innovation,” Lewis said. The United States instead has pursued inconsistent and dilatory policies, the panelists agreed, and they acknowledged that it is difficult to operate in such a climate of uncertainty. The tax credit for R&D has expired 14 times and been extended 13 times during its 30-year history, Donnelly noted. President Obama has proposed expanding the benefits of the credit and making it permanent. Lewis noted that the tax credit funds jobs, but Lilly is under competitive pressure to locate R&D functions in countries where the payoff is higher. The panelists agreed that the country’s need for increased revenue can be met only if the tax code becomes fairer, more balanced, easier to administer, and less punitive toward crossborder economic activity. But they were not optimistic that tax reform will happen quickly—or rationally. In Washington, the conversation focuses on revenue neutrality, said Lewis, who is part of a working group that talks regularly to members of Congress. Making matters worse are the enormous costs of compliance with the technical peculiarities of US law. Many international firms evince “a visceral dislike to touch the US tax system,” Maydew noted. Large multinationals have as many as 1,000 in-house tax experts, he added, and companies’ efforts to keep those positions staffed are “sucking in some of the most talented students” from the United States and abroad. “Should the best and brightest be coming to the US to help us solve this selfinflicted wound?” Unfortunately, the transformational leadership needed to pilot this issue through the political process is nowhere to be seen, Lewis observed. “Instead of rising to the occasion and having a thorough public debate around how we should change our policies, we’re erecting walls and barriers, trying to hang on to what we have, based on laws that were passed in the 1960s.” —Duncan Moore

Chicago Booth Magazine Summer 2012

“ The reality is, most people buy a vehicle for utilitarian reasons, and if they can’t get the stroller in the trunk, that car’s not very useful.” —Michael Wirth

Left: experts at the breakout session on corporate tax policy agreed that the US tax code must become fairer, more balanced, and easier to administer. The three panelists (from left) were David Lewis, Rod Donnelly, and Jeff Maydew.

(continued from page 29)

The problem, under the current system, is that funding for such research can be turned on and off annually, based on politics and on who is in charge in Washington. “It’s extraordinarily frustrating to work as collaborators with US science right now, because of the cycles of funding,” Reinert said, pointing to annual budget battles in Congress. “If we could fix that and lay out a five-year plan of ‘this is what you’re going to get,’ we could do so much better.”

Topel asked about the likelihood of meeting an Obama administration goal of cutting in half greenhouse gas emissions from transportation by 2050. Both panelists agreed that the target is unrealistic. Wirth predicted that global energy demand will grow by 40 percent over the next 20 years, a boom that will increase worldwide greenhouse gas emissions. Today, there are about 830 million vehicles in use globally, and the International Energy Agency predicts

that the total will triple by 2050 as personal vehicle ownership soars in countries such as China and India. “There are about two billion people on the planet that are the emerging middle class in some of the developing economies, and all they want is the lifestyle that you and I take for granted,” Wirth said. The increase in demand from developing nations will more than offset gains made by reducing greenhouse gases in the United States and other developed nations.

Summer 2012 Chicago Booth Magazine

Feature 60th Annual Management Conference

To prepare for a future with escalating worldwide energy demand, the United States requires a reliable, affordable, and diverse energy supply. Although there are dire predictions that the world soon will run out of oil, the development over the past 20 years of hydraulic fracturing, which makes it possible to drill deeper and horizontally, as well as vertically, has led to the discovery of oil reserves that previously were unreachable, Wirth said. That has been “the single biggest technology breakthrough” for the energy industry, and has increased the world’s recoverable oil reserves by 30 percent, enough to last 70 to 80 years, while simultaneously boosting oil and natural gas production in the United States. “We are running out of oil, but peak oil is a long way out from a technical and economic standpoint,” he said. Though neither panelist identified an energy source that is likely to displace oil as the dominant player in transportation, both said that hydrogen, along with compressed and liquefied natural gas, could become more prominent sources of fuel. Wirth expressed doubt that renewable energy would be a major part of the mix any time soon. Renewables—solar,

Chicago Booth Magazine Summer 2012

wind, biofuels, and geothermal, which represent 1 percent of the energy supply today—are expected to grow to about 3 percent in 20 years. As energy companies continue to search for new energy sources, the auto industry will focus on making internal combustion engines more efficient, Reinert said. The average car today is about 17 percent efficient, meaning that is how much of the energy from the gas tank gets to the wheels that drive the car. A Prius hybrid is about 34 percent efficient. Reinert predicted that a decade from now, engines will be two to two-and-a-half times more efficient than they are currently. In addition, weight reduction in vehicles, through materials and design changes, will improve fuel economy. Fuel-cell vehicles, which convert hydrogen and air to electricity, and which emit little or no harmful emissions, also show promise, Reinert said. Toyota plans to offer a hydrogenpowered fuel-cell vehicle globally in 2015, and other manufacturers have similar plans. Reinert currently drives a Toyota Highlander SUV that was converted to hydrogen fuel-cell power from a gasoline engine. The car is part of

a demonstration fleet of about 100 vehicles. Reinert estimated he gets the equivalent of 60 miles per gallon from gasoline and predicted that hydrogen would cost about the same as paying $5 to $6 per gallon of gas. Although the cost of fuel-cell cars and the lack of fueling stations are obstacles, he predicted hydrogen cars could start to make an inroad by 2020. Reducing dependence on petroleumbased fuels will be challenging, simply because the energy market is enormous: the world uses the equivalent of 300 million barrels of oil daily to satisfy its energy needs. It will take decades to develop viable alternatives. “The system that we have today took over a century to evolve and trillions of dollars of investment,” Wirth said. “We will transition off of hydrocarbons. It’s inevitable. The question is when and how. It will happen gradually, and it will happen through sustained investment in research, development, and technology.” ■ To watch video of the keynote panel and breakout sessions, go to ChicagoBooth.edu/ mc12coverage.

UNDERSTANDING HOW SHOPPERS BEHAVE Data doesn’t explain what drives purchasing decisions, panelists say Retailers and consumer goods marketers are blessed with buckets of data. They can discern what consumers are buying based on credit card usage, customer loyalty programs, and internet purchases. But that data does not explain why consumers act the way they do. Some grocery shoppers shun prepared meals because they prefer to cook with fresh meats and vegetables. Others prefer store labels because they are less expensive than national brands. Still others hew to brands that tout healthy ingredients. Lessons that can be learned to better understand consumer behavior were the focus of the breakout session on the use of syndicated consumer packaged goods and retail data. Moderator Erik Hurst, V. Duane Rath Professor of Economics and John E. Jeuck Faculty Fellow, asked the panelists to provide insight into how data is accumulated by marketers and how it is used to understand the way shoppers act. The true test, according to the panel of Booth alumni with expertise in retail and consumer marketing, is to analyze the data and draw the right conclusions. “There is no shortage of data,” said James Dodge, ’93, vice president and managing director at New York consumer research giant The Nielsen Company. “The challenge is clarity on the issues and outcomes.” Dodge and his fellow panelists agreed that while retailers and consumer packaged goods manufacturers have become adept at collecting data on who is buying what, the information does not provide an immediate understanding of why a consumer makes a particular purchase. “There is a difference between behavior and insight. The data is very important to identify the behavior, but I would encourage marketers to keep trying to peel the onion back and get to the deeper motivation,” said Howard Brandeisky, ’85, vice president of global marketing and innovation for John B. Sanfilippo & Sons, Inc., a nut and snack producer based in Elgin, Illinois. To gain deeper insight into consumers’ buying decisions, Brandeisky said he has accompanied shoppers to the grocery store to conduct “shop-along ethnographies.” “You can see in real time how consumers are reacting to stimulus in the store. You can see what’s on their list, what’s not on the list. What they buy on impulse. There’s nothing quite like asking them as it happens,” Brandeisky said.

The lesson here is that while quantitative data is a valuable tool, it is still difficult to predict shopper behavior. “Consumers don’t behave rationally in any type of retail setting. They are irrational by definition,” said Robert Mariano, ’87 (XP-56), chairman and CEO of Roundy’s, Inc., the Milwaukee-based parent company of the Roundy’s and Mariano’s grocery chains. “In the old days, when I was a storekeeper, I knew every one of my customers,” Mariano continued. “Today, on a relative basis, we know very little. That’s why we use quantitative information— to build a relationship so that we can be relevant.” L. Dick Buell, ’78, former chairman and CEO of Catalina Marketing, Inc., based in St. Petersburg, Florida, said that research conducted by his firm on consumer loyalty uncovered a troubling fact: less than half of consumers who are considered to be highly loyal to a particular brand maintain that loyalty a year later. “Loyalty is a defection dilemma. Loyalty sounds like the glass is half full. In truth, it’s a glass half empty,” Buell said. “Loyalty is something you think you can build and accumulate, but it can be fleeting.” The key to knowing the customer, according to the panelists, is gathering both quantitative and qualitative data, and then finding bright minds to draw the correct interpretation based on both sets of information. “The challenge is to turn all that data into insights and action,” Brandeisky said. “The data is almost a commodity there’s so much of it. The real value-add is turning that into something insightful, something useable.” Hurst concluded that the information was valuable for both the professionals and the academics in the audience. “I think the panelists really provided a lot of insights into how data is accumulated and used to understand the way consumers act,” he said. “I think this is the direction we want to move as a school going forward, where we take this very detailed quantitative analysis and use it for a variety of academic pursuits.”—John Slania

Summer 2012 Chicago Booth Magazine

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Alumni Celebration October 5 Millennium Park Reconnect with fellow graduates and honor this yearâ&#x20AC;&#x2122;s Distinguished Alumni Award winners. Get ready for an unforgettable night at Alumni Celebration on October 5.

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Chicago Booth Magazine Summer 2012

Alumni News

Courtesy of Aaron Stopak

When Erik Wallsten, ’04, returned to his native Mexico after earning his MBA, five or six students a year from Mexico were attending Booth. Now, eight years after Wallsten first became active in the Alumni Club of Mexico and expanded its programs, three times as many students a year are heading to the school. One of the club’s missions is to get the Booth name out to top prospects who might not be familiar with its celebrated faculty and global business connections. Consequently, the club sponsors events ranging from a private tour of the Mexican president’s residence to conventional cocktail parties. “We publicize headline events so as to promote the Booth brand name and attract more applicants,” said Wallsten, the outgoing president who manages a private equity firm that invests in socially beneficial projects. The events impress prospective students who “see the strength of the local network as compared to other schools whose alumni get together only sporadically,” Wallsten said. He has coffee with about 15 prospective students each year; he and other alumni also contact admitted students. Recruiting is important because, “I am convinced that Booth has the top MBA program of any school worldwide and that the best way of attracting top students is by interacting with them directly,” he said. The Alumni Club of Mexico is among 70 alumni clubs worldwide that keep the Booth name front and center in US cities and around the world. “A number of these clubs are doing excellent community building and opening strong networking opportunities,” said Rachel Nash, senior associate director, Alumni Affairs and Development. The clubs are headed by professionals who juggle jobs and families but find it rewarding to stay engaged with Booth. In North American cities with large concentrations of Booth alumni, the clubs have the opportunity to bring Booth’s intellectual capital to alumni with particular interests and expertise. For example, the Alumni Club of Washington DC Aaron Stopak sponsors a group for alumni interested in China, and another for those involved in energy issues as part of the Booth Energy Network, noted Aaron Stopak, ’03 (AXP-2), the president of the club who is an advisor to a hedge fund that invests in Asian equity markets, as well

Courtesy of Zina Markevicius

Alumni Organizations Extend Booth’s Reach as a 3D animation firm and a farm management company, both based in Uruguay. One of the club’s most active and successful programs is the Booth Entrepreneurs Advisory Group, which, for 10 years, has invited local area start-up founders and angel investors to speak to Booth alumni involved in entrepreneurial ventures. They discuss business problems and receive valuable advice that they otherwise would obtain only for a hefty consulting fee, Stopak said. In addition to clubs that are geographically based, there also are special interest groups such as the Chicago Booth Black Alumni Association (CBAA), the Real Estate Alumni Group (REAG), and the Chicago Women in Business Alumnae Network (CWIBAN) that are broadening Booth’s influence. CWIBAN supports admission of women to Booth and connects women graduates around to booth the world, said Zina Markevicius, ’02, a founder of CWIBAN who runs her family’s real estate business in Los Angeles. Women represent more Zina Markevicius than 20 percent of Booth alumni, a network that is expected to expand as their numbers grow in MBA classes. The group hosts discussions with successful women professionals on career and life strategies, facilitates job referrals, and assists alumnae moving to a new city. CWIBAN’s capstone event is Women’s Week, which includes events for prospective and admitted students held in 30 cities during the first week in May. These range from intimate to large events, and they can have a big payoff. “We want to bring the best students in the world to Chicago,” Markevicius said. “I feel the value of my degree, and I want to give back.”—Judith Crown For more information about Chicago Booth clubs, contact alumni@ChicagoBooth.edu.

Summer 2012 Chicago Booth Magazine

Alumni News

Alumni Angels Recognized Changes in Club Leadership Russia President Evgeny Tonkacheev, ’05 (EXP-10) Outgoing president Alina Gutkina, ’98 (EXP-3) San Francisco President Patrick Zanoni, ’00 Outgoing president Sandeep Ganesh, ’07 Spain President Brenda McCabe, ’02 (EXP-7) Outgoing president Francisco Trullenque, ’02 (EXP-7) United Arab Emirates President Mark Corusy, ’94 Outgoing president Fakhr-Eddine (Faysal) Mokadem, ’05 United Kingdom President Eric Martin-Vallas, ’08 (EXP-13) Outgoing president Kaustubh Wagle, ’10

The fifth annual Alumni Angel Awards (A3) honored four Chicago Booth alumni for their exceptional engagement with students. Class Agents announced the winners during Worldwide Booth Night on April 12. The event, which was hosted in 90 cities this year, is an opportunity for alumni, as well as current and recently admitted students, to meet in cities around the world and celebrate their connection to Booth. This year, students honored Hoke Horne, ’97, vice president of pricing at Juniper Networks in Sunnyvale, California; Roberto Ippolito, ’03, head of corporate finance at General Electric Capital Italy; Kenneth Kelly, ’98, vice president of sales and marketing at DaVita, a provider of kidney care based in Denver; and Karl Muth, ’10, a consulting economist. Students from all four MBA programs submitted nominations, sending stories about contributions alumni made to their professional and personal development. A list of finalists was selected and presented to the entire student body for a . Horne was honored for his commitment to recruiting and mentoring Booth students at Juniper Networks, and Ippolito was recognized for his enthusiasm in developing the Italian community at Booth. Kelly was honored for helping the student-run Operations Strategy Group expand and find sponsorship, and Muth was recognized for providing guidance to students interested in emerging markets.—Chelsea Vail

Class Gift Campaign Achieves 100 Percent Participation For the second year in a row, students from Booth’s Executive MBA Program united to achieve 100 percent participation in the annual Class Gift campaign. Student donations across the Chicago, London, and Singapore campuses totaled nearly $130,000—about $32,000 more than the previous year—in an impressive display of support for the student-led initiative. Alumni and friends contributed an additional $55,000 to the campaign, and the school offered matching incentives that brought the combined total to nearly $310,000. The Class Gift will support two funds: the newly created Executive MBA Program Office Fund, which will sponsor programs and initiatives that directly benefit Executive MBA Program students, and the Global Visibility Fund, which promotes Chicago Booth’s international presence. “Our class was so intense, so adamant about maximizing its participation in everything the Booth community had to offer. Our achievement with the Class Gift was in part a recognition of how rich that community is,” said Leo Alves, ’12 (XP-81). “We wanted to make a statement. To send a message about what we could accomplish as a class, about what we mean to each other and what this institution means to us.” —Chelsea Vail

Chicago Booth Magazine Summer 2012

—Chelsea Vail

Alumni News

Courtesy of medha.org

Young Alumnus Launches Skills Training Initiative in India Chris Turillo, ’10, already had a plan when he entered Booth. He knew he wanted to work in India to help increase education and employment opportunities in the rapidly growing nation. Earning his MBA, as well as a master’s degree from the Johns Hopkins School of Advanced International Studies, gave Turillo the skills he needed to launch the nonprofit he hopes will help address India’s systemic unemployment. In 2011, he and a partner opened Medha, which aims to improve employment prospects for students from low-income families, often Based in Lucknow, Medha's job training program from rural communities, who lack the focuses on experiential learning. resources to obtain and succeed in a job. The nonprofit provides college and high school students with training, leadership development, and career services in the northern Indian city of Lucknow. “Booth was a big part of building the capabilities and the confidence required to actually take the first steps to start Medha,” Turillo said. He also said that Booth methodology influenced the structure of the program. “We are focused on ensuring our program is taught in an experiential way, creating real-life and simulation activities as a way of learning instead of the traditional rote-based methodologies.” For example, to learn basic supply and demand, students track the prices of vegetables at a market, enter the data into an Excel spreadsheet, and present their findings and conclusions. This simple exercise enables students to learn economic principles, MS Office, the English language, and presentation skills. A native of Boston, Turillo spent time studying abroad in India as an undergraduate student at the University of Puget Sound. After graduation, Turillo spent several years researching ways to return to the country. Finally, he landed a 10-month fellowship at an Indian microfinance organization, which kept him on for another year as codirector of business development with now-partner at Medha, Byomkesh Mishra. When he and his partner began researching unemployment and job-training in India, they uncovered a formidable problem. “Fifty-nine percent of youth in the labor market suffer some degree of unemployability, while 52 percent of employed youth lack skills,” he said. “These low skill levels result in higher unemployment and underemployment, and increased inequality.” Luis Miranda, ’89, CEO of a Mumbai private equity firm who sits on Medha’s board and is a member of Booth’s Global Advisory Board, agreed. “When Chris told me about his plans to set up Medha, I immediately offered to be an advisor since the need for skills training is so great in India and he is so passionate about it.” Medha aims to improve employability levels for more than 20,000 college and high school students across four Indian states by 2017. “I am motivated by the opportunity to have a positive influence on young people’s lives,” Turillo said.—Kate Ancell

Global Advisory Board Welcomes New Members The Global Advisory Board, comprised of more than 85 business leaders and entrepreneurs, including Booth alumni and friends, advises the dean on strategic choices and works to enhance the school’s reputation. New members for the 2012 ﬁscal year are: Americas Cabinet Pedro Faria, ’02 Managing Partner, Tarpon Investments Jorge Saieh, AM ’97, MBA ’98 Chairman, CorpBanca Manuel Sanchez, AM ’83, PhD ’85 Deputy Governor, Bank of Mexico Asia Cabinet Thomas Chan, ’92 Managing Director, Golden Summit Capital Clifford Chiu, ’82 Partner, KKR Asia Limited James Quella, ’81 Senior Operating Partner, Private Equity, The Blackstone Group Steve Sun, ’97 Co-chairman, Concord Medical Services Holdings Dennis Zhu, ’93 Former Managing Director, Oaktree Capital Europe, Middle East, and Africa (EMEA) Cabinet Alexey Ananiev, ’05 (EXP-10) Co-owner, Chairman, and Managing Director, Technoserv A/S Rolf Friedli, ’96 (EXP-1) Partner and Chairman, CapVis Equity Partners Ltd. Richard Seewald, ’05 (EXP-10) Partner, ALPHA Associates

Summer 2012 Chicago Booth Magazine

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Chicago Booth Magazine Summer 2012

Career News

Graduates Branch Out in Career Selections Booth graduates continue to diversify their career choices, branching out into marketing, e-commerce, entrepreneurship, and general management. While the school remains a top destination for recruiters from fields such as consulting and financial services, students are weighing more options as they consider a job market marked by Wall Street consolidation and growth in technology and the internet. “There is a growing interest among our students to pursue new opportunities in the tech, e-commerce, and internet industries, both at large companies and within start-ups, said Nima Merchant, associate director, employer relations for Career Services. “With the diversity of jobs available, there really is something for everyone—and we’re seeing a stronger, more vocal presence from alumni who are successful in these fields.” For example, more than 4 percent of the class of 2011 accepted jobs in the e-commerce and internet industries. While that may seem like a small percentage, those fields tapped a negligible number of recruits 10 years ago and only accounted for eight hires as recently as 2007. Marketing has risen from the sixth to third-most popular function for graduating Booth students from 2001 to 2011.

General management went from ninth highest to fourth in 2011. The number of students joining start-ups or launching their own firms has more than tripled over the past decade, although that growth started off a small base. Financial services and consulting continue to be top destinations, attracting more than two-thirds of Full-Time graduates. “Even during the recession, ‘bulge-bracket’ firms showed a real, demonstrated interest in our students,” said Melanie Scarlata, Melanie Scarlata assistant director, employer relations for Career Services. But the explosion in technology and other fields are presenting students with more options. Scarlata says Career Services has been proactive in scoping out new markets and opportunities, working in concert with Alumni Affairs and Development and student groups, as well as the Kilts and Polsky centers. “Booth graduates are able to go into careers they feel passionately about,” Scarlata added. “The opportunities are very real for them.”—Kate Ancell For more employment information, go to ChicagoBooth.edu/employment.

Fields of Their Dreams Where Full-Time MBA Program graduates have headed over the past 10 years

Entrepreneurship

E-commerce and internet

Marketing

General management

Financial services and consulting

76.8%

10.8%

75.2% 68.9%

7.2%

8.2%

7.5% 5.4%

4.2% 3.2% 2.8% 1.6%

1.4% 0.7%

2001

0.6%

2007

2011

2001

2007

2011

2001

2007

2011

2001

2007

2011

2001

2007

2011

Not to scale

Summer 2012 Chicago Booth Magazine

Career News

Booth Hosts First Start-Up Networking Night

H E A R D AT C H I C A G O B O O T H

You need to exist long enough for lightning to strike. Phil Nevels, ’10, advised students on the early stages of business development based on his experience launching Power2Switch, an alternative energy provider that started gaining traction as media attention drove potential customers to the company website. Nevels is chief operating ofﬁcer of the Chicago-based start-up and was among the entrepreneurs who attended Booth’s ﬁrst Start-Up Networking Night, a recruiting event geared toward opportunities in Chicago’s entrepreneurship scene.

Chicago Booth Magazine Summer 2012

A recruiter from tea shop operator Argo Tea was on campus in April to meet students, discuss its business model, and recruit for a marketing internship. The young Chicago-based company was among more than 20 who attended Start-Up Networking Night (SNN). The recruiting event is part of Booth’s effort to build relationships with young companies and support the increasing number of students pursuing entrepreneurship as a career. The joint effort of Career Services and the Polsky Center for Entrepreneurship drew 120 firstand second-year students. “We stress to students that they have to network to get anywhere in the startup world,” said Nima Merchant, associate Nima Merchant director, employer relations for Career Services, and one of the organizers. The SNN followed the format of Career Services’ Corporate Networking Nights, industry- and function-specific recruiting events that provide companies an opportunity to connect with students interested in particular fields. “As an MBA student interested in entrepreneurship, you don’t have the traditional structure of recruiting,” said second-year Full-Time MBA student Kasra Moshkani, who works for his own start-up, HireBrite, which helps entrepreneurs to hire young business and technical talent.

“The thing I was most excited about tonight was the variety of companies we’ve seen,” he added, noting the range from established VC firms to companies in their first few months of business. Companies that attended included winners and finalists from Booth’s New Venture Challenge competition such as Chicago-based firms BenchPrep, a test-prep developer for mobile devices, InContext Solutions, a market research firm that specializes in 3D simulations, and Power2Switch, an alternative energy provider. Some, like Argo, which operates cafés in Chicago, New York, St. Louis, and Boston, were established ventures looking to fill specific roles based on company needs. Others, such as KLUTCHclub, which delivers health and wellness products to subscribers monthly, were there to recruit more broadly and raise awareness. “I think events like this go a long way in proving that Booth is investing in the entrepreneurialism that’s going on,” said Grant Zallis, vice president and head of human resources and recruiting at InContext Solutions. Career Services would like to host more networking functions for entrepreneurship, Merchant said. She expects many of the start-ups to return, especially as the number of events grows with the school’s entrepreneurship programming. And she hopes to attract more start-ups from outside the Midwest. “What could be better than the SNN to connect students to start-ups interested in Booth talent?” Merchant said.—Kate Fratar

Career News

To ensure that Booth stays top of mind for Asia companies scouring the globe for premier talent, Career Services hosted its first interactive workshop tailored specifically for Asiabased recruiters. The half-day Asia Recruiters Workshop in April attracted several dozen multinationals and Asia-based companies. Career Services staff provided an overview of the rigorous program that sets Booth graduates apart and highlighted data on recent student job offers and acceptances. They also demonstrated how to use the school’s recruiting tools such as the Global Talent Solutions (GTS) database and the online resume database. The workshop was geared exclusively to employers. “The firms I work with often seek general managers to get new businesses up and running,” said Leslie Taylor, ’02, associate director, employer relations, based in Hong Kong. Students and alumni are increasingly interested in new opportunities, including opening new geographic markets for multinationals, she noted. “There seems to be an appetite to seize these career opportunities.”

“It was extremely useful for the recruiters from our business to understand how to search Booth’s database and post positions to give them access to talent pools.” —Kim Purnell, SAPs executive recruiting director for Asia Paciﬁc and Japan The event attracted a blue-chip roster of companies. Some, such as General Electric Co., Goldman Sachs Group, Inc., Google, Inc., Microsoft Corp., Credit Suisse Group, and McKinsey & Co., have established recruiting relationships with Booth, mostly through their US headquarters. Others, such as the World Bank, Intercontinental Hotels Group, Jones Lang LaSalle, Inc., and software giant SAP AG, are building relationships with the school. “We foresee that Booth will be a good partner for us to recruit for certain corporate positions and perhaps some senior hotel operations positions,” said attendee Michael Blanding, manager of school relations for InterContinental Hotels Group, who recruits for Asian, Middle East, and African hotels from

Paul Audia

Raising Visibility with Asia-Based Recruiters

Held at Booth’s Singapore campus, the half-day workshop introduced employers to tools for recruiting Chicago graduates.

Singapore. “We’re opening a new hotel every week across the globe and need top talent to lead the business.” Although some Asia-based recruiters may believe that it is difficult to recruit from afar, several tools provided by Booth make it easy. For example, employers can post jobs online through the GTS database. The postings are free and the best first step for connecting with Booth talent, Taylor said. The resume database enables recruiters to search different pools of talent, such as alumni or students in the full-time or part-time programs. Recruiters can search candidates using such criteria as language, years of experience, and geographic preference. Outside of traditional recruiting methods, companies use video conferencing and Skype to present information sessions or interview candidates. As another way to connect, some Asian companies host events for Booth students who organize visits to the region. “It was extremely useful for the recruiters from our business to understand how to search Booth’s databases and post positions to give them access to talent pools,” said Kim Purnell, SAP’s executive recruiting director for Asia Pacific and Japan. Concluded Taylor, “One of my goals is to ensure we don’t leave any stones unturned, that we don’t leave job opportunities on the table, whether entry-level for recent grads or seniorlevel for our executive students and alumni.”—Judith Crown

Summer 2012 Chicago Booth Magazine

Alumni News

2012

Reconnect with your class and relive your favorite MBA memories at special reunion events on October 4â&#x20AC;&#x201C;6. YOU HAVE TO BE THERE.

2011, 2007, 2002, 1997, 1992 and

Visit ChicagoBooth.edu/reunion2012 for more information.

Chicago Booth Magazine Summer 2012

Back Story “We get analytical about what goes on when we play a round of golf. It’s all about probability and statistical distributions.” Chad Syverson, professor of economics, is a frequent golfer and often plays with University of Chicago economists Steven Levitt, John List, and Derek Neal. The team usually plays in scramble tournaments, in which the best shot among the four determines the starting point for each subsequent shot. Inconsistency becomes an advantage as the golfers pick the best and discard the worst. “In a scramble, we don’t need everyone to do something good, we just don’t want the same bad shot,” said Syverson, who was photographed by Chris Strong at the Jackson Park Golf Course on Chicago’s South Side. “It’s a portfolio problem.”—Judith Crown

Chicago Booth Magazine Summer 2012

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Critical Dialogues Dean Sunil Kumar gets the inside track on Zipcar from CEO Scott Griffith, ’90

Temptation’s Siren Song Research by Wilhelm Hofmann investigates desire, willpower, and self-control

Good Energy Experts discuss fueling the future at the 60th Annual Management Conference

Opening New Routes How Scott Griffith, ’90, CEO of Zipcar, drove car sharing to the mainstream