Summer 2015 by Gies College of Business

COLLEGE OF BUSINESS

Perspectives

LITTLE PEOPLE, BIG DREAMS HOW SOCIAL INNOVATION MAKES A DIFFERENCE

SUMMER 2015

U N I V E R S I T Y O F I L L I N O I S AT U R B A N A- C H A MPA I G N

ast fall we marked the start of our College’s centennial year. As hard as it is for me to believe, I have been a part of that history for more than one-third of those 100 years. When I came to Illinois in 1979, I could not have envisioned the growth of our College and the changes and challenges in academia and the business world in that time. As dean for the last six years, I have had the privilege of leading the College in tackling those challenges and creating new opportunities that continue our proud tradition of excellence in business education. In August, I will step down from that leadership position to return to full-time teaching and research in the Department of Finance. For me, this next chapter is an opportunity to return to working directly with the best and brightest students in the world. That’s how I hope to continue to add to the strong and dynamic program our College is known for worldwide. Challenges and opportunities mark every leader’s tenure. With the support of loyal, talented, and committed partners, like our exemplary faculty, staff, alumni, and students, the challenges actually become opportunities. We have persevered through difficult economic times while expanding opportunities for students and faculty through new academic initiatives and the opening of our Business Instructional Facility. We have strengthened existing relationships with alumni and business partners and have forged new ones. I have no doubt that Jeff Brown, as our tenth dean, will build on the progress we’ve made and lead our College into the future with a commitment to innovation, collaboration, and excellence, and I ask for your support of his service to the College. As we mark 100 years, we’re indebted to the visionaries who founded the College and those who continue the work and refine the vision. As your dean, I have appreciated the support, the friendship, and the opportunity to serve. I am proud of the work we have done together. It has been a privilege.

COLLEGE OF BUSINESS

Larry DeBrock Josef and Margot Lakonishok Endowed Dean When DeBrock was named dean in 2009, his lifelong interest in America’s pastime inspired the creation of this unique business card, a regulation baseball. For more on the statistics of DeBrock’s tenure, see page 16.

DEAN Larry DeBrock MANAGING EDITOR Mary Kay Dailey

[ CONTENTS ]

[ MY ] PERSPECTIVE

LITTLE PEOPLE, BIG DREAMS HOW SOCIAL INNOVATION MAKES A DIFFERENCE

SUMMER 2015

U N I V E RS I T Y O F I L L I N O I S AT U RB A N A- C H A M PA I G N

on The CoVer Julia haried, at left, co-founded MakerGirl, one of 13 social innovation startups provide on Thethat CoVer opportunities for students to address social problems and create commercial value.

Thanks for The MeMories I enjoyed very much your article “A Look Back.” I was lucky enough to have Bob Mehr, Bob Hedges, and Emerson Cammack as my instructors for my degree in finance with a major in insurance. The books mentioned, Principles of Insurance and Risk Management in the Business Enterprise, were given to us in mimeographed pages by chapter for us to read as they were writing the book. We acted as proofreaders in many cases. I just completed my 55th year in the insurance business. Bill leuter ’60 Finance What a pleasant surprise to see an article about Finance Education and one of my favorite professors, Jim Gentry. I entered the College in the Fall of 1965 and sometime thereafter had Professor Gentry for a course I believe was named “Money and Banking” or something quite close. I remember to this day what an interesting class it was and what an excellent instructor he was. While my major was Marketing and eventually I obtained a law degree at another Big Ten university, my first job as a lawyer was with one of the biggest banks in the country, and my knowledge from that class and other business and economic classes from the College gave me a good footing to discuss business and regulatory problems which came to my attention as one of the bank’s lawyers. Congratulations to Jim Gentry on a long and successful career at Illinois. stuart senescu ’69 Marketing

seeds of social innovation

running with the Big Dogs

When these seeds bloom, the world just might become a better place.

Will subscription commerce take a bite out of retail?

The other Bottom Line

a Look Back

To B or not to B?

Research in ethics is supported by the College’s Center for Professional Responsibility in Business and Society. Leadership and innovation in business administration starts here.

What are the benefits of B-Corp status? That is the question.

CONTRIBUTING WRITERS Tom Hanlon Cathy Lockman Doug McInnis PHOTOGRAPHERS Tricia Koning Thompson • McClellan Photography L. Brian Stauffer

SHORT TAKES

DESIGNER Pat Mayer PROOFREADERS Tom Hanlon Anne McKinney Perspectives has been named a Circle of Excellence Bronze Award winner by the Council for Advancement and Support of Education and an Award of Excellence winner by the University & College Designers Association.

Taking Our Qs

60-Second Proﬁle

Words from the Ys

The Reason Why

Parting Shot

www.business.illinois.edu

We welcome your perspective, too. Send your comments or suggestions for future articles to our managing editor, Mary Kay Dailey, at mkdailey@illinois.edu. CELEBRATING OUR PAST. CREATING OUR FUTURE.

SUMMER 2015

COLLEGE OF BUSINESS

Perspectives

[ YOUR] PERSPECTIVE

EDITOR Cathy Lockman

Perspectives

The University of Illinois at Urbana-Champaign is an equal opportunity, affirmative action institution. Printed on recycled paper with soybean ink.

[ COvER STORY ]

The Seeds of Social Innovation

business.illinois.edu

run By

sTarTups

sTuDenT feLLows

froM

represenTinG

MaJors & Minors

CoLLeGes

Illinois is all about, providing opportunities for students to address social problems and create commercial value.

Deep rooTs Social Innovation at Illinois is a new initiative that has very deep roots in the College. It sprang from fertile entrepreneurial ground that has been cultivated by many people over many years. Pioneering work in subsistence marketplaces and marketplace literacy has been part of that eﬀort as has been

i V e n T u r e a CC e L e r aTo r : By T h e n u M B e r s

ulia Haried has closely followed successful businesswomen, women’s rights advocates, and the third-wave feminist movement. “I’ve read a lot about it,” says Haried, who is working on her master’s in accountancy. “But reading can take you only so far.” Through MakerGirl—one of 13 entrepreneurial ventures that are supported by the Social Innovation at Illinois initiative—“I found a way to actually participate,” Haried says. MakerGirl introduces 7- to 10year-old girls to 3-D printing and gives them a taste of the opportunities in STEM (science, technology, engineering, and math) ﬁelds. Those ﬁelds are traditionally maledominated, but MakerGirl’s vision is to have a 50-50 ratio of females to males in all STEM majors by 2025. Haried cofounded MakerGirl last fall with two other College of Business students, Elizabeth Engele and Sophie Li, in a new course crosslisted in business administration and social work. In the spring semester, nearly 80 girls participated in the 90-minute lab, where each girl goes home with a 3-D item that she created and printed, such as key chains, bracelets, barrettes. This summer, more than 300 girls were part of the MakerGirl experience, which is both socially useful and revenue-positive. Such vision and execution represent what Social Innovation at

the focus in Business 101 on examining global social issues through the lens of professional responsibility. “The College of Business has a rich tradition of addressing global challenges,” says Madhu Viswanathan, Diane and Steven N. Miller Professor in Business Administration. “The groundwork for this sustained eﬀort on social innovation has been laid over the last 15 years.” The Academy for Entrepreneurial Leadership, established in 2004, has also

played an important role by helping to foster a cohesive, campus-wide approach to entrepreneurship. John Quarton, director of the Academy, praises the work of committed groups and individuals across campus for their dedication and collaboration in this eﬀort, including the Provost’s Entrepreneurship Roundtable. “In the Roundtable, we share best practices, and we look to partner with each other on various events,” Quarton says. “Being a part of that group for the past two years, I have come to see ﬁrsthand what a fantastic entrepreneurial ecosystem we have.” Viswanathan agrees and is proud of the role the Academy has taken to nurture it. “The Academy has been a leader in creating an ecosystem for interdisciplinary course development on entrepreneurship, including experimenting with a social entrepreneurship course with the School of Social Work a few years ago. It’s also been a leader for connecting units across campus on the topics of commercial and social entrepreneurship and for creating and trademarking a unique organization, Entrepreneurs Without Borders.” Viswanathan himself has been instrumental in cultivating the seeds of social innovation, teaching a crosscampus interdisciplinary course on sustainable product and market development for subsistence marketplaces. The course, which has been

This summer more than 300 girls were introduced to STEM fields as part of the MakerGirl experience.

College of Business I University of Illinois at Urbana-Champaign

Ryan Singh, at left, is manager of Social Innovation at Illinois. Noah Isserman, at right, is the director. offered for almost a decade, was recognized by Inc. magazine as one of the top-10 entrepreneurship courses in the nation in 2011. In June 2013, when the Chancellor’s campus strategic plan set the goal of exploring a social innovation initiative at the campus level, it was natural for the College to respond. Together with the School of Social Work, the College took the lead in connecting groups across campus to promote ideas that address social challenges. Noah Isserman was hired in January 2014 as visiting assistant professor in business administration and social work and director of the Social Innovation at Illinois program. Last summer Ryan Singh ’14 BADM and FIN joined the team as full-time manager, with support from the College of Fine and Applied Arts and the Academy of Entrepreneurial Leadership. Building on a strong tradition of public service, it hasn’t taken long for Social Innovation at Illinois to begin meeting its campus-level charge. The long and growing list of partners in the effort include the Office of Public Engagement, the Office of Technology Management, the Krannert Center, Research Park, the United Way, and IllinoisVENTURES to name a few.

a “pipeLine” for sTarTups The instructional aspect of Social Innovation at Illinois consists of two courses and a yearlong startup accelerator. The Stage I

4 business.illinois.edu

course gives students an opportunity to design and launch a product, service, or program. “Most student teams are focused on creating startups that address social challenges, all of which the students identify based on their values and what they think needs to be fixed in our world,” Isserman says. The Stage I course, cross-listed in business and social work, has filled each of the last four semesters. Student demand has led to the hiring of an adjunct lecturer to offer additional sections: there are 90 students enrolled for the fall semester. The Stage II course, first offered last fall, is only for student teams who are actively engaged in designing and launching their startup. Isserman is lead instructor for both courses. He has been assisted by PhD candidate Carrie Bosch for four semesters in Stage I. “Our teaching model is very much team-based, and our students benefit from extraordinarily talented TAs and facilitators,” Isserman says. Singh, who facilitates both courses, says about 45 social ventures and 250 students have gone through the two classes. Stage I and Stage II courses, both of which were taken by the MakerGirl team, are part of the course “pipeline,” a term that was chosen intentionally. “The ideas that spark and come to life during the courses often don’t end when the courses end,” Isserman explains. “Collaboration and support among student teams con-

tinue long past the courses themselves as startups continue to grow.” This summer, the initiative held its ﬁrst summer session for the new yearlong Entrepreneurship at Illinois iVenture Accelerator. Thirteen teams were involved, and “the whole goal is that this class of student fellows will become a group of entrepreneurially inclined professionals that help out one another,” Singh says. The teams took three trips to Chicago, engaging with entrepreneurs, incubators, and alumni in the city. Ten of those 13 teams, he adds, came not from the Stage I and II classes, but from across campus— many from the Technology Entrepreneur Center’s Cozad New Venture Competition as well as from other units. Singh says Social Innovation works to get tech-focused teams to engage with more social-focused teams, to the beneﬁt of both. For example, social teams can learn how mobile technology can help them solve the social issue they’re working on. “There’s a lot of cross-seeding of ideas within the summer portion of the accelerator,” he says.

forMinG LinkaGes “This is one of the nation’s largest university accelerators that supports students who are creating social and cultural value in addition to commercial value, which is entirely ﬁtting based on our land-grant mission,” Isserman says. “Many large public universities

are siloed, with many strong individual units, but getting them to work together is the perennial challenge,” Singh adds. “So we wanted to structure ourselves as this connective tissue that brings together different units that form links and relationships and creates products with multiple people.” Indeed, the collaborative eﬀorts that take place—between and among students, colleges, mentors, and advisors—are the lifeblood of Social Innovation. “The College of Business and the School of Social Work are great at equipping students with tools to use in their professions,” Isserman says. “Especially in professional schools, though, it’s critical to learn from other disciplines and to be able to work with others who bring worldviews and lenses that help direct our creation of new ventures.” Isserman and others have recruited dozens of founders and high-level executives from companies around the country to advise the student teams, and 15 faculty members from across campus have served as coaches and mentors. “Coaches check in every week or two and help teams with speciﬁc issues and challenges they have,” Singh says. “Advisors are entrepreneurial rock stars who help set milestones, guide strategy, give good oversight of the project, and some validation that these teams are being supported by experts who have done this before.”

Isserman says this is just the beginning. “We’re just scratching the surface of the tremendous talent among the University of Illinois alumni and broader community,” he says. “It’s inspiring to see what our students are capable of when they are taken seriously and supported by our world-class networks.” According to Quarton, that combination of talent and support is a winning strategy. “The resources available to our young entrepreneurs are nothing short of amazing,” he says. “Through this interdisciplinary approach, so many more students are learning about these resources and taking the initiative to access them. And when they do, they come away inspired. That positive experience spreads as they tell others, who tell others and that reinforces the strength and reputation of entrepreneurship at Illinois. “That reputation and growth wouldn’t be possible without the support of those who strongly believe in supporting future entrepreneurs and have given generously to the Academy for Entrepreneurial Leadership and Social Innovation at Illinois to make entrepreneurial education inside and outside the classroom possible,” Quarton continues. “I believe we are demonstrating to our donors that their money is being put to highly effective use. Hopefully, we will attract more alumni who see the value of what we’re doing and want to sustain this and want to help us continue to grow and mature our entrepreneur-

ship ecosystem with gifts of their time, talent, and treasure.”

enTrepreneurship aT iLLinois iVenTure aCCeLeraTor sTarTups

posiTiVe iMpaCT “Business and entrepreneurship and service and society are linked,” Singh says. “Through this initiative we create more ways for business students and other students to use their knowledge and positions to create societal change as well as commercial value.” And in doing so, “we are addressing all parts of the University’s mission, including the land-grant mission, economic development, research, and excellence in education,” Singh says. “We believe it’s not only important for the students and the faculty but for the institution in order to stay relevant in a changing environmental landscape and to keep moving forward.” As for the students involved, Isserman notes a change in their approach to life. “Today’s students are diﬀerent than they were even ﬁve years ago,” he says. “The evidence shows that our average student is now even more focused on the positive impact they can make on the world.” The Social Innovation program provides a perfect environment for them to have that positive impact. It’s that possibility that motivates Haried with MakerGirl. “I’m changing these girls’ lives for a day— and perhaps that one day will spark an interest that has a very long-lasting impact,” she says. Tom Hanlon

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BLink Develops mobile technologies to help healthcare providers in India save lives in remote villages. CorVae Trailblazers in the medical instrumentation and device space. fLipworD Helps you effortlessly learn a foreign language. i-CuBeD Provides wheelchair users with a way to monitor shoulder usage to reduce repetitive strain injury. kofMan TeChnoLoGies Works with soldiers and police to identify dangerous problems and design solutions. MakerGirL Introduces young girls to STEM fields through 3-D printing. MusCLe MeTriCs Tracks and plans your workouts so you don't have to. The MouVe Creates events quickly, efficiently, and easily. psyoniC Develops highly functional, low-cost prosthetic hands. pLaTforM heaLTh Provides the only secure cloud system for patients to store and own their medical records and the only way for hospitals and doctors to have instant access to everything they need. share a Chair Increases freedom in travel for wheelchair users. spoTLiGhT Helps minority youth share their stories to break down stereotypes. swiMaBLe A learn-to-swim program for children with special needs.

College of Business I University of Illinois at Urbana-Champaign

[LEADERSHIP]

TAKING OUR Qs

name: Joan Rockey, CFA, CAIA, CPA, CGMA, CMA Current position: Chief Financial Oﬃcer & Principal for CastleArk Management LLC previous positions: CEO of Hadelrock Capital Management LLC and Hadelrock Consulting LLC; Event-Driven Trader & CFO of Option Opportunities Company; and Consultant at Ernst & Young’s Reorg & Restructuring Practice university of illinois degree: BS in Accountancy 1993

A seasoned veteran in the $70 trillion asset management industry, Joan leads a $4+ billion AUM global investment advisory firm. In addition, Joan holds numerous board positions with several Chicago-area university, non-profit, and professional organizations, including our College of Business Alumni Association.

business.illinois.edu

Q: how has the role of Cfo changed in the last decade? what changes has that evolution required in a leader’s skill set? rockey: The increasing role and importance of the CFO has drastically changed over the last couple of decades. Strategic or super CFOs are what companies are seeking. Strategic CFOs are the side-by-side partner with executive management in defining and implementing the strategic direction of the firm. In addition, strategic CFOs carry wide global risk and compliance understanding as companies enlarge internationally. Due to their full continuum of strategic, accounting, and financial skills, they are the de facto point persons for organizations that grasp the 360-degree view.

road to success. I echo that today in mentoring women and younger professionals on the essential proﬁciencies needed to ﬁnd their own road to success in Chicago’s worldclass business industry.

hats—such as accounting, tax, trading, ﬁnancial analysis, compliance, personal CFO, and legal—than I would at a bigger ﬁrm, it also quickly launched me into a leadership position.

Q: how would you describe your leadership style? rockey: Motivate + Inspire + Accessibility. Our ﬁrm surrounds itself with remarkable talent and gives team members autonomy and resources to do their jobs. While at the end of the day I am results oriented, I foster a collaborative atmosphere, keeping employees engaged, and demand a trustworthy environment—all enveloped with encouragement to grow and a ﬁrm open-door policy.

Q: what is the most important career advice you’ve received? rockey: Love what you do and success will come to you.

Q: what was a pivotal decision in your career? rockey: Leaving the large, established firm of Ernst & Young LLP, which provided me with excellent reorg & restructuring tax and consulting experience and technical knowledge, and taking a chance on a small, unknown, but thriving proprietary trading firm that invested in merger arbitrage, spinoffs, and distressed debt was a game changer. Not only did it provide me with the opportunity to wear more

Q: what is your go-to strategy when faced with a difficult decision? rockey: Integrity + Honesty. At the proprietary trading firm, it was crucial that you analyze the situation quickly, provide full transparency and complete candor, and make clear and decisive solutions that provided a timely resolution. Therefore, when I am faced with a difficult decision, I strip away all of the noise, focus on the pertinent facts at hand, and reach an apt conclusion. Difficult decisions, while challenging for everyone, really showcase one’s character in handling the stress of the rapid and dynamic nature of businesses today.

Q: what experiences in the College of Business helped shape your vision of leadership? rockey: College life surrounds you with an energy-packed, competitive environment and unbelievable opportunities. The ambition of every professor I encountered was to facilitate every student down the

Q: how would you describe success in your role as Cfo? rockey: My drive is continuous knowledge to keep relevant and making my ﬁrm paramount. My ambition is to keep a high level of emotional intelligence as I accomplish this. Hitting these metrics equates to success in my book.

Q: what leaders have influenced you the most in your career? rockey: To me, the greatest leaders are those unsung heroes that you encounter every day. They are the ones that encourage you, lift you up, give you the platform to do anything, and shape your thinking and vision that you carry with you going forward. In this regard, I have known and worked with the best. My father and mother instilled in me that I can do ANYTHING. My three bosses over the years provided me with the technical accounting and financial backbone, boundless mentoring, remarkable expectations of leadership from day one, and 100% backing to flourish in exemplary firms with unsurpassed cultures in the industry. Saving the best for last, my husband is my confidant and constant who creates my home base to shine. Q: what skills do you look for when choosing members of your team? rockey: Skill is only part of the equation. When looking for team members, I ask myself two questions: Does this individual fit the demanding but jovial culture (weight 50%)? Does this individual have the suitable skills along with the passion for the position (weight

50%)? So in this context, skills mean having the technical knowledge for the particular position, the intellectual aptitude, and a high level of communication proficiencies. Q: what career experience best prepared you for the leadership role you have today? rockey: The ability to wear many hats. Many have honed their specialization to become the top expert in their particular field, which has led to their boundless success. I took a different route by holding a wide breadth of financial and accounting positions over the years. What I have come to appreciate is this has expanded my expertise in many intricate areas that has ultimately led me to be the jack of all trades, master of many. Since today’s CFOs are pulled in many directions, being a seasoned accounting and financial veteran across many specializations and balancing the vigorous demands to run the business are highly sought-after competences. Q: what is the biggest motivator in your work? rockey: Strategic investment projects that have multifaceted financial and tax issues get me extremely motivated.

College of Business I University of Illinois at Urbana-Champaign

Running with the

Big Dogs

[ ECOMMERCE ]

TODAY’S VERSION OF SUBSCRIPTION COMMERCE IS A WHOLE NEW BREED

ido might be mans’ best friend, but the UPS or FedEx driver just might be Fido’s. Monthly doorstep delivery of premium dog food, pet medications, and even treats has become a booming business. It’s a subscription commerce model that is generating strong interest from consumers, entrepreneurs, and venture capital ﬁrms for its convenience, creativity, and appeal. Plus, it’s so easy your dog can do it. You can choose a premium dog food that matches your pet’s nutritional traits and preferences and have it delivered at the same time every month so you don’t run out. The bag can even have your dog’s name on it. If you want to indulge your pet beyond the essentials, you can sign up for monthly surprise packages, like BarkBox, that include special treats and toys for your size dog. It’s a new wrinkle on an old concept—a model we usually associate with newspapers and magazines. Milk used to be delivered this way too, and in some places it still is. But the game has changed as subscription commerce has moved online. The steps are still the same: you sign up, pay a set fee, and the product lands on your doorstep at a regular interval. But the variety of products available via this model is vast and growing every day as imaginative entrepreneurs enter the subscription marketplace.

business.illinois.edu 10

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“A traditional advertisement won't put a product in the consumer's hands, but subscription commerce does.” Udatta Palekar You can buy shoes, razorblades, diapers, food, oﬃce supplies, software, and other products by subscription. You can also discover new products, whether for Fido or yourself. Subscriptions for a monthly surprise box of goodies are available for a range of products, providing samples of everything from cosmetics to clothing to crafts to coﬀees as well as niche products like gluten-free or dairy-free food, green cleaning products, and supplies for a bride- or mom-to-be.

BenefiTs To Bark aBouT The new breed of subscription commerce is still a tiny part of the market. “But it's supposedly the fastest-growing sector in information technology,” says Udatta Palekar, associate professor of business administration. Subscription commerce ventures, not including newspapers or magazines, do an estimated $3 billion in business. “But a lot of companies are reporting 50 percent growth,” he adds. “And the sector also continues to attract the

interest of venture capital firms.” There are two branches of subscription commerce. The first, like our pet food subscription example, is based on convenience. The second, like BarkBox and hundreds of others, is based on discovery; consumers don't know what they're going to get but have a chance to discover products they otherwise would have missed. Multiple factors are driving the subscription commerce, or subcom, movement. Busy consumers are motivated by the convenience and what they hope will be lower prices of subscription shopping. Manufacturers benefit by having a better idea of how much to make, and subcom companies benefit by having a better idea of how much to order. Palekar cites the flower industry as a classic example. Florists typically waste 40 to 60 percent of their flowers because they wilt before they can be sold. Subscription commerce provides a solution; subcom florists order only as many flowers as needed to fill their subscriptions. “This is the reason why a lot of people think this is going to be the model going forward,” says Palekar, who runs the supply-chain management program. “On the supply side, the cost of financing inventory tends to be a huge problem for retailers. This is why they often have sales and discounts. If you have a subscription

College of Business I University of Illinois at Urbana-Champaign

wiLL suBsCripTion CoMMerCe Take a BiTe ouT of reTaiL? model, you don't have to worry as much about that.” Frank Liu, associate professor of business administration, agrees that beneﬁts for consumers and businesses are driving the subscription commerce movement. “For companies, subscription commerce presents the chance to lock in consumers,” he says. “And once they lock in the customers, they can continue to sell to them. They have to worry about delivering on their promise and keeping the customers happy, but they don't have to worry as much about competition.” Consumers stand to beneﬁt by saving time and money. “When we go shopping, we incur costs and we have to spend time,” says Liu. “It's quicker to shop online than to drive around. Once subscriptions are locked in, the savings in time are repeated month after month,” he says. “When a subscription model becomes available, the companies do the work.”

oLD DoG, new TriCks To seize the new opportunity, old-line companies must learn new tricks, whether they pursue the discovery side of subscription commerce or seek to sell the same product month after month. With the discovery model, companies must accurately predict what consumers might like. With the con-

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subscription commerce will get left behind, leapfrogged by nimble competitors who see a market niche and grab it. New ventures will enter the marketplace, while old names will go out of business, predicts Liu. “Unfortunately, we will see more companies like Eastman Kodak in the next 20 years,” Liu says.

feTCh The DaTa

“[Subcoms] have to worry about delivering on their promise and keeping the customers happy, but they don't have to worry as much about competition.” Frank Liu venience model, they must carefully monitor consumers and their buying cycles. “With dog food, for example, if the company doesn't understand your needs, you will become dissatisﬁed and may discontinue the program,” says Liu. “With the discovery model, if they don't like what you're sending, they may decide to cancel your subscription.” But changing an existing business model can be diﬃcult. “Man-

agement philosophy has to update for the subscription model,” says Liu. “The company culture has to change, and that's not easy. People do what they feel most comfortable with. But what they have been comfortable with may not be competitive when a new model comes along. It requires a new way of thinking for management, or sometimes even new management.” The reality is that companies that fail to respond to the shift to

Logistics and technology are largely responsible for the growth of subscription commerce. Improvements in delivery reliability, tracking, and costs provide the means of delivering the product to the consumer’s doorstep. The reach of the Internet and the availability of datamining techniques provide the means of reaching and retaining the consumer. “Businesses today know a lot about their customers,” says Ram Subramanyam, associate professor of business administration. “They understand who's purchasing their products, how often they're buying, and even the decisions behind their purchases. In the old days, a company that delivered milk had no idea—they didn't gather information. They dropped the bottles oﬀ, and left.” But those data-deﬁcit days are long gone, says Subramanyam, himself a subcom customer who sets calendar alerts to keep track of his

subscriptions and budget. “There are people who mine Facebook pages. Amazon can partner with other companies and buy your data from them. They can figure out your age, income bracket, and what you're interested in. And if they know what you're interested in, they can look for other things to sell you. And it's not just Amazon. The more data subcom companies have, the better they get at pricing subscriptions and coming up with new offerings.” Subcom startups can even buy off-the-shelf software to speed entry into the business. The subcom software firm Zuora is a case in point. Among other things, Zuora says it can help subcom companies create “customer-centric offers,” automate billing and payments, and measure key subscription metrics. CrateJoy, founded in 2014 with $6.2 million in venture capital, is another business that supports subcom startups. It provides webpage hosting services, payments collection, and customer account and sales management services, basically the technology backbone of the subscription business. “These new companies have begun figuring out what makes subscription commerce work, and they're selling this knowledge at a very affordable rate,” Subramanyam says. “Technology to make this model work was only available to a

handful of firms before. Now it's been commoditized. If you're a mom-and-pop firm that has a good idea, the technology and data acquisition are very accessible, and you can find customers on the Internet.”

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DiGGinG inTo The DeTaiLs While advances in technology and logistics may open up the subscription commerce market to more players, those who are successful have to be extra vigilant regarding the details of their subscription niche. Companies need to know how long and how often people will need their products. For instance, the Dollar Shave Club sells razor blades on a subscription model. While men may need this product indefinitely, the number of blades they need varies from person to person, since some shave twice a day, others twice a week. “These details are critical because margins can get very tight,” says Subramanyam. “That’s why successful subcom firms monitor every detail and pay attention to a single penny in the cost of a box or in the cost of shipping. Firms have to be very good at understanding every cost that goes into the final equation.” Companies must also closely monitor their customers’ behavior, including any changes they make to their subscription, any merchandise

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Some subscription commerce firms operate on a shoestring with as few as 3,000 or 4,000 subscribers. These companies solicit samples from manufacturers and send them out. “They have to pay something for the samples, but not much,” says Udatta Palekar, associate professor of business administration. “So their costs are quite low.” Anecdotal evidence suggests that if a company retains half of its subscriptions it is doing well. “If 50 percent is considered good, that says that quite a few people try it for the novelty and then quit,” says Palekar. Right now, he says, there is a lot of experimentation on the part of both consumers and subscription commerce companies. Customers are trying to figure out which products they really want to buy through subscription commerce. Companies are trying to figure out which models work. “But the indications are that this is going to become more and more popular.” Subscription commerce is at the point where ecommerce as a whole was in 2000, Palekar says. Long-run predictions suggest that subscription commerce may take a bite out of brick-and-mortar retailers. But Palekar says subcom is so tiny now that it's hard to say that it is impacting any other part of commerce. “What it seems to be doing is providing a form of product introduction for traditional manufacturers,” he says. “It's one way to get the product to potential customers. A traditional advertisement won't put a product in the consumer's hands, but subscription commerce does.” Subcom companies have two methods for setting prices, Palekar says. In one method, company officials ask themselves how much they want to spend for the product, box, shipping, and other costs. Then they seek out products that allow them to meet that goal. In the second method, they calculate how much consumers typically spend on a product such as razor blades. Then they calculate whether they could sell them for a lot less. “In either case, if the numbers don't work out, you don't do it,” Palekar says.

College of Business I University of Illinois at Urbana-Champaign

[ ETHICS ]

The ViBe To suBsCriBe What can you buy via subscription? Here’s a look at some popular subcom players, their products, and their business models.

The honest Company: Safe, eco-friendly products, including diapers, formula, vitamins, and household cleaners are available by the “bundle” and priced that way. The company has the beneﬁt of a high-proﬁle founder, actress Jessica Alba.

“New companies have ﬁgured out what makes subscription commerce work, and they're selling this knowledge at a very aﬀordable rate.”

Microsoft: Software that was once purchased in a package is now available as a subscription service. Microsoft’s Oﬃce 365, launched in 2013, is the company’s fastest-growing commercial product. Subscribers pay $99 annually.

Ram Subramanyam

kiwiCrate: Crafts and educational activities for kids 4 to 8 are delivered to a parent’s doorstep each month for $19.95. Options are available to add extra materials for a sibling at an additional charge.

amazon subscribe & save: Household items like toilet paper, soap, and food staples are available at discounted prices and delivered free when you subscribe to this monthly service. There are no fees, and the subscription can be changed or cancelled at anytime. they return, basically any and all interactions the subscriber has with the company and any information they can obtain about the shopping habits of those customers, so that they are in a position to adjust inventory quickly and accurately. And just like brick-and-mortar companies, subcom companies must oﬀer excellent customer service. One bad transaction can result in a subscription cancellation. Not only does that mean a dissatisﬁed customer who never comes back but one who might be likely to loudly share their dissatisfaction with oth-

ers via the same online platform that made them a customer in the ﬁrst place. Although concrete data are lacking, the cost of acquiring a new customer is thought to be high. “Anecdotally it's estimated that the cost of getting one new customer could run several times the cost of retaining one,” Subramanyam says. “For that reason, the entire premise of this model is that you know how to keep your customers happy.” Doug McInnis Cathy Lockman

•

DollarshaveClub: Create an account, select a razor, and you’ll get replacement blades every month. There is a Not So Hairy option for men who don’t shave daily. No additional fees, and you can cancel anytime.

Mistobox: Coffee drinkers can try new blends with either a sampler or full-size bag subscription. Prices vary based on coffee preferences, price tier, and length of subscription.

BarkBox: Pampered pooches receive treats and toys when their owners pay a ﬂat monthly fee. Products are chosen based on the dog’s weight.

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The Other Bottom Line

stitchfix: Complete a fashion profile and receive five handpicked items to fit your budget, size, and style for $20, which can be applied to any purchase.

ollars are universally understood as the bottom line in business. And earnings are particularly relevant for accountancy professionals. But there’s another bottom line that, at first blush, has little to do with the financial bottom line. It has to do with morals, ethics, and responsibilities, and Jennifer Nichol and Jihyeon Kim have been studying this less obvious—yet critical—bottom line up close. Nichol, who recently earned her PhD in accountancy, has focused on how the framing of contracts—either as bonuses or as penalties—impacts the work decisions employees make. She has also examined how incentive framing impacts whistleblowing. Kim, a PhD candidate in organizational behavior, is exploring a new approach to framing ethical decision-making. These studies—financially supported by the College’s Center for Professional Responsibility in Business and Society—can provide important insights for firms, especially in terms of incentive pay, manage-

“[P]enalty framing actually increases misreporting relative to reward framing.” Jennifer Nichol ment education, and the corporate culture.

pros anD Cons of penaLTy fraMinG Companies have been criticized, Nichol says, for inadvertently structuring incentives in a way that promotes fraud. Bonus contracts, in

particular, can temptingly encourage managers to manipulate information in order to maximize pay. In response, some companies are exploring the use of contractual penalties, such as clawbacks, to incentivize performance. “The irony,” she says, “is that penalty framing actually increases

misreporting relative to reward framing.” However, she adds, penalty framing does result in greater work effort relative to reward framing. “So this highlights the importance of a firm knowing what that sweet spot is—where they should set the target level of performance to get that extra effort and yet not suffer the negative side effects of having greater misreporting,” Nichol says. Further, Nichol says, “penalty framing leads to greater entitlement. If you tell people you are going to pay them X amount, but they face a penalty if they don’t maintain a certain level of performance, that leads to a greater sense of entitlement to the pre-penalized funds than if those funds had been offered as a reward.” And greater entitlement, she says, once it becomes clear that performance is likely to fall short, leads to greater misreporting. “Penalty framing creates entitlement to prepenalized funds,” she says. “And the more you feel entitled to funds you do not receive, the more likely you are to misreport” in order to receive those funds.

College of Business I University of Illinois at Urbana-Champaign

“When ethical principles are consistently presented in classrooms along with concepts like profit maximization or net present value of future cash flows, [students] become more balanced decision makers.” Mark Peecher

Championing professional responsibility ark Peecher, academic director for the Center for Professional Responsibility in Business and Society and Deloitte Professor of Accountancy, says you don’t have to look too hard to see the need for strong business ethics education. “We just had five major banks pay $5.6 million in penalties” for their roles in manipulating currency exchange rates and LIBOR rates—that is, the interest rates big banks often charge one another for short loans, he says. The Center plays an important role in leading the conversation on professional responsibility and accountability both on campus and off. The recent establishment of the Business 101 course, for instance, provides a strong foundation on ethical decision-making for first-year College of Business students. The Center’s financial support of research that impacts ethical choices made in the workplace, such as the work of Jennifer Nichol and Jihyeon Kim, is another initiative. Peecher, who began his academic director role with the Center about a year ago, has additional ideas on how the Center can further the ethics conversation, especially as part of instruction within the classroom. Currently, all students in the College get an early grounding in ethical decisionmaking in Business 101, but Peecher is looking for additional opportunities to further stress the concepts of professional responsibility toward the end of their undergraduate learning experiences. One consideration is to build a “bookend experience” for business students. “I’m exploring a capstone during their senior year, maybe with some tailoring for their major so

M Nichol plans to continue her research in contract framing as an assistant professor at Northeastern University in Boston, where she began working this summer.

how penaLTy fraMinG affeCTs whisTLeBLowinG Nichol also studies whistleblowing, which she says is a different type of ethical issue. “A decision to misreport performance tends to be a clearly unethical choice, while a decision to report a peer can have seemingly moral arguments for both sides,” she says. There are many reasons why you might not want to blow the whistle on a peer, from feeling sympathy for the person to feeling that you are being disloyal. Ultimately, whistleblowing norms help people decide what they should do, and the success of the incentive will depend on those norms. If whistleblowing is a socially approved behavior in your company, Nichol says, then penalty framing is more effective than reward framing to get people to blow the whistle. But if the norm is against whistleblowing, rewards and penalties appear equally effective.

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“One reason that people might make unethical decisions is that they have underdeveloped knowledge about ethics.” Jihyeon Kim “Firms that have a strong ethics program in place and that increase the social approval to blow the whistle are likely to be more successful threatening a penalty for failing to blow the whistle than offering a reward for whistleblowing,” she says.

The “why” of eThiCaL ChoiCes Jihyeon Kim’s studies examine ethical issues as well. Her research focuses on a new approach to moral awareness—that is, why people fail to recognize ethical issues in various situations.

“I am interested in helping people live up to their own ethical standards,” says Kim. “Thus, I am investigating how to reframe ethical decision-making as a knowledgedriven process. One reason that people might make unethical decisions is that they have underdeveloped knowledge about ethics. Perhaps people do not know enough about ethics, and as a result fail to recognize ethical issues when they arise and so make unethical decisions.” This lack-of-knowledge explanation of the “why” behind ethical choices is different from the situational ambiguity explanation often cited for a lack of moral awareness and poor ethical decision-making. “In reality, nearly all situations are ambiguous,” says Kim, “so that raises as many questions as it answers.” She suggests a new possibility for why people cross ethical boundaries. “Ethics is more complicated than ‘be good’ and the life lessons we learned as children,” Kim says. “The world is more complex. People may have a poor understanding about what is ethically correct. People may not know enough about ethical principles and, consequently, fail to

recognize the relevant principles when they arise and so make unethical decisions.” Kim, who has conducted two experimental studies so far on moral awareness and ethical decision-making, says that her research “provides a basis for management education and professional training in the domain of business ethics” and can be used to improve the effectiveness of training in business ethics. “Many times people fail to notice ethical issues that arise in the workplace, and they make poor choices that they later regret,” she says. “So developing people’s knowledge in ethics enables them to better recognize ethical issues, leading them to be more likely to make ethical decisions.” Recognizing and addressing that lack of moral awareness is critical for companies and their employees. • Tom Hanlon

that when they leave the College they have an experience like Business 101 again,” Peecher says. “I’d like to help instructors bring to students a broad decision-making framework that emphasizes more than just the bottom line in terms of dollars.” Peecher is also focused on expanding faculty involvement in the instructional mission of the Center. “Students lose out when professors discuss business ethics only in ethics class. When ethical principles are consistently presented in classrooms along with concepts like profit maximization or net present value of future cash flows, they become more balanced decision makers,” he says. “We want students to be able to answer questions like: ‘Who are the various stakeholders, and how will each set be affected by the judgments I make?’ ‘What principles and values do I want to be guided by in my decision-making?’ The more opportunities we provide to ask those questions, the more reinforcement there is of building an ethical value system.” Peecher also says he hopes to increase the Center’s support of doctoral student research, from two student grants last year, to three or four next year. Down the road, there may be opportunities to support faculty research as well. “We also are thinking of ways to involve our alumni in the Center in a more robust way,” he says. “Our alumni are an incredible asset, and they have experienced tough business judgment issues that my faculty colleagues and I have not directly experienced. So, their involvement can help us shape future business leaders and further establish the Center as a place that can create a huge competitive advantage for our students.” • Tom Hanlon

College of Business I University of Illinois at Urbana-Champaign

1600 & 5

The largest number of students Larry taught in one class, Economics 102 in Foellinger Auditorium; and the smallest number he taught in a PhD seminar

2015

The year two important initiatives of Larry’s deanship came to fruition: the announcement of the iMBA, the first online MBA to leverage the power of MOOCs; and the renovation and renaming of the Surveying Building to the Richard D. Irwin Center for Doctoral Study in Business

766

The number of miles from Manlius, Illinois, where Larry grew up, to Cornell University, where he earned his master’s and doctorate degrees in economics; he also earned his bachelor’s degree in economics from Bradley University

Larry DeBrock

The number of major league baseball stadiums Larry DeBrock has visited across the country; as a math major turned economist, he enjoys the statistics and strategy of the game

Larry DeBrock may be a lifelong Chicago Cubs fan, but Wrigley Field isn’t the only place he goes to enjoy America’s pastime. A frequent visitor to Illinois Field, the dean shared in the excitement of the Fighting Illini’s 2015 Big Ten Championship cheering on the 50-10 team, which included six students in the College of Business: Nick Blackburn, Doug Hayes, Will Krug, Pat McInerney, Anthony Milazzo, and Dan Rowbottom.

JOSEF AND MARGOT LAKONISHOK ENDOWED DEAN

[ 60-SECOND PROFILE ]

The number of years he has served the College and the University as a faculty member; at the conclusion of his deanship in August, Larry will teach in the Department of Finance

The percentage growth of tenure-track faculty in the College during Larry’s time as dean; in 2008 there were 86 tenure-track faculty, and by 2015 that number has grown to 99

2+1

The number of University of Illinois degrees in the DeBrock family: wife Cindy and daughter Catherine are both LAS graduates in psychology; son Joe is a junior in the Department of Physics

The number of awards Larry has received for his teaching in the MBA program alone; in addition, he has received campus-wide recognition several times for his work with undergraduates

business.illinois.edu

College of Business I University of Illinois at Urbana-Champaign

[ CENTENNIAL SNAPSHOT ]

A Look Back

PIONEERING NEW IDEAS THAT IMPACT THE WORLD OF BUSINESS

Editor’s Note: As the College celebrates its 100th year, Perspectives will include a series of Centennial snapshots that focus on the history of our departments. In this issue, we share a snapshot of the story of our Department of Business Administration through the reflections of our faculty and a timeline of department milestones.

ent Monroe came to Illinois in 1963 to earn a doctorate of business administration. At the time, only a handful of universities oﬀered the DBA, which emphasized training in quantitative methods and computer skills. The curriculum focus was on economics, math, and statistics. “It was basically the study of what we now call ‘management science,’” says Monroe, who was the last person, and one of only eight, to earn a DBA from the College. “Around 1959, there was a Carnegie report issued that took

business education to task for being nothing more than trade education,” he says. “Leaders in the ﬁeld began to stress the need for strong quantitative training. The response at Illinois and other top schools was to initiate programs to do that.” The establishment of the Graduate School of Business Administration, the MBA, and the DBA was part of that eﬀort. As a result, “things were in ferment, and the College was undergoing a lot of curriculum review while I was a student,” continues Monroe. Part of that review resulted in the

reevaluation of marketing course oﬀerings, and in 1965 Monroe was asked to develop and teach a course on pricing. Twenty-ﬁve years later when asked again to assist the College, the by-then world-renowned scholar on behavioral price research again took up the challenge. “In the fall of 1990, I got a call from David Gardner asking me to consider a position at the College that would focus on mentoring graduate students and young fac-

Former head of the Department of Business Administration Kent Monroe, seated, returned to campus this spring. The professor emeritus is joined outside BIF by Tiffany Barnett White, associate professor of business administration, and Aric Rindfleisch, current head of the department.

1902

1924

1948

1959

The College establishes its ﬁrst marketing course, just the second such course to be oﬀered at a U.S. university.

Paul D. Converse (above), a pioneer in the ﬁeld of marketing, begins his 33-year career in the College. In 1946, the AMA creates an award to recognize his many contributions to the ﬁeld.

The College establishes Business Management Services to assist businesses like the KarmelKorn shop (above) and, as Dean Howard Bowen said, “to help get business education down to earth.”

The MBA program (advisor and student above) is reestablished through the Graduate College. An eﬀort earlier in the decade to oﬀer the degree through the College was short-lived.

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Timeline photo credits: All faculty photos and center photo above courtesy of the University of Illinois Archives.

College of Business I University of Illinois at Urbana-Champaign

D Busin epartment ess Ad of min establi shed in istration 1968.

ulty,” says Monroe. A year later, he returned to the Department of Business Administration as the J.M. Jones Distinguished Professor of Marketing, a position he continues to hold today as emeritus. At the time, Gardner was the associate dean for graduate programs. He had joined the faculty in 1966 and was one of the earliest experts in the world to be trained in consumer behavior. “Kent was a kingpin in the International Marketing Consortium and someone I felt would be a phenomenal person to mentor our graduate students and faculty,” says Gardner, now professor emeritus of business administration. Monroe went on to do that and more, serving as head of business administration from 1994 to 1999. It was a time, he says, when changes needed to be made after two decades of growth in the disciplines under the business administration umbrella.

DiVersiTy of DisCipLines The department was oﬃcially established in 1968 by the merger of the Department of Industrial

Administration, the Department of Marketing, and the Graduate School of Business Administration. Five years earlier, the Department of Industrial Administration had formed from the merger of the Department of Business Law and the Department of Management. So one department covered a lot of ground. “As the ﬁeld developed to include management information systems, strategy, international management, and other disciplines, the College needed to expand oﬀerings beyond the organizational behavior and marketing disciplines for which it had developed such a strong reputation,” says Monroe. But, he says, the funding didn’t match the expanded needs for courses and faculty, and over time

that impacted the quality of graduate students and faculty who could be successfully recruited. “One of the first things I did was to initiate changes to strengthen the doctoral program,” says Monroe. “We limited enrollment, dropping the size of the program from 70 to the low 40s, and we raised the stipends, which made us more competitive for the higher-quality students.” There was also some fencemending to be done. “When the decision was made in the 1950s to establish the Graduate School of Business Administration within the College and offer the MBA through it instead of through the Graduate College, I understand it ruffled some feathers. When I was department head, I saw some of

that lingering disfavor and worked to help them understand our issues as a department.” Monroe also tackled ﬁnancial issues, developed the Graduate Studies Committee, and initiated a new procedure for evaluating faculty. That was in addition to teaching a popular pricing course in the MBA program, conducting research, and serving the profession as an active member of marketing and consumer research organizations and editor of journals within the discipline.

LeaDership anD innoVaTion Monroe was one of several leaders within the many disciplines of “business administration” who, over the last 40 years, set the course for the College and built its reputation through a commitment to scholarship, teaching, and innovation. Gardner, himself a leader in the consumer behavior discipline, was the ﬁrst advisor on the subject to the

Federal Trade Commission. He remembers Sunday night meetings at the home of Robert Ferber, an economics professor who was also the head of the Survey Research Laboratory. Ferber had a national reputation for excellence in consumer behavior and encouraged the development of the discipline within the Department of Business Administration. It was a time of transition, says Gardner. Many notable marketing faculty had retired by then, like Paul Converse, Hicks Hugey, Fred Jones, Bob Mitchell, and Hugh Wales, “but there remained a strong collaborative atmosphere and a fervor and commitment to recruit the top experts in the ﬁeld.” One of those young experts was Jagdish Sheth, who joined the department in 1969 and has gone on to become one of the world’s foremost authorities on marketing and consumer behavior. In his book, The Accidental Scholar, Sheth recalls that: “Illinois had recently restructured the College of Commerce and

Pondy

several of the business-related disciplines—marketing, organizational management, business law, etc.— were consolidated into the business administration department, which was my department.” He mentions that with the leadership of senior faculty members Ferber, Gardner, Seymour Sudman, and Richard Hill there was a collegial atmosphere. “At Columbia, my attempts to bridge the chasm between psychology and marketing were problematic so it was good to know that would not be the case at Illinois,” writes Sheth. He became acting head of the department in 1970 and worked to “consolidat[e] ﬁve separate disciplines into one cohesive department.” In 1972, Sheth turned his attention from administrative duties to research and teaching. Ken Uhl was named head of the department that year, a position he held until his untimely death in 1978. Sheth agreed to return as acting head at that time. He served until 1981, when Louis

Gardner

Pondy, an organizational behavior scholar who joined the department in 1973, was named department head. Pondy served until his cancer diagnosis in 1986 and was succeeded by Frederick Winter.

ChaLLenGes anD opporTuniTies No matter when they served, department heads in business administration faced the same challenge—forming a unified department and keeping it. “There is a difficult integration issue, which business administration by its nature continues to face because we are the home of so many different disciplines,” says Monroe. “But that diversity offers many opportunities as well.” Huseyin Leblebici, department head from 2000 to 2010, agrees. “One advantage for business administration has always been that we have an environment that allows for innovation and experimentation,” he says.

Monroe

Gardner was in on the ground ﬂoor of one such eﬀort. “In 1973, I was asked by Ken Uhl to start the entrepreneurship program in the department,” says Gardner, who taught the subject until his retirement in 1999. “It was a new area, and there was no material out there except Up the Organization by Robert Townsend. But we began to build a program and a protocol for consulting that provided the foundation for what still goes on today in the MBA.” Other initiatives, like the Executive MBA Program, which Sheth helped establish in 1975, and the Master of Science in Technology and Management, which began during Leblebici’s tenure, were among many that continued the department’s commitment to innovation. “Obviously, not every attempt has been successful,” says Leblebici, “but our department is continually looking for ways to pioneer new ideas, new strategies, and new ways to impact the world of business.” • Cathy Lockman

Leblebici

1968

1970

1973

1975

1985

1991

1992

2000

2005

2015

The Department of Business Administration is established by the merger of the Department of Industrial Administration, the Department of Marketing, and the Graduate School of Business Administration.

Jagdish Sheth (above) is named acting head of the department.

Business administration students in the 1970s take advantage of the many resources and recruiting opportunities oﬀered through the department and the College.

The ﬁrst four courses in information systems are introduced in a joint eﬀort between the accountancy and business administration departments to train students in this new discipline.

The Executive MBA Program welcomes its ﬁrst class.

The Oﬃce for Information Management, a groundbreaking initiative within a U.S. business school, is established. Louis Pondy was head of the department at this time.

David Gardner, a 25-year member of the faculty and the associate dean for graduate programs, helps recruit marketing scholar Kent Monroe to lead the department.

The Executive MBA program operates out of two cities— Chicago and Champaign, which are connected via videoconference link.

Huseyin Leblebici, who earned his MBA and PhD from the College, is named head of the department.

The department’s undergraduate curriculum is revised during Huseyin Leblebici’s tenure as department head, creating new majors aligned with changing business practices.

The MakerLab, established two years earlier, puts faculty and students at the forefront of the Maker Movement. It is the world’s ﬁrst 3-D printing lab in a College of Business.

business.illinois.edu

College of Business I University of Illinois at Urbana-Champaign

[CORPORATE SOCIAL RESPONSIBILITY ]

To B or Not to B? I

n 1970, Nobel-Prize-winning economist Milton Friedman penned a now famous essay that said corporations should stick to what they know best, which in his view meant making money, not focusing on good works. The piece, which ran in the New York Times Magazine, was pointedly entitled: “The Social Responsibility of Business is to Increase Profits.” While he had no objections if corporate executives undertook projects for the social good on their own time, he drew the line when they committed their company's resources. Friedman reasoned that when executives diverted corporate resources for the social good, they were spending someone else's money. “Insofar as [the executive’s] actions in accord with his social responsibility reduce returns to stockholders, he is spending their money,” wrote Friedman. “Insofar as his actions raise the price to customers, he is spending the customer's money. Insofar as his actions lower the wages of some employees, he is spending their money. The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so.” Forty-five years later, the debate between doing well financially and doing good for others continues.

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B Corp or BenefiT CorporaTion? Today, many companies routinely issue statements of corporate social responsibility. Others are taking even bigger steps by seeking one of two designations: B-Corp or Benefit-Corporation status. B-Corp certification is awarded for meeting strict standards for social and environmental performance. “It is similar in some ways to obtaining a LEED certification for green buildings or a fair-trade certification for coffee,” says Denise Lewin Loyd, associate professor of business administration. “It’s a commitment to adhering to a rigorous set of standards that provides others with the knowledge that you are dedicated to setting a high bar for your business in terms of social responsibility.” Others register as Benefit Corporations in their home states. The option is available in Illinois, 20 other states, and the District of Columbia. Benefit-Corporation status legally requires companies to devote resources to benefit workers, the community, and/or the environment. “Under the statute, you are required to do some social good,” says Mark Peecher, professor of accountancy and academic director of the Center for Professional Responsibility in Business and Society. “There

“There really is this tension in people's minds between the bottom line and social considerations.” Denise Lewin Loyd

could be legal implications if you fail to meet your social mission.” Loyd explains further: “If you're an organization that's always had a concern that went beyond the bottom line, you may have been challenged for pursuing an action that shareholders thought went against their interest. From that perspective, Beneﬁt-Corporation status creates a formal designation that this is part of the company's mission. It protects against lawsuits from shareholders

who say they're not getting enough return on their investment. But the company could get a lawsuit for failing to pursue their identiﬁed public good.”

DesiGnaTion DifferenTiaTor While no direct financial advantages flow from Benefit-Corporation status, there are multiple reasons for companies to sign up. According to the Benefit Corp Information Cen-

College of Business I University of Illinois at Urbana-Champaign

ter, the designation differentiates “the company in a confusing marketplace in which everyone is claiming to be a responsible or green business.” It also gives directors and officers legal protection to take into account the interest of workers, the community, and the environment when they make decisions. Once the move has been made, Benefit-Corporation status requires corporations to have a “material positive impact” on society and the environment, and they must make a public annual report that assesses their performance on these issues against a third-party standard, the center says. “Benefit corporations have a different expectation,” says Peecher. “They are saying, 'We may decide not to maximize shareholder value. We may decide to do things for the environment.' This designation puts other stakeholders on parity with investors or possibly higher.” Such parity likely would have made Friedman shudder, since he considered investors preeminent. He also thought the involvement of business in social projects ultimately undermined the capitalistic system that made business possible. Referring to speeches made by businessmen on the topic of social responsibility, Friedman said: “This may gain them kudos in the short

business.illinois.edu

“It's a lot more inspiring to go work for a company that says, 'We cured River Blindness' versus one that says we hit our third-quarter-earnings target.” Michael Bednar

run. But it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces. Once this view is adopted, the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats.”

Be GooD for Business So businesses struggle with the question: Should we make as much money as possible or make money and make the world a bit better too? “There really is this tension in people's minds between the bottom line and social considerations,” says Loyd. “I see this with the students in my classes. They ask, ‘What if I pay my employees more? Then there is

less for the shareholders. The state of Illinois Pension fund could be one of the shareholders.’ It's definitely not a simple, straightforward issue.” But what if doing good attracts better employees, which may in the long run enhance the bottom line? Take the case of Merck, the global pharmaceutical company. Years ago, Merck developed a cure for River Blindness, a parasitic African disease that renders victims blind. The company gives the drug away. “That costs them money,” says Michael Bednar, assistant professor of business administration, who cites the case in his class. But that cost may also pay benefits by attracting top-caliber scientists to work for the company, Bednar says. “It's a lot more inspiring to go work for a company that says, 'We cured River Blindness' versus one that says we hit our thirdquarter-earnings target. In the long run, such companies may get better scientists and have a better chance of developing blockbuster drugs.” Even Friedman agreed that such good works could be beneficial, if limited and targeted. In his 1970 essay, he wrote that “It may well be in the long-run interest of a corporation to devote resources to providing amenities to [their] community or to improving its government. That may make it easier to attract

desirable employees, it may reduce the wage bill, or lessen losses from pilferage and sabotage or have other worthwhile effects.” And what about other benefits? While there are no tax advantages to the B-Corp or Benefit-Corporation designation, the commitment might be good business for other reasons. “Some consumers will put their dollars where their values are,” says Loyd. “In addition, organizations that have committed to the B-Corp designation or that have registered as Benefit Corporations could also be interested in working with suppliers who have made similar commitments. So the designations may not only attract customers, but they could also land them supply contracts or other beneficial relationships with like-minded companies.” But there’s another side to that coin. “To the extent that individuals don't agree with your social goals, there’s also the chance that you could lose business,” Loyd says. And because there are costs that accompany the extra commitment to social good, the business may lose the price-conscious consumer. “Some people may not be able to patronize companies that aim to do good because they can't afford to, Loyd says. “They have to look for the lowest price because they can't afford to do otherwise.”

“Benefit corporations . . . are saying, 'We may decide not to maximize shareholder value. We may decide to do things for the environment.'” Mark Peecher

The eTsy faCTor Both Beneﬁt Corporations and B Corporations are attracting converts. More than 1,300 companies in 121 industries and 41 countries have obtained B-Corp certiﬁcation. While many are small companies, a larger, more recognizable name—Etsy—is creating visibility and buzz for B Corp. Etsy is a major coup for B Corp because of its global reach, vast

membership, and international reputation. The online marketplace for handmade goods has 40 million members and more than 1 million active shops, with vendors reportedly grossing more than $1.35 billion in 2013. According to a company statement, Etsy “became B-Corp certiﬁed because we believe that business has a higher purpose. Companies like

Etsy can and should operate both to succeed as a business and in service to the local and global community. The B-Corp assessment gives us a framework for how to sustainably operate long-term as we continue to grow and scale as a company.” It remains to be seen if investors concur. “Etsy is a really interesting test case,” says Bednar. “They've gone public, and now they will be subject to large investors who have very different agendas. Most shareholders want to maximize the investment they put in. With a company like Etsy, it will be interesting to see whether they can attract investors who think B-Corp certification is a good strategy.” Other companies will be watching and evaluating the strategy. “Regardless of whether a company is a Benefit Corporation or a B Corp, the big picture is that the organization is willing to go beyond profits to achieve a general public benefit,” says Loyd. “While this goes against what people think of as a corporation's primary aim, it is a direction that companies are increasingly considering.” Doug McInnis

•

College of Business I University of Illinois at Urbana-Champaign

[ WORDS FROM THE Ys ]

What is the most valuable leadership opportunity you have had as a student in the College of Business?

In May, more than 600 seniors graduated from the College of Business. Seven of them shared with Perspectives how their experience in the College provided valuable leadership opportunities that helped shape their future. These seven were among 30 graduates from the College who were selected to the Senior 100 Honorary, which recognizes 100 students from across campus for their leadership and loyalty to the University. One of them, Naomi Liu, was also named the 2014 Lincoln Academy Student Laureate for the University of Illinois, the fourth College of Business student to earn the honor in the last five years.

business.illinois.edu

I’ve been lucky enough to have deﬁne leadership in the College At one of my graduation recep“multiple “ofI Business “tions, leadership opportunities in as ‘leaving a legacy.’ Dr. Magelli delivered a powerthe College of Business. However, the most valuable one I had was this past semester. I was part of the project management team for the first online MBA degree specializations at the University of Illinois through Coursera with Professor Aric Rindfleisch. As the only student on the project, I helped with developing the course material and with the course videos. This leadership opportunity was valuable because the course was the first of its kind, so there were no templates to follow, which gave us the freedom to take the course where we believed would be most beneficial. The course has almost 100,000 participants, and knowing that my leadership has impacted that many people is truly rewarding.

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Jolie Huang Accountancy Gurnee, Illinois Will be attending Harvard Law School in Fall 2015

Being a section leader for the Business 101 course, ‘An Introduction to Professional Responsibility,' allowed me to leave my legacy on the College. I had the opportunity to teach a curriculum focused on welcoming students, introducing them to the world of business, and exposing them to the concept of professional responsibility. Through teaching, I was able to make an impact on those who one day could lead the College of Business and the business world. I found value in not only motivating a group of bright students to explore the course content, but in knowing my class could look to me as a mentor and leader.

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Katie Donnewald Finance and Marketing Arlington Heights, Illinois Will join PwC Management Consulting in Chicago

ful charge to, above all else, make sure that we make a diﬀerence in other people's lives. This is the approach I tried to take in my undergraduate leadership positions. During my experiences at Illinois Business Consulting, I was able to mentor students on the development of their presentation, deliverable, team, and client engagement skills. I was also able to help other underclassmen reﬁne their research and analytical skills as a part of the Investment Management Academy and provide career mentorship in the Investment Banking Academy. These leadership opportunities provided me with invaluable professional skills, lifelong relationships, and unforgettable experiences that I will cherish for the rest of my life.

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Shanu Mathew Accountancy and Finance Houston, Texas Will join Evercore Partners in Menlo Park, California, as an investment banking analyst

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Professor John Hedeman made it clear on the ﬁrst day of college classes that leadership was simple: Make other people better. With that in mind, I served as president of the Investment Banking Academy. We focused on mentorship by setting up opportunities for seniors to meet with every junior to prepare them for networking, interviews, and success on the job, and we focused on teamwork, taking time to acknowledge and celebrate each other’s successes any time a member receives an internship or full-time oﬀer. We believe there should be an academy for every career path, so we worked with faculty members to start the Investment Management Academy as well.

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David Van Vlierbergen Finance Algonquin, Illinois Will begin work at JPMorgan in New York

My most valuable leadership expeThe most valuable leadership op“rience “portunity “One of the best aspects of our Colcame when I served on the ExI had was being the presilege of Business is the opportunity ecutive Board of Business Council, which serves the College of Business and facilitates professional, social, and service events for 130 members. As the vice president of operations, I ran our recruitment process, managed membership requirements for all members, and oversaw four committees and coordinators. Through these demanding tasks, I developed my decision-making, logistical planning, and management skills. With the Executive Board’s five other members, I learned the value of group unity, how to better work in a group setting, and how to find my voice in difficult decisions. Through the experience, I developed myself professionally and made lifelong friends and memories that I will never forget.

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Kristen Cantieri Accountancy Cary, Illinois Will serve as an assurance intern at PwC for the summer and begin the MAS program in the fall

dent of Enactus, an organization committed to using the power of entrepreneurial action to transform lives and shape a better, more sustainable world. I have been a member of Enactus since my ﬁrst semester freshman year, and it has grown and changed drastically over my four years. It was both an honor and a challenge to have witnessed and taken part in that growth. Serving as president and leading an organization of 70 people constantly pushed me to my limits and allowed me to develop professionally, socially, and even academically. Learning to work with all types of people and effectively manage all the stakeholders was an incredible experience.

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Naomi Liu Finance and Supply Chain Management Westmont, Illinois Will join PwC in Chicago

students have to create their own organizations. My most valuable leadership experience was being a co-founder of Prime, an organization devoted to exposing underclassmen to the skills, resources, and tools needed to succeed in primarily ﬁnance and consulting ﬁelds. The additional objective of Prime is to help students discover themselves in regards to potential career paths. I learned how to build something from scratch, deliver value to dozens of eager students, and hone my leadership abilities in ways I never thought a college student could.

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Eric Kogut Accountancy and Finance Glenview, Illinois Will join KPMG in Chicago

College of Business I University of Illinois at Urbana-Champaign

[ THE REASON WHY ]

who Tim Reierson, Master of Science in Accountancy program director and retired PwC assurance partner

A PARTNERSHIP BUILT TO LAST

t might seem to some people on campus that Tim Reierson ’81 ACCY never left town after graduating. That’s because Reierson, recently hired to head the Master of Science in Accountancy (MSA) program, has been a fixture on campus in the 34 years since he graduated. Reierson, who retired last summer at age 55, spent his entire 33-year career at PwC. The final 21 of those 33 years he operated as an assurance partner, managing relationships with key audit clients as well as being the firm-wide relationship partner for the University of Illinois. “We placed our emphasis on the schools where we thought we were going to get the best talent,” Reierson says. “Illinois is one of those schools. The firm recognized my commitment to the University and my success in recruiting there. So it was a natural progression for me to take on that role.” He spent upwards of 350 hours per year in his role as relationship partner for Illinois. “I was one of the most visible liaisons between the big firms and the schools,” Reierson says. “To be most effective, you have to be there face to face.” True to his word, he spent about 65 percent of his 350 hours per year on campus. His affinity for Champaign-Urbana continued to grow as did his relationships with students, faculty, and staff.

business.illinois.edu

BuiLDinG reLaTionships In his role as relationship partner for Illinois, Reierson led recruiting efforts across all of PwC’s lines of business. He built relationships with faculty, supporting their research efforts and classroom activities, helped build and support programmatic initiatives, acted as a sounding board and a resource to the College, and spearheaded annual fundraising efforts among Illinois alums at PwC. “It was a broad responsibility,” Reierson says. “It was about enhancing the brand and reputation of the College and the accountancy department as well as the brand of the firm.” So why would a busy man like Reierson – who was also an audit partner for PwC and who employed the same face-to-face strategy with all his other clients as well – invest so much time in his alma mater? “I have this burning desire to give back as often as I can,” he says, “because I’m grateful for my degree. It has served me well. Leaders have a responsibility to share what they’ve learned with future business leaders. So I wanted to be available to mentor, to coach, to help accounting students. And being on campus has always energized me. I always left feeling recharged, refreshed.” A few times, Reierson recalls, PwC came to him with opportunities that would have required him to sig-

nificantly diminish, or cut altogether, his role as relationship partner with Illinois. But he turned those opportunities down, and leaders at the firm agreed: He was too valuable in his role as relationship partner. They also came to understand that his drive to excel in serving his audit clients was fueled by his passion for serving Illinois.

new roLe in “reTireMenT” Before Reierson retired from PwC, he thought about how he would spend his time in retirement. “I had to find something that stimulated me, where I could be inspired and challenged,” he says. “What’s the one environment that always gave me a lot of energy? The University of Illinois. I knew I would find my way back down to campus.” So Reierson had a conversation with Jon Davis, head of the Department of Accountancy. Davis told him the door was open when Reierson was ready, and that door led to the MSA leadership opportunity. It’s a one-year program comprised of about 90 percent international students. “Jon sees the program as of great strategic value to the department,” Reierson says, “and I like being in a place where I can add strategic value. The students have the hard skills, the technical skills, but not always the soft skills. They need that balance.

whaT Master strategist, liaison, relationship architect, value adder, coach, mentor, program builder, brand enhancer, and new leader of the MSA program

They need to know how to communicate well, build relationships, work on a team, start conversations, make strong first impressions, and so on. I want them to leave the program with a toolbox of both hard and soft skills.”

TakinG CharGe of The Msa proGraM Reierson spent a semester acquainting himself with the program and coaching and mentoring the students before being appointed program director. “I’m excited because I like the interaction with students, I like the soft skills delivery, I like the potential it has to enhance the brand and reputation of the department, but more importantly it gives me the opportunity to engage in an environment where it gives me energy and I can engage in relationships at a deeper level,” he says. “I have coached, mentored, and shared life stories with many students over the years, because I thought it was an important responsibility as a leader to do that,” he continues. “It was done for me. I was privileged to have a lot of people show me not only the way to do it but also why it is important. I will be very hands on, very visible.” Tom Hanlon

when Graduated in 1981; named PwC relationship partner for Illinois in 1993; assumed MSA program director role in May 2015 where 33 years at PwC in Chicago; a constant presence on campus since entering the University as a freshman in 1977 why To give back to the University that he says gave so much to him and to help guide the next generation of accountancy leaders

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College of Business I University of Illinois at Urbana-Champaign

[

PARTING SHOT

]

Jeﬀrey R. Brown will become the tenth dean of the College of Business in August. A nationally renowned scholar-educator, a world-class economist, and a prominent public policy thought leader, Brown has been a member of the College faculty since 2002 and is an award-winning researcher and teacher. Brown welcomes the opportunity to lead the College and articulates a strong vision for its future.

“By engaging all our stakeholders— alumni, faculty, staﬀ, and students— we will establish our College as a global leader in undergraduate and graduate business education.” Jeffrey R. Brown