TREND Magazine spent a week at the University of Chicago Booth School of Business in Chicago. Its goal was to find out how a top school like Booth operates, why it continues to produce the best economists and why the best minds in the field of economics teach at the school. Here are some lessons learned.--Translated from the original Slovak by Sonia Ostatnikova
Dec. 21, 2016 | Ján Záborský | Trend Magazine
The university campus resembles a scene from Harry Potter: low-rising pseudo-gothic buildings surround a large park. It is an unusually warm November in Chicago. Students are scattered beneath the trees, occupying benches and grass, but they carry notebooks instead of textbooks. At the end of the quadrangle, in the shadow of the Rockefeller Chapel, stands a modern three-story building. Its architecture mirrors the more modest Robie House just across the street. The Robie House is one of the most famous masterpieces of Frank Lloyd Wright and one of the first nationally registered buildings in the U.S. The Chicago Booth School of Business, as this part of the university is known, is often ranked as the best business school in the world. We spent a week there exploring how such a school can be built and what needs to be done to keep it at the top of its game.
Chapter 1: Students
“Students who apply here know that we have high expectations and that they will have to work hard. We cultivate this perception. It is part of our tactics,” Stacey Kole, Deputy Dean for Alumni, Corporate Relations, and the Full-Time MBA Program explains. The school’s reputation is thus the first filter for attracting the best students.
The MBA program lasts for two years. There is a rigorous selection process, which resembles job-seeking: cover letters, CVs, interviews… Each year over three thousand students apply. Stacey Kole outlines the search criteria: leadership potential, excellent academic record, and intellectual curiosity.
“We aim to create a diverse student body from the U.S. and abroad, comprising people from all walks of life. The school offers not only education but also a professional network that lasts a lifetime. Diversity among classmates is thus essential,” Douglas Skinner, Interim of the School, adds. About 40% of students come from abroad. The school also has two MBA programs outside the U.S.: in London and Hong Kong. Students from those campuses spend two weeks a year in Chicago for networking purposes. As graduates, they leave with contacts in Europe, Asia, and USA. “The international programs are designed for experienced managers. Students in these programs get an opportunity to establish relationships with more senior managers worldwide,” Lars Stole, Academic Director of the Executive MBA Program, explains.
When we ask about the school’s success, Stacey Kole readily replies: “Unlike some other business schools, we do not teach PowerPoint. Our primary goal is to teach students how to think.” The curriculum combines practical knowledge with theory, current research, and its real-world applications. Lecture material is subject to incessant classroom discussions. MBA students already have several years of work experience, which is useful in classroom discussions. “We have an inside joke here: If you get to your third slide and no one has asked a question, you must be speaking a foreign language without realizing it. People here always ask about everything,” Richard Thaler says. He teaches responsible business leadership. His lectures are built on his life-long studies of behavioral economics. He is also the author of the bestseller Nudge.
Way to get a raise
When asked about their motivation for studying at Booth, students’ answers vary: career advancement, new job opportunities, or entrepreneurship. Two of the interviewed students have also mentioned parents who graduated from Booth. Most students aim high. About 90% of them switch careers after graduation. This is why students usually pay tuition themselves despite the lofty amount. In Europe, it is common practice for companies to pay a student’s MBA tuition in exchange for a commitment to work for the company for several years after graduation. Only a handful of such students study at Chicago Booth. About 15% of students have some subsidy from the corporate world. The others pay their own way. They believe that the acquired knowledge will translate into higher pay, bonuses, or provide opportunities for entrepreneurship. The pay factor is one of the most important measures of a business school‘s success. Chicago Booth often ranks at the top of these rankings.
Excessive workload not a problem
In all conversations with students, we hear a common theme: the school offers a lot but expects a lot in return: a lot of reading, news tracking, and homework. The students view the heavy workload positively. Some of them are even starting their own businesses on the side, often together with classmates. I am talking to Joel in a large atrium. He and his classmates have a business idea for a technological start-up. He is reluctant to share details (it has to do with fitness) because he is surrounded by potential competitors. He is a good example of student diversity: before coming to Booth, he used to work in the drug enforcement agency. He took a 20-year loan to pay for his tuition. “I intend to pay it off sooner, hopefully in a few years, after we sell our company,” he explains. The company still exists only on paper but they plan to bring it to life in six months. The school supports such activities.
However, even student motivation has its limits. Before I take a classroom seat to listen to a three-hour class on ‘Building the New Venture’ I ask the professor if I may sit in the front row. “Of course! Nobody ever sits there anyway,” Waverly Deutsch says. She is an entrepreneur, angel investor, but most of all, as she herself puts it, a teacher.
Curriculum as a Market
The process for scheduling classes at Chicago Booth caught our attention. Unlike at other schools, the schedule is not fixed. Students make their own schedules, choosing from a wide variety of subjects. The process is really a market, which appropriately fits a school known for its market-based economic thinking. Each student receives a fixed amount of credits that can be used to bid for classes. “Nowadays, it is no longer just about education. There is a premium on classes of distinguished professors. Students compete for the seats at their lectures,” Stacey Kole, the Deputy Dean, explains the principles of the bidding system. The bidding system serves several functions. For example, it reveals subjects nobody is interested in. “It works like natural selection,” Kole says. The bidding system also ensures that students attend classes not because they have to but because they want to. It also encourages networking. In order to make good decisions, students frequently approach their fellow students one year ahead of them to ask for advice.
To learn how to navigate the bidding system, students attend a four-hour seminar at the beginning of their studies. They can also speak with their advisors, members of the faculty, who are there to help them. This helps because not everyone enters the school with a clear vision. The school has a department of Career Services to help students find their own career path. “Advisors help steer students’ careers, provide resources, and advise on salary brackets even after graduation,” she adds.
Chapter 2: Professors
Teaching is a passion around here. Professors are selected primarily based on their teaching skills. They are regularly evaluated by students. The ratings help students pick classes. “Teaching is fun. My classes are intense and everyone knows it. Therefore, I only get students who are willing to study hard,” explains Professor Eugene Fama who teaches theories of financial decisions. Fama is the seventh most cited economist in the world. He received the Nobel Prize for his work three years ago. In addition, he advises a major investment company, Dimensional Fund Advisors. At 77, he does not have to teach anymore. But he wants to. “Teaching keeps me on my toes. Thanks to my students, I keep in touch with what’s happening in the world.” He has been teaching at the school for over half a century.
Faculty interaction is one of the main drivers behind the creation of new ideas. Steven Levitt, Professor of Economics, described in his book Freakonomics how much inspiration he found in lunches with other senior faculty. The book contains a quote from Gary Becker, another Nobel laureate from the University of Chicago: “Not everyone will agree with your results but everyone will support you in your research.” Gary Becker started a new field of behavioral economics. He died only two years ago at the age of 83. He taught until his death.
Richard Thaler also confirms that teaching keeps his mind fresh. “From my own personal experience, when someone retires, their mind quickly withers and dies. Teaching keeps you mentally alert. Two weeks ago I played golf with Danny Kahneman (a Nobel Prize recipient from Princeton University, author of the bestseller Thinking, Fast and Slow). He is 82 but still retains 99 percent of his mental capacity. He still teaches.” Doing research at Chicago Booth brings Richard Thaler real joy. He points to a long winding hallway and says: “By the time I walk from my office to the bathroom, I can have an answer to any economic question from the smartest people in the world.”
Chapter 3: Research
The most important building block of a tenured professorship is the quality of research. It explains why the University of Chicago has so many Nobel Prize recipients, including Friedrich August von Hayek, Milton Friedman, Gary Becker or Ronald Coase, names known from textbooks on foundations of economics. These people opened new and unique research areas. “When we make tenure decisions, it helps if the person is the best in their cohort. It does not guarantee tenure but it surely helps,” Slovakian Lubos Pastor says. He has been a tenured professor at Chicago Booth for 11 years. At the age of 31, he became one of the youngest tenured professors. Among other duties, he is responsible for recruitment of new faculty. He emphasizes that the most important skill of a Booth professor is research quality.
The school has 11 research centers, which enable students and faculty access data and support their research. The research is not done for its own sake. “Finance research differs from research in other areas of economics. Each new discovery has applications in real life. In other branches of economics, much of the research is interesting only to other researchers in that same field. As I stated in my Nobel Prize speech, there is no other field in economics where theory meets practice so well,” Eugene Fama says. We had an opportunity to experience a real-world application ourselves. Our interview with Richard Thaler had to be rescheduled due to a visit from Indian government officials. The country is about to start a “nudge unit” of behavioral strategy. No wonder Indian representatives want to talk to the father of the idea.
Business and Research as One
When Eugene Fama, a future Nobel Prize recipient, started his research on financial markets 50 years ago, he lacked important data. To test his models and theories, he needed detailed information on financial markets. Consequently, he assisted in the creation of the Center for Research of Security Prices (CRSP). At present, the center employs about 90 people and handles data covering the past 90 years. It offers its services to a variety of academic and non-academic institutions, including asset management companies. About $850 billion is invested in products tracking CRSP indexes. “Our position is between the academic and the business world. We offer services to our clients. However, our primary purpose has been to provide relevant data for research in financial markets,” David Barclay, CRSP’s chief operating officer, says. His story resembles the stories of Booth professors who have been teaching although they no longer have to. “I happened to be in my early retirement when I was approached to run the center in the interim. Twenty years later, I am still here,” he says. He recalls the times when the center bought its first Univac computer, which completely filled a large office. In the past, the only way to get detailed data about security prices was to manually copy them from microfilms of the archived New York Times. Today, when you see charts dating back to 1929, you are looking at CRSP data. Although it is a business, it involves academic ethics. Eugene Fama, who is still the official head of the center, does not influence CRSP’s business decisions as he is a shareholder of Dimensional Fund Advisors. “Eugene Fama would never endorse a conflict of interests,” Barclay adds.
Chapter 4: Alumni
Alumni deserve an independent chapter in our story. The school works hard to keep the communication between them alive. The school’s council includes 80 alumni who help the school make important decisions. Alumni may also recommend student applicants or participate in the assessment interviews. “Frankly, if you have alumni who love their school, not consulting them on important decisions would be a recipe for disaster,” Interim Dean Douglas Skinner thinks. For that reason, the school has high standards when it comes to alumni relations. It does not want to hurt its brand. The dean himself is primarily responsible for maintaining good relations with alumni and financing of the school. Teaching is his secondary responsibility. It may seem that the dean’s job is mostly of administrative nature. However, as he explains, “We have a rule here that every academic must teach.” The rule helps connect the administration to the daily routine of the school and its students.
Many alumni run businesses that they started at the school. The school has no ownership claim on such businesses. That is not a common practice everywhere. For example, many engineering schools in the U.S. retain the patent rights for discoveries that occurred on their campuses. “In Chicago, we have a different point of view. We know that students who feel close to the school will keep us in mind when, for example, selling their firm,” Lubos Pastor says. This approach seems to be working. For example, many professorships are financed through gifts. In return, the professor’s chair is named after the donor. Greater gifts offer a possibility of naming a building or its part after the donor. “My intention is to donate some money to the school once my company is listed on the stock market,” says Sukhbir, originally from northern India. He is inspired by the successful investor David Booth, who graduated here 45 years ago. In 2008, Booth made an unprecedented donation of $300 million to the school. Not coincidentally, since then, the school has been known as the Chicago Booth School of Business.
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