Perspectives Fall 2014

COLLEGE OF BUSINESS

Perspectives UN IV ERS I TY OF IL L INOI S AT UR BA NA- CH AMPA I G N

WORK OF “ART”

FALL 2014

PROFESSOR WYATT SHARES HIS ILLINOIS STORY

College of Business I University of Illinois at Urbana-Champaign

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his fall marks 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. Many of you can claim an even longer affiliation, even if it seems just like

[ CONTENTS ]

yesterday. And if you’re one of our most recent graduates, it literally was yesterday.

Wherever your experience falls on the continuum of our College history and whatever your role—student, alumnus, faculty, staff, or friend—you can take pride in being a part of a proud tradition of excellence and innovation in business education.

year will provide you with an opportunity to look back at your College of Business experience with pride, to connect with those who shared that experience with you, and to continue to further our strong tradition together.”

penmanship to curriculum innovations like Project Discovery, Business 101, and the MS Tax Program.

That commitment continues with our recent announcement of non-degree course offerings through Coursera, an online delivery platform that will allow us to attract a much wider audience to our professional education initiative. Through two specializations—digital marketing and finances and operations—we will showcase our star faculty, demonstrate our global visibility, and help managers and employees become bold, innovative leaders.

This is the type of initiative that furthers our proud legacy, building on the work of 100 years of forward-thinking College leaders.

Art Wyatt, who came to Illinois as a freshman in 1945, is one of those dedicated leaders. On page 10, he shares his reflections on his Illinois history as a student, an alumnus, a faculty member, and an accounting professional. His lifetime of work and

Perspectives 2

Can American Businesses have It their Way? Examining the implications of tax inversions on the U.S. economy.

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A Look Back Art Wyatt reflects on the proud tradition of accountancy education at Illinois.

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Stops on the Journey The personal and professional path of Sergio Masvidal.

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the Secret’s Out Did hedge funds profit from congressional inside information?

his loyalty to the College provide a window into the proud tradition of accountancy

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education. Throughout this centennial year, we’ll share the stories of other College

Hopefully, this milestone year will provide you with an opportunity to look back at your College of Business experience with pride, to connect with those who shared that experience with you, and to continue to further our strong tradition together.

Here’s to the next 100 years of excellence at the College of Business.

DEAN Larry DeBrock MANAGING EDITOR Mary Kay Dailey EDITOR Cathy Lockman CONTRIBUTING WRITERS Tom Hanlon Cathy Lockman Doug McInnis

Larry DeBrock Josef and Margot Lakonishok Endowed Dean

On the COver Accountancy education at Illinois has maintained a stellar reputation throughout our 100-year history. For nearly 70 of those years, Art Wyatt has been affiliated with our College and has played a prominent role in advancing accounting at Illinois and across the country. Our cover story shares the “Work of Art.” We welcome your perspective. Send your comments or suggestions for future articles to our managing editor, Mary Kay Dailey, at mkdailey@illinois.edu.

Slam Dunk What does it take to be a successful sports agent?

departments in future issues of Perspectives.

SHORT TAKES

PHOTOGRAPHERS Tricia Koning Thompson • McClellan Photography Ben Woloszyn PROOFREADER Cristy Gillespie DESIGNER Pat Mayer

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. www.business.illinois.edu

FALL 2014

“Hopefully, this milestone

[ MY ] PERSPECTIVE

The College has always been on the forefront of providing students with the tools to succeed—from early classes in railway administration, marketing livestock, and

COLLEGE OF BUSINESS

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Taking Our Qs

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Legacy

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60-Second Profile

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Corporate Partners

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Words from the Ys

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Reality Check

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Roundtable Series

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The Main Event

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Parting Shot

The University of Illinois at Urbana-Champaign is an equal opportunity, affirmative action institution.

Printed on recycled paper with soybean ink.

[ CORPORATE FINANCE ]

Can American Businesses Have It Their Way? Tax inversions take a bite out of federal revenues

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f Burger King has it its way, it will soon wave goodbye to the United States and declare Canada its new corporate home—on paper at least. By doing so, it stands to cut its U.S. tax bill while potentially boosting its profits and stock price. are minted.

Some observers might declare the company an unpatriotic tax dodger whose burgers and fries should be shunned. But others say it’s not that simple.

To start with, the U.S. corporate tax—35 percent—is the highest of any major industrialized nation, says Pete Lisowsky, assistant professor of accountancy and a PricewaterhouseCoopers LLP Faculty Fellow.

But the United States goes a step further by imposing its corporate taxes on income generated anywhere in the world by American companies, not just on income they generate in the United States. “The U.S. is unusual in that it has a worldwide taxation net,” Lisowsky says. “Other industrial nations only tax income generated within their borders.”

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The U.S. tax on foreign earnings is triggered when American companies bring those profits back to the United States and, in certain circumstances, if they use the money overseas, tax experts say. For companies with substantial foreign income, triggering the tax on foreign profits can come with enormous costs. For instance, earlier this year eBay took a $3 billion tax charge to facilitate the repatriation of $9 billion in foreign earnings.

Inversion offers a way out. “If a company inverts, it becomes a subsidiary of a foreign company,” Lisowsky says. “And then only the U.S. operations are subject to the U.S. tax. You’ve carved out the nonU.S. operations from U.S. tax.” While these companies must still pay taxes to the foreign nations in which the money was earned, those payments

are often at a much lower rate than would apply if taxed in the United States.

There are other potential tax benefits as well. Often to finance the inversion-type merger, the U.S. subsidiary takes on debt on behalf of the newly combined company. “Although the additional debt can make lenders squeamish, one additional benefit of adding debt is that the interest payments are tax deductible,” says Lisowsky. “So not only will the company eliminate altogether its U.S income tax on earnings from foreign operations, it will get a second tax benefit to the extent they can deduct the interest cost on U.S. debt against U.S. income that would otherwise be taxed at 35 percent. You could think of this as a double tax benefit, so Congress is now considering ways to reduce or eliminate this practice.”

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the Burger KIng DeAL—FACTS AND FIGURES

[Burger King]

[Tim Hortons]

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• • [Sweet Deal]

The planned merger of U.S.-based Burger King and Canada’s Tim Hortons restaurant chain would create the world’s third biggest fast-food chain.

Tim Hortons is Canada’s largest fast-food chain with 4,456 restaurants.

The combined companies would have 18,000 restaurants in some 100 countries. It would be domiciled in Canada through an inversion.

Revenues of the combined companies would run about $23 billion.

The deal is being financed by three major players.

JP Morgan and Wells Fargo would provide $9.5 billion in debt financing. Investor Warren Buffett would provide $3 billion in return for preferred shares in the new entity.

MOre THAN A TAx BREAK

Source: Forbes

plicated,” says Fullerton. “You’ve got to do it right.” Among other things, mergers can be expensive and don’t always work out, he explains. “It doesn’t make any sense to save a lot of tax dollars by inverting, only to lose a lot of other dollars on the merger.”

AppetIte fOr InverSIOn Congressional data compiled by The Washington Post shows more than 70 companies have turned expatriate since 1983. Ireland is the leading destination in recent years; it has the lowest corporate tax rate among industrialized nations— 12.5 percent, says Lisowsky.

Lately, the pace of inversions has jumped, Congressional data shows.

More than 30 inversions have occurred since President Obama won office in 2008, and the outflow has begun to get under his skin. “My attitude is, I don’t care if it’s legal, it’s wrong,” the president said in a July speech. Among other things, he accused inverting companies of cherry picking the rules and damaging the nation’s finances and its economy.

But presidential jawboning isn’t likely to stem the flow, some observers say. “I don’t think corporations are too worried about that,” says Don Fullerton, the Gutgsell Professor of Finance. “They might get bad press and have Congress calling them anti-American. But they only have to go through that once.”

A tax inversion is basically a twostep process, he explains. Step one is

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WhO WInS?

“The U.S. is unusual in that it has a worldwide taxation net. Other industrial nations only tax income generated within their borders.”

Pete Lisowsky the purchase of, or merger with, a foreign company. “If a U.S. company already has substantial operations in a foreign country with a low tax rate,” says Fullerton, “then it can skip step one and go straight to the easy step two: just rip up the U.S. corporate charter and write a new one in

the other country. Beyond that, a company doesn’t need to do much.

You don’t actually move much of anything.”

But if the company first needs to find a good merger partner in another country, step one can be difficult. “A merger can be pretty com-

When an inversion works, the benefits start at the top and work their way down. Company managers and directors can win big if they own company stock. Wall Street firms can also rake in money advising on the deals. Earlier this year, for instance, The New York Times reported that investment banks had collected, or would soon collect, nearly $1 billion in fees from their advisory role on inversion deals.

Small investors and pensioners win as well. “I think the benefits of corporate tax savings from inversions arguably work their way down to corporate shareholders,” says Saul Rudo, ’80 ACCY, an attorney who works on mergers and acquisitions at the firm of Katten Muchin Rosenman LLP in Chicago. “For example, if the Illinois Teachers’ Retirement System is invested in companies that

benefit from these tax savings, the result is that it ultimately helps to fund Illinois teacher pensions.”

There could be something in it for hedge funds, too, if their support of inversions is any indication. A recent article by Nathan Vardi in Forbes magazine, for instance, asserts that “prominent hedge funds are helping to fuel the wave” of inversions and “are playing a role in encouraging and even creating corporate deal machines that are engaging in tax-driven deals. For hedge funds, these deals are essentially a tax arbitrage trade,” he writes.

The article also claims that “a group of high-profile hedge funds” began to pressure Walgreens, an Illinois-based company, to invert earlier this year as part of its nearly $16 billion buyout of Swiss company Alliance Boots. But there were other pressures on the company not to proceed with the inversion, despite the potential tax savings, and in August Walgreens dropped its plans to move its corporate headquarters and tax domicile to Europe.

At the time, Gregory Wasson, president and chief executive officer

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he national debate over inversion has focused on the U.S. taxes that companies stand to save by moving their headquarters elsewhere. But companies stand to gain a lot more than a tax break, says Elizabeth Chorvat, visiting assistant professor of accountancy.

For instance, when U.S. companies invert, they gain flexibility on how and where they can utilize their foreign earnings. As matters now stand, they trigger a 35 percent U.S. corporate tax when they repatriate foreign profits. But they can also trigger the tax if one foreign subsidiary makes a loan to a second foreign subsidiary.

These provisions have hamstrung managers as they seek to deploy foreign earnings, so they often simply park the money overseas—some $1.9 trillion dollars of it, according to estimates made

by Bloomberg News last year.

“It’s very frustrating to these corporate managers that they can’t manage their day-to-day capital flows without triggering the tax in the U.S.,” says Chorvat. “Foreign companies subject to territorialbased tax regimes just don’t face

“It’s very frustrating to these corporate managers that they can’t manage their day-to-day capital flows without triggering the tax in the U.S.” Elizabeth Chorvat these constraints.” For that reason, other high-tax countries like Belgium and Japan haven’t lost companies to inversion, she says.

“These countries have corporate tax rates that are not significantly lower than the U.S. rate, but they have territorial tax systems,” says Chorvat. That means they are not taxed by their home countries on foreign earnings.

Companies that invert may also benefit from shared technologies.

She cites the recently approved merger of two pharmaceutical companies, Chicago’s AbbVie and the United Kingdom’s Shire PLC. Corporate managers described the same synergies in mergers between Dublin-based Actavis and New York’s Forest Labs and between Dublin’s Cosmo Pharmaceuticals and Raleigh’s Salix Pharmaceuticals, she says. Moreover, there are specific tax savings that accompany outbound mergers of pharmaceuticals because of the type of revenues they generate. This is why a dispro-

portionate number of companies that have inverted are pharmaceuticals, whose profit streams come from intangibles.

Companies that invert don’t just save on taxes. Often they see a substantial jump in their stock prices. Chorvat’s research found that stock prices for inverting companies increased an average of 225 percent above the average S&P return from the date of the inversion announcement until March 2013.

“But I do not believe inversion is necessarily a good decision for every corporation,” Chorvat says.

“There are instances where companies have inverted and gone bankrupt. Fruit of the Loom is an example. But it has often worked very well. Companies with significant foreign-source income—and specifically income attributable to intangibles—that believe that they would also benefit from increased flexibility in managing capital flows may find a net benefit to inverting.”

Doug McInnis

College of Business I University of Illinois at Urbana-Champaign

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Note: Actual corporate taxes may be higher when state, provincial, or other local corporate income taxes are included. When these local taxes are included, the United States still has the highest average corporate tax rate—39.1 percent. Ireland, which has no local corporate taxes, is the lowest at 12.5 percent.

COrpOrAte tAx rAteS FOR A SAMPLE OF MAJOR INDUSTRIALIzED NATIONS

35% United States

34.4% France

30% Australia

33.9% Belgium

30% Mexico

30% Spain

28.1% Japan

27.5% Italy

21% United Kingdom

15.8% Germany

15% Canada

12.5% Ireland

Source: Organization for Economic Cooperation and Development, 2013

of Walgreens, told The New York Times: “The company and the board decided they needed a higher level of confidence to withstand what would most certainly be an intense, protracted review by the IRS and the potential downside of that for a period of time.”

While inverted companies stand to save on taxes, they could face higher borrowing costs. The Wall Street Journal recently reported that ratings agency Standard & Poor’s is considering lowering the credit ratings for some companies that invert.

The ratings agency contends such deals benefit shareholders but harm creditors, citing the cost and higher debt load associated with acquiring a foreign partner. “All you have left is weaker liquidity and higher debt,” S&P analyst Andrew Chang told the newspaper.

According to The Wall Street Journal, S&P has threatened to downgrade three companies, including AbbVie. The ratings agency cited AbbVie’s acquistion of Shire PLC, which will cost $54 billion. Because $24 billion of that is debt, it would push the company’s debt-to-equity ratio from 1.2 times to 3.1 times,

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“As long as we have an uncompetitive corporate rate, the U.S. will be vulnerable to inversions. And not just inversions but also moving people and operations overseas.”

Saul Rudo

prompting a downgrade from A to A-, the newspaper reported.

As Fullerton points out, “This problem cited by The Wall Street Journal is a problem with the merger in step one, not a problem with the tax inversion, narrowly defined as

the second step of ripping up the U.S. corporate charter and incorporating in the other country.”

WhO LOSeS? While there may be many who stand to benefit from tax inversions,

the end result is that inversions represent a significant potential loss of tax revenue for the cash-strapped, debt-ridden United States.

Where does that revenue come from? Individual income taxes account for about 33 percent of total federal revenues. Payroll taxes to pay for Social Security and Medicare account for another 25 percent. The remainder comes from a variety of sources, including corporate taxes, which a century ago accounted for one-third of federal revenue. More recently, that amount fell to 10 percent, and after the recession the revenues derived from corporate taxes have been closer to 7 percent.

Businesses, like individuals, are looking to keep their taxes as low as possible, so they look for tax breaks wherever they can find them and lobby Congress for more when possible. “There are plenty of gimmicks to help U.S. corporations avoid taxes,” says Fullerton. “Inversion is just one of a whole string of things that erode the corporate tax base.”

That eroding tax base has policymakers taking on inversions and trying to stop them.

tAKIng It Off the tABLe One strategy that can be employed to stem the tide of inversions is to stir up consumer sentiment against them. Walgreens, an early target of this tactic, eventually withdrew its inversion proposal. But Walgreens is well known to American consumers. They also provide products to Medicaid and Medicare recipients, and therefore could be seen as benefitting from taxpayersupported programs on the one hand and avoiding the payment of taxes on the other. Both factors can create the kind of negative public relations that puts pressure on the company to rethink the inversion.

But that tactic would have been less successful with other companies that have gone the inversion route because most are not widely recognized and so would likely fly under the consumer sentiment radar. For instance, Nabors Industries, Weatherford International, and Ensco International may not be small companies—all had 2013 revenue in excess of $1 billion—but they’re hardly household names.

An additional strategy would be for Congress to make inversions so costly that they wouldn’t be worth

“It doesn’t make any sense to save a lot of tax dollars by inverting, only to lose a lot of other dollars on the merger.”

Don Fullerton the bother. That would take a rare act of agreement between the two major parties, which Lisowsky doesn’t expect to happen. “Until one party rules, they’re not going to do anything about it,” he says.

Or Congress could simply lower the U.S. tax rate to more competitive levels and eliminate or reduce the

U.S. rate on overseas profits. That could produce multiple benefits domestically, says Rudo. “The companies might bring overseas profits back and potentially invest (some of the money) in their American operations. We should increase U.S. tax revenue and increase jobs if we lower the tax rate.”

And while Congress hasn’t yet acted, the Treasury Department recently did. In September, they announced new rules that would “reduce the tax benefits of—and when possible, stop—corporate tax inversions.” The measures include strengthening a requirement that former owners of the U.S. entity own less than 80 percent of the new, foreign company, targeting “hopscotch loans” that allow companies to get around paying taxes on dividends, and closing other loopholes.

It remains to be seen how these new rules will impact the decisions of companies that are in the process of or considering inversion.

“Corporations are looking to provide the best return possible for their shareholders and other constituents,” Rudo says. “Taxes are a cost of doing business. So companies that are trying to keep down their costs try to keep down their taxes. As long as we have an uncompetitive corporate rate, the U.S. will be vulnerable to inversions,” he says. “And not just inversions but also moving people and operations overseas.”

Doug McInnis

College of Business I University of Illinois at Urbana-Champaign

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[LEADERSHIP]

TAKING OUR Qs

What are your responsibilities as CeO of the host Committee?

BruCe: I am responsible for managing the organization responsible for the delivery of Super Bowl 50.

That includes creating and implementing all Host Committee and NFL strategies, along with the planning and execution of all elements of the region’s bid agreement with the NFL, covering event operations and logistics, fan experiences, social and digital elements, marketing, fundraising partnerships, hospitality, security, transportation, and other critical operational functions.

name: Keith Bruce Current position: CEO & President, San Francisco Bay Area Super Bowl 50 Host Committee previous position: President, SportsMark Management Group university of Illinois degree: BS in marketing ’87 In September 2013, Keith Bruce was named CEO of the Super Bowl 50 Host Committee, which is working in partnership with the NFL, the 49ers, and Bay Area public officials to plan, market, and produce Super Bowl 50 in the San Francisco Bay Area on February 7, 2016. Here he takes our questions on the responsibilities and challenges of the job and his vision for success.

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What interested you most about this unique opportunity?

BruCe: The chance to lead a Super Bowl effort is motivation enough, but when you layer in the fact that this is Super Bowl 50—the golden anniversary of the game in the Golden State, to be hosted in the new state-of-the art Levi’s Stadium —and the historical nature of this event from the NFL’s perspective, it truly was a dream opportunity for me. Also, it is giving me the opportunity to give back and pay attention to a region I care deeply about and have called home for 20 years, the San Francisco Bay Area.

What aspects of your career most qualified you for this position?

BruCe: This position is a culmination of a lot of things I have accomplished across my career in sports business and global events.

I am fortunate to have experience with several of the largest sporting events in the world, including the Olympic Games, FIFA World Cup, Super Bowls, and other global championship events. But my perspective has been wide ranging across all of those sports— including sponsor activation and representation, production, branding, hospitality, event marketing, and operations. I’ve worked with sponsors, TV broadcasters, organizing committees, and the properties themselves. So that package of exposure and experience with these massive, large-scale events has definitely helped prepare me for this job.

What is the current focus of your work?

BruCe: The Host Committee was formed nearly a year ago, and we have been spending the majority of that time focusing on several key areas. First is fundraising, as we require critical revenue from

corporate sponsors and individual donors to fund our programs and overall effort. So building and selling an effective corporate partnership model has been very important.

Second is building relationships across the Bay Area with civic leaders, public officials, and other municipal stakeholders who will have a big role in making Super Bowl 50 a success.

Third is building my team and defining our organization based on the tasks at hand and what we have to deliver. I am assembling a world-class group of talented people who are laser focused on our goal of making this the best Super Bowl ever.

And then from a legacy standpoint, we are embarking on a goal of being the most charitable Super Bowl ever, and that means identifying ways to make a lasting impact on communities throughout the Bay Area region through our Super Bowl 50 legacy grant initiative. And given that we live in the world capital of the digital economy, Silicon Valley, we want to produce the most technologically advanced Super Bowl to date, creating experiences that uniquely engage fans both in the Bay Area and around

the world. Levi’s Stadium is the most digitally innovative stadium in existence, so that gives us a great head start on that goal.

What is the biggest challenge?

BruCe: With something as exciting as Super Bowl 50, there are so many things that can be considered and there’s no shortage of good ideas. But the key challenge is making sure we focus on our objectives and be selective with how we define success. And that means not saying yes to every idea, and finding and shaping the right ideas that will really make a big difference for the event and our region.

What is your leadership style?

BruCe: I’m an “all-in” style leader.

I thrive on the excitement and the vibrancy of the sports business.

I would describe my leadership style as “mind on, hands off.” Let your people do the job you hired them to do and give them good advice, direction, and support. I am a head coach in many ways, with lots of players involved, and I’m trying to get the best performance out of the entire team.

how do you handle a difficult decision?

BruCe: I usually will try to find precedents or experiences from past situations that I can rely upon to help me make a tough decision.

I also like to build consensus on major decisions or issues, so I will canvass my senior leadership team to help guide key decision making.

And since I have been in the sports business for two decades or so, I have built up a trusted set of friends and advisors in the industry who I can go to for advice when needed. how do you choose the members of your team?

BruCe: Because I am usually looking for a specific set of experiences or background, I will always make sure that the candidate’s experience is best in class and sets them apart from others in the industry. But experience is only part of what I look for. I am big on team chemistry and building a culture that people want to be a part of. We are doing that now with our Super Bowl 50 Host Committee, and it’s a big part of our recruiting efforts.

We want people who have the skills to get the job done well, but also people who will have fun, bring

diverse interests, and demonstrate a passion and commitment to delivering at the highest level. It’s a people business, and sometimes the job requires long hours spent together. Part of what I look for when hiring managers is how well he or she can add value to the whole team while contributing to and being part of a great culture.

What defines success in your industry?

BruCe: Like any industry, you need to demonstrate that you know your stuff, can demonstrate confidence, and show that you will produce results at the highest level every day.

When I see successful people in the sports business, I usually see things like integrity, dedication, creativity, and teamwork. Sports is a multibillion dollar business, but it’s still a relative cottage industry when it comes to sports marketing and events. Relationships are tantamount in this business and have a huge influence on your success. But in my mind, an important trait to have in the world of sports marketing and business is to remember to stay humble and realize that you have a job that many people would love to have but very few can get.

College of Business I University of Illinois at Urbana-Champaign

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[ CENTENNIAL SNAPSHOT ]

A Look Back

REFLECTING ON THE PROUD TRADITION OF ACCOUNTANCY EDUCATION AT ILLINOIS

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 Accountancy through a timeline of milestones and the reflections of an esteemed alumnus and faculty member, Art Wyatt.

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n 1994, Jon Davis and Art Wyatt were both faculty members in accountancy at Illinois. Davis was at the beginning of his career, serving as an associate professor. Wyatt was back for an encore, having taught from 1952 to 1966 and then beginning a distinguished career at Arthur Andersen & Co. Twenty years later, Davis is now head of the Department of Accountancy at Illinois, and Wyatt is retired

and living in Florida. He recently visited the College, taking time to talk with faculty and to see firsthand the Arthur Andersen Gallery, which is housed both inside and outside the Art Wyatt Conference Room on the fourth floor of the Business Instructional Facility. The gallery focuses on the history of accounting—a history that has benefitted from the contributions of thousands of College faculty, students, and alumni, like Wyatt.

COMIng tO ILLInOIS Wyatt came to the University of Illinois the day after he graduated from high school in June 1945. “The decision to start school when I did was fortuitous. I only had one teaching assistant the whole time I was a student. They were all off fighting the war. Also, I got a semester ahead academically, which permitted me to take lighter schedules in the spring semesters when I was on the golf team.”

1902

1903

1914

1920-21

1936

The first accounting class is offered as part of the economics curriculum.

The University is granted authority to provide the examination, grading, and certification of public accountants.

The accounting program is firmly established with three academic accountants on the faculty.

The Founding 6 (above) assume responsibilities for accounting courses: Front row, from left to right: Lloyd Morey, H.T. Scovill, H.H. Baily. Back row: A.C. Littleton, C.F. Schlatter, E.J. Filbey.

The PhD in accountancy is established. The University of Illinois is the first university to offer this degree.

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Photo credits: Left: Image 6150 courtesy of the University of Illinois Archives. Center: Image from the Commerce Building Dedication Program, courtesy of the University of Illinois Archives.

business.illinois.edu

Art Wyatt and Jon Davis meet in the Art Wyatt Conference Room in BIF. A portion of the Arthur Andersen Gallery, on the room’s south wall, highlights milestones in accountancy history.

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His interest in accounting started with a love of statistics. “I enjoyed keeping stats about the Chicago Cubs when I was a youngster,” says Wyatt, who grew up in Aurora. “I later got my nose in the bookkeeping and accounting books my dad had around the house.”

In high school, Wyatt got some practical experience. His accounting teacher, who was also the bookkeeper for the 45 student organizations, enlisted Wyatt’s help during his junior year. “He told me that he knew I could master the course material quickly, so he suggested I come to class three days a week and go to his office two days a week to keep the books for these student groups.”

Later that year, he arranged for Wyatt to teach accounting to a local businessman who wanted to have

these skills to enhance his business.

That set the course for Wyatt’s future, one that involved accounting and teaching.

After earning his bachelor’s degree, Wyatt was encouraged to pursue his master’s degree by Cecil (Tee) Moyer, an associate professor who in 1953 would become the first head of the new Department of Accountancy.

“I originally wanted to go into public accounting, but I was urged to stay. In 1949, I was just 21, but half my class was 26 or 27 because they were back in school after serving in the war. At the end of the first semester, I told Tee, ‘This is all backwards. You should pay me to do the graduate work not the teaching. I’d do the teaching for free.’ I absolutely loved teaching and did it until 1966.

It was incredibly satisfying.”

Wyatt was either taught by or served on the faculty alongside many of the top names in the profession: A.C. Littleton, H.T. Scovill, Lloyd Morey, Norton Bedford, and Robert Mautz, for instance, all of whom have been inducted into the Accounting Hall of Fame. Wyatt was selected for that honor in 1998.

ADvAnCIng ACCOuntIng Wyatt earned his PhD at Illinois in 1953, served in the U.S. Army from 1955 to 1957, and then returned to campus to teach.

“I was walking up Wright Street through the library to come to David Kinley Hall, and I ran into Norton Bedford,” says Wyatt. “He said: ‘Art, you’re just the guy I’m looking for.

Ken Perry and I have an advanced accounting book that’s very far along,

and we just don’t have the time to get it finished. Can you join us?’”

Wyatt humbly says his association with “that great book is because I had time available to help it get finished.” He credits Bedford and Perry for the success of Advanced Accounting: An Organizational Approach.

“Norton was a top professor and scholar. Ken was beloved by everyone who ever took his class, and he wrote most all of the chapters. I was a hanger-on who got to be part of it.

It was a lot of fun.”

That fun extended beyond the work as well. Wyatt recalls the 1950s as an especially significant time in both the growth of the department, its reputation, and its collegiality.

“There was a wonderful group of professors who enjoyed a lot of things together, including bowling, handball, and poker.”

He mentions colleagues Vernon Zimmerman, Don Skadden, who was also the mayor of Urbana, Phil Fess, Bob Schlosser, and Perry as “part of a closely knit group all working toward the same objective” of expanding and improving professional accounting practice.

In 1997, Bedford wrote in A History of Accountancy at the University of Illinois at Urbana-Champaign, “Illinois faculty leaders most involved in this expanded role were Professors C.A. Moyer, R.K. Mautz, and certain younger faculty including D.H. Skadden and A.R. Wyatt. Professors Skadden and Wyatt showed great promise. They helped create an atmosphere in the Department conducive to the expansion of the academic role of accounting faculty members.”

OppOrtunIty KnOCKS In 1966, Wyatt joined Arthur Andersen & Co. and began a second phase of his career. Bedford, in his recounting of Illinois accounting history, called the departure “a significant loss for the Department.”

But it was also the profession’s gain. Wyatt became a partner in just two years. He led the firm’s accounting principles group and established a reputation for independent thought and sound judgment. In addition, he contributed to the profession through service to the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, the American Accounting Association, and the International Accounting Standards Committee. He is widely credited with establishing the foun-

dation for a new era of international cooperation in the development of accounting principles.

“Andersen was a great organization with wonderful people,” Wyatt says. “There was never a day that I went to work at Andersen or at the University that it wasn’t a wonderful day. The work was totally different, of course. But whether you’re interacting with students or professionals, you need a similar skill set.”

So when Wyatt retired from Arthur Andersen & Co. in 1992, he brought that skill set back to the College, serving as a professor for ten more years.

As he looks to the future of business, he says while it’s hard to predict where technological advancements will take us, success is likely to require specialization.

“I would encourage today’s students to find what they like and become expert at it. If that’s accounting, great. If it’s computer science, fine.

The world is looking for people who have expertise.”

Our College of Business, says Wyatt, is a great place to hone your skills and develop that expertise, especially in accounting. The department has had a long history of excellence, and the leadership of Davis continues that strong tradition, he says.

“Students in accounting at Illinois receive an excellent foundation and have tremendous opportunities.

It’s essential for the students and for the profession that they take advantage of those opportunities and build on them.”

Cathy Lockman

•

1951

1953

1961

1962

1965

1975

1985

1997

2002

2014

Dorothy Litherland (above) becomes the first woman at Illinois to receive a PhD in accountancy. She later becomes a professor in the department and then serves as associate dean of the College.

The accountancy program, part of the Department of Business Organization and Operation, becomes a separate department.

The First International Conference on Accounting Education (above) is held at the University of Illinois with attendees from eight countries.

The Center for International Education and Research in Accounting is established, becoming the first Center of its kind.

The Department of Accountancy holds the distinction of being the largest in the nation.

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 MS Taxation Program is established, largely due to the efforts of Eugene Willis (above photo of 1980s faculty, top row, far left).

Project Discovery becomes the official curriculum for all accountancy majors in the College. It takes a project- and issues-based approach rather than a topics-based approach.

The Center for International Education and Research is renamed for Vernon K. zimmerman (above), professor, Center director, and former dean of the College.

Over the course of 100 years, tens of thousands of students graduate with bachelor’s degrees, master’s degrees, and PhDs in accountancy.

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Photo credits: Center: Image 6149 courtesy of the University of Illinois Archives. Right: Image 6145 courtesy of the Champaign-Urbana News-Gazette.

College of Business I University of Illinois at Urbana-Champaign

13

[ LEGACY ]

We’re on a roll

T

he College marked the start of our 100th year with a Centennial Celebration during Homecoming in October.

Students, alumni, faculty, staff, and supporters of the College gathered to celebrate the proud tradition of Business at Illinois.

It’s a history that has been built on a continued commitment to providing the best and the brightest with the tools

to succeed in business. For 100 years, we’ve done that through innovative academic programs and state-of the-art facilities. But even more so, it’s been done by the work of exemplary faculty and staff who together with our talented students (turned talented alumni) make business better.

Throughout the upcoming year, additional opportunities to mark this century milestone will take place across the country. Watch for details on centennial events in your region, and join us to celebrate the innovative vision and the rich legacy of the College of Business at Illinois. Let the good times roll.

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business.illinois.edu

College of Business I University of Illinois at Urbana-Champaign

15

[ 60-SECOND PROFILE ]

3

WALTER H. STELLNER PROFESSOR OF MARKETING

The number of affiliations Sharon Shavitt has with Big Ten universities; she earned her bachelor’s, master’s, and PhD degrees in social psychology from Ohio State and completed her postdoctoral research fellowship in psychology at Indiana University before joining the University of Illinois faculty in 1987

4

Number of languages spoken; in addition to English, Sharon speaks French and Hungarian, her mother’s native language, and is fluent in Hebrew, which she learned growing up in Israel from 1962 to 1967

4,000

The number of times her publications have been cited by other authors based on information provided by Google Scholar Citations

24

The number of years she has been married to Steven Zimmerman, University of Illinois professor of chemistry; the couple has two daughters, Arielle and Ellie

7

The number of countries outside the U.S. where Sharon has presented keynote or invited addresses: Norway, Germany, France, Canada, China, Brazil, and Israel

62

The number of years of data examined by Sharon and her colleagues as they studied hurricane deaths and gender bias; the research, published this summer, concludes that severe hurricanes with more feminine names result in higher death tolls

1,700

The number of members in the Association for Consumer Research, an international organization dedicated to advancing collaboration in the field; Sharon served as president from 2010 to 2011

90 & 14

The number of undergraduates and PhD students Sharon has mentored in her lab at Illinois

6

The number of editorial boards on which Sharon has served as part of her commitment to the profession: Journal of Consumer Psychology, Journal of Consumer Research, Journal of Marketing Research, Personality and Social Psychology Bulletin, Psychology and Marketing, and Media Psychology 16

business.illinois.edu

College of Business I University of Illinois at Urbana-Champaign

17

[ ALUMNI CONNECTION ]

Stops on the Journey I

Navy Pier was the Chicago campus of the University of Illinois from 1946 until 1965, when UIC opened its doors.

After two years of study at Navy Pier, students could transfer to Urbana-Champaign to complete their degrees. Sergio Masvidal’s journey included all three campuses.

Photo credit: Image 3717 courtesy of the University of Illinois Archives.

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n 1961, 14-year-old Sergio Masvidal stooped down in a hallway of his spacious and well-appointed house in Camaguey, Cuba, to say goodbye to Gorda, his German Shepherd. He ran his hands through the thick fur of her neck. “So long, girl,” he said. “I’ll see you soon.”

With that, Masvidal was whisked off to Ignacio Agramonte International Airport in Camaguey by his father, a lawyer and former governor of the province of Camaguey, and his mother, a surgeon. He boarded a plane for Jamaica, where he stayed for a few weeks with a friend of his father’s, and then he flew to Miami to a Pedro Pan camp.

Masvidal was one of 14,000 unaccompanied children under the age of 16 who came to America under Operación Pedro Pan, a program sponsored by the Catholic Church.

The exodus is the largest ever of unaccompanied minors in the Western Hemisphere and was instigated by Cuban parents who feared that their government, under Fidel Castro, would strip away their parental authority, including choosing how their children would be educated.

“We all thought it was temporary, that we would be going back to

“Castro was consolidating his position, eliminating all his enemies by exile, execution, or putting them in prison. So that’s when I decided to make a life in this country.”

Sergio Masvidal

Cuba in six months or a year,” says Masvidal ’69 FIN, ’71 MSF, now retired and living in Miami. “I remember saying goodbye to my German Shepherd, but it was no big deal, because I assumed I was coming back.

I was told she sat by my bedroom

and never ate again. It was all a traumatic experience.”

A tOugh ADJuStMent Four months after Masvidal left Cuba, his parents took political asylum in the Argentine embassy in Ha-

vana, where they were kept for three months before gaining safe passage to America. Masvidal’s mother knew other Cuban doctors who had immigrated to Chicago, so his parents and an older brother ended up in Chicago. Masvidal, who had been living in New York with an aunt and another brother, moved to Chicago to be with his parents and start his sophomore year of high school.

“It was tough,” he says of his time in Chicago. “Everyone thought we were lucky to come to America.

A teacher said, ‘You never had it so good.’ I told him, ‘Actually, I had it much better.’ We didn’t come to America by choice. We were forced out by what was happening.”

Masvidal and many other Cubans thought Castro would be overthrown and their country restored. When that did not happen, Masvidal turned his sights to college, with aspirations of following in his mother’s footsteps and becoming a doctor.

After high school, his father told him he had two choices: DePaul or the University of Illinois at Chicago’s Navy Pier, which was opened after World War II to accommodate students on the G.I. Bill. Masvidal had a

College of Business I University of Illinois at Urbana-Champaign

19

Corporate Partners 2014–15 An investment in the education of future business leaders

dozen or so friends attending Navy Pier, including his older brother, so he decided to enroll there. After his first year at Navy Pier, the University of Illinois at Chicago opened its campus, so Masvidal studied there the second year. Then he headed to the Urbana-Champaign campus to finish his degree in finance (chemistry, he says, changed his mind about studying medicine).

“My time at Illinois was great,” he says. “I developed many lifelong friendships there.”

Masvidal still held faint hopes of returning to Cuba after graduating, but those hopes quickly faded. “Castro was consolidating his position, eliminating all his enemies by exile, execution, or putting them in prison,” he says. “So that’s when I decided to make a life in this country.”

DefInIng MOMentS He was leaning toward getting a PhD in economics and teaching, but he interviewed with Continental Illinois National Bank on a campus recruiting visit and was offered a job.

After completing a 12-month training program with the bank—the sixth-largest bank in the world at the time—he was offered a position in

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the bank’s New York subsidiary and subsequently as a rep in Venezuela.

“My father passed away suddenly in Chicago, so I decided I wasn’t going to go anywhere,” he explains.

Three years later, he was hired as vice president of The Northern Trust Company and helped that bank develop a Latin American portfolio. But his big break came in 1977, when he was hired by Irving Trust in Miami as general manager.

“I was 29 years old. I had never managed anything, and all of a sudden I was managing 150 people,” he says. “I was adventurous at the time, and I took a gamble and it paid off for me. That was the defining moment of my career.”

fIghtIng fOr hIS nAMe If that was the defining moment, the darkest moment must have been in 2007, upon the culmination of an investigation spearheaded by John Sellers, a Department of Justice (DOJ) prosecutor. Sellers had been pursuing American Express on suspicion of money laundering. Masvidal had become general manager of American Express Bank International (AEBI) in 1987, president of AEBI in 1992, and head of global

wealth management in 2000, and Sellers was looking for, as neutral observers put it, a “sacrificial lamb.”

As the highest-ranking officer in AEBI, Masvidal became that lamb. In a deferred agreement, AEBI paid $65 million in 2007 to settle charges. But Sellers filed a “side letter” to the agreement, stating that if the bank was sold the buyer would have to obtain his permission to hire Masvidal.

It was a no-win situation for Masvidal—but one in which Masvidal emerged with at least a partial victory. He sued the DOJ and is the only banker in history to receive a letter of apology from that department. The DOJ conducted an internal inquiry and concluded Sellers had behaved recklessly and unprofessionally in targeting Masvidal.

Sellers received a public reprimand, left the DOJ, and resurfaced in the Department of Treasury in a nonlitigating position.

Masvidal says he likely would have worked for another five years before closing the book on his career. “But once you are the subject of such an accusation, there’s always a cloud over you, even if you’re innocent. I was unjustly identified by an ambitious, misguided prosecutor

who wanted to make a name for himself. But it is what it is. I’m satisfied I got the letter of apology. I fought because I didn’t want to go to my grave with my children having to bear the issue of questions about their father.”

He also took satisfaction in hearing from his lawyer at the time, “Your victory will ensure that this will never happen to another banker.”

the JOurney COntInueS These days, Masvidal is retired— if you call retirement being on six boards, serving as chairman of a company that builds apartments for the poor and elderly, and exploring the purchase of another company.

He keeps up with the markets, spends time with friends and business acquaintances, and meets with Cuban friends from the University of Illinois once a month for lunch.

“Compared to working 14-hour days and traveling all over the world, retirement is quite boring,” he chuckles.

But the journey certainly has not been.

Tom Hanlon

Century

prInCIpAL

$100,000 +

$50,000 – $99,999

• • • • •

• Busey Bank • John Deere & Company

Archer Daniels Midland Company Deloitte LLp ernst & young LLp pricewaterhouseCoopers LLp State farm Companies

SenIOr $10,000 – $24,999

LeAD $25,000 – $49,999 • • • • •

Abbott Laboratories Axis reinsurance Capital One Caterpillar, Inc. KpMg LLp

pArtner $5,000 – $9,999 • • • • •

the Libman Company navigant Consulting, Inc. procter & gamble Co. Shell Oil Company union pacific railroad

• • • • • • • • • • • • • • •

At&t Baker tilly virchow Krause, LLp the Boeing Company Bp America Inc. Crowe horwath LLp eBay Inc. grant thornton LLp grosvenor Capital Management, Lp Illinois Mutual Life Insurance Jewelers Mutual Insurance Company Motorola Solutions Inc. navistar, Inc. norfolk Southern Corp. telephone and Data Systems Wal-Mart Stores, Inc.

•

College of Business I University of Illinois at Urbana-Champaign

21

[ WORDS FROM THE Ys ]

What influenced your decision to attend the College of Business, and what do you plan to do with your Illinois degree?

In August, 571 freshmen became part of the College of Business.

Each member of the Class of 2018 donned a College t-shirt as they celebrated at the convocation barbecue outside BIF, and several of them shared with Perspectives their reasons for choosing Illinois and what it means for their future.

“

Many friends from my boarding school in Bangalore were looking at the best schools in the U.S. to apply, including Stanford, UCLA, and Illinois. I started researching the faculty and the programs in business and computer science at Illinois and the many organizations, study abroad programs, and entrepreneurial and interdisciplinary opportunities. All of that research really made Illinois stand out as a great place to study finance or supply chain management and computer science. I think the program will also help me realize my goal of interning and then working in an environment that will expand my horizons and make me a skilled and ethical businessman.

”

Kunwar Sahib Singh New Delhi, India

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“

Originally, I thought engineering might be my career path, and my research of universities with strong engineering programs led me to Illinois. But when I took economics in high school, I found I had an aptitude for it and a strong interest in how business works. So I investigated the Business program at Illinois and saw that, just like engineering, it had a great reputation and would prepare me for an intriguing career. I’m particularly interested in business communication and marketing and the skills that I can acquire through that course of study. Both of my parents have established their own businesses in India, and I hope to use my Illinois degree to do the same someday.

”

Kanika Basu Mumbai, India

“

Everyone in Illinois knows that our state university is a great one and that the College of Business is a place that top companies rely on when they’re looking to recruit prepared and talented employees. Here I get the advantages of a large university and the benefits of a smaller environment since only 9 percent of the students that are on campus are in the College of Business. As part of that 9 percent, I’m lucky to have access to a high-quality education and high-quality facilities like BIF just a couple of hours from home.

I feel my plans to study accounting and finance will provide lots of opportunities for me.

”

Matthew Jones Deerfield, Illinois

I graduated from Simeon Career I was a wrestler in high school, and College is a time to challenge “Academy, “ When I was considering schools, I “I learned “yourself, a vocational high school knew I wanted to attend a large unithat success is about buildand I thought part of that on the south side of Chicago, where I received an early taste of an accounting program. My counselors and other alums I knew who attended Illinois were very positive about the experience and the education I would receive here. I have a strong math interest and background and when I heard about the quality of the accounting program at Illinois, I felt it would be a great match for me. When I visited campus I was sure. After I get my accounting degree, I hope to either earn an MBA or an advanced degree in accounting and work at a large public accounting firm. One day I might even be able to start my own.

versity within driving distance of home. But the biggest factor in my decision to attend Illinois was the reputation of the accounting program across the country and the world. My parents [Gus ’88 and Kelly ’89 (Fenton) Gast] are both Illinois graduates and CPAs, and I know from their work that accounting is a broad field with a wealth of opportunities. My goal is to make the most of my time inside the classroom and outside, so that when I leave the College I will be prepared to pursue those opportunities, first with a public accounting firm and then maybe by exploring work in corporate finance, personal financial services, or consulting.

Daisjuan Burns Chicago, Illinois

Morgan Gast St. Louis, Missouri

”

”

ing a strong work ethic and committing to continuously developing your skills. I feel that Illinois and the College of Business is a place where I’ll use those same strategies. I know I’ll be challenged to develop myself professionally and personally, but I also feel that there will be a lot of people helping me rise to that challenge. There’s an atmosphere here that you can feel when you step into the BIF building. It’s a welcoming place where the people are friendly and the opportunities are big.

”

Shane Varghese Woodridge, Illinois

challenge for me would be to move far from the comfort of home in California. I also applied to the business colleges at the University of Michigan, Wisconsin, and NYU and chose Illinois because it has such a great reputation. Although I don’t know anyone here and I didn’t come to campus for the first time until [the day before orientation], I already feel comfortable. I’m considering majoring in accounting or finance, and I’m looking forward to learning more about all the business clubs and getting involved so I can explore what will be the best business career path for me.

”

Alicia Tung Milpitas, California

College of Business I University of Illinois at Urbana-Champaign

23

[ REALITY CHECK ]

How’s your attention span?

The Effects

The Reality

W

R

ecent research from the National Center for Biotechnology

hat does it mean for marketers that consumers have more information at their fingertips and are spending more time accessing it but less time focusing on it?

According to Mark Wolters, visiting assistant professor of business administration, it means marketers need to get their

Information tells us that the average human attention span today

pitches across quicker and more succinctly than ever before.

is 8 seconds. That’s down 4 seconds from a decade ago, when we

What was once a 30-second TV spot is now multiple 15-second

could keep our attention focused for an average of 12 seconds. And it’s

commercials and a social media campaign spanning Twitter,

1 second less than the average attention span of a goldfish. Yes, a goldfish

Facebook, YouTube, and Instagram. He recommends four

may actually be more attentive than you or me.

strategies marketers should remember when dealing with

Maybe it’s because we have more distractions. The research concludes that “it’s no wonder our attention spans have been decreasing over the past decade with the increase in external stimulation.”

Technology is responsible for much of that external stimulation, with

audiences with shorter attention spans.

Shorten your posts and pitches by focusing on what is important. Twitter is today’s War & Peace, he says, and consumers will not stick around to read until the end. He suggests distilling

additional studies indicating that the average person checks his or her phone

your social media post or advertising pitch down to the most

more than 150 times in a 16-hour day, checks email 30 times an hour while at

crucial elements that are relevant to your target market, so that

work, and spends more than 5 hours every day on “non-voice mobile activities,”

you have a greater chance of grabbing consumers’ attention.

like Facebook, the Internet, and tablets. Content on the Internet has tripled in the last three years, and social media sharing has doubled.

Increase the number and frequency of your ads. Switch up your ads and media buy, so you have a collection of ads that

And while there is much time spent on these devices, much of what we

can be shown in various media and rotate the ads throughout

read on them does not hold our attention. Data indicates nearly 40 percent

your channels, says Wolters. The increase in frequency of ads

of people who use the Internet are bouncers, not engaging longer than a few

increases your chances of being heard through the noise.

seconds on any one page of information.

engage quickly and interactively with your social media.

By using various forms of media, posts, pictures, infographics, videos, questions, and polls and using a variety of social media message platforms, you have a better chance of being noticed than if you stick to a single form of social media.

Content is still king. Shorter attention spans do not mean less work. Consumers will still pay attention if the offering is relevant to their needs, says Wolters. So make sure you are pointing out the value that your product offers in a short, simple, and relevant way that will get consumers to stop and pay attention.

“Shorter attention spans are not the end of marketing and advertising as we know it; they are just part of the evolution of consumers, and marketers have already begun to adjust and take advantage of it,” he says.

Mark Wolters teaches marketing and has seen a wide variety of attention spans in his classroom. His success at capturing learners’ attention earned him the 2014 Illinois Student Senate Teaching Excellence Award and USA Today’s Readers’ Choice New Media Award for his blog Wolters World. He says the reality is that if you are still reading this caption you’ve made it further than both your average human and your average goldfish, especially if you’ve read it without once checking your phone. Congratulations!

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• Cathy Lockman

College of Business I University of Illinois at Urbana-Champaign

25

[ INSIDER TRADING ]

The Secret’s Out

A

s the saying goes, knowledge is power. But it can also be said that knowledge is money, especially when it’s insider information that can be used to determine investment strategies.

A new study from the College of Business explores how some hedge funds profited from information provided by congressional sources to the funds’ corporate lobbyists, a form of insider trading that was legal until 2012.

This advance knowledge of congressional actions enabled these hedge funds to make informed decisions as they bought or sold securities, says Jiekun Huang, assistant professor of finance, who conducted the research along with Meng Gao, a PhD student in finance.

tAKIng StOCK The study examines the performance of two groups of funds: one that had connections with lobbyists and one that did not. Their performances in stocks that could be affected by certain congressional actions were compared both before

26

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“We were able to isolate the advantage that hedge funds had by getting congressional information through their lobbyists. And that [advantage] came to 80 basis points a month.”

Jiekun Huang and after Congress passed the STOCK Act, which stands for Stop Trading on Congressional Knowledge. The act filled a major hole in the web of U.S. insider-trading laws, which generally prohibits trading on

inside information. Until the passage of the act in 2012, members of Congress and their staffs did not owe a duty of confidentiality to Congress; hence, trading by hedge funds on the basis of private infor-

mation received directly or indirectly from congressional insiders did not violate insider-trading regulations.

Huang and Gao’s research found that before Congress imposed a duty of confidentiality on congressional insiders, the funds that were connected to lobbyists outperformed the other funds by 80 basis points a month, or eight-tenths of a percent. Over a year, that translated into a 10-percentage-point advantage for funds with these political connections. Huang and Gao attributed the difference to inside information legally obtained from members of Congress or their staffs.

“Eighty basis points a month is quite a large number,” says Huang.

“But some might argue that stocks impacted by Congress would in general deliver higher returns or that connected funds in general deliver higher returns. To account for that possibility, we teased out factors specific to these stocks and those specific to connected funds that might influence their performance.

Then we were able to isolate the advantage that hedge funds had by

College of Business I University of Illinois at Urbana-Champaign

27

A LIttLe BIrD tOLD Me hat is insider trading? The answer is constantly evolving.

There is no specific insider trading law to govern financial transactions, so most insider-trading cases are filed under Rule 10b-5 of the Securities Exchange Act. The rule makes it illegal to make misstatements, omit material facts, or use “any device, scheme or artifice” to defraud. But the meaning of that rule is subject to change as new criminal cases are brought and new court rulings on the issue are handed down. Even so, Rule 10b-5 wasn’t sufficient to bar members of Congress from insider trading. Passage of the STOCK Act remedied that.

One way to understand insider trading is to look at some of the cases that have come down in recent decades. Here are three of them: • In 1985, Wall Street Journal columnist R. Foster Winans was convicted of telling two stockbrokers which stocks he planned to cover in the Journal’s “Heard on the Street” column. The stockbrokers used Winans’ tips to net some $690,000 in trading profits. Winans got a $31,000 cut of the proceeds.

• In 2004, Martha Stewart got a five-month prison sentence for obstruction of justice and lying about her sale of stock in ImClone, a drug company. Prosecutors said Stewart got advance word that a new ImClone drug was about to be rejected by federal drug regulators. She then sold the stock.

• In one of the biggest insider-trading cases ever, federal prosecutors have won convictions against eight employees of SAC Capital. The latest is former SAC portfolio manager Mathew Martoma, who was sentenced in September to nine years in prison. Prosecutors said Martoma obtained advance word that drug trials for a new Alzheimer’s drug had not been promising.

The Connecticut-based hedge fund then sold its holdings in the company’s stock, earning $275 million in profits and avoiding a loss. In November 2013, SAC pled guilty to fraud charges and agreed to pay $1.8 billion to settle charges that it had permitted insider trading for years. •

W

Doug McInnis

Sources: The New York Times, NBC News, ABC News, USA Today, The Wall Street Journal, The Washington Post.

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getting congressional information through their lobbyists. And that came to 80 basis points a month.”

The difference disappeared after Congress passed the STOCK Act.

prOfItABLe pOrtfOLIOS Huang said the new study originated with his interest in hedge fund investment strategies. He had seen news stories alleging that private political information was available and might be profitable for hedge funds, and he decided to investigate.

The researchers obtained databases of stocks in hedge fund portfolios. Then they turned to public data that showed which hedge funds had hired lobbyists, an indication that these funds may have access to private congressional information.

They identify stocks that could be especially impacted by congressional actions by their lobbying intensities.

“When we first started our study, insider trading on the basis of private political information was not prohibited,” Huang says. “The politicians worked on legislation or introduced new bills. They knew exactly what their actions would be. But they didn’t have a duty to keep it confidential.” And that’s the period

when the 80-basis-point differential showed up.

Matters might have stayed that way. But on November 11, 2011, the CBS program 60 Minutes aired a segment called “The Insiders” that described legal trading on inside information by members of Congress.

In the segment, critics described how members of Congress who made $174,000 a year could make a lot more by trading on their special information. Peter Schweizer, a fellow at the Hoover Institution, gave an example. “If you’re sitting on a health care committee and you know that Medicare, for example, is considering not reimbursing for a certain drug—that’s (stock) marketmoving information. And if you can trade stock off that sort of information and do so legally, that’s a great profit-making opportunity. And that sort of behavior goes on.”

Less than six months after the 60 Minutes program aired, an embarrassed Congress approved the STOCK Act. “The STOCK Act had an effect on informed trading by hedge funds,” Huang says. “After the act passed, the 80-basis-point difference disappeared.” • Doug McInnis

JAN 22, 2015

Be Heard

6:00 – 8:00 pm

Communicating to Diverse Audiences

FEB 19, 2015

Brave New World

11:30 am – 1:30 pm

Megatrends in Global Change

APR 8, 2015

Women in Business

LOCATION All events held at the Illini Center, 4th Floor, 200 South Wacker Drive, Chicago IL

REGISTRATION Call 217/244-6669 or visit business.illinois.edu/alumni Alumni $20 | Non-Alumni $40

11:30 am – 1:30 pm

SPONSORS Department of Accountancy at Illinois and PricewaterhouseCoopers

MAY 14, 2015

Safe, Sound, & Strategic

11:30 am – 1:30 pm

Approaches to Cyber Security

Join us. We have brilliant ideas to share.

College of Business I University of Illinois at Urbana-Champaign

29

[THE MAIN EVENT ]

ore than 100 golfers took to the links for the College’s third annual Fall Finale at Briarwood Country Club in Deerfield. The event, which is co-sponsored by the College of Business Alumni Association and the Dean’s Business Council, provides a chance for golfers to tee it up and enjoy a relaxing day of networking with other supporters of the College.

But the real beneficiaries are our students. With proceeds of the Fall Finale going to support scholarships and technology, the event allows the College to continue its legacy of providing a world-class education to talented and deserving young men and women. This year more than $125,000 was raised from the Fall Finale.

The College appreciates the efforts of the Fall Finale organizing committee and lead co-chairs Alan Patzik ’81 ACCY and Steve Cohen ’82 FIN. In addition, a group of generous individuals and business partners ensured the success of the Fall Finale, including lead sponsors: CA Ventures BNR Partners, LLC KPMG Ernst & Young Prairie Capital Mazzetta Company, LLC Patzik, Frank & Samotny Ltd.

M

At the Fore-Front

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College of Business I University of Illinois at Urbana-Champaign

31

[ THE REASON WHY ]

SLAM DUNK

I

n the movie Jerry Maguire, Tom Cruise portrays a sports agent working in an industry rife with greed, slickness, and betrayal. Money is everything, and Cuba Gooding, Jr., playing an NFL athlete, popularizes the saying, “Show me the money!”

Mark Bartelstein ’82, FIN who founded Priority Sports in 1985, doesn’t deny the public’s perception of the sports agent’s industry. “Some consider the world of sports agents to be slick, clever, fast-talking, trying to get an edge,” he says. “But that’s not the way I want to be viewed, and that’s not the way I want my company to be viewed.”

He’s worked hard to ensure that it’s not, and that work has earned Priority Sports a stellar reputation.

Bartelstein’s agency, which represents more than 200 NFL and NBA players, has been named the #1 independent sports agency in the country by Street & Smith’s Sports Business Journal, one of the Top 10 Most Valuable Sports Agencies in the world by Forbes, and one of the top football agencies in each of ESPN’s last five rankings.

Bartelstein himself has been rated by Street & Smith’s Sports Business Journal as one of the most influential sports agents in the country. But he is quick to deflect praise, quick to share glory with others.

“We succeed as a team, not as individuals,” he says. “I want everybody

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in my company to feel ownership.

This creates a culture of harmony.”

It also sets Priority Sports apart.

“We’re one of the only companies in the entertainment industry that I know of where our employees and partners do not get paid on commission,” he says. “My philosophy is that when you’re part of a company, you grow when all the parts work together. So we pay salaries, raises, and bonuses based on the success of the company, not the individual.”

It’s an approach that has created harmony, rather than competition, among the 30 staff members. And that culture creates happy clients, as evidenced by the agency’s #1 ranking in client retention rate in the business.

CAreer BuILDIng According to Bartelstein, retention begins with relationships. “It’s a simple saying, but it’s true. Treat people the way you want to be treated.

Don’t make a decision that will get you a quick dollar. Make decisions that are going to create long-term relationships.”

Those relationships, Bartelstein says, often go beyond an athlete’s playing days. “The biggest misperception is that people think that we’re negotiating contracts all day long. That’s the last piece of the puzzle,” he says. “What we’re really trying to do is create and build

careers. For most athletes, it’s constantly about getting them in the right place at the right time with the right opportunity. It’s about searching to find them the very best medical help, so they can come back and continue their careers or live a normal life. It’s about helping them move on after their careers into other professions. Our clients come to us with dreams and aspirations they’ve been working their whole life toward, and they put it on your shoulders to make it happen.”

That means being all in. “There’s no off time,” Bartelstein says. “This is a service business, and you have to be on top of it 24/7 because if the right deal isn’t made at the right time and the moment passes, that can change a player’s life forever.” nO ShOrtCutS Bartelstein knows about the importance of career timing firsthand, having taken a leap of faith himself.

After a year as a trader with Morgan Stanley, he decided to leave that lucrative and successful position to launch an entrepreneurial venture. “At Morgan Stanley, I was making money but not affecting anything,” he says.

“The idea of starting something from scratch was exciting for me.”

So he began what would become Priority Sports in the back of a print shop with a phone, a copy of the Yellow Pages, and a lot of passion.

“I learned very early on that your reputation is the best sales tool that you have,” Bartelstein says. “There is nothing more important than your name, not even the track record of your deals. A good name is built by doing the hard work, not by taking shortcuts. Success comes from doing your homework, from listening, and from being a problem solver.”

That approach carries over to negotiations. “You’d be surprised how much you get when you help the other side,” Bartelstein says. “We try to figure out what the other side wants to accomplish. Negotiating is not about squeezing and making demands. It’s about how can I design a contract to get what we need and to help others walk away feeling good about it.”

There are other agents who don’t approach negotiation in the same way, and ultimately, Bartelstein says, that doesn’t help their clients in the long run. “In this business, you’re often working with 18- to 22-year-olds. It’s easy for them to make mistakes and not see the big picture. The average length of their careers is two to seven years, so it’s absolutely vital for them to get good advice. It’s easy to tell them what they want to hear, but it doesn’t serve the athlete in the long run and it isn’t the way we do business.”

Tom Hanlon

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WhO Mark Bartelstein, CeO of priority Sports & entertainment WhAt has been rated as one of the most influential sports agents by Street & Smith’s Sports Business Journal and was recognized as one of the top 10 Most valuable Sports Agencies in the world by Forbes Where Offices in Chicago, new york City, and Sherman Oaks, California When graduated from the College in 1982 with a degree in finance and established his business in 1985 Why founded a sports agency based upon the philosophy that employees are rewarded for working as a team and not paid on commission; he believes it creates a culture of harmony that benefits clients and the company

College of Business I University of Illinois at Urbana-Champaign

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College of Business Honors students provided a literal outpouring of support for ALS when they took part in the Ice Bucket Challenge earlier this semester. Our Honors students accepted the challenge from LAS Honors students and were joined by College sta and Business Honors Program Assistant Dean Rich Johnson, whose mother is ďŹ ghting ALS. The Ice Bucket Challenge has raised more than $115 million for ALS since it went viral in late July.