The Power of Ideas
Image by Matthew Gilson
This fall, David Booth, ’71, sat down with dean Edward Snyder to talk about founding Dimensional Fund Advisors, his relationship with the faculty whose research have shaped the firm, and why he made the largest gift in the history of the school.
Edward Snyder: You’ve always had strong philanthropic ties to our school. Why this gift now?
David Booth: Because I can. For years it’s been a dream of mine that the firm would grow to a size that it could support this, and now it’s possible.
Part of the motivation is very personal. I’ve had such a terrific adult life and the University of Chicago has been a big part of why I’ve been able to live the way I have.
Chicago has great students, but a lot of schools have great students. What makes Chicago unique is the faculty, and the faculty have been truly amazing, especially when you consider the school has one of the smallest endowments among the elite business schools. I’m motivated by the desire to help maintain and grow the outstanding faculty. There’s a huge need, much bigger than my gift would satisfy. All of us who went to the GSB in the ’60s and ’70s and benefited tremendously can stand up and help. That’s part of the motivation as well.
Snyder: How do you see your gift strengthening the faculty?
Booth: This is an unrestricted gift. I want to enable the dean to do special projects that might be difficult in the ordinary course of running a business school. But the top priority is to make sure you, as dean, can get any faculty member you want.
Snyder: From a dean’s perspective, this is perfect. It’s flexible; it gives the school the ability to focus on new initiatives and the fundamental work of building and retaining faculty. It recognizes that we have to work on the endowment. This gift will allow us to accelerate our progress in a way that I couldn’t have imagined.
Regarding faculty, building the best faculty in the world is central to our strategy. If we continue to do that, the students will come. And we’ll develop alumni like you who do amazing things. We have a lot going for us in terms of attracting faculty. We’re the least bureaucratic of any business school I know. Faculty are free to do what they want. In our world, hiring faculty has gotten expensive. Real salaries have gone up, and the set of people who can meet expectations—in terms of teaching, in producing high quality academic research and colleagueship—is very small. We’re going for the very best people in the world.
Booth: The business community has a strong demand for PhDs that didn’t exist when I was in school, and that puts pressure on business schools to compete with the corporate world.
Snyder: We compete with the business world, other business schools, and top academic departments. Because we fit so closely with our university, psychologists, sociologists, and economists feel comfortable here. We find ourselves competing against Princeton’s economics department, for example—Princeton doesn’t have a business school. One of our top recent hires was from Harvard—but not HBS, Harvard psych. It’s a different kind of competition for Chicago. Your gift is a statement of trust that we’re on the right path, because you understand the power of our faculty.
Booth: It would be hard to find anybody that benefited more from your faculty than I have. When we met with [University Professor] Gary Becker, we talked about his experience at Chicago, and before that at Columbia. What became clear to me is the importance of having resources to compete for the faculty when you’re in an intense, competitive battle. It can make all the difference. That’s how Chicago ended up with Gary Becker and George Stigler and Columbia didn’t.
Snyder: And people like that have anchored and transformed the university. Over a year ago, Gene Fama told me—unprompted—that he thought the faculty was in better shape now than he’s ever seen it before, not just in finance, but across the board. This gift is moving us forward from a current position of strength.
Booth: I’d like to emphasize one point: the gift doesn’t solve the problems. It helps create a lot of momentum, hopefully, but what happens depends on follow-up with other alumni.
Snyder: This is important in light of our competitive situation. Obviously it’s very good in terms of faculty, facilities, recognition, demand for our programs, support from alumni. We just finished the Chicago Booth Campaign, and this gift is great. But David mentioned endowment, and we’ve made a lot of progress there. When I arrived in fall 2001, the endowment was $200 million. In the last seven years, we reached $500 million. That’s spectacular, and we’re grateful for all the people who helped. We’re now in a set of seven schools worldwide with endowments greater than $500 million.
But, as you said, even with this unprecedented gift, our endowment is small compared to our toughest peers. Endowment income allows you to do many things: technology, scholarships, investment in facilities, investment in faculty. We’re in good shape, but we’re not competing to be in the top seven. We’re competing to be the best in the world. That’s why endowment has to be part of the outcome of your gift. This gets us much closer to where we need to be, which is in the top three. I hope other people see this as a step toward that and join in.
Booth: Should we say anything about special projects? And just to clarify for readers, the gift is structured not as one lump sum, but as an economic interest in shares of the firm, and then the stream of earnings from the firm. That’s why we’re talking about a flow of money rather than one big pool.
Snyder: The gift allows me the flexibility to get things moving, or to push further on things that are going really well. You mentioned Gary Becker, who was one of the three founding members of the Initiative on Chicago Price Theory with Steve Levitt and Kevin Murphy. It became the Becker Center, it has an endowment, and they’re doing great things. Sometimes you want to take something like the Becker Center and give it some more ammo.
Booth: The rough criterion is that I don’t want to fund normal business activity. That’s well handled by tuition. It’s the extraordinary items that I’d like to help with. And I agree with you that we want to continue to be the best business school in the world—but I’ve felt that way for 35 years. Chicago is unique. It’s hard to describe, but for people that get Chicago, they know what you’re talking about. My goal is to help Chicago keep that uniqueness and stay ahead of our closest competitors.
There are two avenues in business education. It used to be that nearly all schools used the Harvard approach, using the case study, where you learn by studying what other people have done. It’s a fine institution, but along comes Chicago with a different approach—one that will always have fewer acolytes. By sheer numbers, the Harvard approach will be the basic paradigm for most business schools, because it’s easier to implement. The Chicago approach has more theory and modeling, and rigorous analysis is not for everybody. Chicago has cut out a unique brand name in that area and for people who understand it and love it, there’s no place like it. I don’t look at the ranking systems much because I know Chicago is the best. It’s the best for what I want and comparing it to Harvard is apples and oranges. With the proper funding, Chicago will not only continue to be the best business school indefinitely, but do more of what makes it so distinctive.
Snyder: When you consider gifts that have named business schools, this is in a completely different category. In some cases there were founding names, Wharton and Tuck. There was Darden, which was a recognition name to say thank you to someone who helped the school and university. The naming of Kellogg was a “let’s change direction” event for what was then Northwestern’s business school.
But your gift is totally different. It’s fundamentally an affirmation. When you talk about this already being the best business school—that you’ve known that for 35 years—it’s not a change in direction at all. You are someone who decided—as a fundamental piece of his career development and business strategy—to stay close to the faculty, to position himself at the cutting edge. You said, I’m going to continue to learn and to be the marketer, the finance thinker, and the entrepreneur leveraging Chicago ideas.
Leveraging Chicago Ideas
Snyder: Could you talk about Dimensional’s core strategy and how it has leveraged Chicago ideas?
Booth: We view ourselves as evolving in a process, a feedback loop. There are models that are cause and effect, and then there’s a feedback loop system, where you can start in any number of places. Let’s begin with academic research. That leads to ideas about how to invest money. If you have ideas, then you acquire clients for the strategies you develop based on those ideas.
Next is implementation, which is our strength. After you implement, you review your results, which leads to a dialogue, which leads to questions, which requires more research, which leads to more strategies, clients, implementation, evaluation, and attribution analysis, more dialogue—and then more research.
That’s the feedback loop. One of the key components is research. It’s a luxury to build a business knowing that when you need serious research, you have access to the highest quality. That’s something as a firm we couldn’t hope to monopolize. But all the finance professors in the world work for us, they just don’t know it.