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Searching for Savings

July 20, 2012

Illinois lawmakers searching for a place in the state’s higher education system to save money seem to have found their answer: searches.

On Monday, Illinois Governor Pat Quinn signed into law a bill that prohibits the use of an external hiring search firm for public colleges and university searches for positions other than presidents or unless the board can demonstrate a “justifiable need for guidance from an individual or firm with specific expertise in the field of the hiring.”

The bill is partly a reaction to the use of search consultants by the three-campus University of Illinois system, which was the subject of several stories in the local paper, The News-Gazette. But it is also an outgrowth of decreased appropriations for higher education and increased tuition that has increased public and political pressure on institutions to control costs, leading lawmakers across the country to focus on expenses that could seem excessive.

Proponents of the bill said the restriction will help keep state and tuition dollars focused on the universities' educational missions. “In this economic climate, we can ill afford such extravagances, particularly when most universities in Illinois get by just fine without using them,” said bill sponsor Rep. Chapin Rose in a news release from the governor’s office.

Opponents of the bill, including search firms, said the legislation could restrict the institution’s ability to attract top talent, which could be important as the public universities struggle with a changing budget model, new forms of educational delivery, and increased demand. The original bill would have banned the use of firms for all searches, but it was amended.

The use of consultants during searches for college and university presidents is common practice for higher education institutions, and it is becoming increasingly common in searches for other top administrators and even deans.

Those involved in the search processes, both the firms and the institutions that use them, say the new restrictions – and other, similar legislation elsewhere – are more symbolic than anything else, and won’t actually address the critical funding challenges that states, and their colleges and universities, are currently facing.

“The effect of this sort of legislation, in the larger sense, is really deflecting the conversation from the real issues, which is not whether a state of public university is spending money on search firms to hire talented people, but how universities are using their funds, and whether they are using their funds strategically,” said Lucy Apthorp Leske, vice president, partner, and co-director of the education and not-for-profit practice at Witt/Kieffer, an executive search firm that has worked with Illinois institutions in the past.

What Happened in Illinois

The Illinois law is partly a response of a report by The News-Gazette that found that the University of Illinois system spent $6 million over nine years on consultants for various searches – often with controversial results.

The system spent almost $400,000 on searches to pick deans for the university’s law and business schools – both of which had to use two search firms – only to pick internal candidates for both positions. A three-week search for the college’s new basketball coach cost the institution $90,000.

The system also spent $303,000 on the search for a new system president in 2010. The president selected in that search, Michael Hogan, stepped down from the position after less than two years in office amid criticism from faculty members. That search was complicated by the fact that the firm responsible for placing Hogan at Illinois was the same one that placed him at the University of Connecticut. Because of Hogan's short tenure at Connecticut, the firm, Isaacson Miller, was prohibited from dealing with Hogan during the process, meaning it did not assist for a crucial part of the search.

Peter Felix, president of the Association of Executive Search Consultants, an international organization that represents many search firms, said the Illinois law appeared to be a bit of “pandering to political pressure” on the part of the state lawmakers.

The high number of searches by the system is partly the result of an admissions scandal in 2009 that led to significant turnover in its administrative ranks, which drove up its bills. Both administrators and search consultants say the use of search consultants has also expanded down the administrative ladder in recent years, as positions such as deans have changed from academic administration to a more diverse set of responsibilities that regularly include budget management and fund-raising.

“If you talk to any provost on the planet who has conducted a dean search, they will tell you how challenging it could be to recruit really strong people with good skill sets,” Leske said.

National Perspective

The Illinois case, which is the most prominent effort to restrict consulting activity, is also part of a larger trend of lawmakers and the public targeting higher education expenses that many in administration consider to be symbolic rather than substantive.

While $6 million over nine years is not an insignificant amount of money, it is a small component of the university’s budget, which totaled roughly $4.4 billion in 2010 and 2011. Like most public universities, Illinois institutions are trying to address the increasing costs of educating students while state funds decrease. The state is also struggling with liquidity and pension issues that led to a downgrade of the state’s credit rating and significantly delayed appropriations to the universities for much of 2009 and 2010.

California, another state with substantial budget issues, has not taken aim at search firms, but it has put pressure on its public colleges and universities to limit executive compensation, which has also been singled out in other states. California higher education leaders and Gov. Jerry Brown have pushed for more leadership development within their own ranks, which could cut down on compensation costs.

The California State University system faced pressure a year ago from state lawmakers to clamp down on executive salaries and adopted its own set of guidelines designed to contain salaries. The push came after the board voted to increase student fees and approved higher compensation for several presidents at the same meeting, creating a public relations problem for the system.

Last week, however, the board, following the guidelines they adopted, approved 10 percent pay increases for two incoming campus leaders. At the same meeting, the board heard reports on how the 23-campus system faced a potential $177 million to $427 million shortfall for the 2012-13 fiscal year. The system has already limited the number of transfer students it will accept in the fall.

A spokesman for the California State system said they had not heard of any efforts to restrict the use of search firms. Felix and Leske both said they did not expect there to be larger pushback against search consultants nationwide.

Searching for Solutions

Illinois institutions said the restrictions will not significantly affect how they go about conducting most searches or their ability to attract talented candidates. The law still lets the institutions hire firms for presidential searches.

Maureen Parks, the University of Illinois system’s executive director of human resources, said the institution is working on new guidelines for evaluating searches for when it wants to use a search consultant. She said the new law might drive the university to make better use of the human resources office for searches for some positions, such as deans and department chairs, that didn’t typically involve the office in the past.

Given the university’s significant turnover in the past few years, it is not on track to conduct any high-profile searches, the kind that might require a search firm, this year.

Leske said the prohibition might actually end up costing the state’s universities. If an institution is interested in bringing on a consulting firm to assist a search, it will have to expend the resources to make the case for why it should use a consulting firm.

Jay Groves, a spokesman for Illinois State University, said he thinks the restriction could drive up costs for other reasons.

“The attractiveness of a search firm is that the ground work is done for you,” he said. “They’re connected to the candidates out there and can round them up and bring them to you, which can be time-saving. They are also insurance that you don’t fail a search and incur the expense of doing another search.”

 

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