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Still Seeking a Partner

April 14, 2014

The Thunderbird School of Global Management last week announced that it was ending discussions on an alliance and joint venture with Laureate Education.

The deal with Laureate was controversial. It was strongly opposed by many Thunderbird alumni, who argued that a link with the for-profit Laureate would devalue the Thunderbird brand and, by extension, their degrees. While Thunderbird officials largely rejected the alumni arguments, the alliance with Laureate took a major hit last month when the Higher Learning Commission (HLC) of the North Central Association of Colleges and Schools rejected the plan.

At the time. Thunderbird and HLC did not discuss details of the accreditor's objections, and Thunderbird officials predicted they would quickly be able to resolve them. Since then, HLC has released a statement suggesting that the objections were significant.

The accreditor said that Thunderbird's request to have its accreditation include the new alliance with Laureate violated two requirements for such approvals (both of them broad requirements): “the ongoing continuation and maintenance of the institution historically affiliated with the commission with regard to its mission, objectives, outreach, scope, structure, and related factors.” and that "the institution, including the revised governance and management structure of the institution, will continue to meet the commission’s eligibility requirements, assumed practices, and criteria for accreditation."

In announcing that the deal was no longer being pursued, Thunderbird cited the HLC's actions. "Following the determination of the Higher Learning Commission not to approve the strategic alliance, as submitted, both parties decided that an amicable parting was in each organization’s best interest," said the Thunderbird statement. It went on to say that Thunderbird was moving ahead "with the forging of a new strategic partnership."

A Laureate spokesman did not respond to a request to discuss the news.

Larry Penley, president of Thunderbird, in an interview Saturday, was critical of HLC's findings. "Higher education needs to change," he said. Penley speculated that the proposed alliance with Laureate was a "departure from what the commission was familiar with," which was unfortunate because "we really need innovation at this point."

The plan for the alliance with Laureate would have kept Thunderbird independent, but its campus would have been purchased by Laureate (which would have leased it back), and Laureate would have had a 5-4 majority on the board of the new joint venture. The hope was for Laureate, which has a mammoth, worldwide network of colleges, to help Thunderbird grow outside the United States.

With Laureate out of the picture, Penley said that Thunderbird is looking for a new partner -- one that would enhance Thunderbird's brand, mission and sustainability. He said that Thunderbird has been looking for the right partner for about a decade. Various press reports have indicated that Thunderbird has been in touch with Arizona State University and Hult International Business School about possible forms of collaboration. (Both of those entities are nonprofit.)

Penley said that discussions were started, but declined to say with whom. Arizona State declined to comment, and Hult did not respond to requests for comment.

Thunderbird has historically had a strong reputation as a freestanding business school. But while freestanding business schools have thrived in Europe (think INSEAD in France or IE in Spain), the leading American business schools are attached to universities. Enrollment at Thunderbird is about 1,000, and the 500 students in residence in the full-time program are less than half of what enrollment used to be.

Penley said that Thunderbird needs a partner to grow. "If you are a small school, if you are a small business school or a small liberal arts college, you have fixed costs," he said, and you don't enjoy economies of scale, making the economics challenging.

Most colleges worried about money would be thrilled by alumni offering to pledge tens of millions of dollars, but in a sign of how divided the college and many of its alumni are, Thunderbird recently turned down such an offer. Penley said that the alumni wouldn't engage in discussions about the terms of the gift, which would require the release of many financial documents and the reconstitution of the Thunderbird board.

Will Counts, an alumnus who is executive director of the Thunderbird Independent Alumni Association, which made the offer, said that he was pleased to hear that Thunderbird was no longer trying to work with Laureate. But he said that the concerns about the business college's direction remain.

Counts said that "there are potential partners out there that could be well-suited for Thunderbird, but there are also options to remain independent."

The alumni group wants to have "fully transparent" discussions about Thunderbird's financial state, and prospects for growth before trying to replace Laureate with another partner, he said. But he said Thunderbird's leaders seem intent on pursuing partnerships without considering alternatives.

"We need to take the time to look inward," he said. "Trying to push another partnership immediately after the HLC's rejection shows a lack of due diligence and caring for the long-term outcome for the school."

 

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