Close or Fight for Another Day?

The sudden closure of Sweet Briar College despite its $85 million endowment challenges all of us in higher education with the emotional and complex issue of when a struggling college should close.

March 12, 2015

The sudden closure of Sweet Briar College despite its $85 million endowment challenges all of us in higher education with the emotional and complex issue of when a struggling college should close. There is no shortage of opinions among presidents, and others, as to whether the Sweet Briar College board decided prematurely to close the college. These opinions are, by necessity, devoid of all of the information in this case, and must be treated with care.

Some argue that a college should spend every last dollar to stay open, in order to live to fight for another day—perhaps by securing a merger, or finding a white-knight donor/investor. Others argue that when a board of trustees determines that sustainability is unlikely, the college should close with sufficient cash to provide reasonable severance to faculty and staff and provide students with ample assistance in transferring.  

The truth is that either route – closing earlier or closing later – can be the responsible choice. A board has a duty to preserve the ability of the institution to fulfill its non-profit purpose. Both routes, if carefully pursued, can serve to do so.

It is, of course, difficult to second-guess the decision made by Sweet Briar’s board.  The fact that Sweet Briar had a significant endowment does not mean the endowment can be used for the general expenses of the institution. Much of Sweet Briar’s endowment was restricted. Even unrestricted endowment is subject to rules that may not allow the principal to be “invaded” for general purposes without court approval.

To many, Sweet Briar’s strategy was courageous. The closure is orderly, providing meaningful transfer assistance to students and the possibility of severance pay for faculty and staff, as well as satisfying all or most of its obligations to creditors. The strategy also allows for care of the college’s campus until another use is found, avoiding a fire sale of assets. Likewise, if assets remain after attending to debts, Sweet Briar’s board might appropriately decide the college’s purpose can be satisfied beyond the life of the college by transferring its assets, including its endowment, to a more robust institution with a similar purpose.  

The downside of the strategy to close, of course, is that sometimes a “white knight” or last-minute solution does appear. It’s risky, though, to assume this will happen.

That said, spending down most of the resources of the college while looking for a solution, if carefully done, also strikes me as reasonable and courageous. There can be solutions available to colleges in deep financial trouble, though most are not easy, nor without considerable risk. But such solutions do sometimes emerge, even late in the game. 

Waldorf College in Iowa was acquired by a for-profit corporation and is operating today. Other institutions were merged or acquired by a stronger not-for-profit or public institution. At least one (Southern Virginia University) located investors to save the institution. And yet others have seen donors provide significant funds while the college retooled. Admittedly, many schools that survive financial distress emerge with changed missions. Yet they continue to serve students and their communities in different valuable ways.

For many of these colleges, it appeared the situation was nearly hopeless in the months and years before the solution was found. A different board might have closed these colleges, arguing that it had a moral duty to do so because it did not see a reasonable solution on the horizon. 

The downside of staying open longer is a disorderly winding-up if no solution presents itself, and that serves no one. I recall attempting to reach the president’s office at Dana College in Nebraska after it announced the school was closing. The person answering the phone told me she was a community volunteer and that most employees were gone. There was to be a college fair to help students transfer to other institutions. The volunteer requested that we bring our own table because there was no one left to find and set up tables! It was a sad state of affairs that surely did not make things easier for the students.

So what is a board’s duty? Is it to preserve the institution’s cherished, historic mission at the risk of closure, or to modify its mission to remain viable? How does the board of a failing institution best honor mission? Is it by closing early and providing meaningful aid to students and employees, or by carefully using remaining assets in an effort to survive as long as possible while searching for an acceptable solution?   

Complicating matters is the difference between the duties of non-profit boards and those of for-profit boards. The duty of a for-profit board is to preserve and increase the monetary worth of the enterprise. A non-profit board measures preserving worth, not by dollars, but by advancing its stated non-profit mission. Hence, there are no clear answers to the question of when to pull the plug. Reasonable boards can make different decisions, as long as the decision is anchored in mission.  

The decision is all about risk. Should a college play it safe by closing now and risk not finding a last-minute solution? Or should the college risk a disorderly closure while looking for a late solution? How should a college go about making this decision? Though closure decisions are ultimately made by the board of trustees, fundamental decisions about mission and risk are at their best and soundest when they are the product of shared governance.  

A college should engage the considerable expertise not only of board members and administrators, but also of faculty members, to create a marketplace of ideas from which the best decisions about mission and risk can emerge. All are invested in the institution and all should be given a voice. Shared governance also lessens the risk that a decision will be made by one constituency or another out of panic. Different constituencies might have access to different solutions, and certainly will have different perspectives on solutions that arise. Sharing governance helps develop creative solutions to difficult problems. 

Steven Bahls, President
Augustana College, Illinois


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