Business issues

The Inevitable Change Ahead

In most industries, technology-enabled competition is deemed healthy and vital. Accustomed to a hyper-competitive modern world, we expect even the largest and most prestigious companies to be continually challenged by nimbler, more creative upstarts. Economists teach that disruptive innovation by newcomers and creative destruction of entrenched incumbents leads to better products and services. When a century-old auto company, airline, investment bank, or newspaper files for bankruptcy or disappears altogether, we regret the attendant human suffering but count the loss as the price of progress, knowing that without competitive innovation and destruction we would enjoy a standard of living no better than our great-grandparents did.

Higher education, though, has been different. Large universities rarely cease to operate. Nor are the prestigious ones quickly overtaken. Part of the reason is a dearth of disruptive competition. The most innovative would-be competitors, for-profit education companies, find great success among working adults, many of whom care more about the content and convenience of their education than the label on it.

But many young college students still seek the assurance of traditional university names and the benefits of campus life. Because of loyal support from this large group of higher education customers, the incumbents have felt little pressure from the for-profits’ use of potentially disruptive online technology.

Meanwhile, the terms of competition among traditional institutions, the public and private not-for-profit universities, have been set primarily by those at the top. The strategy of most schools is one of imitation, not innovation. Little-known and smaller institutions try to move up in the ranks by adding students, majors, and graduate programs, so as to look more like the large universities. They also task their faculty with research responsibilities. In the process the emulators incur new costs and thus must raise tuition. This blunts the price advantage that they began with. They are stuck in a dangerous competitive middle ground, neither highest in quality nor lowest in cost. The great schools, rather than being discomfited by the imitation, seem all the more desirable because of it.

In their defense, the institutions that emulate Harvard and strive to climb the Carnegie ladder are doing just as conventional business logic dictates -- trying to give customers what they want. The great universities such as Harvard inspire not just administrators, faculty, and alumni at other schools. They also excite the most elite prospective students, who want to win admission to the most Harvard-like institution they can. Thus, less prestigious schools emulate Harvard’s essential features, such as graduate programs and expert faculty researchers and research facilities. They also give students costly non-educational amenities such as intercollegiate athletic teams, which Harvard no longer supports at the level of the most competitive schools.

The result of this competition-by-imitation is to solidify past educational practice among traditional universities, making them increasingly more expensive but not fundamentally better from a learning standpoint. The great-grandparents of today’s students would easily recognize the essential elements of modern higher education. Though the students are more diverse, the shape of classrooms, the style of instruction, and the subjects of study are all remarkably true to their century-old antecedents.

Great-Grandpa and Grandma would likewise recognize the three schools atop U.S. News’s 2010 college rankings: Harvard, Princeton, and Yale. In fact, asked to guess, they’d probably have picked just those three.

Only the costs of a higher education, one can argue, have kept pace with the times. In the 10 years after 1997, the inflation-adjusted price of a year of college at the average public university rose by 30 percent, while the earning power of a bachelor’s degree remained roughly the same. Cost increases derive partly from higher faculty salaries, but more from activities unrelated to classroom instruction. Scientific research, competitive athletics, and student amenities require both large operating outlays and the construction of high-tech laboratories, football stadiums, and activity centers. As a result, the cost of higher education grows faster than faculty salaries or other instruction-related costs.

The problem is not unique to higher education. In fact, in products ranging from computers to breakfast cereals, history reveals a pattern of innovation that ultimately exceeds customers’ needs. Hoping to get an edge on their competitors, companies offer new features, such as faster processing speeds in a computer or increased vitamin fortification in cereals. These enhancements are sustaining innovations rather than reinventions: the product becomes better while its basic design and uses remain the same.

The catch, as Clayton Christensen has shown in The Innovator’s Dilemma, is that these performance enhancements at some point exceed even the most demanding customers’ performance needs. The producer is incurring greater costs and thus must raise prices. That leaves the typical purchaser of a $5,000 laptop or a $5 box of cereal paying more than they want to, given what they actually need.

Much of what universities are doing is standard management practice: improve the product; give customers more of what they want; watch the competition. But it leads even great enterprises to fail, as detailed in The Innovator’s Dilemma. Inevitably, while the industry leaders focus on better serving their most prized customers and matching their toughest competitors, they overlook what is happening beneath them. Two things are likely to be occurring there. One is growth in the number of would-be consumers -- students, in the case of higher education -- who cannot afford the continuously enhanced offerings and thus become non-consumers. The other is the emergence of technologies that will, in the right hands, allow new competitors to serve this disenfranchised group of non-consumers.

Until the relatively recent emergence of the Internet and online learning, the higher education industry enjoyed an anomalously long run of disruption-free growth. In times of economic downturn, there were cries of alarm and calls for reform. But for the elite, well-endowed private schools, a bit of budget tightening sufficed until the financial markets recovered. The demand for the elite schools confer far exceeds the supply, allowing them to cover rising costs with tuition increases and fund-raising campaigns.

Even many less-prestigious universities benefit from accreditation, which has elevated them over unaccredited institutions. Public universities also enjoy the long-term commitment of taxpayers. In the absence of a disruptive new technology, the combination of prestige and loyal support from donors and legislators has allowed traditional universities to weather occasional storms. Fundamental change has been unnecessary.

That is no longer true, though, for any but a relative handful of institutions. Costs have risen to unprecedented heights, and new competitors are emerging. A disruptive technology, online learning, is at work in higher education, allowing both for-profit and traditional not-for-profit institutions to rethink the entire traditional higher education model. Private universities without national recognition and large endowments are at great financial risk. So are public universities, even prestigious ones such as the University of California at Berkeley.

Price-sensitive students and fiscally beleaguered legislatures have begun to resist costs that consistently rise faster than those of other goods and services. With the advent of high-quality online learning, there are new, less expensive institutional alternatives to traditional universities, their standing enhanced by changes in accreditation standards that play to their strengths in demonstrating student learning outcomes. These institutions are poised to respond cost-effectively to the national need for increased college participation and completion.

For the vast majority of universities change is inevitable. The main questions are when it will occur and what forces will bring it about.

Clayton M. Christensen and Henry J. Eyring
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Clayton M. Christensen is the Robert and Jane Cizik Professor of Business Administration at Harvard Business School. Henry Eyring is advancement vice president at Brigham Young University-Idaho. Reprinted by permission of the publisher, John Wiley & Sons, Inc., adapted from The Innovative University: Changing the DNA of Higher Education from the Inside Out, Copyright © 2011 by Clayton M. Christensen and Henry J. Eyring.

Using Quaker Principles to Budget in Tough Times

In good times and bad over three decades, I have been involved in college financial decision-making as a faculty member and administrator. Whether it was at wealthy institutions like Harvard University or Bowdoin College, places of moderate means like Guilford College or public institutions like Michigan State or the University of Massachusetts, budgeting always involved not enough revenue and too many expenses. Frequently, trying to achieve a balanced budget was equivalent to trying to get 10 pounds of sugar in a 5-pound bag.

Those decisions have become far more difficult in the present economic maelstrom as revenues have deteriorated along with the stock market and tax base and expenses, especially for financial aid, threaten to skyrocket. The difficulty multiplies if the institution uses participatory budgeting processes in which the community from faculty to students gets involved.

Now I lead a college that uses principles from our Quaker heritage to make many decisions including the strategic plan, long range financial plan, and annual budget. Let me disclose that I am a Roman Catholic. As the first non-Quaker chief executive since the college started as a boarding school in 1837, I needed to learn about Quaker principles and practices, and how to apply them in my new role. While only 10 percent of our employees and students formally describe themselves as Quaker, and the community includes many faith traditions, we strive to maintain the principles and practices of our history. We use them for the Board of Trustees and its committees, faculty meeting, and campus committees of every kind including budget. Which might be applicable on your campus? With apologies to Quaker colleagues for probable oversimplifications, let me suggest seven principles as this non-Quaker has experienced them in budgeting and financial decision-making.

(1) Sense of the meeting. With colleges and universities threatened by economic catastrophe, momentous decisions about where to find the revenue and how to spend it loom large. The “sense of the meeting” is equivalent to a decision but is not handled like the typical motion. It arises out of a sense that the truth of a “best” solution exists if we enter discussion with open minds and a willingness to be led by others, even if a proposal is already under consideration. Participants are asked to share their own views, not to characterize or critique the views of others. After identifying themselves if the meeting is large or the membership new, participants frequently are asked to talk once on a topic until others get into the conversation. Although there might be informal ballots, or a show of hands, to see where people stand during the discussion, we never vote. Voting negates the power of the whole group and may lessen the sense of responsibility of the minority.

(2) Decisions by consensus. This does not mean that everyone has to agree but that there is “substantial unity” about what to do. People either endorse the proposal or, if opposed, agree to “stand aside” and not prevent consensus. This principle prevents a majority opinion from dominating the meeting and decision because any one in opposition can refuse to stand aside, prevent consensus, and defeat the proposal. Dissent is viewed as a sign that the truth has not been discerned. This principle encourages respect for the minority, openness to new information, and serious consultation. It does not mean chronic compromise until a common position is reached but a search for truth and how to serve the financial interests of the community most effectively.

(3) Moment of silence. Some Quakers worship in silence and only speak when the “Spirit” moves them. At Guilford, moments of silence open and close many meetings, classes, and events. These moments allow meeting participants to transition from what they were just doing to focus (or “center”) on the purpose of the meeting, and then at the end to transition from the meeting to another activity. I have found that even 30 seconds of silence improves meeting participation and productivity. It helps students in the political science class I teach every spring even more because of their hectic lives and shorter attention spans. The same benefit accrues to budget and trustee finance committees and senior staff. Moments of silence assist in centering on seemingly intractable financial issues amidst economic tumult and everything else that competes for their interest.

(4) Queries. Decisions about tuition and fees, endowment spending, employee salaries, and other budget items result from complex strategic, financial, political, and other factors that are too often implicit rather than explicit. “Queries” are questions with no simple or standard answers that promote self- and group examination through inward reflection. Queries remind us that our actions are proper because they are done thoughtfully and conscientiously and not because they conform to abstract rules. For example, a budget committee might ask itself as it neared consensus on the annual budget: What have you done to balance the financial needs of your own work or department with the financial needs of the entire college? How do you work to influence investments of college assets toward socially desirable ends, avoiding speculation and activities wasteful or harmful to others? Do you assume your fair share of financial support? Do you support the concept of inter-generational equity that avoids meeting today’s needs by selling assets or irresponsible borrowing that mortgage the college’s future?

(5) Influence of testimonies. Core values are the essential and enduring tenets of the organization that guide decision-making and behavior. A budget might be guided by the core value of “sustainability” in support of environmental investment or “stewardship” to ensure that maintenance was not deferred. Quaker testimonies—simplicity, peace, integrity, community, and equality— are the equivalent of core values with even more emphasis on living them in practice. Here is how I have witnessed testimonies influencing budgets.

  • “Simplicity” contributes to lean budgets and plain speech during debates.
  • “Peace” is not only about opposition to wars but also the peaceful resolution of conflict and seeing good — something of God — in all people. Thus, participants in financial decisions might question your position but not your motives, and strive to create a budget without threatening speech or unruly behavior.
  • “Integrity” means that the budget is clear, factual, and genuinely funds the obligations of the institution, and that the process is obvious to everyone.
  • “Community” argues for participative decision-making and involvement of faculty, staff, and students. A budget that serves community reflects campus input and is transparent in terms of actions and analysis.
  • “Equality” recognizes differences in responsibility and authority but treats participants in the budgeting process more for the expertise and experience they bring than their rank or position. Almost everyone is called by first names to show equality. A budget debate can be more spirited and honest when I am called “Kent” rather than “President Chabotar.”

(6) Eldering. This technique most often involves a committee of experienced members trying to counsel participants who might be disruptive, absent too often, come unprepared, and other unproductive behavior. In one budget committee, a member always turned the discussion to a personal concern about student fees no matter what the topic on the agenda. To paraphrase Churchill, he would not change his mind or the subject. Being advised by peers outside of the meeting greatly improved behavior and made him more productive and less alienated. Eldering might also occur when the committee queries why colleagues are opposed to a proposal and what it will take them to approve it, or at least stand aside. The chair may call a time out during a discussion or an early adjournment to permit tempers to subside, thoughtful reflection, and opportunities for eldering. Another standard Quaker admonition helped in this and many other fiscal situations: “Think it possible that you may be mistaken.”

(7) Friend speaks my mind. Grandstanding and repetitious remarks slow down the meeting and prevent members from discerning the truth. Instead, when you agree with someone you say simply “Friend speaks my mind” and sit down. Quakers are officially known as the Religious Society of Friends but a Catholic like me or anyone can be a Friend at a meeting. You can also say, “I agree.” This not only saves time but also allows the chair and others to gauge more accurately the sense of the meeting.

The most recent use of Quaker principles occurred last fall 2008 when the trustees, administration, and budget committee worked together to deal with a burgeoning budget deficit for the current fiscal year largely caused by actual and projected enrollment shortfalls. We developed three budget scenarios of increasing pessimism, picked the “worse case” scenario, and cut $2.7 million from the budget including the elimination of 20 faculty and staff positions. Developing consensus on these difficult choices required skilled chairs guiding discussion to a sense of the meeting, participants eldering others to address concerns and gain acceptance, and moments of silence to center ourselves before engaging in honest debates in the context of our core values and testimonies. Thankfully, enrollment has been much better than expected. We may restore some of the reductions, starting with employee pay increases, the possibility of which was anticipated and given top priority in the fall process.

At a time of international crisis in which colleges and universities are under unprecedented financial stress, others might also try a decision-making approach that Quakers have used with success for over three hundred years. It has worked for me for almost seven years. None of these principles guarantees an effective committee or a balanced budget. All are subject to abuse or mistakes. Nevertheless, the process that results encourages more inclusive budgeting in which facts rule, participants listen to each other and are open to new ideas, and people take their time to do right. Try one or all seven and perhaps you too will say, “Friend speaks my mind.”

Kent John Chabotar
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Kent John Chabotar is president and professor of political science at Guilford College.

Let Professors Choose

Endowments have plummeted, alumni will donate less, and students won’t be willing to pay as much. Because of all this financial trauma, colleges will inevitably expect more from their faculties. But I urge college presidents and trustees, in responding to this situation, not to make inflexible demands of professors, but to rather empower us to decide which sacrifices we shall bear.

Colleges need to reduce costs, and one way could be to cut professors’ salaries. But some professors would do a lot to maintain their incomes, so why not give us the option of keeping our salaries as long as we agree to teach an extra class or take on significantly more administrative responsibilities? After all, if some professors did more work, a college or university could postpone when it needed to hire new employees.

To make up for a hiring freeze, some colleges might be tempted to force all professors to teach additional classes. But some professors live frugally, have lots of family income, or would do most anything to preserve research time. Why not let these instructors take, say, a 10 percent pay cut in return for not having extra teaching responsibilities?

A hiring freeze might also necessitate some professors taking on more administrative duties. But no school should push all professors into doing what college administrators do. If, for example, one instructor hates meetings while another dreams of being a dean, let the former teach one of the latter’s classes, thereby freeing up the latter’s time for paperwork.

Colleges should present professors with a menu of sacrifices they must pick from. Of course, there will have to be some planning so that not too many professors pick the same option. Perhaps the most senior faculty members would get their first choice from the menu, and less senior members would get to choose only among sacrifices consistent with their institution’s needs.

But a better way to allocate sacrifices would be to have professors bid for what they want. For example, a college could declare that all but 100 members of the faculty must teach an extra course each year. Professors could then bid with their salaries for one of the 100 slots, with some kind of limitations built in so that not too many professors from the same department win the auction. The auction winners would be the professors who value money over time, and the “losers” those who value time over money. Each professor would be making the choice that best suits his or her needs. True, affluent professors might seem to have an advantage in such an auction, but it would be the least affluent who would most benefit if the auction’s revenue prevented the college from cutting everyone’s salary.

Departments, too, should be given choices over how to share their college’s financial hardships. A department, for example, might be told to either postpone its next hire by a few years or give up half of its administrative budget. Each department would use its knowledge of its own needs to make the decision that would best serve it and would probably best serve the college.

Professors care about many aspects of their jobs, including salaries, teaching loads, administrative work, sabbatical opportunities, travel money, office space, research expectations, and grants. Most professors accept that, because of the financial crisis, our terms of trade with employers will become less favorable to us.

By giving professors options over how these terms will change, schools can potentially get more out of their professors while inflicting less harm on them (and so encountering less resistance). And this most holds true if different professors can make different choices, rather than the college negotiating with the faculty as a whole for all professors to make the same sacrifice.

James D. Miller
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James D. Miller is an associate professor of economics at Smith College.

From Survival to Sustainability

You may think things are bad now -- and you’re right, they are. But today’s economic concerns are obscuring what may prove to be even bigger strategic challenges ahead for higher education.

Everyone knows that we’ve entered a period of profound anxiety and uncertainty. Everywhere we look -- from this publication’s own headlines, to university cabinets’ strategy sessions, to our now more thinly attended professional association meetings -- we see people devoting tremendous amounts of energy to the work of decoding the economic predicament in which we find ourselves. We’re working feverishly to understand what this economic downturn will portend for everything from bond financing to financial aid to endowment management to enrollment performance, and much else besides. In many respects, our key focus right now is survival. We are striving to protect the core of our colleges and universities. And we are hoping that higher education may yet again prove to be counter-cyclical to prevailing market conditions – a rare winner in the economic lottery.

Beyond survival, however, higher education has to be thinking about its own sustainability. Even as we struggle with present conditions, a number of farsighted universities are working hard at decoding the future, too -- because change is certainly coming. Demographics are shifting. Competition for talent is global. And the very financial structures that have supported higher education for the past 40-plus years may now be at risk.

In our current circumstances, these forward-looking universities read signs that the old ways of doing things may be approaching obsolescence. As a senior executive at one large, private university recently said to me, “We’re not persuaded that the business model or the economics of higher education are sustainable. We’re asking the question, ‘What if we were to start from scratch?’ ”

In short, now more than ever, we in higher education need to rethink our place in the economy and how we deliver value. What markets will we serve? What programs and credentials should we offer? How will they be delivered? How should we define success?

Faced with these questions, many of us will retreat to our intellectual comfort zones -- those familiar ideas supported by anecdote as often as by evidence. “Why should higher education change?” some of us will ask. “We’re doing just fine.” Others will be certain that we should follow this or that path -- stick to our knitting, or reinvent ourselves completely. But it pays to spend some time with these questions before rushing off to whatever answers may be nearest at hand. As former Secretary of the Treasury Robert Rubin once observed, “Some people are more certain of everything than I am of anything.” In transitional and uncertain times such as these, we should be cautious of following the lead of those who peddle certainty, those who know exactly what they think.

“It’s much harder psychologically to be unsure than it is to be sure,” wrote the investment guru Seth Klarman recently. “But uncertainty also motivates diligence, as one pursues the unattainable goal of eliminating all doubt.”

Diligence is critical to evaluating not only the challenges that higher education faces today, but also the opportunities. In a number of respects, this is a best-of-times/worst-of-times moment in higher education. For example, President Obama has asked “every American to commit to at least one year or more of higher education or career training.” The Lumina Foundation and others have called upon the higher education community to produce 16 million additional degrees by 2025. And old industries -- energy among them -- are about to become new again.

At the same time, we may at last be reaching the tuition ceiling for many parents, and there is the very real prospect of enrollments drifting toward less expensive institutions. Shrinking endowments are creating significant challenges for managing university operations. And a business model based on exclusivity does not scale; it limits the potential for impact -- whether intellectual or economic.

Growing numbers of universities see this special moment as a unique opportunity to reassess their business strategies. Developing a strategy, of course, involves not only deciding what you will offer and how you will serve the market, but also -- and just as importantly -- what you will not do. Many higher education institutions suffer from trying to be too many things to too many people -- a very risky strategy for any enterprise. If we are going to successfully protect the core, and also plan for the new realities awaiting us in the future, then we are going to have to focus our investments of time, money, and human capital.

Because higher education in the U.S. involves so many diverse types of institutions serving so many diverse markets, the choices we face as a system of higher education are myriad. But among the choices that college and university leaders must face are these: by what means can a quality institution be simultaneously selective and open? Should the institution strive to be “global” in reach or regional? Will it continue to prioritize so-called “traditional” students or adjust its operations to better serve working adults and employers? Will it emphasize a unique, place-bound experience at a single campus or the delivery education services through multiple and widely dispersed sites and online? Will it prioritize research or teaching? Will it be a leader in emerging industries? Fundamentally, what form of value will the institution create?

In conversation with university presidents, provosts, and other academic leaders over the last six months, I’ve often asked what higher education can do to avoid the classic investor error of buying high and selling low. Jack Wilson, the president of the University of Massachusetts, responded to this question by saying that he anticipated a return to “value investing” in higher education -- something akin to the longstanding investor practice of buying stocks in companies that are trading below their intrinsic value. “The last few decades, people have not thought about higher education as a place to look for value,” Jack said. “But now, they’re going to be looking for quality institutions that offer a great experience, and a great value at a great price. There’s going to be a lot of pressure on higher education institutions to get their value propositions in place.”

This is what’s coming down the track at us. We have to protect core. We have to survive. We have to stay in business. And yet at the same time, we have to create more value and become more competitive. We have to develop a focused strategy and choose from among numerous competing opportunities. And if that weren’t enough, we have to achieve all of this in a period of tremendous demographic transition.
According to the National Center for Education Statistics, in 2007, 37 percent of the U.S. population over the age of 25 had earned an associate degree or higher. That doesn’t sound altogether bad, but degree attainment rates within the U.S. have been relatively flat for decades while countries such as Canada, Japan, and Korea have advanced beyond 50 percent of their adult populations earning the equivalent of an associate degree or higher. Reading the economic tea leaves and sensing where this growing asymmetry may leave us, the Lumina Foundation has set out what it characterizes as an “audacious” goal of ensuring that 60 percent of the adult U.S. population possesses an associate degree or higher by 2025.

There are numerous challenges associated with meeting this very laudable goal. First, it represents a roughly 50 percent increase in our annual degree productivity on an annual basis for the next 16 years, and would require an effort several times the scale of the post-WWII G.I. Bill. Second, if we were to achieve it, we would have to accomplish it under circumstances in which the demography of the college age population is shifting dramatically.

Today, 29 percent of U.S. adults aged 25 to 29 possesses a bachelor’s degree or higher, according to the National Center for Education Statistics. If we disaggregate this figure by race/ethnicity, however, we see that 32 percent of whites, 19 percent of blacks, and 13 percent of Hispanics in this age group has a bachelor’s degree or higher. What makes this especially significant is that Hispanics and blacks are among the fastest growing populations within the U.S.

According to the National Center for Public Policy and Higher Education, in 1980, whites accounted for 82 percent of our population. In 2020, this figure is projected to be 63 percent. Over the same 40 year period, the proportion of Hispanics in our population is projected to have increased from 6 percent to 17 percent, and the proportion of blacks is projected to have increased from 10 percent to 13 percent. In a paper published in 2005, the National Center for Public Policy and Higher Education goes on to argue that if current racial and ethnic enrollment gaps remain, the net result would be a projected 2 percent decline in per capita income over the period from 2000 to 2020. That may not sound like much, but consider that per capita income grew by 41 percent from 1980 to 2000. If higher education leaders don’t attend to these challenges now, the result in another 10 years’ time may well be a shrinking tax base and a weakened competitive position on the global stage.

Such an outcome would represent a more subtle but potentially longer-lasting economic downturn -- a quieter crisis, but perhaps more profound.

Changing markets call for a change in strategy. Even if it doesn’t prove necessary for most colleges and universities to “start from scratch” to respond effectively to our changing demographic profile or to global competition for the best students, it will be vital for us to move beyond our comfort zones and question some of our basic assumptions about how higher education is financed and managed -- and fundamentally reexamine which challenges and opportunities each of our thousands of colleges and universities is best positioned to address.

Now is the time to reflect on our strategic objectives, our missions, and our success measures. The institutions that are among the future leaders of U.S. higher education are likely to be those who embrace these challenges and reflect upon these questions most seriously. It may well be that we need to do something truly audacious to generate lasting value – for our institutions, our students, and our economic health.

Think about it.

Peter Stokes
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Peter J. Stokes, is executive vice president and chief research officer at Eduventures, Inc., a higher education research and consulting firm.

The New Endowment Portfolio

Cornell University and Citigroup would seem to have very little in common aside from the fact that Citi’s former chairman, financial deal-maker Sandy Weill, is a noted Cornell graduate who has given generously to his alma mater.

But there’s another, more significant commonality. Both institutions are suffering immense pain and dislocation because their balance sheets are tarnished with illiquid assets. As with Citi’s balance sheet, the plummeting financial markets have ripped a hole in Cornell’s endowment, which was heavily invested in private equity, real estate and hedged equity instruments. It’s unclear exactly how big a loss Cornell’s endowment has thus far suffered, since a large chunk of the university’s portfolio consists of illiquid, complex and hard-to-value assets. But for now, the decline is officially put at 27 percent for the last six months of 2008.

Cornell is far from alone in grappling with the fallout from endowment losses. The overall value of university endowments in the United States fell about 23 percent on average for the five months ending November 30, 2008.

The steep declines are forcing many colleges and universities to adopt wage freezes, layoffs and a halt to on-campus construction projects. The hope, of course, is that endowment losses don’t ultimately cut into or curtail financial aid for students. But, given the markets’ continued turmoil as we head toward the end of the first quarter of 2009, students will be inevitably impacted.

The Clubby Origins of Decline

How did we get to this painful point?

During the past decade, universities stood by as competing investment managers pushed more and more of their endowment money toward increasingly risky bets. So long as the game was rolling, endowment managers could report outsize returns while drawing hefty compensation. During the halcyon days, Harvard investment manager Jack Meyer hinted at the clubby competition in a jacket blurb for his Yale counterpart’s new book, Pioneering Portfolio Management: “A masterful work by the master himself. We at Harvard wish that David Swensen would find a new job.”

Indeed, playing high-stakes poker with other people's money is a great game, particularly when you can claim a cut of the winnings. It gets even better when you can take full credit as the stacks of chips get taller and taller, even though donors keep shoving high denomination chips your way. But now that we’ve reached the financial reckoning, the poker games should finally be seen for what they were.

The New York Times hints that Harvard’s illiquidity problems trace to endowment decisions under the recent guidance of Mohamed El-Erian. Harvard’s Meyer draws a pass as the Times lumps him into a group of "legendary predecessors." But this analysis fails to admit that Meyer and Yale’s Swensen were part of a vanguard who pushed portfolio management increasingly towards alternative asset classes.

The legend spinning should better reflect the fact that the clubby competition between managers for juicing returns led to widespread pouring of endowment money into opaque investments. The simple truth is that opacity equals infinite risk, and infinite risk doesn’t compute and will never balance.

Endorsing the Casino Society

Perhaps most troubling is the fact that the puerile competition among investment managers chasing higher and higher returns led colleges and universities to effectively endorse the conduct and structure of the shadow banking system. It is the lack of transparency and lack of regulation in this shadow banking system that encouraged overleveraged bets on exotic, and now illiquid, CDOs and CMOs – bad assets now smoldering at the center of our current economic meltdown. How can aligning institutional prestige with the shadow banking system – an alignment that flowed from avarice for higher and higher returns – square with university mission statements that aver commitment to the common good?

The fact is that allocating even a single dollar of endowment money to the hedge fund kin of the Greenwoods, Madoffs and Stanfords – all of whom insisted on opacity – had nothing to do with balancing risk or upholding fiduciary responsibility. It’s the first job of any endowment manager to understand what the hell is going on.


After so many years of strong returns, should one very bad year be allowed to tarnish the reputations of so many college and university endowment managers? The answer is clearly “yes” – if accountability and transparency are indeed going to play a larger role in the management of money in our post-Madoff culture.

Another step towards more accountability would be to dispense with what economists term the “money illusion” when reporting endowment performance. The money illusion assesses risk and reports economic performance in nominal versus real purchasing terms. For example, on December 16, 2008 president Richard Levin explained to Yale faculty and staff that: “Our best estimate of the Endowment’s value today is $17 billion, a decline of 25 percent since June 30, 2008.” But what this “best estimate” failed to point out is that in real dollar terms, Yale’s sudden six-month loss wiped out the reported endowment return of 22.9% for fiscal 2006, the reported 28.0% return for fiscal 2007, and the reported return of 4.5% for fiscal 2008! By the Higher Education Price Index, the six month loss had set the Yale endowment back nearly four years to the same purchasing power it held as of June 30, 2005.

Giving Back

The Commonfund reports that by December 2008, college endowments had suffered estimated average six-month losses of 24.1 percent. It is now expected that by the end of the fiscal year (June ’09), full-year losses will be even greater. Already the widespread carnage is being rationalized by comparing results to similar or greater losses in the broader equity markets. But the fact remains that epic losses have no precedent in endowment management. For example, Harvard’s endowment actually grew during ’29-’32--the most devastating years of the Great Depression.

Will endowment managers, who in recent years sought to juice returns by leveraging endowment monies into hedge funds and other corners of the shadow banking system now be held accountable? And can we expect them to give back any of the lavish investment-banker level bonuses they were paid during the go-go years?

We’ll surely be waiting a long time for this kind of accountability. But perhaps we can hope that in the face of huge losses, universities will begin reappraising the ego-driven competition around celebrity investment managers while re-acknowledging the central importance of contributions to the long term health of the endowment. Then, perhaps, we might realistically hope that rather than placing monies into exotic investments, they will think about putting money to work in ways that stimulate and inspire donors over the long haul.

Endowments Are Not Mutual Funds

Because of the essential nature of contributions, the management of endowment monies can and should be approached differently from the management of mutual funds, retirement funds or pension monies. In these latter realms, maximizing short-term measurable investment returns plays a key role. Since donations are absent, there can be no strategic initiative to increase them. By contrast, the power and importance of contributions in university endowments opens novel strategic opportunities around which endowment managers must learn to creatively think and act.

Swensen noted in his book that since 1950, approximately two-thirds of Yale’s endowment corpus was ultimately attributable to gifts. “Note the importance of new gifts to the endowment, with roughly two-thirds of 1998’s targeted value stemming from gifts made since 1950. In other words, in the absence of new gifts over the past forty-eight years, Yale’s endowment would likely total only about one-third of today’s value.” Given the importance of gifts, and in view of the financial meltdown, college and universities might now consider new ways of investing such as placing money alongside constituents who are likely to contribute.

Why not, for example, allocate part of the endowment to first-time mortgages for graduates, faculty and administrators? If a university advanced the 20 percent cash down payment for a young graduate’s first home while bargaining for, say, 30 percent of the capital gain at the time the house sold, the university would, over time, enjoy a solid return. But more importantly, each such investment would powerfully reinforce allegiance from a potential contributor or donor.

Similarly, if the college on its own, or in concert with other institutions, pooled venture funds to invest in the new and creative businesses of its own graduates, the endowment fund manager might negotiate for the college a small percentage royalty as a return on invested capital until a transaction event for the business took place. Again, returns would come not only in measurable cash, but also in immeasurable allegiance and appreciation.

Or how about applying endowment monies toward microloans for third-world nations, or as debt financing for worthy initiatives on the energy or microbiology fronts here at home? While the short-term cash returns might not be as sexy as those earned during the endowment bubble, the long-term returns in goodwill from future contributors would be significant.

Of course, even if the relative power of contributions in endowment growth gets the reconsideration it deserves, most colleges won’t adopt anything like what I am proposing here because they will worry that the returns would be too low. But whether returns would or would not be too low following such basic strategy changes is fundamentally an empirical question. In the face of crashing returns, now is the time to rethink.

Looking at the Obama campaign as an example, it is obvious that millions of people contributing small amounts can overwhelm the traditional large donor focus for campaign funding and finance. (To be sure, plenty of large donors were also making contributions to the Obama campaign as wealthy people were also inspired.) What might happen for universities if more ordinary people also became genuinely inspired to give to higher education? That inspiration hasn’t happened (note the very low alumni participation rates in giving) and won’t happen as long as the basic message from higher education remains how “prestigious” colleges are, and how “legendary” their endowment managers happen to be.

Colleges and universities need to comprehend and act on the fact that endowments are different from pension or retirement funds owing to the critical importance of protecting and enhancing contributions. If deployed creatively, today’s $400 billion in higher education endowments could become a great power for good that would inspire students, graduates and constituents – the people who hold the real potential for growing endowments over the long term.

Note: An earlier version of this essay applied an incorrect formula to Yale's investment return that was derived from a table published in the 2008 Yale Endowment report. Yale has since provided to the editor supplementary data and a formula contesting the earlier calculation. The author agreed to remove his earlier calculation based on the information provided by Yale.

Jim Wolfston
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Jim Wolfston is the president and founder of CollegeNET, Inc.

The Mistakes to Avoid

When confronting economic turmoil, the demands of short-term crisis control can overwhelm colleges and universities. In a higher education version of Maslow’s hierarchy that prioritizes survival above other needs, the institution neglects vision, strategic thinking, and sound management as it struggles to reach enrollment targets or make payroll. Such practices may meet immediate needs at the expense of long-term sustainability. What classic mistakes do colleges and universities make in economic downturns?

Mistake #1: Forgetting danger signs. Many presidents and boards use a “dashboard” of strategic indicators to monitor academic and financial health. They help separate facts from fears. Yet, a common problem is that the dashboards do not have targets (when will we be satisfied?) or, related to current circumstances, minimums (when should we be worried?). Using Guilford College as an example, fiscal danger signs that would get our attention include fewer than 380 traditional first-year students (when 400 or more has been the norm since 2004), student fees above the average of our competitors, financial aid discount much above the 39 percent rate of recent years, an increase in expenditures higher than increases in revenue or enrollment, graduation rates below 6-year averages, and an alumni giving rate less than 20 percent. We would also be concerned if operating net assets decrease or endowment spending exceeds 5 percent of its lagging average market value.

Mistake #2: Not considering all budget options. When a budget deficit looms, the easiest cuts in spending and personnel are across-the-board. They are also wrong to the extent that they ignore differences in centrality to mission, size, and efficiency. Few budgets can be fixed without attending to personnel numbers and compensation.

  • Consider making some positions part-time, offering early retirement, using vacancy savings to pay more for added responsibilities, and using student labor paid with credits and not cash.
  • My own bias is to reduce positions before reducing salaries because employees ought to be fairly compensated. Institutions can often lose positions, at least at the start of the crisis, with less stress and effect than anticipated. When I was the new CFO at Bowdoin College, we cut 70 positions — not a catastrophe when you consider that we had 1350 students and 630 faculty and staff — while budgeting raises of 19 percent for faculty over two years and lesser amounts for administrative and support staff.
  • With growing enrollment, significant savings are possible by increasing average class size and the student-to-faculty ratio rather than new hiring. An increase in average class size from 20 to 22 gains 10 percent in productivity that would not turn seminars into large lectures. Sometimes tightening up on course reductions for faculty with administrative duties has the same effect.

“Growth by substitution” may allow you to take some budget savings to invest in “signature” programs or other programs with great market interest. Pay attention to effects on cash inflows and outflows when major construction or renovation projects are planned or deferred. A $1 million renovation may have minimal effects on the budget and financial statements because the cost is spread out or depreciated over the years of useful life. On the other hand, payment of the $1 million to construction companies and other vendors occurs now and depletes cash. In any case, develop multiple scenarios of revenues and expenses. Budget as conservatively as possible based on the least optimistic but still plausible scenario. Make the hard choices early; for example, waiting until the middle of the fiscal year to cut the budget means that any reductions in positions or spending have only half the year to take effect. If you get good surprises later on, you can restore some of the reductions.

Mistake #3: Thinking that bigger is always better. If student fees, fund-raising, and endowment are not supplying sufficient resources, institutions often turn to enrollment growth. As a short-term measure, more students can boost revenue if financial aid is controlled and related increases in faculty and staff are contained. When Guilford increased our enrollment by 45 percent in five years, the good news was administrative and support staff increased only 20 percent. The bad news was that the faculty grew by 60 percent, which undoubtedly reduced average class size and improved course discussions but mitigated the financial benefit of enrollment growth. Students transfer more often these days — sometimes starting at less expensive community colleges and then transferring to four-year institutions — so actively recruiting upperclass students can supplement intake of first-years. Just be sure that the transfers get the same kind of welcome and orientation. Pay attention to student retention and persistence. What factors at your college or university prompt students to stay or leave? Many institutions, including Bowdoin when I was there and Guilford today, have targeted programs for sophomores, who can feel neglected and unguided in comparison to the special attention that they got as first-years. It is usually more cost-effective to keep a current student than to recruit a new one.

New academic programs are not an economical way to attract more students, especially if the lack of resources diminishes course quality, advising, programming, and placement in graduate schools or jobs. Enrollment growth in an institution with excess capacity is far more beneficial to the budget than growth that necessitates new construction of academic and social spaces. Finally, among the most significant indicators of financial health is endowment per student — a study I conducted a decade ago as Bowdoin College’s CFO showed a high correlation between endowment per student and rankings of national liberal arts colleges in U.S. News — which is diminished when enrollment grows more rapidly than endowment.

Mistake #4: Not managing the crisis. No matter how severe the crisis, campus leaders cannot act like passengers on a whitewater raft who have little control over their situation. Never panic. It helps to have a strategic plan or at least strategic thinking to guide actions. Increase visibility and communications. Use a variety of media and methods, including web-based, to discuss problems and proposed solutions. These might include community meetings, open office hours, letters to alumni and parents, and articles in the student newspaper and staff newsletter. It is better to have periodic updates rather than one large and often impenetrable “state of the campus” address. Be sure that the institution has a spokesperson with a clear message that is truthful and instills confidence without underplaying the danger. Community members may not support major budget reductions that upset the status quo but at least they will get the process and parameters.

Do not let economic crises hide longer-term strengths or weaknesses, and the need to act on them. For example, an institution may try to explain to its accrediting agency that a financial predicament is due to the economy when, in fact, they have been running budget deficits and overspending from endowment for years. Find the money to invest in marketing, recruiting and fund-raising because a steady enrollment and gift flow help maintain revenue. Solicit donors to replenish endowed funds with special attention to financial aid funds essential for student access and affordability. Respond to greater needs in counseling and career services caused by anxious students and families. Do not let others use the crisis to further their own agendas to challenge the administration or push “pet” programs.

Mistake #5: Not properly involving the board. Given their ultimate fiduciary responsibility, the governing board has to be informed and involved. Use the executive committee or other leadership team to work with the president or chancellor. The CEO and board should speak with one voice to ensure clarity of message and calm the community. Show that you appreciate their anxieties. Design special messages for the board that provide data and recommendations not necessarily shared with the wider community. In the spirit of “give, get, or get off,” board members should be expected to donate money themselves, encourage others to give, and to lobby with legislators and others whose support is essential.

Mistake #6: Confusing strategy and tactics. Strategy is about the basic direction of the institution and its mission, priorities, and role in the world. Tactics are the means we use to achieve the strategy. Tactics deal with “how to” questions; strategy is about “why.” A strategic response to unfavorable economic circumstances might involve, for example, adding a new student population like working adults; transforming the business model from low tuition/low financial aid to high tuition/high financial aid, as many public universities are now considering to cope with plunging state aid; and dropping major programs in liberal arts to focus on pre-professional programs. Students will be attracted to majors with excellent job prospects. If the strategy is embedded in a formal plan that is aimed at long-term competitive advantage, protect the plan’s financial resources even while cutting the budget or the crisis will get worse or reoccur sooner. We made this mistake at Guilford during two years of tight budgets when the strategic plan was among the first items cut, and should have been among the last. Depending on the strategy that the institution selects, tactics often involve improving efficiency and work processes, better ways to recruit new students, and more profitable bookstores, summer programs, and other auxiliary enterprises.

Mistake #7: Not asking the right questions. It is hard during an economic crisis to ask fundamental questions about the institution. Yet answers to these questions can position the college or university more effectively to deal with whatever develops. Some of the best questions are:

  • How does the economy affect our strategic plan and priorities?
  • How much of our revenue is at risk?
  • What would we do if the budget had to be reduced by 20 percent?
  • Do we know which of our programs and activities are mission-critical, and what each costs?
  • Who are the people most critical to our success?
  • How do we differentiate ourselves from the competition? What is our competitive advantage?
  • What are we communicating to major donors?
  • What does our community know and when/how do they know it?


“This too shall pass” was a warning to King Solomon, and it should be a comfort to college and university leaders. The current crisis will subside as the economy inevitably swings between boom and bust and the financial markets fluctuate between bull and bear. It would be tragic if higher education did not learn from our mistakes and apply these lessons both now and the next time that the economy falters. History can be a great teacher if we pay attention.

Kent John Chabotar
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Kent John Chabotar is president and professor of political science at Guilford College, in Greensboro, North Carolina.

Harvard Isn't Poor

It’s a dramatic tale: The story of the once-wealthy institution that houses America’s smartest -- our leading university, perhaps the world’s -- now just scraping by. Searches frozen and secretaries dismissed, hot breakfasts suspended, trash piled high: Harvard is “poor,” its endowment “collapsed,” according to Vanity Fair magazine.

Harvard isn’t taking issue with this impoverished profile. In fact, the stream of leaked letters and memos pouring out of this typically proud and stoic institution seem to suggest it is unopposed to its characterization as strapped. But is it true? Is Harvard really poor?

The university has lost a lot. The precise numbers will be in soon, but Harvard’s endowment appears to have lost about a quarter to a third of its value, or at least $8 billion.

Yet this massive loss has not made Harvard poor by any measure. At over $28 billion its endowment continues to tower over that of any other university, museum or private foundation aside from the Bill & Melinda Gates Foundation, which has a couple more billion in the bank. Today, Harvard has more than $4 million in its endowment for every undergraduate it enrolls. It has not lost generations of wealth, as reports imply, but merely returned to around its 2005-2006 value. Harvard remains the richest school in our nation’s history.

So why the firings and belt tightening? Because Harvard, like many universities, is committed to spending only meagerly from its endowment. In 2008, before the present economic disaster, Harvard spent just 3.25 percent of its endowment to support its operations. While the absolute amount may be large, this is a miserly level of spending.

Now, with the value of its endowment plummeting, Harvard appears unwilling to break this habit, even at the cost of imposing a hardship on education and research. This is stunning given that, even with Harvard’s shrunken endowment, just increasing spending to slightly more than 4 percent would maintain support to the institution’s operating budget.

News reports, again unopposed by Harvard, would have us believe that donor restrictions prohibit a higher rate of spending. But in 2008, 46 percent of funds in billion-dollar-plus endowments at independent colleges and universities were completely unrestricted, according to the data in a table produced by the National Association of College and University Business Officers. And Harvard hasn’t released any information to suggest that its endowment is more restricted than most.

Harvard's funds may be restricted in this peculiar sense: The institution appears, in effect, to have restricted its endowment itself by tying up huge portions of it in long-term investments that are costly to pull out of. Yet those costs should be paid if they are necessary to maintain the operating budget. After all, that's the “rainy day” purpose for which endowments were created. But even cutbacks and widespread talk of Harvard's demise don’t appear to be enough to get the institution to alter its assumptions about endowment spending. Harvard refuses to spend from its rainy day fund even when it is pouring.

That Harvard’s endowment exists to advance education and research is not what an observer would infer from the institution's behavior. Instead, Harvard appears to have decided to put financial dominance ahead of the current needs of students, families, and citizens -- even while the institution remains almost unfathomably wealthy. Taxpayers, who help to support this nonprofit, have reason to ask whether this is the best choice.

Harvard has options, even if its financial gurus find many of them unattractive. The institution’s academic leaders need to remind them that endowment investment and spending decisions must be guided by the twin goals of furthering education and research, not winning the hedge fund Olympics.

And if Harvard’s gurus found it acceptable to follow an investment strategy that could, and did, lose close to 25 percent in a year, then they should certainly deem spending a few tenths of a percent more to hold harmless the operating budget acceptable, too.

More than a decade ago, the Yale University law professor Henry Hansmann said that “a stranger from Mars who looks at private universities would probably say they are institutions whose business is to manage large pools of investment assets and that they run educational institutions on the side… to act as buffers for the investment pools.”

These words have only become more true with time.

Lynne Munson and Donald Frey
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Lynne Munson researches college and university endowments for the Institute for Jewish and Community Research. She has testified on endowment spending before the Finance Committee of the U. S. Senate. Donald Frey is professor of economics at Wake Forest University.

End of the Business Simile

It turns out that academics, at least in lore insulated from the pitches and rolls of the private sector, are not immune to the effects of recession. Even a cosseted tenured professor like me, creature of the humanities, unable to tell a bull from a bear, a credit default swap from a collaterized debt obligation, realizes that times are tight and that the economic downturn has changed everyone’s world. But as scary as words like “furlough” and “restructuring” are, it is the silence that unnerves me the most.

It has been months since somebody told me that “a university must run like a business.”

I’m alarmed to think that the era of the Business Simile is over.

I think I speak for many liberal arts types when I say how scary it is to lose that surety, that hard mooring in the results-oriented world, that comforting discipline of being told from across the conference-room table that the market imperatives must be paid heed, that we in the academy merely deliver a product to our clients, and that the efficiencies of the private sector can and must be brought to bear on the out-of-touch ivory tower. See, I liked that. There was a bracing firmness in such announcements. One the one hand, it fed my craving for intellectual loftiness — to be on the receiving end of such pronouncements allowed me to position myself as a defender of the faith, as true educator unsullied by a preoccupation with filthy lucre. On the other hand, I was secretly reassured when I heard that the important decisions — how to find the money, how to spend the money — were in the hands of realistic, highly-qualified, private-sector types who knew how the world worked. I wanted them on that wall. I needed them on that wall.

I admit that in the heyday of this tension between university-as-academy and university-as-commercial-enterprise there was some weird gendering going on that I try not to think about too much. “Business” was implacably male and strong, and the logic of the market (and all its attendant terminology whereby faculty became Full Time Equivalents and students became Credit Hours Produced) shone like Apollonian reason. Meanwhile the liberal arts, with their vague goals and misty-eyed idealizing, their lack of standardization and frustratingly inconsistent outcomes — well, they were female, areas to be protected and subordinated by a tough-minded business-oriented administration. Admit it: “pure research” has a virginal ring to it. So I confess that I liked being told that the university must be run like a business. After all, it left me time to think abstractly about big ideas (and picturesquely, I might add, leather-bound books at hand, maybe wearing a scarf). It allowed me scoff at the bean counters even as I consumed the revenue they wrung from the institution. I came to depend on the kindness of those strangers who understood accounting and statistics, core competencies and market niches. Who better to protect me from the real world than the agents of the real world?

But now the “university like a business” simile has been undercut by, well, the real world. Some of the most prominent companies in the United States are starting to resemble universities. They receive massive government aid, suffer from significant new government oversight, cling to inefficient fiscal models, and are buffeted by a howling public who sees tax dollars being thrown down the hole without concomitant results. But besides the human cost of such devilments, we must account for the metaphorical costs of AIG, Chrysler, and Bear Stearns: What happens the next time somebody deploys the Business Simile to eliminate a small, unpopular major (physics, I’m looking at you) or hire three adjuncts where once a tenure-track colleague might have served (hello, foreign languages)? It just won’t have the same effect. Now when somebody says “a university must run like a business” I won’t feel that same secret warmth of the Invisible Hand’s caress — too many businesses are looking pretty un-business-like these days.

We were all a lot happier when the Business Simile was untarnished.

Back in 2004, when my house was worth a lot more than it is now and my TIAA-CREF account was a lottery scratch ticket that always paid off, professor emeritus and former interim president of American University Milton Greenberg gave the Business Simile a good workout in Educause Review, pining that since business “involves the hierarchical and orderly management of people, property, productivity, and finance for profit,” then some hard-eyed pragmatics were in order. He riffs on the Business Simile with gusto: “Numerous realities define the business nature of higher education,” he says, and “claims that education is not a business are seen as cloaks for behaviors and expenditures that violate reasonable expectations of responsibility and accountability.” He winds up with a market-driven aria: “If higher education is to lead its own renewal, it must think about its people, its property, and its productivity in business terms.”

See, that’s the stuff … the Business Simile writ so large it is presented not as a rhetorical flourish, but as the conditions on the ground. We like our realities defined for us, our course charted, and that was what the Business Simile could be made to do in the hands of a master.

Fast forward to 2006. My house and my retirement account were worth even more then, and the Gallup Management Journal ran an admiring profile of late Drexel University president Constantine Papadakis, praising him for having “no patience with people who decry profiteering in the nonprofit world of education” and for his insistence that “academia should transition into business.” In the ensuing interview, President Papadakis, without irony, declares that in higher education, "If there's no profit motive, then you are doomed.” Vicariously and years removed, I still thrill to that kind of leadership. It is clear-eyed and results-oriented; it gives the term “businesslike” its good name.

Even as late as 2008, the year my home equity vanished and my TIAA-CREF statement actually burst into flames when I opened the envelope, one could against all odds still find Business Simile boosters. Business Week, which is apparently a magazine devoted entirely to business, ran an article in its August 3, 2008 issue exploring the conjunction of higher education leadership and the captains of industry. We’re told that Philadelphia University President Steve Spinelli helped found Jiffy Lube before becoming an academic, and that the Jiffy Lube experience helped him learn how to run his university “like a business.” Robert J. Birgeneau, chancellor of the University of California at Berkeley, had to “professionalize” his staff, because, he says, a “university is a very complicated business enterprise.”

But the article, which should have assured us that the Business Simile is so inexorable that we can depend on it even as layoffs and cutbacks are endemic, ends on an unsettling note. Making the point that many universities are hiring corporate CEOs to help them through these troubled times, Business Week notes that the University of California at Berkeley turned to Citigroup for a new vice chancellor and Harvard just filled an executive vice president position with a former Goldman Sachs executive.

Wait a minute, says I, finally getting to use the word schadenfreude correctly. Goldman Sachs? Citigroup? That’s $55 Billion in TARP funding right there. We should note here that the former Goldman Sachs manager Edward Forst lasted less than a year at Harvard, but the existence of TARP funding, government bailouts, and the general collapse of the economy has led not just to a general crisis in business confidence, but more importantly a crisis in my confidence in business and, by extension, the Business Simile. We are witnessing the death of a once-potent figure of speech.

As long as “business” represented competence and “university” represented inefficiency, then the Business Simile was able to win many an argument. But similes die, and they die when their referents stop making sense. Hardly anybody says “in like Flynn” anymore because very few people remember who Errol Flynn was, much less that he was associated with skillful swordplay and copulation. Who says “like clockwork” anymore? Only those who remember what clockwork was, or those who use the simile as a nostalgic gesture.

And maybe nostalgia will be my refuge. The Business Simile will not end with a bang, here in the midst of the 2009 recession. It may linger on, neutered, in faculty senate minutes and university strategic plans, in the inauguration speeches of university presidents yet to come, invoked not because it is timely or sensible, but because it reminds us of earlier good times, like folks in Hoovervilles humming Al Jolson. One can “sleep like a log” even though few of us saw our own fallen trees and snoring can be treated medically. One may still “work like a Trojan” even though it is only those with spectacularly unmarketable Classics degrees who can explain why Trojans were once known as hard workers. But those similes refer to past time, not present realities. They’re as antiquated as Bob Seger singing that my Chevy (its GM warranty now looking suspect) is “like a rock.”

So I’ll pine for the old, sure Business Simile, but settle for a new formulation: “A university must run like a business, but without the crazy risk-taking, the lack of accountability, the bankruptcy and the indictments.” It doesn’t have the same ring to it, but in these times we must take our comfort where we can. I’ll miss you, Business Simile. Losing you hurts like the dickens, whatever that means.

Daniel J. Ennis
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Daniel J. Ennis is professor of English at Coastal Carolina University.

Sleepless in Academic Affairs

Some fellow deans and I have noticed that when faculty conversations turn to administrative travel, there’s a curious split. A good number of our faculty colleagues suspect that we go jetting off to Cabo San Lucas, to luxuriate in radiant warmth amidst drained snifters of cognac and the fragrant waft of smuggled cigars.

By and large, those are the ones who like us.

Others suspect a furtive rendezvous with Lord Vader and Emperor Palpatine arranged so as to advance our plans to crush the rebel departments and rule unchallenged.

Those are the ones who think like us.

I jest. Alas, the reality of my own conference travel is, by contrast, so dull as to explain the persistent rumor that deans suffer disproportionately from narcolepsy. The average experience comes down to a January day in Calgary, where I'm left to choose between such enriching topics as “Formative Assessment as Instructional Practice” and “Meeting the Challenge of Deferred Maintenance in a Constrained-Endowment Environment” (here I have to say that only a career change to administrative work could have made me pine for an MLA panel on, say, poststructural critiques of the Victorian nautical drama).

But there are some payoffs. It was at just such a gathering a few months back that I joined a troubling discussion on a simple question:

“Amid international economic collapse, what keeps you up at night?”

The room -- packed with we former starry eyed types who had entered academic administration to pursue the dream of strengthening the academy -- reported on the nightmare of slashing budgets (sometimes by a third), layoffs (sometimes by the dozen) and closing academic departments (sometimes their own). But of all the answers, the hardest to hear was one of the last:

“I don’t think we’ve seen the worst yet.”

Thoughts about that possibility kept me up nights all summer.

In the end, though, it isn't the prospect that we might fail to make conventional changes in response to new economic realities that worries me.

My real concern is that we will cling to the status quo rather than bring the creative energy of our talented faculty to re-imagine our goals for student learning and the nature of faculty work. That conversation is one we in academe must have -- apart from the present crisis -- if we are to serve the nation and the world in ways that will meet present needs. It may be that we in academe are collectively whistling past the graveyard in the hope that this crisis will pass in time for us to avoid transformative change.

Of course we must do the things we’ve always done to address financial exigency: trim budgets, cut expenses, pull back on maintenance, and the like. These conventional responses won’t guarantee that we will thrive, but they can buy us time to take the next step: trying initiatives that we’ve never tried before.

These new initiatives will bring no guarantees, either, but they can buy us time to take the critical step: we need to imagine a college that we’ve never been before and work to embody it.

We've taken the painful and practical steps to bring our budgets back into balance.

The challenge for deans in a budget crisis such as colleges across the country are facing now is clear: how to reduce the budget by five or ten percent while maintaining the elusive "excellence" that so often finds its way into presidential rhetoric? In the absence of genuine conversation across the campus, the conventional choices are clear enough. For our part at Augustana, even as we have completed two record years for the college, we are nonetheless cutting back on administrative costs, reducing funds for travel, and curtailing reassigned time.

But such measures won't create a sustainable college. Such actions, for campuses across the country, are a way station, not a destination. They’re unpleasant; they're occasionally productive; and they are merely expedients, buying us time.

But time for what?

At Augustana, we're using this time to try initiatives we’ve never tried before, and the early conversation is promising: amid demographic decline across our Middle West, we're seeking students through all manner of new partnerships -- with high schools, junior colleges, and peer colleges alike -- that we expect to improve student learning and reduce costs. We’re exploring opportunities, for example, to offer liberal education to local high school students who may not have encountered the kind of pedagogy we value most; we hope such outreach will result in more students for our college.

We're building revenue by developing a 12-month academic program through expanded summer offerings linked to our admissions effort. And we're offering majors that affirm our identity as a liberal arts college even as they speak to new areas of interest for today's high school students, such as environmental studies.

Ultimately, I've come to believe that these initiatives, valuable as they may be, still will not help us to create the model that will enable our college to thrive for the next century. The fundamental flaw in the budget cutting/revenue expansion model is that it remains grounded in a series of assumptions bequeathed to us by the academy of the 19th century. Those assumptions reflect the pedagogies and institutional expectations of another age. They constrain, rather than support, those of our own. And so we need to take a further step: to re-imagine what our college might be for students of the decades to come.

At Augustana, we're engaging faculty deeply in that conversation, asking colleagues to think creatively about how we will change in response to the challenges before us. For deans, this is the opportunity of a career: we now know we must reframe the work that we do in order to create a new model that will better serve our students and our communities alike even as it will sustain our institutions.

We might, for instance, seek to learn from years of assessment data that tell us that traditional classroom learning contributes only a fraction to student growth and learning in college. One result might be that we further our efforts to build connections between the traditional curriculum and the co-curriculum. We might imagine new partnerships with our community that will form a central place in our students' experience and that might help to revive struggling neighborhoods; at Augustana, we have forged a relationship with an elementary school in our neighborhood with just such a goal in mind.

I believe the answers to these questions will best come by engaging the faculty. The challenge for academic administrators these days ought to be how we might better utilize the creativity and imagination of our faculty so as to avoid these conventional approaches.

How can we enable faculty to take on an entrepreneurial approach to their work, such that the resources of the college are not seen as a bank account from which one draws funds but rather as an investment into which all must contribute for the greater good?

How can we bring the intellectual creativity of faculty to the hard questions that are before us?

Can we change the question from “How can we best manage budget cuts?” to “How can we make it again possible for bright students of moderate means to attend the college?”

I am hoping to start with some stakes in the ground:

Focus on student learning. The point seems obvious, but once the specter of budget cuts is raised, it will be difficult to focus on anything but finance. Deans and faculty alike need to focus first on the primary question of what our students are learning and how we know.

Take into account the ways new pedagogies affect faculty work. Over the last two decades, the faculty's work at liberal arts colleges has grown infinitely more complex. With the addition of undergraduate research, investigative labs, process writing assignments, intensive mentoring and advising, service learning, and a host of other pedagogical reforms, we are asking faculty to do more than ever. Often, such reforms have been added on to a curriculum that has remained essentially unchanged, so that demands on faculty have increased substantially.

Work as a team. The adage that curriculum is determined by faculty and finances by administrators is laughably false. It rests on the absurd premise that curriculum and budget can somehow be separated (if they could, I would advocate for Oxbridge style mentoring for each and every student, from freshman year on!).

Commit to completing the conversation. Too many dialogues are shut down every year on campuses because of the threat of divisiveness. If administrators want faculty to bring all of their creative energy to the table, they have to be prepared to arrive at answers they might not have expected. If faculty want to guide decisions about resources, they can't throw up their hands and suggest that they won't have a role in decisions that lead to actual reductions.

What would transformative change look like? Every college and university will have a different answer. At Augustana, we hope to find ways to deepen student learning through the experiential pedagogies that the faculty have made a priority over the past two decades while easing the burden of the new methods on faculty. We hope to build on our efforts to connect a traditional liberal arts curriculum with vibrant and exciting careers, while helping students to see that a vocation -- or calling, in Martin Luther's sense of the word -- is considerably more vast than career. We hope to find ways to extend their learning in blended learning environments that have just begun to take shape on the horizon for academe.

Of course we can't be sure that our approach to the conversation will yield the sort of transformative change we seek. At Augustana, we are just starting to ask hard questions about how we will sustain our strength for the years ahead. I do know that 180 of the brightest people I know are turning back to the foundations of our community to study what we do best, what we know deeply about ourselves, and what we might be in the years to come.

Once we get that figured out, I'll return to the underrated charms of subzero Calgary for a good night's sleep.

Jeff Abernathy
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Jeff Abernathy is dean of the college at Augustana College, in Illinois.

Brandeis Wasn't Wrong

In 2001 I donated my collection of prints by sculptors to the Block Museum of Art at Northwestern, though some of the prints still adorn the walls of my house and won’t get to Evanston until after my death. You can assume -- and you would be right -- that a collector of such works has been a lifetime “consumer” and supporter of the arts.

And yet, I said to myself “good for them” when reports first surfaced last winter that Brandeis intended to sell its collection of modern art, so that the considerable (envisaged) proceeds could support functions closer to the central goals of the university.

Understand that my print collection went to Northwestern because I had been dean of arts and sciences there for thirteen years. Understand also that regarding this issue, my experience as dean trumps my love of art and that is why I disagree with the views expressed in numerous articles in The New York Times and one this month in Inside Higher Ed called “Avoiding the Next Brandeis."

I see a significant role for art museums on higher education campuses. But, with quite special exceptions, I see a very small pedagogic function for colleges and universities to own works of art, especially given the current cost and value of so many of them. I’d rather those museums were reclassified as galleries. To be sure, the provisions of deeds of gift must be scrupulously observed; but assuming that to be the case, let them sell their works of art if the funds thus gained will better serve the institutions’ educational mission.

The premise here is that the roles of museums on campuses are not like those of museums downtown, since the former exist to serve the specific needs and interests of a campus’s students and faculty.

This month’s article in Inside Higher Ed quotes a task force formed by arts groups to figure out ways to avoid the next Brandeis as saying that campus museums should be regarded as “essential to the academic experience and to the entire educational enterprise.”

But why should they be so regarded when, by my admittedly not systematic observations, most of those museums do nothing or very little to deserve to be so regarded? As dean, I had to bludgeon the Block Gallery to present an exhibit of the work of Northwestern’s prize painters, William Conger, Ed Paschke and James Valerio. (This was before the Gallery was transformed into a Museum and long before its current director, David Robertson, came to Northwestern.) Art history departments are mostly held at arm's length by campus museums who prize their (inappropriate) autonomy. Mostly, the museums don’t even know how to communicate with other than art faculty on campus.

It is excellent, therefore, that this cluster of issues is being looked at. In my view, however, the goals sought by the task force for campus art museums are not likely to be realized by means of works of arts owned by museums, but rather by means of exhibits brought in and often locally curated for specific pedagogic purposes.

Members of the task force, make sure, therefore, that you are not just talking to yourselves. You are looking for ways to relate A to B; there must thus be strong representation from both poles. As announced, the organizations participating in the task force are mostly from the Category A: the art museum community.

I strongly recommend that it also include not only representation from the art history and studio art departments, but knowledgeable people who have thoughts about how to involve art museums in educating students who are not primarily concerned with the arts. Indeed, given the way in which so many campus museums lead existences so separate from their campus surroundings, it might even be necessary to initiate reflection about about their possible wider functions. The task force might want to consider forming a committee consisting of a couple of department chairperson, a couple of deans or associate deans, perhaps some interested students assigning them the task of reporting to the museum-powers-that-be how those museums might serve a broad campus constituency.

Accordingly, if the just-formed task force keeps its eye on the ball (as I see it), that Brandeis bomb will have very positive, if unintended, consequences.

Rudolph H. Weingartner
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Rudolph H. Weingartner is former dean of arts and sciences at Northwestern University.


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