Turning Colleges Around May Take an Impartial Outsider

Lynn Russo Whylly's picture
Thursday, October 18, 2012

In 2009, I was called upon to help Greensboro College, a small, 174-year-old private liberal arts college in North Carolina, which was experiencing a whole range of problems typical of many institutions of higher education in recent years. In the booming economy of the early 2000s, the college had made some big real-estate purchases. It had started a football program, graduate programs and a marching band. But as the economy started to sour in 2008, its bankers got worried, and the college found itself placed in the Special Assets department. The bankers gave an ultimatum: Hire a chief restructuring officer and use much of the endowment to secure the college’s debt, or face very stringent terms for renewing its credit facility.

In addition, the college’s accreditation was under threat because of its financial problems.

The college’s food services had been delivered the same way for 50 years and the facilities were outdated. It had graduated one French major, on average, every five years, yet the department maintained five full-time faculty members. Its fundraising practices were not working to produce the income the college needed. Sound familiar?

Many colleges are experiencing similar problems. They range from big public institutions such as the City College of San Francisco, California’s largest college, which is facing possible closure, to the prestigious University of Virginia – my alma mater – to traditionally-black Morris Brown College in Atlanta, which recently filed for Chapter 11 bankruptcy protection.

As a turnaround professional, I’ve seen these problems from the inside, and although these institutions face some unique challenges, they suffer from a range of pathologies that are similar across all troubled businesses.

University leaders are rarely lacking in commitment – but that commitment doesn’t help keep the books, maintain infrastructure, or communicate with important stakeholders. They still need to meet a payroll and make hard choices about how to allocate resources in tough economic times. And like other businesses, they often face internal challenges: generational tensions when old ways of doing business become obsolete; entrenched cultural norms; myopic management.

But in some ways, colleges and universities are not like other businesses. A for-profit business has many constituencies, but one rises above the rest: its shareholders. A college or university has many additional stakeholders: alumni, donors, its governing body, its faculty, its student body, its accrediting body and parents. Government agencies may also control research budgets.

In addition, large universities are answerable to the myriad professions with an interest in how students at its graduate and professional schools are educated. Without maintaining the goodwill of all these groups, it’s hard for a college to fulfill its mission. Yet many of them have competing – and not always compatible – agendas.

For public universities such as UVa., the picture is complicated further by the addition of politicians, with their own competing and sometimes contradictory agendas, expecting that students should be educated at a reasonable price, while the college simultaneously cuts costs and manages to retain top faculty members and attract talented students. Scary.

In the case of UVa., Rector Helen Dragas, a real-estate developer, found that her corporate experience had not prepared her for academia. Dissatisfied with the speed at which President Teresa Sullivan was moving to cut costs, she forced Sullivan to resign. The university community – alumni, students, faculty – were outraged, and fought back with weapons that would have been irrelevant in a corporate coup. The opinions of the university’s many constituencies did matter, after all. Eventually, and humiliatingly, Dragas had to back down. Sullivan was reinstated.

Given these competing constituencies, and adding into the mix the challenges of a recession and a looming student debt crisis, we may soon see more colleges succumbing to internal strife, external pressures, or both.

Clash of Cultures

Much of my work involves understanding these competing sets of concerns. But the problem goes beyond the simple self-interest of each group. In fact, there are competing cultures, with different values, different assumptions about a university’s role in the world, and different ways of doing business.

A gentle reality check on the idealistic academics from a neutral party – backed up with data and a practical plan – can accomplish more than hectoring and threats from an impatient board member. And the reality check can go in the opposite direction, as well. A business-minded board member may want to ditch any academic exercise that’s not producing tangible benefits for the institution. But maybe the inclusion of classics, say, in the curriculum, is what keeps two or three important donors engaged; or maybe it forms a part of the institution’s longstanding identity.

Now add a recession. For a private college, the three main sources of income are tuition, donations and investment income. All three of those things suffer in a financial downturn. Many of these colleges also have public debt. If their debt is downgraded, it’s just part of a cascade of problems that now includes increased scrutiny from their bank or frightening off prospective students or donors.

For public colleges, sources of funding dry up as taxpayers demand restraint and governments at all levels look for ways to cut costs. At Greensboro College (N.C.), I worked with the senior management team, including a new board chair, interim president and new VP of finance. In 2010, I helped bring in a new permanent president, Dr. Lawrence Czarda, and together we did a thorough analysis of its resources, its infrastructure and its finances. We found a range of issues, from an insecure IT system, to antiquated food services, to unsustainable academic majors.

Working with Dr. Czarda and his team, I was able to implement the needed changes quickly and with a minimum of trauma. Dr. Czarda reflected later that, as president, he alone could not have confronted obsolete practices, or pointed out too-cozy relationships between a board member and administration. I pointed the college to resources they would not have known about: fundraising consultants with experience in similar institutions; debt restructuring consultants who focus on higher education.

The college sold off non-critical real estate, restructured its capital campaign, upgraded and secured its IT systems, eliminated some under-enrolled majors, outsourced food services, found creative ways to boost enrollment and retention, and used part-time faculty, assistant professors and teaching assistants to teach some courses and sections. With these innovations at work, I negotiated with bankers to create some breathing room, allowing the college enough time to get its finances back on track.

My work with the college ended in early 2011 and I’m happy to report that they continue to make strong progress on returning to financial stability.

The Future

The worst of the recession may have passed, but many colleges are still vulnerable. The looming student loan bubble will complicate the landscape for years to come. More students will need financial aid, and colleges struggling with falling enrollment will feel pressure to lower admission standards to meet enrollment goals.

Colleges and universities at all levels will need to get very disciplined with their finances. They will have to make sure that what they’re offering is what’s in demand – from the constituencies that matter.

Like any struggling business, colleges facing tough times may benefit from the experience of a dispassionate outsider who can look at the entire picture and help with the hard choices – before a public crisis erupts.

Bottom line: As in other businesses, it sometimes takes an impartial outsider to sift through the data and the concerns of various constituencies, speak truths that insiders may know but fear expressing, track down important resources, challenge entrenched practices and get antagonistic groups talking to each other. It can make all the difference.

Ed Sanz is a Certified Turnaround Professional with the North Carolina-based firm Anderson Bauman Tourtellot Vos.

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