The Vision Thing

The 2008 financial crisis, which still lingers in the higher education community, should not have been a surprise. Higher education has a financial cycle—trough, recovery, peak and decline—that mirrors the business cycle. Neither corporate nor university executives can predict with any certainty when the next downturn will occur, but institutional leaders could have prepared their institutions by containing their ambitions, creating safeguards, and developing contingency plans.

My heretical view is that mainstream public and private not-for-profit higher education boards of trustees have neither the will nor the incentive to control their institutions’ costs. The pursuit and maintenance of prestige are more valued than fiscal responsibility. While boards may superficially question program expansions, the administration’s rationale generally wins the day.

I hope that my pessimism is misplaced and that leadership can act responsibly. It is not too early to begin thinking about the next big financial crisis. I suggest that there are three major steps that institutional leaders, both the administrators but especially the trustees, should take.

First, leaders should carefully revise their institution’s mission statements to curb boundless growth. Second, they should scrutinize each subsequent proposal for a program or service to assure that any addition is truly aligned with the mission statement. Third, they should conduct a periodic assessment of every current program to validate its utility in fulfilling the mission statement.

Mission statements are meant to inform internal and external constituents of the institution’s purpose. If carefully crafted, they can guide the allocation of scarce resources.  Unfortunately, most contemporary mission statements are framed in open-ended, feel-good language that sanctions the pursuit of nearly any good cause while prohibiting few, if any. There is ample reason for this, of course. As William Massy notes in Honoring the Trust: Quality and Cost Containment in Higher Education, “Universities don’t seek profits, but they do strive for value fulfillment. Because value fulfillment is open-ended, no respectable university will run out of worthwhile things to do.”  There is always an opportunity to spend money, pursue prestige, and perhaps win a few friends.

Without a clear institutional focus in the mission statement, nearly any new program or service, no matter how tangential, can be accommodated. Add a Ph.D. program? Duplicate bachelor’s degree programs at different campuses? Provide student services that are already available in the community?  Add bachelor’s degrees at community colleges? Any or all can fit in a typically elastic mission statement, setting the school up for a crisis when the revenue starts to decline.

Many of the programs and services now being eliminated are in fact fat, and it is much harder to take off accumulated pounds than never to have gained them. It is less traumatic to disapprove a program before it is implemented than to eliminate it after it has been established and has developed constituencies. And it is more humane and fiscally responsible not to hire than to fire.

Maintaining or enhancing quality is too often equated with adding or enlarging programs, lest the schools fall behind its institutional competitors. But board members should be the gatekeepers. They have an obligation to press for containment rather than wringing their hands and pleading innocence when financial disaster occurs—as if they had been sideline spectators.

Unfortunately, academic programs present trustees with an unfamiliar array of problems and opportunities, which are much less tangible than business contracts. Too often, boards accede to the administration, whose desires for additional programs are reinforced by faculty governance; after all, they are the “experts.”  In spite of the depth of their business and political acumen, board members are reticent even to ask penetrating questions about a program’s necessity and its compatibility with the mission statement, much less actually turn it down. They tend to ask more discerning questions about bids from competing vendors than about the propriety of expanding or adding an academic program. 

Boards typically avoid at least five fundamental questions. First, how and why are the recommended additions consistent with our mission statement? (Without a focused mission statement, the question is a meaningless exercise.) Second, what tangible value-added results will be produced, when, and for how long? Some programs and services are fluff, may not fulfill their expectations, or may outlive their utility.  Third, what are our opportunity costs vis-à-vis all the other good things we could pursue—that is, why should we pursue this path? Fourth, how stable is the proposed funding source; if the funding is external and dries up, what, if any, obligations must we absorb?  Fifth, is there a termination or exit strategy? If for any reason we must terminate the program or service, how are we going humanely do it?

In the short term, consistently asking these questions will help prevent mission creep and contain current institutional costs. In the longer term, asking them will avoid the necessity of terminating programs and services that should not have been implemented in the first place. Kim Clark recently reported in U.S. News & World Report, “Many colleges are turning the cutbacks into an opportunity to shed luxuries that had become common during fat years.”  Clark cites the University of Texas athletic department, which estimates it will save at least $300,000 by replacing its glossy media guide booklets with DVDs. And she reports that athletes around the country are now taking buses to many games, instead of chartered planes. Why weren’t these “luxuries” questioned and stopped in the first place?  If the questions above had been asked, perhaps scarce resources could have been conserved, fewer careers disrupted, and many egos preserved. 

In addition to avoiding severe cutbacks by planning ahead, leaders need to develop plans for confronting the next financial crisis well before it arrives. The details and scope of these plans will depend on the size and complexity of the institution. They should be scalable to the magnitude of the anticipated revenue shortfall. Whatever the specifics, the plan should be prefaced by a statement of guiding principles. 

A contingency plan would include an ordered sequence of measures to be taken if revenues fall. The measures could be as familiar as turning down the thermostats and curtailing utility consumption. The continuum might include travel, expenditure and hiring freezes, major project deferrals, executive, faculty and staff salary freezes (in that order), furloughs, layoffs and, finally, a rank ordering of possible program cuts.

These plans should be based on broad consultation and input from all levels of the organization. If they are developed in advance of the downturn, the institution will have the luxury of time to weigh options and win support that it will not have in the middle of triage. Negotiate in private now or on a larger public stage when the next big crisis hits—as it did in California, and the home of the chancellor of UC-Berkeley was picketed and vandalized.

As in past fiscal crises, institutional leaders have escaped being called to task for creating conditions that have contributed to their institutions’ financial problems. I hope they and the public at large will learn from their repeated shortsightedness. Failure to prepare for the next big one will be equal to gross fiscal incompetence and fiduciary irresponsibility.