By Michael Bills, Ph.D. and Wallace K. Pond, Ph.D. Copyright, 2020
An abridged version of this article is available at the Chronicle of Higher Education.
The Pre-Pandemic State of Higher Education
A great deal has been written the past several years predicting the demise of large numbers of US colleges and universities. Most notably, the late Harvard Business School professor and management guru, Clayton Christensen, predicted that half of American colleges and universities would shut down by 2030. While subsequent predictions have been less dire, to put the situation in perspective, Moody’s determined that roughly one third of all colleges were operating at a deficit before the pandemic. The current reality has created what is likely the greatest liquidity crisis for higher education in modern times.
At particular risk are small, private, tuition dependent colleges where, “having ten fewer students than expected is a serious financial problem. Having thirty fewer is a disaster,” according to Alice Brown, former president of the Appalachian College Association. In the case of private institutions, there is no “faith and credit” of a state government serving as a financial backstop. While many publics are also facing crisis, it is unclear how they “fail” in the sense that insolvency and bankruptcy do not apply in the same way to public entities as they do to nonprofit and for profit corporations. Some may continue to operate as what Scott Galloway at NYU has termed “zombie institutions,” technically open, but unable to fulfill their missions.
The headwinds facing most of higher education, including unfavorable demographics, declining public attitudes about higher education, cost, debt and declining ROI for students, macro-economics, and competition from “mass market” alternatives (both within higher education and externally from industry) tend to pose even greater challenges for small, private institutions, whose value proposition has historically been founded on a very expensive and highly traditional campus-based experience. This presents a double whammy because not only is the student market for that higher education model declining, but the fixed costs of predominantly residential, campus-based operations create structural challenges for those institutions’ financial viability even if they have enrollments close to historical levels.
Our Perspective on the Depth and Breadth of the Challenge
Based on our many combined years in the roles of trustee, college president, and private sector CEO, we feel that the situation may actually be worse than typically understood for three reasons. First, as an “industry,” higher education was in a dramatically weakened state before the COVID crisis. Secondly, despite nine consecutive years of enrollment decline and large numbers of mergers and closures, leadership in the majority of colleges failed to engage in the kind of foundational change that was necessary in the face of dramatically evolving operating environments. And third, institutional boards, which were built to politely oversee status quo realities are ill-equipped structurally, behaviorally, culturally, and from a perspective of expertise to effectively exercise their governance responsibilities during the current volatile, complex, and hyper-change reality.
A business facing environmental changes of this magnitude would be expected to pivot rapidly by entering new markets, developing new products and services, jettisoning legacy systems, engaging customers with new value propositions, and rapidly innovating. Higher education, however, due to both structural and cultural impediments, did not respond even to the severe decline before COVID. Because the shared governance typically found in colleges and universities distributes decision making, it is time-consuming, lacks a sense of urgency, and requires constituencies with competing agendas to come to consensus. It is not an overstatement to say that, in many cases within higher education prior to the pandemic, institutions and the folks within them (administration, faculty, boards, alumni), actually accepted failure rather than choosing to change.
A potential saving grace of the current pandemic for the institutions that survive is that it may finally be what Robert Zemsky has termed a “dislodging event”—something that is so jarring that it forces change that was not possible before. A recent example is faculty who said they would retire before teaching online who nonetheless found themselves teaching through some version of technology mediated distance education because they had no choice! There is also modest evidence that, faced with existential crisis, some institutions are at least entertaining new ways of operating that were off-limits before the pandemic. So far however, those changes are more likely to be related to short term crisis management than genuine transformation.
Why Boards and Governance Have to Change
Based on recent research conducted by one of the authors, it is fairly clear that the failures of the last ten years are broadly leadership failures, both at the executive level and, significantly, on the part of boards of trustees. Although the external pressures on higher education have been serious, most institutions of higher education and their boards, have been remarkably complacent in the face of long-term declines in enrollment and revenues, increasing competition, shifts in post-secondary education from traditional colleges and universities to commercial and industry providers, and increasingly negative public attitudes about the value of higher education. Despite repeated, visible warnings, executive teams and boards broadly clung to the status quo hoping things would just get better.
Why would boards be part of the problem?
First, boards operate in the context of a shared governance model, which itself is rarely amendable to nimble decision making, risk-taking, speed, innovation, or transformational change. Secondly, they operate within a cultural framework in which there is more inertia to protect the status quo than to support transformative ways of being and operating. Although shared governance is broadly understood to have certain guidelines about who has authority over different spheres of activity—thefaculty taking charge of the curriculum, the president conducting day-to-day management of the college, and the boardhaving responsibility for fiduciary oversight, stewardship of the institutional mission, and hiring/firing of the president— in practice, however, this ostensibly clear-cut delineation is not well understood and is often a significant impediment to making decisions and taking action. Instead, it becomes a political process dedicated to balancing competing interests rather than to supporting the best decision making.
Another challenge is related to accountability. According to Jay Schalin, the director of policy at the James G. Martin Center for Academic Renewal, most private college and university boards are effectively the “owners” of the institution and legally have the final say, yet they commonly relinquish that authority to the president and the faculty (again, typically for cultural and political reasons). To be blunt, as noted by Brian Mitchell and Joseph King, if an institution is in decline over a period of time, it is the board of trustees that is ultimately to blame, because the board has final accountability for an institution’s finances and its ultimate viability. The research previously cited in this article found that critical issues such as declining enrollments and revenue, liquidity problems, deficit spending, deferred maintenance, etc. were repeatedly discussed in board meetings without the boards asserting their governance obligations, often until it was too late and the colleges were no longer viable concerns.
The very nature of college boards also creates substantial obstacles for the institutions they oversee, some of which are discussed below.
Board Structure and Membership
Private college trustees are nearly universally selected due to their wealth (as possible donors), career success/status, alumni affiliation, former institutional affiliation, and perceived influence. And they are all volunteers. As a result, trustees are generally supportive, if not passionate about the institution, but unlike corporate directors, do not have a direct stake in its success. Because they are not broadly selected for their expertise as it relates to the institution’s operational and strategic needs, the CEO and executive teams do not benefit from needed input nor are they actively challenged relative to planning, decision making, performance, prioritization, strategy, etc. Lastly, the typical college board is overwhelming large with dozens of trustees, a majority of whom are usually alumni. Although such huge numbers of trustees support the goal of broader inclusion, it is highly problematic relative to the board’s functionality and efficacy. And the disproportionate number of alumni, while creating passion for the institution, tend to also create nostalgia and inertia for how things “used to be.”
Typical board cultures support politeness, friendly relationships, political correctness, and respect for the status quo and legacy issues over transparency, healthy conflict, bold thinking, and transformative change. Such culture has been nurtured over many decades of status quo operations, but it is detrimental in today’s operating environment.
Information asymmetry between the administration and the board is common. Because their work is volunteer and part-time, many board members’ awareness of what is going on at their campus and in the broader landscape of higher education comes exclusively through reports and updates provided at quarterly (or less frequent) board meetings. In some cases, the asymmetry of information between the administration and the board is more intentional. Information may be withheld or kept at a superficial level so that presentations and/or decision making is quick, avoiding time-consuming due diligence (and the related accountability that would come with such a process). We have both observed boards receiving information about material, serious, or even existential issues (and even making decisions), with an almost autonomic response.
Related to information asymmetry, independent college turnaround consultant, Ruth Cowan, referred to boards either unaware of, or ignoring their problems as “problem blind.” Decline at a college/university can be more difficult to see than a business. A college is mission oriented whereas a business is profit focused. Colleges and universities with broken business models can operate years after a similarly beleaguered business would have been sold or dissolved. In fact, when an institution announces a merger or closure, that reality was years in the making, until, despite a range of financial “tricks,” there is simply no more liquidity to operate.
Deference to the President
Compounding the problem blindness of boards is being overly deferential to the president, which has contributed in some cases to presidents engaging in wasteful, misguided, and risky pursuits. Moreover, Boards’ awareness of what is going on at their campus and in the broader landscape of higher education comes almost exclusively from episodic board presentations. Administrators, on the other hand, are usually long-term academics who are intimately acquainted with almost everything that occurs on their campus and highly informed about higher education in general. It is therefore only natural for board members to defer to the president.
While the interdependence of the board and the president can be a strength of the presidency, it can also lead to what long time college trustee and US Appeals Court Judge, Jose Cabranes, described as “back him or sack him” whereby trustees believe they should unequivocally support the president until he or she becomes objectively and obviously unfit for the position.
Optimism bias, fueled by an internally focused view, can lead to a systematic fallacy in strategy and decision-making that Nobel Prize winner Daniel Kahneman calls “the planning fallacy”. In this dynamic, decision makers tend to underestimate costs, completion times and risks, while overestimating the benefits. The planning fallacy can be mitigated by “reference class forecasting” whereby decision makers find a reference class of similar projects, allowing them to form an “outside view” that is almost certain to be less optimistic than the inside view. The very nature of college/university governance is a breeding ground for optimism bias, due to the aforementioned deference, problem bias, and information asymmetry.
The Pandemic as Existential Crisis
The predictions of vulnerability and mass closings preceded the pandemic and so did the conditions that made it difficult for institutions to make substantive changes in response to environmental threats. As with Robert Zemsky and his notion of a dislodging event, perhaps the pandemic will be the “disorienting dilemma” that Jack Mesirow, the father of transformational learning, said was necessary for critical reflection followed by transformation. The boards of the institutions in Dr. Bills’ research that successfully reversed their declines and began to thrive, all responded to a disorienting dilemma, usually a threat of foreclosure or loss of accreditation, by engaging in soul searching followed by transformative actions to change the institution. Interestingly, even for those institutions, the threat had to be literally existential in order for the boards to “wake up.” Although the institutions in question faced their moment of truth pre-COVID, it may be that the current crisis will provide a similarly motivating scenario to shake other boards out of their complacency—to prefer change, even change that alters the nature of the institution—rather than riding the status quo to a painful demise.
Whether one agrees with Robert Zemsky or Clayton Christensen about the number of institutions at risk of failing, one-fifth to one-half of American colleges and universities is a big number. Some institutions’ fates are already sealed, but the good news is that we know what is working in institutions that have found success. Many, even those who are struggling significantly, have the potential to survive and then thrive – and it starts with the board of trustees.
Surviving and Thriving
While there is no sure-fire formula, according to Terrence MacTaggart, “turnaround sagas are remarkable in that they are at once unique and yet much alike. Each change story exhibits strikingly particular features of locale, culture, mission, history, leadership, temperament, resources, and programs. At the same time, each story displays marked similarities.”
At the highest level, boards have to:
- Accept that problems are structural, not episodic
- Hire the right leadership with the right profile
- Quickly align expense with revenue*
*Generating and operating under solvent budgets are normally the purview of the CEO and her or his executive team. However, in crisis, board intervention to ensure solvency is critical to support the mid and long-term objectives of surviving and ultimately thriving.
Seven Critical Board-Related Success Factors
The characteristics of a change adept board that is prepared to lead a turnaround and/or address an existential crisis are clear. The research identified seven critical success factors that the board must demonstrate in order to successfully transform an at-risk college or university
- The board recognizes that a crisis is imminent or looming.
- The board accepts that survival will require a departure from tradition.
- The board ensures that they have a president suitable for leading a turnaround.
- The board partners with the president to support change initiatives and actively works with the president to overcome resistance to change.
- The board intentionally recruits and develops board members who will understand and support the turnaround.
- The board works with and learns from outside advisors skilled and experienced in college and university turnarounds.
- The board uses its authority to take action.
Even in the absence of crisis, institutions who have realized significant success, particularly those that have experienced substantial growth, such as Arizona State, Southern New Hampshire, Western Governors’, Grand Canyon, etc., all had dynamic leaders AND boards that were willing to support transformative change.
Institutional Characteristics that Support Success
In addition to board traits, we know what the characteristics are of the institutions that are managing to thrive in the current environment. Although every IHE has its own particular challenges and opportunities, there are common threads across the schools that are finding success, one of which is simply that they understand the reality and have a plan to address it. Several common factors are:
- Dynamic Leadership
- Capacity to Innovate
- Deep Industry Collaboration
- Aggressive Partnerships
- Alternative and High Margin Revenue Streams
- Retention of Existing Students
- Differentiation in the Market (Programs, Services, Delivery, etc.)
- Customer Value
- Licensure Programs/Programs Required for Employment
- Alternatives to Traditional Degrees
- Focus on Sustainability
- Finance as a Core Competency
- Really, Really Good at Basics
- A Culture that Promotes Success (entrepreneurialism, risk taking, collaboration, etc.)
While any change related to any crisis presents significant challenges, higher education has historically been much better at preserving the status quo than embracing transformation, which creates an added cultural barrier to the kind of thinking and action that is necessary today. However, for boards that recognize the sacred charge of their trusteeship and are therefore willing to have difficult, sometimes painful discussions, pursue accountability for executives and themselves, take action that will challenge tradition (and some constituencies), and maybe most importantly, are willing to embrace the risk that might be necessary to trade status quo for relevancy, there is not only a path to survival, but to a sustainable, audacious future.
In our trustee, president, and consulting roles, we have come to understand that even boards that want to fully maximize the impact of their trusteeship, are often not capable of doing so due to a variety of issues enumerated earlier in this article. Whether the challenges are structural, cultural, behavioral, relational or some combination, those problems can be overcome if boards genuinely want to improve their efficacy. If boards are ready to do the hard work, starting with deep self-reflection, openness to objective evaluation, transparency about what is working and what must be different, honest evaluation of their institution’s risk, and acceptance of true accountability for their responsibility, boards can not only be more effective, they can be transformational.
Unfortunately, traditional models of third-party board support are typically inadequate for the complexity of today’s challenges. However, there is a partnership model for guiding boards through the kind of comprehensive work described above. If you would like to learn more, please reach out to Dr. Mike Bills at email@example.com or Dr. Wallace Pond at firstname.lastname@example.org. Either of us would be pleased to discuss what options might make sense for your board and institutions.
Mike Bills, a successful entrepreneur and long-standing college trustee, co-founded Wasatch Education Partners with the goal of ensuring that college boards are part of the solution rather than the problem for institutions that are struggling through very complex and difficult times.
Wallace Pond, a thirty plus year educator, executive, and entrepreneur, co-founded Wasatch Education Partners to ensure that college boards are getting the critical support they need to succeed in today’s volatile, hyper change reality.