Apr 1, 2021 | 4 minute read

Tags: colleges in crisis, covid-19, enrollment decline, higher education mergers

Of Boards and Budgets: Lessons Learned from Oglethorpe University

By Lawrence M. Schall

I am the President of the New England Commission of Higher Education (NECHE), the regional accreditor for more than 200 colleges and universities across the six New England States. Our members include such household names as Harvard, Yale, Brown, Williams, Smith, Amherst, Mount Holyoke and Southern New Hampshire University, as well as dozens of community colleges, the six public flagships, and a host of smaller private colleges.

NECHE has nine standards for accreditation. Standard Seven is centered on institutional resources, and reads as follows:

The institution has sufficient human, financial, information, physical, and technological resources and capacity to support its mission.  Through periodic evaluation, the institution demonstrates that its resources are sufficient to sustain the quality of its educational program and to support institutional improvement now and in the foreseeable future. The institution demonstrates, through verifiable internal and external evidence, its financial capacity to graduate its entering class. The institution administers its resources in an ethical manner and assures effective systems of enterprise risk management, regulatory compliance, internal controls, and contingency management.

We have been asked repeatedly since the COVID pandemic began whether Standard Seven will be applied in some different way given the extraordinary impact of this unprecedented public health crisis. The answer has been a very consistent no. Even a once in a lifetime event like COVID doesn’t eliminate the requirement that institutions have sufficient resources to support their mission and make good on their commitment to entering students.

Although Mount Ida, Wheelock and others have recently been in the news, New England has seen its share of institutional closures and mergers for decades. This is not a new phenomenon, and changing demographics have a lot to do with it. When there are fewer college-going people, there will likely be the need for fewer colleges over time. That’s true for New England and many other parts of the country.

From my seat, the financial impact of the pandemic and its aftermath will likely accelerate school closings, mergers, acquisitions and partnerships, particularly among smaller, tuition-dependent private colleges with limited reserves. However, these transactions can still be done well or badly. Timely decisions and thoughtful planning can make the difference between a good result and a bad one with a profound difference in the associated outcomes for students.

Although NECHE and others involved in the oversight of institutions of higher education have an important role to play, nothing can replace—or make up for the lack of—strong leadership at the institutional level.

Soon after I became the President of Oglethorpe University in 2005, it became clear to me that we would not have enough cash to make payroll for much longer, even using our line of credit to its maximum. I didn’t believe then — and I don’t believe now — that an institution can cut its way to long-term prosperity. However, without enough cash to pay the bills, no school can survive. At Oglethorpe we cut deeply, out of necessity, and our aggressive measures eventually allowed us to grow and create a sustainable business model that has stood the institution in good stead. But during the years it took to achieve this turnaround, the board made it clear that they would only approve annual budgets showing an operating surplus. They didn’t tell me how to make that happen, of course, but they firmly set the ground rules. They came to understand that they had allowed an institution for which they had ultimate fiduciary responsibility to spend more than it took in year after year, and they decided that enough was enough. If we had not been successful in our rebuild, I trust that they would have worked to seriously explore partnering or even combining the institution with a larger, healthier group rather than abrogate their responsibilities and put students at risk.

University and college presidents come and go quite quickly these days, with their average tenure down to about five years. Particularly in light of the disruption associated with those leadership transitions, governing boards have a more important role than ever to be decisive and disciplined in the exercise of their duties. And they need to do so with their eyes wide open and a sense of urgency.

At NECHE, we accredit institutions with fewer than 1,000 students which successfully demonstrate to us that they have a financially sustainable business plan. It is not size alone that determines sustainability. It is not even the size of the endowment, although clearly more resources and more students help. In the end, it’s all about aligning expenses with revenue on a consistent and sustainable basis, taking seriously the board’s duties of care, loyalty and obedience, and remaining focused on students and their success. It also means recognizing that organizational survival is subordinate to the mission for which the institution exists.

Lawrence M. Schall is president of the New England Commission of Higher Education

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