For Whom the Bell Tolls?

First Published on Stevens Strategy Blog 

Nearly every week news flashes a report of another private college either closing or in deep financial trouble. Here is a short but not exhaustive list of colleges that have closed this year: Alderson Broadus, Cardinal Stritch, Medaille, Presentation College, Bloomfield College, Holy Name University, Iowa Wesleyan, Cazenovia College.

There are also troubling signs with the number of presidents who are suddenly leaving colleges, some have reportedly been employed for less than a year. We do not know the reason, but it is not a favorable sign when a college’s new leader suddenly resigns.

Many blame deep structural problems. Literally translated, they are saying they are not enrolling enough students and they cannot afford the fixed costs of delivering degrees or serving students, such as: tenured or long-term contracts, athletic programs, support services or debt-service on buildings

Rick Seltzer in the August 2^nd Chronicle of Higher Education Newsletter, referencing Ernest Hemingway, said this about Alderson Broadus’ sudden closure” You go bankrupt, Hemingway wrote, “gradually, then suddenly.”

The question for many small, tuition-dependent private colleges are they beginning to hear the bells tolling for their future? If you are hearing the creak of the ropes in the bell tower, here are several steps that can be taken:

1. Determine, how much cash, your institution needs to survive for five years.
2. If you are not going to have enough cash to survive, identify revenue-expense flows that are out-of-balance (i.e.; where reliable revenue sources are not covering each major expense outlay); the president and board of trustees must agree that:
   1. The cash prognosis truly represents the cash position of the instituion and demands immediate strategic action;
   2. The president must inform the board of the strategic action plan;
   3. The board either agrees to affirmatively support the plan or needs to find a new president.
3. These steps can determine strategic plans by identifying:
   1. Reallocation of endowment assets and seeking out donors to create a cash reserve for new strategic action;
   2. New sources of revenue that can provide substantial new revenue flows (i.e.; find new markets that can be easily and quickly entered without an excessive cash outlay).
   3. New academic programs and redesign existing programs so that they efficiently lead to future income for graduates sufficient to cover their life goals and educational loans;
   4. Instructional programs that are not operating efficiently and either restructure them or close them; examples abound such as: programs with full-time assigned to work with only a few students or programs that are no longer relevant to the job market;
   5. Student support services that do not reducing attrition rates;
   6. Athletic teams that do not generate sufficienty net tuition revenue to cover the cost of their operation and attendant administrative costs;
   7. Plant assets that add to operational costs without generating direct benefits to the mission of the college. orthe operation of the college like: empty dormitory space, other empty buildings., or buildings with a large number of empty rooms. The board and president need to divest the college of burdensome assets.
   8. While the preceding steps lay the framework for survival, they are only valid to the extent that a president is willing to use these steps to come to grips with the deteriorating financial condition of the college. President’s lead a college out-of- to quickly assess academic costs and weakness in serving its market. Additionally, a president needs the political skills to know where and how to respond to conflict so that action is not bogged down by the governance merry-go-round. Moreover, these presidents must have the drive to lead and to get their hands dirty. 

Presidents of struggling colleges must act quickly because the turnaround plan has to be fully-in-effect within two years given the current pace of financial distress. There can be no dawdling; they must carry the action forward.  Last but not least, the Board either supports the president or the president must leave.  The longer that action is delayed, the greater the chance that they will lose the most important commodity needed for survival – the time to emplace effective changes. If the leaders take too long, they will lose the race to survival.