Universities must cope with the financial sector fallout too.

Question: How will university endowments survive hard economic times? 

Robert Dolan: Well, I think, the short answer to that is there’s two pieces to it. One is to maintain a robust set of educational programs so that you have lots of students who want to come to the school. But the second way, frankly, is through the generosity of your alumni, that with the state budgets being cut as they are in Michigan and a number of other places, we found, a few years back, that we were just not going to be able to be within the top tier of the schools competing with the people we want to be competing with if we didn’t go out and raise a significant amount of money from our alumni. So we started a capital campaign, probably, five, six years ago, which we just ended up and the timing was good for us, obviously. 

But we raised $362 million against the goal of $350. And so, it’s really through the generosity of the alumni. And, I think, more and more is difficult as fundraising may be in an economically difficult time like this. For schools like ours, as we try to stay in the same league with the private institutions, I think it’s what the alumni are going to be kind of support that they’re going to be providing. So that is, I think, an increasingly important part of the financial structure of the school as the state support has dwindled. And you would expect, you could not form a viable strategy around increase, seeing that, believing that state support was going to be increasing in the future.  I think, it really is the alumni support.  And we’ve been very fortunate that we’ve had some terrific alumni help us with that. 

And the second thing we did is we really didn’t have the physical plan that would enable us to offer educational programs in a way which had some economies of scale associated with them. And so, as part of our capital campaign and part of the $100 million gift from Steve Ross, we just completed a 270,000 square foot facility, which came online a couple of months ago.  So we now have a great physical plant in Ann Arbor that allows us to do things in a very efficient way while we’re still undertaking the action based learning of dispersing our student teams around the globe, which is a reasonably expensive way of doing education. 

So I think the two big things were, number one, to have a really good physical plan that allow us to do things in an efficient way and keep building the alumni relationships and kind of making the case for alumni support. And we’re very fortunate that we’ve had a great history of people being very committed to the school.

Question: How are faculties coping with decreasing numbers of tenured positions? 

Robert Dolan: At Michigan, our model is that we are a pretty decentralize operation so unlike some public schools in which you would have to get presidential approval for a particular slot or the number of the tenured faculty, that’s pretty much a decision which is left to us as the business school. So we have to be able to operate as an economically sound institution. But as long as we can do that, we can grow the faculty as we wish. So we are not in a mode where we’re saying, okay, what we’re going to do is decrease the number of tenured faculty as state support comes down.  Instead, we’re looking at ways to probably increase the size of some our programs. 

Particularly, right now, the demand for our undergraduate business program is extremely strong. And while we were in a constrained physical position over the last couple of years as we were under construction, we really had demand three or four X what our supply was. So what we are trying to do is say, all right, is there a way for us to adjust the size of some of our programs so that we are able to maintain a sustainable economic model sitting underneath the school. And for us, I think the big benefit is that we’re an extremely diversified school in the sense of having both undergraduate and an MBA program and a Masters in accounting program. 

And also, we’re, we have a lot of very strong demand for all of our programs. The program that is a little bit of a challenge for us these days is our evening MBA program, which, you know, obviously, is very geographically bound. And historically, that had served the automotive companies. And now, obviously, with their economic difficulties, their tuition assistance programs have declined and so, as a result, our enrollments in our evening MBA program have declined. But that’s about one-tenth of our overall enrollment base. So what we try to do is maintain a robust set of educational programs so that we won’t have to either cut the number of faculty lines we have. Because it’s really important to be able to continually bring in new talent into the school all the time.  So for this year, for example, while we’re expecting that the state budget allocation to us declines, we’ll be hiring 6 or 7 new faculty members right out of PhD programs.

Recorded on: April 13, 2009