The following will be a three part blog series analyzing financial crisis management in Higher Education. Sweet Briar College will serve as a case study for this analysis. Sweet Briar College is an ideal case study subject given the vast amount of published information regarding the institution's financial situation, including but not limited to; white papers, news articles, and academic journals. The three blogs will focus on first defining the financial crisis, then following up with actions taken by the administration and alumni, finally the series will conclude with a discussion of what lessons can be learned from Sweet Briar’s experience. The purpose of this first blog analysis will be to analyze Sweet Briar College's Financial Crisis Management response using one of Ellen Chaffee’s three Models of Strategy. The former administration of Sweet Briar College was operating under elements of the Adaptive Strategic Model when they chose to close the institution (Chaffee, 1885).
In March of 2015 the former administration of Sweet Briar College announced that they would be shuttering the school (Biemiller, 2017; Newberry, n.d.; Newberry, 2015; Poleski, 2020; Svrluga, 2020;Woodhouse & Jaschik, 2015). The administration sighted “insurmountable financial challenges” as the rationale for closing the 114 year old Women’s College (Woodhouse & Jaschik, 2015). The news was met with immediate and open criticism from Faculty, Staff, and an activated Alumnae (Biemiller, 2017; Poleski, 2020; Svrluga, 2020;Woodhouse & Jaschik, 2015).The alumina based formed a campaign to save to school (Poleski, 2020). Within a month the Amherst County Attorney's Office was involved in the effort (Newberry, 2015). Ultimately, it is the White Papers from the Steptoe & Johnson Law Firm which provide context to the Board of Directors’ decision.
One of the most prominent criticisms was the Board’s choice to close the school was the existence of the intuition's $85 million endowment (Woodhouse & Jaschik, 2015). However, financial operations within higher education are not always what they seem. University endowments operate like restricted investment accounts, universities must abide to restrictions which determine how much of the endowment can be withdrawn or applied to university expenses (Dorantes & Low, 2016). Moreover,over 80 percent of Sweet Briar’s endowments is marked for special purposes created by donor requirements (Newberry, 2015). Moreover the college was already borrowing aggressively from the endowment at an unsustainable rate (Elfman, 2015).
Despite nostalgia and criticism surrounding the matter, Sweet Briar’s was in real financial crisis (Woodhouse & Jaschik, 2015). The college was operating at an over $2 Million annual deficit (Newberry, n.d.). The financial troubles came in part due to declining enrollment in the past few years. At the time of the announcement, the college had only 561 students, down significantly from the 750 needed to stabilize the budget Woodhouse & Jaschik, 2015). Declining enrollment is a concern for any college, but especially for small private colleges which tend to depend on tuition as the primary source of income (Svrluga, 2020). Thus, lack of students paying tuition created financial pressure which caused the school to turn inward and consume its own endowments at an unstable reat (Elfman, 2015).
Another criticism that the former Sweet Briar Administration faced was that they had not attempted to sell some of the schools 3,200 acres nor reduce operating cost (Newberry, 2015). To put it simply, the college had acquired the land through by means of a will which the administration did not have the right to sell the property (Newberry, 2015). In regards to the latter half of the criticism one might point out that that payroll is often the highest budgeted expense (Doranates & Low, 2016). In passing it would make sense that reduction in payroll expense would reduce cost and remove some of the financial burden. However, a study of 20 private colleges and universities found that laying off staff was associated with less resilience to financial pressure brought on by the 2008 recession (Dorantes & Low, 2016). From the results of Low and Dorantes (2016) study one can extrapolate that large scale layoffs are a short term solution and one may actually cost more in the long run as faculty layoffs could limit enrollment growth.
While shuttering a college with a relatively large endowment may seem like a hasty decision, in retrospect it was evidence of the Adaptive Strategic Model.
Taking assessment of the current situation is a foundational part of the Adaptive Strategic Model which is rooted in the idea of balancing risk with reward (Chaffee, 1985). This mindset is evident in the statement released by the former administration which claimed that there were no foreseeable, “options that would have preserved Sweet Briar's outstanding qualities” (Woodhouse & Jaschik, 2015, p1). Though the statement was brief it was insightful. The administration had studied alternatives to closing the school and determined that they were not worth pursuing or that doing so would cost more than they were willing to pay. Moreover, that sought that resisting closing the school was only prolonging the inevitable.
So what are current students and stakeholders to do with only the summer to plan for the schools closing? Well the Administration had considered this and shifted their attention to helping students find other institutions to attend (Sweet Briar to close, 2015). The was a call to action that was headed by the staff as evident by the fact that just two months after the announcement 365 students had either graduated or ordered intent to transfer (Woodhouse & Jaschik, 2015). This shift in focus is important as it shows a duty of care as expressed by the Sweet Briar College Community. A duty of care that shall be examined further in the next blog which will focus on the community's response.
References
Biemiller, L. (2017, September 6). After All but Closing, Sweet Briar Will Shift Curriculum
and Pricing. Chronicle.com. https://www.chronicle.com/article/after-all-but-closing-sweet-briar-will-shift-curriculum-and-pricing/ bc_nonce=hra8ivxfovufvh14b47tn&cid=reg_wall_signup
Chaffee, E. E. (1985). Three models of strategy. The Academy of Management Review,
10(1), 89–98.
Dorantes, A. R., & Low, J. R. (2016). Financial crisis management in higher education:
responses by 20 private colleges and universities to the 2007-2009 financial crisis.
Journal of Education Finance, 42(2), 188–219.
Elfman, L. (2015), Sweet Briar College Plots a Path for the Future. Women in Higher
Education, 24: 1-3. https://doi.org/10.1002/whe.20234
Poleski, D. (2020, March 3). Defining leadership: five years after the Saving Sweet Briar
effort. Sweet Briar College | News. https://sbc.edu/news/defining-leadership/
Svrluga, S. (2020, June 28). This college is tiny and isolated. For some students during
the pandemic, that sounds perfect. Washington Post.
https://www.washingtonpost.com/education/2020/06/28/sweet-briar-college-fall-
coronavirus/
Sweet Briar College to Close. (2015). Library Journal, 140(7), 13–13.
Woodhouse, K., & Jaschik, S. (2015, June 22). What the case of Sweet Briar means for
other colleges. Www.Insidehighered.com.
https://www.insidehighered.com/news/2015/06/22/what-case-sweet-briar-means-
other-colleges