Financial Woes Force B-School Cutbacks
Plunging endowments and reductions in state funding are leading to layoffs, salary freezes, even program shutdowns. And the worst is still to come
The Stanford Graduate School of Business endowment soared to nearly $1 billion this August, making it one of the wealthiest business schools in the nation and the envy of the management education world. But this fall, the fund took a serious hit, and the seemingly untouchable business school, which depends heavily on endowment earnings for its operating budget, found itself on shaky financial footing. Faced with a gaping $10 to $15 million shortfall for this school year and a similarly gloomy outlook for 2010 and 2011, Dan Rudolph, the school's senior associate dean for operations, did the unthinkable: He laid off 49 school employees, or about 12% of its 400-person staff. "It was very painful," says Rudolph, who also put eight staff members on a reduced work schedule, eliminated 12 contractor positions, and reduced budgets for travel, food, and the library. "We hadn't really done that before at Stanford and we were trying to avoid it."
The business of running a business school has never been so challenging. Up until recently, business schools have mostly been shielded from the waves of layoffs and cutbacks that have been rolling through corporate
"2010 is a larger question mark than most of us would like to admit at the moment," says Robert Bruner, dean of the
Endowments Take a Hit
Business schools are grappling with plunging endowment returns, a decline in annual giving, and state- and university-mandated budget cuts. B-School deans are being more cautious than ever, delaying plans for ambitious new buildings, freezing wages, suspending hiring, and slashing travel budgets and other nonessential expenditures. Many schools are reporting a slowdown in executive education and evening MBA programs, an important source of revenue for those institutions. Meanwhile, public universities are reeling from a series of state cutbacks, slashing student services, eliminating classes and, in at least one instance, asking students to help them cover the shortfall.
The handful of schools that have managed to stay in the black, like Columbia Business School, are using the economic crisis to their advantage, trying to increase faculty hiring in a marketplace that suddenly has significantly less competition. Columbia, which relies on its endowment less than some other schools, has seen an increase in annual giving, and plans to hire more faculty this year than it did last year, but would not disclose specifics. Says Glenn Hubbard, dean of
That kind of unbridled optimism is not heard much in the corridors of business schools these days. The main culprit behind the shifting fortunes of many business schools has been their university endowments, which after years of sharp gains have precipitously tumbled. A recent study of 628 educational institutions around the country showed that college endowments lost an estimated 22.5% on investments during the five-month period from July 1 to Nov. 30, on top of a 2.7% drop in fiscal year 2008. For the most recent five-month period, the funds lost a staggering $94.5 billion in asset value, and some funds could lose as much as 40% for the year ending June 30 if the economy doesn't make a recovery, according to the study, released on Jan. 26 by CommonFund and the National Assn. of College and University Business Officers.
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