Paul Danos, Dean Tuck School of Business at Dartmouth.
Second in a series from the upcoming book titled “Inside the Minds: Business School Management,” here are some thoughts about one of the perennial challenges that business schools face.
American business schools typically do not operate for profit, and without the subsidies, gifts, and foundation grants they receive, the vast majority of schools would be losing money each year. In the case of private schools without government support, it is impossible for tuition to pay for the way we approach education. At Tuck, tuition covers less than 50 percent of our expenses, which means most of our revenue must come from non-tuition sources such as endowment earnings, annual giving, and profits from non-degree executive education programs.
An endowment is a savings account run by the central university into which endowment contributions from alumni and other donors are placed. For example, if someone donates $1 million into a scholarship fund, the money is placed into the endowment to be invested by specialists. If that money then earns a 10 percent return—in other words, $100,000—the school is able to spend a portion of the revenue according to specific rules. Most university policies limit that to about 5 percent of the capital balance (in our example, $50,000). Leading business schools have substantial endowments that help pay anywhere from 20 to 40 percent of the expenses. Giving large gifts to business schools has been, by and large, an American phenomenon, but endowments are growing at major non-U.S. schools.
When a business school needs more funding, there are three classic approaches: additional tuition, executive education programs, and fundraising.
Per-student tuition levels are dependent upon the market. In America, the leading full-time M.B.A. programs are mostly within $5,000 of one another, ranging typically from $35,000 to $40,000 per year. However, unlike private schools, state-supported schools do not always charge full market-based tuition; some charge as little as half to in-state students. A decade ago at Tuck, we saw a clear need to add ten new faculty positions in order to deliver the world-class business leadership education that has always been our mission. In large part, we funded this by adding sixty students to future incoming classes.
A second example of finding additional revenue is achieved by expanding non-degree programs such as executive education. At Tuck, we offer an array of short programs for executives; a number of non-degree programs for students, including a summer program that brings 200 to 300 college students here for a full month each summer; a series for minority entrepreneurs; and a course aimed at M.B.A.’s who have been out of the workforce for a period of time.
Finally, one of the largest sources of potential revenue growth comes from fundraising. Most buildings, professorships, and scholarships at leading schools are paid for by “capital” contributions, some of which are placed in endowments. Fundraising through annual giving and reunion giving is both an art form and a management challenge. Both activities require volunteers, callers, and extensive mailing lists—however, none of these efforts will be fruitful without goodwill and a tradition of giving. Before asking for money, a dean has to create and implement great programs for the students. Having the right strategy is the starting point. Fundraising itself depends on having good information about your constituency, and schools are often in the dark about their alumni because they have not kept in touch with them. As a result, they cannot expect to receive many significant gifts or a high percentage of participation.
It is critical to know your alumni and to ensure that they have a good memory of your school. In America, most people have some affection for their alma mater, and keeping in touch is an essential starting point for reinforcing that feeling of goodwill. We send out newsletters and magazines, we host events all over the world, we have clubs, and we hold reunions. We also directly involve alumni in advisory boards and in recruiting and placement activities. Perhaps most importantly, we make sure we continue to serve as a resource for our alumni throughout their entire lives, whether by bringing our faculty to them for lifelong learning courses or by maintaining a strong and responsive alumni network to help their professional development. All of these elements help foster a sense of family, and this virtuous circle of involvement and goodwill leads to financial support.
Many people believe deans spend the majority of their time on the road fundraising. However, I spend only about 30 percent of my time traveling, whether it is to connect with alumni, do corporate interfacing, or interact with donors. Most of a dean’s time should be spent ensuring that each student gets an outstanding learning experience. The support should be the byproduct of a school that functions well and is carried by its vision of student development.
Through a combination of expanded tuition revenue, new executive education programs, and fundraising, Tuck has doubled the size of the school in the last ten years—a necessary step in helping us achieve a better balance of faculty and students. Deans often justify school growth by citing a need to expand the faculty, and in our case we found the growth to be very positive. We used the majority of the money raised during our expansion to support new faculty and raise the level of research support, and we have been very successful in our results. If you believe a strong faculty is the major asset of the school, you must build strategies around creating and maintaining it. This means bringing them in, supporting them, and continually adding resources into the faculty stream. But, expanding student counts beyond a point can be detrimental to the student learning experience and can outgrow the other fundraising opportunities, for new graduates are many years from making large contributions.
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n for incoming students and top faculty to the career development of its graduates and the strength of its alumni network, a top school must operate on a global stage in order to be successful.
