AGB’s newly formed Council of Finance Committee Chairs held its first meeting virtually in July 2021. Below are the takeaways from this event.
This new council aligns with AGB’s mission to empower college, university, and foundation boards and board members to govern with knowledge and confidence. Its aim is to provide an environment for discussion of institutional finance questions bearing on boards’ fiduciary duties. Like other AGB advisory councils, it will also serve as a strategic thought partner on selected issues.
The introductory meeting emphasized the breadth of institutional finance issues boards must consider as the 2021–2022 academic year draws near. Previous trends (e.g., predicted demographic declines among traditional-aged college students and rising tuition discount rates) and more current national data on 2020–2021 COVID-related enrollment declines were presented as a springboard for discussion.
An informal poll on current fall 2021 application trends, with perspectives offered by both public and private two- and four-year sector representatives, made it clear that current application numbers depend heavily on institutional size, location, sector, and special characteristics. This ties into broader bifurcated industry outlooks issued by rating agencies. While large institutions with sizeable endowments (public or private) have a relatively positive outlook, smaller and lesser-resourced institutions (particularly private) have more negative outlooks.
One council member said in response that institutions need to clearly understand and communicate their individual brands to potential students. Another member made a similar point of “Who is your audience?”, pointing out that focusing on the difference their institution makes in students’ and student families’ lives serves their institution well in boosting enrollment.
Even though individual representatives’ particular concerns differed, one common topic was high fixed costs. The COVID-19 pandemic drove some institutions to make drastic administrative/personnel cuts because of enrollment declines and lower revenue. The question was raised of how far is too far—that is, what is the appropriate balance between cost-cutting and serving students’ needs? At what point does cutting costs actually create unintended risk for the institution?
Other shared concerns included:
- Decreased public confidence in the value of higher education;
- Continued necessity to correct public “misperceptions” about higher education funding sources and restrictions, particularly at public institutions;
- Enterprise risk management;
- Understanding liabilities not included on the institution’s balance sheet (e.g., deferred maintenance) and addressing them so that they do not accumulate and “crush” an institution in five to ten years;
- Public institutions’ appropriately balancing in-state, out-of-state, and international student enrollment (and thus tuition revenue), including philosophical considerations; and
- The difference between board finance committee members and presidents’ perspectives on institutional finances: as fiduciaries, board finance committee members must take a long view (e.g., in 5- to 10-year increments), but presidents tend to think in the relative short term (e.g., in 1- to 3-year increments).
Opportunities for strategic financial growth were also discussed. These included two-year and four-year institutional alignment both with each other and with employers to provide upskilling and reskilling of employees, and strategies to diversify revenue streams.
The discussion reinforced that while this is an extraordinarily tumultuous time for higher education, board finance committee members are well-positioned to help their institutions and foundations weather it by seeking collaborative solutions, lowering costs where possible, and leveraging their institutions’ unique educational offerings.
