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Amid the brouhaha that arose in July surrounding the tie-up between Thunderbird, the US business school, and Laureate, a for-profit online education company, one nugget stood out for me.
Thunderbird agreed a sale and leaseback agreement with Laureate for the Arizona campus – this was one of the issues that outraged alumni. But there is a proviso in the 20-year lease stating that “alumni may repurchase the campus within the first two years of the lease”. In other words, dear alumni, pay up or shut up.
The deal marks a watershed for schools that want global influence. On the surface, the partnership is about transforming education for online delivery, to enable Thunderbird to reach parts of the world unachievable from the Arizona desert. But there is a more fundamental issue: who is going to pay for it?
It is a problem facing all but the richest business schools. And it means that even strongly branded US schools, such as those at the University of Maryland and the University of North Carolina, have partnered with for-profit companies to fund global expansion.
The issue is even more urgent for European schools because they do not have the endowment base of their US counterparts, and this is compounded by cuts in government and chamber of commerce funding. This is why Thunderbird is such an interesting case: although it is a US school, it behaves like a European one.
To begin with, it is a standalone school like London Business School, Insead or IMD, so cannot rely on support from a university. Also, like these three, it has no undergraduate programmes. By US standards its endowment is woeful, just $26.6m, a little less than 1 per cent of the $2.8bn of Harvard Business School, against which Thunderbird aspires to compete.
But perhaps most significantly, Thunderbird has a far higher proportion of international – non-US – students than other US schools. It is one of the hushed secrets of US schools that one reason they admit only about a third of their MBA classes from abroad is because international alumni are less likely to give bundles of cash as endowments. This can be because of the punitive tax systems in the countries where they are employed or because it is more difficult to maintain contact.
In Europe, business school mergers are the order of the day. In the UK, the trend began in Manchester nearly two decades ago, while Henley became part of the University of Reading in 2008. In France, mergers are now de rigueur, with the creation of Skema (Ceram and ESC Lille), Kedge (Euromed Marseilles and Bordeaux) and Neoma (Rouen and Reims).
Frank Bostyn, dean of Neoma, says French schools needed to merge to get international visibility, to attract more faculty and create efficiencies of scale. The fourth reason is to minimise risk by being able to diversify and teach programmes that are revenue generators.
One of the elements of the Thunderbird deal that really upset alumni was a move into undergraduate degrees. But there is an advantage: a predictable income over several years.
This is why Ashridge, the UK business school, has formed a partnership with Pearson College, part of the Pearson Group that owns the Financial Times. The deal, announced last month, is to collaborate on undergraduate business degrees initially, which will give Ashridge a sustainable and predictable income.
With close to 70 per cent of Ashridge’s income deriving from executive short courses, revenue has been hostage to the dire economy and curtailed corporate spending over recent years. Thunderbird has been in a similar position.
The executive education director of one of the “seven sisters” – the self-appointed group of top US business schools – explained the serendipitous nature of short-course education to me succinctly. Every year the school had met its targets for executive short programmes, the director said. But revenues had come from completely different programmes and clients than had been predicted.
There is one respect in which Thunderbird and its alumni behave in line with US schools, though: alumni believe they have a role to play in the future of the school and its strategy. Graduates who object to the Laureate deal have begun a letter-writing campaign to the Higher Learning Commission, the regional accreditor, and 4,000 protesters have joined a Save Thunderbird group on Facebook.
Of course, this is one of the dilemmas of a business school: you train people how to manage organisations and then they think they can run a business school better than the directors.
Thunderbird has seen a declining interest in its MBA programme from recruiters as well as students. In 2012, less than half the class had a job three months after graduation.