As Rahm Emanuel, White House chief of staff, said in The New York Times recently, “Never waste a crisis.”
Escaping “A Heritage of Tradition”
In an episode of “The Simpsons,” a fictional private school proudly displays its motto on the front gates: “A Heritage of Tradition.” This satiric motto pokes fun at the pomposity and backward-looking orientation that much of the general public associates with independent schools. Given that independent schools serve only about one percent of the population of school-age children, it is not a big surprise that many of our strengths are misunderstood. The truth is that, among other things, independent schools are often more diverse and representative, more challenging, and more attentive to student needs than our public and parochial school counterparts. However, they are also among the most change-resistant institutions — and this resistance is often explained by our deference to tradition. While there is great strength in having a long track record, schools sometimes hide behind tradition in order to avoid change, avoid hard truths, avoid external realities, and avoid recognizing the need to employ the pedagogies and programming supported by current research in teaching and learning.Why is change so hard in schools? There are many reasons, but the most significant is the cognitive dissonance that change generates within the school’s highly relationship-oriented community. The cultural currency of independent schools is relationship building. The mere suggestion of change in the curriculum or teaching methods or use of time is often viewed by teachers as a repudiation of all that they hold dear, an affront to their entire history and purpose. Also connected to every program any independent school offers are students, parents, and alumni who consider that program dear to them, too.
Sharpen Organizational Acuity
Unlike public schools that have to manage personnel through collective bargaining agreements and union stewards, independent schools have the organizational freedom to expect excellence from faculty, administrators, and staff, and to remove those people who do not live up to that standard. This freedom is one of the significant differentiators for independent schools and one of the primary justifications for our high tuitions. In every survey of parents asking what they value in a school, “high quality teachers” is always among the top three factors. The quality of the people is what sets independent schools apart.
Given the dips in endowments, increases in demand for financial aid, and, in some cases, a drop in admission demand, many schools will be forced to downsize their personnel. To become more affordable, schools will have to change their expense structures — and, in independent schools, the largest expense, by far, is personnel. While most schools are already attacking aggressively the non-personnel expenses, it will follow for many schools that the personnel costs will need to go down. For cultural reasons noted earlier, it is hard for schools to change and even harder for them to make personnel cuts. Because of this reluctance, many schools have some number of marginal performers. For the long-term health of the institution, school heads must have the courage and discipline to first downsize the non-performing personnel. The remaining stronger personnel will result in a new, higher performance norm for the school, benefiting the students, the admission office, and the recruitment of future talent. Today’s crisis provides the latitude and impetus to make hard personnel choices that simply would not have been tolerated in different circumstances. If done incrementally and thoughtfully, the result should be a stronger, more efficient school. Schools that choose some metric other than performance for the rationale for staff reduction will likely pay a steep price.
You Can’t Shrink to Greatness
In a board discussion about how to move my school’s strategic direction forward while trying to become a more efficient, affordable school, the dialogue moved toward the idea of halting most of the new programming growth that was called for by our relatively new strategic plan. After all, we probably cannot afford any program growth in this kind of financial market… right? Yet, one of our trustees, after listening to the various suggestions and proposals, wisely interjected, “While we do need to make some hard choices now, I’ve never seen an organization shrink its way to greatness.” The discussion ended with a reaffirmation of the strategic direction of the school and dedication to some limited program growth to accomplish those goals, accompanied by sunsetting or diminishing some programming that no longer aligns as well with the school’s strategic plan. We decided that, to be true to our mission and to make a compelling case to prospective families, it would be necessary to play both offense and defense during this financial crisis. Schools are skilled at expansion, but not so proficient at deletion. This crisis calls for both.
Given that tuition revenue and enrollment demand are the single largest determinants of financial health for most independent schools, we will not be able to simply hunker down and become slimmer, smaller versions doing a little less of the same. In this brutal economy, people will only pay for what appears to be true excellence, and that kind of excellence is only possible if we are willing to evolve while holding our total costs down. To justify our tuitions, we will need to demonstrate excellence, uniqueness, and currency.
As your school considers implementing new programming that moves your mission forward, ask this question: Will this program be successful and meaningful enough to current and prospective students to create enough additional enrollment demand and philanthropic support to pay for itself? If a new program is a real differentiator for a school or a significant enrollment draw, the cost of not doing the new programming may be greater than the cost of implementation. While many a school has overestimated the potential impact of new programming or a new building, when administrators and board members become exceptionally cautious in trying times, we do run the risk of starving our golden goose: enrollment demand.
Capacity as a Resource
There are two good reasons — mission and money — to make sure your school opens every fall with each space filled. If you believe that the mission of your school results in dramatic improvement in the lives of children, then it is wrong not to do everything in your power to make certain those opportunities are not wasted. If you want to make your school excellent, affordable, and efficient, it is important to capture as much marginal revenue as possible with unused capacity.
Financial aid is not real money. If you doubt this claim, ask the business manager how long it takes to write all those checks to financial aid families.We “spend” no money on financial aid. Financial aid is a discount on revenue, the cost of which is simply an opportunity cost. In other words, if the school has deep wait-lists with full-paying students, the cost of financial aid is real, given that the school could have enrolled a full-paying student in place of the financial aid student. However, many independent schools have unused spaces, and in our current economy this is only going to become more true. In those schools with unused capacity, the only cost of adding a student on financial aid is the small marginal cost of lunch, school supplies, etc. (for boarding schools, add dorm room operational costs). Even in schools that are currently at capacity, there is an opportunity to add a few students per grade level, thus growing class size slightly, but making the per-pupil operational cost more efficient, providing the opportunity to, in effect, become less expensive without lowering the listed tuition. As a matter of fact, without this revenue from families on financial aid, many schools would find themselves in dire financial straits. As counterintuitive as it may seem, the most fiscally responsible thing for many schools to do might be to increase financial aid.
Although there are instances when a drop in enrollment below capacity calls for a reduction of staff and numbers of class sections, in most cases the economic principle of Economy of Scale does not work backwards. An enrollment deficit of just a few students in each section does not easily allow for a reduction of personnel, although being just a few enrollments short in each section could create a large total shortfall in tuition revenue. Reducing staffing by a handful of employees rarely makes up for the tuition shortfall in situations like this. However, if schools are creative in the way they communicate and implement a tuition reduction (need-based aid, tuition remission for employees’ families, merit aid), they can keep those spaces filled with students paying some portion of the tuition and likely maintain their admission standards in the process. Schools that try to remain full by lowering their admission standards are in serious jeopardy of starting a “death spiral” that looks like this: lower admission standards lead to a decrease in current family satisfaction, which leads to an increase in negative “word of mouth” advertising for your school, which leads to lower enrollment demand, which leads to even lower admission standards. Increasing the tuition discount to remain full helps to avoid this fate while generating appropriate students and some marginal revenue. Also, schools operating closer to their designed size provide broader social opportunities for students, allow for richer co-curricular offerings, field better sports teams, and offer a sense of greater institutional confidence.
This current financial crisis is likely to require schools to look at students receiving financial aid as potential revenue sources, not as costs, which in the long run will be good for our schools and our industry. Colleges figured this out decades ago.
Values Matter Again
Independent schools are good at academic preparation. In fact, the measurable data suggests that we are the leaders in PS–12 education in the United States, ahead of parochial, charter, and public options. While a good deal of the “value added” we offer families to justify our extraordinarily high tuitions is academic preparation, many of our schools, in fact, add greater value in an other area, one that just may become more in vogue during this crisis: the development of character. Within the founding narratives and missions of most independent schools is an explicit call to help students develop values and character. While the perception of the public may be that parochial schools can lay claim to greater focus on shared values and the development of character, in practice, that is clearly not the case. If you believe the primary way that children learn to become “good” is through the mentoring and examples of their parents, teachers, and peers, then independent schools are every bit as well positioned to do this important work. We have small classes and smaller school communities, and we devote a significant part of our programming to co-curricular activities, where students have the opportunities to know deeply adults other than their parents. Many of our schools were founded with a greater commitment to who a student will become rather than what a student will “know.”
In a world that is growing in complexity at what feels like an exponential rate, basic values and character become the most important foundation for future happiness and success. During times of economic strife, there is a greater shared focus on our collective humanity. The success of independent schools in helping students, “find their better selves,” as my school’s motto prescribes, should not be underestimated. As the tales of greed and avarice that helped create our current crisis permeate the collective consciousness, our focus on character development, in addition to achievement, will resonate with prospective families.
Independent schools of many sizes and orientations survived the Great Depression and many economic downturns since. The best of them evolved wisely, having made shrewd decisions during tough times that allowed them to prosper when better times returned. While this current crisis is more challenge than opportunity, our willingness to break from tradition, make hard personnel choices, introduce differentiating new programming, creatively use our enrollment capacity, and return to our salient commitment to character development should allow us to survive now and thrive later.
