Why universities should (not) be run like a business

There is an insightful post by Iain Pears over at Future Thoughts discussing the extent to which universities are, or are not, like a business, and identifying areas where university administrators, in spite of their paying lip service to the business model, have in fact much to learn from best business practices:

the current problems are arising not because university management is efficient, but because it is not. 

The proximate occasion of the post is the bone-headed restructuring plan at King's College London, but the considerations in the post seem uncannily apt for the situation at UC.

First off, it is clear that universities are not at all like businesses. At least in theory, but often in practice as well, there are all sorts of checks and balances on the way a public company is run: CEO's answer to the board and its Chairman, who in turn answer to the shareholders. Disclosure requirements, such as  10-K forms filed with the SEC, and competitive pressure protect shareholders and their interests. If Management screws up, share values go down, and shareholders have the power to take corrective measures. None of this happens in the case of universities: not-being driven by profit, there is no immediate way to measure their performance, and their boards do not answer to any vested outsiders:

The problem with importing managerial techniques into universities – and into the public sector generally – is that it has centralised authority along business lines, but has not at the same time imported the checks which monitor performance and the balances to control managerial power. The result has been conditions which are a gift to the mediocre.

It is not unexpected, then, that university administrators, fancying themselves "masters of the universe," but without external checks, would implement a skewed set of priorities.  This is true at UC as it is at KCL.

The author at Future Thoughts identifies four areas where KCL has adopted policies that call into questions the quality of its managers. It's not a little unsettling to realize that very similar considerations apply at UC:

1. Ballooning administrative costs: in well-run businesses, the proportion of administrative costs is supposed to drop relative to revenue as companies expand, resulting in administrative efficiencies and improved bottom line. Adminstrative bloat at UC has come at the cost of teaching, service, and research (which are the constitutionally mandated function of the institution).
2. Heavy expansion of debt to fund an ambitious development programme. This is all to familiar: judging by the priorities implemented by the administration, UC seems more interested in funding capital projects by floating bonds on the securities market than maintaining the quality that has characterized it for so long. In a private company, capital investment leads to lower unit costs and higher revenue. University capital investments would be justified if they cut overhead by more than what they cost. It is difficult to make the case that this is happening at UC (see the Cal Stadium retrofitting, for instance). Otherwise,
   
   
   

   Such programmes are more likely to be a burden on the balance sheet, transfer money to debt payments away from core functions, without offering matching efficiency gains. They are precisely the sort of expenditure which should be put on hold at the first sign of trouble.

3. Mishandling of personnel. KCL does not have the shared governance tradition of UC, but in both cases the administration has shown blatant disregard of faculty input (we won't forget the Pitts memo, although Pitts may wish we did). As a result, the system-wide Senate has lost much of its credibility as a vehicle for the voice of the faculty: where the Senate has not gone along with whatever scheme was being hatched in Oakland, their voice has been feeble and timid. 
4.  Failure to guard the university's reputation. Here again, UC's reputation as the premier public system of higher education in the world has been tattered. This is of course, not just the University's doing. Years of neglect and dwindling state resources are the primary culprit. But for just as many years UC leaders (the Regents, UCOP, and the Academic Senate) have been whistling in the dark, pretending that it was just another cyclic drop.

Universities are not like business, true, but require the same qualities from their managers as successful businesses do: vision, leadership, intelligence, respect, adaptability to different circumstances and the particular nature of the organization, all in the service of the "bottom line:" teaching, service, and research.

UC students and faculty, their families, as well as the people of California and the companies that want to do business in the state — these are the shareholders of the university who should finally hold the institution accountable.