Merger Causes and Consequences

In unprecedented ways, those in higher education leadership positions are now genuinely worried about both the viability of many good colleges and universities and the possibility that many of those that survive will be damaged.

The litany of problems is well-known to readers of Inside Higher Ed: declining enrollment; untenable tuition discounts; too much debt; the growing skepticism on the part of prospective students, their families and elected officials about whether the value of a college education is worth the cost; staggering amounts of deferred maintenance and decreased state support for public campuses.

In this climate, it is not surprising many college and university presidents and boards now think that merging with another institution may be their best road to fiscal sustainability if not to survival. No one I know who is contemplating such a step does so lightly. They are fully aware of the potential negative consequences for their faculty, staff, students, alumni and even local residents. There are some happy exceptions: institutions that are strong as they are but believe that a merger will bring them benefits without their sacrificing their current mission, faculty and staff.

My role as president of the University of Puget Sound in our 1993 decision to transfer our law school to Seattle University has led a number of presidents and trustees to speak to me about possible mergers. This was an important mission decision for us, which we made even though the law school was bringing us $750,000 a year in overhead. Moreover, unlike many prospective mergers today, this was one of those decisions that did indeed benefit both institutions, and one in which no one lost a job or compensation. Specifically, Seattle University agreed to honor all rank and tenure for faculty, to retain all staff and to offer comparable compensation. The law school also remained in its location in Tacoma for five years until Seattle University built a new facility, which was far more desirable than the Puget Sound location. Even so, the decision was highly contentious at the time, leading to at least one lawsuit, angry editorials and cartoons in the local newspaper, some distressed alumni and a few outraged elected officials. Today, most parties celebrate the decision.

Most of those contemplating merger today are not as fortunate in that they are generally prompted by serious concerns about whether their institution can continue to exist as it is currently constituted.

The three examples that follow are grounded in actual situations but in the interest of confidentiality, I have altered aspects of their identities. None of the institutions I discuss have retained me to help them with a possible merger.

A trustee of a small Northeastern college with a local student body confided that he and a few other trustees are in very preliminary, confidential discussions about a possible merger with an institution with a similar mission, located a mere 10 miles away. The two colleges, which have a number of cross-applicants, have not met their budgeted enrollment numbers in the past six years. Both have been spending down their endowments in order to fund ongoing operations. Both estimate that if they continue on their current paths, they will be forced to close their doors within five years, perhaps sooner. They believe that by merging and sharing back offices, they will create important economies of scale. By offering courses and majors on only one campus, they expect to reduce the size of their faculty. Although they are not actively contemplating closing one of the campuses, fearing alumni and community protests and potential legal liability, some board members want this on the table.

The president of a once-selective private faith-based college in the Midwest -- facing declining enrollments and escalating tuition discounts -- shared his fantasy: the flagship Research I university located in the same city, now turning down many qualified in-state applicants, would acquire his campus to enable the university to accept a greater numbers of applicants. His fantasy further specified that although his college would become nonsectarian, in all other ways it would be true to its current mission with the same faculty and staff offering the same curriculum. His fears: the university might not want to assume either the significant amount of deferred maintenance on his campus or its abundance of debt. He also worried that because most of his faculty colleagues did not meet the university’s more rigorous research expectations, they might not be retained. His immediate question: How might he begin to foster such conversations with the university without risking public knowledge, which he believed would inevitably damage his institution?

Finally, the president of a small private liberal arts college west of the Mississippi, which also had long enjoyed stable enrollments, indicated that her institution was “barely holding its own” in terms of enrollments and that to achieve the desired number of students it had increased the financial aid discount to 55 percent, leading to the institution’s first operating deficit. She and the president of a polytechnic university located two hours away had engaged in some preliminary conversations, conjecturing that a merger would enable them to become a comprehensive university rather than separate institutions offering a limited range of programs. Both recognized that for a merger to make sense, they would need to consolidate their programs on one campus. Understandably, both wanted their own campus to survive. Given that they could not resolve this issue, each was extremely nervous about what it would mean if these casual conversations became public. Neither had yet approached their boards.

Some institutions in the last year have gone beyond conversation and actually merged. Most notably, two colleges of fine arts have entered into merger agreements with larger universities.

• In February, George Washington University and the Corcoran College of Art + Design announced that GW would assume ownership of the Corcoran building and operate the art college, which had been struggling financially. The National Gallery of Art would acquire much of the Corcoran’s collection. A few trustees from each institution confidentially negotiated this agreement, which resolved issues ranging from the ownership of the art collection and of the facilities to the role of the college faculty within the framework of GW. In response to a lawsuit, a District of Columbia Superior Court judge on August 18 approved the merger.
• In April, the Lyme Academy College of Fine Arts and the University of New Haven (UNH) announced that Lyme would become the sixth UNH College and its first bachelor of fine arts program. An article in The Day explained that the academy will, in the words of UNH’s president Steven H. Kaplan, be “semi-autonomous” and maintain its current mission. Lyme students will have access to UNH’s liberal arts programs, its campus in Florence, Italy, its career counseling office and its library. UNH will oversee Lyme’s finances, and the UNH admissions staff will now recruit for Lyme.  UNH will also in the early years subsidize Lyme until its enrollments grow to an anticipated level that would allow Lyme to become financially self-sufficient.

In the last several years, we have also seen the emergence of TCS Education System, a nonprofit organization of five previously independent college or universities that have affiliated. Although each institution has its own board, presidents and accreditation, all the campuses are ultimately governed by a system board and a system president. Founded as a not-for-profit education system in 2009, an inspiration of Michael Horowitz, then president of the Chicago School of Professional Psychology, the system today includes the following:

• The Chicago School of Professional Psychology, which offers more than 20 degree programs and many international opportunities in psychology and related behavioral and health sciences for more than 4,000 students in Chicago, Washington,D.C. and California.
• The Santa Barbara and the Ventura Colleges of Law.
• Saybrook University in San Francisco, which focuses on humanistic studies offering advanced degrees in psychology, mind-body medicine, organizational systems, and human science.
• The Dallas Institute of Nursing, which offers an associate degree and vocational nursing programs.
• Pacific Oaks College, which offers bachelor's-completion, master's, and certificate programs in human development, counseling, education, early childhood education, and teacher credentialing on its main campus in Pasadena and satellite locations,.

What differentiates TCS from most nonprofit education systems is that it provides both a broad overarching mission that is consistent with each college’s mission and also shared services for all institutions. Approximately 150 staff members are located in TCS-space in Chicago and Irvine, California, providing support for international services, legal affairs, admissions operations, financial aid, technology, finance, marketing and human resources and institutional research. This model allows the TCS schools to offer a level and quality of support that no one institution would be able to afford.

The TCS model has several other distinctive characteristics. Most campuses are located in urban areas that provide plentiful services to students so that TCS does not need to invest in amenities. Its focus is mainly on the adult student who, on average, is a 35-year-old woman who is seeking a professional degree or is interested in completing the bachelor’s degree. Most of the TCS programs are professional graduate degrees or degree-completion programs

Not all merger attempts have been successful. For example, in recent months, four well-publicized potential mergers of educational institutions have failed.

In February, the board of Point University in Georgia, a nonsectarian institution that was previously affiliated with the Church of Christ, decided not to pursue an already-announced merger with Montreat College in North Carolina, which is affiliated with the Presbyterian Church. Montreat’s alumni, students and faculty had vehemently objected to the plan. The Point board was further discouraged by certain legal concerns having to do with the use of the Montreat campus and the composition of the board of a merged institution.

In April, a planned merger between Virginia Intermont College (VIC) and Florida’s Webber International University came unraveled, leading VIC within a month to announce that it was closing.

In early July, Scripps Research Institute announced that it was withdrawing from talks with the University of Southern California about the possibility of USC absorbing Scripps. The announced reason for the breakdown was the opposition of 10 department chairs and the dean, apparently acting with the support of the 262 Scripps faculty members who, according to Chemical & Engineering News, voted nearly unanimously to reject the leadership of Scripps president Michael Marletta.

In August the New Hampshire Institute of Art (NHIA) board, in response to student protests, agreed to reconsider its decision to merge with Southern New Hampshire University. The New Hampshire Union Leader quoted NHIA Interim President Richard Strawbridge as saying "The decision was made to slow down a little bit" but that to survive NHIA needed to increase its enrollment from its current 500 to 650 students.

Because conversations about merger often require confidentiality and because the issues involved in a merger will vary from situation to situation, it is impossible to know how many other colleges and universities have explored and then rejected merger or what the issues were. I believe, nevertheless, that the cases discussed above offer some lessons to be learned and some questions to be asked:

• Colleges and universities need to address their financial challenges, often manifest in ongoing structural deficits and unsustainably high endowment payouts, at the earliest possible moment rather than to take action only when they have little recourse other than closure or merger.
• If there is a merger between two institutions, do both campuses remain open or does one close in order to reduce operating and capital expenses?  And if one is to close, how do the negotiating boards make the decision about which one? What weight should they give to such factors as the comparative amount of deferred maintenance, which campus has the more desirable location in terms of admissions and whether one campus has a greater likelihood of being sold to another entity in order to have additional funds to support the new merged institution?
• If two campuses with low enrollments merge and one campus is closed, what reason is there to believe that students who were interested in the now-defunct campus would enroll at the new merged institution, in a different location?
• If a campus is to close, what is its board’s responsibility in terms of maintaining its legacy (as Harvard University did by creating the Radcliffe Institute for Advanced Study when Radcliffe merged into Harvard)?
• If a campus closes, what happens to its endowment, particularly restricted gifts?
• If a campus closes, how will the students from that campus be accommodated?
• Assuming that the merger is intended to create economies of scale, who decides and on what basis which faculty and staff members will be retained and who will be let go? Who decides and on what basis which programs will continue and which will be closed?
• What will happen to the boards of the merging institutions? Will they merge into a combined board or will a new board entirely be constituted? 
• What degree will graduates be given going forward? Will alumni be given the opportunity to change their degree-granting institution to the new entity?
• What name should a merged entity carry?

In addition to contemplating such questions and others, those involved in possible merger discussions would be advised to engage the best legal advice that they can from the earliest stages of conversation. They would also be advised to engage a public relations firm to help them craft their communications to both internal and  external constituencies. This would pertain to decisions ranging from those in which the institutions have an obligation to garner public opinions to those which that in all likelihood will be controversial and unpopular. Throughout the process, their chief financial officers should in an ongoing way determine the costs and benefits of each possible scenario, not only in financial terms but also in terms of what it will mean to the faculty, staff and students involved.

But most of all, although most merger discussions will be prompted by dire financial circumstances -- with the happy exceptions I note above -- all those involved in such discussions need always to recognize the genuine emotional impact on the faculty, staff, students, alumni and the local community of such a decision. They especially need to be mindful of the consequences for those faculty and staff who lose their jobs and a local community that might lose a cherished institution. Such recognition will not compensate for the genuine loss people will experience if an institution to which they have been committed in some way is either abolished or significantly altered, but we can hope that this recognition will lead those making the decision to do so as carefully and humanely as possible.