Whatever pressures corporate CFOs face today, finance chiefs at colleges and universities may have it just as bad — if not worse.
Aside from pure financial pressures, which both groups of CFOs grapple with, many of those at educational institutions find themselves in an existential battle.
Harvard Business School professor and entrepreneur Clayton Christensen predicted in 2017 that half of the some 4,000 U.S. colleges and universities would be bankrupt within 10 to 15 years. Since then, more than 150 schools have been shuttered.
According to Christensen, author of the seminal business book “The Innovator’s Dilemma” (1997), the cost-effectiveness of online learning is undermining the traditional business models in higher education.
Now, with several presidential candidates calling for free tuition at public colleges and universities and New York taking a leading role in that movement with its Excelsior Scholarship Program, private-school CFOs like Long Island University’s Christopher Fevola are squeezed tighter than ever.
The heat is on them to manage the affordability of college while continuing to provide a high-quality education. Making those goals particularly challenging is that many of today’s students will find themselves in careers that don’t yet exist. Christensen, for his part, estimated two years ago that the scenario would apply to 65% of then-current students.
“People think of higher education as a late-adopting industry that’s very culture-rich and isolated from the world around them,” Fevola tells CFO. But the shifts in the way education is offered, as well as an increasingly diverse student population, “have brought upon our industry a burning platform to change — not as a luxury, but as a necessity.”
At LIU, part of the change has been an elevation of the CFO’s role, bringing it much closer to how corporate finance chiefs function. “We’ve transformed the role of the CFO to be something that is certainly non-traditional in our industry,” says Fevola, who was promoted to his post in 2013.
In part, the transformation has been driven by his boss, university president Kimberly Cline, who formerly headed up finance for the sprawling, 64-school State University of New York system.
“She’s a fiscally minded leader — not at the expense of academic planning and vision, but she has brought an understanding of the very close, delicate balance of money and mission that educational institutions need to get on board with very quickly,” Fevola says.
With buy-in for the expanded CFO role from Cline and the university’s board of trustees, Fevola is directing initiatives in enrollment, marketing, recruiting, talent management, curriculum, signature programs, facilities, donor relations, IT, and more.
“My position is seen as the catalyst through which resource allocation and strategy are viewed as one continuum,” he says.
Fevola acknowledges that his breadth of responsibility has become the norm for CFOs in corporate America: “It really isn’t a novel concept, but it’s novel in the space we’re in. It’s a call to action for my CFO colleagues.”
Fevola’s expanded role puts him in the spotlight externally as well as internally. “Regulators and accrediting agencies alike are evaluating the value that educational institutions provide,” he says.
Regulators are invested because of the government’s financial stake in higher education. About 85% of LIU’s revenue comes from tuition, and 60% of that comes from the federal government, according to Fevola.
Like its five peer organizations around the country, the accrediting agency for LIU, the Middle States Commission on Higher Education, ran what was for many years “pretty much a rubber-stamp process,” he says. Now, though, accrediting agencies are under much greater pressure from government and taxpayers to more tightly scrutinize schools’ products and performance.
What are regulators and agencies looking at? For one, there’s the speed with which students are graduated. “If it’s taking eight years to graduate them at a particular institution,” Fevola explains, “is it really the best use of tax dollars to allow it to participate in federal scholarship programs?”
Also in the spotlight are student retention rates, employment and career-placement rates, academic quality, and cost control, among others.
The CFO’s response has been to operationalize such metrics — in other words, “shift the paradigm from measuring these things once a year in order to please an external [entity] to having the measurement assessment be part of the fabric of the institution and our strategic plan.”
That also helps with credit ratings. When it’s time for Standard & Poor’s and Moody’s to do their annual reviews, “we’ve done much of their work for them before they get here,” Fevola says. LIU’s credit rating has been upgraded four years in a row.
There seems to be no aspect of the university’s business or culture that the finance chief does not interface with. He’s very involved in recruiting and talent evaluation — not just for faculty, but also recruiters and admissions/enrollment staff.
The task of recruiting students has gotten tougher, with the international student population dwindling because of changing immigration laws. So LIU, which historically drew 95% of its students from the New York metropolitan area, has mounted a national campaign led by Fevola.
He also plays a big role in dealing with the media, the board of trustees, and students “in a very dynamic and non-traditional way.”
Of course, the traditional responsibilities of a university CFO, including capital allocation and financial statements, haven’t gone away. How can he address all of the new priorities without sacrificing the quality of those?
“A lot of it comes from being empowered by the executive sponsorship above me,” Fevola says. “I’ve also opened up a lot of that capacity by developing information systems that don’t generate just transactional data but also data upon which business decisions can be made — very much like what’s happened in the corporate space.”
He’s also become better at “saying no, which educational institutions are typically not very good at.” That means both declining to fund unworthy proposed programs and eliminating ineffective existing ones.
With the role of CFOs at universities coming into closer alignment with that of corporate CFOs, is it inevitable that some of the latter will join them?
Yes, says Fevola, who has spent most of his career in education but also worked for a time at Bear Stearns and JPMorgan. Even financial accounting standards at educational institutions much more closely mirror corporate financial statements than they used to, he says.
At the same time, that opportunity may be held in check if the predicted demise of so many colleges and universities comes to pass.
Fevola, for his part, believes institutions that recognize the peril they’re in and take strong action will be able to survive.
“It takes a change in leadership mindset,” he says. “The elite schools likely will continue to get their share of students. But rather than just accepting our place on the higher-education totem pole, we realized that in order to be spoken about like NYU and Columbia and Syracuse, we had to perform like them and to build a business measurement process to get there.”