These days, a degree in Middle Eastern studies might be useful at colleges, but graduates of business schools are far more valuable. Amid the final tests and commencements, universities are struggling with violent fights over Israel and Gaza. The protests are primarily motivated by money, and they are also putting much more money in higher education at risk. A business model exists for diffusing activists, but campuses serve a much broader range of constituents.
Students at Columbia University locked themselves inside a building this week in just one of many recent instances in an effort to pressure the Ivy League school to remove its financial holdings in Israeli businesses. The immediate peril for students has passed; the one for university finances has just begun.
The framework of the college gets increasingly corporate-like as it grows in size. The clients, who bring in large sums of money, are the students and their parents, who pay upwards of $90,000 annually for books, lodging, food, and tuition. Professors and other staff members assist in churning out alumni from the manufacturing floor. Meanwhile, huge cheques are written by powerful and wealthy contributors to finance capital projects, research and development, and investment. Michael Bloomberg, for example, is a media billionaire who gifted Johns Hopkins University $1.8 billion.
Any CEO who has been targeted by an activist investor knows that aggressive disruptions place finances in danger. Enrollment fell for years at Kent State after the 1970 anti-war demonstrations that claimed the lives of four students. Ten years later, the tragedy was attributed to attenuated financial problems by one of the deans at the time.
It also unsettles other supporters. Due to the University of Pennsylvania's president's indecision about how to handle student demonstrations, affluent benefactors, like buyout baron Marc Rowan, who leads Apollo Global Management, threatened to cease funding the school late last year and urged other graduates to follow suit. Robert Kraft, the owner of the New England Patriots, stopped supporting Columbia last week.
Employees are obviously agitated as well. Law Professor John Mitts of Columbia described the demonstration as "mob violence." In addition, academics at the University of California, Los Angeles and the University of Texas, where students are participating in a protest, have expressed their opinions.
The various reactions can be explained by different business concepts. For instance, less than 25% of Harvard University's revenue came from tuition last year. At Columbia, it bears half of the responsibility. Because both are sufficiently selective, there would still be a large pool of applicants even in the unlikely scenario that the number of applications dropped. If families start to complain about campus policies or oversight and start looking for degrees elsewhere, then not every institution can make the same claim. Colleges have a long list of donors as well, but they rely largely on the wealthiest of them, who consequently have overwhelming influence.
Just as it has become more difficult for businesses to satisfy stakeholders other than investors, balancing these competing groups is becoming more difficult. The governor of Florida put pressure on Walt Disney due to disagreements over LGBTQ+ policies, endangering the company's ability to run its theme parks. Ten trillion-dollar asset manager BlackRock has also seen outflows as a result of state treasurers' disagreements over Boss Larry Fink's investing strategies, including climate change.
It's not shocking, then, that some colleges are adopting the business strategy to crush criticism. After promising to listen to their concerns and take divestitures into consideration, Brown University successfully urged students to take down their tent camps. It is analogous to how businesses gradually give in when confronted with gregarious investors, such as Elliott Management.
The problem is that various mandates apply to different colleges. Businesses adhere to a well-defined duty to their shareholders, but academic institutions struggle with a more complex mission statement. Stakeholder capitalism in higher education is therefore far more difficult to control. Universities are now receiving a crash course that highlights how much they need to learn.