Antitrust & Organizational Sustainability: A Perspective on Competition and Collaboration
At the recent New Jersey Association of Independent Schools (NJAIS) Finance Officers Conference, I had the opportunity to be part of a panel titled “Doing Business in an Increasingly Competitive Marketplace.”
The discussion had two main threads. One facet considered how independent schools can be responsive to dynamic market pressures. The second thread reviewed antitrust law and was followed by a rich conversation about how schools can ensure that their employees are appropriately engaging with peers at other schools.
Reflecting on that panel, I want to highlight four important takeaways:
1. Independent schools and private colleges thrive because they exist in the free market;
2. Training about antitrust needs to extend beyond just the Head of School/President, CFO, and head of the admission function;
3. Concerns about antitrust should not deter appropriate forms of collaboration. Instead, adherence to antitrust laws should strengthen best practices informing how these organizations engage with one another and are supported by member organizations; and
4. Antitrust is not a shield that schools should hide behind to act without civility, or worse unethically.
Before we get to those points in detail, a bit of background is likely in order relative to antitrust law and its implications for independent schools and private colleges (as well as other nonprofits).
Why the Renewed Focus on Antitrust?
Antitrust has long been “on the radar” for leaders of independent school, private college, and other nonprofit. Consideration has most often been about the dangers of discussion of topics like tuition rates, financial aid packages, and the requirement to avoid price fixing in a competitive market. Yet, the implications of antitrust laws have for many years been broader. Actions by the Justice Department over the past two years brought renewed attention to the ways that antitrust law can be interpreted in the context of schools and colleges.
In January 2018 the Justice Department launched an investigation into whether the National Association for College Admission Counseling violated federal antitrust law. Last summer Debra Wilson, general counsel for the National Association of Independent Schools (NAIS) and incoming executive director of the Southern Association of Independent Schools (SAIS), published an updated legal advisory entitled, “Proceed with Caution: How Antitrust Law Affects Schools.”
With limited exceptions, antitrust laws apply to educational nonprofits as much as they apply to businesses. This wasn’t always the case, as was pointed out in a 2015 white paper published by the National Association of College and University Attorneys. When Senator John Sherman of Ohio first wrote the antitrust laws that bear his name in 1890, he quite specifically exempted schools from antitrust, noting that that the law shouldn’t apply to churches, schools or “any other kind of moral or educational associations…”
But a series of court cases over the years have changed that framework, meaning that there are certain things independent schools and universities can and can’t do when it comes to acting collaboratively. One famous case from 1991 (United States v. Brown University) involved all the Ivy League schools as well as MIT. In this situation, the government accused the schools of working together on financial aid to fix prices and raise revenue. The Ivy League schools agreed to stop the practice, but MIT kept on with the suit.
When the smoke cleared, the courts ruled that yes, colleges are subject to antitrust legislation, but that doesn’t mean this kind of activity was, in itself, unlawful. The result is a bit of a twist: colleges that admit on a need-blind basis and provide financial aid can, in fact, agree on the methods of determining need. They cannot fix prices, and they cannot agree to provide the same packages to families (effectively levelling the competitive field when it comes to cost).
This case gets to the complexity of fitting antitrust rules into the world of higher education and independent schools. Sometimes to do the best for our students we need to get together, but if that tips into providing more benefit to the schools than to the students (customers), then it likely violates the rules. A similar concern exists related to competition for employees.
The NAIS alert points out several areas that would be seen as the easiest to spot offences. These include agreements that:
· Fix prices;
· Boycott competitors, suppliers or customers;
· Divide up markets or market shares;
· Quid-pro-quo agreements that tie a purchase with another provision or service; or
· Collect and share data across institutions in ways outside the scope of allowed practices.
We will return to the last area — collecting and sharing data — below. It is particularly important relative to the need for training a broad constituency of employees about antitrust laws as schools and colleges become more facile in using data to make informed decisions.
The Importance of a Competitive Market
“The implications of a system that promotes maximum competition extend far beyond the obvious ability to collect tuition revenue from families that have financial means in the context of a capitalist society… Even the ability to commit greater resources toward an authentic institutional commitment to diversity, equity, and inclusion is underpinned by drawing upon financial resources to drive those initiatives.”
American independent schools and private colleges that are thriving do so, in part, because they exist in a competitive marketplace.
The implications of a system that promotes maximum competition extend far beyond the obvious ability to collect tuition revenue from families that have financial means in the context of a capitalist society. Philanthropic support, endowment, monetization of intellectual property, efficiencies in commerce and travel, and competitive purchasing all benefit educational nonprofits. Even the ability to commit greater resources toward an authentic institutional commitment to diversity, equity, and inclusion is underpinned by drawing upon financial resources to drive those initiatives.
Independent schools and institutions of higher education are enmeshed within society. The most financially secure of these organizations have evolved to maximize the benefit for their students as customers and for the long-term viability and health of the organization.
Recognizing these advantages and opportunities is key to contextual understanding the constraints placed on organizations and their employees through antitrust laws.
Training About Antitrust Laws
“[I]f employees and trustees are not properly trained then well-intentioned grassroots data collection initiatives are susceptible to run afoul of antitrust laws.”
Training at independent schools and private colleges around antitrust laws has typically been limited in scope, often bounded to trustee onboarding and handled informally among a relatively small number of senior administrators.
The combination of renewed antitrust scrutiny and the trend toward data-informed decision-making mandates that we rethink how organizations train employees and trustees. Price fixing has always been a hot topic. Two other areas are particularly relevant to a broader constituency.
The first area relates to what could be considered boycotting of competitors, suppliers or customers. Wilson notes, “Competitors must make significant business decisions individually rather than making them together” and avoid what the Federal Trade Commission (FTC) considers “unfair practices.” Moreover, agreements between organizations can run afoul of antitrust laws regardless of whether they are formal or informal, explicit or implicit. That fact extends the need for training because buying decisions are made diffusely across a school or university. Suppliers engage with multiple constituents from what curriculum to adopt to which database to utilize to which consultant to retain for a facility master plan. Processes in areas like due diligence in vendor selection can be successfully navigated within the permissible bounds of antitrust law, but only if decision-makers know what is expected of them.
Similarly, collection and sharing of data has become increasingly common at multiple points across the organization. As noted in Antitrust Issues Affecting Colleges and Universities:
Educational institutions often collaborate and share information with one another, be it formally or informally… Antitrust laws recognize that competition and services may sometimes be enhanced when competitors collaborate and share information… However, when competitors interact in what could be deemed “anticompetitive” activities (e.g., setting salaries or tuition rates, or collaborating to boycott certain businesses); or where interactions appear to evidence a lack of independent decision-making, antitrust concerns arise.
Both this article and the NAIS legal advisory outline ways data collection and sharing can happen appropriately within the context of a 1996 FTC statement establishing a “safety zone”: (1) data that is gathered and managed by a third party (like a trade association); (2) data that is more than three months old; and (3) data that involves at least five participants when no individual participant accounts for more than 25%, on a weighted basis, of the statistic reported and the data is aggregated such that it would not be possible to identify the data of any particular participant.
Appropriate coordination of data collection by membership organizations will address many problem areas.
But, if employees and trustees are not properly trained then well-intentioned grassroots data collection initiatives are susceptible to run afoul of antitrust laws. This is a particularly noteworthy area. Such data collection often occurs by dedicated individuals committed to improving the organization in support of students, yet such efforts are vulnerable to accidentally violating antitrust laws.
Hiding Behind Antitrust Laws
“There is no reason why antitrust law should be misused as a shield to hide behind or a weapon to wield. And in this sense, it is no different than any other law or norm in a marketplace regardless of sector.”
Two additional concerns exist about organizations adhering to antitrust laws.
One area of concern by practitioners is that organizations will overly restrict engagement between peer organizations for fear of violating antitrust laws. There is no doubt that appropriate collaboration benefits the two areas of primary focus for fair competition: customers in the form of students and their families as well as competition and compensation for employees. Overreacting to antitrust laws and restricting communication and collaboration across institutions risks hurting both of these groups.
This is a Goldilocks problem, like much about leadership more generally. Having the right engagement between members of different institutions, supported by effective third parties like membership organizations, ensures the right synergy of competition and collaboration.
The other concern involves bad actors in the marketplace. Concern exists that some organizations will hide behind antitrust laws as an excuse to act in ways that are antithetical to ethical conduct or commonly understood and appropriate best practices.
It is because of these reasons that principles of good practice, such as those implemented by NACAC and brought under the spotlight, have often been implemented. For example, it is in the best interest of families to know all of their educational choices before making an admission decision. Yet agreements around shared admission dates can take away a competitive lever for individual schools. The threat of a rogue school accelerating the release of admission decisions is an ongoing concern in these markets where such actions adversely impact potential students and their families. Hiding behind a claim of antitrust as a rationale for such action would be a misuse of the spirit and purpose of the law.
The need for others in the marketplace to address such bad actors might be inevitable. Organizations in any sector push boundaries. Such action might be the result of succumbing to the temptations brought on my financial stress or just organizations seeking a competitive advantage regardless of the repercussions. Those instances must be handled in context, on an individual basis, and with as clear of an understanding as possible about what is within the purview of antitrust law.
There is no reason why antitrust law should be misused as a shield to hide behind or a weapon to wield. And in this sense, it is no different than any other law or norm in a marketplace regardless of sector.
Yes, antitrust law is a dense subject. Yes, there are areas of legal interpretation which remain murky and gray. Antitrust law is certainly not alone in these respects. Similar dynamics exist in multiple areas for educational nonprofits.
Renewed focus on antitrust laws should be taken as an opportunity, a call to train a broader group of individuals within the organization about what is expected of them. And such efforts should be undertaken with the knowledge that the resulting competitive marketplace benefits both sustainable organizations as well as the individuals who form those educational communities as students and employees.
Author’s Note: Thank you to Debra Wilson — incoming president of the Southern Association of Independent Schools (SAIS) and longtime general counsel for the National Association of Independent Schools (NAIS) — for her perspective, wise advice, and input as I was working on this article.
Organizational Sustainability Consulting supports the efforts of leaders and board members at independent schools, colleges and universities, membership organizations, and other nonprofits. Ari’s consulting work draws upon considerable experience in nonprofit leadership and governance using a lens of mission-driven, data-informed decision making. He is a collaborative partner with demonstrated strengths in change leadership and group process. Ari combines broadly applicable nonprofit experience in areas such as governance, leadership development, fundraising, strategic planning, and branding with education-specific expertise in areas including enrollment management and integrated curricular design.