Black Swan & Thin Ice: How Colleges & Independent Schools Can Survive the COVID-19 Pandemic

An empty scene of Times Square in New York City, Image Credit: AP

There is no precedent for today’s reality. This is not normal. It is not the new normal.

As a country, we are stuck. We are stuck physically as we social distance in a collective effort to flatten the COVID-19 hospitalization curve and stuck strategically as we are unable to move forward without a clear picture of what the next few months will bring.

As scary as this moment is for those entrusted with stewardship, flailing around will only cause your organization to sink faster.

We are stuck, but we must not be frozen. Like finding yourself in quicksand, leaders must navigate their organizations out of harm’s way by being intentional, savvy, and using the tools available to them. As scary as this moment is for those entrusted with stewardship, flailing around will only cause your organization to sink faster.

Two Fundamental Questions

This is a crucial period in the COVID-19 pandemic for the leaders and board members of colleges and independent schools. Now that the initial shock has subsided and the transition from on-campus to remote learning has begun, we can look forward.

Two questions are fundamental to those charged with stewarding colleges and independent schools:
1. How does our college/school survive?
2. Once the time is right, how do we begin to claw our way back toward a thriving educational community?

Framing the Challenge

A Black Swan?

To begin to answer these questions, it helps to understand (as best as possible) the moment we find ourselves in.

There are heated debates about whether the COVID-19 pandemic meets the conditions of what author Nassim Nicolas Taleb calls a Black Swan, an economic event that is rare, not reasonably foreseen, and brings catastrophic impact.

The COVID-19 pandemic is also a compounding event similar to what happened in Fukushima, in which three related disasters occured in quick succession — first an earthquake, then a tsunami, and, finally, a nuclear meltdown. Each would have been devastating on its own. The combination was catastrophic.

It is the compounding of factors which leads many economists to predict that the impact of COVID-19 will far exceed the Great Recession. Today we are facing the upheaval of a novel disease spreading around the world triggering physical distancing and then the compounding economic quagmire. Only a partial list of impacts includes plummeting consumer confidence, free-falling stock markets and oil prices (exacerbated by conflict between OPEC and Russia), gutting of the travel sector, closing of non-essential businesses, the global supply chain grinding to a halt, and historic spike of unemployment. In case that list isn’t daunting enough, The Economist is tracking the economic impact of COVID-19 in real time.

It is easy to suggest that no one would have imagined the chain reaction in Fukushima just as no one could have predicted the COVID-19 pandemic. But a nuclear reactor sitting near a body of saltwater in a region vulnerable to tsunami-producing earthquakes is precisely the kind of situation-specific risk that should be addressed during crisis tabletop exercises. As I wrote in late January, many colleges and independent schools created pandemic emergency plans more than a decade ago as the threat of H1N1 rose. Only a small percentage of educational administrators are still in the same roles, or even at the same institution, as when H1N1 planning occurred. Almost all of us failed to understand the scope of impact on daily life or the risk of future infection spikes. Those organizations that recognized the need to renew pandemic crisis planning in earnest and also had a framework from which to draw found themselves in a better position even as the scope of the pandemic swelled like a tsunami wave coming ashore.

Debate about if the COVID-19 pandemic should be labeled a black swan can wait. What is undeniable is that the scope and pace of economic damage is unprecedented.

Len Keifer, Deputy Chief Economist at Freddie Mac, offered one of the most striking visualizations in his time lapse graph of U.S. Weekly Initial Jobless Claims.

Lessons from the Great Recession

I conducted my doctoral research on the financial and organizational sustainability of independent schools during the 2007–2009 recession. My dissertation focused on Friends (Quaker) schools that were at least twenty-five years old in 1929 at the start of the Depression. It sought to understand how robust and well-resourced educational institutions were confronting a new set of emerging challenges. In the years since, I’ve continued to ask similar questions for a broader range of independent schools and private colleges, nonprofits more generally, and most recently mission-driven private sector companies.

The Great Recession was painful for just about everyone and every educational institution. How this pain manifested depended on the particulars.

The expression “where you sit is where you stand” well described that period. One takeaway from the 2007–2009 recession was that the health of the organization entering the crisis dramatically impacted how the college or independent school experienced those years. The Great Recession was painful for just about everyone and every educational institution. How this pain manifested depended on the particulars.

In turn, the manner in which leaders and boards reacted to the particular challenges they faced led some educational institutions to emerge from The Great Recession in an upward spiral. These leaders, or in most cases their successors, built on this momentum and then continued to accelerate progress through arguably the strongest ten-year economic period in our country’s history.

In contrast, numerous colleges and independent schools limped out of the Great Recession and slipped into a downward spiral. Those institutions have spent most of the last decade struggling to survive. They entered the COVID-19 pandemic on thin ice just as the ground beneath all of us started to shake.

This moment is also different. That is both better and worse. Many of us will focus on the negative aspect of that comparison. On the positive side, lessons learned from the Great Recession have led to quick action by the Federal Reserve. These steps have thus far avoided the liquidity fears caused when banks failed. There is no imminent indication of repeating the panic-filled days when financially healthy colleges and independent schools feared not being able to make payroll because the Commonfund was suddenly frozen.

The Viability-Stability-Sustainability Spectrum

Two questions are fundamental to those charged with stewarding colleges and independent schools:
1. How does our college/school survive?
2. Once the time is right, how do we begin to claw our way back toward a thriving educational community?

An organization cannot thrive if it cannot survive. College presidents, heads of school, and boards of trustees can’t work to ensure an educational community will flourish in a century, or even a decade, if the viability of the organization is in question over the next three, six, or twelve months.

Therefore, the necessary starting point in answering our two crucial questions posed above is determining where a college or independent school finds itself today along the viability-stability-sustainability spectrum. This location is defined by how healthy the institution was entering the pandemic. In turn, the position helps define the lens through which the leadership team and board of trustees must frame their collective efforts.

The journey toward the other side of the pandemic begins with an accurate assessment of where the college or independent school finds itself today on the Viability-Stability-Sustainability Spectrum.

Be Optimistic, But Check False Optimism at the Door

We’re optimistic people. Otherwise, why would we spend our lives working to teach the next generation? We live on the hope that if we give students the right tools and the right education, they can go off to do great things. It’s why we wake up every morning.

It is difficult for leaders and board members to be honest with themselves about the health and viability of an organization they care deeply about, but that is a necessity for those committed to organizational stewardship.

To approach this problem, you need to hold blind optimism in check and take a critical look at your own situation. Beware. Faith in oneself and in the educational institution you care so much about is tempting. Here are five suggestions to avoid the seduction of false optimism.

Acknowledging the Unknown

It goes without saying that the future is unknown. Before diving into the details of steps colleges and universities can take, it is worthwhile to take a moment to highlight how wide the universe of possibilities really is right now. McKinsey & Company just released a higher education report this week. The analysis included three very different timeline scenarios for recovery: face-to-face instruction resumes in fall 2020, January 2021, and as late as fall 2021.

McKinsey & Company COVID-19 Higher Education Report, April 2020
Three timelines analyzed in the McKinsey & Company COVID-19 Higher Education Report, April 2020

When considering such a report, it is worthwhile to note that independent schools can glean insights from higher education. Less often discussed is that the converse analysis is also fruitful, especially for small private colleges. These parallels are even more useful when segmenting residential colleges with boarding schools or commuter colleges with day schools. Endowment per student, debt ratio, and other key performance indicators help identify points of comparison similar to the pairing technique Jim Collins used in his seminal work “Good to Great.”

Productively Getting into the Weeds

In the next two sections, I will introduce approaches to help you locate where your institution stands at this moment and which lens to use to make decisions about next steps during the COVID-19 pandemic.

Mission-Driven, Community-Centered, Data-Informed Decision Making

The business world talks about data-driven decision making. Not only is that a bit too cold and calculating for an educational environment, but it completely misses the point of being a mission-driven organization.

For almost fifteen years, I have been relentlessly (possibly incessantly) promoting the concept of mission-driven, data-informed decision making.

Kelsey Vrooman, CEO of Actionable Institutional Research & Data, has convinced me that this set of lenses is missing a critical component.

Over the past two weeks, Kelsey and I have co-facilitated “Navigating the COVID-19 Independent School Financial Crisis” webinars for more than 450 heads of school and CFOs. These sessions — hosted by the Southern Association of Independent Schools (SAIS), New Jersey Association of Independent Schools (NJAIS), Delaware Valley Association of Independent Schools (ADVIS), and New York State Association of Independent Schools (NYSAIS)—framed the challenging decisions leaders and boards will face in the weeks and months ahead. We also introduce an example of a financial model and demonstrate how creating and refining such a tool can inform the decision making process.

Drawing on her previous professional experience working on the National Association of Independent School’s Jobs to be Done research project, Kelsey suggested the addition of a “community-centered” lens to focus our decision making framework.

Every educational institution is imbued with a soul that must be maintained. That’s why you need to ask whether a potential action:

1. Aligns with your organization’s mission and values;
2. Addresses the underlying needs and anxieties of the community; and is
3. Supported by the available data.

Remember, you are more than just a leader or trustee, you’re an institutional steward. The weight of that responsibility coupled with the use of a mission-driven, community-centered, and data-informed lens will help you collaborate with others to make the best decisions possible in service to the institution and its community members.

Financial Modeling & Stress Testing Decisions

You have located yourself on the viability-stability-sustainability spectrum, identified the right lens to use, and gained what contextual insight you can about the pandemic. What’s next?

There are five steps ahead.

  1. Define what key performance indicators (KPIs) are most critical.
  2. Build a financial model.
  3. Discern the best possible options in collaboration with others.
  4. Stress test your hypotheses and your tentative paths forward using the financial model while considering both the KPIs and the organizational dynamics’ implications of those decisions.
  5. Execute, refine, and communicate exceptionally well.

The financial models must be adequately accessible, accurate, and precise to be useful. It is important to note that these models are not exercises in GAAP accounting methodology. Here is a primer about accuracy and precision for those who need a refresher:

Financial models allow us to visualize the interplay of factors impacting the school’s bottom line. They also allow leaders and trustees to understand the range of variation for potential outcomes given differing assumptions. Both aspects of modeling are important when one is trying to understand the impact of such large disruption in the marketplace and the broader economy.

Returning to McKinsey & Company’s three timeline scenarios, we don’t know how long the pandemic will force systemic changes to the core operations of colleges and independent schools. We may not go back to the way things were, but there will be a new “new normal” in our future. That landscape almost certainly involves the ability to deliver remote education in a way that is better than “not awful,” but beyond that the picture remains unclear.

People — real, live human beings — are at the center of decision making for an educational institution. When the Great Recession hit, college presidents and heads of school did everything they could to avoid cutting salaries and personnel while also increasing emergency financial aid. Many presidents and heads of school were the first to take pay cuts before suspending retirement contributions, freezing salaries and operating budgets, and reducing headcount. Board members stepped forward to make gifts to support key initiatives even though they may have been liquidating their own assets at a deep loss.

Mark Mitchell, Vice President at the National Association of Independent Schools (NAIS), noted during a recent episode of The Enrollment Spectrum Podcast that during the 2008 crisis NAIS member schools saw a dramatic shift in financial aid metrics. He noted that the number of financial aid application rose 16.7% and the number of students receiving aid increased 17.8%. The average financial aid award increased 21%. This increase was particularly noteworthy. The average award increased even as many full-pay families applied for and received small financial aid grants.

As we saw in the Great Recession, deferment of retirements will likely compound these challenges. There will almost certainly be an overall increase in total compensation obligation as the most experienced members of our professional communities remain in their roles for several additional years.

Where do you begin in considering the multitude of factors? To help independent schools struggling with the financial and organizational sustainability challenges of the COVID-19 pandemic, Organizational Sustainability Consulting is collaborating with Actionable Institutional Research & Data. Our two firms are offering a combination of financial modeling and consulting to leadership teams and boards of trustees. We recognize that not all independent schools have the internal funding or philanthropic board support necessary to benefit from external consulting expertise. We have developed this COVID-19 Financial Sustainability Tips Sheet to assist schools.

Sadness, Mourning, and Hope for the Future

If we are face-to-face with a black swan, there will be a day in the future when it finally flies away. The effects will linger.

When that happens, we will find that there is much grieving still to do. As occurred around New York City after 9–11, educational communities will be personally touched by loss. This time the grief will be felt on a global scale rather than isolated in one part of the country. Other community members will survive but suffer from the physical effects of not fully recovering. Families that owned thriving businesses will be forced to file for bankruptcy. Parents will struggle with unemployment. The surging rates of mental health concerns in both K-12 and higher education in recent years will be exacerbated by all of these factors and the ongoing threat of another wave of infections as people begin to venture out again.

All of these facets will play out on an institutional level as well. Some colleges and independent schools may be able to merge with peers. Many won’t survive despite the most diligent efforts of their leaders and board members.

There will also be stories of hope and examples of the upward spiral that led numerous colleges and independent schools to end FY18–19 as the strongest year in their history. We are already seeing pockets of innovation not only in remote learning but in rethinking the once unmovable building blocks of the academic calendar.

I am looking forward to hearing stories and reading case studies of those who seize upon this moment of sorrow, loss, and disorientation to drive mission-driven, community-centered, and data-informed change.

Dr. Ari Betof is the founder and president of Organizational Sustainability Consulting (OSC). He is a nationally recognized expert in independent school organizational stewardship and financial sustainability. Ari has served as an independent school trustee, head, administrator, and faculty member as well as a lecturer in University of Pennsylvania’s PennGSE mid-career doctoral program in educational leadership.

Ari’s consulting work draws upon fifteen years of leadership and governance experience building sustainable organizations and maximizing mission-aligned revenue growth. His facility with organizational effectiveness, group dynamics, and crisis management is paired with his proven track record of cultivating high-impact change. Ari brings together strategy, analysis, and strategic planning with a nuanced understanding of fundraising, enrollment management and branding in support of his clients. He is adept at facilitating group process with diverse sets of stakeholders. Ari is an agile, savvy, and emotionally intelligent partner who builds trusting relationships, achieves results, develops others, and creates scalable systems.

Contact us to learn more about how OSC is collaborating with Actionable Institutional Research & Data to support organizations during the COVID-19 pandemic with integrated consulting and financial modeling.