With governments across the developed countries cutting back on education spending in response to the growing crisis in the levels of sovereign debt, universities are under growing pressure to find new ways to drive revenues. Typically, they are doing this in three ways. First, they are seeking to expand their student intake beyond the domestic market by recruiting students overseas. Another is expansion into new markets. The third way is soliciting endowments from alumni, businesses and wealthy governments or benefactors.

Seeking to increase endowments is a necessary part of being a top-tier school. But you need to be careful

Peter Zemsky, Insead

At the same time, a priority for regional governments is to expand their education sector. Qatar has used endowments to attract top schools to its Education City campus, including a reported $750m to build a campus for Weill Cornell Medical College. Education City today houses eight leading international universities, including Carnegie Mellon and Texas A&M of the US, HEC Paris of France, and University College London of the UK.

Abu Dhabi also has wooed big names, including New York University (NYU) of the US, and the Sorbonne and Insead of France. NYU received an initial $50m donation from Abu Dhabi and its students are offered loan-free scholarships worth up to $62,000.

Schools seeking donors

Insead does not disclose the terms of Abu Dhabi’s endowment. Globally, the school received E135.6m ($192m) in endowments by the close of the 2009/10 academic year, “a fraction of the size of endowments for [US] business schools in our peer group”, says the school. By comparison, US university Harvard’s total endowment was estimated at $27bn last year.

Globally, Insead is committed to increasing its endowments. “It’s a necessary part of being a top-tier school,” says Peter Zemsky, professor of strategy at Insead. “It’s in the nature of the competition between top business schools to seek donor support. That said, you need to be careful. There are so many options and you need to do your research. It’s an active area of discussion for us, because so many opportunities come up.”

Pressure on schools to seek donations raises questions about social responsibility, quality, value for money and, ultimately, ethics. Nowhere are these issues under more scrutiny than in the Middle East, one of the world’s fastest growing markets for education and whose governments, private foundations and wealthy individuals are among the world’s most generous donors to education.

Does a donor government expect more than reflected prestige from an association with a top university or business school? Will it seek to control course content, influence admissions or discourage outspoken student discussions or provocative research?

“We haven’t come up against any explicit restrictions in Abu Dhabi,” says Zemsky. “There is a desire to develop research material relevant to the region and we plan to customise material to address issues that tie in with the UAE’s development goals. It’s an interesting reason to be in the region, to understand its specific management challenges. But it’s explicit that our founding principle is independence …. A top-tier business school brings a lot to the local knowledge economy. When we attract 10,000 executives a year to a campus, that exposure delivers additional benefits.”

Good partnerships can benefit both the donor and the recipient, boosting the reputation of each party.

“The business schools that have formed partnerships with regional governments or agencies include some of the world’s best schools,” says Randa Bessiso, Middle East director at the UK’s Manchester Business School. “Such partnerships may influence school operations, but not course content or curricula. When that works well, both parties enjoy success.”

Questionable funding

As education becomes a global business, financing and ethics are under the microscope like never before. In March, the director of the London School of Economics (LSE) Howard Davies resigned, after the Libyan uprising cast unflattering light on the university’s financial ties to the regime of former leader Muammar Gaddafi.

Schools must set guidelines and make clear decisions about who they are prepared to take money from

Arab management consultant

LSE had received £300,000 from the foundation set up by Gaddafi’s son Saif al-Islam, which pledged £1.5m in 2009 towards a North Africa research programme. Saif had earned his doctorate from the LSE. Now, an independent enquiry is examining relations between Libya and the LSE to set new guidelines for international donations.

A backlash had been brewing for some time. A 2009 report commissioned by the right-wing UK think-tank Centre for Social Cohesion argues that growing financial bonds between UK universities and overseas governments of colourful reputations have eroded standards and undermined academic freedoms. In the past 30 years, UK schools have accepted one-off endowments of between £150,000 and £8m. “British universities have a reputation for being among the best in the world, yet they are now effectively up for sale to the highest bidder,” concluded Robin Simcox in his study called ‘A Degree Of Influence’.

“The apparent inability of universities to implement quality control over the bodies and individuals from whom they are receiving the cash means some of the finest higher education institutes in the UK are taking money from unelected, despotic governments. Many of these regimes commit gross human rights violations, yet the universities appear to have few qualms about accepting donations from such sources.”

Arab targets

With education becoming more expensive and western governments looking to reduce their subsidies, universities and business schools are under intense pressure to make money. Targets for donations in emerging markets include Arab states for education providers.

“In the Middle East, there is an urgent need to build capacity for professional education,” says an Arab management consultant.

“Endowments are vital in making that possible. There’s no problem in principle with endowments, but universities need to think very carefully about whose money they are prepared to accept. It’s easy to say that LSE should have been more careful about taking money from the Gaddafi regime. But at the time of the donation, western powers sought closer ties with the Libyan government. At the time, the endowment was politically acceptable.

“Schools must set guidelines and make clear decisions about who they are prepared to take money from. There can be problems when donors are sensitive about political, cultural or religious issues. That can lead to arguments about freedom of expression or about the East versus West issue. It can be difficult in terms of the nuances of culture.”

Some business schools shy away from state or individual donors. “As an economist, I have to ask what is the return,” says Roy Batchelor, Dubai director of the UK’s Cass Business School. “Every time an endowment opportunity arrives, you have to look closely at its source and at the ethical issues that need to be addressed. Any new offer needs to undergo due diligence.

“But business schools are under pressure to remain solvent. The way to insulate ourselves is by diversity; by moving away from fee-only funding. Cass Business School has a base in London and is financed by fees and by UK corporate support. We are viable,” says Batchelor.

Reputation maintenance for schools

“One or two [regional] business schools are endowed locally by wealthy individuals as private equity funding and they are asked to make money for their sponsor. That’s not a model we would want. Our income sources are in the public domain,” he adds

Universities and business schools have reputations to protect and accreditation to maintain. A hard-won reputation is all too easy to lose. “Transparency is the key,” says Dan Le Clair acting executive vice-president and chief operating officer of the US business school accreditation body Association to Advance Collegiate Schools of Business (AACSB). “If schools act in a transparent manner, it reduces negative implications. Information that schools provide about their donors and relationships then becomes a tempering device.

“Allowing the public the opportunity to judge the value of a school’s brand is critical. Schools need to be as open as possible about the terms and conditions of the partnerships they enter.”

Choosing the right business model is particularly important. The past decade has seen an influx of foreign universities and business schools into the Middle East and North Africa (Mena) region, through partnerships with regional governments, educational bodies, business schools or independently.

Some schools have opened international branch campuses (IBCs) to create a physical presence in centres such as Dubai Knowledge Village or Qatar Education City. Some IBCs employ sizeable teams of local teaching staff, while others fly lecturers and supervisors in from the home campus and only employ administrative staff locally.

The earliest market entrants flew faculty out from the home campus and taught from temporary offices or hotel suites. However, countries including Bahrain plan to clamp down on fly-in, fly-out operators. Planned higher education reforms will require foreign providers to work with established, campus-based Bahraini schools and colleges.

Degree courses generate a smaller proportion of business school revenues than expected. Customised management programmes are particularly lucrative. Many top schools with no regional presence have long-standing contracts with regional governments and employers to deliver custom-built training and courses.

“Most schools adopt a three-pronged business model,” explains the Arab management consultant. “Essentially, the money-making business comes from executive programmes and short courses, particularly from programmes tailored for specific employer or government requirements.

“For most schools, short and tailored courses are the main attraction, making a significant contribution to profit. Professors like to teach these courses. The master’s degree in business administration (MBA) is a necessary evil. You cannot be a top-tier school and not offer full-time courses. The part-time Executive MBA delivers prestige and revenue.”

Joint ventures for business schools

Few of the international business schools based in the Mena region pledge total independence, offering only degree courses and resisting the call of the joint venture. One is the UK’s Hult International Business School.

“In our experience, joint ventures create more hassles than they are worth,” says Stephen Hodges, president of Hult International. “Our approach is to avoid joint ventures and retain 100 per cent control. That includes joint ventures with governments …. We have a basic belief that there is no such thing as a free lunch.

“If you accept land or money, you will find that strings are attached to something, even if that’s not clear initially. You will also face problems with accreditation if your local partner insists that you recruit a certain percentage of students locally, for example. Accreditation requires schools to maintain high standards of enrolment.

“Handouts simply aren’t sustainable. If you rely on endowments and donor contributions to stay afloat, there’s a risk that you find yourself operating at a loss when you hit an economic downturn. Governments and alumni are poorer today. Just look around Europe today. It’s clear that governments do not necessarily always have money,” he says.

With the global economy in a protracted downturn and austerity being the order of the day, the issue of funding will become of increasing importance for education providers and the number of institutions turning to the oil-rich Middle East can only be expected to increase.