Wall Street defeated by Ivory Tower in Virginia

June 27, 2012

By Martin Hutchinson and Megan Miller
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Wall Street’s latest defeat has taken place far from the canyons of downtown Manhattan on the Palladian campus of the University of Virginia, and by an unlikely adversary – the ivory tower. The school founded by Thomas Jefferson reinstated Teresa Sullivan as president on Tuesday, overturning an ouster supported by hedge fund titan Paul Tudor Jones and former Goldman Sachs executive Peter Kiernan. But victory may be pyrrhic. For UVA to thrive in a bleaker fiscal world, the paradigm shifts Sullivan resisted look unavoidable.

The well-respected academic sociologist was appointed two years ago. She is liked by faculty and students, but her fundraising expertise proved limited. Most major fundraising has been done by wealthy business school alums, like Tudor Investment’s Jones. The Board of Visitors’ decision to replace Sullivan by the dean of the McIntire School of Commerce, Carl Zeithaml, reflected his appeal as a vigorous fundraiser for McIntire’s new $58 million building.

Strategically, Sullivan has fought for higher salaries for professors, who are paid less than at Ivy League schools or at some other top state schools, and has opposed any rapid move toward online education. Her incremental approach was diametrically opposed to the board’s managerial style; she explicitly said that corporate-style, top-down leadership doesn’t work in a great university, sustained change does.

While nominally a state school, UVA gets only 5.6 percent of its funding from the state, a proportion that has declined recently and is lower than elsewhere. Fees to students have increased faster than inflation, and the gap has been filled by a capital-raising effort, which has raised the school’s endowment to $5.3 billion, more than twice its annual budget.

Sullivan’s opponents wanted a more aggressive approach to bringing in cash, and a paradigm shift toward online education, which could potentially reduce costs substantially, or allow the university to increase enrollment, as the state wants. Given the fiscal difficulties of U.S. state governments and students themselves, such moves seem inevitable.

Trouble is, the board’s attempt to displace Sullivan, conducted in private and without the knowledge of the school’s faculty departments, was poorly executed and ran against the university’s consensual tradition of decision-making. As a result, her reinstatement represents a triumph for the existing culture. Today’s students may applaud the move, but without substantial change, their children may blame them for complacency.

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The University of Virginia has a 5 billion dollar endowment. Given this recent decision to reinstate Sullivan, it had better be prepared to tap into it.

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