The Ivory Tower and the Boardroom: The University as an Organizational Laboratory

Introduction:

Honoured Guests, Head Table guests, Members of The Empire Club, ladies and gentlemen.

Officer of the Order Of Canada, graduate of the Universities of Toronto and Harvard, Member of the Bar of Ontario, honourary doctorates from Sherbrooke and Brock Universities and the Law Society of Upper Canada--Harry Arthurs has so many honours and awards it seems irreverent to call him "Harry".

But, where the law once was, it is no longer his career. He is now the President of one of Canada's fine universities. So the books he has written about the law, his monographs and case books can sit aside while he pursues excellence in another field.

His change in careers brings to mind the comment made by a former Lord Chancellor of Great Britain. "I really went to the Bar", he said, because I thought it would be easier to go to the stage after failing at the Bar, than to go to the Bar after failing on the stage.

His Lordship's motives aside, Harry Arthur's change, I'm sure, was inspired by thoughts of success. He has been a professor of law at Osgoode

Law School for more than 20 years, and was Dean of the School for five years. When he left Osgoode, he was Administrative Law Professor. He has been a leader on the path of excellence through teaching and administration. It has been recognized and rewarded by his country and his peers.

Ladies and gentlemen, it is my pleasure to introduce a man whose reputation as an educator and administrator is honoured and respected throughout Canada, the President of York University, Harry W. Arthurs.

Harry W. Arthurs:

I am not sure who is here today, as members or guests of the Empire Club. Some of you are lawyers, members of my own profession. Some of you, work for the government, as I do in a sense. But most of you, I suspect, are involved in the corporate world, so I am going to tell you a corporate story.

Once upon a time there was a corporation. It had 7000 employees, and an annual turnover of $250 million. It operated in largely local markets, but also in over a dozen foreign countries. It had extensive R and D activities, but its main business was consumer sales and service. In just 10 years, that corporation: achieved a productivity increase of 40 percent managed to meet its bottom line each year, in a very tough financial environment repositioned itself by moving upmarket at the same time as it diversified made major capital investments--worth about $150 million without generating any long-term debt load. That little corporation accomplished a lot, ladies and gentlemen, but no one seemed to care. No awards. No stories in Financial Post. Not a single takeover bid.

I can see a great many people out there reaching for their portable phones, dialing their brokers. One or two of you, I can tell just by looking, are thinking about a leveraged buyout. Well, put down the phones; cancel the faxes. York University is not for sale. Neither are all the other universities with comparable achievements to their credit. Nor, if we were for sale, would I particularly recommend us as a good buy just now. It hasn't all been roses this past decade, and things look worse in the next one.

Government funding has remained the same in constant dollars while enrolment has gone up 40 percent. We have made our productivity gains, alas, by teaching more students at a lower unit cost, with larger classes, and more part-time instructors. We are trying to inspire students with great ideas in classrooms we can't afford to clean, and with the fire marshall hovering outside the door to make sure we don't cram in too many people. We are trying to do more and better research with less support staff, in outmoded laboratories and depleted libraries.

None of this has been good for our students, for the cause of research or for our employees. But, somehow or other, we do stagger along, and we do manage to get the job done quite decently. I know that there will be a day of reckoning, but like every university president, I dwell in the hope that I will be gone from office by the time that day arrives.

My real purpose in giving you this brief account of how universities have succeeded despite adversity is not to appeal for your support--although that is certainly needed. Rather, I want to persuade you that our experience may reveal something about the future of the business corporation. We hear a lot in universities about us having to become more business-like. I would like you to consider for a few moments whether, in fact, business should become, and will become, more university-like. Let me give you some examples.

Management experts these days urge us to pare down the organization. Just the other day, I heard a very successful CEO say that his organization had reduced eight layers of management to five. In my university, there are only two or three levels of management between the CEO and the professorial shop floor. We have had to learn a lot about techniques of leadership in a nonhierarchical and highly decentralized organization, let me tell you, and it may be that we can share some of that knowledge with you.

The current wisdom in the private sector is that we can improve product innovation and customer satisfaction by setting up specialized units, small groups of good people mandated to "go for it". I have heard these referred to as skunk works, boutiques and other equally odiferous names.

Well, that is the normal way university departments function: the professors produce the leading edge thinking in their field, and develop strategies to convey it to their customers, the students. If they are missing a key player, they have the right to recruit one, either from within the university or from elsewhere. If they can't afford to recruit, someone on the team gets up to speed, and fills the role. And yes, some university departments are boutiques--and some are skunk works.

At a conference a couple of weeks ago, I was listening to a well-known consultant--one of those people who is virtually incapable of speech unless he has his own graphics. He flashed up on the screen the word "empowerment". "Empowerment", he said, "is the way of the future". Employees must feel that they are part of the process, that they are making decisions and taking responsibility for those decisions, and that their contribution is both necessary and appreciated. That, he said, is what unleashes their energy and gains their commitment.

Well, our professors know all about empowerment. They hire, evaluate and promote their own colleagues. They determine the "product line", the curriculum and the research agenda. They may not actually select the foreman, the manager or the CEO, but they certainly have an important voice, almost amounting to a veto. Deans and presidents, boards and senates may enjoy formal control, may give broad direction to a university, may in a tough situation wield the power of the purse. But our professors know all about empowerment.

Finally, to take one more example, we are told that Canada's future in an increasingly competitive world depends on our ability to move from primary industries to knowledge-based, high valued-added industries. Universities are the quintessential knowledge-based industry. They both consume knowledge and produce it. They add value, we would argue inestimable value, to the life of our students, not just by giving them professional training and marketable credentials, but by equipping them with the critical skills which make them indispensable to private and public sector employers. If you don't believe me, just compare the incomes or unemployment rates of people with and without university educations.

I suppose a sceptic might say that while universities are like corporations in some ways, they are quite different in others. Of all those differences, none is more important than the discipline of the bottom line. Universities do not have to make a profit, the sceptic would argue; they are subsidized by the state; they are helped by the generosity of their friends and alumni; and they are insulated from the judgments of studentconsumers by the fact that they are an oligopoly, whose members sell the same product at the same price. That is a tough argument. Let me try to meet it head on.

In the first place, we do have a bottom line. Our bottom line is breaking even, not going into deficit. If we run into trouble in one year, we have to pay off our debts and still break even over the next short period of time. Like any business, we cannot afford to spend more than our income, or to carry a heavy debt load. We do not get bailed out by government if we run into the red. We are not able to persuade donors that they should pay off our mortgage, rather than fund something more glamorous.

In some ways, in fact, it is even harder for us to meet the bottom line than for businesses to do so. Businesses can cut costs or raise prices or improve sales or all three. We can do none of the above. Let me first observe that we face many of the same problems in cost cutting as you do. We shop for a significant proportion of our goods and services in international markets--books, scientific equipment and professors, to name but a few; we get a break when the dollar is up, but we hurt when it goes down. We have a cash float, a huge construction program, and a modest endowment; we are hurt orj helped by interest rate fluctuations, just like any business. Our employees are very well informed about their rights: we bargain with unions, deal with Health and Safety committees, and respond to complaints under the Human Rights Code. We greet municipal, provincial and federal regulators as they travel their appointed rounds. We worry about the environment, traffic and sewers, live and defunct animals, drug and alcohol abuse, physical security and fraud, patents and copyright, and nasty things that people say about us in the newspapers. We have to meet the cost of UIC and CPP and Workers' Compensation, of Pay Equity and Employer Health Tax, and of many other worthy but expensive contributions mandated by law. We try to get exemptions where appropriate, but often, as residents of the quasi-public sector, we are the first to feel the effects of new imposts as government uses itself and us as an object lesson for industry.

Eighty percent of our budget is tied up in labour costs. Over half of that--over 40 percent--is committed to tenured faculty. We cannot cut their numbers: we already have too few. We cannot cut their salaries: studies show that we already pay less than either the private or public sector for people of comparable ability. We cannot do much more to improve their productivity: if they teach more, they do less research and vice versa; and if they teach bigger classes, beyond a certain point, they teach less effectively. Nor can we cut our nonacademic labour costs. We are already so short-staffed that we run the risk of not being able to type our manuscripts, maintain our buildings, or provide necessary technical support for research. All that is left to cut on the expenditure side is the fuel bill and the president's expense account. Need more be said?

What about the income side? Not very promising. Government grants represent 70 percent of our income. I spend most of my waking hours trying to get larger grants, but the grants are both largely formulaic and totally inadequate. Student fees represent about 20 percent. The fees are regulated by the province and like any other regulated industry, we cannot force our customers to pay more. Our only hope is to focus on the remaining 10 percent of income, and try to make it grow.

That 10 percent comes from a variety of sources. It includes research grants and contracts. Universities seek these with a passion. Unfortunately, neither government nor the private sector seems willing or able to match fine words about R and D with financial commitments. Moreover, there is some evidence that research grants and contracts--however crucial to our intellectual progress, however welcome as a mark of prestige--in the end cost us more than they bring in.

Gifts, donations and endowments represent only about 2 percent of our operating income. It should be a much larger share, as it is in many American universities. We strive mightily: we are becoming more professional in our fundraising, cultivating our alumni and wooing the corporate sector; and we do generate more money. But we are competing head on with hospitals, cultural institutions and other charities, and we have a long way to go. And so, parenthetically, does the corporate sector, when it comes to supporting higher education and research.

Which, essentially, leaves our "business operations". Here'+ universities must literally make their bottom line. We run parking lots, restaurants, shops, apartments, residences, technology transfer firms and land development companies--all designed to make as much money as we can, consistent with our basic function of serving our students and the community. But therein lies the rub: we are a quasi-public institution; our mission is to serve. If we sold all our lands, and had nothing left over for green space or future expansion, we would be criticized severely and justly. If we forced all our scientists to work on practical applications, and steered them away from long-term basic research, we could probably make some money for a few years. But after a few years, we would have no more first-rate scientists, and a few years after that, practical and applied work would grind to a halt because it was not being fueled by innovative basic science.

Nonetheless, we have made some very impressive gains in this general area of business operations. York, to cite my own university, has managed to float its $150 million construction program largely on the initial earnings of our Development Corporation. Waterloo has made a great success of technology transfer. And other universities have sold consulting services, computer facilities and patent rights. However, entrepreneurship does involve downside risks, and these are very difficult for us to accept, given our already inadequate academic budgets. So, we live with our own special version of a bottom line, and we have been forced to develop managerial competence. At its best, it is every bit as good as what you would find in the private sector. And at its worst, I would acknowledge, it is as bad as that in any mismanaged enterprise.

Let me now return to my original suggestion, at which I will nod en route to my conclusion. In many ways, universities can be viewed as organizational laboratories. We have been conducting experiments in the management of large enterprises, in knowledge-based industries, in conditions which are not identical to those in the real world, but which simulate them closely. We think that our experiments have worked fairly well. I began by setting out our results over the past 10 years or so. Let me now give a little historical perspective to those results.

The Hudson's Bay Company managed to survive for some 300 years, our longest surviving commercial firm, and perhaps the most durable in the world--but a parvenu beside the University of Bologna, which was founded in 1088. York, in university circles, is a mere babe in arms. We are celebrating our 30th anniversary this year. When we were born, Massey Ferguson and A.VRoe, Cunard Lines and the Kaiser Motor Car Company were names to be reckoned with. Where are they now? We were part of a 60's generation of universities, not one of which--to my knowledge--has fallen by the wayside. Can the same be said of all of the companies that were born with such promise at the same time?

Is it just that the state shelters us from the winds of change that brought down the high fliers and toppled the corporate giants? No, I would argue. We have confronted enormous challenges, fully comparable to those facing major business corporations. We have met those challenges with management structures that may seem to outsiders bizarre and unworkable. We have met them with organizations that are decentralized and occasionally fractious. We have met them in an often hostile external environment. But here we are: educating more students, doing more and better research, and kept from doing more and better yet only by constraints which you alone--the taxpayers and voters, our alumni and our donors--can remove.

So I conclude by venturing a thought or two about how all this has happened, and what it is that has enabled us to survive and to move forward. Universities, first and foremost, are places where people believe deeply in what they are doing. I do not mean that they necessarily like their job every hour of every day: obviously, they encounter moments of deep disillusion and even despair. But we are believers; we have faith in the fundamental importance of our work to the enlightenment, even to the survival, of the human race.

Second, we are not only believers, but we are sceptics. (This is what passes for paradox in academic circles.) We are always questioning, doubting, interpreting, being disrespectful of each other and of the received wisdom. This does not make the life of a CEO any easier, but it does help to ensure the survival of the institution. More truly than any high- tech corporation, or any whiz-bang consultancy, we are committed to change, and we are the agents of change.

Finally, we are a true community. People immerse themselves in a university's culture, far more than in 'any corporate culture, at least in North America. We have ceremonials and traditions, structures and routines, symbols and defined roles which make that culture part of our daily lives. The culture changes, sometimes too slowly to accommodate the demands of technology or government or the economy. But its very continuity is necessary to foster the sense that we are involved together in a long-term mission.

Faculty members spend 30 years or more, some of them, in the service of a single university. Support and technical staff are similarly devoted, even without tenure. And while students obviously come and go, and bring their own contemporary style and values, they are very receptive to what the university stands for: in fact, they are at their most annoying when they remind us that we do not practise what we preach. They too, at heart, are believers; they are sceptics; and they are members of our community.

And what of that word "community"? Like "culture", it is a word that is much abused in management jargon. People belong to a community, they participate in its affairs, they have the right to shape its direction and destiny, and they subject themselves to its expectations and routines. As a community, the university probably does not meet its own high ideals. But we do come a lot closer to being a true community than most other institutions in our society, and certainly a lot closer than most business corporations.

The passionate involvement we get from members of the university community, most businesses could not buy from their employees--and probably would not want. The faculty's sense of "owning" the university, which so complicates efficient management, is at the same time a manifestation of their loyalty and commitment. The faculty's right to participate makes crisp decisions impossible and gives rise to terrible timewasting committees--but it is what able people expect in exchange for contributing their talents at a price well below market rates. The cynicism and fractiousness which so startle and alienate outside observers are the inescapable negative side of the one indispensable quality of all knowledge workers: their free-ranging intelligence.

There you have our assets: worker empowerment, decentralized decision-making, commitment to the values of the organization, constant questioning and change, and a strong community and culture. And each of these assets, as I have tried to say, is paradoxically also a liability. These assets and liabilities, and the paradoxes they embody, are not unique to universities. They are already familiar to governments and law firms. They will be increasingly visible to corporate managers in the 90's and beyond. What f have been doing, then, in telling you about our present, is to reminisce with you about your own future. Thank you for your attention.

The appreciation of the meeting was expressed by Douglas Todgham, Director of Development, Art Gallery of Ontario and a Director of The Empire Club of Canada.