Delivered at Hendrix Board Meeting February 13, 2009
“Be Fearless in this Life, You Cannot Take it with You”
By J. Timothy Cloyd, PhD
President, Hendrix College 2001-2013
Note: These speeches have been digitized from print documents. During this process, formatting and other errors sometimes occur. I am correcting mistakes as I see them, but be aware that these speeches may still contain unintentional errors. I also give special thanks to Helen Plotkin for her help editing and researching these speeches.
- Who would have thought that barely two weeks after our last board meeting in October I would have been in the ICU. For those of you have not had the joy of a near death experience there is nothing like it to focus the mind. I feel blessed today and none of us are promised tomorrow. Carpe Diem!!! Live today.
Donald Rumsfeld, in one of his odder moments said something I will always remember …
- He said “we have the known knowns, we have the known unknowns, and we have the unknown unknowns.”
- We have all three at Hendrix but it is those damn unknown unknowns that will kill you!
- The most important topic of today’s meeting will be our discussion of our vision for the quality and the type of institution we want to create. This moment in history is an opportunity that may not come again. You are now historic figures. The future leadership of this college will look back on this time for guidance.
- Bob Entzminger and David Strauss will lead this discussion.
- The question is what does this Board want to create? When we come out of this finite darkness where will our leadership have left this college?
- Public companies, like the ones many of you run, live and die by the quarterly report….. But does Hendrix live and die by the 25 year report? The 50 year report? The 100 year report? It is a long time horizon. When we emerge from this time we need to be proud that we positioned this college to have wings for the updraft…….
- During this time you will determine the success, momentum, and future of Hendrix. We need to work together to fine the right path for Hendrix.
- You are going to hear from Rob, Allen, and Roger about the endowment in more detail. But we have lost about 26% of the value of the endowment. This is over $60 million. Across all of higher education the story is the same. Stanford $2 billion; Vanderbilt $1 billion; Swarthmore $600 million; Milsaps $55 million; Southwestern $100 million; Darthmath $700 million.
- The impact of this is multifaceted, but the most significant impact is threefold —
- The decline in our endowment over the last few months has produced an effective spending rate of 10% for the current year.
- As we move to bring this rate down the result will be a dramatic reduction in revenue from the endowment for the college’s budget.
- This will demand that Hendrix increase its revenue from students. How do we do this? We have to make ourselves more appealing in the marketplace.
Not less appealing …. More appealingThe opportunity we have today is really unbelievable because we have done this before. We will have had an opportunity, as the leadership of this College, to shape the college twice in 8 years. In 2001, do you remember that Madison Murphy stepped forward with a $3 million gift launch Odyssey and to reposition the College? Did Odyssey work? Did our re-pricing work? You bet it did? He and his family have now given $9 million in this campaign. We owe a debt of gratitude to Madison and his family that is impossible to fully express. We owe a debt to each one of you for your courage during that time. We will draw on that courage again during this crisis. Fear cannot decide our reaction. No… We have to have hope and faith…..
- As of today we have 1,500 applications …. The second highest number in the history of the college. Our deposits are equal to last year.
- There have been times when Hendrix had very little or no endowment. The endowment of the college really only began to grow into the $100s of millions in the late 1990s.
- Last January 31 we had $153 million and on January 31 this year we have $110 million
- For over 100 years individuals and families like Rockefeller, Bailey, Hayes, Veasey, Cabe, Murphy, Fousset, and many of your families and you yourselves… in fact we have all contributed gifts large and small to the endowment.
- These gifts have been given in the belief that this Board would use the endowment to enhance the educational experience and provide access to Hendrix for the students of today. And yet these donors ALSO wanted us to be able to have the resources necessary to enhance the experience of the students who will be here in the next generations.
- The endowment at Hendrix has been seen as a means of offsetting the expenses of students so that they may attend this great college. But we have also used the endowment in moments like these as a source of resources for strategic positioning.
- Some colleges and universities have treated their endowments like inherited wealth. They keep their spending rates so low as to raise the anger of the donors who made the gifts.
- What we face today is a question….. How should we view the $110 million in the Hendrix endowment today? I bet the Stanford trustees have thought to themselves “remind me what were we trying to preserve that $2 BILLION for?” What could they have done to enhance the university and the social good with those funds? They’ll never know what an impact more affordability and more excellent programs would have produced.
- We have always taken a higher percentage draw on the endowment. We use the endowment to meet the needs of students and to create academic excellence. Sometimes we use it to create new programs to strengthen the college for the long term.
- Hendrix today finds itself in the same position as many not-for-profits ….. Any endowment set up from 1998 to the present is almost if not already underwater …This means that the market value of the fund is dropping below the book value of the fund. Since I arrived in 1996 we have raised $143 million. A lot of this has gone into the endowment. These are underwater …..In many of these cases I was the person that asked for this gift.
- The College and the Board have always had a dilemma ….. that has been stated like this …. balance an appropriate spending rate that serves the students of today and yet keep an eye out for the next generation.
- But maybe right now we need to think of looking out for the next generation as not so much a spending rate issue as a strategic use of assets to reposition the college issue.
- There must be balance between the present and the future. But understanding what that balance means in 2009 will be extremely difficult. We need your advice and wisdom. Depletion of the endowment bit by bit is not the answer but neither is putting it in the lock box at the bank. Maybe we need to get bolder and more visionary????
- I want to tell you something I learned this week from Captain Sully of US Airlines. Did you all see Sully?
I have thought about Sully and I think maybe we should all wear bracelets that say WWSD. WHAT WOULD SULLY DO?
What Sully represents is hope. People want and need hope. Hendrix College … first in Arkansas … then in the South …. And then in the United States has projected an image of strength and hope.
Students are idealist and they are attracted to a place that has a spirit that shouts out “the world can be changed for the good.
They are attracted to ideas, learning, community, inclusion, and connectedness. Some people confuse Hendrix’s progressive open accepting environment with what we Americans call Liberal but Hendrix is not be L liberal it is liberal because it is a space of freedom and hope. A place of free thought for all people no matter how different they may be….
Our job is to preserve this community and its values.
So in this crisis WWSD
First …. Sully stayed on course.
(When the engines failed he did not radically alter the fight path that had been designed based on the technical specifications. He adjusted, but he did not start jerking the plane wildly. Sully stayed the course.)
Second, Sully did not attempt to turn around or to go backwards. Trying hit rewind in a crisis is most often a waste of time and can be fatal.
Third, Sully and the passengers did not panic.
(Do you know that even when the plane was empty Sully walked up and down the isles three times at a leisurely pace (it was reported) looking for passengers? .
Fourth, Sully’s success was based almost completely on how he landed the plane.
(On the water, tail first, at just the right angle, in balance, at an exact rate of speed, at just the right distance from first responders)
Fifth, because of the way he handled the plane US Air has continued to have momentum and an image of strength and hope.
Bear the lessons of Sully’s Landing in you mind….
So now for the Budget
- Beginning in January we started taking steps to reduce the budget for this year.
All expenses require pre-approval, we have cut all budgets, we have put in place a voluntary process for furloughs, voluntary reductions in time and pay, a retirement incentive plans, we are prepared to institute a mandatory reduction in payroll of 5%, and we are prepared to institute lay-offs.
- We are ready for any of three budget landings – a hard landing, a harder landing, or a crash landing.
- On the revenue side for this year and next year we have begun a new program offering courses in May in a compressed structure. We will also start summer school. Bob may say more about these topics today.
- As of today we have reduced expenses in next year’s budget by $3 million and the endowment draw by $1.8 million. We still have more to go ….
- We know we need to do more and we know we need to bring the endowment draw down further.
So How and Where Will We Land?
- There are still a great deal of known unknowns and the unknown unknowns are always out there…… this is why we feel it is critical to have a teleconference each month with the executive committee from now through September.
- We are smack dab in the middle of recruiting season and we must yield 420 new students for the fall… We need to be careful not to send a big SOS or telegraph that cuts are coming in a fashion that could impact the student experience….. Between now and May we will have 100s of students on campus for visits.
If the mood on campus goes south (e.g. bad) it will not help our recruiting.
- The Second Major issue is the Village. The Village has nothing to do with the current crisis. However, on campus and in Conway if the image is created that the Village is in financial trouble that would not be in our interest. It might impact sales. In addition, if on campus students and faculty see the Village as precipitating some financial crisis that Hendrix would otherwise have been free from that would not be good.
Brandise lost $800 million and instead of passing any cuts along the Board sold the Rose family art collection for $750 million. Why? They strategically deployed a part of their asset base to advance the university.
- Ok so we must and we will address this crisis at hand. This finite darkness …. We want to work with you to address this problem!!!!
BUT THE REAL QUESTION IS WHAT DO WE LEAVE BEHIND
- We need to place this moment and these issues in context. We also need to see this college as the community it is and know it is our responsibility to nurture it, to grow it, to protect it in cooperation with other constituencies..
- Before we go on I want us to stop for a moment. Take a deep breath. Many of you have told me how this crisis has affected your business, your church, your organization, and your family’s welfare. I want to acknowledge that feeling we all have of uncertainty and fear.
- You each have in your lives enormous responsibilities. I want to express gratitude ….. a deep debt of gratitude on behalf of the college for you being here today, for your gifts of time, money, wisdom, and prayers.
- Now take a deep breath. Turn around and look out that window. In your mind’s eye envision a person who touched your life through his/her relationship with you through literature, or history or faith or the arts or the sciences or the law or ideas ….. maybe they are from the Hendrix family maybe not but they are in some small way why you are here today. Ok, picture him or her and thank that person. We are here in this life such a short time
- What you as a board have done has transformed Hendrix and touched lives.
- We are $11 million or so from our $100 million goal. You have presided over construction of the WAC, the new athletic facilities, the new art complex, the new SLTC, the renovation of many buildings, the launch of the Village, the creation and endowment of the Odyssey program, the creation and endowment of the odyssey professorships, the creation of the Rwandan Program, the Miller Center, the introduction of Lacrosse and field hockey and the reintroduction of football, and the creation and awarding of millions of dollars in scholarships……..You have left an enormous imprint on this place and the lives of many ……
- But I don’t think we are finished yet. I think we should have a vision of how we can treat this present time…. this crisis as a great opportunity.
- As Rom Emmanuel said, “Why waste a good crisis?
- We can be strategic and make Hendrix even stronger …What should be in our plan?
- We must finish and open the SLTC
- We have dreamed of what that Village Center will look like and what it will offer our students and faculty when the Village Common is complete …. We must complete Phase one of the Village … And the Campaign …. Ellis has a plan for how we will reach $100 million.
- But I want to ask you given where we are do we need new or even bigger goals? What will move you with passion???? Maybe we should consider these new program ideas from the faculty?
- David can test them in the market to see what kind of response we might get from various new programs. Creating a School of Commerce and Public Policy with a focus on science and business for example
- Or a School of Environmental Science and Sustainability perhaps with an MA/MS degree or a Brain Science Program or Communications and Literary Journalism.
- We could model these new programs on the best in the country. We could build these new programs in the village and become creative ……Maybe the best thing to do in this down time is to do the completely counterintuitive and unexpected.
- We could steal talent and build new great programs that raise the stature of the college…….. Maybe we should get all of this done before inflation sets in……..and interest rates go up????
- But you tell me what do you want to do? How are we going to do it?
You thought for the day is from SUN TUZ
“Ruling an Empire is like cooking a small fish”
How we land will position us or not for the next bold move!!!
Assumptions for final quarter 08-09 and 09-10 academic year:
– May 31, endowment down 27%/ $70 million
– Class 420, discount 64% First Year
– May Program $50,000 08-09
– May Program $200,000 09-10
– Expense Reductions $350,000 08-09
– Expense Reductions $4 million 09-10 (salary freeze, position reductions, attrition, and budgets)
– Assumed annual endowment return 09-10 6.5%
– Assumed draw on annualized value 7-7.5%
– Assumed Special gifts $500,000
– May 31, endowment down 30%
– Class 400, discount 65-66%
– May Program $50,000 08-09
– May Program $300,000 09-10
– Expense Reductions $350,000 08-09
– Expense Reductions $5 million 09-10
– Assumed annual endowment return 4%
– Assumed net revenue decline 3% (retention)
– Assumed draw on annualized value 6.5%
– Special gifts $800,000
– Additional Actions: Lower TIAA; salary reduction 3%; payroll reduction of 5%.
– May 31, endowment down 30+%
– Class 380, discount 68%
– May Program $50,000 08-09
– May Program $500,000 09-10
– Expense Reductions $350,000 08-09
– Expense Reductions $6.5 million
– Assumed endowment return 2%
– Assumed net revenue decline 4%
– Assumed draw on annualized value 5.8%
– Special Gifts $1.2 million
– Additional Actions: Payroll reduction 8-10% lay-offs and 5-6% salary reductions.