Fundraising: 'Donors want more say over how their money is used'

Michael Prest looks at how business schools are raising cash for scholarships and new buildings

For institutions which train managers to make money, business schools are ironically dependent on donations. There is nothing new about educational establishments raising funds – Oxford and Cambridge colleges have done it since medieval times. But the purpose of business schools means that they have to tread a careful path between practising the business virtues they preach and rattling the can. Keeping that balance has not got any easier in the wake of the financial crisis and in the face of intense competition between charities for cash.

Although the impact of the crisis has been smaller than some schools feared, it has complicated fundraisers' lives. "People haven't given as much in recent years," says Janet Shaner, the director of the MBA in programme design and delivery at the International Institute for Management Development (IMD) in Switzerland. And Professor Frank Horwitz, the director of the Cranfield School of Management, admits some forms of fundraising have become harder.

Joelle du Lac, the director of external affairs at Cambridge Judge Business School, says: "Donors are cautious: they want to see additional value for money. They want more say over how it's used."

The picture is complex because the effect of the economic downturn depends to some degree on the nature of the institution and how it tries to raise funds. Du Lac says that Judge is just over 20 years old and so has not accumulated a large or old enough pool of alumni to garner many donations.

At Durham, Laura Hilton, the university's first appointment dedicated to attracting legacies, says the long-term nature of giving by legacy makes it relatively immune to the economy's short-term ups and downs.

Some institutions as a matter of policy eschew the approach typical of US schools which depends on donations and endowments for a significant proportion of their annual income. Harvard saw the value of its endowments fall precipitously during the recession. The IMD says 90 per cent of its income comes from fees, including executive education and work with companies. The MBA contributes just 9 percentage points of that 90 per cent. Most UK business schools have started to build up their endowments and attract a significant volume of donations only relatively recently.

Fundraising is a long-term affair. "You have to consider your strategy from that perspective. You have to take a five- to 10-year view to judge whether you've been successful," Horwitz says.

In most cases, the flagship MBA programme is subsidised by other revenue, such as executive courses, and schools struggle to fill the MBA places without scholarships. Business schools which are part of public universities, as is common in the UK, face the added problem of the Government's budget squeeze. And international competition between schools for faculty, students and facilities allows little rest for fundraisers.

Nearly all schools offer some scholarships for students. The IMD has 16 scholarships for a typical MBA cohort of 90 students. Some are targeted, for instance at women or students from Asia. Students are also eligible for loans from Swiss banks. Cranfield offers a wide range of scholarships, often for students from particular countries. "As MBA programmes get more and more expensive, you have to provide help for people who might not otherwise come. Nobody should be turned down for financial reasons," Shaner says.

The question, however, is how to raise the funds. There are basically three sources: alumni, other individuals, and companies and foundations. The other, related, question is the form in which the money is raised. The main methods are continuous giving and lump-sum donations. Woven into these strategic decisions is how the money is to be spent, for instance on endowing chairs, financing specialist research centres or on bricks and mortar.

Most institutions pursue a mixed strategy. Few are lucky enough to have big donations drop from the sky, as did the Saïd Business School in Oxford when it recently received an extra £15m from the original benefactor, Wafic Saïd, for an executive education centre; or as Cranfield did when Nigel Doughty, a private equity fund manager, gave it £3m for the Doughty Centre for Corporate Responsibility. An indication of the rarity of such windfalls is that Doughty's gift accounts for more than half the large donations Cranfield has raised over the past six years.

Some approaches to fundraising are more uncertain than others. Durham is trying to attract more legacies, but the eventual amounts are hard to estimate. Legacies depend on the value of an estate, a donor can change their mind, and as people live longer the timing and quantum of the donation becomes even more unpredictable. "We are looking 80 years ahead. So legacies have to be for causes that will always be there," Hilton says.

But the alumni are key. They have the direct connection with the institution, are part of wider networks and should be high earners. Building relationships with alumni and soft-soaping them into giving is time-consuming and requires patience and persistence. An alumnus may not become a donor for 25 or 30 years after graduation and coaxing cash out of them for a purpose the school considers a priority is often delicate. But no institution can afford to ignore them. "We intend to build the fundraising team in the school. I imagine we'll be in a much different place in five years with alumni," says Du Lac.

French business schools such as HEC Paris and Audencia Nantes, traditionally behind their Anglo-Saxon competitors in tapping alumni, are now following suit. It is fortunate for business schools that they do not usually have to rely on revenues from their operations alone.