When does a $5,000 investment pay off with a $100-million return? No, this is not a tale of Wall Street chicanery or Reddit-inspired investing. Rather, it is a story of rank-and-file university employees mobilizing to defend their vision of university governance — and winning big.
Our story begins a year ago, just a month into the pandemic, when the Johns Hopkins University President Ronald Daniels announced a set of “decisive austerity measures” in the face of anticipated revenue declines. These included layoffs, salary freezes, and a suspension of employee retirement contributions.
In a global pandemic that has killed over half a million Americans and confronted untold numbers with economic catastrophe, the travails of one elite university may not seem of great concern. Indeed, given the hardship the pandemic has wreaked on the sector, the suspension of retirement benefits at Johns Hopkins might appear downright trivial.
But it’s precisely the wealth of Johns Hopkins that turns this story into a parable. When an institution with almost $2 billion in reserves slashes employees’ benefits in the face of economic uncertainty, one begins to wonder if a set of ideological assumptions might not be at work.
From a broader perspective, the episode casts a harsh light on the ways that decades of hierarchical, corporate management have damaged norms of shared university governance. It highlights the ways a “shock doctrine” mentality — in which genuine economic challenges are taken as opportunities for structural reform — has quietly migrated from corporate boardrooms and Wall Street trading floors to the university C-suite.
But the story at Hopkins took an unexpected turn. Rather than bowing to alleged economic necessity, employees mobilized, questioning the leadership’s dogma, demanding independent verification, and pushing back against dubious assertions. As it turned out, we had a powerful weapon at our disposal, as do faculty members nationwide: a forensic audit.
The university’s embrace of austerity last April followed a projected revenue shortfall of $475 million through the following fiscal year. It was an eye-popping number. Aggressive cuts — including suspending retirement contributions, for a savings of roughly $100 million — must have seemed to the university’s executive leadership and its board of trustees like pragmatic, prudent stewardship.
There was a flaw in the logic, however. Just a month into an unprecedented pandemic that had already upended all predictions, could the university reliably forecast its budget over 15 months? Clearly not. And yet based on what were essentially wild guesses, it forged ahead. Faced with uncertainty, the logic went, cut.
The university’s leadership had been very publicly caught with its hand in the cookie jar.
The announcement fell like a spark on dry kindling, coming as it did without consultation or deliberation. It caused an immediate backlash among the faculty, many of whom had come to distrust the president’s habit of making decisions behind closed doors. When the outrage burst, the university quickly announced measures to assuage the anger, including a new (but temporary) body of elected faculty leaders to advise the senior leadership. Meanwhile, two “town hall” meetings sought to explain the decisions.
As the controversy continued into the summer, the university’s senior vice president for finance left for greener pastures in North Carolina. The choice of his interim replacement raised eyebrows given her career at an investment-management firm that paid Daniels $322,500 in 2019 to serve as a director, a sum that came on top of his roughly $1.7-million salary.
As frustration grew, a group of faculty members, through a standing governance body, resolved to commission a “forensic audit” of university finances. They reached out to a professor of finance and accounting with extensive experience. The fee, they learned, would amount to $5,000.
Anticipating a lengthy campaign to raise the money, the group was astounded to see funds pour in in just three days through a crowdsourcing effort. The audit was duly launched, and the results came back in early November.
The audit revealed a starkly different financial portrait from that painted back in April. Then, Johns Hopkins had anticipated losses of $51 million for fiscal-year 2020. By October, however, revenues were much stronger than anticipated. In fact, the university had ended fiscal-year 2020 with a $75-million surplus, a stunning $126-million turnaround. Similarly, the auditor’s estimate of losses for the following fiscal year were far lower than the university’s colossal projections.
The audit also revealed some disturbing trends. A large and growing portion of the university’s $6.75-billion endowment were held in risky classes of securities, like private equity, venture capital, and nontraditional “marketable alternatives.” And yet the university’s endowment return consistently disappointed, underperforming the S&P 500 every year from 2014 to 2020.
Most tellingly, the audit showed that Hopkins had extraordinary resources at its disposal — including nearly $2 billion in total reserves. (The audit anticipates that the administration would challenge this number, arguing that reserves cannot be spent on recurring expenses, before going on to argue that special circumstances like a pandemic are exactly what such reserves are for.) Given that cushion, it was hard to understand why employee benefits had been sacrificed on the altar of austerity. Clearly, a choice had been made to privilege financial assets over employee benefits.
The results of the audit spread quickly across the university. They were discussed and debated in department Zoom meetings and shared across faculty senates. Junior faculty members, already suffering from the pandemic, were most upset. It was not lost on them that $1 put away in a tax-free retirement account today turns into a lot more than that over a 30-year horizon.
Our university system, one of the triumphs of postwar America, has been hollowed out by corporate management.
Alarmingly, a survey undertaken by the university’s School of Public Health revealed that roughly 25 percent of junior faculty and an even higher percent of mid-career faculty would seriously consider leaving academe entirely. For an institution that has struggled to diversify its faculty in recent years, the mass departure of junior faculty — whose profile was notably more female, and more diverse, than the senior faculty — would set the university’s strategic hiring back by a generation.
But faculty morale across the board was suffering. The university’s sudden decision had come on the heels of long-simmering anger that faculty autonomy had inexorably been hamstrung in a university that had aggressively centralized decision-making among a small cadre of executives too detached from its fundamental mission of teaching and research. Physicians in full PPE regalia took time out from treating Covid patients to share their sense of broken trust. Nurses mobilized. Public-health faculty vented their frustration. Even a few engineers got angry.
As more information circulated, bemusement about the decision grew. The university’s leadership prides itself for setting the institution on a course of financial excellence, growing our endowment and consolidating our divisions under a “One University” mantra. Citing his exceptional leadership back in 2016, the university’s board of trustees had renewed the president’s contract to 2024 — adding generous perks to his seven-figure salary. Given our robust financial health, why did the university go after its employee retirement contributions? It appeared to have acted not with prudent deliberation but panicked haste. It felt like a Wizard of Oz moment, when the curtain is suddenly pulled back to reveal something surprisingly small.
In early February, Daniels announced that the university would resume its employee contributions effective retroactively to January 1, 2021. Then, in early April, as the modest financial impact of the pandemic was at last evident, he went further and announced the full restitution of benefits. One hundred million dollars of employee contributions would be paid back.
All told, not a bad return on the $5,000 invested in the audit.
If the restoration of retirement contributions was a victory of sorts, the knowledge that pension benefits were so precarious in the first place was a moment of sharp clarity: The university’s leadership had been very publicly caught with its hand in the cookie jar. But there was nothing unique about Johns Hopkins. The whole saga merely highlighted how fully a Wall Street mind-set had captured the nation’s university leadership.
One needs to ask: Why would a fabulously wealthy university treat employee benefits not as a bastion of last resort, but a piggy bank to be dipped into at will? It is the sort of move undertaken by private-equity titans after a hostile acquisition. Can they really not tell the difference between a nearly 150-year-old university and, say, J. Crew?
We are talking here about a rich institution — a university, moreover, to which people around the world turned for information about the pandemic. If a university with these kinds of resources turns to reflexive austerity in uncertain times, imagine what other, less wealthy institutions will do.
Actually we don’t have to imagine: We’ve seen the results across American higher education. The academy now faces the results of such corporate thinking: the erosion of self-governance, the absence of accountability, rising executive salaries, a fixation on quantifiable metrics largely detached from the quality of scholarship, and the performance of rituals of democratic deliberation (like town halls) entirely disconnected from meaningful decision-making. Over the past decades, we’ve watched as our university system, one of the triumphs of postwar America, has become hollowed out by corporate management.
The economic-necessity framing was always implausible at Johns Hopkins — where the university forged boldly ahead with several flashy building projects, even as it slashed its employee benefits. But the experience at Hopkins highlights the ways in which such attitudes threaten to further eviscerate American universities.
The revenue shortfalls that so many universities have cited in the past decade, in their expense-reduction efforts, are not the inevitable consequence of impersonal global forces. They result from a series of decisions and priorities: putting buildings over people, athletic programs over academic programs, extravagant managerial salaries over benefits for low-paid workers.
These decision all highlight an intense focus on the short term. University leaders treat their most recent U.S. News ranking like one of Wall Street’s quarterly reports — bragging rights for the next board of trustees meeting. Wildly expensive acquisitions in real estate substitute for strategic and careful investments in research and teaching. Egged on by a compensation system that rewards flashiness over substance, administrators chase star faculty and follow the latest technological fads. (Does anyone even remember MOOCs?) Meanwhile, graduate programs are gutted, resources for junior faculty cut, and tenure-track lines replaced by contingent faculty or post-docs and redirected graduate-student labor.
In retrospect, it comes as little surprise that a university president steeped in the values of corporate America thought that eviscerating employee benefits was an appropriate response to a national emergency. Perhaps it should not be surprising, either, that careful analysis of that decision, commissioned by the faculty, helped force a U-turn.
It’s impossible to know what comes next. At Johns Hopkins and across American higher ed, there is little sign that the university leadership and boards of trustees are open to seriously rethinking priorities and norms of governance. And with massive state-budget cuts looming, now might seem like a very bad time to make demands.
But history is full of examples of sudden change erupting at the unlikeliest times. If the academic sector’s response to the pandemic this past year shows anything, it’s that the ideals that built our university system may not be as anachronistic as they seem in the executive suite. Much of our industry’s leadership may remain in the grips of a failed set of governing ideologies, but our universities have outlived many eras. And perhaps it’s here that the experience at Johns Hopkins can serve as a parable: We will eventually outlive this era of artificial scarcity, too.
