New Models for Consolidation in Higher Education:

Changing Higher Ed® podcast 239 with host Dr. Drumm McNaughton and guest Dr. Michael Horowitz

Transcript: New Models for Consolidation in Higher Education

Changing Higher Ed® podcast 239 with host Dr. Drumm McNaughton and guest Dr. Michael Horowitz

 Welcome to Changing Higher Ed^®, a podcast dedicated to helping higher education leaders improve their institutions. With your host, Dr. Drumm McNaughton, CEO of The Change Leader, a consultancy that helps higher ed leaders holistically transform their institutions. Learn more at changinghighered.com. And now, here’s your host, Drumm McNaughton.

[00:00:30] Introduction and Guest Welcome

Drumm McNaughton: Thank you, David.

My guest today is Dr. Michael Horowitz, Chancellor of The Community Solution Education System. The Community Solution, formerly known as TCS Education System, is a unique nonprofit system that empowers higher ed institutions to advance student success and community impact in ways that are similar to that of a public university system.

Michael joins me today to talk about how TCS provides an alternative to a typical merger or acquisition. The consolidation that operates as a system in which its institutions collaborate instead of competing, gain resources, share expertise, and optimize expenditures in the process.

Michael, welcome back to the show.

Michael Horowitz: It’s great to be with you, Drumm. This is my third time, and I’m excited to speak with you today.

Drumm McNaughton: Likewise, we’ve had some really good conversations, but I think we looked up the, the other day. It’s been a couple of years, so it’s good to have you back.

Michael Horowitz: Yes we’ve been doing a lot in our system space and a lot of changes have taken place in higher ed during that time as well.

Drumm McNaughton: Really? Changes in higher ed? What an amazing concept.

Michael Horowitz: Indeed.

Drumm McNaughton: You’ve been on the show before, but it was a few years ago.

[00:01:52] Background of Dr. Michael Horowitz and TCS Education System

Drumm McNaughton: If you wouldn’t mind, give our listeners a little bit of background. You’ve had just an amazing journey with what is now known as The Community Solution Education System, formerly TCS Education System. But that hasn’t been your entire career, you’ve done quite a bit of things.

Michael Horowitz: I’m a licensed clinical psychologist. I still maintain my license here in the state of Illinois. I’ve been a faculty member in professional schools of psychology. I’ve been a Dean of two campuses and a multi campus system and served as president of the Chicago School from 2000 to 2010, where I remain the president emeritus and during that time in 2009, I launched our system concept with the firm belief that colleges could do much better working together than working on their own. And we’re celebrating our 15th year as a fully integrated private, nonprofit, higher education system.

[00:02:58] Recent Developments and Achievements

Michael Horowitz: Since you and I spoke, our sixth university, the University of Western States in Portland has joined and, I think last time we spoke our fifth university, which is really a startup, Kansas Health Science University was much earlier stage and is now celebrating having its first class of medical students in the field as they’ve welcomed, their third year of new students.

Drumm McNaughton: Wow, that is just amazing stuff. And when we were chatting the other day, you told me that you’ve got plans to open a new campus there in Chicago, right at your headquarters, and you’re going to be building a new building to move into.

Michael Horowitz: It’s underway. It’s actually, part of a trend I’ve seen nationally as we’ve seen a very depressed commercial real estate market, for colleges that have the capacity and need. We’ve seen universities around the country buy up commercial real estate at depressed prices. So, we were able to buy an empty, corporate headquarters in Chicago.

The alderman for that ward in the city is thrilled because rather than looking at a big, empty building, driving a hole in the ward, it’s going to become an amazing campus where we will consolidate our national system office. with our largest physical campus, the Chicago School, Chicago, and they in turn are in the process of building our second medical school, the proposed Illinois College of Osteopathic Medicine at the Chicago School. So, in a sense, three entities that might be in three different places in one city will come together.

I think it’s a perfect way to, physically, underscore what we do as a system. Let’s figure out how to make the most of the resources that we have.

[00:05:05] Trends in Higher Education and Consolidation – Categories and Models of Higher Ed Mergers and Consolidations

Drumm McNaughton: Which is a great segue into what our conversation is going to be about today is consolidations. We have seen in higher ed far more merger and acquisition type activities. And of that, the way I categorize them, you’ve got three different types. You’ve got sell side, somebody coming in and acquiring your institution. You’ve got buy side. You are going out and acquiring someone’s and then you’ve got consolidation which can fit a whole host of definitions. It could be anywhere from sharing back-end services to sharing marketing services, all sorts of different things. And then you’ve got the way that you do it.

If it’s okay, I’m going to still call it TCS because one, I’m like a lot of higher ed. I don’t like to change. And second, it’s much easier than saying The Community Solution. So, with your permission, sir.

Michael Horowitz: Permission granted. And perhaps we should add to your list. The saddest category, which is maybe the biggest growing one of closures. So, you have too many colleges that don’t get in front of doing any of these things. And I think you and I recently chatted about Clayton Christensen, who had predicted, with a co-author many years ago, big-scale closures. He’s now unfortunately passed away, his co-author came back to say, “you know what, everyone was laughing at our prediction, we may have undersold it. And there may in fact be more closures, than we anticipated.”

Drumm McNaughton: Yes.

[00:06:47] Challenges and Strategies in Higher Education

Drumm McNaughton: Unfortunately, I think you’re absolutely right. The closure rate is accelerating. Last year there were 80 closures total, including 16 nonprofits. What’s disturbing for me is the Christian colleges, they make up 15 percent of the 16 nonprofit closures. A very sad tale.

Michael Horowitz: Indeed. There was an article, I believe in the Chronicle this week talking about, when colleges close, we’re going to have an enormous impact with our new building in Chicago, as we’ve had in Wichita, just the economic impact. There are small communities, even larger ones that these colleges have been very important part of their culture, their economy, their employment.

It’s certainly, devastating for students. There’s clear data that if you’re a student at a closed college, you have much higher likelihood of dropping out of your educational program. So even though it’s typical to have a plan for continuity and it’s there on paper, the reality is your college closes you may not finish your degree, and we already have a completion problem in American higher education.

So, yes, I don’t know enough about the Christian college community to speak to why they’re leading the pack, yet it’s not surprising, and I think, the common syndrome we see is too much insular thinking, too much thought that everything we do is so specific and unique that we can’t do it with somebody else.

I have seen, it’s public here in town, Lewis University, which seems to be thriving as a Catholic university. They just merged into St. Augustine college, which for years has been a very fine Hispanic serving institution, also with a religious affiliation. These things can be done. They’re just not happening fast enough.

Drumm McNaughton: Fully agree and I’m actually going to be having someone on the podcast who was involved with that merger. He’ll be coming on in the next month or so.

Michael Horowitz: And to me, that looks like a win, win from the outside.

Drumm McNaughton: Yes. Absolutely. It is sad that we’re seeing so many of these mergers, well, not so much mergers, I think it’s normal in the type market that we’re in. We’re in a mature, declining market where we’ve got over capacity and under, lack of customers. Student population is declining. I think this next class coming in is going to be the largest in quite a while.

The challenge, what I see is the boards are waiting too long. I jokingly say, “hope is not a strategy,” but I’ve got friends of mine who work in the enrollment area and they say there’s too many people who really are relying on that, they’re not changing the fundamental things that they need to, and their board really isn’t taking the bull by the horns to say, “we got to do something about this.” I don’t understand that; I don’t know why it’s happening.

Michael Horowitz: There’s an interesting thing you see in higher education where boards can have very savvy business people. And of course, they have to learn what higher ed is about and the unique characteristics, yet they don’t apply their same business and strategy savvy, perhaps because, they’re not bold enough or they’re too cautious, or they don’t see it as their prerogative when they in fact are the ultimate fiduciary and carry the responsibility.

Someone recently told me that if you put enrollment and financial data in, of the last few years college closures, into AI model, the AI could have predicted 80 percent of them. Some of it’s not that hard. If you, plunk in enrollment trends, budgets, you can see it.

I was in a meeting yesterday, I’m new to the board now of CHEA, the Council for Higher Education Accreditation. So, we were having a meeting with the president, the new board members who are college presidents. And one of the presidents, in fact, is the former undersecretary for higher ed at the national level, and he was remarking that our model at The Community Solution allows for the continuation of distinct identity, distinct accreditation, yet elements of consolidation and coming together.

And by the way, I’ll have an article on this with a great coauthor, Michael Alexander, in the winter issue of Trusteeship Magazine. Not only should board members, as you say, get in front of these trends, they should look at the different options, merger, acquisition, and consolidation, which from my point of view, it needs to be done even earlier because you can’t consolidate something that’s too broken to be consolidated.

Yet you could really have a reversal of fortune. If you do it in time,

Drumm McNaughton: Yes, absolutely.

[00:12:24] The Community Solution’s Unique Approach

Drumm McNaughton: So, let’s get into the consolidation. What are some of the different models that you’ve seen with consolidation? And how do you, at The Community Solution, how do you interpret that or apply that?

Michael Horowitz: We interpreted, in fact, in what we’re calling during this era, a one system model and amplifying system-ness. We believe it can’t be a la carte. It has to be endorsed at the board level of a college joining our system and by our system board. And for that matter, we let all our existing colleges speak to a new institution joining. And from that point on, you’re integrating governance, and really everything possible, in particular, all the elements that are non-student facing. And I could rattle off a long list, but among the most obvious are finance, technology, marketing, things that are critically important to running a college, yet not inherently part of the education. All of that can be scaled. To better quality, for the same dollar.

And I should distinguish each of our colleges keeps its own accreditation, president, board, leadership, their own assets and liabilities. So, when I say consolidate finance, we’re not pooling assets and liabilities, that remains distinct. Yet, the very vast operation of auditing, accounting, investment, that can be done as one at a higher level and with the opportunity, we don’t think of it as so much as saving money but finding those precious dollars to invest further into the academic project. So, I’ll say that, over our history, our colleges have more employees. They’re more student facing more faculty, more student direct staff, because the rest of it can be made to operate with better technology, and a high quality of people.

We had a great consultation number of years ago from a retired CFO/COO. And we were four colleges at the time, significantly smaller, and he said, look, you just need one CFO. Whatever it is, you have to call the business leader at a college, it’s fine. But really all said, and last year we had 13,500 students passed through our ground and online classrooms. It’s not the biggest operation in the world. It’s of size. I think in the business world, you would say, of course, an institution, we’re a bit over $250 million in revenue, you can manage just fine with one finance team. So something wild took off in higher ed, where people thinking things like their finance office or their technology or insurance system is part of their unique identity, it really isn’t. The uniqueness has to drive through the academics.

That said, when you take our approach and it’s integrated, we had a gathering of 100 board members and leaders, that we do every two years, in Chicago, a couple of months ago. We regularly convene our chief academic officers and our presidents. We have something called the Chancellor’s Council. Along with our name change my title change from President to Chancellor. You find all ways of coming together that aren’t necessarily part of the scaling per se, but where you have you’ve now scaling talent, and thinking, and creativity, because we’re going to have a President or someone at a leadership level at a college that has a great idea. That’s scalable, and it may not cost anything. It’s a great idea about how to engage with students or to modify a program. So, I like to think of it as we’re amplifying our brain power by coming together.

Drumm McNaughton: Well, it’s interesting because yours is the only non-public system that I know of out there, and what you’ve done is, in some cases, this is from the outside looking in, what you’ve done is you’ve taken the best of a public system and brought it into the nonprofit arena. Is that a fair summation?

Michael Horowitz: I think I and I appreciate you saying that because I’ve never worked in a public system, yet I think that’s a good reference point that people get. I was very taken with an article last year in Trusteeship by the former, public chancellor in New York, SUNY, Nancy Zimpher, talking about this idea of systemness and, celebrating some of the efficiency and effectiveness she’d achieved in that model.

And I think she made a point we’re getting to is, every state has one or more systems. Doesn’t mean they’re going to function effectively. So you have to be thoughtful, you’re not duplicating roles. There’s clarity of who does what. And so, yes, I’d like to think that we strive to operate as an effective system versus one that’s duplicating, getting, in each other’s ways. That requires work every day. There are certainly longstanding examples of colleges coming together. Let’s call out the Claremont Colleges, and their brand is so good that when a student says, I go to Pomona College, it’s part of Claremont Colleges, and that has meaning. My understanding is it’s not quite as integrated as we are, but it shows you there’s not even a lot of that model out there, or let’s say colleges of Fenway.

I think today there are a lot of institutions expressing interest. You mentioned the religious groups. I’ve had the pleasure of talking to a number of religious college leaders from different denominations. They certainly have the right affinity point to do it. And the fact that no one yet has is a great example of something is in the higher ed water and the culture that makes it hard.

That’s why I think you could say, well, we only have six after 15 years and we’ve talked to nearly 200. That’s because we insist that it be a board and governance level decision. And, to share with your audience, it is a change of control. So, the formerly standalone college is now formally part of a system. There is an element you do have to submit it to the accrediting body, sometimes to the state, certainly to the U. S. Department of Education, and our Community Solution nonprofit entity becomes the sole member of each college entity.

Again, the irony is, that sole member construct is one that historically is more common in religious institutions. In their case, it’s often been used as, the order is the sole member of the religiously affiliated college. You also have that construct in healthcare related colleges where a hospital or hospital system might be the sole member of the college. So, the interesting thing is, in some ways we didn’t reinvent the wheel. Our success has been in executing.

Drumm McNaughton: And thank you again for that segue, because, I haven’t primed you to do this, but you’re doing a great job. So, thank you.

[00:20:24] Post-Merger Integration and Faculty Involvement

Drumm McNaughton: I would think once an institution has made the decision to go the consolidation route, there’s a lot of regulatory issues that need to be worked on. You’ve touched on some of those, but the post-merger integration, which is required, whether you’re doing sell side, you’re doing buy side or consolidation, to me, that’s where the rubber meets the road and that’s where you have to be so incredibly detail oriented to make sure you’ve got all the T’s dotted and the I’s crossed. Or is it the T’s crossed and the I’s dotted? I don’t remember.

Michael Horowitz: Whatever it is, Drumm, you nailed it. In some ways that’s the hardest part and it’s the most rewarding to complete. I think you’re on to maybe why this is hard for people to get going. The concept is simple, we’ll come together, we’ll make more of the resources we have. That’s easy. You draw it out.

There’s a challenging calendar on the regulatory process. If I can give you an example, the president of the University of Western States called me in December, 2021. We finished the approval process, and the last entity to sign off was the U. S. Department of Ed in the winter of 2023. Okay, so you have to commit to, “we’re really into this idea. We’re going to tolerate in effect a period of limbo where, we’re getting to know each other. We’re making plans, but we’re in fact not yet approved to advance. Okay, so you have to commit to a period of limbo where, we’re getting to know each other. We’re making plans, but we’re in fact not yet approved to advance.

And you better make use of that time because rest assured with that final approval, we could trigger technology and marketing and admissions and finance. And that’s a lot of work, which in itself does not create, better education per se or more efficiency. So at that point, you may be in the three year realm to get through planning approvals, regulatory, and the integration.

Now on the other side of it. It’s very, very rewarding because there’s more resources, there’s more talent, there’s more technology capability. I think a lot of institutions may start the conversation and then get overwhelmed by wait a minute. We didn’t know we had to do all that”, but you literally need multiple projects and multiple project planning teams, just as you do in any other area of the world.

Drumm McNaughton: I was having a conversation with a gentleman just a little while ago, who was involved with a merger. And I made the comment to him. He said, “you know, the most valuable person that you have on your post merger integration team is your project manager“. And he just laughed and said, “absolutely, you’ve got to have that one person or that team of people who are monitoring everything that needs to be done from a regulatory perspective, from an integration perspective, all of these things”.

The one thing that is always, I think, the most challenging in these post-merger integrations is the building of the shared vision with faculty. Faculty have got to be on board with this. How do you deal with that with the consolidations like what you do?

Michael Horowitz: When we started out, we were the Chicago School creating then TCS now. So as our second college Pacific Oaks joined, I saw the anxiety like, “Oh, you’re going to make us be like the Chicago School, including academically”, even though we were adamant that, “no, we understand you’re different. In fact, that’s what we celebrate.”

I would say more recently with our history, the faculty understand that isn’t really the driver on consolidation, and in fact, there’s more resource available. As a couple of examples, we have teaching and learning resources at the system level, we have a global engagement program that facilitates faculty taking students on study abroad trips, a short trip of a week or so in combination with an online course. We run an annual faculty assembly where faculty from all our colleges can come together. So, I think our history has shown that our model led, in fact, to more faculty, probably better human resources available, benefit plans and so on. And so, I think that was something we had to have some history to demonstrate.

Now, as we integrate fully with the University of Western States, that hasn’t really been the same sort of flashpoint that I’d say it was in the early years. Absolutely, though, that the point is well taken. There’s a high need for communication with faculty the entire college that’s coming in.

Drumm McNaughton: That is so critical because the faculty, if there is resistance there to what’s going on, can stop a deal or make it far more difficult than is necessary. I’ve seen that happen too many times and it’s interesting you mentioned Pacific Oaks. Pat Breen was a good friend of mine back at Fielding when I went through, and I did my doctoral work and I know she’s retired from Pacific Oaks. I wish her all the best.

Michael Horowitz: She remains in our system, by the way, as the current board chair of Saybrook University,

Drumm McNaughton: Very good.

Michael Horowitz: She was named president emerita of Pacific Oaks College and children’s school.

A real higher ed talent.

[00:26:31] System Governance and Board Structure

Drumm McNaughton: Yes, which brings me to my next question, you’ve got a system board which oversees all of the institutions, but each institution retains its own board, correct?

Michael Horowitz: Each institution retains its own board. People have asked me about, the idea of the complexity of a lot of people. We have found it works really well, cause that board is particularly passionate about that college. We didn’t legislate it. What we have found over time is more than half of our system board are people who started at the college board, and they may or may not continue, so there’s overlap and the boards really embrace our system idea. So, they have turned out to be wonderful advocates for the model. We don’t have, I don’t think it’s, accurate to say our system board oversees all the colleges, the system board oversees the system, and in a sense, they’re there as a guardrail on mission, risk, financial health. Whereas the day to day is run by the president of the college and overseen by the college board.

So as an example, the college boards have academic affairs committees of the board. Our system board does not. On the other hand, we have a really great committee called the Academic Collaboration Committee of the System Board, and that is a very big committee made up of board members from the colleges, a few of our system trustees. They’re not approving new programs, they’re more the energy behind, “what are we doing together and what more could we do together?” one, I think, really powerful example this year is they’re supporting and endorsed an academic leadership program that will be run by our system chief academic officer and our system HR team.

All the higher ed has observed faculty are thrust into administrative roles. There’s been no preparation and it’s really hard rowing. So, there are programs out there, we think we have a great opportunity to do it ourselves. and amplify the idea of we want to give you the context of working within a system and surely make sure as you advance to that next role in your administrative career, we’ve equipped you with skill around budget and interpersonal and political relations and regulatory processes, all of it. So that’s an example of what we could do at the system level. I’d say that the system board really doesn’t dive deep into the operations of any of our colleges, they certainly approve a consolidated budget where they can feel positive and understand that, okay, it looks like the ship is sailing forward in good shape.

Drumm McNaughton: That’s really good. Well, Michael, as always, I’ve thoroughly enjoyed our conversation. We’ve touched on some really great points with this on how consolidation and becoming a system can really help institutions leverage resources that may be scarce by themselves, but as a group, they’re far more, thank you for sharing this with me.

Three Takeaways for Institution Presidents and Boards Considering Consolidation

As we always do, three takeaways for institution presidents, boards who are considering a consolidation.

Michael Horowitz: 1. No matter you’re standing today, look for the opportunity to find partners with other colleges and universities, and even other entities in your broad community, however you define it. My coauthor, Michael Alexander at LaSalle University, he did it with a retirement community.

2. Have the conversations early, don’t wait till there’s urgency and be really studied about your financial trends, because our business is educating students, and you need a budget to do that. If the budget is contracting, it’s hard to get better.
3. And if you can think about amplifying resource, you can make your academic mission and your community impact stronger.

Drumm McNaughton: Oh, so great recommendations. Thank you. It’s so good to hear how well you’re doing there at The Community Solution. I’m excited about your new plans. But you told me about some other things that are going on, and I’m really excited. Please share those with our audience.

[00:31:19] Future Plans and Exciting Developments

Michael Horowitz: Well, we, are moving to this new facility in 2026 that will bring together our system office, the Chicago School, Chicago campus, and their proposed Illinois College of Osteopathic Medicine. Think of another clear example of amplifying resource and here you’ll see it in a very physically tangible way.

I would say we’re going to end up using less space than if those three entities were in three different locations, and as our CIO often points out, you can be across the street, if you have two locations, you have to IT setups. It’s, again, we’re being very, very thoughtful about using our resources to the best effect.

Another exciting coming attraction is in 2025, and I hope you’ll visit us in Chicago and you’ll come see us in Vancouver, Canada. We see an opportunity for our colleges to recruit Canadian students, particularly with the new and growing hybrid formats that a lot of professional studies allow. And again, there’s no reason on earth for us to set up six offices. It won’t be a campus per se, but it’d be an opportunity for Canadian and other international students to connect with our colleges, for us to make partners in Canada. It’s a very exciting development, particularly since I firmly believe that a global perspective is important in higher education.

Drumm McNaughton: Absolutely. Michael, again, thank you so much for being on the program. It’s great to catch up with you. And, for anybody who’s listening, happy holidays.

Michael Horowitz: Happy holidays. Thank you for your advocacy for leadership and change in higher ed, Drumm.

Drumm McNaughton: Thank you. Take care, my friend.

Michael Horowitz: Bye.

Drumm McNaughton: Thanks for listening today, and a special thank you to my guest, Dr. Michael Horowitz. Michael, it’s always a pleasure to have you on the program, and I look forward to the next time our paths cross to talk about The Community Solution Education System. Thanks again for listening.

See you next week.