Return to Virginia Business - January 2004

by Heather Hayes
For Virginia Business
January, 2004

Three years ago the leaders of the Darden Graduate School of Business Administration showed an independent streak that even Thomas Jefferson might have admired. They decided that the school would cut its financial ties to the University of Virginia and go it alone. Bluntly put, the business school’s ambitions were higher than what the state was willing to fund. And Darden’s stellar reputation — it is frequently ranked among the top business schools in the country — was threatened.

The past decade has seen a surge in the number of graduate business programs around the country and overseas and the competition for the best faculty, students and corporate support was getting intense. Yet Darden couldn’t raise faculty salaries or tuition rates to market levels without the university’s permission. “That was all fine when the state subsidized us adequately,” says Darden’s dean, Robert S. Harris. “But then the state began to be less able to do so, and we started to have a shortfall of resources that we didn’t think the state could — or would — make up.”

Now in its 49th year, the school has a new financial model that more resembles a private school. It’s still part of U.Va., but takes no state funds, which used to make up a quarter of its annual budget. It has raised its annual tuition a whopping 70 percent to $34,000 (Virginia residents pay $5,000 less) and expanded its enrollment by 25 percent, from 240 students in each class to 300 students. A round of faculty raises are planned.

Harris wants the school in the top 10 in major surveys. It recently ranked 11th in the latest U.S. News & World Report and 20th by The Wall Street Journal. “What this model does is give us the freedom to really compete with any business school in the world,” says Harris. “But it also leaves us with a responsibility to go out and generate those resources. I’m confident, though, that if we have outstanding programs, we’ll be able to find the resources we need.”

Having enough outstanding programs has not been a problem for this school, which has always been able to compete and succeed on its own terms. Founded in 1954 with the aid of several Harvard Business School defectors and named for former U.Va. president and Virginia governor Colgate W. Darden Jr., it quickly climbed into the top tier of business schools through a unique emphasis on “case study” instruction and a strong ethics curriculum. It has a solid reputation among companies for being more attuned to real-world business needs than most schools.

The case study approach is unusual among business schools. Faculty members in conjunction with the business community come up with real-world scenarios that students will likely face once they graduate. Darden’s inventory of case studies number in the thousands and covers almost every possible private-sector scenario, such as when to conduct a global product launch, whether or not to make an acquisition, or what mix of advertising should be used.

“The case discussion really forces you to be prepared and think on your feet,” says Shantel Moses, a second-year MBA student who previously had worked in brand management for the Heinz Corp. in Pittsburgh. “And it’s highly interactive. The teacher may ask some questions and guide the class through the discussion, but at some point they almost step out of the conversation entirely and let us talk it through and figure out an answer. In this way, you learn not only how to analyze problems but how to communicate ideas and solutions.”

Harris says companies that hire Darden students typically rave about their ability to hit the ground running. Quite a few have run all the way to the top of the corporate ladder. Although the school has just 7,500 alumni, a relatively small number compared to many other MBA programs, Darden’s graduates include, among others, the CEOs of PepsiCo, United Technologies Corp., Citrix Systems, Landmark Communications, C.B. Fleet Company, Thompson Hospitality and Owens and Minor.

The school’s academic and financial models also depend heavily on its highly regarded Executive Education program, which was incorporated into the school’s mission from the beginning and, uniquely, receives just as much support from the administration as the graduate programs. Darden faculty teach both MBA students and executives and later integrate materials developed for custom corporate programs into the MBA curriculum. “The great feature there is that our faculty are constantly interacting with business executives on whatever the issues of the day are, so when they show up in an MBA class, they bring that with them,” says Harris.

This program, not surprisingly, is a major source of revenue for Darden. Nearly 5,000 executives and senior managers enroll in more than 100 programs each year. Under the new arrangement, the school keeps all of the money generated by its executive education courses and other profitable activities.

And Darden has continued to build on its deftness for fundraising. Its new $85 million Darden Grounds campus — a 340,000-square-foot, H-shaped complex of buildings completed this year — was paid for with privately raised funds. Overall, private donations and endowments account for 30 percent of the school’s $50 million annual operating budget.

Darden’s move to financial independence was its best option, says David L. Kirp, professor of public policy at the University of California-Berkeley and author of “Shakespeare, Einstein, and the Bottom Line,” a look at marketing and higher education. Both U.Va. and Darden had seen state contributions to the operating budgets essentially cut in half over the past decade, he says. “It’s very hard to see what Darden might have done differently, given that the commonwealth of Virginia talks a wonderful game about Mr. Jefferson’s university but has been less and less willing to fund it.”

Kirp believes that Darden’s decision to embrace financial self-sufficiency will help it attract more prestigious faculty members and a better pool of prospective students and achieve its competitive goals. But if Darden wants to be a top-10 school that is respected by other business schools, “it’s going to be hard,” Kirp says, “because Darden is known for its focus on case development and for its Executive Education program, not for its scholarship in the field.”

For all of the fanfare around this new strategy, Darden and its officials have found themselves the subject of criticism. Some observers worry that Darden has become truly privatized, with all of the privileges of a private college and none of the responsibilities of a public one. Harris is quick to point out, however, that Darden remains affiliated with U.Va. Darden pays the university a 10 percent “franchise fee” for the rights to U.Va. branding and still has partnerships with other U.Va. schools, and Harris reports directly to the university provost. “And I still get basketball tickets,” he jokes.

Other critics, though, express concern that as Darden pushes to become a leading business school with an international reputation, Virginia students will be frozen out. In the 1990s, Virginia residents made up nearly 25 percent of the student body; today, that number has dropped to just 18 percent. C. Ray Smith, a former dean of the school and current member of the board of trustees, blames the difference on the recent enrollment hikes. “We’ve added 120 students over the past two years, but we didn’t get any additional Virginia applicants,” he says. “Our stance has always been that we will take every qualified Virginia student that wants to be here.”

The school is applying that same sensitivity to its responsibility to the local business community. Recently, Darden opened a placement office in Northern Virginia to raise awareness and opportunity among Virginia businesses. W. Herbert Crowder III, director of Alumni Career Services, notes that more than 700 alumni are now working for Virginia companies, the second largest concentration of Darden graduates behind New York.

“We feel that we’re on the right course,” says Harris. “We feel that we now have the freedom and the ability to continue to raise the quality of our MBA and Executive Education courses and make them among the best in the world and to attract faculty who are superb in the classroom and students that bring a diversity of experiences and perspectives. Ultimately, success will be about turning out effective, ethical leaders, and we think that we’ll only get better at getting that done as we move forward.” No doubt, Jefferson would be proud.

Return to Virginia Business - January 2004