Some Thoughts About Laurentian

19 04 2021

My first tenure-track job was at Laurentian University in Ontario, Canada. I worked there for three years before coming back to the UK, where I have pursued my academic career ever since. I grew considerably during my time at Laurentian: my capabilities as a classroom teacher improved immensely and my French benefitted from the fact I was in a bilingual organization. I also benefitted from being exposed to a part of Canada very different from the parts of the country I previously knew, which were basically affluent cities and suburbs.

Northern Ontario School of Medicine, Laurentian University Campus

By Matt Strickland at English Wikipedia, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=16728682

  I was saddened to a hear that this university had declared itself to be insolvent was undergoing reorganization under Canada’s CCAA, which is the equivalent of Chapter 11 in the United States or Administration in the insolvency law of England and Wales. I was also saddened by the huge cuts to a wide range of departments and degrees (ranging from civil engineering to midwifery to political science) that have had a negative impact on students, faculty and other stakeholders.

I was distressed to see the blog post by higher education consultant Alex Usher in which he documented that the university’s president and board of directors had presided over a degree of mismanagement that seems to, in the opinion of Usher, constitutes extremely bad business judgement. When a company goes bankrupt or goes into the local equivalent of Chapter 11, the shareholders usually aren’t entitled to sue the directors and top executives. However, they are allowed to sue if they can demonstrate to a court that the managerial judgement calls that caused the organization to fail were so incredibly bad as to constitute really bad business judgement that nobody familiar with the industry in question would regard as a legitimate way to run an organization of that type. We are talking about the difference between circumstances in which people review the managerial decisions that contributed to insolvency and say “Yeah, I can see why they made that bet and it’s too bad it didn’t work out because of unforeseen factor X” versus “Holy crap! I can’t believe a manager in that type of organization would ever do that!” For a theoretically-informed overview of what the law says about business judgement in England, Australia, and Delaware, see this recent paper in the Journal of Legal Studies here.

 Now all universities have suffered because of the pandemic and universities can also suffer due to long-term trends such as declining population in their region. Sometimes universities fail despite the directors and managers diligently discharging their duty of care to the best of their abilities. However, the language that Alex Usher uses in writing about the degree of bad decision-making at Laurentian University leads me to expect that there will be various lawsuits, including class action suits, against the directors and executives of this organization. I express absolutely no opinion here about whether these lawsuits will be successful or meritorious—for informed opinion about that, please talk to an expert on Canadian insolvency law and the duties of directors such as Thomas Telfer.  However, I’m surprised that no such lawsuits have already been announced. I would tend to attribute the fact we haven’t seen such lawsuits yet to the fact that Laurentian’s alumni and other stakeholders tend to live at some distance from the large law firms that have expertise in this specialised area of law. Another factor is that academics, the stakeholder group affected most directly by this event, generally do not use agency theory and the rational actor model to understand how senior university administrators operate. These are the approaches that I have used throughout my academic career to understand what is going on around me. In fact, I often encourage PhD students who want to have academic careers to read chapter 2 of Cracks in the Ivory Tower, a controversial book that applies agency theory to higher education.  While I think that it is possible to go too far in applying agency theory in understanding how universities operate, as the Cracks in the Ivory Tower book does, I think that they have enough predictive power to be useful. I think, therefore, that people who want senior managers at other universities to make better decisions should think about what agency theory says can be done in this case. The academic literature on director liability in UK higher education  and US higher education may be useful in thinking about these issues.

I also think that we need to think carefully about the circumstances in which universities and similar organizations should be allowed to file for Chapter 11 and its local equivalents. I’ve said above that I think that it would be a mistake to say that CCAA should never be available to such organizations. The CCAA process was created in the Great Depression to allow insolvent companies in restructure while remaining in business. It’s less dramatic that traditional bankruptcy. In a company with shareholders to whom the executives must answer and who know their investments will lose much of their value if the firm goes into CCAA, the CCAA process is only going to be used as a last resort. A non-profit university doesn’t have residual claimants with the same sort of control rights, so the ex ante personal costs to a university president and board members of triggering CCAA are lower than in a regular company. The CCAA route, which has massive social costs for creditors and other stakeholders, should only be used as a last resort. I think that it would be reasonable to say that university administrators should be allowed to use it, but only if they are willing to sacrifice some of their personal wealth.

During and after the 2008 financial crisis, which saw governments bailing out Wall Street firms and managers who had made bad choices, people from across the political spectrum complained, quite rightly, that we have a system in which top executives were rewarded by the market when their risky bet paid off and were rescued by the taxpayer when things went bad. “Capitalism for the profits, socialism for the losses” isn’t how a capitalist system is supposed to work as the risk-reward matrix requires personal accountability by top decision-makers. Personal accountability should apply to well-paid managers in the private sector and to those in the public sector as well. I’m astonished that the president of Laurentian remains in his job.

I see that a Canadian MP has introduced a private member’s bill that would clarify that universities should not be allowed to use the CCAA process. I understand there is widespread support for this proposal but I think that the bill should not be supported. First, to say that universities should NEVER be able to use CCAA is an extreme position. This bill, if passed, could force a university to declare bankruptcy at some point in the future.  Moreover, it is a diversion from the more immediate action that is needed. Right now though, we need something immediate to disincentivize other university managers from using CCAA unless it is absolutely necessary. A private member’s bill that would take forever to get Royal Assent isn’t going to work. A personal lawsuit against university administrators for mismanagement launched by donors, faculty, alumni, and other stakeholders would raise the ex ante costs of other university presidents who are considering whether to trigger the CCAA button.  I understand that when Mountain Equipment Coop’s board and CEO used the CCAA option, they were sued by the customers of that beloved brand. I’m not saying the CCAA option should never be available to the managers of universities, cooperative, and other organizations that aren’t profit-seeking companies, merely that it should be a last resort that is only available to the directors at the cost of the loss of their personal money. 

A contact in Canada has brought a very interesting piece in the Globe and Mail to my attention. The article reports that the university’s creditors, which include TD Bank, had extended unsecured loans to the university on the assumption that in lending money to on Ontario university, they were effectively lending money to the Ontario government, which has a very high credit rating. The decision by the Ontario government to allow LU to go into CCAA suggests that, in future, lenders will regard each university as a separate borrower and will attach interest rates and conditions to loan that reflect each institution’s own credit rating. Perhaps Ontario universities will have to start issuing bonds that are rated on the issuer-pays model. US and UK universities already have bond ratings issued by Moody’s (for example, see here).

The article also discusses the political dimensions of this debacle and suggests that the increasing unpopularity of universities with people on the cultural right (think of fans of Jordan Peterson) may have something to do with the decision of the Ontario government not to bail out this organisation at a time when so many other organisations (airlines, restaurant chains, etc) are getting assistance from the taxpayer.  Konrad Yakabuski writes:

The Ford government was roundly despised within the ranks of the academy well before the Laurentian debacle landed on its plate. On the campaign trail, Mr. Ford railed against cancel culture on university campuses in his province. Only weeks after taking office in 2018, his Progressive Conservative government implementednew rules requiring post-secondary institutions to “protect free speech” and “not attempt to shield students from ideas or opinions that they disagree with or find offensive.” That put a lot of noses out of joint on campus, where woke culture rules with an iron fist.

Next up, the Ford government cut tuition fees by 10 per cent and froze them for two years, without topping up university operating grants. For smaller institutions, which already had a harder time than their bigger peers drawing premium-paying international students, the revenue crunch made already tight budgets unworkable. For Laurentian, which appears to have overextended itself on capital projects it had little business undertaking, the COVID-19 pandemic and subsequent loss of foreign students left it with no choice but to call in the bankruptcy experts.

I have long been concerned that universities in the English-speaking countries have been losing their social licence to operate because they have become too closely identified in the public mind with the political left, particularly with the new variant of the left that is closely associated with intersectional theory and identity politics.  It has long been common knowledge that university professors tend to be a bit more left-wing than the average person their age. Registered Democrats have outnumbered Registered Republicans in the US for many decades. However, until recently there were always at least a few prominent right-wing professors at the top universities. Hard data from the US (see here and here) and soft data from other culturally proximate countries suggests that universities have, since 2000, become less viewpoint diverse and downright hostile to conservatives. If the average centre-right voter, or even the median voter, forms that impression that universities nowadays only teach postcolonial transgender settler-colonial sociology and have become intolerant of conservatives, centrists, and even Old School Social Democrats, such voter will tend to believe that universities, unlike obviously socially useful organizations such as airlines, just don’t deserve bailouts in crises. In early May, university leaders here in the UK were very disappointed when the government turned down their request for a comprehensive bailout package and instead offered much more limited support to universities.  

The right-wing of the Conservative party was positively jubilant when they heard that the universities were being denied their request for a cash bailout. They were also pleased that the government said they would allow UK universities to go bankrupt. Now if you take a close look at the fine print in the UK government’s rescue measures announced in May 2020 it is certainly true that they denied the request for a straight bailout, but they also announced a host of below of the radar measures to help universities, such as giving them the right to collect a full year’s tuition fees in September and, crucially, urging university creditors to show “restraint”.  My reading of the situation is that the UK’s Conservative government wanted to show its electoral base that it is going to tough on the bearded Marxists in higher education sector while quietly supporting a sector that has played such a crucial role in the UK response to the pandemic (think of the vaccine developed by Oxford scientists). Something similar may be going on in Canada.

In the case of Laurentian, however, we are talking about a university that is far more ideologically diverse and far more hospitable to small-c conservatives than the highly selective universities that serve more affluent universities. Ontario policymakers should be aware of that Laurentian is a relatively conservative, or at least viewpoint diverse university. It’s not the type of Woke University that Jordan Peterson warned you guys about. At Laurentian, I had a number of senior colleagues who were open about the fact they belonged to socially conservative Protestant denominations. I also had colleagues who were very supportive of the controversial decision to send Canadian soldiers to Afghanistan. In fact, when I was there the president of the university, who is a relative of a famous Canadian social democrat, drove a car that was emblazoned with a yellow “Support Our Troops” ribbon, which in the Canadian context is a signal of relatively conservative political sentiments. I had a colleague who produced a large number of scholarly works that were informed by her Pentecostal faith and who was extremely popular with students, especially those who shared her religious beliefs.

I noticed that while many of the highly selective universities that teach affluent students have pretty much discontinued the teaching of military history as too macho and vaguely right-wing, military history is alive and well there. Laurentian even hired me—I’m neither a conservative nor a Conservative, but I’m not a standard woke leftist either. At dinner with colleagues at Laurentian, I once let slip that I supported capital punishment for murderers. I was feeling a bit provocative that day so I added in that I was particularly in favour of capital punishment in cases in which the murderer has harvestable organs that could be given to law-abiding citizens. (I was dining with some professor friends who I knew had pretty strong left-wing views about the justice system). There was a brief moment of silence as my colleagues were shocked to hear a fellow academic support the death penalty but then someone broke the ice by joking “Hey, this isn’t &*%ing Queen’s University here—the president has a yellow ribbon on her car so you should fit in just fine.” Queen’s is university that teaches disproportionately wealthy students and which is famous for virtue signalling and left-wing academics.

I would conclude this blog post by saying that I am saddened by the crude, callous, and inefficient way in which Laurentian appears to be making its transition from a bilingual French-English institution to one that is basically English. Academics whose first language is French have been fired without consideration of their ability to teach in English. Given that the correlation between being a native English-speaker and getting high student satisfaction scores is relatively weak, that seems like a dumb and cruel move.

 I understand that underlying demographic reality: the proportion of Canadians whose first language is French has shrunk dramatically in my life time and in the region in which the Laurentian is located there are large numbers of students with French Canadian surnames who can’t speak a word of French and, in some case, can’t communicate with their grandmothers. From the 1960s to the 1990s, Canadian politics was dominated by questions related to French-Canadian nationalism and this university’s bilingual heritage needs to be understood with respect to that political context. Obviously the Ontario of 2021 is a radically different society and the French-English tensions of the twentieth century seem somewhat quaint, as do the closely related tensions between Catholics and Protestants.  So I suppose it was inevitable that Laurentian eventually eliminate the courses that are taught in French, which have small numbers of students, and which were being cross-subsidized by the end of the university. It was also probably necessary for the university to eliminate the costly and anachronistic system of have separate federated universities for several Christian denominations. The importance of intra-Christian identities in Canadian society has faded in recent decades, so paying to have separate mini-universities for the Anglicans and the United Church etc seems really anachronistic in 2021.  So modernizing the university doubtless involves changing its culture so that it is better equipped to attract students from the very successful multicultural city of Toronto. However, it should have been done in a more efficient and compassionate fashion.


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20 04 2021
Jonathan Weisman

Andrew, you might want also to direct readers to Canadian authority on “business judgement”, which is well-canvassed in Kerr v. Daniel Leather, 2007 SCC 44, in the context of disclosure obligations. See, eg. here:
https://www.dentons.com/~/media/FMC%20Import/publications/pdf/s/Shay%20Ralph%20The%20Supreme%20Court%20Of%20Canada%20W.ashx

20 04 2021
andrewdsmith

Very good suggestion!

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