The Evolving Stakeholders of Higher Education

The privatization or commercialization of higher education has been a significant focus for scholars of higher education with researchers from a variety of disciplines examining trends and patterns in these organizations over time. Evidence cited in favor of this privatization includes the decline in state appropriations, the changing nature of funding for research in response to the passage of the Bayh Dole Act, rising tuition across the board and the changing nature of federal financial aid, which is giving the money directly to the students rather than the schools.

There is a second equally important trend occurring within the same period– the federalization of higher education. Despite the fact that the potential impacts of this trend are similarly significant for this industry it has received less attention from the literature thus far. Evidence of the trend of federalization within the higher education industry can be found in the increased pressure for accountability from Congress as well as the increases in the accountability requirements imposed by the Department of Education and the IRS.  For example, the recently proposed changes in the Education Departments’ rules for for-profit and nonprofit colleges and universities increase the federal and state oversight of for-profit and nonprofit colleges and universities financial and recruiting practices while also imposing a standard definition of a credit hour at a federal level (see recent articles in The Chronicle of Higher  Education here and here).  There have also been numerous calls for increased oversight of endowments and requirements for increased levels of endowment spending as reported in The Chronicle of Higher Education here, here and here. Both of these examples point to the increasing role of the federal government in the higher education industry as a force of increasing accountability.

The potential impacts of the federalization of higher education are just as significant as the potential impacts of the privatization of higher education. Both of these trends result in a shift in the key stakeholders of the organizations within this industry which in turn can dramatically impact the behavior of these organizations.  The role of stakeholders is heightened in an industry like higher education where the organizations lack clear measures of success or failure. This is especially true in the case of the nonprofit and public sector organizations that form the majority of this industry.

Organizations which lack clear outcome measures are more subject to external referents of accountability rather than internally defined measures of success or failure. In other words, because there are not clear measures of success these organizations are more accountable to their various stakeholders to define the success or failure of the organization in terms of the goals and interests of the stakeholder groups. This if further complicated by two things: (1)the more stakeholders an organization has the more the more groups they have to please and (2)the extent of the influence of any particular stakeholder group is strongly related to their level of involvement in the organization.

Therefore if either the makeup of the organizational stakeholders shifts (groups are either added or subtracted) or the relative power of the existing stakeholders shifts, this has the potential to dramatically influence the behavior of the organizations. For example, if privatization is occurring we would anticipate that the power of state and federal government stakeholders is declining and the power of the consumers (students, parents, and other educational consumers) and the private stakeholders (donors) is increasing. This would have distinct consequences for the behavior of the organization because it would be more responsive to the wishes of the private stakeholders and consumer stakeholders instead of the government stakeholders. The story would be different in the case of federalization where we would assume that the federal government stakeholders would be increasing in power relative to the private, state government and consumer stakeholders.

Regardless of which trend is stronger within the higher education industry, or which trend will eventually prevail, the basic conclusion is the same: We should focus more attention on the implications of both of these trends for the stakeholders of these organizations and the subsequent impacts of these changes on the behavior of these organizations in the short and long-term. Utilizing the unique conditions of the higher education industry, and the changes currently happening within this industry, researchers can shed light on how organizational behavior changes in response to alterations in stakeholder makeup and power. This can then shed light on how organizations more generally respond to these changes in stakeholders and if these responses are different for organizations in different sectors.