Sep 21, 2018 BACK
Volume VIII, #19
I’m not alone in becoming numb to (and rather bored by) the bad behavior of our 45th President. But I may be alone in believing that the most outrageous development of the current political season is failed New York Gubernatorial candidate Cynthia Nixon walking into Zabar’s and ordering a cinnamon raisin bagel with cream cheese, lox and capers. Alone, that is, save for a small band of co-conspirators with whom, back in high school, I created a magazine called Bagelese. Bagelese covered all things bagel. We ranked bagel stores. We were all over the bagel vs. donut debate. My brother Aaron had a regular column about Jewish holidays and bagels. All of us were shocked and disgusted at Cynthia Nixon’s order. One common reaction – and undoubtedly the cover of Bagelese if the magazine still existed: “Lox Her Up!”
Bagelese featured prominently in my college applications and helped “unlox” the door to higher education. Unfortunately, the days of both print publications dedicated to bread products and rising numbers of college applications are gone. Applications are heading south for two reasons. The first is simple demography: declining birth rates in the past decade (post Great Recession) foretell a 15%+ decline in college-age students in the next decade. The other, of course, is that, for many young Americans, the primary reason for attending college has narrowed to getting a good first job, and many non-selective colleges have a declining relative value proposition compared to a range of faster + cheaper alternatives. While declining demand presents a raft of problems for colleges and universities, one that hasn’t been explored is whether it increases the risk of someone getting “loxed up.”
This occurred to me as I noshed on a bagel while speeding through Bad Blood, the story of Theranos, by John Carreyrou, the intrepid Wall Street Journal reporter who broke the story that Silicon Valley’s biggest health sciences unicorn was peddling dreams, smoke, mirrors – pretty much everything other than a product that actually worked. Bad Blood tells the tale of Elizabeth Holmes, a young Stanford dropout with an appealing idea: revolutionize health care with a novel device that tests for any condition with only a few drops of blood from a finger prick. The problem was that blood testing is complex, and microfluidics even more so. So despite raising more than $750 million at a valuation that peaked at $9 billion, Theranos was unable to develop a product that came close to the dream.
Bad Blood is engrossing because deception tends to be proportional to desperation. As the pressure on Holmes builds, she and her team resort to increasingly bizarre tactics: hacking industry-standard testing equipment in order to attempt to test the small amount of blood in Theranos’ “nanotainers” (while passing off the fraudulent method as the revolutionary Theranos device); maintaining a secret lab; turning octogenarian board members (George Schultz) against their own families; and policing the cover-up with aggressive legal and surveillance tactics, including on Carreyrou himself (led and enabled by super-lawyer David Boies, who comes off looking terrible).
Colleges under revenue pressure may feel desperate enough to engage in similar deception. Witness the eight colleges caught submitting false data to U.S. News for the 2017 rankings. The eight colleges – Austin Peay State, Dakota Wesleyan, Drury University, Hampton University, Oklahoma City, Randolph College, Saint Louis University, and Saint Martin’s University – are exactly the non-selective schools already under significant revenue pressure. Keep in mind, these are only the colleges that submitted false data that moved them up meaningfully in the rankings. And, of course, these are only the colleges that U.S. News caught. Perhaps the biggest scandal is that the punishment doesn’t come close to fitting the crime. Because U.S. News waited until the end of August to announce the fraud, these eight schools were listed as “unranked” for 14 whole days, then given a clean sheet in the newly posted 2018 rankings.
None the eight colleges have accepted any blame. Several schools are blaming U.S. News. Others claim unintentional errors. But as Preston Cooper of the American Enterprise Institute tweeted, “Funny how all the ‘errors’ in the data colleges submit to U.S. News help their rankings rather than hurt them.”
I wonder whether the next board meeting at Dakota Wesleyan or Hampton University will be as illuminating as a typical Theranos board meeting. The Theranos board consisted of respected luminaries like former Secretary of State Schultz, Henry Kissinger, Sam Nunn, and James Mattis. In Bad Blood, Carreyrou portrays them as easily manipulated by Holmes: a hapless board of non-experts failing to ask basic questions about whether the product worked, and scared of impugning the integrity of Holmes and her management team. One of the major critiques of Theranos is that no board members were industry experts. Which raises the question, how many college and university boards consist entirely of prominent alumni, but no experts on the postsecondary education industry, alert and capable of detecting manipulation?
Colleges and universities are not immune to Theranos-like systematic deception. Temple University’s Fox School of Business was so focused on maintaining its top-ranked online MBA program that it fraudulently reported higher GPAs of applicants, underreported the number of admissions offers, provided false information about graduate debt, and counted academic coaches as faculty members in faculty-student ratio. And just as Theranos hacked Siemens’ blood analyzer, Temple hacked the GRE, converting GRE scores into GMAT scores and reporting that 100% of admitted applicants had taken the GMAT. When U.S. News questioned the 100% figure, Temple pulled a Theranos by providing more false information, prompting U.S. News to drop the matter.
Business schools are under revenue pressure as never before. MBA programs have been shuttered at University of Iowa, Wake Forest, and Virginia Tech. Applications for 2018 were down 27.7% at Rice, 19.6% at UT-Austin, 18.3% at UNC Chapel Hill, and 16.2% at Georgetown. Business schools have been the font of much innovation in higher education: case studies, executive education, and online programs to name a few. As the value of the MBA bundle plummets relative to faster + cheaper alternatives, and as revenue pressure mounts, watch for other business schools to “innovate” like Temple.
While many in higher education maintain that systematic, “predatory” deception can only occur at for-profit universities where management is motivated by money, what comes across in Bad Blood is that money wasn’t a top-five motivator for Holmes. What motivated her? Initially it was the vision to revolutionize healthcare. In time, after she was featured on the cover of Inc. as “The Next Steve Jobs,” Holmes had an image to maintain. She hired Apple’s advertising agency, began calling the Theranos system “the iPod of health care,” and took to wearing the same black turtlenecks as Jobs.
It’s indisputable that people are greatly motivated by money; some are motivated solely by money. But many are equally motivated by status, or the need to meet expectations or targets. Temple blamed its fraud on a rogue employee. But there was no indication that the motivation was financial gain. Ditto the recent excellent Chronicle of Higher Education report on a Colorado State professor who forged an offer letter from the University of Minnesota in order to secure tenure. (He also received a $5,000 raise, but status, not money, was the primary factor.) Some resort to deception to enhance status or beat expectations. Much of the time it’s an effort to meet targets, or maintain status, or the status quo: status loss aversion yielding small deceptions that subsequently build into tortured, complex schemes. This is the lesson of Theranos, which just announced its dissolution, while Holmes has been indicted on fraud charges and will probably be “loxed up.”
College and university boards must take this lesson to heart. Their institutions occupy privileged places in society and their communities, with officers and administrators basking in the reflected glory of institutional status. Enrollment declines and revenue pressures will amplify bad behavior and bad blood. If trustees aren’t sufficiently educated, informed, and alert, they’ll probably perform as well as the Theranos board and find their school’s precious, pernicious ranking reduced to a donut, or a bagel – that is, a big zero.
University Ventures (UV) is reimagining the future of higher education and creating new pathways from education to employment. UV portfolio companies are making higher education more affordable, pioneering entirely new approaches to learning, and helping employers think differently about how and where they discover talent. UV’s approach draws upon the values and traditions of higher education to play a sustainable role in transforming the path from education to a stronger economic future for students, universities, and employers. UV is led by principals with decades of experience as entrepreneurs, investors, authors, and leaders in higher education.