Lessons from the Marketplace

By Konrad Alt ’81, alumni board president

The world of finance isn’t all gold and glitter these days. A large portion of our mortgage industry has collapsed, and an even larger portion is distressed. Something on the order of a million homeowners are staring into the abyss of foreclosure, tens of millions more are losing wealth to falling real estate prices, and many tens of thousands have lost their jobs. Congress is angry. The media are out for blood. If you don’t pay much attention to these things, take it from me: it’s nasty out there.

As I’ve spent essentially my whole career working with troubled financial institutions and am neck deep in the current crisis as a managing director of the Promontory Financial Group, I can’t help asking myself: what lessons, if any, might this mess hold for a liberal arts college (Reed) currently in the flush of good health and rising wealth? Although Reed is neither a financial institution nor troubled, I think three points warrant consideration.

First, while we all strive for success, short-term success can be the enemy of more significant and sustained accomplishment. The oversimplified but essentially accurate explanation for what’s going on in the markets these days is that we are experiencing the ugly aftermath of a speculative bubble in residential real estate and financial assets tied to it. Like hurricanes, financial market bubbles occur at regular intervals, come in a range of sizes, and behave in roughly predictable ways yet never take exactly the same course twice. Once passed, they starkly clarify the distinction between things built to last and things merely built.

I suspect that the educational marketplace is not immune from these phenomena. Reed has been fortunate, in my estimation, to enjoy superior leadership in recent decades. But the same period has also brought a tide of demographic and market forces that has lifted many other institutions of higher learning to comparable heights. Only when the tide inexorably recedes again will it become entirely clear which of these institutions has become stronger for a time and which—Reed, we all hope, among them—has become stronger for all time.

Second, declarations of victory often reveal blindness. One of my colleagues says that the best indicator of impending trouble at a major financial institution is a management team convinced that it is smarter and more gifted than any of its competitors. Hubris, it turns out, wasn’t just a problem for Achilles. Good management teams, at least the ones I’ve worked with, always believe they have a lot to learn. They may take fleeting pride in their accomplishments, but they stay focused on the challenges around and ahead of them.

Any institution that has experienced as much good fortune and good press as Reed has in recent years is clearly at risk of a bad case of hubris. In practice, however, I’ve seen surprisingly little of it. To be sure, the college handily meets its duties of self-promotion in its efforts to recruit and retain students, faculty, and staff. But in private, every time I meet with faculty and staff, I am impressed less by their hubris than by their humility. I consistently find them keenly aware of the challenges associated with providing an outstanding quality education. I sense not complacency, but a healthy skepticism about whether the college is as good as it could be, and a constant probing, informed by attention to trends in higher education, for ways to make it better.

Finally, you need to know who you are and what your business is. The institutions and investors that do well when the market collapses tend to be the ones that take a long-term view of their business and stay focused on their core principles. That focus on core principles can feel like an anchor when the tide is rising; less focused institutions may, indeed, have greater flexibility to ride the waves of opportunity. But (horribly overextending the metaphor), when those waves crash on the beach, those with focus stay afloat. Those without, sink into the sand.

Flush with the reputational and financial advances it has accomplished in recent decades, Reed probably faces, as I argued in a previous column, a particular challenge in keeping its core principles in focus as it enters its second century. Staying focused can’t be as simple as refusing to change: obliviousness to environmental changes is no more a recipe for success than hyper-responsiveness to them. Rather, the challenge any successful institution faces is to continue to succeed through innovation constrained by core principles.

Reed isn’t a financial institution, of course, and it isn’t troubled. Moreover, the financial marketplace seems to punish poorly run institutions more readily and more severely than the educational marketplace does. Still, there are parallels. As members of the Reed community, committed to the college’s long-term success, our job is to stay focused on the long term, remain appropriately self-critical, and to understand and innovate in accordance with the principles that have defined the college and contributed to its success.