Members of the Cornell Faculty Senate, at their first meeting of the academic year last week, were briefed about the recent creation of eCornell and about other distance learning developments that occurred over the summer.
President Hunter Rawlings opened the Sept. 13 meeting by thanking a number of faculty committees for hard work during the summer on "issues of real importance to the university," he said, including the search for a new dean of the College of Engineering and planning for the West Campus residential initiative, as well as distance learning.
Most of the briefing and discussion at the meeting focused on eCornell. The Executive Committee of the Cornell Board of Trustees Sept. 7 approved the university-owned and financed, for-profit corporation for the purpose of producing, marketing and delivering non-degree educational programs developed in conjunction with the university's schools and colleges. The Executive Committee also approved an initial, one-year capital funding allocation for eCornell of $12 million from the university's endowment and elected members of the board of directors for the corporation, including trustees Peter C. Meinig, chair, Myra Maloney Hart and Jeffrey P. Parker; Inge T. Reichenbach, vice president for alumni affairs and development; and alumnus Philip M. Young, general partner in U.S. Venture Partners.
Rawlings announced at the senate meeting that he had appointed William Arms, professor of computer science and chair of the Provost's Advisory Committee on Distance Learning, as a faculty member on the board of directors. "I am especially pleased that someone who has been involved in the process will be involved in implementing it," Rawlings said.
Charles Walcott, chair of the department of neurobiology and behavior and associate dean of the faculty, recapped distance learning activities and discussions to date. He noted that the administration last spring had initially proposed creating eCornell as a for-profit entity financed through venture capital. At that time the senate took issue with the for-profit structure and with the idea of outside funding, as well as with some of the other issues relating to proposed distance learning activities.
As a result, Walcott said, on March 8 the Senate passed a resolution seeking input into any future planning for distance learning. In response, the Provost's Advisory Committee on Distance Learning was created. On July 11 the advisory committee endorsed the development of non-degree programs to be delivered by distance education, as well as the creation of a separate legal entity to develop and distribute those programs, subject to six conditions. The advisory committee report did not take a position on whether or not a for-profit entity was appropriate.
On Aug. 3, Vice Provost Mary Sansalone responded to the advisory committee report, noting that administration plans for eCornell are "entirely consistent" with the recommendations and conditions made for distance learning by the Provost's Advisory Committee on Distance Learning. And on Aug. 10, the University Faculty Committee (UFC) endorsed the advisory committee report.
The UFC requested at that time that the administration provide a detailed justification of its position on the for-profit structure at last week's meeting. It also appointed a three-person subcommittee to prepare background information on the merits of a for-profit versus nonprofit structure and invited the committee to draft a resolution if it arrived at a clear preference for either structure. The subcommittee concluded, however, that it was premature to draw a conclusion.
J. Robert Cooke, dean of the faculty and chair of the UFC, said later that while neither the subcommittee nor the UFC took a formal position on the issue, both groups felt uncomfortable with a for-profit structure.
Michael Goldstein, special counsel to the university on distance learning, explained the university's reasons for choosing the for-profit structure. "It is an oversimplification to say that the objective of a for-profit structure is to create profit. Instead the goal is to create value. There's a distinction," he said.
Goldstein said he has worked with universities that have embarked on distance learning activities with both kinds of structures, and both can work well, depending on the institution's special situation and needs. But the problem with a nonprofit structure, Goldstein said, is that "no matter how successful, there is no appreciation in value because it has no market value."
On the other hand, he said, "a for-profit has value because it has equity. It creates capital by selling equity. Cornell University owns the equity in eCornell. It was the purchase of an asset. But the expenditure never goes off the books of the university because it was not made out of operating funds, but out of the endowment. But if eCornell were a nonprofit, the purchase would have to come out of operating funds. That's a huge difference."
In summary, Goldstein said, the choice of a for-profit is preferred if the entity is in immediate need of capital and if the endeavor is likely to create value.
But Peter Stein, professor of physics, pointed out that in order for Cornell to realize the benefit of the equity value created by eCornell, it must sell that equity. He asked whether the sale of that equity would eventually cause the university to lose control over eCornell.
Goldstein pointed out that the agreement between the university and eCornell is a contractual one and that the university controls the eCornell name. In addition, he said, if at some point the university decides to invite outside partners into eCornell, it would not necessarily have to relinquish full control.
Risa Lieberwitz, professor of collective bargaining, agreed that as Goldstein had suggested, "whether to go for-profit or not-for-profit is a choice, and our choice is not simply a question of finance," she said. "It's a question of values. Who do we want to be, who are we? ... Do we want to sell ourselves as equity that will inevitably affect our independence?"
"There is no question, it's a choice," Goldstein responded. "The question is whether it's a wise choice. It's a question of whether this activity, that is separate from the core activity of this institution, can be more effectively carried out under this structure. ... There are attributes of this structure that will enable eCornell to become a major player in distance learning."
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