Creatively Financed Legal Education in a Marketized Environment: How Faculty Leveraged Buyouts Can Maximize Law Schools' Stakeholder Values
Groshoff, David, Fordham Journal of Corporate & Financial Law
"This [financial aid] money is not necessarily going to educate more students or to improve education. It's a scholarship ultimately going into profits."1
Reading this law review Article presumably means that at some point you came to love - as well as perhaps occasionally (and only professionally, of course) despise - a number of law school professors. The professors that you love may: (a) possess long-standing reputations that cause wait lists to enroll in their courses; (b) receive university-wide awards outside of the law school for excellence as educators; (c) attract additional caché to the law school through their scholarly research, writing, and presentations; or (d) positively and indelibly impact students' academic, professional, and personal lives. For a moment, however, imagine your academic, professional, or personal life without ever having the opportunity to engage with those - or any other - venerated law school professors.
While seemingly far-fetched, such a scenario currently represents a legitimate nationwide threat, even at the least suspecting law schools. During my first semester as a tenure-track law professor at an American Bar Association ("A.B.A.") fully-accredited law school, in fewer than ten trading days, the market value2 of the parent entity that controls the law school plummeted more than thirty-seven percent.3 In the crasser language of dollar terms, my employer's market value declined more than three-quarters of a billion dollars from October 4, 2010, through October 18, 2010. Some readers likely will believe that such financial problems relegate themselves solely to those of us who chose to teach4 at so-called "for-profit," "proprietary," or "fourth-tier toilet"5 law schools. Other readers, whether students, faculty, or other law school stakeholders, may likely trust - since their law schools are housed within a flagship "state" university6 or because their law schools reside in the hands of a small consortium of seemingly beneficent not-forprofit owners7 - that their law schools are immune from facing capitalistic financial market pressures that can go to the heart of a law school's faculty or decanal8 retention.
But those readers should think again. As Professor Christopher C. Morphew and Dr. Peter D. Eckel stated, "[t]he trend toward privatization in higher education is clearly accelerating . . . [and w]hat seemed like science fiction only a few years ago is now" becoming a reality.9 For instance, public-sounding law schools, such as the Michigan State University College of Law,10 the Western State University College of Law," and the University of Virginia School of Law,12 are, in fact, privately financed entities.13 In July 2011, another flagship state law school - the University of Minnesota - announced its potential going-private transaction.14
Although contrary to one's initial instinctual reaction upon hearing the "state" law school name, a trend exists to privatize and creatively finance these entities. Creatively financed law schools ("CFLSs") inconspicuously scatter themselves throughout all tiers of US News' rankings.15 A CFLS, therefore, may be a separate "silo-financed"16 entity relative to the rest of its corresponding university, or it may be a type of hybrid-financed17 entity. Besides creative financing, other law schools recently caught the attention of third party suitors and became subject to restructuring discussions that resembled traditional corporate merger and acquisition ("M&A") activity.18 Maintaining creative financing and non-traditional organizational architectures, however, may lead to shocking results for the law students who attend these schools and the tenure- track faculty who teach there, potentially subjecting all of a law school's stakeholder constituencies - including society as the ultimate consumer of legal services - to undesirable spillover effects.19
Dubiously dovetailing into and exacerbating the foregoing discussion of law schools' marketized activity is the provocative content of a recent proposal by the A. …