Williams College
Self-Study for Accreditation
Financial Resources
Our ambitious mission requires considerable financial resources, which we are fortunate to have, thanks to the size and performance of our endowment; the great generosity of our alumni, parents, and friends; and our success in attracting grants and contracts from foundations and governments. The challenge is to steward these resources most effectively. We present here summaries of the following subjects: the importance of the endowment and our policies on managing it, revenue for current operations; long-run financial planning, the annual budget process; and development.
Endowment
The endowment has grown substantially in the last ten years, due to the generosity of donors and the skilled management of investments. Its value on June 30, 1997 was $713.9 million; ten years later it had grown to $1.63 billion. The average total return on investments over that time was 15.1 per cent. Through July 2007, our comprehensive fundraising campaign, which began its public phase in 2003, had raised $404.9 million, exceeding its $400 million goal with 17 months remaining. At the time of the last self study, endowment oversight and management was the responsibility of the Finance Committee of the Board — a group of trustees and alumni with extensive financial experience and expertise, who volunteered considerable time to the effort. Although the committee’s performance was remarkable, a consensus emerged over recent years that we would benefit from the creation of a more formal investment office. Over the past year we have put one in place, beginning with the hiring in the Fall of 2006 of our first Chief Investment Officer (CIO). One indication of the importance we attach to this change is that the CIO is a member of Senior Staff. Under the guidance of the Finance Committee, the CIO developed a plan to staff the new office. The committee will continue to oversee the investment operation and make decisions concerning the allocation of investments across asset classes, while the Investment Office will identify and monitor individual fund managers and provide research assistance.
Our investment strategy is to maximize total return over the long run while aiming for an average annual real return of six per cent and to achieve both at reasonable levels of risk. Over the past year, the Investment Office has worked with the Finance Committee to develop a new portfolio model to allocate our investments across ten asset classes. Working with Cambridge Associates, a financial consulting firm, we modeled several portfolios and compared their relative levels of risk, return, sensitivities to changes in assumptions about market movements, volatilities, and downside risks, and then chose the one that best met our investment goals. (Cambridge Associates advises endowed non-profit institutions and private clients on finance and investments. Its only business is to provide counseling, research, and performance reporting, and it takes special steps to avoid conflicts of interest with money management firms.) The Investment Office and Finance Committee will continue to analyze the performance of the new portfolio model, adjusting it as the investing environment changes.
Williams has long been an activist shareholder in the publicly traded firms whose securities we hold. An Advisory Committee on Shareholder Responsibility (ACSR), consisting of faculty, administrators, students, and alumni, advises the Finance Committee on matters relating to the non-financial performance of the firms, and each year it advises on votes on shareholder resolutions before the firms’ annual meetings. The ACSR recognizes the importance of combining strong financial performance with social and environmental commitment. From time to time it also has provided comment on other matters, such as recommending investments for the Williams Social Choice Fund, a giving option that helps the College fulfill its mission while contributing to positive social and environmental change. Since 2006, the ACSR has overseen the College’s commitment to avoid direct investment in firms doing business in Sudan. One challenge we face is determining how the role of the ACSR should evolve given some movement away from direct investment in individual companies and towards greater investment in private equity funds, reducing opportunities to vote on shareholder resolutions.
Revenue for Current Operations
Revenues for operations in 2005-06 came primarily from student charges (47 per cent), avail from endowment (37 per cent), and gifts (11 per cent). Student charges represent the most stable source of revenue because of the demand for a Williams education. However, as the endowment grew over the last ten years we chose to decrease the share of support for operations from student charges and increase the share from endowment earnings. In 1996-97 student charges accounted for 54 per cent of operating revenues and endowment avail 28 per cent.
We also benefit from significant and stable revenue for operations from current gifts. Each year about 60 per cent of our graduates participate in the Alumni Fund, which provides unrestricted money for current operations. In 2005-06 the Annual Funds (Alumni Fund plus Parents Fund) supported seven per cent of current operations with $11.1 million; in 1996-97 it was 6.4 per cent with $5.4 million. Another four per cent comes from other gifts, such as bequests, support for specific programs, and gifts from foundations. That figure is unchanged from 1996-97.
Long-Run Financial Planning
Our long-run financial planning and short-term budgeting are integrated with overall planning and evaluation. Changes in allocation of resources in response to evaluations and initiatives are reflected promptly in long-run projections and short-run budgeting.
We have used financial projection models for decades. The current one projects revenue and expenditure at least ten years forward. The model, which we call the Financial Plan, incorporates all current and projected sources of income and all expenditures — operating and capital — to describe our current and projected financial situation in sufficient breadth and detail to inform decisions about long-term policy and short-term budgeting. We update the Financial Plan regularly to reflect new commitments on allocation of resources that follow evaluation exercises, such as our commitment to extend need-blind financial aid to foreign applicants and our commitment to reduce greenhouse gases.
The Financial Plan contains the following modules: Operating Statement, Capital Statement, Statement of Total Financial Assets and Liabilities, Census, Fundraising, and, currently, Campaign Reconciliation. Each presents a multi-year view, both forward and back. The Provost presents a summary of the Financial Plan each quarter to the Board.
The Operating Statement details operating revenues and expenditures. We group revenues into student charges, gifts and grants, and endowment avail, and expenditures into salaries and wages, benefits, financial aid, managers’ budgets (office expenses such as travel, printing, postage, and telephone), and other current expenditures (e.g., debt interest payments and support for the local community).
The Capital Statement details spending on both new capital projects and capital renewal — the ongoing repair, renovation, and modernization required to maintain our physical plant. Each year we target for capital renewal about two per cent of the physical plant’s replacement value, and include that amount in operating expenditures. To assess the sustainability of our capital spending, the Capital Statement also tracks revenues from gifts for new capital projects, gifts to the endowment, and realized life-income funds.
The Statement of Total Financial Assets and Liabilities brings together data on investment income, gifts not targeted for current operations, and borrowing, and then reconciles those data with outstanding current liabilities, debt, new borrowing, and life income/annuities obligations. This shows changes in net assets over time.
The Census module shows staffing levels over the same time period. The Fundraising and Campaign Reconciliation modules track and project the results of our fundraising activities against targets. The Financial Plan enables us to project the cumulative impacts our decisions will have on our financial resources. It incorporates assumptions about endowment return and avail rates, growth rates for student charges, other earned income, gifts, growth in wages and benefits, projected costs of remaining need-blind in admission, growth in managers’ budgets, and anticipated new capital and capital renewal projects. Assumptions concerning available resources are conservative. For example, we assume an eight per cent annual return on investments, although over the last 50 years it has actually been 10.5 per cent. Assumptions about spending, on the other hand, are based on historical trends to reduce the chance of underestimating. We take account of contingencies in our long-run planning: we routinely simulate the model to explore the consequences of alternate assumptions, including changes to our financial-aid policies, unexpectedly low returns on investments, volatile energy costs, and taking on new debt for new construction projects.
The Financial Plan is a crucial tool, but not the only one we use to evaluate how effectively we allocate resources. We regularly track expenditures by function. In 2006-07, 45 per cent of our spending was targeted for instruction, 26 per cent for student support, 18 per cent for plant and auxiliaries (a full quarter of those expenditures were on utilities alone), and 11 per cent for general administrative. The comparable percentages for 1996-97 were 43 per cent instruction, 21 per cent student support, 24 per cent plant and auxiliaries, and 12 per cent general administrative. We also compare our financial performance with that of peers. From public sources, we monitor such indicators as endowment per student (National Association of College and University Business Officers), expenditures per student (Integrated Postsecondary Education Data System), and total student charges (public announcements).
The Financial Plan also provides a context and constraints for our short-term planning. Typically we limit the avail from endowment in each year to between 4.5 and 5.5 per cent of its start-of-year value. This percentage is based on the assumption that our financial assets will grow annually by at least nine per cent (eight per cent from investment returns and one per cent from gifts). If our assumptions about our asset growth and rates of inflation hold true in the long run, this avail rate will maintain the endowment’s purchasing power over time. The 4.5-5.5 per cent figure is a ceiling, not a target; the avail often falls well below that. Since the last self study, the average has been 4.26 per cent.
Annual Budget Process
The discipline of our annual budget process and the conservative avail from endowment help guarantee that we allocate resources where we most need them. That discipline is achieved with participation throughout the College.
We are always in some phase of the annual budget process. It begins each fall when we ask budget managers to submit budget and staffing requests for the following fiscal year and also any requests for facilities improvements or renovations. A large number of those managers are faculty chairs of departments and programs. The relevant Senior Staff member reviews each proposal with its manager, with the goal of allocating resources to the highest priorities within departments and divisions and justifying any requests for significant growth. For example, the Dean of the Faculty reviews requests from department and program chairs, the Vice President for Operations reviews the requests from the facilities offices. The Provost uses the requests and the results of reviews to construct a preliminary budget for the following year and then presents it to the Board in January.
Between then and April, Senior Staff members work to relate managers’ requests to institutional priorities. In doing so, they keep in mind substantial input from the Committee on Priorities and Resources, the faculty-student committee that meets weekly through the academic year with the Provost, Vice President for Operations, and Vice President for Alumni Relations and Development. Senior Staff members determine finally which requests to recommend for funding, and the decisions are incorporated into the final budget that is proposed to the trustees at their April meeting. The Board then approves a budget, though it can make changes, as recommended by the Provost, at its October meeting.
The annual cycle includes work after the fiscal year ends (June 30). In the summer we document the actual financial results and undergo an external audit, currently by PricewaterhouseCoopers. The firm’s annual statements are in the Team Room. The auditors also test and evaluate our internal control systems and have not found any significant problems. The 2006 audit identified areas in which a few of our internal controls could be tightened, including ways to ensure that spreadsheet calculations are accurate and that the code in the software we use has not been tampered with. We have addressed all of them as part of our efforts to ensure compliance with the new Statement on Auditing Standards No. 112. The Provost, who is also the Chief Financial Officer, presents the audit results to the Board at its October meeting and makes them available to the College community and general public (www.williams.edu/admin/controller/statements). Throughout the budget process we estimate investment returns and gift revenue conservatively and set expenditures with the expectation that all managers will fully spend the resources available. As a result, we have underspent the Board’s approved budget each of the last ten plus years.
Development
The President and Senior Staff set our fundraising priorities, in collaboration with governance committees, such as the Committee on Priorities and Resources, Committee on Appointments and Promotions, and Committee on Educational Policy, and subject to approval by the Board. Operationally, the Vice President for Alumni Relations and Development works directly with the Provost to ensure that fundraising priorities and activities are clear and consonant with our needs. Communication between the Provost’s Office and the development program is direct and continuous.
We have clear policies on soliciting and accepting gifts, which meet the NEASC standard. A fundamental document is "Policies and Procedures for Soliciting and Administering Private Gift Support," revised August 6, 2003 (in Team Room). We distribute this document to all faculty members and heads of administrative offices. The original version was presented at a faculty meeting in 1999. We revised it in 2003 as we moved into the public phase of the current campaign and after the strategic planning process that determined the campaign’s objectives. The document makes clear that we will solicit and accept only those gifts that are consistent with our mission and purposes. The President has final authority to grant approval to accept any gift, and does so on the recommendation of the Provost and other members of Senior Staff.
We take very seriously our stewardship responsibility to donors. The policy document makes clear that programs or departments that benefit from gifts are expected to assist Development Office staff with their responsibility to report regularly to donors on the use of funds.
The Vice President for Alumni Relations and Development has overall responsibility for the development and alumni relations programs. Development is currently staffed by 25.5 FTE professionals and 14 support staff, organized into four giving programs: annual, corporate and foundation, leadership, and planned. Leadership is the largest component and includes monitoring and communicating with around 2,000 individual prospects capable of gift commitments of at least $100,000; the 25th and 50th Reunion programs; prospect research; and stewardship and donor relations. Development activities benefit greatly from the alumni relations program, staffed by six full-time professionals, an intern, and four support staff; from advancement information systems (seven professionals and ten support staff); and from communications (4.75 FTE professionals).
The central feature of our current development activities is The Williams Campaign (TWC) — a multi-year, comprehensive fundraising effort, which reached its $400 million goal in the Summer of 2007, well before its closing date of Dec. 31, 2008. (The campaign will continue until then.) Publicly launched in September 2003, the campaign’s purpose is to fund the initiatives of our strategic plan. “TWC Progress Reports” are in the Team Room.
Although there is much work to do before The Williams Campaign is concluded successfully, we are already turning our attention to the post-campaign period. Discussion centers around these questions: How to sustain the enhanced giving levels achieved during the campaign? What level of resources for development will be needed? What should our staffing pattern and program arrangement be?
Our record at getting gifts is strong, but properly stewarding those gifts remains a significant challenge. We can do a better job at this, and we have taken or are taking the following steps:
- Paying careful attention to the proper documentation of gift and pledge agreements, including a written stewardship plan for each;
- Working closely with the Provost and/or the Dean of the Faculty prior to formalizing gift agreements to make sure that fund managers can fulfill our obligations to manage and report on donated funds in accordance with the donor’s wishes;
- Improving collaboration with the Controller’s Office to be sure our documentation of new pledges is consistent with auditing requirements;
- Shifting the reporting responsibility for the donor relations program from communications staff to leadership giving staff within the Development Office;
- Adding staff to donor relations.
The last step is an example of changes in allocation of resources as a result of evaluation of our performance.
Additional challenges loom. Historically, our alumni relations and development programming has been rooted in a graduate’s strong sense of identification with his or her class year. Increasingly, alumni also relate to the College through various affinity groups, e.g. athletic teams, singing groups, the Williams Black Alumni Network. What are the implications of these new identifications for how we organize alumni for fundraising and alumni programming? At the same time, our student body is increasingly more diverse racially, ethnically, and by sexual orientation and nationality. Not all these groups share the same philanthropic traditions with alumni from earlier eras. What are the implications of these changes for fundraising? Also, new technologies have created new ways to communicate and to keep data. These advances can greatly affect how we engage alumni and keep up to date on their interests. How should we adapt to these new technologies and use them productively to foster even closer relationships?
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Our financial resources are commensurate with our ambitious mission and enable us to plan with confidence into the foreseeable future. Our operations do not depend on vulnerable financial resources or narrow bases of support. We have the ability to respond to financial emergencies and unforeseen contingencies. We have achieved this financial stability largely through intelligent investing and management of resources, careful planning, and disciplined spending. By limiting the rate at which we support current operations from endowment we guarantee our ability to support future generations of students at levels comparable to today. Within that discipline, however, we continually look for ways to use our resources to improve the quality of our programs and adapt to meet changing needs. Over the past five years, we have been dedicated to implementing all aspects of our strategic plan. It has resulted in a planned growth in our faculty of 15 per cent, the creation or enhancement of several academic programs, the construction of major new facilities in support of the performing arts and student life, and the construction now in progress of office and library spaces needed for the work of faculty and students. We have been able to accomplish those goals while remaining financially strong.
We benefit from a tradition of thoughtful and effective management of College finances that results in part from a continuing commitment to evaluating and improving our organizational structures, policies, and practices. As described above, during the past year we have implemented a new model for our investment operation, which will provide greater support for the selection and monitoring of portfolio managers and enable the Board’s Finance Committee to focus its energies on policy-level issues, such as determining appropriate levels of investment risk and optimal allocation of investments across asset classes. Our Development Office, in the midst of what has proven to be a remarkably successful comprehensive campaign, is exploring how it can best restructure itself to support the College after the campaign ends in 2008. As part of a recent reorganization of responsibilities among the Senior Staff most responsible for our financial and physical resources, we expanded the Provost’s position to include that of Treasurer, which brings together the activities involved in overseeing our financial operations. Likewise, we reconfigured the position of Vice President for Administration and Treasurer to that of Vice President for Operations, allowing more focused attention on the support of our facilities, dining, human resources, and auxiliary operations.
Projections: We can project continued change in the near future. As mentioned in Chapter 2, Senior Staff is engaged in several new initiatives aimed at improving our processes for planning and resource management. These necessarily involve the management and use of our financial resources. They include getting advice from outside consultants on whether our budgeting procedures represent best practices, an almost completed year-long process of improving internal controls across the College, the clear articulation of policies regarding ethical behavior and conflicts of interest, a new methodology and set of tools to aid us in meeting the planning and budgeting challenges of maintaining and modernizing our physical assets, and the coordination of the planning and financial modeling activities of the Investment Office and Provost’s Office. We also are well into a master planning process to determine our short-, medium-, and long-term needs for renovation and improvement of our athletic and fitness facilities. Finally, we have begun a long-range planning initiative involving Trustees, senior administrators, and faculty to identify the core challenges, financial and otherwise, we will face in the next 15 to 20 years.
The chapter has detailed other projections. The Williams Campaign will continue through 2008. Our alumni relations and development staff are turning their attention to other long-run planning matters, including how to sustain the enhanced giving levels achieved during the campaign and the proper allocation of resources to development. We also project improvement in the stewardship of gifts. We are planning actively how to respond to changes in the way alumni relate to the College, such as the increasing importance of affinity groups, and to the long-run implications of the increasing diversity of our students and alumni.
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