Under Constraints, HBS Turns to Gifts and Endowment Revenue

In the face of growing constraints to revenue generated by its executive education and publishing programs, Harvard Business School will turn to alumni gifts and its endowment distribution to manage operating costs in the 2014 fiscal year, according to its 2013 annual report.

In the annual report, released online on Feb. 7, Chief Financial Officer Richard P. Melnick wrote that the Business School expects operating costs to rise with higher expenses associated with employee compensation, financial aid, expansion of executive education and publishing services, and the introduction of a new virtual learning platform, HBX.

While Harvard Business Publishing, which distributes faculty research, and the executive education program generated nearly 56 percent of the School's revenue in both fiscal years 2013 and 2012, according to the report, both branches face constraints from evolving pressures in the publishing industry and residential capacity for executives on campus respectively.

Consequentially, the Business School will seek substantial increases in revenue from Harvard’s endowment and current use gifts that are immediately available.

“Income from gifts given by HBS alumni and friends—including endowment and construction gifts together with current use giving—is central to the School's economic model,” Melnick wrote in the report. “Unrestricted current use gifts are particularly crucial as a source of flexible funding for the opportunistic investments that support innovation at HBS.”

The 2013 year-end value of the Business School’s endowment and current use funds was $2.9 billion, according to the report. Melnick wrote that the Business School’s endowment payout will grow by 2 percent in the 2014 fiscal year. Furthermore, as the result of an increase in income from donations, the Business School expects the actual revenue received from the endowment to increase by 2 percent from the 2013 fiscal year.

Additionally, the School has seen significant growth in its revenue from unrestricted current use giving, which increased from $19 million in the 2012 fiscal year to $22 million in the 2013 fiscal year. In an email to The Crimson, chief marketing and communications officer Brian E. Kenny wrote that these funds offer the Business School flexibility to address critical strategic resources and expenditures as it invests heavily in attracting new faculty and staff members, and in maintaining the competitiveness of its executive education and publishing programs.

“[Unrestricted funds] provide a much-needed and immediate impact on the School’s ability to advance key priorities, including financial aid, innovation in the curriculum, and nimbleness for research,” Kenny wrote, also citing the year-long FIELD course for first-year MBAs, the Harvard Innovation Lab, and the development of the online learning platform HBX as fund recipients.

In preparation for the shift towards a reliance on gift and endowment resources, the Business School dedicated significant resources in the 2013 fiscal year towards infrastructure for soliciting and facilitating gifts, including a rejuvenated alumni website. The goals of its capital campaign will be announced formally on April 20.

—Staff writer Alexander H. Patel can be reached at alex.patel@thecrimson.com.