London Business School’s Big Expansion Plans

London Business School is seeking to dramatically expand its size by acquiring a new building within walking distance of its campus near St. Regent’s Park in London, according to Dean Sir Andrew Likierman. The new building is expected to be the centerpiece of a major fundraising campaign as the school attempts to move closer toward a U.S. model of funding with far more support from alumni.

Sir Andrew, an accounting professor who became dean in January of 2009, made his comments in a wide-ranging interview with Poets&Quants. He also shared his views on the value of the MBA degree, his opinion of MBA rankings and the pressure they place on schools to manipulate data for advantage, and the school’s positioning in an increasingly competitive marketplace. But Sir Andrew made clear that the school’s single biggest challenge is that it has run out of space and currently has little money to fund expansion.

“Our greatest challenge as a school is very much the fact that we are short of space,” says Sir Andrew. “We are absolutely full. We would like to be bigger, have more faculty, and do more as an institution. That means we need more money. That is a familiar cry. But we operate in the middle of London, and London is not cheap as a place. The challenge is particularly acute for us because we don’t have the endowment the major American schools have. It is extraordinarily small by U.S. standards. We don’t have the luxury of being able to fall back on a central fund.”

London’s current endowment is less than 20 million pounds, or less than $31.5 million. By comparison, the endowment at Harvard Business School tops $2 billion. Even Babson College, a second-tier school primarily known for its entrepreneurship MBA program, has an endowment that is nearly eight times the current London fund—some $243 million. London’s comparatively small endowment limits its ability to compete for the best students and faculty and to provide world-class facilities.

Sir Andrew concedes that convincing alumni to more consistently ante up won’t be easy. “A lot of the people who came through here are from the early years when the state provided funds,” he says. “There was no sense that people had to put their hands in their pockets for that. We are trying to increase the number (of alumni who give to the school) in future years.”

ONLY 14% OF LBS ALUMS PARTICIPATE IN THE SCHOOL’S ANNUAL GIVING CAMPAIGN

At London Business School, for example, only 14% of the school’s alumni give back to the school on an annual basis. That is a sharp contrast to the numbers at major American schools where there is a tradition of giving. Dartmouth’s Tuck School of Business set a new record for participation by alumni in its annual giving campaign with 70.5% of all living alums making a contribution last year. At Yale University’s School of Management, 46% of its MBA alums reached into their pockets to donate money to the school; the University of Virginia’s Darden School was the beneficiary of a 43% alumni giving rate, while Stanford Graduate School of Business reported a 41% participation rate by MBA alums.

“We are moving away from the European model and closer to the U.S. model,” says Sir Andrew. “We are at the moment setting up a campaign, which we will announce next year. We want to have our wish list sorted out. The new building will be a centerpiece of that campaign. It would be a substantial addition to our building.”

Unlike many top business schools often housed in relatively new and spacious quarters, London Business School occupies a magnificent domed and arched building officially owned by the Queen and set across the street from the lovely green rounds of Regent’s Park. But the hallways are narrow and there are few places for students to gather and work in teams. Most students have to cross a busy street and walk down a residential block to find a place for their team meetings. With the addition of more students and programs over the years, the school has outstripped the capacity of its buildings.

Sir Andrew says that London Business School has asked for planning permission to construct a huge lecture hall under the front lawn, among other capital improvements aimed at lessening the crowded conditions. Within three years, Sir Andrew expects to enroll one more stream of 75 students in its full-time MBA program, which just took in 404 students. “It won’t be a dramatic increase, but we plan increases in other programs as well,” he added.

  • Celebration

    Differences in donation levels are largely cultural and that applies to both would be donors and recipients. The business schools simply aren’t very good at asking for money from alumni. Throw in a top tax rate of 52%, a recession and saving for your own kids undergrad (on top of likely paying private school fees if in London) and these business schools well be doing well to get near 20% alumni donor participation levels.

  • Geraint

    UK’s income tax rate is defintely higher at either 40% or even 50% for high income earners. Higher sales tax also takes a hit in disposable income of many professionals. I feel that tax and living costs take a massive bite out of pay package.

  • Mark

    Elizabeth,

    I’d disagree with you with your comment on the UK taxation system. If you are a 40% or 50% taxpayer (which you should be, as an LBS alum), the school can claim an additional 20% from the government via its Gift Aid scheme. The donor can also claim a tax rebate of 20% or 30% of the donation value, depending on their own individual tax rate.

    So in essence, if you want to donate a total of £1,000, it only ends up costing you £694.44 if you’re a 40% taxpayer, or £641.03 if you’re a 50% taxpayer.

    This compares very favourably to the US, where if you’re a 35% rate taxpayer (the highest federal tax rate), a $1000 donation would cost you $650. (And only folks earning over $379k are in this tax bracket).

    So no, the UK isn’t “less generous”… and as someone who’s been through the process, the tax authorities make it very easy to claim the rebate if you pay tax via PAYE – if your annual donations are less than £2k, you can claim the rebate in one phone call, and don’t usually need to provide documentary evidence – compare this to the US form-based approach!

  • Giovanni

    No wonder that with this small endowment, LBS is really stingy with scholarship support to students. The only significant LBS scholarship schemes are for women applicants. I can’t get excited about one trick pony LBS and think its is overrated.

  • Sanjeev

    Elisabeth made fair arguments from fiscal and tuition funding perspective that explains why some UK MBA alumni have fewer incentives to donate. Many recent alumni are not unwilling, but unable to donate with squeeze. Like other programmes, LBS has increased its tuition fees well too much year on year while scholarships remained stagnant. I personally pledged non-financial support such as volunteering at info events, interviewing applicants and career advice.

    In terms of naming rights as source of funding, I think LBS’s administration has been complacent in this matter and has nobody but itself to blame. Even conservative Oxford and Cambridge have sold naming rights to benefactors, along with Imperial and City in the UK. My uni LSE operates in similar high priced West End location, yet it manages to expand with innovative fund raising. It bought a nerby buidling named after donor Connaught, main lecture theatre is funded by Hong Kong alumni, even research centres are named after backers. Contrast LBS wing A-E, nameless theatres with only the Sainsbury building named, a slamdunk given donor was on board. Good luck to get building in one of priciest location and competing against corporate HQs, oil sheiks and oligarchs. With meagre $30m endowment, you rarely get a decent 3 story building at Regent’s Park after building and planning.

  • Elisabeth,

    Very good points. Thanks for making them!

    Best,
    John

  • Elisabeth

    Hi John,

    Thanks for the profile of this fine international programme with LBS’s changes and fundraising challenge. Two other aspects may pose a challenge to alumni donation besides cultural difference.

    1) UK tax regime is less generous when it comes to donation to alma mater and write-off of taxable income. Current prohibitive UK income tax rate is 40% for MBA salaries. Turning naming rights of buildings or LBS into donation maybe a solution, but it is in an embryonic stage compared to US programmes.

    2) With the hike of 9,000 GBP tuition fee a year for undergraduate studies in the UK, many students will have to take more loans for tuition and living costs. Some think tanks estimate that UK undergraduates will owe 50,000 GBP. Add to it total costs for MBA with its declining ROI, many UK students just need to prioritise repayment for both degrees over donation.

  • Min

    Europe, including England, never had strong traditions of giving. United States is opposite Europe, we know that already from Alexis de Tocqueville reflections.
    It is matter for englanders to change their mentality first. And this task will not be an easy job.

  • Christian,

    Of course! Sorry about that. Forgot to fix that in my draft. It’s certainly corrected now.

  • Great article John, though I would correct where it says beunes aires. It should say Buenos Aires. Thanks!