Home > Update > March 2008

The Business of Naming Business Schools

For many years, business schools have searched for new sources of revenue to off-set the rising costs of business education. Executive education and part-time MBA programs, philanthropy and increased tuition all help, but a naming gift – the holy grail of gifts – provides an opportunity to truly transform a school.

In addition to the convention of naming buildings, which is common at many universities and other non-profit organizations, business schools have adopted the convention of selling the name of the school to a single donor in perpetuity. Among the business schools of Big Ten universities, for example, nine have a donor’s name attached.

Naming gifts have been a transformational catalyst for many business schools to reach a new level of excellence in their program and faculty quality, national reputation and impact on society. The financial resources provided by a naming gift can strengthen programs, pay to recruit and retain top faculty members and efforts to recruit top students. In a few cases, an individual name can enhance prestige of a school, if the individual is nationally known and respected, or if over time the prestige of a named business school becomes established in the public’s mind —such as Wharton (University of Pennsylvania), Tuck (Dartmouth College) or Kellogg (Northwestern University).

Despite how many schools have turned to naming gifts, there are potential downsides. For schools, a major cost of a naming gift is the value of the foregone opportunity of naming the school in the future. Every year, it seems, a new record is set with a naming gift. In 2004, Carnegie Mellon’s University received a $55 million naming gift from alumnus David Tepper. Soon after, that amount was dwarfed when New York real-estate developer Stephen M. Ross announced a $100 million naming gift to his alma mater, the University of Michigan’s business school.

As a result, one cost of naming a school today is the loss of the potential increased value by waiting to get a higher price in the future. If naming prices grow at rates exceeding the return on invested endowments, it is possible that a naming gift is a losing proposition in present-value terms. John Fernandes, president and chief executive officer of AACSB International, the accrediting organization for business schools, told the Wall Street Journal, “The question I raise with deans is why sell the school name in perpetuity. After all, most businesses license names only for a certain number of years. It might sound like a great deal now, but you have to ask yourself whether it will look so good 30 or 40 years from now.”

Naming also requires a school to incur some actual “branding costs”—i.e., some of the naming funds will go toward “building the new brand.” Duke University has devoted considerable resources to branding the Fuqua School of Business, for example. Since Duke is a very well-known brand, its business school had trade offs to consider in developing its own identity and moving away from its parent brand.

Naming also can make a statement about the values of the school. In particular, it says the school is willing to connect its identity to a single generous supporter. A few institutions have encountered rocky waters when their naming donor’s business actions generated negative media attention. This practice can be particularly sensitive at public institutions, where state taxpayers still provide important annual operating funding.

Having an individual name can even weaken the team that supports the school. It is possible in selecting a single naming donor, schools may disappoint many other alumni and friends who can never have that opportunity. Losing the engagement of accomplished alumni and friends is costly, as the most successful business schools benefit in many ways from active involvement of their most accomplished graduates.

There are other less tangible costs of naming the school, but these three—the lost option of a future naming at a higher price, lost brand equity and possible weakening of the team—are probably the most significant.

Are there alternative ways to approach the naming issue? One possibility is to simply not name the school. That is the path chosen to date by some very prestigious and wealthy schools, such as Harvard and Stanford that can afford this choice due to their vast resource base. Not naming is not really an option for most public schools, due to resource constraints.

The Wisconsin Way

A new path was taken with the Wisconsin Naming Gift, the first of its kind received by a business school.
The approach was very different from a traditional naming gift. Rather than a single donor naming the school, 13 Wisconsin alumni gave $85 million to ensure the name would remain the Wisconsin School of Business for the next 20 years. This approach mitigates or eliminates the disadvantages of a conventional naming gift.

Option value. The finite time horizon on the Wisconsin Naming Gift provides an opportunity to rename (or continue the Wisconsin Naming tradition) 20 years from today. The Wisconsin Naming Partners and school leaders can think about whether to sell the name or protect it again. At that point, it is likely the name could yield $250 million.

Brand equity. The University of Wisconsin-Madison is known as a world-class institution. By retaining the Wisconsin name, the business school remains aligned with and helps build the reputation and brand of one of the world’s greatest universities. It also recognizes the investment that state taxpayers have made.

Teamwork. The gift is the ultimate team approach. Their excitement and engagement in our mission and the inspiration felt by other alumni will have benefits that extend beyond anything money can buy.
Among the most important concepts that are taught in business schools today are option value (from finance), brand equity (from marketing) and teamwork and innovation (both from management). The Wisconsin Naming Gift approach communicates that at the Wisconsin School of Business we practice what we teach.

The Wisconsin Naming gift is a stellar example of value-creation through ideas and innovation. By thinking carefully about the practice of naming a school, listening to alumni and applying best business practices, the school was able to deliver more of what it needed. The Wisconsin Naming Gift is also unique in that most of the funds - $70 million – are unrestricted in use, giving the school greater flexibility to deal with the rapidly changing business and education environment. Unrestricted gifts of this magnitude are almost unheard of at public universities.

Shakespeare famously questioned, “What’s in a name?” With business schools, it’s clear there’s more than meets the eye. For a variety of reasons, named business schools are here to stay. The challenge for business schools is to make the most of the opportunities that naming gifts provide and to ensure by their actions that their good names remain exactly that.