Every institution runs on confidence. Startups need investors to believe that their money won't be wasted. Banks need customers who trust that their savings won't be lost. Schools need students who are confident that the school will be around long enough for them to graduate. And the donors to these schools need to feel confident that their contributions are not being tossed into a black hole.

If a dot-com maverick is unable to earn that level of confidence, her idea won't be funded. When customers lose confidence in their financial institution, you have a scene like the one in It's a Wonderful Life — a classic run on the bank. And if students and donors lose confidence in their seminary, then enrollment drops, giving drops, and financial problems are made even more problematic.

That's the real scare for small colleges behind proposals being floated in the Massachusetts legislature. As reported in Inside Higher Ed, at the end of this past school year, Mount Ida College in Massachusetts closed shop. The school’s enrollment had been dropping, student performance was waning, and the school had not been able to balance the budget for three out of the last four years.

Legislators — angered that students had invested their hopes, dreams, and capital in an institution that was on the path to shutting down — have proposed that schools must let people know when they are thinking about closing.

This makes a lot of sense to some. Students were caught off guard and left for summer break with a lot of uncertainty about their future. Programs of study were left unfinished, and those valuable relationships that pave the way for a career were cut short.

The legal solutions being suggested, however, could make recovering from a financial setback even more difficult. As was the case in It’s a Wonderful Life, confidence can be shaken by rumors. Opening the books to the public invites all sorts of potentially negative opportunities. Things can be misunderstood or misread. And once that information is out in the public, it is open to all sorts of misinterpretation.

And who decides that a school is on a path to dissolution in the first place? Third-party assessors? Regulators? The board? As we’ve seen across the country as various seminaries restructure and reframe, what looks like financial disaster might be an opportunity for rethinking how a school meets its mission.

As the article points out, nothing might come of these legislative efforts this time around, but with the number of schools out there struggling to make ends meet, it makes sense to think about how transparent you want to be as an institution and what your responsibilities are in that regard to your constituency.

Read the article “Is There a Right to Know a College Might Close?” from Inside Higher Ed.