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Student Yanqi Zhao works in OCAD’s art studio.Chris Young

Sara Diamond is in her element. On stage at the Grand Hall in the Sharp Centre, the unmistakable "box on stilts" in the heart of Toronto that is home to OCAD University, she is presiding over a gala, her long, angular black dress nothing like the regulation suits favoured by most university presidents, male or female.

The occasion is the centre's 10th anniversary and the announcement of two charitable donations: $3-million from the Sharps (Rosalie and hotel magnate Isadore, who partly financed the centre named in their honour) and $2-million from the family of Bay Street money manager Catherine (Kiki) Delaney, who is also OCAD's chancellor.

The gifts are the biggest the school has received from the private sector in many years and a welcome shot in the arm. Diamond smiles at those in the crowd, many of them alumni, and tells them the Sharps have set the tone; they should expect to receive calls for support as well.

It's a moment of triumph for her, not just because of the donations but because she also has narrowly averted a public-relations disaster.

Unhappy with the lack of all-night studio space, students had been planning to stage a sit-in protest that would have spoiled the party. Diamond won a truce by agreeing to open the studios 24/7 for a few weeks in the crucial end-of-term period.

Appearances are important in art, so perhaps it should not be surprising that an art school would work on polishing them. And OCAD U, founded in 1876, has plenty to polish.

It is the oldest and, with approximately 4,600 students, largest art and design school in the country. It is recognized globally for producing renowned visual artists, from Group of Seven member Franklin Carmichael, William Kurelek and Michael Snow to, more recently, Rebecca Belmore and Shary Boyle, both of whom have represented Canada at the Venice Biennale.

In that time, it has evolved from a modest institution with $1,000 in government financing to, since 2002, a fully fledged university that grants degrees in design, fine arts and visual and critical studies, conducts research and has an operating budget of almost $60-million.

To the public, OCAD presents a bold vision, proclaiming its desire to recruit "the next generation of artists, designers, inventors, digital innovators and cultural leaders," promising prospective students that "you not only study art history, you're a part of it," and assuring them that an OCAD degree prepares them for rewarding and lucrative careers.

But those appearances can also conceal what is going on behind the scenes. Interviews with former senior executives at the school, current staff and students, as well as potential employers, suggest that, more than a dozen years after the former Ontario College of Art and Design became a university, it is still struggling with the transition.

Enrolment and revenues are declining, and tension between the administration and faculty is on the rise. Questions are being raised about everything from OCAD's educational priorities and financial strategy to Diamond's performance as president. Even its future as an independent, free-standing institution is being called into doubt – as is the case with some of its leading competitors.

The challenge is even greater because of the Arctic chill that has descended on academe's softer disciplines. Most postsecondary institutions can retool their programs to cushion the blow, but fine arts and the humanities are what OCAD is all about.

Over the last decade, government largesse has sparked growth at the school that was exponential, but unequal. New departments and graduate programs sprung up while the more traditional visual arts waned in prominence.

As the expansion unfolded, tensions increased. Many insiders say the projects championed by Diamond have stretched the school too thin.

Now, an era of budget deficits has arrived, and higher learning is expected to choose its priorities with care. Ontario has struck strategic-mandate agreements with all its universities that specify what each does best.

For years, OCAD has argued that the provincial government should increase its subsidy per student to recognize that an art school needs more space and resources than a university that can rely on big lecture halls.

Yet the agreements make clear that there is no new money in the system and schools will have to show measurable successes to even hang on to their current funding.

Despite its storied past, OCAD's graduation rates trail those of many competitors. About 65 per cent of its undergrads finish their degrees, compared with 75 per cent of fine arts students at Ryerson and 78 per cent at the University of Guelph.

Critics are reluctant to share their misgivings but voluble once they start talking – which the university says may damage its reputation. In e-mails obtained by The Globe and Mail, the administration has asked staff and faculty to try to resolve their issues through "collegial debate" instead of going public.

In response, those unhappy with the current state of affairs insist that they are speaking out only because they love the place.

The contentious contract: 'determined, ambitious'

Last fall, after Diamond's contract was renewed for a third five-year term, OCAD's senate – one of the university's two governing bodies – was so unhappy that it passed a motion of non-confidence in the chair of the committee that had reviewed her performance.

The motion can't reverse the decision, but it indicates deep unhappiness with her leadership on the part of a body that includes senior administrators and alumni, as well as faculty and students.

The discord is not a recent development.

Diamond, a video artist with a doctorate (in computing, information technology and engineering) from the University of East London, came to OCAD in 2005 after creating and leading the Banff New Media Institute for a decade.

She is, by all accounts, a determined leader with lofty goals, but also, by many of those accounts, reluctant to listen to colleagues who question her plans.

"Nobody works harder than she does," says one former senior administrator. "This is not a person who is uninvolved. She is a strong personality … [with] huge ambition and energy. Sometimes she moves faster than the system can move."

Five years after Diamond's arrival, the transition to a university was so plagued by problems that Tom Traves, then president of Dalhousie University in Halifax, was drafted to conduct a confidential review of the way OCAD was being managed.

His 2010 report was prompted, he writes (in a copy of the document obtained by The Globe and Mail), by "the frequent turnover in the academic leadership." After speaking to dozens of faculty and administrators, Traves concluded that the number of departures in the senior ranks was "excessive," and recommended that deans be given the resources and authority to manage their own departmental budgets, and that the administration combat the "widespread feeling that there are too many priorities … and change appears chaotic."

He advised Diamond and her vice-presidents that they should "take these matters carefully to heart. There is a perception problem that must be addressed. The problem is as much a communication issue as an administrative challenge."

Asked about the review, Diamond says she invited Traves to look at the university's structure, and the school has adopted most of his 30 recommendations, such as giving additional power to departmental deans. Hundreds of thousands of dollars were budgeted for implementation, she says in an interview:

"In developing the strategy and also the academic-plan scorecard, the Traves report was quite instrumental in looking at what are the things that we need to continue to do to improve the quality of the institution."

Five years later, however, she remains dogged by controversy, and her popularity has not been helped by the terms of the new contract, which the university posted on its website.

It comes into effect in July and provides an annual salary of $257,500, which is in line with that of presidents at similar-sized schools.

In addition, however, the contract includes an "honorarium" that adds up to a bonus year of salary to be paid after retirement (Diamond turns 61 on March 9). For each of the subsequent five years, she will receive $50,000 (paid bi-weekly) as "president emerita" – a title usually bestowed without remuneration.

Ian Tudhope, until recently chair of OCAD's board of governors, led the committee that reviewed Diamond's performance and concedes that the contract is unusual. But he remains unapologetic.

"I'm glad we are doing something that doesn't have a whole number of precedents," he says. "You have a president who has led the transformation of this university from a college … you know, dragged the institution kicking and screaming into the 21st century … I think we are fortunate to be able to pay so little to get such insight."

The renewal committee did not use "specific metrics" to measure her performance, Tudhope adds. (Surveys seeking input could not be answered anonymously, so many staff members and students declined to take part.)

As chair of the board, Tudhope says that every year he "got to hold the president's feet to the fire and say: 'What progress have we made against each of these strategic objectives?'"

However, he makes no mention of the Traves report during an hour-long interview on the 32nd floor of Toronto's Royal Bank tower, where he is a partner at Wessex Capital Partners Ltd. Only later, in a follow-up e-mail, does he stress its importance, both to the board and to Diamond's contract renewal.

Key to the tensions Traves identified was the sense that the large ambitions outlined by OCAD's president could not be "sustained" by how the university was structured at the time.

That clash between vision and reality has persisted. For example, OCAD's 2012 strategic plan predicted that enrolment would increase a stunning 35 per cent by 2016-17. Yet in the same year the projection was made, only six provinces saw any increase in postsecondary enrolment, and although it led the pack, Ontario's rise was a mere 1.8 per cent.

Indeed, at the end of 2013, Diamond had to warn the board of governors that enrolment was in fact facing challenges. Then last fall came the news that the influx of high-school grads had tumbled by 15.4 per cent.

The great transformation: 'What does a degree mean?'

The economic prospects of arts grads have never provoked as much anxiety. Those with a bachelor's degree in fine arts or design make the lowest salaries of all university graduates; over 20 years, they earn $300,000 less than someone with a philosophy degree.

Students are becoming aware of those outcomes – and many are unwilling to gamble that they can avoid them.

OCAD may yet rebound, and there are signs that a fall advertising campaign is bearing fruit. Early university application numbers for 2015 show that, while there has been no change in the number of high-school students making OCAD their first choice, almost 9 per cent more have at least included it as an option.

Ron Burnett, the long-time president of Emily Carr University of Art and Design in Vancouver, argues that the tide is turning for an education in art and design.

"There is a different attitude to creatives now, where employers are looking for people who have enough variety in their education," he says. "The art institutions are becoming more capable of responding to the labour market, to social and cultural shifts in what people want to see in film, what they want to experience in a museum."

In large part, this recognition of the changing role of the artist from solo visionary to creative employee is what prompted OCAD to become a university, quickly followed by the Nova Scotia School of Art and Design in 2003 and Emily Carr five years later.

(The Alberta College of Art and Design can grant bachelor's degrees but has yet to make the full leap.)

Many alumni had succeeded as artists without a degree, says Ron Shuebrook, who preceded Diamond as president, but the traditional "apprentice model" of art education was giving way to the age of credentials.

It had become clear that parents and employers wanted the reassurance that came with a B.A. – and the option of going on to even higher learning.

"It came down," he says, "to the question of what does a degree mean to someone who doesn't know about the field of art education? That someone has achieved expertise … that they can go out and compete in life."

He adds: "You can learn to write a business letter in a day; learning to become a poet may take longer."

However, with the power to grant degrees came demands – for PhD-trained faculty, graduate programs and research, an academic council that would give faculty a say in running the institution.

Artists who taught had to transform themselves into qualified professors, in spirit and practice. Many were worried they'd have to stop teaching in the studio entirely and turn to theory, Shuebrook says. (Not totally without reason, says one former administrator: "By their nature, universities privilege the written word and devalue studio practice.")

In many ways, Diamond was precisely the type of leader the newly minted OCAD U needed. She championed the elements that are crucial to a university, especially graduate programs, recruiting students for them and, to raise the institution's global profile, hiring faculty members from around the world and increasing the amount of research being conducted.

Diamond's vision included requiring at least a master's degree for most full-time faculty. This was in keeping with the expectations of provincial officials, and instructors were offered financial help to upgrade their credentials. Yet some were still anxious.

Academic growing pains: 'abstract, esoteric, cerebral'

Early on in the transition, there were concerns that emphasizing research would detract from practical skills graduates need in the labour market. Two members of the advertising faculty resigned. The Higher Education Quality Council of Ontario has since found that OCAD's research effort is among the province's lowest (on par with Nipissing University in North Bay).

Meanwhile, long-time faculty in the design department strenuously opposed changes to courses that borrowed from business schools and interpreted design as the creation of an experience between a consumer and an object, rather than strictly as the creation of beautiful objects.

When Alexander Manu, then chair of industrial design, stepped down in July 2005, many of those much-needed shifts in emphasis were lost, says a former instructor in the department. "They reverted the system, set it back eight years," the former instructor explains. "Students have no client interaction at all until they graduate – they are like lambs when they hit the market."

Some employers in advertising, meanwhile, are skeptical that OCAD courses in theory can translate into client-ready ad campaigns.

"What scares some," one executive explains, "is that the kind of language in the public presentation of OCAD sounds – and maybe only sounds – abstract, esoteric, cerebral, and those are not necessarily the building blocks of great storytelling and great drama."

Others agree, saying they want to hire graduates who can hit the ground running, not pontificate. One claims that OCAD administrators are so focused on the cerebral that "if they could fill the world with Bruce Mau theorists, they would love that."

The rapid rise of graduate programs – there are now six – has been even more controversial.

While the province supported expanding undergraduate education, it was much slower to pay for graduate studies.

So, in the early years, support came from the university's general revenues – prompting critics to argue that undergrads were essentially "taxed" to pay for senior students.

"It was spray and pray," one former OCAD administrator says.

Where the money goes: 'Is this improving anything?'

The enrolment squeeze has cost the university almost $1-million in lost provincial funding this year, not to mention tuition income, but OCAD's money issues don't end there.

In each of the past five years, private donations have fallen between $200,000 and $500,000 short of what was projected in annual budgets.

(The university has a separate endowment worth approximately $10-million, with most of that money donated for specific awards or programs.)

Documents obtained by The Globe and Mail, and confirmed by the university, reveal that officials are also grappling with the departure of an engineering firm that has been paying about $450,000 a year to rent space in a university-owned building on Richmond Street West.

One option is to use some of the space to house offices being relocated from a building that is part of a plan, financed by the Sharps' donation, to create a "student learning and experiential centre."

Currently a nondescript concrete box at the noisy urban intersection of Dundas and McCaul, the future student centre (now home to the president's office) will be outfitted with a front "veil" echoing the Frank Gehry-designed overhaul of the Art Gallery of Ontario.

Students are not convinced the idea is a good one, and critics are unimpressed.

"It's $3-million, and you say: 'How is this improving the quality of education for students? How is this improving anything but the visual perspective of the university on Dundas?'" asks one former administrator.

Challenges ahead: The NSCAD scare

It is portfolio day at the Etobicoke School of the Arts: Every year, recruiters from art and design schools in Europe and across North America come to see the work of young people graduating from one of Canada's leading specialized art schools.

What motivates budding artists has hardly changed over time: "I can bring things to life that go through my mind," is how ESA student Adrian Abbruzzino put it.

But many take a pragmatic approach to university, saying they hope to combine art with law, design or urban planning, and to gain business and marketing skills.

OCAD, just a 25-minute drive from the Etobicoke school, is one option, but the students are also looking at such high-profile places as the School of the Art Institute of Chicago (Jeff Koons and LeRoy Neiman) or Central Saint Martins in London (Stella McCartney and Alexander McQueen).

Can OCAD compete? It remains optimistic, planning to start new programs next year and projecting a $500,000 accumulated surplus.

And some art schools are thriving. Emily Carr, for example, is expanding – B.C. Premier Christy Clark has pledged $113-million dollars to relocate the university, and grow its campus by almost 50 per cent.

Yet some who know OCAD well do not rule out seeing it swallowed by the massive University of Toronto or even merged with George Brown, the sprawling downtown community college with more than 25,000 full-time students.

With the age of constant growth over for universities, the prospect is not as far-fetched as it may seem.

Two years ago, a report prepared for the Nova Scotia government recommended that deeply indebted NSCAD merge with either Dalhousie or Saint Mary's University.

Instead, NSCAD shuttered its publishing house and student-run gallery to reduce its deficit, and is trying to ride out the storm.

If it resolves its internal discord, OCAD U will end such speculation.

Only then can it succeed in its key and difficult mission: preparing the most idealistic of youth for a world with little patience for their dreams.