Is a governance crisis right around the corner? Higher ed finds itself at a crossroads when it comes to many things, but especially board governance. One must look no further than the daily headlines — the sexual assault at Michigan State and their (former) interim president’s (latest) comments about the victims which led to his dismissal, or the University of Maryland’s issues with the death of a football player and its board overruling its president about firing the coach — to understand that governance has failed at some institutions.
Unfortunately, Christian and private colleges are not immune, and many are heading in the same direction as their secular counterparts. One needs to look no further than a lawsuit at the University of the Cumberlands where former president, James Taylor, sued the university for breach of contract, as well as multiple cases of rape at Brigham Young University where, in many cases, the board expelled the victim and did little or nothing to the perpetrator.
According to Rob Showers, a senior partner at the law firm Simms Showers which, among other things, specializes in sexual harassment lawsuits, many Christian higher ed institutions place themselves at risk because they believe that “this won’t happen to us because we are a Christian organization.”
If you are a board member, especially given the turmoil higher ed is facing, you should be prepared for a governance crisis is right around the corner.
The Role of the Board
Over the past 20 years, corporate governance practices have changed due to the Enron debacle (Sarbanes-Oxley) and the 2008 Great Recession (Dodd-Frank). Corporate boards are becoming more activist, and this activism has moved into nonprofit boards and impacted the board and board members’ duties.
Christian and other higher ed institutions are generally nonprofit corporations (501(c)(3)). They are subject to the same laws as nonprofit corporations, and the duties of the board and its members are becoming more like those of a for-profit corporation.
What a Higher Ed Governance Crisis Means for Trustees are Fiduciaries
Here is the rub – this is one area in which many public, private, and Christian colleges and universities fall in their understanding. Trustees are fiduciaries, a legal term meaning an individual who has placed the utmost trust and confidence to manage and protect property or money. Fiduciaries have an obligation to act for another’s benefit (in this case, the University). Fiduciary duties must be taken very seriously because if these duties are not fulfilled, trustees can be held personally responsible and legally liable for the university’s missteps.
Three duties comprise fiduciary duties: duty of care, the duty of loyalty, and duty of obedience.
Duty of care means that you will treat the university’s affairs with the same care as you would your own. This includes financial oversight (including budgets); understanding and executing the University’s mission and rules, including bylaws, operating and board policies (not necessarily what is written but what is actually done); and a common course of conduct (i.e., day-to-day operations and how the institution executes its policies).
Trustees must come prepared for all board meetings and conference calls, and that devote enough time to fully discuss issues. Furthermore, trustees must balance skepticism with positivity while questioning assumptions proposed by the administration and others – you cannot just stay on the surface of issues but must dig deeper.
Duty of loyalty is the second of the fiduciary duties. It is pretty much, just like the title. You must put the university’s interests first. You practice personal integrity and transparency. You adhere to the university’s conflict of interest policy and disclose any potential conflicts (real or perceived). You support final board decisions.
Duty of obedience is the last of the fiduciary duties, and this one trips many people up. As simple as it sounds, as a board member, you are responsible for ensuring the university’s compliance with all applicable federal, state, and local laws using thoughtful reliance on the legal advice provided by the university counsel while never hesitating to question.
However, this goes beyond just legal stuff – you are guardians of the university’s mission. You are responsible for ensuring the university’s substantial compliance with bylaws, duly adopted policies, and good governance principles. In short, you are responsible for ensuring the institution operates the way that it should, including oversight of all institutional areas, including faculty governance, tenure, research, student organizations, honor code, etc. A tall order indeed!
The Role of the Board
Boards are overseers and stewards of their institutions. Their role is strategic – to think and act with the big picture. This means boards should look at the institution from the perspectives of what is working and what isn’t, and what can the board do to help university administration while not micromanaging.
Every board and its members have key duties and responsibilities they must fulfill, all of which should be covered in annual board orientation and training. They include:
- Fulfill its fiduciary, legal, and oversight responsibilities. This includes develop and approve strategic plans and annual budgets; monitor the accomplishment of plans and budgets; monitor student achievement indicators; review annual financial audits and reports to ensure the adequacy of financial management and controls and to promote financial sustainability, and review and adopt or reaffirm the institution’s mission and vision statements and key institutional policies.
- After a careful balancing of interests in light of the board’s responsibility to oversee the institution’s primary focus on and support of student achievement, make fiscal decisions.
- Establish, review, and revise, as necessary, key institutional plans and policies. This includes creating and adhering to conflict of interest policies consistent with best practices.
- Review and consider the institution’s internal and external constituencies’ reasonable and relevant interests during its decision-making deliberations.
- Select a chief executive officer who is accountable for the institution’s operation and perform an evaluation at least annually.
- Delegate day-to-day management of the institution to the chief executive officer.
- Maintain and honor clear policies on shared governance.
- Comply with all federal and state regulations regarding board structure and governance.
- Speak with one voice and act as a collective body (individual board members do not have authority independent from the board as a whole, although members such as the chairperson may be authorized as board spokesperson).
- Reflect areas of competence in board members as needed to fulfill its responsibilities to the institution.
- Evaluate its own performance to ensure its duties and responsibilities are fulfilled effectively and efficiently.
Board of Trustees Committees and Membership
Most corporate and nonprofit/education boards have several board committees to help them fulfill its oversight responsibility; these include finance, audit, academic affairs, fundraising, and nominations and governance. Your institution’s bylaws should define the role of each of these committees; guidance on these can be found on the Internet.
One of the most critical of the committees is nominations and governance because it should be used to both recruit and screen new trustees for the board (succession planning) as well as make decisions on institutional governance.
Unfortunately, the vast majority of public, private, and Christian college boards are not composed of members whose skills are representative of the skills needed to appropriately oversee a college or university. For example, TRACS requires that “The institution’s Board, of not less than 5 voting members, is the legally constituted body that holds the institution in trust, has appropriate oversight in matters of policy, operation, and evaluation, and exists without conflicts of interest.”
When I examine the lists of trustees for the majority of public universities and Christian (TRACS- and ABHE-accredited) schools, they are overwhelmingly comprised of the political appointees and/or “minister next door” types and lack members with higher ed experience (or any experience other than making donations to political campaigns or running a church). Christian colleges should have a number of ministers and ecclesiastical members on their board to ensure the institution is following its mission. Still, there are a large number of other skills critical to appropriately oversee an institution, without which both the institution as a whole and its trustees could be at risk should the institution be sued.
We strongly encourage that institutions’ nominating and governance committees use a “skills matrix,” a tool many boards use to ensure the proper makeup of skills and experience on a board. For example, skills such as strategy, business operations, academics, facilities, finance, marketing, fundraising, governance, cybersecurity, and legal/regulatory – all skills necessary to oversee and advise the administration on a proper course of action – are matched to board members to determine what skills a board currently has and what will be needed in the future. The nominating/governance committee can then use the information to target prospective members to ensure the board is fully functional.
Board and President Evaluations
Board and president evaluations are two other “gotcha” areas that need more attention. Board best practices (and most accreditation bodies) require the university president to be evaluated annually. While some institutions do this, the vast majority do not, and/or the evaluation is not meaningful.
We all know what a “meaningful” evaluation is. Still, it is surprising how many boards do not have criteria and rubrics against which they measure the performance of their chief executive, nor do they do a formal evaluation process because the president is a family member or close friend. We recommend that the evaluation be done annually by an objective party to ensure that trustees meet their fiduciary duties.
The board also should evaluate itself, and like the evaluation of the chief executive, it should set goals and metrics against which it should be evaluated. Many institutions make this part of their annual board training and bring in an outside consultant with board experience to do this.
Wrapping It Up
Public, private, and Christian institution board members would be smart to remember that they are fiduciaries of their institution. Trustees, as well as their institution, are subject to the same laws a “normal” nonprofit corporation is subject to with the same “penalties” should they fail to fulfill their duties. This includes being aware of the latest governance guidance coming from their state of incorporation, the IRS, and other higher ed institutions (best practices used by other colleges and universities, as well as guidance from accreditation bodies).
Boards, but especially the board’s nominating/governance committee, should ensure that they follow best practices, such as conducting annual board training in which board members are re-familiarized with the duties of care, loyalty, and obedience, and introduced to new tools such as the skills matrix for recruiting new board members. Many consulting firms specialize in board training and governance, including The Change Leader, all of whom can do annual board training and assessments, make recommendations for improving governance, and build better relationships with administration.
If you’re currently experiencing a governance crisis or want to improve your board governance, we can help.