As a field of academic study and public policy, corporate governance has focused its attention largely on the affairs of larger companies, those listed on stock exchange, and their relationships with investors. The world of organisations is larger than that, and yet corporate governance has set the language of the debate about how other organisations are governed. Whether the lessons from the corporate arena extend to charities, public sector bodies or private companies is a matter of considerable debate, not least because the purposes of such organisations diverge from the norm of profit-maximisation, if not perhaps from the goal of value creation. So how might the governance of different entities – say, universities – differ from what happens in corporations? Role of boards: In the corporate setting, boards hold legal, fiduciary responsibility for the corporation, and so for the twin goals of controlling the activities of managers and striving to ensure that the company creates value. The first of these – reflected against a history of dramatic corporate failures – has brought about codes and rules to bolster the ability of boards to challenge management. The standard recipes involve greater independence in structure and composition, involving strong committees, and greater accountability to shareholders. This approach hasn't necessarily solved the problems, as what in 2003 Paul MacAvoy and Ira Millstein called the "recurrent crisis" of corporate governance just had another recurrence – concentrated in the financial sector. Nor it is clear that mechanisms to focus attention to shareholder interests have parallels in other parts of the economy.
The case of universities: Places of higher education mainly take the public form of charities, with internal governance more akin to partnerships. Notions of academic freedom – and in some countries, academic tenure – are designed to protect the independence of the scholar. Students are really customers. The beneficiary of whatever "charitable work" they do is, vaguely, knowledge. Often heavily dependent on government funding, universities increasingly face demands for accountability to a public that gets little direct benefit from the expenditure. Indirect benefits accrue to society at large, though we're rarely sure where or how. In a time of economic strain, the strain on university governance increases. How might universities organise their boards, committees and controls to monitor the quality and performance of academics and to help them create value? In short, how should we govern the university?
Malcolm Gilles is vice-chancellor – CEO, in effect – of London Metropolitan University, an institution that has seen more than its fair share of fiscal stress and governance strain over the past half-dozen years. He joined it a little over a year ago, a year or so after having left neighbouring City University after what was said to be differences with the board over governance issues. Now, with all universities in England facing radical cutbacks in government funding, he has collected his reflections in a report for the Higher Education Policy Institute, and issued a call for a radical rethinking of university governance.
The governance issues: By 2015, he writes, the sector will be in a state of state denial: Students will be the undisputed majority funders of most English universities. Government will take on the (considerable) risk on student loans. But the risk to universities themselves will rise, and that comes after poor financial control at several universities, where their boards of governors seem to have failed. Meanwhile, universities are "increasingly mixed businesses", working in a variety of educational and research fields, and needing entrepreneurial activity to capture market niches, to respond rapidly to changing international trends, and even to close down selective operations. This is not the right place for what he calls the "slower forms of civic-minded external and collegial internal governance".
Governance through alumni: His remedy isn't a simple one – complex problems rarely have simple solutions – but it involves a crucial shift in thinking. Instead of assembling group of civic-minded individuals, universities need to find entrepreneurial sorts of people to keep the academic leadership on its toes. In current arrangements, governors can be too disengaged, and then, in times of stress, too concerned about their own reputations to solve the problems of the universities. Universities need risk-takers with a serious stake in maintaining the reputation of the institution. The former provides a focus on strategy and direction, the latter a readiness to challenge, monitor and control. Who better than the alumni?
Source document: The HEPI report "University Governance: Questions for a New Era," by Malcolm Gillies, is a 16-page pdf file.
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