Members of college and university boards are fiduciaries of the institutions they serve. The concept of "fiduciary" is well established in law and practice. It refers to the one charged with acting beneficently on behalf of those whose welfare depends on trust. In fact, the word "fiduciary" comes from the Latin word for "trust." College and university board members govern within a long-standing tradition, with responsibility for the public trust, for the future of the institution, and for the benefit of current and future students. Fiduciary duties are a combination of legal and ethical responsibilities.
Three Standards of Board Responsibility
The standards for a governing board’s stewardship of an institution are three-fold:
- The duty of care requires the full attention to one’s duties as a board member, setting aside competing personal or professional interests to protect the assets of the institution. This includes financial assets to be sure, but it also includes the institution’s reputational, personnel, and tangible assets as well. The expectation is that a board member acts reasonably, competently, and prudently when making decisions as a steward of the institution.
- The duty of loyalty requires board members to put the interests of the institution before all others. It prohibits a board member from acting out of self-interest. The board’s conflict of interest policy provides guidance on how a conflicted board member can avoid putting personal interests first.
- The duty of obedience refers to the board member’s obligation to advance the mission of the college or university. It also includes an expectation that board members will act in a manner that is consistent with the mission and goals of the institution. Failure of this duty can result in a loss of public confidence in the institution.
Board Member Responsibility
Although it only applies to non-profit higher education in limited ways, the Sarbanes-Oxley Act of 2002 has had the effect of raising the governance standard for all boards by focusing on accountability. When board members fail to uphold their fiduciary responsibilities, the lapses are well publicized and often detrimental to an institution. The results can be an erosion of public trust and an increase in governmental restrictions. The most serious lapses in board member behavior may involve self-dealing and even criminal behavior.
Effective ways to avoid such lapses in fiduciary responsibilities are:
- Adopting a statement of board member responsibility. Such statements provide a shared set of expectations for board members and can help boards avoid problems.
- Ensuring that the board’s conflict of interest policy is current, carefully implemented by the board, and well understood by all board members.
While board service is a voluntary act of social responsibility, board members are expected to devote time, attention, knowledge, and skill to their fiduciary duties. More than ever before, boards can expect to be accountable for their decisions and their actions.