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Trusteeship Magazine

The Gremlins of Governance

By Richard Chait
July/August
2009
Trusteeship Magazine Cover image

Changes in board culture and dynamics are far more likely than changes in board architecture and procedure to facilitate exceptional governance.

Rather than plunge into the process of strategic planning, trustees should converge around strategic thinking—a
methodical search for content, substance, and big ideas that can create comparative advantage and galvanize internal constituencies.

Boards should beware of the allure of philanthropy over governance and not allow the search for resources to compromise the democratic genius of lay trusteeship.

A Trusteeship Q&A with Richard Chait, research professor at the Harvard Graduate School of Education. He kicked off the recent AGB National Conference on Trusteeship with a plenary speech about the "Gremlins of Governance," three major challenges that face college and university governing boards today—in the areas of board structure, planning, and trustee selection.

T'Ship: Dick, you've been researching and writing about trusteeship and college governance for a long time, and your plenary speech at AGB's recent annual conference was probably the most-discussed plenary in several years. How concerned are you about the state of trusteeship today?

Chait: First of all, I should say that, taken as a whole, college boards have made considerable progress in a relatively short period of time. What were notable advances just three decades ago now constitute standard practice across a wide swath of higher education. Just as current college freshmen have no memory of an imprisoned Nelson Mandela or the Berlin Wall, younger trustees may have no recollection of boards that never conducted a self-study or an off-site retreat, never had trustee mentors, or never attended an AGB conference or workshop.

Some relative newcomers may assume that college boards always had a committee on governance, a conflict-of-interest statement, a comprehensive orientation for new members, a dashboard of critical performance indicators, an extensive literature to consult, and a commitment to greater diversity. Many boards used to be more ceremonial, with recruitment of new trustees rarely extending beyond the social circles of incumbent trustees. There were more instances of deep dives into the shallow pools of micromanagement and little interest in "best practices."

So I would contend that the vast majority of college boards today have a keener appreciation, if not always perfect execution, of trustees' responsibility and accountability for their institution's health and welfare. Boards today seem more determined to govern than to manage, more guided by board policies than by trustees' personalities, and more attuned to best practices than to local custom. So I do believe boards have become more professional.

T'Ship: And yet you, who have been a board member yourself, see problems in governance that keep you awake at night.

Chait: Well, I still see many college boards that under-perform, some woefully so. I wrestle with what I would describe as three gremlins of governance. None haunts every campus to the same degree, and yet all are familiar and problematic.

T'Ship: What's the first gremlin?

Chait: The allure of board structure over board culture. I toss and turn at night as I contemplate the increasingly common triumph of form over substance. This is not a new problem, of course. Since the advent of Robert's Rules of Order, trustees have had a penchant for process. Trustees are understandably chastened by the sensational scandals that have marred corporate and, to a lesser extent, nonprofit governance in recent years and by the regulations and legislation that these notorious lapses spawned, most notably Sarbanes-Oxley. Earnest efforts by college boards to conform to legal standards, to ensure financial literacy and transparency, to update bylaws, and to avert conflicts of interest can only be applauded. But I worry that all too commonly trustees mistake compliance for performance. I worry that boards will be lawfully mediocre and that trustees will misconstrue due diligence as evidence of effectiveness rather than its prerequisite.

Many scholars of non-profit governance have observed that year after year, and in organization after organization, trustees focus on board structure to improve board performance. Sooner or later, almost every college or university board concerned about the quality of governance tackles the same issues: size, term limits, frequency and duration of meetings, definitions of duties, and the number, scope, and structure of committees.

These initiatives overlook two incontrovertible facts. First, we know empirically that one board's solution invariably proves to be another board's problem. Most small boards want to be larger and most large boards want to be smaller. Some boards, eager to be more effective, decide to meet more often, while other boards for the very same reason decide to meet less frequently.

Yet several studies, ranging from the corporate sector to health care to higher education, have all reached the same conclusion: board structure matters far less than board culture. To quote the conclusion of one study of corporate governance led by David Nadler in 2006, "Make no mistake, it is the board's culture—the shared values and beliefs that delineate acceptable behavior—that ultimately determines how effective the board can be." Similarly, a 2005 study of matched pairs of high-performing and average-performing hospital governing boards found the more effective boards to be characterized by "more engagement" by all members, "a higher level of involvement," and more "in-depth" participation on matters critical to the hospitals' mission.

Barbara Taylor, Thomas Holland, and I reached the same conclusion over a decade ago in a study of matched pairs of college boards. In short, the preponderance of evidence affirms board culture, group dynamics, and trustee behavior as the essential ingredients of effective trusteeship. Boards that dwell on committee structure or board bylaws would do better to develop, adopt, and enforce a statement of mutual expectations or a social compact that prescribes trustee comportment as regards, for example, preparation, confidentiality, candor, collegiality, disagreements, requests for information, and interaction with faculty, students, and staff. Likewise, boards enmeshed in conversations about size or term limits would be wiser to entertain changes in board culture that promote openness, inclusiveness, lively participation, respectful dissent, and mutual trust.

Effective governance entails influential participation in meaningful discussions about consequential matters that lead to significant outcomes. Changes in board culture and dynamics are far more likely than changes in board architecture and procedure to facilitate exceptional governance.

T'Ship: What's the second gremlin?

Chait: The allure of strategic planning over strategic thinking. Almost every college and university has a strategic plan, but not every institution has an actual strategy—a clear and specific game plan for how to deploy its resources to effectively achieve the results it desires. Plans and strategies are not one and the same. In higher education, where we prize inclusiveness, collegiality, and consensus, strategic planning can—and frequently does—become so cumbersome and convoluted that the process yields not so much a strategy as a compendium of unfunded, unpriced, unranked, and unabridged ambitions laced with lofty rhetoric and nebulous goals. It becomes a document closer to a case statement for a capital campaign than a template for unambiguous choices and systematic decisions.

Rather than plunge into the process of strategic planning, trustees should converge around the substance of strategic thinking, a term a retired executive from McKinsey, the management-consulting firm, defined as critical reasoning applied to what matters most to the organization's future performance and viability. Strategic thinking is not a neatly linear and logical procedure to generate a formal plan. Rather, it is a methodical search for content and substance—for big ideas that fit the big picture. The central questions for boards are not "How do we do plan?" or even "What's the plan?" They are: "What are the winning propositions and superior insights that are going to drive the plan? Do we have uncommon insights that will provide a competitive edge?"

Can the board and the president articulate a few sensible, feasible, and comprehensible ideas that create comparative advantage and galvanize internal constituencies? Catchphrases like academic excellence, student engagement, globalization, interdisciplinarity, and diversity do not meet the test.

T'Ship: What are some examples of big ideas or insights that would give an institution a competitive edge?

Chait: It might be a decision to compete on costs, perhaps with a three-year baccalaureate or a retreat from the arms race in amenities. Or it might be a series of investments in student-centered, outcomes-driven education. It might be a wager on technology with, for instance, mandatory enrollments once a year in an online course. Or it could be building community through, say, group grades for group student projects and group pay for group performance for faculty members.

I would not presume to prescribe strategy for any institution. I would only observe, first, that a simple 40-word strategy that captures the essence of an institution's identity has more value than a complex 40-page plan, and, second, that trustees are far better equipped to think strategically than plan strategically. Strategic planning requires intimate knowledge of budgets, facilities, personnel, programs, and competitors that trustees generally lack. The board, as a rule, cannot effectively evaluate most tactics needed to enact a strategy—for instance, proposals to reconfigure colleges within a university, to reshape the contours of a cross-disciplinary curriculum, or to redesign faculty-incentive systems.

The board can and should test whether plans are consistent, tactics are plausible, risks are reasonable, milestones are feasible, and metrics are sensible. Boards are well-positioned to enlighten the formation of strategy through discussions of institutional values, organizational culture, economic assumptions, financial parameters, demographic shifts, marketplace realities, and political climate. In those areas, ideas and insights matter more than technical or academic expertise. As loyal yet objective partners, engaged by strategy yet removed from operations, the board can be constructively critical and supportively inquisitive.

Strategic thinking demands more from trustees than strategic planning, just as changes in board culture demand more from trustees than changes in board structure.

T'Ship: What is the third gremlin in board performance that haunts you?

Chait: The allure of philanthropy over governance. I approach this topic gingerly and respectfully, but I do agonize about the conflation of governance and philanthropy. I worry that many colleges and universities, especially private institutions pressed to amass larger endowments and public universities compelled to offset declines in state support, have increasingly monetized trusteeship. I worry that wealth could become the coin of the realm in many college boardrooms.

As much as anyone, I appreciate the value of philanthropy. I have been a direct beneficiary as student, researcher, and consultant. However, just as loyal citizens can be vocal critics, I trust that one can admire philanthropy and simultaneously question the implications for governance.

I see four fundamental, yet subtle, tensions. First, philanthropy is usually an individual act, whereas governance is intrinsically a collective act. Second, philanthropy typically reflects personal passions for particular programs, projects, or priorities. Governance, by contrast, requires fealty to an institution's overall welfare. Third, philanthropy presumes, at least tacitly, that whoever pays the piper calls the tune, whereas non-profit governance rests on the assumption that prudence, not affluence, drives decisions. And fourth, we expect board members as a matter of principle to be overseers, detached from day-to-day operations; yet in the realm of development, we eagerly encourage trustees, as solicitors and donors, to be tactical operatives.

T'Ship: But colleges have always regarded trustees as donors. Has the situation changed significantly?

Chait: The press for resources has intensified nationwide as state contributions to higher education have declined by 30 percent over the past decade and, more recently, as endowment levels have tumbled. We can only raise tuition so much or, more accurately, we've already raised tuition so much: 946 percent at public four-year colleges over the past 10 years (200 percent when adjusted for inflation) and 776 percent at private colleges (146 percent when adjusted for inflation). Since academics are genetically reluctant to cut costs, there are not many choices other than to raise more money.

Even amidst a recession, there are 32 capital campaigns afoot that exceed $1 billion, 18 at private universities and 14 at public institutions. In addition, 47 campaigns of a billion dollars or more have already concluded. This accelerated dependence on philanthropy has triggered some troublesome developments. These are not pandemic problems—indeed some boards have yet to accept development as a core responsibility—but I detect four worrisome ramifications.

The first affects recruitment of trustees. When boards, particularly at private colleges, recruit trustees, financial capacity regularly ranks as the #1 criterion. Other considerations, such as spheres of expertise, analytic and social skills, and demographic diversity, recede. This reflects the reality that capital campaigns are a perpetual phenomenon. The end of one campaign merely signals the start of another, with trustees projected to contribute 30 percent to 40 percent of the goal. Some boards may even decide to expand in order to attract more generous donors. As the board expands, however, intimacy and personal accountability decline, and more trustees become disengaged and disaffected.

The second ramification concerns board leadership. Eligibility to serve in a leadership role on the board, especially as chair, has become more tightly coupled to financial wherewithal at some institutions. Successful board and committee chairs are typically attentive, inclusive, open-minded, and unpretentious. Leadership and largesse are, of course, neither mutually exclusive nor inextricably linked. Yet I worry that if a board chooses a lead gift over a gifted leader, the board's overall capacity to govern may diminish.

The third touches decision making. Governance presumes that all trustees' voices and votes are equal, but affluent trustees generally speak with a louder voice to more attentive listeners on the board and in the administration. The greater the need for philanthropy and the more concentrated the wealth on the board, the more likely management and trustees will defer to the most benevolent board members, regardless of the issue at hand. Anyone who doubts this effect might consider how a board's deliberations would differ if all trustees' comments were filtered so as to disguise the speakers' identity and philanthropy.

The fourth influences collegiality and cohesiveness. Sometimes, college boards exempt exceptionally generous trustees from the rules of play that govern the board as a whole, for example, relaxing requirements for meeting attendance or committee spadework or avoidance of micro-managing or multi-tasking during board meetings. When a few members of a group enjoy immunity from established standards, it's difficult to sustain esprit de corps, mutual respect, and collective accountability among trustees. I wonder whether the apparently unquenchable thirst for resources will compromise the democratic genius of lay trusteeship.

T'Ship: How much of a danger to that tradition do you see currently?

Chait: Maybe I am needlessly nervous, but I do wonder whether governance and philanthropy must be so inextricably intertwined, and whether the boardroom door need be the primary portal to philanthropy. Inside the boardroom, the wingspan of wealth spans the entire portfolio of governance, especially to the extent that fellow trustees and senior administrators believe that disagreement might jeopardize a future gift or suggest ingratitude for a previous gift. Outside the boardroom, as non-trustees, major benefactors can still have a profound effect on philanthropic priorities.

I fully realize that there are no easy answers to this dilemma. But I invite readers to consider two thought experiments. First, suppose your institution's endowment quadrupled tomorrow. Would there still be any governance needed? The answer, I think, would be "yes." And therein lies the rub. There's always important governance to do, and yet boards often fasten on philanthropy to the neglect of trusteeship. If we can agree that regardless of institutional wealth, there will always be a need to govern, the corollary is that boards of trustees must recruit people with the skills to govern and the discipline to ensure that purpose and performance always occupy center stage.

As a second thought experiment, suppose that as a society, we came to view trustee philanthropy as a blatant conflict of interest. Now further imagine that this change of attitude produced a legislative ban on contributions by trustees in excess of $10,000 per annum per organization. What would colleges do? Sooner rather than later, institutions would discover viable ways to govern and raise money. I do not think philanthropy would plummet merely because major donors no longer had seats in the boardroom. Surely we would invent other powerful incentives to induce and recognize philanthropy. By the way, the Netherlands, by custom and culture, does view philanthropy by trustees as unethical behavior.

I offer these mental exercises to encourage creative thinking about this conundrum. I would underscore that I harbor no doubts whatsoever about the laudable motives of generous trustees. I certainly do not advocate that colleges and universities forgo pursuit of philanthropy. Rather, I wonder—with the emphasis on wonder—to what extent, if any, the quality, integrity, and collective character of trusteeship will be adversely affected if governance and philanthropy become more or less synonymous.

As a professor, I realize that I have the luxury of precious little responsibility. On the other hand, like football coaches high atop the stadium, I have the advantage of a bird's eye view not available to the players and coaches on the field, and it is in that spirit that I have outlined the dilemmas I see from an admittedly privileged perch. Given the significant progress boards have made in improving and professionalizing their functioning in the last 30 years, though, I rest assured that there are far more reasons to be optimistic about higher education, and to sleep soundly, than there are reasons to lie awake at night.
 

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DAVID LESH
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