Laying the Foundation for Essential Leadership Conversations*

Opinions expressed in AGB blogs are those of the authors and not necessarily those of the institutions that employ them or of AGB.

To be effective strategic thought partners for their institution’s leaders, higher education governing board members need a working knowledge of the current business model for their institution as well as have confidence in the institutional levers presidents and chief financial officers (among others) can use to initiate the adjustments or even the transformational change that might be required. In addition to a comprehensive understanding of the institution’s value proposition and the various revenue streams, expense categories, data trends, and their associated financial forecasts, they need to know their institution has:

A stable governance structure with sufficient agility to respond to external and internal forces of change in a timely manner;
An inclusive leadership model that engages each set of institutional stakeholders in an effective planning process to ensure alignment around mission and clarity of outcome—that is, strategic goals and objectives;
Data transparency supported by credible and trusted data analytic capabilities;
A continuous assessment of the competitive landscape and a proactive understanding of the risks and opportunities facing an institution’s mission and the long-term sustainability of its business model;
Effective communication and credible fact-based messaging to motivate a community to action and overcome resistance to change; and
An unwavering focus on successful student outcomes and the institution’s core mission, regardless of the underlying motivation for change.

In Risk Management, Second Edition: An Accountability Guide for University and College Boards (AGB, 2020), lead author Janice Abraham offers an extensive list of all the challenges higher education is facing and then concludes, “the reality is stark, and higher education must adapt to survive.”¹ To do so, Abraham proposes as a starting point that institutional leadership should consider their approach to risk management as a business process based on four principal tenets:

Identifying risks across the entire enterprise;
Assessing the impact of risks to the operations and mission;
Developing and practicing responses or mitigation plans; and
Monitoring and identifying risks, holding the risk owner accountable, and consistently scanning for emerging risks.²

Abraham calls on boards and senior leadership to consider categorizing institutional risks in four buckets: strategic, operations, finance, and compliance risk. By defining risks in this way, she believes leadership can break down the organizational silos that have historically plagued the effectiveness of higher education’s approach to risk management by encouraging administrative leadership to look across the entire enterprise for new and/or emerging risks while paying particular attention to those risks that occur in-between the silos’ gaps.³

In their study Higher Education Business Models Under Stress: Achieving Graceful Transitions in the Academy (AGB, 2021), Melody Rose and Larry D. Large identify a five-step checklist to help guide institutional leadership to avoid the trap of unwarranted optimism in today’s challenging environment by focusing on specific categories of assessment required to monitor institutional risk and help boards and senior leadership decide whether business model transformation is required and what may be involved to achieve a successful outcome.⁴

These five steps include:

Track closely the institution’s chosen indicators of financial health. An early monitoring of the metrics can signal disturbing trends, allowing time to plan. A transition requires a period of evaluating, exploring, and initiating options.
Consult among board members and senior leadership on all the potential options for transforming the business model.
Examine the shared governance process to ensure it can handle a business model transformation going forward.
Focus on developing response strategies that will do all this, if feasible, within the present stressful circumstances to respond to student needs and support their success.
Manage institutional assets in ways that address the needs of students, faculty, and staff through the transition. This is necessary in all cases, whether the institution is positioning itself for growth, making reduction in force a cost savings strategy, pursuing a partnership or merger, or in the most difficult circumstances closing its doors.⁵

Embedded in their five steps is the suggestion that there are two dimensions to the important conversations that governing boards, presidents, and chief financial officers (among others) should have. The first relates to leading practices for high performing higher education institutions in stable economic times. The second relates to the steps an institution should be prepared to take during periods of either economic or organizational instability and whether the degree(s) of divergence from normal business operations should inform the required level of institutional response.

The first set of conversations, led by college and university administrative leadership, should affirm that the organization’s business practices support day-to-day operations, while just as importantly positioning the institution to respond to future crises if warranted by answering a series of guiding questions:

Does the institution have clearly defined roles and responsibilities for leadership so all parties know what is expected of them?
Are these expectations communicated in a timely and consistent manner, at the time of onboarding or as part of the annual evaluation process?
Has management assessed the governance structures to ensure their resiliency and capacity to deal with change?
Are there agreed-upon key performance indicators (KPIs), with clearly delineated goals and objectives, which are monitored regularly, and stress-tested to assess the institution’s financial health and progress toward plan?
Do the governing board and senior leadership understand the competitive pressures on the institutional business model and how it may need to evolve to meet the needs of future generations of students?
Does management periodically undertake environmental scans to assess the competitive landscape, analyze business risks, and review alternative options and risk scenarios?

For Rose and Large, establishing the appropriate foundation is an essential responsibility of leadership. If done thoughtfully it will serve the institution well in periods of organizational stability, but more importantly help prepare leadership across the organization to be better able to manage through periods of institutional instability.⁶ The sounder and more robust an institution’s business practices, the better able it will be to deal with the more demanding strategic consideration of navigating the multidimensional complexities of institutional transformation if warranted.

Essential to all this is a commitment to business continuity planning and clearly articulated roles and responsibilities of governing boards, presidents, and CFOs to ensure the appropriate groundwork for these discussions is prepared. An institutional commitment to this level of preparedness will further ensure the commensurate risk mitigation strategies are in place, available options are known, evaluated, and prioritized in advance of any need arising, and institutional stakeholders have been engaged and have an awareness of any new or emerging vulnerabilities.

*This blog post is adapted from Association of Governing Boards of Universities and Colleges, Baker Tilly, the Council of Independent Colleges, and the National Association of College and University Business Officers, Collaborative Leadership for Higher Education Business Model Vitality: Strategic Conversations for Small College and University Governing Boards and Administrative Leaders, Washington, D.C.: AGB, 2023, 3-7, with special thanks to Stephen T. Golding, AGB Subject Matter Specialist.