Understanding Fiduciary Duties: The Foundation of Strategic Governance

Introduction:
Welcome to the Trusteeship Podcast from AGB, the Association of Governing Boards of Universities and Colleges. We cover everything higher education leaders need to know about the challenges facing our nation’s colleges and universities. More important, we provide the facts and insight you need to solve those challenges and to be the storytellers and advocates higher education needs.

Today, we’re talking about what it really means to serve on a higher education board. In this podcast, governance expert Tom Hyatt breaks down fiduciary duty—not just as a legal requirement, but as the cornerstone of courageous, strategic leadership. Learn why showing up, speaking up, and standing by your mission matters more now than ever. Let’s get started.

Joe Brenckle:
Hello and welcome. I’m Joe Brenckle, Director of Strategic Communications for AGB, and today we’re diving into one of the most essential responsibilities for every college, university and foundation, fiduciary duty. To help us break this down, we’re happy to welcome Tom Hyatt, AGB General Counsel, Consultant and Senior Fellow, and a nationally recognized expert in higher education governance, non-profit law and fiduciary responsibility. Tom, thanks so much for joining us.

Tom Hyatt:
It’s my pleasure. Good morning, Joe.

Joe Brenckle:
Before we begin, can you give us a little bit about your background and why fiduciary duty is so important?

Tom Hyatt:
Sure. I’m an attorney in private practice. I’ve been working with non-profit organizations throughout my career for over 40 years now in higher education and healthcare and other places in the non-profit sector. And a good part of the work that I do is with board governance, and certainly whenever we talk about board governance, we’re talking about fiduciary duty, and the question is, why is fiduciary duty important, Joe? Well, it really is the foundation of all the work we do in terms of board governance.

First of all, it’s the law. Every state in the country imposes a set of rules that apply to directors and officers of a corporation to ensure that they’re acting in the best interest of the corporation its constituencies. So it really comes out of a legal obligation that applies to anyone who’s been elected or appointed to role as a director and officer.

Once you start with that as the foundation, all of our good governance practices, all the things we talk about at AGB in terms of leading practices, effective ways to perform principles of trusteeship, really are built on that foundation of fiduciary duty.

Joe Brenckle:
Thank you, Tom. Well, let’s start with the first major area, the duty of care. What does it really mean for a board member to fulfill that responsibility?

Tom Hyatt:
Well, let’s start out with that legal definition, Joe, since as I said, it is the law that applies here. Legally, the duty of care is the duty to act in good faith and that degree of care or skill or diligence that an ordinarily prudent person would exercise under the same circumstances. That sounds pretty straightforward, right? So what does that mean in the real world? Well, an easy way to think about it, Joe, is it’s the duty to read up, show up and speak up. First, to read the materials. Staff works very hard putting materials together for a board. I serve on a board as well, a university board, and certainly know that that amount of material can be overwhelming sometimes. Sometimes you don’t always get it as quickly as you’d like to be ready for the meeting, but nevertheless, that is your job is to read those materials and be prepared for a good conversation.

Secondly, it’s the duty to show up. One of the things we can always tell is a problem with a board and being an effective board is we have a problem having a quorum for board meetings or committee meetings. It suggests people are not engaged. In order for a board to take legally binding action, there has to be a quorum so that you can pass something that is before the board. So if you don’t show up and be a part of that, you can’t do anything legally, but you’re also not making the most of your talent, your acumen, your ability to work with other directors as you participate in board work.

And then finally, it’s the duty to speak up. It’s the duty to raise your hand, ask those questions, whether you’re the newest of directors, it’s your very first meeting, or you’ve been doing this for nine or 10 years, put your hand up when you have a question. If you have a question, it’s probably something that others are thinking about as well. It can be tough, Joe, in these Zoom calls sometimes to break in, particularly in large boards. That’s why sometimes an executive session having that opportunity to speak up is an additional window of time, if you will, to be involved in that. But make sure that you get your question on the table so that we can have a robust conversation about that.

It’s also about supporting the president and the CEO to ensure that you work collaboratively with that leadership team. The board is a strategic actor. The leadership team and the president is an executive actor. Strategists and executives, how do we best work together to accomplish these things? It is about thinking and acting strategically, as I said. Board members are not tasked with management of the organization. It’s a broader overview of the organization.

Ask those hard questions, set the strategic plan, but at the end of the day, executing on that belongs to the leadership team. It is being prepared to act. The duty of care says we need to know that difficult things are coming our way, and we’re not simply reacting to them. We’re prepared to act. An easy example of that is cyber attacks, has happened or will happen at every college and university in the country. It is a real-time threat. If you’re not ready for it until it happens and now you’re scrambling to try to pull everything back together again, you’re going to have a much harder time than if you have your resources, you know the drill, the protocol, what you’re going to do, is there a ransomware attack? Do you have to pay Bitcoin to somebody? All of those things are things you’ve thought about before because you’re prepared to act on them as a board.

The duty of care is about assessing options. It’s not waiting until you don’t have any time to make any other decisions. You don’t have any other choices. You’ve got one decision left. It’s about being prepared to think about what your options are from the best option to the worst option, and seeing how you’re going to go forward with that.

And finally, Joe, our key element of the duty of care is courage. When you’re a fiduciary, that is someone who has that special responsibility with regard to overseeing the assets that are entrusted to their care, you have the duty to make those difficult decisions. You have the duty to show up and ask the hard questions and stand for the positions that you made and that the board has made. But more than ever in higher education, courage is a key element of the duty of care.

Joe Brenckle:
Thank you, Tom. I think courage is an interesting, timely and appropriate word. Can you give us an example of courage in action by boards?

Tom Hyatt:
Sure. One of the things that virtually every institution in the country is dealing right now are the financial challenges of running a college university, starting with what is often called the enrollment cliff. They’re, simply put, fewer graduating high school students or students of the future to enroll in your colleges and universities. So that’s going to have a significant impact, especially in institutions that are very tuition dependent to conduct their activities to determine how best to go forward. Sometimes directors and trustees are tasked with incredibly difficult decisions about, “Do we need to end a program? Stop a major? Do we need to terminate tenure faculty members? Do we need to close a program? Maybe even close the school itself?” Those are decisions that are so, so difficult, and having the courage to follow your duty of care, to follow the mission, the vision, the purposes of the organization as you go forward is essential in your role as a director.

Joe Brenckle:
Thank you, Tom. I think that’s incredibly well said. Let’s move on to the duty of loyalty. What do board members need to know here?

Tom Hyatt:
So start with the legal definition again, Joe. It is the duty again to act in good faith and the duty to put the interest of the organization over and above your personal or private interests. It is the duty to ensure that when you’re making a decision, you’re not swayed by external influences, whether that be the government, whether that be by other opinion groups, whether it be by your own company that you might have an interest in that could benefit or not from a particular decision that your board is making. Making sure that those things are off to the side.

You’re putting the vision, mission and purposes squarely in front of you as you make those decisions. That the utmost manifestation of the duty of loyalty is the conflict of interest policy that a board has. That is very simply the duty to acknowledge and disclose when you have a financial interest or a duality of interest that might be before the board and something that you’re considering. Once you’ve disclosed, it’s the duty to recuse yourself from that discussion and not to vote on that discussion, and then ultimately allow the board to ask you any questions and move on with the decision. So the duty of loyalty is all around that.

It is also, we talk oftentimes in boardrooms about confidentiality. Loyalty can affect confidentiality as well. Information has value. It may be something that you know and learn in a boardroom that could affect others’ business interests, that can affect other organizations. Maintaining that confidentiality about all things that are discussed in the boardroom is an important part of the duty of loyalty as well.

Joe Brenckle:
Thank you, Tom. I think that makes a lot of sense, and what you’re saying too is sometimes it’s important to look just beyond blindly following a policy. You need to have integrity and understand what that means.

Tom Hyatt:
It’s very much about integrity. We talked a moment ago about the conflict of interest policy, identifying when you have an interest in a matter that is before the organization where there’s a financial interest or duality of interest, you serve on another organization’s board or have some other role that is impacted here. It’s about owning up to that and disclosing that and making sure that the board and perhaps the community knows these things around the table when you’re acting.

Another piece of this, Joe, that see sometimes, not always, but many organizations will have a code of ethics that trustees are asked to sign, which is really a part of the duty of loyalty as well. That more specifically in a more granular fashion gets at the particular obligations around integrity that directors are expected to adhere to.

Joe Brenckle:
Thank you. Finally, let’s talk about the duty of obedience.

Tom Hyatt:
So the duty of obedience is the third fiduciary duty, is the duty to be obedient to your mission, your purposes, your values, and obedient to the law. Obviously, there couldn’t be anything more important than being true to your mission, your purposes, your vision, your values. I recall having a conversation with an association director at one point and they said, “We don’t make a decision around here, including our board and our staff, that we don’t run through the prism of mission, vision and values. Is this action consistent with our mission? Is it going to further our purposes?” That obedience is really essential and really are your north stars. Anytime you’re trying to decide, “Which way should we go here? This is a difficult decision for us to make.” Come back to that prism of values, purposes, mission, and that will help you make the right decision.

It’s also about being obedient to the law, ensuring that you have appropriate resources for compliance, more challenging than ever in the current regulatory and legislative environment in higher education, whether it’s at a compliance officer or that you’ve devoted sufficient time in a board meeting to talking about particular issues. That duty of obedience is essential as well.

Joe Brenckle:
Thank you, Tom. Let’s talk about mission statement and action. I know obviously the mission statements are incredibly important, but I think what I’m getting from you is we need to make sure these mission statements just don’t exist on the website, that they’re embodied in actions as well as words

Tom Hyatt:
Without question. They don’t only reside on a piece of paper that’s in a board manual somewhere. They’re up here, they’re in your heart. At AGB at one time, we had the mission of the organization stenciled on the wall in the boardroom. So it was there always for boards to think about as you take about the duties of the day. It is essential to think about how we’re doing the things that we’re doing. It’s easy sometimes to forget what those words are exactly, or specifically what it is. Helpful even for board members that have been on the board for many years to go back and read those periodically and just think, “If I’m consistent with these, we’re taking action consistent with these, we’re on the right path.”

Joe Brenckle:
Thank you, Tom. This has been very insightful. Do you have any final pieces of advice that you’d like to offer every board member today?

Tom Hyatt:
Joe, I think I would simply say be involved. Again, back to that mantra, the duty of care, the duty to read up, show up and speak up. Higher education needs us more than ever right now, and there is no room for absentee trustees, but we need to show up and be a part of those conversations to do that difficult work. It is challenging. It is sometimes a huge time responsibility to be on a college or university board or a foundation board, but nevertheless, being an active participant in that, asking those hard questions, making those courageous decisions is about showing up. So start there.

Joe Brenckle:
Thank you, Tom. That’s great. With great power comes great responsibility. Again, we really appreciate you taking the time to be with us today and share your insights. For more resources on fiduciary responsibilities and leading practices in higher education and governance, please visit agb.org. Thanks again, Tom.

Tom Hyatt:
My pleasure.