Legal Standpoint: Governance and the Law

By Steve Dunham, JD    //    Volume 27,  Number 4   //    July/August 2019

The Association of Governing Boards of Universities and Colleges (AGB) is the leading organization serving board members of colleges and universities. Trusteeship reports on issues affecting higher education “to help board members and chief executives better understand their…roles and to strengthen board performance.” In a word, the purpose of AGB and Trusteeship magazine is to support and improve “governance,” and the “law” is central to good governance. This column identifies six core governance issues that are substantially defined or affected by the law.

1. What is the legal nature of the college or university? Public or private? If public, what is the relationship to the state? Is it a state agency, constitutionally autonomous, or does it have both public and private attributes? Does the board govern a system or a single campus? If private, is it religiously affiliated? Are there wholly or partially owned subsidiaries or affiliates? These are all legal issues that relate to board members’ duties and depend on a lawyer’s advice and counsel.

2. What do the founding and governing documents specify? This includes state charters (for publics or privates, where applicable), articles of incorporation, bylaws, applicable state statutes, standing orders, resolutions adopted by the board, tax filings (for example, 501c(3)), and delegations of authority. These are all “legal” documents with legal ramifications and consequences for the institution. These documents describe and define the legal authority of the board to act, the legal authority of the president, the existence and division of functions between committees and the full board, the role of the board chair, reporting relationships of senior officials, and other legal matters that are central to the effective governance of the college or university.

3. What are the scope and meaning of the board members’ and the chief executive officer’s fiduciary duties? As noted in the “Legal Standpoint” column in the November/December 2017 issue of Trusteeship, “fiduciary duty is the law.” It is a rule of law, either by state statute, common law, or both. The duty is owed to the institution itself. It defines the duty of loyalty (including conflicts of interest), the duty of care (including the appropriate level of oversight) and the duty of obedience (including to applicable laws and the institution’s mission.) Every board member and CEO should have an under-standing of their fiduciary duties that is informed by legal advice about the scope and application of this most fundamental of legal requirements.

4. What is the legal relationship between board members/CEOs and the institutions they serve? This core governance issue includes such legal issues as defense and indemnification in the event a board member is involved in litigation, the scope and terms of the CEO’s contract, whether board members are covered by legal compliance obligations applicable to employees, misconduct, removal, and other “legal” matters. The “law” establishes these rights and obligations and is central to their application and resolution.

5. What is the board’s role in compliance and risk management? These two core governance functions were discussed in the last two “Legal Standpoint” columns. Without repeating what was said there, best practices and fiduciary duties require that boards and CEOs provide a proper tone at the top and support an institutional culture of compliance and attention to risk management.

6. What is the role of the institutional mission? As the ultimate decision makers—the highest constituent authorities—boards “own” and are ultimately responsible for the institution’s mission. This is a legal obligation, enforced through fiduciary duty law and the governing documents. Lawyers also serve the institutional mission. See the “Legal Standpoint” column in the September/October 2018 issue. It is artificial to carve out “legal” from “nonlegal” issues when discussing fundamental rights and responsibilities in service of the mission. If board members discuss nothing else they should engage their lawyers, in orientation and in educational sessions, in how best to support the mission of the college or university.

Steve Dunham, JD is vice president and general counsel for Penn State University.

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