Keepers of the Larger Vision

If Not Trustees, Then Who?

By Philip Bredesen    //    Volume 22,  Number 6   //    November/December 2014

AGB’s National Commission on College and University Board Governance released its final report this month, Consequential Boards: Adding Value Where It Matters Most. The commission was chaired by Philip Bredesen, the governor of Tennessee from 2003–11. We recently sat down with him to discuss the commission’s work and the resulting report.

Q: Governor, it’s been a year now since the commission began its work. Let’s go back to the beginning. Why did you sign on with this effort in the first place?

A: I admire the work of AGB, and I thought it was an opportunity to contribute something constructive in an area of our national life—higher education—that’s both vital and starting to show some dangerous cracks. I’m worried about its future.

Higher education is a key part of the soft infrastructure of our country. It’s obviously been essential to America’s economic competitiveness and to its defense. We live in a knowledge-based world, and higher education creates a lot of that knowledge. It’s also where it’s passed on to future generations. It helps vitalize the American dream by offering a path for upward mobility. And while we naturally think of higher education as a source of economic opportunity, it’s important also in all the other ways it enriches the lives of everyone it touches, no matter which field of endeavor they choose for their life’s work. There’s a lot more to life than a good job.

Q: But you’re worried about the future. Where are these “cracks” that you see?

A: Our report talks about the “value proposition,” but I tend to think of that concept in a slightly different way: Higher education is an enterprise whose business model is becoming broken. Our nation needs more college graduates at every level. Yet, just when we need to expand access to college, the cost of college is growing rapidly, and traditional sources of revenue are declining. This is especially true of our public colleges and universities, but it’s also an issue for many private ones, as well.

One result of this squeeze is that individual college students and their families bear more and more of the costs of an education. Of course, it’s fair that they should bear some of them—the education a student gets will benefit him or her in many ways in the years to come. But in addition to this private good for a student, higher education offers an essential public good, as well.

Q: Explain what you mean about the “public” good.

A: It’s a very personal issue with me. I grew up with my grandmother in a small town, and my uncle “Ozzie” (Lyle Oswalt) and his wife lived in the house, as well. Ozzie was intelligent and worked very hard. I like to fancy myself as being intelligent and hard-working, and he was every bit my match. Ozzie worked as a milkman and later as a bookkeeper for a Chevy dealership. I became a public company CEO and a governor. As near as I can make out, one of the main differences between our two lives was that he left school after the sixth grade out of necessity while I—with a lot of public help—went to Harvard.

I ask myself: What other things might Ozzie have accomplished if he’d had my educational opportunities? How many millions of Americans today work far below their potential? How many might have been engineers or doctors or inventors with the help of higher education? And how much better a place might America be if they were?

The danger here is that we fail to fix the business model and higher education becomes more and more a place for those who already have economic or academic advantages. If that happens, we retreat on the advances in fairness and mobility that American society has made just in my own lifetime. I believe that every single one of us has his or her own unique set of God-given strengths and weaknesses, and that a just society provides ways for each of us to build on those strengths and overcome those weaknesses. Every institution that is part of America’s higher education system—public and private both—needs to figure out how to play its part to make that happen.

Q: On the other hand, we’ve started to see a lot of questions asked as to whether higher education really has economic value for many students.

A: No question—one of the consequences of the constant growth of tuition bills and college debt is that large numbers of reasonable people have become more skeptical about higher ed’s value. There are plenty of studies that make perfectly logical arguments about its value, but in the real world, every graduate with a mass of college debt who is unable to find a suitable job just feeds that skepticism further.

Q: There are a lot of reasons for this—the decline in state contributions to public institutions, for example. Where does responsibility for that lie?

A: Any enterprise has to have a business model that works—it has to provide a product that people want at a price they are willing to pay. That’s obviously true for private companies like Apple or General Motors; it’s just as true for higher education. Of course, we pay for higher education in more-complicated and indirect ways than we pay for cars or computers. But the basic equation still holds: Every enterprise needs a sustainable business model.

Nothing remains static, and organizations have to continuously reinvent their business models to remain relevant. Some, like Apple, do; others, like General Motors, perhaps less so. I want higher education to be more like Apple and less like General Motors.

The 50,000 trustees of American higher education are an accomplished, dedicated group of citizens, and they need to drive this reinvention. They’re certainly not to blame for the changes in the world outside higher education, but they have the responsibility to lead their institutions in an effective response to them. My hope is that AGB and this report can help to focus board members on the problem and give them some tools to work with.

Q: Trustees are almost entirely volunteer, part-time people. Is this a realistic model?

A: If not trustees, then who? They are the people who, by both law and custom, have the ultimate responsibility for the institution. Board members are the ones who are supposed to keep their eyes up and on the horizon. Presidents may come and go in a decade and faculty members in a generation. Their primary concerns are properly what is happening in the present and within the institution. Board members are the keepers of the larger vision: ensuring the institution’s long-range success and that it fulfills its responsibilities to the larger society, as well.

Q: Is it your experience that trustees don’t do these things now?

A: I’m sure some do, some don’t, and most are somewhere in between. But we should recognize the universal truth that it’s hard to raise your eyes up off the ground at your feet and focus on the horizon instead.

I’ve been on a lot of boards during my lifetime—corporate and public company boards, a number of nonprofit boards. In every one of them, there has been a natural inclination for board members to spend most of their meeting time on the concrete, immediate issues at the institution. There are presentations on various projects, a discussion of the organization’s financials and once-a-year approval of budgets, usually some routine approvals, a president’s report. Before you know it, the meeting is over and, once again, the board members have spent little or no time on the strategic issues. It’s the boardroom equivalent of the problem we all have in our personal lives of distinguishing the urgent from the important.

But addressing those big, important, long-range, strategic issues is what effective governance is all about. Let’s be honest. Sometimes, trustees can coast—they can enjoy the prestige and camaraderie of their board membership. They can pick specific areas of university life that particularly interest them and involve themselves there.

But our report’s message is that right now there’s work—hard work—to be done. Governance in the corporate boardroom has been transformed after Enron and Sarbanes-Oxley. In the nonprofit world, governance at healthcare institutions—which have many similarities with higher education institutions—has assumed a much more holistic and strategic look. Governance in higher education needs to follow suit.

Q: A lot of trustees and college presidents would agree with that, governor. As the commission has met over the past year, are there any major themes that have emerged?

A: It’s interesting. A year ago, I assumed that my concerns about higher education’s business model would not be widely shared by other members of the commission, especially those who already had distinguished careers within higher education. My assumption was wrong, and it became clear early on that the belief that higher education is on an unsustainable course was widespread. Commission member Brit Kirwan, for example, is the nationally respected chancellor of the University System of Maryland and has spent 50 years in higher education; if anything, he feels even more strongly than I do that some fundamental rethinking is in order.

The call to action in the report is for a reinvigoration of the concept of the fiduciary responsibility of boards of trustees. In the commission’s view, there are three legs to this stool: to reaffirm the institution’s responsibility to the larger society, to ensure the long-range financial health of the institution, and to address the public’s growing skepticism of the economic value of college.

Q: There’s a lot of pressure right now on institutional budgets; is this what you’re addressing when you speak of sustainability?

A: Boards obviously need to concern themselves with the annual budget process, and it was the experience of the commission members that most do. What we tried to draw attention to in the report is the imperative to also spend time on the longer-range picture: to make sure that the institution has a realistic financial plan that will enable it to carry out its mission far into the future.

The landscape of higher education is a challenge. Costs within institutions have continued to rise faster than inflation. Government support in many cases has been stagnant or declining. Endowments have been hard hit in the past decade. What emerged early in our discussions was the assessment that trustees already spend lots of time with annual budget sheets and for the most part do this well. What seems rarer is a board’s attention to a strategic plan that takes into account the looming fiscal realities.

Q: Is this issue particularly a problem with our public colleges and universities?

A: It’s very evident in public institutions, although there are plenty of private institutions that face the same challenges.

To be honest, I was a governor who had to make substantial cuts to higher education in Tennessee during the 2008 recession. I have some direct experience with this. In most cases, these cuts on the part of governors and state legislatures don’t result from a lack of belief in the value of higher education. Instead, they stem from the reality that the discretionary parts of state budgets shrink every year. Increasing proportions go to the state share of federal programs—Medicaid is the prime example—where there is little state flexibility. K–12 education is subject to ever-growing federal requirements through programs such as No Child Left Behind. Federal contributions to infrastructure development don’t keep pace with the need—as we talk, the federal Highway Trust Fund is nearly bankrupt.

The federal government borrows money to sidestep its own financial challenges. States don’t have that option: 49 of the 50 states have legal requirements for balanced budgets, but only 30-odd states rigorously enforce them. What that means is that public colleges and universities won’t see state support grow as fast as their cost structure. It’s not a temporary problem that will be solved by better lobbying next year—it’s here to stay. You can’t get blood from a stone.

Q: Whether it’s a public or a private institution, what can boards do about this?

A: We talked about this a lot, and I think readers will find that the report contains many worthwhile ideas.

First, boards have to accept that these strategic issues are a genuine threat that can’t be swept under the rug. They have to accept that this problem is squarely in the board’s domain. Then they have to commit the time to address it, and they have to manage the agenda of board meetings so that discussion of this issue doesn’t get buried under more current but ultimately less important items.

Second, boards have a unique responsibility to overcome institutional inertia. Any entity, especially one with the long history of success that higher education enjoys, is understandably reticent to change its underlying business model. Institutions of all sorts are almost always too slow to take this up. Presidents, their administrations, and an institution’s faculty can become deeply attached to the status quo, and boards of trustees have to lead the discussion into more difficult territory.

Third, it was the view of a number of the commission members that most institutions of higher education don’t have the data reporting they need for their work. This is in part driven by the accounting systems these institutions employ. Fund accounting forces a view of the institution as a collection of many separate enterprises and obscures the overall picture. The commission ended up urging that boards invest in getting better data for their decision making, starting with a good dashboard of the major performance indicators that they need.

Fourth, as a corollary of the need for better data, boards should develop accountability measures for the performance of the institution as a whole. These measures lift the discussion out of the weeds and help everyone to focus on the big picture of how well the institution fulfills its mission. We all recognized that in higher education, this is more difficult than in many other enterprises because of the shared governance structure.

And, by the way, that need for accountability extends to the board itself. Board members can hardly expect to demand it from others and then fail to require the same of themselves. Board accountability includes formal board performance assessments both from within and without, procedures for the removal of board members for cause, effective ways to deal with partisan and other narrow agendas, and a committee structure that oversees strategic goals and not just managerial ones.

Q: You mentioned earlier that the “value proposition” had other dimensions as well, including the growing skepticism about the economic value of a degree. Isn’t that just lack of understanding? Do board members really need to concern themselves with this?

A: They absolutely do. This skepticism strikes right at the heart of the proposition that I offered earlier—that any enterprise has to offer a product that someone wants at a price they are willing to pay. The public’s concern about this is real, and thoughtful people are voicing it. The Economist, for example, recently devoted considerable space in an issue to the question, and what they found was mixed. At our first meeting, the commission heard a presentation from one of the national polling firms on what they had discovered in their polling of the public’s views of higher education. It was startling to many of the commission members how concerned and skeptical much of the public was about the cost and value of college.

Q: Why is there such a gap between the way the academy sees this and the way the public sees this?

A: I think the problem here is that the academy sees the value of what they do as intrinsic: Of course, education and knowledge are valuable in their own right. It’s an axiom that they believe only the uninformed would question. In contrast, much of the public sees the value of higher education as instrumental: Does it lead to a better job, more opportunities for advancement, a better life for their sons and daughters? To them, that value isn’t an axiom, but something to be proven.

Q: We’re coming to the end of our time, so let me finish with this question: After all is said and done, what do you hope will come out of this?

A: Well, first of all, I hope that readers will find the report compelling, so that it doesn’t just sit on the shelf and gather dust. This is where AGB comes in: AGB is a serious, respected organization and has the gravitas and the resources to take these issues and drive them forward. Writing a report such as this one is the first 5 percent of the work; the remaining 95 percent is yet to come.

For my own part, I hope two things will happen: First, that the report will strike a chord with a scattering of trustees who will not only read it, but will also then take action to engage their boards to do something about the issues it raises. Second, that it will prod trustees to reaffirm the vision of the public purpose of higher education—that its job is not only to create better lives for its graduates, but also to create a better and more just society for America.

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