Most of the basic principles of corporate governance apply to all types of corporations. Colleges and universities play a unique role in society, as they are the primary resource for providing the foundation and education for society's next generation of businesses and leaders. Colleges and universities are responsible to many different people and entities, which places a heavy focus on the accountability and responsibilities of the board of directors.
Governance serves many purposes in the running of institutions of higher learning. While colleges and universities can gain much understanding about governance from the drastic changes that continue to occur on Wall Street, in transforming governance, board directors need to take into account the unique challenges they face and the uniqueness of the role they play in society.
What Is the Purpose of Good Governance?
The main purposes of governance are to maximize performance and success, fairly represent those that a board serves, enforce legal and ethical compliance, and to be accountable to stakeholders. The International Federation of Accountants (IFAC), which is a global organization for accountants, and the Chartered Institute of Public Finance and Accountancy (CIPFA) joined forces and developed The Good Governance Standard for Public Services Guide, which lists six principles of good governance that apply specifically to colleges. The principles include:
- Focusing on the school's purpose and on the benefits to students and communities
- Having a board of director composition that performs effectively individually and collectively
- Appointing board directors that perform according to the highest ethics and integrity
- Managing risks and making informed decisions
- Developing the capacity for a capable and effective board
- Engaging stakeholders and being accountable to them
Recent Changes in Best Practices for Corporate Governance
Recent economic challenges in the financial industries have highlighted some needed changes in corporate governance for board directors. Colleges and universities can take the new best practices as a cue for making changes to their own boards.
New best practices for corporate governance focus on the following changes:
- Nominating board directors with increased skills and abilities
- Consider changing board composition to greater enhance diversity among women and ethnicities
- Recruiting and nominating board directors with greater independence
- Reducing board size to the smallest possible number without reducing effectiveness
- Adding a cybersecurity expert to the board
- Making annual board and committee evaluations mandatory
Challenges in Transforming College Governance
Directors of colleges and universities are being challenged more than ever before. This is due to their needing to serve multiple interests. Working in a complex policy environment compounds the difficulties even further.
Legislation and policies have been evolving quickly. The pace of change makes it difficult for college board directors to keep up with interpreting the latest changes. Board directors must often serve as advocates for best practices in a politically driven environment.
With so many changes pending or taking place, college boards struggle to come to a consensus on the best ways to operate the institution while maintaining a strong sense of accountability. College and university boards must also place a high priority on making sure the college offers the best education for their tuition.
The roles of board directors and senior managers are changing, blurring the lines between these roles. College and university boards need to redefine the definitions of these roles and to create careful boundaries between them. Time is short for everyone and college board directors are no exception. In our busy world, board directors and senior leadership often lack the necessary amount of time to work together to exchange information and work effectively toward the college's identified goals and mission.
Taking the First Steps Toward Transforming Governance for Colleges and Universities
The first step that college and university boards need to take is to recognize and accept that governance in the realm of higher education is evolving and make a commitment toward transforming their governance practices.
Board composition is a good place for college boards to start making a transformation. They'll need to evaluate the size, skill level and diversity of the board and make appropriate changes. College boards will also need to evaluate their orientation, job descriptions and duties for board directors. In this era of changing governance, boards may need to identify opportunities for peer mentorship, board development and access to experts to make sure the board has the necessary skills and abilities to fulfill their duties responsibly.
Good corporate governance involves separating the duties between the board and management. The board should be responsible for governing, including providing strategic leadership, approving policies and the budget, defining expectations, delegating powers and verifying performance in line with their goals and objectives.
Additionally, boards can accelerate the process for improving corporate governance by ensuring their business is using the right available technologies that are built for this specific purpose. At Diligent, we believe that technology can greatly improve governance. Board directors are obligated to perform a host of varied duties and responsibilities. Diligent developed a suite of governance tools to help them fulfill their responsibilities accurately and efficiently. The Governance Cloud ecosystem of products includes:
- Diligent Boards
- Director and officer questionnaires (pre-filled forms)
- Board evaluations
- Resolutions and voting
- Diligent Messenger
- Diligent Minutes
- Insights (curated content and videos) (beta)
- Entity Management
As board directors, leadership teams and general counsels continue to express their needs to digitize governance processes, Diligent will be the partner to grow with them. Collectively, these tools enable corporations to achieve a fully digitized and integrated governance ecosystem to mitigate risk, plan for strategic growth and ultimately, govern at the highest level.
The American College of Cardiology: An Example of Transformation in Governance
In keeping with transformative governance, The American College of Cardiology (ACC) sets a prime example of a college that took specific, strategic steps toward transforming governance.
ACC board members now limit board terms to three years with one renewable term. Board officers include president, president-elect, secretary and treasurer. The board formed six standing committees including:
- Audit and Compliance
The executive committee only meets in emergencies. The membership committee bears the responsibility for making sure the board is aware of the needs and challenges of all members of the college.
Board members aren't allowed to hold positions on any other ACC non-standing board committee except for the Board of Governors Chair.
The board must meet at least six times per year.
The board feels that these changes will improve governance, better support its mission and better serve its members.
There is no exact science or path to the ideal platform for governance. As the ACC clearly demonstrated, college boards that resolve to transform governance for their schools need to start with the basics, which means gaining a better understanding of governance needs for today's institutions of higher learning. This information forms a good baseline for considering the basic needs of the school. Colleges and universities will also have to consider the unique needs of their own institutions of higher learning. Challenges are inevitable, so colleges will need to identify new challenges and make plans to address them along the way.
The first steps to transformation are the most difficult. It's important for board directors to recognize that change takes time and patience to create excellence in higher learning.