The Problem With College Governance? Alumni

Higher education institutions should stop filling their boards with donors and instead recruit unaffiliated people with expertise in the areas they need help in, Ryan Craig and David Friedman argue.

March 13, 2017
 
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Imagine if Apple’s Board of Directors consisted entirely of former customers. Older directors have fond memories of buying their first Apple computer in 1980 (the much-loved Apple IIe), which they used more for playing Castle Wolfenstein than for doing homework. A few directors grew up with the Macintosh, drawing with MacPaint and playing The Ancient Art of War. Several younger directors rocked out in the early 2000s to the 1,000 songs that fit on their first iPod. They all love Apple products and, out of dedication and nostalgia, accepted invitations to join the board.

It sounds silly, right? But this is how private colleges and universities select their boards of trustees. In choosing trustees, private colleges and universities pick satisfied former customers, i.e., successful alumni. Often, this is a requirement in the institution’s bylaws and consistently advantageous for fund-raising. Alumni agree to serve on the board with the best of intentions, wanting to “pay forward” all that their alma mater has done for them. These are civic-minded and generous people who had a wonderful experience and are committed to providing the same caliber experience for current and future generations of students.

But apply the private college model to Apple. Would this be a model for good governance? Would the board of Apple aficionados have the relevant expertise to evaluate and approve the necessary investments that allowed Apple to invent the iPhone? If the Apple board were overly influenced by the Apple IIe or the Mac, guidance to management may have reflected conservatism that would have kept the company in the personal computer business rather than transforming it into the leader in mobile and entertainment. Neither Apple, nor any other corporation, nor any other nonprofit organization, selects its board in this way.

Private college and university boards are full of brilliant, accomplished people with expertise in a range of fields. But too often their vision for the institution is rooted in nostalgia. A university’s mission in 1980, as experienced by a student, may restrict the vision of the university in 2017, and what it could or must become by 2050. Most obviously, what might have worked when tuition was $5,000 may not work when it’s $50,000. And what might have worked to get students good jobs when only 10 percent of American adults earned bachelor’s degrees may not work when over 30 percent do.

In addition, the focus on alumni keeps many colleges and universities from matching organizational needs against the experience and competencies of potential directors. Today, every board of every college and university ought to have professionals with demonstrated expertise in data analytics, education technology, research funding, employability and the labor market, and, where applicable, hospital management and athletics -- not to mention teaching and learning methods and outcomes.

Relevant expertise is essential to ensure appropriate governance, like asking the right questions at board meetings and -- most important -- making sure the board agenda is set to focus on the most important challenges and opportunities and not merely those senior managers want to discuss. But in selecting alumni, an institution often ends up with a board comprised of the wealthiest or most celebrated alumni, without regard to the fact that their fields of achievement are unrelated to the pressing needs of the institution. It’s as if the celebrity brand or ranking focus that afflicts so much of higher education also infects the alumni trustee selection process.

Securities regulations require that public companies have independent directors. All private colleges and universities receive public funding in the form of Pell Grants and Stafford Loans. In addition, they all aim to advance the public good. So private colleges and universities should be required to diversify their boards by adding a significant number of highly qualified independent directors -- directors with no prior affiliation with the school -- to challenge traditions that no longer work, including academic cultures that may no longer be in sync with market realities.

What we mean is not director independence in the technical sense, as defined by the NYSE, but rather emotional independence: directors without emotional or sentimental attachment clouding their decision making or vision. If the Department of Education does not demand as much, perhaps state attorneys general will.

Higher education is facing a triple crisis of affordability, completion and employability. Nowhere is this clearer than at private colleges and universities -- particularly smaller, nonelite institutions without significant endowments. There is no silver bullet for any single institution; strong governance will be required to make it through the storm. These schools need forward-looking directors making decisions based on real facts, not alternative facts or nostalgia.

If American higher education is to lead the world in this century, as it did in the last, our universities must invent higher education’s version of the iPhone: a new model to educate the next generation more efficiently and effectively. So let’s make our boards more like the real Apple board. While current college and university trustees have the best intentions and development efforts necessitate their continued involvement, only by adding independent experts to boards will private colleges and universities get where they need to go.

Bio

Ryan Craig is managing director of University Ventures, an investment firm. David Friedman is an associate professor who teaches corporate governance at Willamette University College of Law.

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