Good Governance: The Importance of the Board of Trustees

Nonprofit organizations do well to look at publicly held corporations and their governance practices as modern roadmaps to governance excellence. In the corporate world, board positions are highly coveted roles, reserved for the most skilled and connected corporate executive leadership. In the past, nonprofit board roles were seen as a way for directors to perfect their governance chops and network with fellow serving executives, furthering their opportunities toward corporate board roles. These days, the landscape is more nuanced, as both corporate and nonprofit boards are making concerted efforts to diversify their boards, by including more women and underrepresented members, and fostering diversity of age and thought.

While higher education institutions are categorized as nonprofits, they are intricate organizations requiring more business attention and expertise than ever before. In the first of ESI’s higher ed series, we discussed the demographic cliff most universities are facing and a subsequent survival roadmap acknowledging the current focus on survival for many institutions.

Directors must practice the duty of care and duty of loyalty, which are basic obligations. The job of a director is governance and oversight. The CEO has responsibility for operations. The board hires the CEO. In instances when a change in the CEO is necessary, the board makes that change.”

Stan Silverman, Author: Be Different! The Key to Business and Career Success

Ultimately, the leadership of nonprofit higher ed institutions reports to the Board of Trustees. For most of these institutions, the makeup of the Board of Trustees consists of successful alumni who make significant donations to the university. There are two noteworthy issues with this strategy.

First, the Board of Trustees members are chosen by their donation size (in most cases), rather than their expertise. On any balanced corporate board, skills matrices are created to ensure expertise of all relevant subject matter, in the form of specialized committees. For many higher ed boards, members do not represent all expertise required to run a large complex organization, which leaves significant blind spots. That leaves a lot of leeway for university leaders to run certain parts of the organization with little to no oversight.

Second, we have seen in the news lately many instances of donor influence on their respective universities. This debate has heated up in recent months in response to university fallout surrounding the Israel and Hamas conflict. Donors in many ways financially support efforts that cannot be supported by tuition alone, providing immense benefit to students. However, the power wielded as a result in some cases crosses a line into overbearing management. A famous governance quote resonates here: “Noses in, fingers out”. This quote demonstrates that while board members should know what is going on within the institution, they should not disempower management via interference. University leaders need to be able to make sensitive decisions with their key stakeholders and keep the students in the forefront. In most universities, major donors have their university leaders’ ears. In consideration of the enrollment demographic cliff and a major questioning by the public concerning the value of a college degree, pulling a $500M gift for example could be catastrophic, yielding unbelievable power to the donor.

In light of higher ed public relations disasters on one end and discussions surrounding the threat of freedom of speech and academic freedom on the other, a sub-committee within the Board of Trustees, comprised of some independent directors who are not donors, but rather business, public relations, and constitutional law experts (among others), would be a valuable addition to the Board of Trustees to act as a check and balance mechanism. The prevailing “pay to play” mentality, where power is often linked to the size of donations, needs reconsideration. Establishing a sub-committee with impartial experts can mitigate potential conflicts of interest and ensure decisions align with the university’s mission.

It is not without precedence for universities to return gifts from powerful donors who demanded outsized decision-making power in return. However, in today’s tightening of the belts for most universities (and downright survival for some), most universities cannot afford to return gifts. This is a luxury only afforded to those institutions with the largest endowments; and even those institutions would struggle without their most generous donors.

A talented Board of Trustees is integral to a higher ed institution’s survival and ultimate flourish. In looking at their corporate board member counterparts, higher ed Boards of Trustees can take pages from their playbooks. By emphasizing long-term goals, mission, risk mitigation, and in many cases survival of the institution, and ensuring that there are checks and balances in place which are impartial and nonpolitical, a university and its leadership can deliver the best education, research, and benefit to society, ideally without losing its essential donors. As for the Board of Trustees, they must seek long-term solutions, make ethical decisions without emotion or politics, and truly consider the best interests of those smart minds coming up behind them.

Cassandra Brown, Director | [email protected]

Cassandra Brown is a director at Econsult Solutions. She comes to the firm with a deep background in higher education, working in various roles with alumni, faculty, and the external business and governance community for 15 years at Drexel University. Ms. Brown received her M.B.A. at Drexel University. Prior to joining ESI, Cassie served as the Executive Director of Drexel University’s Gupta Governance Institute, which encompasses the Center for Corporate Governance and the Center for Nonprofit Governance.

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