Irma Becerra is president of Marymount University, a comprehensive doctoral-granting university known for its innovative curriculum.
The legacy of the British and Dutch trading companies of the 1600s laid the foundation for one of the most influential legal inventions of our time—the corporation. These legal entities, which serve as a vehicle for collective action with limited liability, have driven capitalistic innovation and philanthropic progress for years.
However, the privileges granted by corporate structures come with significant fiduciary responsibilities. Therefore, governance structures—such as boards of directors or officers—are necessary to coordinate decision-making while delineating a hierarchy of roles and responsibilities. Although this governing framework is required by law, how it is implemented can vary depending on a corporation’s bylaws—particularly in higher education, where shared governance is often a defining feature. Risk management begins with prudent governance.
What Is Good Corporate Governance?
Boards are the bedrock of corporate governance, and their role is often summed up by the phrase “noses in, fingers out.” This phrase is commonly used to distinguish a board’s oversight role in practicing fiduciary responsibility from the officers’ operational functions within the day-to-day management of a corporation. This principle applies universally, covering for-profit companies with stockholders and nonprofit organizations with stakeholders.
While there may be nuances in the expectations from board members across private, public and nonprofit corporations, the same principles apply—boards exercise ultimate control without undermining officers who act on behalf of the organization, especially in personnel matters and negotiations with third parties.
Process: The Cornerstone Of Good Governance
Effective governance is rooted in clearly defined processes. Boards bear the primary duty of ensuring these processes are established and followed. Avoiding actual or perceived conflicts of interest is a fundamental expectation. Failure to adhere to sound governance practices can lead to liability and other severe consequences:
• For public companies, it may result in securities violations.
• For family-owned corporations, it could strain relationships and cause destructive conflict.
• For nonprofits, including universities, it may jeopardize accreditation and threaten their existence.
Good Governance And Good Management
Governance failures often manifest through operational inefficiencies, confusion and diminished morale. Boards that bypass officers and engage directly with subordinates or external parties can create an environment of uncertainty. Conversely, boards that adhere to their roles remain engaged and make informed decisions that foster stability and growth.
Effective board members are proactive yet disciplined. They should not hesitate to ask questions or challenge proposals but must ensure decisions align with established processes. A board that merely rubber-stamps decisions undermines its fiduciary duties.
Unique Risks For Nonprofits
Nonprofits, including universities and hospitals, face unique risks tied to governance. Their accreditation and reputation hinge on following rigorous standards. Boards that either micromanage or neglect their responsibilities risk severe consequences, including loss of accreditation, which can lead to an inability to secure federal funding or confer recognized degrees.
Consider several cautionary tales of flawed governance. At Auburn University in 2003, secretive actions to hire a football coach without adhering to existing contracts led to a year-long probation from its accrediting body, tarnishing its reputation during the “Jetgate” scandal. At North Idaho College, beginning in 2020, the college’s board engaged in actions some perceived as overreaching and politically driven. The college now faces a potential loss of accreditation by 2025, threatening its future and the regional community it serves. Lastly, at Mountain State University in 2012, governance failures under its president contributed to accreditation loss and over 300 lawsuits, ultimately leading to the university’s closure.
These examples underscore the high stakes of governance missteps in higher education. Boards must balance oversight with respect for administrative autonomy to maintain accreditation and ensure institutional stability.
Lessons Learned And Best Practices
Good intentions alone do not guarantee good outcomes. Proper governance begins with board selection and continues with comprehensive training, clear policies and adherence to a board handbook. All of these steps are necessary to benefit the welfare of the organization and its stakeholders, of which—in higher education—students are paramount. Organizations should consider:
• Establishing a governance committee to oversee compliance.
• Appointing an ombudsman to monitor governance, including board practices.
• Leveraging external advisors to compare the organization’s performance with best practices.
Education and accountability are the cornerstones of effective governance. Leaders must prioritize these principles, ensuring boards operate with integrity and clearly understand their roles.
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