In a previous blog post, I wrote about the governance crisis in Christian higher ed. Much of this has to do with how the boards of trustees at Christian colleges and universities are constituted – the majority of their members have little if any board experience (other than their church board); higher ed experience; and/or understanding of the duties required of a trustee of a university.
Because of this, higher ed – and especially Christian higher ed – find itself at a crossroads when it comes to many things, but especially board governance, which is failing in its oversight of institutions.
This article is a case study of one institution that found itself in trouble with its accreditor because of governance issues. It describes how the author was able to help the institution regain full accreditation through strengthening board processes to ensure independence and appropriate representation while avoiding board micromanagement.
The client, a regionally-accredited medium-sized Christian university, was placed on probation by its accreditor for not being in compliance with the standards having to do with board independence and governance.
The Key Issue
The root cause cited by the accreditor was the board and its trustees were not independent of the institution and the president, whose tenure was 25+ years. This lack of independence marred trustees’ objectivity and independence. This occurred for multiple reasons.
- The trustees were all members of the church led by the president. Because of this, the president had informal (and in some cases formal) influence over each board member.
- All trustees considered the president to be their pastor, friend or both, which marred objectivity.
- The selection process for new trustees was flawed. The president had a hand in the recommending of board members (he had recommended all of the current members).
- The board lacked experience and expertise in multiple areas. There was little (if any) consideration was given to the skills that board members needed to fulfill their oversight and fiduciary duties – all trustees were pastors or (mostly) retired businessmen in the president’s church. Only one trustee had higher ed experience (he was an academic by training), and none had any board experience (other than on their church board).
Additionally, the board had never completed a “real” performance evaluation on the president. Although the president was doing a decent job, the board was not completing its fiduciary responsibilities.
It is critical that board members understand their legal and fiduciary duties, and in this case, the vast majority did not. These duties include:
- Fiduciary (duty of care, duty of loyalty and duty of obedience), legal and oversight responsibilities. This includes developing and approving strategic plans and annual budgets; monitoring the accomplishment of plans and budgets; monitoring student achievement indicators; reviewing annual financial audits and reports to ensure adequacy of financial management and controls; promoting financial sustainability; and reviewing and adopting or reaffirming the institution’s mission and vision statements and key institutional policies.
- Making fiscal decisions after a careful balancing of interests in light of the board’s responsibility to oversee the institution’s primary focus on and support of student achievement.
- Establishing, reviewing and revising, as necessary, key institutional plans and policies. This includes creating and adhering to conflict of interest policies consistent with best practices.
- Reviewing and considering reasonable and relevant interests of the institution’s internal and external constituencies during its decision-making deliberations.
- Selecting a chief executive officer who is accountable for the operation of the institution and performing an evaluation at least annually.
- Delegating day-to-day management of the institution to the chief executive officer.
- Maintaining and honoring clear policies on shared governance.
- Complying with all federal and state regulations regarding board structure and governance.
- Speaking with one voice and acting as a collective body (individual board members do not have authority independent from the board as a whole, although members such as the chairperson may be authorized as board spokesperson).
- Recruiting areas of competence in board membership as needed to fulfill its responsibilities to the institution.
- Evaluating its own performance to ensure its duties and responsibilities are fulfilled in an effective and efficient manner.
The absence of these critical tasks by a board can haunt an institution and its members. For example, the Delaware Supreme Court in June found that a director’s fiduciary duties include overseeing potential risk, even if the board is not informed of the risk. This ruling, in which Delaware Supreme Court Justice Leo E. Strine Jr. wrote the opinion, stated that
“the executives […] breached their duties of care and loyalty by knowingly disregarding contamination risks and failing to oversee the safety of [the institution’s] operations, and the directors breached their duty of loyalty.”
“The significance of [the previous ruling], Strine reiterated, ‘is that a corporate board must make a good faith effort to exercise its duty of care. A failure to make that effort constitutes a breach of the duty of loyalty. In short, to satisfy their duty of loyalty, directors must make a good-faith effort to implement an oversight system and then monitor it [at the board level].”
As we’ve said previously, higher ed governance (which is generally non-profit but not always) takes its lead from for-profit governance and court decisions. The Delaware Courts (Chancery and Supreme) are in many (if not most) ways the leading voice in governance law, so this ruling should serve as a reminder that trustees are not immune to being subjects of lawsuits when they do not do their job on the board.
Planning and Taking Action
The Change Leader consultants met with the board and university leadership to develop a plan of action. The steps included:
Reaching out to the accreditor. One of the first steps was to reach out to the accreditor to inform them of the plan to address the issues that led to probation. The accreditor was favorable about the plan that was being developed and implemented.
A change of leadership. The institution changed leadership in that its president and a top administrative staff submitted their resignations to the board. This enabled the board and the institution to start afresh.
Top to bottom governance review. Another step the board undertook was a complete review of the institution’s bylaws. This allowed trustees to determine which bylaws were helping the institution move forward and which were hindering progress.
Board reorganization. The board took steps to reorganize their structure and thus their work. The board previously had two committees – finance and executive (which also served as the nominating committee). This latter arrangement perpetuated the issues that led to probation because a small subset of the board was controlling everything.
The board implemented standing board committees that were used to address key organizational areas such as academic affairs, finance and audit/risk. University staff members were added as ex-officio members of the committees to lend their insights into the day-to-day functioning of the university. In addition, a nominations and governance committee was created as an independent committee outside of the executive committee. The executive committee’s composition was expanded to include committee chairs as well as the elected board leadership.
Reconstituting the board. Another step involved reconstituting the board to ensure that members possessed the oversight skills to be able to carry out their duty of care. Two things occurred.
First, a rubric was developed to identify the skill sets needed on the board. These skills included strategy, finance, academic affairs, fundraising, marketing, regulations, compliance, governance, human resources, IT and cybersecurity. The board also analyzed the skill set of the sitting members to understand where gaps occurred. The nominating committee then began using the skills rubric for recruiting and analysis of potential board candidates.
Second, term limits were implemented. Previously, there had been no term limits for board members, which created cabals given that some members had been on the board for 30+ years. Term limits ensured that the board remained fresh and vibrant, and helped to prevent groupthink.
Diversity as a board and institutional value. The board also began to address diversity as an issue. While there is some ethnic diversity on boards, most Christian colleges and universities have an all-male board of trustees; few women serve as trustees despite half (or more) of the institution’s students and staff are women.
The board began to add women as trustees as a way to encourage diversity of thought and to be more representative of the student body and university staff and faculty. This improved the functioning of the board, improved the communications between the board and the institution, and influenced the university’s day-to-day operations as it became a diverse institution.
These changes, in total, also required the board to end micromanaging behaviors. Setting clear roles, responsibilities and expectations in the bylaws, policies and practices helped the university function more smoothly and ultimately got the institution off probation.
Be Proactive – How Not to Get on Probation
This institution was fortunate in that it was only placed on probation. In many situations, the accreditor puts the institution on Show Cause for egregious missteps in governance. But this doesn’t have to be your institution.
We suggest that you do the following to check the health of your board and governance systems:
- On an annual basis, contract with an outside governance consultant to hold board training that covers the key duties required of trustees.
- On a biannual basis, conduct a board assessment that covers seven key areas of board health: board leadership, strategic focus, stakeholder involvement, board culture, learning and growth, financial and regulatory health, and accreditation compliance.
- Institute the use of a “skills matrix” in your nominations process to ensure you have a board that provides proper oversight and is diverse.
- Conduct annual Title IX / sexual harassment training with the board, senior executives, and all employees. According to Rob Showers, a senior partner at the law firm Simms Showers which, among other things, specializes in sexual harassment lawsuits, many Christian higher ed institutions place themselves at risk because they believe that “this won’t happen to us because we are a Christian organization.”
Key Takeaways if Facing Accreditation and/or Governance Crises
If you find yourself facing an accreditation or governance crisis, we recommend you hire an outside (objective) consultant on a retainer-type agreement. Using a retainer is more efficient, both financially and organizationally, vs. a project-based approach, because the consultant can be used as-needed to answer whatever questions board members and staff may have.
We do not recommend putting the consultant on your board as a way to get this advice. Boards of trustees and university leaders must have an outside objective perspective on issues, and putting them on the board may work for a while. However, after a while, the assimilation process (i.e., becoming part of the “tribe”) occurs, and directors no longer see things differently than others. Group think begins.
Taking these steps will help your institution stay in compliance with your accreditors and legal entities, and get you past a crisis.
But remember this: If approached properly, a crisis is an opportunity in disguise to transform your institution and help it get back to its mission: educating students in a Christ-like way to serve their fellow man (and women).