What College Boards Need to Know About Governance Best Practices

Nicholas J Price

Governance is a system that describes the processes, practices and structures that control and direct the work of corporations. Corporations that follow the best practices for good corporate governance improve their organization's transparency and accountability. Governance has a separate and distinct role from the daily operations of the company. The board of directors works collaboratively to develop short- and long-term strategic plans that will result in the long-term sustainability of the school. The board directors of the college also provide guidance to the school leadership team and oversee their efforts.

Within their duties, board directors regularly manage many practical and legal matters. Best practices refer not only to what board directors do, but that they perform their duties ethically, responsibly and with great integrity.

Legal Matters for College Boards

Boards of directors need to be familiar with corporate laws, financial regulations and decisions of legal cases that may affect their administrators, staff and students. College board trustees have the duty of loyalty to the college they represent, and must act in the college's best interests. They also have a fiduciary duty to act in good faith and with honesty, and must act as any ordinary person would under the same circumstances. As part of best practices, board directors must meet these duties, as well as perform to the expectations of other stakeholders. Corporate governance practices provide some basic guidelines for board trustees to use in order to fulfill their duties and expectations.

Getting Board Composition Right Stimulates an Actively Engaged Board

College boards usually draw from their alumni when planning for board member succession. That isn't a bad strategy as long as the nominees for trustees will fill the needed gaps in expertise and experience that the board needs. A hot topic around board composition is creating board members who are diverse and independent, especially as it pertains to recruiting more female board trustees.

Well-composed boards don't form by happenstance. Best practices for forming boards that are qualified and competent include continually keeping a list of potential board nominee recruits who have the skills and abilities that the board needs to fill any gaps in the current board.

College boards may find it easier to fill the board nominee pool with college alumni. While board directors should certainly have loyalty to the school, best practices require the majority of board directors to be independent of management and the school so that their contributions to the board come from a fresh perspective. Independent board directors are more likely to ask questions and challenge management when it's called for, rather than following the lead of managerial recommendations as a matter of fact. In the search for board nominee recruits, the board may identify people with the right skillsets who lack experience serving on a college board. Best practices for corporate governance provides room for educating, orienting and mentoring new directors about good governance and the college's business.

Best Practices for Defining Roles and Clarifying Responsibilities

The board chair, board trustees and college administrators all have different and distinct roles and responsibilities. Problems arise when someone among them isn't clear about when they are overstepping someone else's role. To comply with best practices, boards should develop written statements that outline the duties and responsibilities for the board chair, board directors, committee chairs and senior executives. Types of committees include an audit committee, nominating committee, compensation committee and governance committee. Special committees can be created for any other issues that arise that don't fall into the other categories. Special committees should have clear objectives and benchmarks for when their work is complete.

Best Practices for College Boards Promote High Standards of Integrity and Ethics

Best practices require boards to promote high standards of integrity and ethical dealings among board members and throughout the college's culture. Board trustees must be committed to respecting and complying with laws and policies under all circumstances. Written policies outline the standards against which unethical behavior will be measured.

Best practices recommend that boards have written policies for declaring conflicts of interest and refraining from voting on such matters. Boards should also develop a written code of conduct and whistle-blower policy. Policies should also outline the process for reporting infractions.

Best Practices for Evaluating Managers and Board Members

A primary duty of board directors is to uphold high standards of performance of the leadership team and board directors.

The board sets the compensation levels for executives. Best practices recommend that boards set the compensation level high enough to attract quality candidates. The best way to accomplish this is by establishing a compensation committee composed of independent directors. Board directors undoubtedly have many potential candidates in their business networks. When making recommendations, board directors need to steer clear of the appearance of a conflict of interest, even when candidates are highly qualified. The board is responsible for evaluating executive directors at least annually. Boards should establish measurable targets for executives and tie their compensation to their performance.

Some regulations require board members to perform annual board evaluations. Best practices suggest board self-evaluations and individual director self-evaluations even when they aren't specifically mandated. Self-evaluations, when performed with honesty and integrity, will reveal whether board directors are fulfilling their duties to the best of their capabilities.

Best Practices for Managing Risk on College Boards

All corporations face risks. Today's corporations face risks from many new places because of the advancement in technology. College boards need to be aware of risks that affect finances, operations, academics, law, the environment and the college's reputation.

Board directors are responsible for establishing clear accountabilities for managing risk. Best practices for governance recommend that college boards identify, assess, mitigate and monitor risks that threaten the sustainability of the college. Oversight in this area should monitor risk and assess implications over the short and long term.

Wrapping Up Best Practices for College Boards

Best practices are not one-size-fits-all, even among college boards. Best practices for colleges should factor the nature of academics, the size and stage of the college's development, the availability of resources and stakeholder expectations.

College boards that adhere to best practices for governance will reap benefits over the long term. High-performing boards will reduce risk, engage in strong oversight, develop effective strategic planning and hold management accountable for their performance. Best practices for governance make it all work together for everyone's benefit.

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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.