How Private Universities Are Governed

In a previous blog post, we saw that private universities are typically governed by self-perpetuating boards of trustees many of whom follow the principles of the Association of Governing Boards (AGB) as to their fiduciary duties—that is, their legal and ethical obligations—to all the university stakeholders, including students, parents, donors, alumni, faculty, staff, and the general public. 

Fiduciary Duties

In order to better understand how private universities are governed, it is necessary to look more closely into the meaning of the term “Fiduciary Duties,” a term which the AGB defines on its website to include:

·         The duty of care: board members should pay full attention to their responsibilities and protect institutional assets.
·         The duty of loyalty: board members should put the interests of the institution before self-interests.
·         The duty of obedience: board members should ensure that the mission is being fulfilled and that their actions are consistent with the mission and values of the institution.

The duty of care certainly requires that board members protect the financial assets of the institution but, more than that, to also protect the institution’s reputational, personnel and tangible assets as well.

The duty of loyalty requires that board members put the interests of the institution before all others.

The duty of obedience requires that board members act in a manner consistent with the mission and goals of the institution.  Failure of this duty can result in loss of public confidence in the institution.

For private universities, mission statements are voluntary and public proclamations of institutional responsibilities—as well as public acceptance of those responsibilities—to all their stakeholders.

“The University/Student Relationship is the Key to Private Fund-Raising Success”

Because of the fierce competition and great expense that private universities face in recruiting and retaining good students, the “relationship” those private Universities invariably seek with every prospective student verges on the sacrosanct.  In fact, because of the way private universities are funded, every good prospective student must be seen by the private university as a potential future funding source—not just for four years of tuition, but for years of private giving well past graduation.  

Recall, as we showed previously, that private universities rely on high tuitions, private donations, and large endowments to remain financially viable.  And the primary key to a university sustaining all three of the above underlined items is a high APR, that is, a high annual Alumni Participation Rate (the ratio of the total number of alumni donors that year divided by the total number of living alumni that year.

We saw previously that APR’s vary from a low of about 8% (at some public universities) to 60% (at one of the most exclusive private universities).  And the difference between those two extremes—which translates into gigantic differences in private giving—can  be directly linked to the varying degrees of effort that the schools at those two extremes invested in building the right relationships with their students—while they were students—and long before they became alumni after graduation.  

Few public universities 30 years ago looked at their prospective students as future funding sources (beyond perhaps four years of tuition, that is), simply because they had no reason to.  Back then, the very name “public university” signaled that the State was heavily subsidizing the cost of education and that, as a result, tuition costs would actually be just a mere fraction of the true cost of the education. 

Today, even when most consumers know that “public university” no longer means paying just a mere fraction of the true cost—because of the rapid privatization (i.e., defunding) of public higher education happening in Pennsylvania and beyond—only a few public university presidents have begun to commit to the effort needed to build the lifelong relationships with students required to replace the lost and still fading State support that won’t be available to fund these so-called ‘public’ universities in the future.

The key to building that lifelong relationship after graduation may be seen in the three key fiduciary duties of care, loyalty, and obedience to the mission cited above.

What could possibly induce a student who has already paid four years of tuition for a diploma to decide:  a) to become a lifelong donor to their university after graduation, and b) to give their alma mater the additional gift of the bragging rights that go with having a high Alumni Participation Rate?

The data show that the universities who succeed in creating high APRs, high annual fund raising totals, and large endowments, are the very same universities that do whatever it takes to create genuine, caring and loyal relationships with their students, while demonstrating institutional integrity through obedience not just to the institutional mission, but to every institutional promise made to students.