Challenges facing good governance

We are delighted to have launched our 2017-18 governance year with a joint event with HEPI, the leading policy institute of higher education in the UK. In this blog post we provide a summary of the debate on the challenges facing good governance that took place last month, which included contributions from governors and governance specialists from within and outside of higher education.

Following adverse comments in the press on its leadership and speculation about changes to the future funding of the English higher education system, the panel session organised by the Leadership Foundation and Higher Education Policy Institute on the challenges facing good governance in higher education proved timely.

The panel brought together individuals working in higher education, those who had chaired and served on governing bodies and those involved with regulation and governance in other sectors of the economy. Panel members offered different perspectives on higher education governance, noting areas of strength, but also highlighting aspects of governance that needed attention.

The context of the discussion was the scale of change facing institutions. ‘Winners’ and ‘losers’ were emerging from competition for students and funding. Balancing the academic and business aspects of running an institution had become more challenging. A dynamic environment made conventional five-year strategic plans a thing of the past. The changes were placing greater demands on governing bodies, changing the manner in which they needed to operate.

Central to good governance was the relationship between the head of the institution and the executive team and the governing body. A culture of openness and trust, was needed to encourage governors to act as ‘critical friends’; able to question and support the institution’s leadership as appropriate. There should be ‘no surprises’. The role of governors was summed-up as ‘noses in; hands out’.

Good governance meant that it was insufficient to focus on structure: attention needs to be paid to processes. In this context, it was important to examine how governance really operated, and not how it was described on paper.

Engagement of the governing body with the institution was critical: ‘lazy’ governance should be avoided. Governors need to hear about issues, while being mindful that the actions to address any issues raised would normally fall to the executive. Effective engagement might mean, for example, participating in staff and student forums held outside of the formal meetings of the governing body. Similarly, in the reverse direction, academic staff might need to be educated about the work of the governing body and its members. Each needed to understand the other.

The composition and orientation of a governing body was key to underpinning effective governance. As governing bodies were now expected to seek assurance about academic governance, the need to have lay governors with an understanding of the higher education sector had grown. Equally, it was important to have members who would forensically examine matters in great detail (e.g. in relation to matters of audit and compliance) as well as individuals who had a deep understanding of finance. Similarly, a governing body should have individuals amongst its membership who had a creative mindset, thereby helping to avoid a governing body becoming overly risk-adverse.

Governors must be able to demonstrate that they are competent in discharging their responsibilities. There should be a process of governor evaluation allowing a conversation between, say, an independent governor and the chair of the governing body to take place at regular intervals. Where a governor was unable to contribute effectively, the individual should be asked to step-down from the governing body.

Chairs and heads of institutions should discuss and agree how the governance within the institution would operate. Setting the right ‘tone’ in the boardroom was crucial. This could, for example, mean encouraging the executive to share ideas, as part of a process of testing and development, with the governing body at a formative stage, rather putting a chosen and well-developed option to the governing body for endorsement.

There was a high-risk that following the most recent criticism levelled at higher education, the sector would respond in a defensive manner: this would be a mistake. The danger was that the sector ‘feels sorry for itself’. Far better to reflect on the matters raised, consider carefully and then respond. Universities also had the opportunity to learn from the mistakes made in other sectors, and to avoid making the same mistakes. The observation was made that ‘universities don’t have the right to be silent’. Accountability was an essential part of autonomy. The risk was that if institutions did not take early and effective action, someone else would.

It was noted that in comparison to other professions such as law and medicine, academic staff were in an easier place in relation to professional codes of practice. For these other professions, there were explicit codes of behaviour, and an individual was at risk of facing sanctions if they failed to adhere to them.

An element of radicalism was needed in relation to institutional governance. The following conditions needed to be met:

• Governance needed to be perceived as honest and independent
• The role of a university, including the balance between teaching and research, needed to be made clear
• The processes of governance needed to be sufficiently open and transparent
• ‘Active’ trust needed to be achieved

Critically it was important to invest time into making the board process meaningful.

As one speaker noted, being a governor might be characterised as ‘intelligent people, asking stupid questions’.

David Williams is the editor of the Leadership Foundation’s governance website. We are hosting a major governance conference Governance: Improving Effectiveness for a New Age on Thursday 30 November. To book places for this conference or on our other governance development programmes and events, or to access our governance resources please go to www.lfhe.ac.uk/governance

To find out more about the work of HEPI, and also whether your institution is a member of the HEPI University Partnership Programme (providing advance embargoed access to all HEPI reports and briefing papers), please contact Sarah Isles, s.isles@hepi.ac.uk at HEPI.

Is HE governance the best there is?

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Mary Joyce, Leadership Foundation governance and leadership associate, considers the dynamics and impact of good governance and whether boards should be looking beyond compliance.

What were your experiences of what it was like working with your board this year? How did you manage those strategic discussions before and after the vote to leave the European Union? Are you changing the composition of your board and its ways of working? These are live questions for many boards at the present time, in all sectors across the UK. They represent factors that are an additional disruption to the already delicate and largely unseen dynamics of work on boards.

A glance at the past year’s news stories reveals the extent to which ethics, unchecked egos, financial constraints and increased regulation dominate much of the anxiety felt by non-executives as they discharge their responsibilities on boards. Interest in good governance and its importance in organisational life is only set to increase as the pace and scale of change in the public, private and charitable sectors gathers momentum. And, as more stories of failing and dysfunctional boards appear in news stories and official reports, the typical response is to produce even more formal guidance and codes of conduct.

Yet, in 2009 when Sir David Walker published his findings on corporate governance in banks and other financial industry entities (BOFIs), he found that:

“the principal deficiencies in BOFI boards related much more to patterns of behaviour than to organisation.”

While the focus of the Walker Review was on the financial sector, many of its insights and recommendations for good governance and apply to all sectors. The best strategy for developing the capacity of your board to work well together and use all its talents in decision-making is one that focuses not only on technical know-how (legal, financial and sectoral), but also on boardroom behaviour and leadership. This will ensure you achieve more than simply compliance in the stewardship of your organisation.

Just over two years ago the Leadership Foundation designed a series of developmental workshop sessions on boardroom dynamics for higher education governors. They were well received, and we built on those foundations to design a special programme for university secretaries and clerks in recognition of their leadership role at the interface between the board and the executive – a difficult role for which there is generally less developmental support. In its launch year 28 people from 25 institutions attended this innovative programme from roles that included not only university secretaries, clerks and registrars but also, directors of strategic planning; the vice-chancellor’s chiefs of staff; and heads of governance.

The programme uses a psychodynamic approach to develop an awareness and understanding of group behaviour and its potential to either hinder or help the board’s capacity to work effectively. Facilitated learning sets offer a unique opportunity for clerks, university secretaries and those working in the governance field to work on their own organisational issues in confidence, and to apply new theories to their practice.

Participants on the programme commented that they were able to make sense of their experiences in a way that helped them to be more effective both in their role and with colleagues. They said:

“A valuable, thought-provoking, supportive and informative programme, putting the role into a wider context.”
Head of Executive Services

“(The action learning experience was) very supportive while being rigorous. It has helped me reflect on my approaches and practice which has been a very valuable element of the programme.”
Director of Strategic Operations and University Secretary

“Great course content and I’ve made great contacts. I would definitely recommend this to all clerks, whether they are new in post or have been appointed for some time.”
Clerk to the Board and Head of Governance

The Leadership Foundation is running the Clerks and Secretaries Programme again in 2017, starting in February, offering another opportunity for governance professionals to develop their skills and leadership. This higher education specific programme consists of three one-day sessions, which will include action learning set meetings, and two additional half-day action learning set meetings.

Join us as we take a look at how higher education governance’s behaviours, roles and remit compare to those of other sectors, and take the opportunity to consider whether higher education is at the forefront of governance as it continuously explores what good governance means and how it can be improved to meet the changing world.

Mary Joyce specialises in leadership development, group dynamics and organisational behaviour, and executive coaching. Her reputation for working ‘beneath the surface’ has developed through a variety of leadership and consultancy commissions in the public and private sectors.

Read our latest Governance Briefing Note – 25: The factors that influence whether governance is effective?

In addition to our highly regarded Governor Development Programme, the Leadership Foundation has a wealth of information, tools and tips on its Governance website, tailored to the specific needs of Governors of Higher Education institutions and colleges. Find out more at: www.lfhe.ac.uk/governance

Has the governing body given attention to the institution’s policies and actions in relation to students’ mental health?

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David Williams the Leadership Foundation’s governance web editor, highlights one area where governing bodies may need to give increased attention following the recent report from HEPI, on the students’ mental health.

Governing bodies have overall responsibility for the strategic direction and sustainability of higher education institutions (HEIs). Governors are concerned about all matters fundamentally affecting the institution and its sustainability. Typically, amongst the many matters that a governing body will exercise oversight is student recruitment, retention and achievement. An emerging concern will the potential to impact significantly on student retention is mental health.

A new report by the Higher Education Policy Institute (HEPI), ‘The invisible problem? Improving student mental health’, suggests that increasing numbers of HE students are experiencing mental health problems. The report highlights that the matter has significant implications not just for the student, but also the institution. Students experiencing mental health issues are at greater risk of not completing their studies, and the institution facing a loss of tuition fee income. Given the rising incidence of mental health issues, the report suggests governing bodies could consider giving one governor a specific remit to track their institution’s progress in improving mental health support.

The majority of higher education students in the UK enter full-time undergraduate education aged 18 or 19. While these students are classed as adults and able to vote in public elections, less attention is paid to the major transitions they face when entering higher education for the first time.

The HEPI report points out that unlike many other countries the UK has a ‘boarding school model’ of higher education. This means students normally live away from home for the first time.

At precisely the point when they face significant academic and personal changes, including the need to come to terms with new forms of learning and build new friendships, students are separated from their support networks. The increasingly demanding nature of the graduate labour market and rising student debt levels add further pressure on students to do well at university.

Student distress is particularly centered on feelings of stress, anxiety and unhappiness. The report highlights the need for students to develop emotional resilience and learn how to become more compassionate to themselves and others. Cognitive ability on its own is insufficient to ensure student survival and achievement.

Although the data is incomplete and increased levels of disclosure and awareness may account in part for the rising demand falling on university counselling services, the HEPI report suggests there is clear evidence that mental health issues are becoming more common amongst higher education students. The assessment is supported by the responses from HEIs to recent freedom of information requests made by The Guardian newspaper.

The HEPI report questions the level of current support for mental health being provided by some HEIs. Expenditure to support students shows marked variation.

The report cites examples of institutional good practice, but equally suggests that governing bodies need to seek assurance that the institution has a formal mental health policy and associated action plan. A pre-condition for assessing such policies and plans is ensuring the scale of the problem at the institution is understood together with the current level of support offered. Data about the scale of students’ mental health problems tends to be patchy.

If they haven’t already addressed the issue, a governing body should examine the provision provided by their institution to support students with mental health difficulties. Above all, governing bodies need to ensure mental health issues affecting students are understood and appropriately addressed.

David Williams has been by the Leadership Foundation’s governance web editor since 2013. He has worked with the governing bodies and senior leadership teams of different higher education institutions for over 20 years.

Editor’s notes

  1. For a full set of briefing guides on governance edited by David, please go to www.lfhe.ac.uk/govbriefings
  2. Read the latest news on governance, including the latest newspiece by David on students’ mental health and the role of governing bodies, click here
  3. Other blogs on governance include:
    Book Review: What can governance in higher education learn from other sectors?Book review: Nonprofit Governance
    How can universities enhance the strategic development of the academic portfolio?Poland’s rapid response to change in higher education makes it a hidden gem

Book Review: What can governance in higher education learn from other sectors?

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David Williams, our governance web editor reviews Jeff Gramm’s Dear Chairman: boardroom battles and tries of shareholder activism (Harper Collins, 2015).

It is frequently argued that the best way to reflect on practice in a given sector is to look at what happens in other sectors. This is true with ‘Dear Chairman’, which looks at the rise of shareholder activism in the United States (US). Many of the conclusions contained in the book apply to governance in higher education (HE) and beyond.

The author, Jeff Gramm, a head fund manager and adjunct professor at Columbia Business School, looks at eight case studies, stretching from the 1920s to more recent time, to show the impact of shareholder activism on governance. The book also includes a selection of the ‘Dear Chairman’ letters written to the chairs of the boards of the companies featured.

The earliest case study looks at an oil pipeline company, Northern Pipeline. It shows what happens if disinterested shareholders are combined with a board of directors dominated by supporters of management: accountability is lost. The situation was made possible by the limited information the company was required at the date of the case to provide to shareholders. Lacking information shareholders were in the dark. The actions of an activist outsider brought change. The role of the ‘outsider’ as the catalyst for change is found in many of the examples cited in ‘Dear Chairman’.

The case of American Express illustrates how a major investor in the company, Buffet, supported the group’s chief executive. American Express’ warehousing subsidiary had guaranteed stocks of soybean oil. When as a result of a fraud on the value of stocks guaranteed to third parties the company faced significant losses, a group of shareholders argued the company should contest the claims. By contrast, Buffet urged management to compensate in full to maintain the reputation of the company. Buffet recognised that as a service company the value of the American Express rested on its name. Its long-term reputation was more important than any short-term gain.

The action of the Chief Executive Officer (CEO) supported by rest of the board bought out and removed a major shareholder and dissident director of the multi-national car manufacturer, General Motors (GM). The case shows how far the company was prepared to go to remove a well-informed critic of the company’s strategy. It also powerfully illustrates that having a board of high-calibre directors does not mean the board is effective. In GM’s case, such directors did result in an effective board.

The CEO and the largest shareholder, the daughter to the company’s founder, fought each other in the case of R P Scherer, a company manufacturing soft gelatin capsules. The two protagonists were also married to each other.

Scherer illustrates the perils of allowing directors to be picked by the CEO. The directors’ loyalty was to the CEO, rather than to the company. Conflicts of interest made the situation worse. Many of the individual directors worked for companies who were suppliers or advisors to Scherer. These directors had an economic interest in preserving the position of the CEO. Further, the CEO had picked at least one director ‘because he’s weak and he’ll do what I tell him to do’.

The individual cases allow wider conclusions about corporate governance to be drawn. These include the risks of ‘independent’ directors having deep connections with the CEO. The husband and wife example in case of Scherer, suggest that independence is a state of mind. Gramm suggests that once on a board independent directors inevitably develop closer relationships with management. He argues that humans are social beings, and connections develop over time; he quotes Buffett as saying ‘the nature of boards is that they are part business organisations and part social organisations. People behave part with their business brain and part with their social brain.’

The importance of having a thorough understanding of the company’s business is an important trait of a good director. Noting that in the case of private equity, where it’s their money, directors will act if things go wrong; by contrast boards often wait too long to get rid of poor people.

When governance goes wrong shareholders share some of the blame. Gramm’s conclusion is for the system of corporate governance to be effective it requires the ‘right’ professional managers, directors and shareholders. i.e. the three elements need to be present. Given Gramm’s analysis, who fulfills an equivalent role to that of the shareholders in the case of ‘public’ higher education institutions (HEIs)? Or in the words of Gillies ‘who guards the guards’.

Dear Chairman is not a book that most governors or clerks/secretaries of HEIs should rush out and buy, but it does illustrate the value of looking from a different angle to gain a better perspective on good governance in higher education.

Editor’s notes

  1. Take a look at our newly revamped governance page to discover what services we offer to support governors in higher education. Visit www.lfhe.ac.uk/governance
  2. Read about our latest Hefce sponsored project focussing on supporting governing bodies to be able to monitor standards in their institution. http://bit.ly/1VVJWOG

Book review: Nonprofit Governance

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by David Williams

Nonprofit Governance, published last June, discusses governance in ‘nonprofit’ or ‘not-for-profit’ organisations. While sector boundaries are imprecise and can change, the focus is on ‘third sector’ organisations. There are no specific examples of higher education institutions in the book, but it does explore issues of governance that vice-chancellors and their governing bodies will find of interest.

The contributors to the book are largely academic staff working in Australia, North America and the United Kingdom. The book takes a research perspective, but includes case studies illustrating aspects of governance in a specific sector or organisational setting. Nonprofit Governance is a collection of 14 chapter length contributions, organised under five themes. Each theme explores a current area of research on governance.

The reader is reminded that governance is a function and a board is a structure. Further, there is a need to look beyond composition and structure and give attention to board behaviours. Questions about the groups most likely to be represented on Boards, and democratic participation through and beyond Boards are explored.

The behaviour of the board chairs, individual board members and the board as a collective form two of the book’s themes The chapter entitled ‘Board monitoring and judgement as processes of sense making’ considers issues of monitoring non-financial performance and explores ‘sense making’ by Board members. The idea of ‘failures’ of board monitoring being ‘good people struggling to make sense of their circumstances’, rather than ‘bad people making poor decisions’ is introduced.

A review of organisational crises experienced by two museums and two performing arts organisations forms one of the case studies in the book. The problems created by unchallenged trust by the Board of the chief executive and a failure to receive, or demand, adequate and regular information about financial performance are set out. Subsequent financial difficulties resulted in a pivot in the Board’s focus towards financial matters, and away from ‘mission orientated’ activities.

The balance of ‘trust’ and ‘control’ between the Board and the chief executive was changed by the crisis. A period of intensive Board control (i.e. the opposite polarization to the previous situation), during which the organisation’s problems were addressed, was followed by the emergence of a ‘negotiated balance’ to the relationship between the Board and the (and in some cases, a new) chief executive. For some organisations, a further element to post-crisis governance was the remaking of the Board to change the balance of members with business skills and those with professional, sector-specific, expertise.

Not all contributors to the book support a move towards more conventional board structures and membership, and the Community Engagement Model™, is put forward as an alternative approach for at least some nonprofit organisations.

The case of English housing associations illustrates the impact of context on governance. Many associations have assumed responsibilities for what was formerly a public service. As a consequence they have moved from operating as ‘a small-scale complementary service provider to the main provider of social housing over the past 30 years.’ As a result the changes to the scale and complexity of running these organisations has affected governance substantially. Board membership has moved from the inclusion of representative members (e.g. tenants and local authorities), working on a voluntary and unpaid basis, to boards of ‘professional’ independent non-executives now paid for their work. A change from representational to professional boards.

The book goes on to consider ‘multi-level governance’. Contributors distinguish, and discuss, ‘nested’ (intra-) and ‘network’ (inter-organisational) governance in the context of federations and collaborative structures.

Although this book contains many interesting observations and insights, and claims to be written in ‘an accessible manner’, it unlikely to be read by those who might benefit most from some of its contents. As one contributor acknowledges when discussing their own contribution to the book, research on nonprofit governance is frequently published in scholarly journals (or discussed at academic conferences?) and risks never reaching practitioner communities. This is a pity, and a timely reminder to academic researchers of what should be an important purpose of their work.

Nonprofit Governance: innovative perspectives and approaches, edited by Chris Cornforth and Wiillam A Brown.

David Williams is the Leadership Foundation’s governance web editor.

The beating heart: student governors

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By Dr Mark Pegg

I have been asked to speak to student governors about why the Leadership Foundation needs to listen to the agenda set by emerging student leaders and how we need to develop leadership skills for careers beyond the university boardroom.
I was delighted to be asked. I am a believer. Student governors make a real difference. At several levels – big picture thinking, where students influence university strategic decision-making, at the practical day to day learning about leading complex organisations and through significant early exposure to personal leadership development – all with long term benefits.

I was a president of a student union and student governor myself many years ago. It was a small college, but the principles hold good, and I still use learning from the experience pretty much every day. When I was at university we had a voice, but no real power. If lecturers were indifferent (sadly many were) the response was: ‘tough, like it our lump it’. If we did not like the rise in fees in a time of great inflation we went on rent strike, did a demo and occupied the university offices. We developed as political animals, but actually had zero influence in corridors of power or any decisive impact on decision-making.

Today, at the strategic level, the balance of power has clearly shifted in favour of students. With the NSS, student loans, overseas students, increased competition for students, league tables, it is obvious universities need to contract with students. To hear and heed the student voice. They need a responsible, empowered student representative body, one they listen to, respond to and incorporate the thinking in to decisions. Learning for student governors here is invariably around complexity faced by leaders, where decisions are ambiguous and difficult. To progress issues where student governors have a lot to offer – such as efficiency, sustainability, employability and diversity – is often hard. To turn discussion into decisions and then into action and achievement is never clear cut.

Learning from the best leaders, those who take this on, bring people with them and make it happen is gold dust. It is also a two way process. Students are more than  consumers; they are part of the body politic of a functioning university, part of the beating heart. It’s a commonplace observation that students should provide some reverse mentoring and inform senior decision making on the digital future – resources, investment and working practices on social networks, mobile learning and the learning space students need.

At the practical level, you learn so much about administrative complexity, how culture eats strategy for breakfast, the illusion that pulling a lever in the boardroom is necessarily connected to anything moving or more importantly, moving in the direction you want it to go.

I was fortunate to attend meetings held by a very good chair. At meetings I chair, I use this approach as my baseline and endeavour to live up to the standards he set. I learned about organisational dynamics and the politics amongst the members of the Governing Body, about facing up to difficult issues (what happens when you don’t) and the challenging business of negotiating student fees and rents.

Personal learning about leadership helped me throughout my career. I had formed a mental picture of what was needed. It helped me get a job as executive assistant to the chairman of a large corporation and to grasp quickly the challenging scope of the job and what doing it well looked like. As a CEO today, I still call on deeply etched memories of sitting on a Governing Body in leading my own organisation and, completing the circle, in the Governing Body I sit on today.

Being a student governor can seriously affect your life. Never lose the learning as your career progresses, stop every now and then to reflect on what you have seen and heard – the good, the bad and the indifferent – and make a mental note to use it to become the very best leader you can be.

Dr Mark Pegg is the chief executive of the Leadership Programme. The annual student governor seminar attracts almost 90 students from around the UK and is the first event of the 2013-14 leadership development year.