I was really pleased to have an opportunity to speak at the Council of Ontario Universities’ successful virtual governance conference. I spoke on a panel with Peter MacKinnon (former University of Saskatchewan President and thought-leader on university governance), and Cindy Forbes (Chair of the University of Waterloo Board). We were addressing “Good Governance in an Era of Uncertainty”. It was a great discussion – I could talk about governance all day! One topic on which Cindy Forbes and I had a somewhat different perspective was the relative amount of time that boards should spend on strategic vs. oversight issues. Cindy expressed the view that boards should be aiming to spend seventy percent of their time on strategic matters.
When should Boards spend more time on strategy?
Having worked in governance for over twenty years and having worked with many boards, my observation is this: Boards often want to focus more on strategy. This is a good inclination particularly when motivated by a desire to avoid or move away from operational focus. It’s also good when there has been insufficient focus on strategy, or where the organization is in need of a strategy reset. There is no doubt that a sufficient focus on strategy is important. Bottom line: boards need to be sure their universities have a strategic direction and plans to implement that direction. Boards should test the university’s strategic development process (respect for collegial processes/ consultation is important) and strategic thinking to ensure that it is sound and considers the interests of all university stakeholders. If you’ve read my book or work by Peter MacKinnon, you’ll know that we both agree that the university board plays a particular role in representing the public interest. As such, the board should understand how the university’s strategic direction serves the public interest.
Oversight is at least as important as strategy
It’s hard to say when boards are spending too much time on strategy because, as I note above, there are times in a university’s existence when greater strategic focus is necessary. Each board has to determine this for itself. No matter what stage your university is in, the fundamental oversight role cannot be neglected. While strategic planning is essential, it has to be built on a solid foundation of fiscal responsibility, effective risk management, and compliance. Oversight is at least as important as strategy and while it may feel dull, it should not be treated as routine. Here’s my challenge to boards: what questions can you ask about fiscal, risk and compliance matters that get to the heart of whether they are effectively managed? Those answers and discussions won’t be dull – I promise you. It is my observation that it is sometimes the case that a board’s lack of engagement, interest or imagination that causes it to sit back and receive fiscal, risk, and compliance reports without questioning them.
What are the risks of neglect of the Board’s oversight role?
Reputational Risk: If you think back to the big reputational issues facing organizations, can you think back to any crisis that arose because of an organization’s lack of strategic focus? I can’t. I’m not saying strategy is not important – I am a huge proponent of the value of a clear strategic direction. I’m saying boards should not lose focus on oversight. Think of the college admissions scandal in the US or the crisis facing Penn State arising from its failure to properly manage sexual abuse allegations against coaching staff. Think about the Laurentian University fiscal crisis. These are all significant reputational hits. These are all issues that are subject to board oversight – whether oversight of ethics, culture, or financial controls – they are issues of fiscal responsibility, effective risk management and compliance.
Can the board members fulfil their fiduciary duty if they spend less time on oversight? There’s a chapter in my book explaining fiduciary duty and the duty of care and so I won’t explain it here. Again, each board has to judge how much time is to be spent on oversight to ensure that they fulfil their obligations. However, it is widely acknowledged that university compliance obligations are increasing in complexity and nature. It is widely-acknowledged that universities engage in inherently risky activities and many of them. Universities have complex financial structures, complex financial requirements, and significant financial scope. My role involves overseeing compliance and risk at my institution and my assessment is that universities generally do not have robust or effective enterprise risk management programs and many universities lack a comprehensive compliance program. How then can university board members at universities without these risk and compliance programs be spending anything less than half their time on risk and compliance and still claim to be fulfilling their board duties? What about ethical issues? What about human rights compliance? What about …. I could go on. There is no end to this list.
Key Takeaway: I have serious doubts that university boards can properly fulfil their oversight role if they are spending much less than half of their time on fiscal responsibility, risk management, and compliance. These topics aren’t routine or boring, boards just have to learn to ask good questions about them in order to truly assess their effectiveness.