The governing bodies of universities used to be large and amorphous structures. Variously known as boards, senates and councils, they frequently had 30 members or more. “When I joined the University of Southern Queensland (USQ) council I was one of 23 members,” says chancellor John Dornbusch KSJ FAICD. “Eighteen years later there are just 13 – and there would probably be fewer than that if it weren’t for our legal requirement to include representation from various interest groups.”

Some institutions are now questioning the need for student and staff representation. “Already, there are instances where staff and students are not represented. And if they are, they may not be given voting rights,” says Professor Simon Maddocks FAICD, vice-chancellor and president of Charles Darwin University. “Changes to University Acts are also supporting the move towards much smaller, skills-based and fit-for-purpose governing boards,” he adds.

James Harris, Chancellor of the University of New England (UNE) has recently overseen changes to the composition of his council. “We have ensured there will be a focus on skills and diversity in board member recruitment,” he says. “We are also ensuring that the council can be nimble and has the skills to add value in an uncertain and evolving environment,” he says.

However, for some, the mix of skills may still be constrained. “We have members who were board appointments, ministerial appointments and people who were elected by staff, students or alumni,” says Professor Peter Shergold AC FAICD, chancellor of Western Sydney University (WSU). “I still work on the basis of constructing a skills matrix for the whole board but, obviously, I don’t have the same degree of flexibility in board selection as when I’m chairing a board in the private sector.”

Yet, as standards of governance become more closely aligned with those of the corporate sector, pressures on boards are intensifying.

“The legal and fiduciary responsibilities of board members are increasing and they must meet those obligations while exercising a governance regime that gives equal weight to performance and compliance,” says Jim McDowell, chancellor of the University of South Australia. “The rise of the proxy industry and the massive emphasis on the remuneration report are probably taking up a disproportionate amount of the board’s time.”

However they came to be on the board, all members have the same responsibilities and liabilities. “That’s why the University Chancellors Council is currently working with the Australian Institute of Company Directors,” says Shergold, the council’s chair. “We’re developing a foundation course for new members of a university board.”

A large and complex business

Higher education is big business, third only to iron ore and coal in terms of export earnings, and the boards are governing some of the most diverse and complicated organisations in the country. The University of Sydney, for example, has an annual budget exceeding $2 billion, a student body of more than 50,000 and over 7,000 staff operating on multiple campuses across New South Wales and internationally, including in China.

“The senate operates much like the board of directors of a major corporation although, in my experience, it faces an extraordinarily complex set of issues,” says University of Sydney chancellor, Belinda Hutchinson AM FAICD. “Our focus is different because we are a mission-based not-for-profit organisation but we face the same strategic, operational, people and funding pressures.”

Shergold considers the high level of sovereign risk to be universities’ principal challenge. “Contraction of government funding and growing competition from both universities and non-university providers of higher education is putting very strong pressure on financial sustainability,” he says.

As a research-intensive institution, the University of Sydney delivers more cost-intensive degrees and conducts more expensive research programs than many other universities.

“Government funding does not cover the full cost of teaching these degrees or doing this research,” says Hutchinson. “As a result, we have significant dependence on international student income and philanthropy. Fortunately, our success in philanthropy has changed the picture for our university and also the paradigm for philanthropy for higher education. In eight years we raised more than $700 million from more than 47,000 donors. We have also dramatically increased the number of programs for industry engagement and partnerships in order to commercialise our research in areas such as engineering, information technology, nanoscale science and the health sciences.”

Maintaining independence

All universities are under increasing pressure to work with industry and accept industry funding for research. “I appreciate that there are people in the broader community who will question whether universities can maintain sufficient independence in these circumstances,” says Maddocks. “It is critical that universities continue to stand as a source of credible, informed research advice that helps frame appropriate policy and outcomes and I’m very confident that they have good procedures in place to ensure this is the case. But this is sure to become an increasingly important governance issue as more vested interest groups who want access to what universities provide gain an opportunity to pay for it.”

Shergold suspects that in the future, the most realistic source of additional funding will be the students themselves. “I’m not advocating this, but I do think it’s likely that, in the future, students will be expected to contribute up to half the cost of their education rather than about 42 per cent, which they pay now,” he says.

He is also concerned for the integrity of the Higher Education Contribution Scheme (HECS). “HECS has made it possible for far more students from low-income backgrounds to go to university than was previously the case,” he says. “At the moment, a student loan attracts low interest and students don’t have to start repayments until their income tops $50,000. But the government is keen to reduce the risk of students finishing their careers before they have finished repaying their loans, so I suspect there will be pressure for them to pay their debt off earlier and faster. But I believe we must hold on to income-contingent loans – they are a brilliant piece of public policy developed in Australia which has been adopted by a number of other countries.”

Technology and new business

Universities are progressively adopting an online model which allows students to watch lectures and do pre-reading in their own time. They then attend classes in order to discuss and challenge what they have read and seen.

“Those of us who had campus-focused experiences sometimes wonder whether the quality of education can be as good now as it was then,” says Maddocks. “In fact, we’re focusing more on learning to think than learning by rote. Online engagement provides a whole range of new opportunities.”

It has also created a highly competitive environment. “My competition was once the five other universities in Sydney,” says Shergold. “Now it’s universities all over the world.” Students who were once expected to fit into the system are now shopping around for a system that fits them. “We’ve all had to start thinking of our students as customers,” says Shergold. “Education may not be a commercial transaction but students are still essentially buying services. We need to keep on imagining what they could want or need and thinking how we can best provide that.”

Disruptive digital technologies are changing the student demographic along with behaviour and expectations. “The majority of our students are now over the age of 25,” says Maddocks. “Many are already working full time and some have family responsibilities, so their requirements are very different from those of an 18-year-old school leaver. We must be able to offer a wide range of deliveries even though this is expensive to resource. And those who are governing universities must also stay well-enough informed about market disruptors to help their management team lead that disruption, or at least to engage on the front edge of it. We must all be responsive to over-the-horizon opportunities – if you’re complacent, you’re in trouble.”

There is also a positive “massification” in the sector as more people around the world are able to participate in higher education. “University boards and management are being challenged to make good, long-term choices in a highly changeable environment,” says Harris. “Universities must navigate changes to long-held modes of operation and they need to anticipate new market behaviours while still supporting the delivery of quality education and research that services its communities.”

As with most other universities, UNE has found online education to be both an opportunity and a threat. “We have been delivering what used to be known as distance education and then online learning for decades,” says Harris.

“It is part of our DNA, so growth in online education is an obvious opportunity. But many new providers, including international universities, are challenging us to focus on providing high quality awards which are relevant to our communities. I don’t consider new technologies, having higher levels of access to education and developing governance responsibilities to be new pressures, but as the pace of these changes continues to increase, council members are being asked to contribute more, to keep themselves informed and to make decisions to meet their obligations.”

USQ has also been involved in global learning for several decades and in 2002 was named the world’s best provider of distance education. “We were very early adopters because as a regionally-based university, we have a limited local market,” says Dornbusch. “Now we have students in 120 countries.”

Introducing new risks

When providers are moving online it’s tempting to focus on the product at the expense of background support. This can introduce significant risk.

“It is now possible to pick a course from one professor at X university; one at Y and another at Z,” says Dornbusch. “We might even start to see top researchers in particular areas marketing themselves under their own brand. But who is going to sign the testamur? How are you going to put the assessments into a system that will enable an institution to state with confidence that each student has reached the necessary standard? How do you even know that the person who completed the assignments is the student who enrolled? When chancellors preside over graduation ceremonies they must stand up and certify that the graduating students have passed all of the degree’s requirements, so there is a great deal of pressure on the chair of the governing body.”

In a bid to overcome this challenge, universities around the world are working together to create a viable international structure. “We all want to make sure that higher education is recognised as a global commodity,” says Dornbusch. “Australia and other highly-respected countries such as the US, the UK, Canada and New Zealand are also deeply committed to maintaining their integrity and reputation.”

Looking ahead

Harris believes that some universities are adapting well to change. “They’re taking innovation seriously, aligning strategy to business plans, are good at understanding and monitoring risks and are not too risk averse,” he says. “For example, we are promoting an innovation culture within council and the organisation by being prepared to run with new ideas and assess success objectively and quickly.”

Shergold suggests that every board should identify and promote its university’s point of difference. “My board has played a key role with the vice chancellor and executive management team in a major rebranding of WSU to promote our own point of difference, which is opening up opportunities for students who would not normally be able to access a university education,” he says. “Of course it introduced an element of risk – if the rebranding hadn’t been successful it would probably have been judged an inappropriate use of university money at a time of very constrained revenues. But the strategy was in line with our risk appetite and, fortunately, was successful.”

Over the past 18 months the campaign has won a number of awards for branding in higher education and also in the broader business community. “It’s an example of where considered boldness at the board level, on the foundation of clear strategic direction and willingness to manage the risks involved, can transform the way a university operates,” says Shergold.

McDowell stresses the need for collaboration between the board and management. “The board alone cannot turn anything into anything else without the efforts of a talented senior leadership group, who do 99 per cent of the work,” he says. “One frequently sees performance turnarounds in the corporate sector where a good strategy approved by the board has been well executed by the executive who, of course, are held to account by the board on behalf of the shareholders. At a tactical level, risks are often turned into opportunities in every sector but opportunities poorly executed are also transformed into risks.”

For all of the pressures and challenges, universities continue to attract highly experienced and talented board members. “All of the people I have worked with in my years in the university sector have been community-minded, taken their job incredibly seriously and given fulsomely of their time and commitment,” says Dornbusch. “They have also felt honoured to have the role. Australia’s higher education sector wouldn’t be where it is today if it weren’t for the people who are prepared to do so much for scant recognition and scant reward.”

Epochal change for Sydney University

The University of Sydney’s bold vision for the future is to become the best university in Australia and to be internationally renowned. Putting this into action required a strategic plan which included transformative change of its education, research and organisational structures and culture. As with any heritage organisation, change on this scale must also involve careful consultation and engagement with its community.

“Ensuring that governance at the university remains up-to-date and relevant to the institution, while still being faithful to its founding vision in 1850, can be challenging,” says chancellor Belinda Hutchinson AM FAICD.

The final five-year plan recommended by management included:

  • A dramatic restructuring of the undergraduate curriculum.
  • Reducing the number of degrees from 120 to 45.
  • Substantially increased investment in multidisciplinary research.
  • A reduction in faculties from 16 to six, plus three schools.
  • A major culture change program.

“The senate’s commitment to the plan assisted the executive in gaining support from staff and students for the epochal changes which are now being implemented,” says Hutchinson.

10 major challenges for university boards

  1. Governing a large and complex not-for-profit business with a public purpose.
  2. Sourcing funding for students, research and physical assets in the face of contracting government support.
  3. Global competition, including some of the world’s leading universities.
  4. Keeping pace with the changing expectations and behaviour of current and future students.
  5. Threats associated with an international online environment, such as plagiarism and fake student identities.
  6. Identifying and responding to over-the-horizon opportunities and threats.
  7. Finding the most effective ways to commercialise online education and research.
  8. Ensuring that board members understand why the governance of a university is important and what it involves.
  9. Developing the right mix of skills on the board when some appointments may be out of the chancellor’s control.
  10. Ensuring that all board members, including any representatives of interest groups, understand their responsibilities and liabilities and are equipped with basic boardroom skills.

Speak to the AICD’s Advisory team to find out how we can tailor our education programs to meet your needs. From webinars to multi-day courses, our Board Advisory service will help you and your board develop for optimal organisational performance. Find out more at: companydirectors.com.au/advisory