Thank you Mr. Weaver. It is a pleasure to be asked to participate in this year’s conference, and to share the stage with people such as Michael Beschloss and Juan Williams. I should point out that I accepted Rick Skinner’s invitation before I learned that one of America’s top historians and one of this country’s outstanding journalists would be the other plenary speakers. I also accepted before I found out that they were being paid! Rick, had I known this in advance, I may have scheduled my upcoming knee surgery a month early!

Right now, with this group of distinguished speakers, I am beginning to feel a little bit like pledge class filler. In spite of my trepidations, however, like a trouper, I set about the task of composing some remarks, albeit with a heightened sense of humility. Given Mr. Beschloss’s presence on your conference program, I thought it would also be appropriate to provide an example of humility with a historical reference.

Among the many attributes that can be ascribed to the late General Douglas MacArthur, conspicuously absent was a well-developed sense of humility. Today, he would have no problem matching his ego with some of our more outrageous public figures. Toward the end of his life, he spoke at West Point, his alma mater and where he had also served with distinction as superintendent.

MacArthur was being given the Point’s prestigious Sylvanus Thayer Award, and his remarks later became known as the “Duty, Honor, Country” speech. That day MacArthur began his remarks to the Corps as follows: “As I was leaving the hotel this morning, a doorman asked me, ‘Where are you bound for, General?’ “And when I replied, ‘West Point,’ he remarked, ‘Beautiful place. Have you ever been there before?’”

This, of course, reinforces my advice to one of my more high profile and obviously influential presidents. I suggested to him that whenever I got to feeling really influential, I would just try ordering somebody else’s dog around. That usually brings you back to earth real quickly.

In February of 2006, I began the job of chancellor of the University System of Georgia. This is a major public system composed of 35 degree-granting institutions, 40,000 faculty and staff, 270,000 plus students and an annual budget of $5.7 billion. We have an 18-member governing board.

And, as was noted in the introduction, I was stepping into the job after a long career in the private sector – a good part of which was in the utility industry. So, many people wondered as I began my new career if I truly understood what I was getting into. In essence, they asked me where I was going with the note that the Academy, like West Point, was a beautiful place, “but had I ever been there before?”

I took up this new career with a sense of respect and humility for both the physical and intellectual beauty that pervades our campuses. But I also took up the job with a moderate sense of understanding. Again, as was noted, I have sort of “been here before” through my service on a number of higher education boards and through the work of our family foundation. In short, I took up the position with the experience of many of you here who serve as trustees.

But, I also took up the position with a background in leadership of large and complex global organizations. I did not feel completely unprepared. And I did understand that, to be effective, I would need to make a successful leap between two worlds – the private sector and the Academy.

Over the past two years, two months and two weeks, I can say that it has been an “interesting” leap. “Interesting,” of course, is a word one uses to describe ugly babies. The transition has offered some confirmation of what I knew or expected. And, it has also provided quite a few surprises as I have learned more about the mindset and culture of the Academy from the inside instead of from a governance perspective.

So what I propose to do in my remaining time is to highlight some of my experiences and observations as I have worked to bridge these two very different worlds. And, with respect to many of you, who come to the crucial role of board membership or trusteeship, like me, from the private sector, my goal is to give you some insight into this very different world you now have to govern. I have sat – and still sit – where you are sitting.

While I make no promises to “build a bridge to the 21st century,” at least I can discuss how I have attempted to build a bridge from the private sector to the Academy. My comments then, will focus around what I believe are three key questions we must ask ourselves in our respective roles:

1. What is it that we are to ask of our institutional presidents – what kinds of questions and inquiries do we need to make to ensure effective leadership on our campuses?

2. What are the metrics we use and what type of information do we need to be comfortable in our governance and fiduciary roles?

3. Where is governance being done well? Where have boards and leaders integrated good not business, but leadership practices into good institutional governance and strategic vision?

Note that I stressed leadership practices, not business practices -- more on that later. Now, a caveat: the following comments are not necessarily intended to directly answer the above questions, but to provide you with my own insights and guideposts to help direct your work.

While I thought I was keenly aware of the differences in the culture between the private sector and the academy, I didn’t have a full appreciation for the effect of those differences in the management function. And, for those of you who have served on a board or as a trustee for any period of time, you also may have sensed this difference. In retrospect, it may be extremely difficult to understand this difference from the outside looking in. Frankly, I lost about a year because I didn’t fully appreciate how hard it is in this environment to build effective leadership capability and capacity in depth in order to get things done in higher education. To help you better understand this culture; let me compare the different routes to leadership in the private sector and the Academy.

Before I get rolling in earnest, a quick but important note or preface before comparing leadership in the academy and industry. I will be making broad generalizations, and I realize this. Please do not interpret what I say as a condemnation of the men and women who teach our students or have made our American system of higher education the envy of the world. I understand that at many universities great leaders are cultivated, that accountability is central to the culture, and that sustained professional development is a reality. I know that intensive teamwork – on committees, in the classroom, in departments, in labs – is also central to great universities. But all this said, I do believe there are some essential and fundamental differences in culture, and – albeit with some exaggeration – I want to underscore these, to provoke our thinking and, I hope, help you be a little more effective back home.

In the Academy, one’s early years are spent focusing on education – what you learn – your discipline. To earn a terminal degree, an individual has to have tremendous focus – and that focus is, by necessity, is usually quite self-centered. Today, you have a seven-year median after undergraduate school to earn a Ph.D. in the humanities. You end up with a lot of knowledge – but the process is designed to be all about you – your needs, your learnings, and your dissertation. So, now, at age 29, seven years after undergraduate school, you have your terminal degree and if lucky, you get a job as an assistant professor on a tenure track.

And now, your next goal – six years out – is earning tenure. It’s the same process you’ve followed all along, except now you don’t even have a thesis advisor with whom to interact. Tenure acquisition requires a focus on research, publishing, and supposedly teaching and service. But again, it’s really all about you – your research, your publications, your persona, your scholarly stardom. You do well and now, at around age 35, you finally earn tenure. And what do we have? We have a person with tremendous, bordering on incredible, knowledge, in one area – and not a lot more than that.

Now, let’s compare this to the private sector – the commercial culture. The fundamental rule when you walk in the door is that if you can’t get along, you won’t be around long. From the start, the focus is on working in increasingly diverse teams – and on learning team problem-solving skills. You learn to work together and you learn to trust each other. You learn skills: meeting facilitation, negotiation, team problem solving. After some time and some further training, you may be given the chance to manage people. But most importantly, you are assessed annually and you are constantly evaluated.

If you can survive all these filters, then you are given more responsibility over more people and more resources. The system is designed so that either you keep getting better or you reach the limit of your capabilities -- and hopefully don’t exceed them! At age 35, you are a pretty well developed product. For example, I was CFO of a New York Stock Exchange listed company at age 34.

You have been given the experience – you have the seasoning – now the question is how you handle bigger challenges – how do you deal with strategic issues. The tools, however, are already in place. The path to get to this point in the private sector is reasonably clear and usually quite well defined.

So let’s return to our academic counterpart – the now-tenured professor. How do I get this person into a leadership capacity? It’s not just that the path to leadership in the Academy is poorly marked; in some cases, it may not even exist. The background and experience and direction of our newly tenured professors also suggest that these are individuals with absolutely no interest in leadership – in management. The thought process at this point is “I didn’t study for 17 years just to be an administrator – a bureaucrat.” The power of leaders to manage risks and alter futures is very underappreciated in this environment. There is simply no structural or systemic aspiration to lead.

So, what do you do? First you seduce someone into becoming a department chair or assistant – then a dean or an assistant – then a provost or a vice president of academic affairs – and eventually, perhaps, a president. Is there any required management or leadership training in this process? Not consistently. Is there any rigorous ongoing and constant assessment for management ability? Not consistently! There may be some popularity votes along the way – which may do nothing more than reinforce the “make everybody happy” culture. The bottom line is that as a result of this disdain for “administration,” it is often very difficult to get people even interested in being managers and leaders. There is no leadership culture that creates these aspirations.

So you have individuals thrust into leadership positions who come to the table at times with imbalances you here wouldn’t begin to tolerate – short tempers, an inability work in teams, and often rudimentary social skills. What we have in many instances is not an absolute assessment system, but a weighing system of good versus bad. As a higher education leader, if your goods far outweigh your bads, you can get away with a lot of bad behaviors.

Let me be clear; the private sector is not immune to some of these same shortcomings. One has only to look at Enron or the mortgage industry to see the consequences when the culture allows people to get away with bad things. But I would posit that these are the exceptions that prove the rule: by and large, the private sector has done a reasonably good job of setting clear expectations for performance and providing a well-marked path of growth and accountability for its employees.

This is the primary lesson: you cannot expect a culture that doesn’t systemically train leaders, that doesn’t create aspirations in individuals to leadership, to adopt a more comprehensive leadership style and culture overnight. In this environment, processes are seen as something bureaucracies do to you and not for you. In fact, you are working in a culture that reinforces a strong sense of self as opposed to team – a strong sense of my goals versus a sense of the greater good or common goal. But these issues can be addressed; these challenges can be met – you just have to be aware of them at the outset. You can’t ignore them – you must create structures and processes that work around them and through them.

So, in answer to the first two questions – what to ask of our presidents – what metrics to use, I think it is clear that we need to frame them in the context of this discussion on leadership. We should be asking as members of a governing body just what are the processes in place that help develop leaders who understand how to develop leadership in depth and how to use metrics to hold decision makers at all levels accountable for their actions – or inactions.

We need to ensure that we are instilling an understanding of how crucial it is for both leaders and governing boards to base decisions on leading as opposed to lagging indicators. Graduation rates are a lagging indicator. Retention rates are a leading indicator. Leaders must be taught to understand that it is your expectation that they will use leading indicators to alter future conditions.

That is what leaders do – manage risks and alter futures. And with good leadership, we can also clearly delineate the proper role of governing boards to focus on the policy issues and the strategic vision. Governing boards don’t need to be in the weeds on the operational level – but that is a tendency we fall back on when we sense a lack of process a lack of accountability and a lack of any sense of urgency to get something done.

Currently I am focusing on trying to create the understanding for and the buy-in of such processes, first with our 35 presidents and then percolating down. And we are working to create the structures to implement and reinforce these processes. For example, today, there is no System wide HR function in our University system – that’s right! No system wide people function. We are in the process of changing that and installing a true HR function that will begin to implement the needed structures to create a clear path to leadership. We will begin to identify talent and make sure these individuals get their leadership tickets punched early in the game.

We cannot expect individuals to acquire the level of training, skills and seasoning overnight when they begin the leadership process in their late-30’s or early 40’s. We cannot expect the 45-year-old manager in the Academy to have the same depth of leadership kills or managerial maturity as the 45-year-old corporate manager. Our hardest challenge will be to create a system that begins to actively develop leadership skills much, much earlier in one’s career.

There is no question – we have a tremendous pool of bright, extremely talented people in our colleges and universities. However, we won’t get where we have to go in terms of a true System operation, in terms of efficiencies, in terms of process improvements, in terms of accountability, if we don’t develop our people. In fact, the lack of a deep leadership culture has consequences that we, and unfortunately our publics, see all the time in the form of poor risk management.

Simply put, too many things go wrong, too often. At some point, the public simply will not continue to support the truly good and great things we do if we keep demonstrating that we can’t effectively manage the mundane. Until we create a culture of accountability, until it becomes part of our DNA, we are going to remain susceptible to both operational and strategic perturbations.

There is no question that the private sector can offer tremendous resources to help advance higher education goals in this country. The challenge is to understand that these are two very, very different worlds and to figure out how to blend them in ways that truly benefit our colleges and universities. The danger is to ignore these differences and use the brute force approach to impose what many in the Academy view, simply as an alien culture; a culture promoted by the less intelligent who need a lot of rules and processes to simply make things work. The brute force approach won’t produce the results that a good management team wants and that the public expects and increasingly demands.

As Collins notes in his monograph “Good to Great,” planning, discipline and flawless execution are not business principles. These are leadership principles. And that is always the challenge everywhere – building leaders in a systematic manner.

As you have probably realized by now, I have not really answered the third question – who is doing all the right things? The answer is I don’t know yet; I know I am not. But I do see a lot of opportunity to be better most everywhere.

We are engaged in the process of bridging these two worlds at the University System of Georgia. We are working to do it right. But we are not there – yet. The jury is still out on if the bridge will be built – and if so, how enduring it will be. And we must build this bridge in a way that respects the people and values of the Academy, while, at the same time, providing our people with some new approaches to fulfilling our mission of teaching, research and service.
If you look at history – it is no accident that America has created a higher education that is the gold standard worldwide. But others are catching on – and catching up. In our roles as leaders, as trustees, we have an obligation and a responsibility to sustain and build upon this great historical legacy. And we can do that – and be successful – by working together to create a dynamic and effective leadership culture in our systems and institutions.

Part of the success of American higher education has been the historic partnership between the private sector and the Academy. It is a partnership that has a built-in tension – but we must make sure that this is a creative tension that ultimately benefits the Academy. This is the historic legacy that we all honor through our service on boards.

This is the historic legacy upon which we build a more effective Academy – that educates society to solve the problems of the future – and that responds to them in an increasingly energetic manner. This is the historic legacy that I am proud to serve in my new career – as I am sure, do each of you. Thank you for the opportunity to meet with you today, and to share the stage with such distinguished company.

International education a highlight at “The Nick of Time”

“The Nick of Time,” AGB’s 2008 National Conference on Trusteeship sought to provide attendees with an international perspective on American higher education. A plenary session entitled “National Interests and Engagement in International Education” included presentations by:

• Jamil Salil, a senior official of the World Bank, himself a Moroccan, who earned degrees in France, the U.S. and the U.K.;
• Supachai Yavaprabhas, the Thai director of the South East Asian Ministers of Education Regional Center for Higher Education and Development who was educated in Thailand and in the United States; and
• Philip Fine, a Canadian journalist from a timely new online publication, World University News.

A concurrent session addressed “The Growing Importance of International Students and Faculty for American Higher Education” and brought together a trio of American scholars and administrators who offered practical advice and significant data bearing on how international education is becoming a much more prominent aspect of U.S. colleges and universitiesóand the nation’s competitive position in the world economy. Both the plenary and concurrent sessions distilled some critical points for trustees and presidents to consider, including:

The “inexorable force” of change and globalization

Post-secondary education and post-education policy are increasingly important for all nations’ agendas, reflecting the acceptance that an increasingly inter-related global economy is and will continue to be driven by knowledge production dissemination, and the innovation that often results. Native students often are encouraged to pursue studies abroad and foreign students are recruited to native institutions.

The scope of international education, whatever the metrics used to measure, is growing as both a consequence and a driver of globalization, with the United States continuing to attract more foreign students, but several other countries, including Australia, Canada and most countries of Europe, making the recruitment of international students and faculty a national priority.

The importance of international students and faculty for American colleges and universities is significant and changing. More than one-third of all U.S. Nobel laureates are foreign-born, nearly 40 percent of doctorate-level employees in science and engineering in the U.S. are foreign-born, and temporary visa holders made up nearly 60 percent of engineering doctorates awarded by American universities and nearly half of all physical science PhDs.

Historically, the U.S. could rely on attracting the “best and brightest” of international students, but other countries, including small ones such as Taiwan, are beginning to compete successfully against American institutions.

Governments struggle to fund their colleges and universities in order to expand access to post-secondary education, but are often hard-pressed to maintain existing levels of access, at least in part because improvements in primary and secondary education have increased the numbers of students seeking further education.

Privatization, citizen trusteeship,
internationalization and other questions

Partly as a result of governments’ inability to fund fully post-secondary education, “privatization” has grown significantly and in a variety of ways, including increases in private providers, higher tuition, and fees charged to and paid by students and their families, and direct ties between business and institutions of post-secondary education for the provision of “tailored” programs of study for employees.

For political and financial reasons, many countries are attracted to the American-Canadian model of “citizen trusteeship” and autonomous or semi-autonomous governing boards appointed by governments who assume responsibility and authority for decisions (for example, setting tuition) previously carried out by government.

For many, if not most, American colleges and universities, international education in the form of study abroad and intensive international internships are becoming standard elements in the repertoire of assets institutions offer in order to attract enrollments. In some instances, “internationalization” of the curriculum or the student experience has become a strategic part of long-term plans of institutional development.

By contrast, some international activities are more akin to “cottage industries” managed by enterprising faculty members and operating more or less independently of the institution. These sorts of efforts, however laudable, carry some risk and would benefit from better integration within the college or university.

One strand that wove its way through most of the commentary on international education is the inexorable force of change at work on post-secondary education throughout the world. Commenting in another setting, the Greek Minister of National Education and Religious Affairs (an unusual pairing of institutions that the late-George Keller once noted were the only such ones to survive intact since the Middle Ages) proclaimed:

We all agreed that higher education cannot escape major change. Sometimes change will be difficult. [But] our meeting here, and these conclusions represent a clear signal of our determination to lead the necessary changes rather than be driven by them.

—Marietta Giannakou
Minister of National Education & Religious Affairs
2006

The signs are not yet clear whether American higher education leaders are as assured of their capacity to deal with change, even or especially change that is global in scope.

This article is drawn from the presentations and remarks of Philip Altbach, Urban “Ben” DeWinter, Philip Fine, Jamil Samil, Supachai Yavaprabhas, and Bernd Widdig, but the views expressed here are solely those of the author.

“There are, Jane Wellman has noted,” at least two stories to be told here, one of a private sector where competition for students and resources are clearly driving costs; and one of a public sector characterized by rapid changes in revenues, growing privatization, and cost-cutting.”

Wellman heads up the Delta Cost Project and has spent much of the past several years analyzing data on how colleges and universities spend money. The results can be framed by asking a series of discomforting questions and answering with the results of the data analysis derived from the April 2008 report, “The Growing Imbalance, Recent Trends in U.S. Postsecondary Education Finance.”

A series of discomforting questions:

1) Are college tuitions rising because spending is growing? If so, where is the money going?

For more than three-quarters of the students enrolled in higher education, the answer is no: students at public institutions are paying for a higher proportion of costs, but their money is not translating into a higher level of service. These students are paying more, and getting less. For students in private nonprofit institutions, the answer is clearly yes: students are paying more, and the institutions are spending more. But even here, there is not clear evidence that greater spending is translating to improvements in degree productivity.

The greatest increases in spending have been in contracted funding for research and public service, and for institutional aid. Except for the private research sector, the share of spending going to instruction has merely kept pace with inflation, and has actually been reduced at public two year institutions.

2) Is there any evidence of cost cutting? If so, are tuitions being held down as a result?

There is evidence of cost cutting. However, spending cuts have not resulted in tuition reductions—and will not, unless costs are cut much more drastically than they have been to date. Tuitions at public institutions continued to increase, despite spending cuts, because the tuition share of total costs increased.

3) What is the relation between revenue source and spending? Have increased private revenues reduced pressure on growing college tuitions? Will increased spending from endowments mitigate tuition increases?

Revenues have been privatized in both the public and private sectors, predominantly from growing dependence on student tuitions. The patterns to date suggest that privatization may benefit the research and service functions, but has yet to create infusions of new revenue for core instructional programs.

4) Are low-income students losing access to higher education as a result of tuition increases?

A higher proportion of low income, Black and Hispanic students are enrolled in the public two-year and proprietary sector than in the past. Whether this is because they are being ‘priced-out’ of the higher cost institutions, or because of a combination of tuition increases and greater competition for enrollment, isn’t clear. The larger question of whether growing proportions of low-income students are being left out of higher education altogether can’t be answered with the public data that are available at this time.

5) Can institutions increase productivity as a way to lower costs and, ultimately, tuitions?

Hypothetically they could; they appear not to have done so to date. To contain costs to students, institutions need to both contain spending and maintain the student share of total costs.

6) What should public policy makers do to address the college cost problem?

This last question is the most important—and the most difficult. But the answer begins with redefining the traditional understanding of the college cost problem, from an exclusive focus on tuition and financial aid, to a better understanding of spending and of how spending relates to performance. And it will also require a better way to measure quality, other than student admissions selectivity and revenue.

The bottom line

Spending in higher education is increasing—but more spending doesn’t seem to be translating into better performance. Where spending has increased most rapidly, there is no evidence to suggest that the increased investment paid off in greater access, degree attainment or improvements in quality. But not all institutions are spending more: the rising tide is not lifting all boats equally.

Most troublesome, low-income students are increasingly being concentrated in institutions that have the least to invest in their success, and where graduation and transfer rates have historically been the lowest in postsecondary education. These trends, if they remain uncorrected, bode ill for meeting future needs for increasing capacity and degree attainment in higher education.

To learn more: “The Growing Imbalance, Recent Trends in U.S. Postsecondary Education Finance.”

The growth of donor control

As of October 23, colleges and universities have received 21 gifts of $100 million or more in 2007. That’s almost twice the number of nine-figure gifts received in 2006 and accounts for almost half of the 48 nine-figure gifts received by higher education institutions since 1967.

In part this reflects the overall growth of higher education fundraising and the mushrooming of large campaigns. A recent study conducted by CASE and the consulting firm of Alexander Hass Martin & Partners found that the goals of the largest campaigns have grown by 36 percent per year over the past 20 years (more than ten times the average inflation rate over the same period) and contributions of the biggest donors have kept pace. The top ten gifts to billion-dollar campaigns account for 22 percent of the total dollars raised and the impact of large gifts is even more significant in smaller campaigns. The top ten donors to campaigns under $100 million account for an average of 50 percent of total campaign receipts. It’s hard to argue with numbers like these and that fact in itself may pose challenges for colleges and universities that are forced to balance donor interests and institutional autonomy.

In a recent article in Nonprofit and Voluntary Sector Quarterly, Susan Ostrander documents the growth of donor control since the early 1990s and argues that “philanthropy has steadily moved to a relationship controlled more and more by donors.” Among other explanations for this trend, Ostrander notes the increasing concentration of wealth (the top 1 percent of the population (in terms of income) contributes one third of all charitable dollars), a rapidly growing industry of financial and philanthropic advisors, and the increase in venture and entrepreneurial philanthropy where “donors are closely involved in highly directive ways in the organizations they support.” In traditional models of “donor-centered philanthropy,” prospective donors are cultivated by professional fundraisers and respond to appeals developed by a charity based on an assessment of donor interests. In what Ostrander calls “donor-controlled philanthropy” the “donor actively and intentionally determines what he or she is most interested in supporting and then sets out to create a new philanthropic project or to influence a new direction for some existing project.” The demand to raise ever-higher levels of private support and increasing competition for charitable gifts create incentives for institutions to offer donors more and more control over their gifts.

When donor control trespasses on academic prerogatives

Although there is little evidence to suggest that colleges and universities have compromised academic freedom or institutional priorities in pursuit of major gifts, two recent cases illustrate the extent to which donors may attempt to exercise control in ways that trespass on academic prerogatives and board responsibilities. In a highly publicized lawsuit, members of the Robertson family are suing Princeton University for control of the supporting organization established by Marie Robertson in 1961 to support the Woodrow Wilson School. The plaintiffs are disputing investment decisions made by the foundation (technically a Type I Supporting Organization controlled by the University) as well as academic decisions Princeton has made in its operation of the Woodrow Wilson School.

A group of donors to the University of Illinois has established an endowment within the University of Illinois Foundation to promote and advance scholarly research and teaching on free market capitalism and limited government. The Academy on Capitalism and Limited Government Fund is overseen by the Academy Fund’s board of directors. Inside Higher Ed reports that the donors who have contributed to the Fund expect to have a formal role in deciding “who gets money from the fund” and “the views those people should have.” One donor noted that if professors at the university don’t want to get involved, the fund will “bring in adjunct faculty when we need to.” The Academy Fund, which is expected to grow to $100 million in 10 years, is supported by a number of prominent conservatives committed to redressing what they see as a systematic liberal bias in higher education. The Illinois faculty senate has expressed concerns about how the fund will operate, what oversight it will be subject to, and whether the gifts come with too many strings attached.

In a related development, the Center for Excellence in Higher Education was established this September by a small group of philanthropists precisely for the purpose of helping donors transform higher education from the outside. The Center’s inaugural press release argued that “any serious effort to transform higher education must come from the outside. It won't happen from within. Those who support higher education with their voluntary contributions are uniquely qualified to bring about these needed changes.” In a recent editorial the Center’s executive director Frederic J. Fransen writes that donors to colleges and universities “need to carefully stipulate exactly how they want their money used and include safeguards against cost-shifting. A major donor can do this by working directly with trusted faculty in developing an academic program, with an advisory board that has budget oversight responsibilities.” Fransen also suggests that more modest donors could band together to exercise similar clout.

Should these donations still be treated as charitable gifts?

While the largess of major donors clearly reflects their confidence in the value and potential of higher education and their sense that colleges and universities are sound philanthropic investments yielding high social returns, others are questioning the rationale for treating contributions to richly endowed institutions as charitable gifts. Writing in the October 1 Los Angeles Times, former Secretary of Labor Robert Reich asked the headline question, “Is Harvard Really a Charity?”

This year's charitable donations are expected to total more than $200 billion, a record. But a big portion of this impressive sum—especially from the wealthy, who have the most to donate—is ...being donated to the universities they attended and expect their children to attend, perhaps with the added inducement of knowing that these schools often practice a kind of affirmative action for "legacies." I'm all in favor of supporting the arts and our universities, but let's face it: These aren't really charitable contributions.

Reich has elsewhere argued that tax concessions subsidize a system that enhances inequities between poor and wealthy schools.

Congressional leaders have been asking similar questions. Both the Senate Finance Committee and House Ways and Means Committee have been interrogating the extent to which tax-exempt hospitals provide community benefits commensurate with the tax concessions they receive and raising similar questions about tax exemptions for contributions to wealthy higher education institutions and tax exemptions for endowment earnings.

At a Senate Finance Committee hearing in September, witnesses argued that the public was not benefiting sufficiently from “massive” university endowments, endowment distributions were not keeping pace with endowment earnings, and increases in endowment payouts could offset tuition increases. Jane Gravelle of the Congressional Research Service suggested that “tax penalties could be used to require institutions to distribute more of their endowment or to restrain growth in tuition.” Ranking committee member Charles Grassley of Iowa followed up with an editorial in which he endorsed the idea: “as the...Senate Finance Committee hammers out details of an education tax package, an endowment pay-out requirement ought to be included in the discussion to reduce tuition and help students afford college.”

One approach outlined by Gravelle would impose a minimum annual payout rate similar to the requirements imposed on private foundations. More radically, “taxes could also be imposed on endowments if institutions increased their tuition by more than an appropriate rate such as inflation, or the HEPI index.” The higher education community was not represented in the hearing but several organizations submitted written testimony after the fact.

Private support plays a vital role in supporting advanced research, faculty chairs, innovative academic programs, and other projects that endow institutions with the “margin of excellence” necessary in a highly competitive market. Such research, scholarship, and teaching also pays rich dividends to society as a whole which benefits from collective advances in scientific, technological, and cultural capacity. Invested in need-based scholarships, private support enhances access to higher education for low-income students, promotes social equity, and contributes to an educated work-force and polity.

The impulse to leverage private resources to influence the programs, policies, and practices of colleges and universities is only going to increase as endowments grow, state support dwindles as a percentage of institutional budgets, and tuitions approach the maximum allowed by politics and price elasticity. Institutions certainly need to be prepared to justify the tax concessions they benefit from as public charities and not to sacrifice academic autonomy or integrity to well-moneyed outside interests.

In recent years, approximately 89 percent of private voluntary support has been designated by donors for particular purposes. Federal regulators and self-appointed reformers of higher education should pause to consider the forest of higher education (the community colleges, public colleges and universities, and many private institutions whose endowments are almost wholly restricted by donors for specific purposes) rather than focus exclusively on the few redwood-like exceptions with large pools of unrestricted funds at their disposal.

Claire, welcome.

CLAIRE GAUDIANI: Thanks for the welcome Rick—it’s good to be with you.

RICK LEGON: In The Greater Good, Claire, you discuss and give examples of the unique American values of philanthropy and volunteerism. Could you tell us why those two values have been so essential to the American culture?

CLAIRE GAUDIANI: Rick, they were initiated in American culture before any other virtues or values. In 1630, as the first colonists disembarked in Salem, Massachusetts with John Winthrop at the helm, they were following his charge to “move superfluities” (that’s a quote) to address the necessities of fellow citizens. And they went about helping each other to establish homesteads and supporting each other. For example, once Harvard College had been founded in 1636, it didn’t take a full decade for the members of that board of trustees—they might have been AGB members had AGB been there—before they wanted to invite the able sons of farmers and blacksmiths to attend Harvard and thereby provide them scholarships. So, those trustees went out and asked a wealthy woman to provide scholarships, and she did. That first effort of volunteerism on the part of the trustees to a social profit organization like the first college was part of their lives and so was the philanthropy of Anne Radcliff who provided those first scholarships.

We have continued this culture—those 370 years since 1630—of mutuality. You get free Americans together who all recognize the same social problem, such as the library is falling down in our town, or we’ve got to attend to the needs of kids in our schools, or we need a place to honor art. And those free Americans will found a society or an organization—a social profit organization—and they’ll start giving their time and their money to making the situation better. That is part of our entrepreneurial spirit as Americans, and it’s that same spirit that has made us so successful in business and inventions.

RICK LEGON: Claire, in higher education we have certainly learned those lessons over the 375 years and we’ve had wonderful success in both public and private higher education and in attracting private resources. But today we are seeing skyrocketing fundraising campaign goals across both public and private institutions—capital and comprehensive campaigns. Are you concerned that the figures we’re seeing today are perhaps getting too big and that we are seeking funds for priorities that go beyond the traditional academic priorities. Are we in a fundraising arms war?

CLAIRE GAUDIANI: Well, if you look at the numbers that is exactly what someone could consider. One of the reasons this is happening is because our graduates, who of course are very often our trustees, as well as our academic leaders, know how much money is out there. There is more money in the hands of more Americans than ever before. We have now literally millions of millionaires, and it seems right to anyone who has ever been to a college to want some of that funding to come back to that institution and make it stronger. So that impulse is terrific.

I am beginning to have some concerns about the exuberant building of endowment funds insofar as they don’t line up with exuberant increases in student financial aid. The great worry is that we’re now putting the building of better fitness centers and other luxuries like that ahead of student fellowship and scholarship support. And that would be a great mistake. Education is the most important part of the ladder of upward mobility, and to the extent that we are raising more money than ever, we need to assure that everyone who is able receives all the aid they need to attend a college commensurate with their capacity for contributions to local, state, and national life.

My concern is that we’ve stabilized our scholarship funding and are letting it grow at a small rate but we are massively increasing our funding for other areas, some of which could be construed as luxuries if compared to student scholarships and faculty salaries.

RICK LEGON: Good points, Claire, and certainly those concerns that you raise not only impact the total goals of campaigns but also are being seen by public policy makers, especially at the congressional levels, so we all have our eyes on those very significant challenges. Let's talk specifically about how those concerns, attach themselves to boards and trustees, especially as they relate to philanthropy, and then a little bit as they relate to presidents. Are higher education governing boards too focused on fundraising and, in light of what you just shared with us, too focused on fundraising independently from some of the strategic challenges that their institutions face?

CLAIRE GAUDIANI: I guess the most straightforward answer, Rick, is that’s not the case where the academic leadership is strong and smart. There are such things as foundation boards that really only are concerned with fundraising and the people who get on those boards understand that that is what they will be doing. They may be interested in the physics department or the athletic department, but they understand what they are doing is raising money for the whole school. The board of trustees of the institutions, the board with the fiduciary responsibility, has the responsibility to see to it that funds are raised either by itself or by a foundation board. And then to see to the success and appropriate development of all areas of responsibility of the institution from overseeing the work of the president—and that includes expenditures of the president, as we’ve seen in a number of unfortunate situations in the last few years.

RICK LEGON: One can argue that giving starts at home and certainly in our institutions we want members of governing boards and the private side of higher education and foundations as well as governing boards and public higher education to give generously from their own personal investments. But are we seeing a different level of expectation on the part of donors, both board members and others, as they make commitments to their institutions—greater expectations? We’ve seen the whole transfer of wealth question raise issues as to whether donors expect a greater say as it relates to their significant gifts. We have been seeing court challenges—well known—as they relate to expectations on the part of a donor not met as a gift agreement would have suggested. Is there a change or are those anomalies?

CLAIRE GAUDIANI: Well, I think if you look at the 4,000 institutions of higher education, most of whom do fundraising, those cases that we read about really are the anomalies. There’s a relatively significant high level of dependability between donor and recipient and I think a very high level of completion of donors’ intentions with gifts.

The anomalies, of course, also are important and need to be looked at. But as we know there are important documents that surround every gift and those documents are agreed upon and they need to be carried out precisely. If they’re not, in this litigious society, there may be real problems. I think most presidents are informed of the significance of those promises and the importance of carrying them out when they take on their duties. These are areas where boards are appropriately encouraged to review if not annually at least every two years. What kinds of documents is the development office using to conclude contractual arrangements, particularly from major gifts? Is the board clear on these and has there been sufficient legal oversight of those documents? Once the gift has been made, we sometimes have donors who want to come back and select the professor or make other demands on the way academic gifts are carried out. They really lose that privilege once the document is signed so long as the college is carrying out the intention expressed in the documentation. It’s a complicated area, and the media, of course, wants to communicate often the dastardly side because that’s more exciting than the normal side and the “how well it’s working” side.

RICK LEGON: Claire, let’s switch over to the role of CEOs, presidents, and chancellors, especially new CEOs. Do you sense that individuals who are coming fresh into the leadership positions of their institutions are sufficiently prepared to meet the expanding expectations of raising private resources for fundraising?

CLAIRE GAUDIANI: Well, truth be told, I became a college president at the tender age of 42 and I know from personal experience how complex the job was in 1988. And I didn’t feel prepared then, although I had taught at the Wharton School and published a number of books and led a number of projects. I still was not prepared, but had the wonderful guidance of several personal mentors who enabled me to initiate my presidency with a fair amount of success early on.

I think though that the job has become geometrically more complicated 20 years later, and that presidents are well advised to take a “start from the beginning” approach to all areas of their responsibility. Best practices have evolved since Sarbanes-Oxley, so even someone who was a CFO years ago and perhaps has been doing something else since and then becomes a college president would do well to start from the beginning and go through best financial practices in higher education with a profoundly experienced mentor/leader. Understanding how to draft a mission for an institution that is new—and yet not so idiosyncratic and personal that the institution can’t recognize it as its own and embrace it—is a delicate matter that needs guidance. Start off at a level where the expectations can be met for today’s college presidents. I think it’s one of the best jobs and one of the toughest jobs in the world.

RICK LEGON: Are you concerned that it’s growing more difficult, or will become more difficult over time, to recruit the best and the brightest men and women to the voluntary jobs of board members in the future?

CLAIRE GAUDIANI: Well, on the one hand, I think the right answer is we mustn’t tell them just how complicated it’s going to be! Of course, I’m only kidding. What we really need to do is have opportunities for trustees and presidents to work together on understanding best practices and to adapt them for their local setting together so that there’s a feeling of respect between the CEO and the board and also confidence and trust and enthusiasm. So that when the glitches occur—which they clearly always do—there are easy steps to addressing the problems and putting them in a better situation.

But, despite the fact that most trustees have had corporate leadership experience, leadership in higher education is a different piece of work. It’s a mistake to think that all of that business experience is immediately transferable. So, there’s serious work to do and I always encourage that this work be done with presidents and boards present, together and in teams. And then working with experts who can help them understand the challenges before they become problems and set appropriate pathways to addressing them.

RICK LEGON: Claire, I have one last question before we wrap up. And that has to do with the challenging question of college sports—intercollegiate athletics programs. There was an article recently in the Chronicle of Higher Education that indicated that gifts made to sports programs actually result in reduced giving to academic programs—a point that is counter to what historically has been the argument about donors initially providing support in college sports. How much of an issue is that from your perspective?

CLAIRE GAUDIANI: Well, I’m an athlete—aging athlete—and I love sports and attended endless numbers of games and tourneys when I was a college president, but I think it’s very significant if we start giving to athletics out of proportion to giving to academics. We’re really cheating the students for our own gratification.

Alums like to have winning teams and they like to talk about that at the office, and yet if students in the physics department don’t have access to the nuclear magnetic resonating spectrometer, and the chemistry department where they would use that machine, because in fact the gifts made to the soccer team or the football team were so great that the individual giving couldn’t be talked into reducing the athletic gift to ensure there was sufficient teaching equipment around—that’s a catastrophe for the mission of the school.

And here’s where trustees can be a tremendous asset. The board, as a full unit, can decide together that a certain percentage of every gift that the institution is going to receive is going to have an impact on student and faculty needs, that is, the academic units on campus. Or they might decide to meet privately with any person deciding to make a major gift, and make the case for a more modest athletic gift on behalf of the share of athletic needs. They can determine a locally appropriate approach to assuring that the needs of scholarships and teaching—students and faculty—are primary as the responsibility of the trustees to the mission and vision of the institution.

These are principles that the president can encourage, but the president cannot be asked to carry out alone. This needs to be a trustee resolution thoroughly discussed, and discussed with some major donors, and then put into place so that the president and the development office do their fundraising with the understanding that we have a mission for new dollars that respects the institutional mission for new knowledge and new citizens.

RICK LEGON: Claire, can you offer 2 or 3 soundbites that would be helpful to board and institution leaders on the subject of philanthropy, volunteerism, and the general health of governance?

CLAIRE GAUDIANI: I think fundraising has never been more important and that is partially made possible by the extraordinary wealth that is accumulating in the top quintile of the income distribution in the United States.

Second, presidents have more responsibility in a wider range of sectors than any time in history. To do their jobs well they need to make serious work of preparing, and no one should feel inadequate because they go to “president school.”

Third, for the best kind of leadership to emerge in an institution, the board and the president need to experience review of best practices together, so that they are understanding their individual responsibilities and can support and advance each other and the institution collaboratively.

Finally, higher education is America’s most important industry. It is the red blood cells of every other industry and the red blood cells of the whole nonprofit sector—which I call “social profit”—and so the quality of the academic program must prevail. Athletics is a critical part of that education, but it must remain in a helpful relationship, not in a dominant relationship.

RICK LEGON: Claire Gaudiani of NYU and the author of The Greater Good has been the guest of AGB_Online. Claire, thank you for your time and we wish you well.

CLAIRE GAUDIANI: Pleasure to be with you Rick.