University fiduciary considerations in the time of COVID-19

BY Michael J. Cooney

The COVID-19 pandemic is an unwelcome, but potent, accelerant to change within higher education.

Evolving market demands, shifting student demographics, increasing financial pressures, and changing public perception of the value of higher education in its current, residential format all are elements that existed before February 2020. Now a month into the fall semester and spring semester very soon to come, whatever time that institutions and their governing boards had for thoughtful consideration is being fiercely compressed.

Moreover, as has been recently seen, analysts are willing to make public assessments of vulnerability within higher education—something that would have been a conversation behind closed doors a scant nine months ago. Witness the legal pressures brought to bear on Edmit, the start-up advising company, back in November of last year, for proposed disclosures on faltering institutions as compared to the widely read blog posts of Professor Scott Galloway over the past few months.

The crucial question now before the higher education governing board is whether its institution in its current form is impactful and sustainable in this radically changed environment. In almost every case, that examination is bound to yield fundamental matters in need of attention. In some cases, the correct and compelling conclusion is that your institution cannot proceed along its prior course, and requires dramatic change in order to sustain its mission.

Note that emphasis on mission. While it is said that there is no mission without margin, the fiduciary duty of the governing board member importantly is not to preserve the institution itself, but rather to continue to advance the charitable mission the institution was built to support. The current pandemic and accompanying economic and social stresses have sharpened the focus of those in governance circles—the mission has to be the lens through which all necessary operational, financial, and logistical issues and challenges are viewed.

Institutions that are only considering these challenges with vigor now are at a distinct disadvantage. The onset of the Coronavirus this spring demonstrated how difficult it is to shift from an in-person to an online mode of learning; however, several institutions had already distinguished themselves by embracing the online model in an agile fashion, even in connection with residential learning.

The Association of Governing Boards of Universities and Colleges back in September 2015 published an article entitled “Stress Testing; How Can You Ensure Your Institution’s Financial Health.” The purpose was to help governing boards identify a tailored set of metrics, which could be employed by the board and administration to promote oversight of the entity. At the same time, AGB was launching AGB Institutional Strategies, including a series of webinars on institutional assessment and possible affiliation.

Back in 2015, USDOE was loathe to publish the outcome of its review of institutional financial sustainability out of fear of causing the institutions “substantial competitive injury.” While the Department then acceded to pressure to disclose some entity-specific information, that information is acknowledged to be a poor indicator of institutional sustainability.

Just over five years ago we invited the governing boards of nonprofit institutions to enter into a consideration of the impact of the zone of insolvency . . . a legal state in which fiduciaries owe a duty not only to their institution but also possibly to creditors.

As institutions reopen, we will see a variety of considerations, which their governing boards need to be taking into account, play out in real time in predictable (and sometimes unpredictable) ways. Over the coming weeks, we shall endeavor to consider those elements and how they impact institutions and fiduciaries.

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Michael J. Cooney


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