Trustee

New England Journal of Higher Education, The, Summer 2002 by Sjogren, Jane

Trustee

Jane Sjogren

Financial Responsibilities of Governing Boards, William S. Reed, Association of Governing Boards of Universities and Colleges, 2001; $29.95.

Many of my students approach a course I teach on "Finance and Resource Management in Higher Education" with wariness and anxiety. And many colleagues in the academic and nonprofit communities share their predilections. Prudent fiduciary behavior and smoothed endowment payout rates, after all, are bone-dry subjects-and certainly not the stuff of the proverbial book you can't put down. But William S. Reed's Financial Responsibilities of Governing Boards succeeds remarkably in covering these arcane topics and others in a lucid and admirable way. The book is a small gem that is as valuable to faculty leaders, administrators and other stakeholders in institutions of higher education as it is to their board members.

Reed writes with authority and from experience. He recently stepped down as vice president of finance and administration at Wellesley College. But he continues to chair two organizations he helped establish: the Boston Consortium for Higher Education, whose members include the CFOs of 13 Boston-area colleges and universities, and School, College and University Underwriters Ltd., the nation's largest provider of liability insurance to colleges and universities.

Reed approaches his somewhat mysterious topics from the broader base of his knowledge about managing nonprofit institutions. He has a view of what makes nonprofits tick that many observers, especially those from the for-profit world, neither understand nor appreciate. So when dealing with what some view as the inefficiencies (or even poor management processes) inherent in academic institutions, Reed manages to acknowledge the idiosyncrasies of academic life and the need for practical financial management. This is important because many board members come from outside academia-as do most parents, management consultants and other stakeholders.

Reed brings an unusual ability to keep focused on institutional mission, recognize the complexity of the often-- divergent perspectives of stakeholders in nonprofit enterprises, and articulate the odd combination of idealism and practicality that characterizes colleges and universities (as well as other nonprofit enterprises). This perspective, combined with his clear writing and calm tone, permeates the book.

He begins by outlining the fiduciary responsibilities of board members, something that most members of academic communities, not just the board, need to understand. After defining stewardship and basic financial responsibilities (including references to the "prudent man" rule), he outlines how these apply to the collegiate institution and gives an example of a Statement of Activities as a nonprofit equivalent of an Income Statement. (He also includes reference to another surprisingly good book titled Understanding Financial Statements.) As in subsequent chapters, Reed also includes recommended readings-an example of the thoughtfulness that characterizes this book.

The next two chapters focus on the related issues of budgeting and setting tuition. The discussion of tuition is particularly relevant. The use of tuition (the equivalent of "price per unit") and tuition discounting as enrollment management tools continues to increase in private institutions as well as public ones. Reed reviews how this is done, whether to maximize revenues or adjust student body characteristics, ending with a reminder on "transparency and honesty."

A chapter on endowment management, a major aspect of board responsibility, describes in quite readable detail such nuts-and-bolts issues as investment guidelines, portfolio management and use of custodial banks and/or external investment management. Reed also presents these considerations in the context of two other concerns of colleges and universities: institutional mission and social responsibility.

In covering capital budgeting and debt and the audit process, Reed acknowledges that these are board responsibili ties without losing sight of the fact that these processes affect other stakeholders as well. He reviews the concept of materiality, but also notes how some institutions augment their required financial reporting with supplementary informer tion in order to provide context and understanding of tier institutions-an admirable and sometimes surprisingly worthwhile effort.

The remaining chapters, which deal with the prickly topics of managing employment and containing costs, should be required reading for faculty members and academic officers. These related topics, given the context of the labor-intensive operations and individual-based cultures of academic institutions, are the ones about which Reed is particularly sensitive and clear.

Though the order of the topics is distracting at times, this book is indeed a gem, a concentration of the complex, sometimes messy issues of board and financial management into clarity.

Jane Sjogren is a Massachusetts higher education consultant and faculty member in the doctoral program in education leadership at Johnson & Wales University.