Higher Education Review Process

Meeting the Challenges: the Governance and Management of Universities

• a. defining governance

• b. the changing environment for university governance

1. introduction

1     Over the past decade the environment in which universities operate, and the academic enterprise itself, have changed dramatically. Vice-Chancellors, supported by their administrative and academic leadership structures, have succeeded in guiding their universities through a period of considerable change and uncertainty. Corporate and financial challenges have generally been well managed. Quality standards remain high.

2     The years ahead will present new challenges to the way in which universities are governed, managed and held publicly accountable. This discussion paper examines those issues.

3     The paper covers some very broad issues about the regulatory environment in which universities operate and the appropriate scope of public accountability. It also deals with more focussed questions about government red tape, the effectiveness of university governing bodies, the efficient and effective use of resources and possible improvements to workplace practices within universities. 

4     Many of these issues are the prime responsibility of universities themselves and/or State/Territory governments. The Commonwealth’s interest derives from the critically important role universities play in the economic, social and cultural development of the nation and from the perspective of the efficient and effective use of, and accountability for, the significant level of Commonwealth funds provided to the sector.

5     A number of issues raised in this paper are covered in more detail in other issues papers produced as part of this Review. In particular, readers are referred to Varieties of Excellence: diversity, specialisation and regional engagement for discussion on collaboration in the delivery of academic programmes and to Setting Firm Foundations: financing Australian higher education for discussion on options for introducing greater flexibility in funding arrangements.

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a. defining governance

6     The Auditor-General for Australia has defined corporate governance as follows:

…corporate governance boils down to how an organisation is managed, its corporate and other structures, its culture, its policies and strategies, and the ways in which it deals with its various stakeholders. Or put simply, it is ‘the system by which companies are directed and controlled’. The governance framework is concerned with structures and processes for decision-making and with the controls and behaviours that support effective accountability for performance outcomes and results. This encompasses:

• defining and monitoring the strategic direction;

• defining policy and procedures to operate within the legal and social requirements;

• establishing control and accountability systems;

• reviewing and monitoring management and the organisation’s performance; and

• risk management.

The key components of corporate governance in both the private and public sectors are business planning, internal controls including risk management, performance monitoring and accountability and relationships with stakeholders. The framework requires clear identification and articulation of responsibility as well as a real understanding and appreciation of the various relationships between the organisation’s stakeholders and those who are entrusted to manage resources and deliver required outputs and outcomes.
(Barrett, 2001(b), p5)

7     The terms ‘governance’ and ‘management’ are often used interchangeably, but there are fundamental differences between the two. Gallagher draws out the distinction:

Governance is the structure of relationships that bring out organisational coherence, authorise policies, plans and decisions, and account for their probity, responsiveness and cost-effectiveness…. Management is achieving intended outcomes through the allocation of responsibility, resources, and monitoring their efficiency and effectiveness.
(Gallagher, 2001, p 2)

8     Despite these fundamental differences, there is a tendency for some convergence. Chait et al make the following point in respect of non-profit boards and the same could be said for university governing bodies:

…the tides of trusteeship carry boards in the wrong direction: from strategy toward operations, from long-term challenges towards immediate concerns, from collective action towards individual initiatives. In order to add significant value and afford the institution a competitive advantage, boards must constantly swim against the currents.
(Chait et al, 1996, p1)

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b. the changing environment for university governance

CQU’s overall flexibility, which is highly valued by its students and staff, is becoming stifled by external rules (and different interpretations of those rules), procedures, reporting requirements, funding arrangements, and employment restrictions designed for a past era.
(Central Queensland University, Submission 280, p7)

9     Over the past decade the environment in which universities operate, and the academic enterprise itself, have changed dramatically. This presents a range of challenges to the way in which universities are governed and managed and poses questions about what they are accountable for and to whom.

10   There has been a significant expansion in the provision of higher education. This expansion has occurred in both the domestic market and in the international market. In 1991 there were 504 900 domestic university students. In 2001 there were 614 100, a 22 per cent increase. In 1991 there were only 29 600 international students at Australian universities. In 2001 there were 112 300, a 279 per cent increase.

11   Since 1991 there has been a significant diversification in the sources of university revenue. In that year, around 62 per cent of university revenue came from the Commonwealth Government. Today, total university revenue is nearly $5 billion more than in 1991 and the Commonwealth’s contribution is less than 50 per cent (excluding HECS).

12   The diversification of university revenue has been characterised by very rapid growth in commercial activity that embraces the sale of education services, the sale of consultancy services, the management of intellectual property and the commercialisation of research.

13   Consultancy services and the commercialisation of research are contributing on average about 5 per cent of a university’s revenue annually. There are now more than 300 commercial entities operated by Australia’s public universities. The Victorian Auditor-General’s Office reported an increase in the number of subsidiary entities for Victorian universities of more than 65 per cent since the beginning of 2000 (Victorian Auditor-General’s Office, 2002, p17).

14   The export of university education is generating in excess of $2 billion in foreign exchange for Australia annually, about half of this is in fees paid to universities. International students, who make up about 18 per cent of the student population, are contributing 10 per cent of average university revenue. Universities have expanded overseas, formed partnerships with international businesses, education providers and governments and are operating and competing in a global education market.

15   Universities have faced, and continue to face, particular challenges arising from the advancement of knowledge. These include the application of information and communication technologies to management and teaching and the extremely difficult ethical issues associated with some fields of research.

16   This changing environment raises a range of issues relating to the way in which universities are governed and managed:

• Are the legal and accountability requirements of the States/Territories and Commonwealth governments appropriate to the contemporary operating environment?

• Are governance structures appropriate to meet the changing nature of university activities in the 21st century?

• How can university managements be encouraged and supported in their efforts to increase the efficiency and effectiveness of their institutions?

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