Bank crisis omen for academics

Proper supervision at risk due to lack of expertise on university councils. Simon Baker reports

August 26, 2010

The failure of corporate governance in the lead-up to the banking crisis offers a warning to the higher education sector, according to a German academic.

Raphaela Henze, director of administration at the University of Applied Sciences Koblenz, believes that a lack of expertise on university councils could risk repeating the supervisory failures in the commercial world that led to disaster.

Using Germany as her main example, Dr Henze's paper, "Corporate Governance: Can Universities Learn from the Private Sector?", published in the journal Perspectives: Policy and Practice in Higher Education, argues that a lack of corporate oversight "can be regarded as one of the major contributors to failure to anticipate the financial downturn".

"Supervision failed because those supposed to supervise were either not qualified and/or not able or willing to devote the time necessary to fulfil their obligation properly," she adds. She cites research showing that leading up to the crash, as few as 20 per cent of board members at some banks had a background in finance.

"Seats on a supervisory board often seem to be 'jobs for the boys' and many members of these boards ... have admitted that they were not really able to control the managing board," Dr Henze says.

She explains that German university governance - once under the strict control of the provincial governments, or Länder - is now based on the commercial model of managers supervised by a company board. Like most UK institutions, power is invested in university councils - known as Hochschulrat - which supervise decisions made by the president or vice-chancellor. Many councils have lay members - and in some Länder, a lay majority is required by law.

Dr Henze argues that this is "peculiar" given the evidence that more business and accounting expertise was needed on banking company boards to spot the malpractice that helped trigger the crisis.

She argues that in some ways the academy is even more complex than financial services, and therefore in greater need of people, namely academics, who are knowledgeable about the internal workings of an institution.

Dr Henze concludes that a "shared governance" structure - with academics sitting alongside lay members - would "seem the most advisable", although she accepts there is a risk of special interests taking root.

"Taking all this into consideration, the German Länder will need to think again about the governance and control structures they have established ... and will have to ask themselves whether it makes sense to structure universities on the basis of the private-sector model.

"Experience from the private sector as well as from the higher education sector in UK seems to point in a different direction," she says.

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