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Process of Illumination

As the board of trustees becomes more focused on how best to deliver an education, its members increasingly expect the chief business officer to enlighten them about the meaning of financial data.

By Apryl Motley

*Whether they're called regents or trustees, individuals who serve on the boards of higher education institutions find the commitment isn't what it used to be. It requires more than attending a few meetings each year and approving a budget.

"The level of intensity has definitely increased," observes James M. Weaver, former chair of the board trustees at Gettysburg College in Pennsylvania and current chair of the Association of Governing Boards of Universities and Colleges (AGB). "Twenty years ago, people who served as trustees weren't as engaged. Now, there's a lot more engagement and preparation for meetings.

"Today the whole board is beginning to understand that the purpose of the institution is to educate," he continues. "As we ask more of our constituencies, there has to be more accountability and transparency. They want to see that we are focused on the future and taking things seriously."

READ AN ONLINE EXTRA, "In Higher Education We Trust," in Business Officer Plus.

Bronté D. Jones, treasurer at St. John's College, Annapolis, Maryland, also notes the "importance of [boards] being able to communicate with all stakeholders." She says, "People will buy in when they understand what you're working with in terms of resources."

"It used to be that crafting a budget and delivering balanced results were sufficient," says Julie A. Karns, vice president of finance and treasurer at Rider University, Lawrenceville, New Jersey. "Now there's more focus on whether institutions are deploying resources most effectively to achieve strategic goals. Boards are looking beyond the basics to understand overall financial performance."

"We're definitely asking more questions than we have in the past," observes Marilyn French Hubbard, a local business owner and alumna who is serving her seventh year on the board of trustees at Central Michigan University in Mount Pleasant. "Boards are becoming more sophisticated because of leaner times."

Hubbard also serves on the AGB board and says the current economic environment has made trustees "dig deeper into policies that impact the distribution of state funds, for example, and be more mindful of opportunities to be more efficient."

Chief business officers have similar concerns and understand the importance of partnering with trustees to address them. "In today's higher education world, we have to be better at anticipating and planning than we've ever been," says Thomas G. Schellhardt, vice president of administration and financial services at the University of Northern Iowa, Cedar Falls. "Board members want to make sure that institutions have policies and procedures in place to fulfill our fiduciary responsibilities."

"They want to be comfortable with how much money we have and how we're spending it," he continues. "At the end of the day, trustees want to have confidence in the leaders of the institution, especially the chief business officer."

To gain additional insight into the complexities of the issues that higher education institutions must effectively manage, Business Officer talked with both chief business officers and trustees at several institutions. Here they offer their perspectives on the key trends that are influencing how they work together, and ultimately the future of higher education.

Communication and Contact

Given the increased pace and level of communications on all fronts, trustees say it's critical that they maintain good communication with CBOs and are able to digest the information presented to them.

More and then some—that's the best way to describe the increased level of communication between CBOs and trustees. "The number of conference calls between meetings has definitely increased," Jones says. "We don't wait until quarterly meetings to discuss issues and provide updates. I often have e-mail exchanges with the chairs of our finance and investment committees. We have a close working relationship."

Increased levels of communication are definitely a sign of the times. During the height of the financial crisis (October 2008 to March 2009), Nim Chinniah, vice president for administration and chief financial officer at the University of Chicago, Illinois, participated in weekly conference calls with five trustees, the university's president, and four vice presidents. "We had to go about trustee engagement on financial matters in a different way," he explains. "We needed a management committee that was working actively in real time.

"That group of trustees was empowered to act so that we could make decisions more efficiently," Chinniah continues. "Interaction with trustees is no longer reserved for board meetings. The conference calls helped the trustees feel more comfortable because they allowed for even more transparency. We were able to say, 'This is what happened, and this is how we're handling it.'"

Chinniah also stressed that because of his close relationship with trustees prior to the crisis, they were able to work together more easily when it occurred. Those conference calls are now held quarterly rather than weekly.

The overall frequency with which Ronald L. Rhames interacts with board members continues to increase because of the faster pace of addressing concerns. Rhames is the senior vice president for business affairs at Midlands Technical College, Columbia, South Carolina. "Waiting a month or two to discuss an issue is out of the question these days," he says. "Conference calls with the board are now the norm. That was unheard of three or four years ago. It seems we've had more called meetings and conference calls so far this year than in my entire 20 years at the college."

Schellhardt says that trustees are also getting accustomed to increased levels of communication from their constituents. "They are going through an adjustment as well," he says. "Parents and students go right to the top, so our presidents and trustees are getting more messages than in the past, which only heightens their concerns about transparency, cost containment, and spending dollars as efficiently as possible."

Given the increased pace and level of communications on all fronts, trustees say it's critical that they maintain good communication with CBOs and are able to digest the information presented to them. In that regard, David M. Findlay, president of Lake City Bank, Warsaw, Indiana, and trustee at Ivy Tech Community College—the Indiana statewide community college system—speaks highly of the college CFO's ability to "take complex business concepts and boil them down so that the volunteer board understands the college's financial performance."

"Ivy Tech's CFO, Robert Holmes, does three things very well," Findlay says. "First, he's created a very concise, one-page report that summarizes the college's performance year-to-date and in comparison with one year prior to budget. We get this summary every two months."

In addition, Findlay says, Holmes provides an overview of the stability of the college's funding sources by explaining the processes involved with federal finance programs and remaining in compliance with those. Most important to Findlay, "He communicates well verbally. He walks us through the details and gives us a good understanding of the college's financial performance."

Simplicity might be a good rule of thumb for CBOs in communicating with trustees. "CFOs have a tendency to overcomplicate things," Chinniah observes. "You create transparency by engaging in thoughtful and precise communication with the board. We need to focus on the most important issues and the decisions that need to be made regarding them."

Funding and Finances

While the specific financial issues boards are addressing may vary from institution to institution, it seems universally important that chief business officers are able to foresee the trustees' needs.

Among the most critical decisions that boards at higher education institutions are grappling with are those that pertain to funding and finances. David W. Miles, president of Miles Capital in West Des Moines, president of the Iowa Board of Regents, and chair of the AGB Council of Board Chairs, acknowledges that trying to deal with the abrupt decline in state funding has been challenging.

"Since the end of 2008, there's been a real focus on funding for public universities in light of cuts to appropriations for them," Miles explains. "We've seen state appropriations decline 20 percent in the last three years. In the past, when there was what appeared to be a temporary decline in state funding, institutions increased tuition."

Now, as student debt ratios continue to grow, Miles says there's more concern about raising tuition. The Iowa Board of Regents did approve a 5 percent tuition increase, but according to Miles, that doesn't come close to covering the gap: "We would have needed a 44 percent increase to return to the funding levels of two years ago."

At Ivy Tech Community College, while state funding hasn't decreased, it hasn't kept pace with enrollment. According to Findlay, who chairs the board's audit committee in addition to serving on its budget and finance committee, higher unemployment has translated into higher enrollment as the local workforce has sought to improve job skills. Further, he says the college is a lower-cost alternative for students beginning their higher education.

"Experiencing significant increases in enrollment without a funding increase has implications from an operational and administrative standpoint," Findlay notes. "Without funding, you can't increase the number of administrative positions, so it becomes more and more challenging to serve students. Our funding rate per student has declined not because the state hasn't funded the college, but due to significant increases in enrollment."

Concern about reliance on state funding has definitely shifted the focus of board discussions about finance at some institutions. "In light of budget cuts from the state, we're making sure that we're doing everything we can from a policy perspective to plan far enough in advance so that the university remains solvent no matter what happens with funding at the state level," Hubbard says. "We're very mindful of what our cost drivers are. However, we don't want to compromise quality by cutting costs."

CBOs recognize that these discussions have changed in both depth and complexity. "The focus on intermediate and long-term planning is heightened during times of economic constraint," Karns says. "Boards want to understand the degree of conservatism and flexibility that you're retaining in the budget. They want to ensure that there are contingencies in the budget and that we remain flexible enough to respond to changes in financial forecasting."

Rhames's experience at Midlands Technical College has been similar. "The biggest issue for the board is the sustainability of the college and ensuring a good fiscal foundation," he says. "We talk about how the college will sustain itself in a time of declining state funding and how we can continue to add value to the overall community in terms of economic development and job creation."

While the specific financial issues boards are addressing may vary from institution to institution, it seems universally important that chief business officers are able to foresee their needs. "CBOs have to be great anticipators," Schellhardt says. "We have to be able to answer for spending practices and procedures on a daily basis. Board members want to come away from interactions feeling that the CBO has predicted and answered their questions."

Weaver agrees, "It's very important that CBOs anticipate the needs of trustees. They shouldn't sit back and wait for the board to ask them questions."

"I try to anticipate the board's questions," Jones says. "I have a very astute board, and I try to understand their thinking so that I can be prepared to answer their questions. A strong board makes me a stronger CFO."

Data and Decisions

In the current governance environment, the chief business officer's ability to fully answer questions from the board often comes down to having the necessary data available to support decisions. 

"Boards are much more focused on having data in support of key strategic decisions," Karns says. "They want context in their stewardship of resources in a way that has changed over time. Trustees are thinking more broadly in terms of finance and institutional strategy, so they have higher expectations of the data used to support decisions."

For instance, Karns observes that Rider trustees have greater expectations in terms of the breadth of benchmarking used in determining tuition pricing, scholarship strategies, and investments: "They are looking for a carefully constructed peer analysis to help them feel comfortable about allocation of expenses and the appropriate setting of revenue goals."

"At the board level, the demand for data and the amount of forecasting required for multiyear budgets has placed greater emphasis on different financial assumptions," Jones observes. "The budget, especially the multiyear, is not something that I look at once and revise. The process is ongoing, with revisions being made every few weeks."

To be effective in a postrecession economy, Miles feels it's important for boards to deal in data and facts. "We must be engaged in fact-based decision making," he explains. "Analysis of data helps to dispel emotions.

"We're dealing with a variety of constituencies, all of whom have different perspectives on the issues," he continues. "At different times, different groups will be unhappy. We have to deal with facts and
be transparent. We've tried to understand the facts of the situation and respond to reality rather than rhetoric."

Miles believes that the next area where CBOs can really help their boards is in gathering more granular data on the academic side than has been obtained and tracked in the past. "For example, we want to be more precise in reporting our cost per student. We want data at the department, major, and course levels," he says. "Then, we'll be able to say, 'Here's what it costs us to deliver XYZ course. Here are the costs and the outcomes.'

"We want to be able to measure what students learn over a specific time period," he continues. "By measuring students' outcomes, we can look at ways to reengineer what we do and continue to increase the quality of the education that we're offering."

"Boards are becoming more and more educated on the governance side," Hubbard notes. "They see themselves more as partners and stakeholders. They are taking a more active role in the delivery of a quality education."

And they should be, according to Weaver. "Ten years ago, not enough boards of institutions were focused on academic affairs. You always had some board members who got deeply involved on that side through the academic affairs committee. Today, as members of boards, we'd better insist that as part of our fiduciary responsibility, tracking is being done and proof of academic accomplishment is being presented to us."

Risks and Relationships

Success in communicating, financing, and decision making all hinges on the ability of chief business officers and board trustees to build a strong working relationship and then use it as the foundation upon which they can have productive conversations about managing an institution's risks.

More than ever, business offices and boards of trustees are partners in the risk management of higher education institutions. Three years ago, at the urging of a board member, St. John's College developed a rainy-day exercise. 

"We created different scenarios, such as what if state funding dropped, the endowment went away, or enrollment went down," Jones explains. "Then, we proposed solutions, such as, 'If the magnitude of the problems was this, we would do X or Y.'

"It was a very helpful exercise," she continues. "It did seem far-fetched at the time, but it really gave us an advantage when the economic environment started to change."

At Rider University, Karns partners with trustees in identifying areas of focus for compliance reviews. "Our approach to compliance reviews is broader," she explains. "We work with the board to understand the extent to which the institution's leadership is aware of and addressing key compliance concerns. We are operating in an environment where everyone is conscious of compliance concerns and proactive in addressing them."

Typically, Karns works with the board's audit committee to develop a list of potential projects from which the board selects and approves. Recent compliance reviews have included academic records integrity and public safety. The university is engaging in enterprise risk management, which focuses on addressing risk in all divisional areas and requires CBOs to work even more effectively with their colleagues across the university.

"The focus of boards was narrower in terms of focusing on financial matters, such as performance and controls," Karns says. "It's healthier and positive for institutions that their perspective is broader and goes beyond the finance division, which raises the bar for chief business officers in partnering with colleagues to identify and address risks."

"I am chief risk officer," says Midlands' Rhames, "but the responsibility for risk management is shared with the entire executive team. Three years ago, the board led the institution through a risk management audit where we looked at all different kinds of risk."

As a result, Rhames and others have been rethinking the college's internal audit process to broaden its focus beyond fiscal risks. "We want to examine other kinds of risk, including reputational, compliance, and procedural risks," he says. "Risks may not be directly related to finance, but they all can add cost if they aren't monitored appropriately."

To raise the bar on monitoring risk at the University of Chicago, Chinniah says, "Our board is very focused on managing risk. As such, we've been very explicit in assigning responsibility for certain risks to specific staff members and corresponding board committees."

Chinniah says these efforts are designed to determine the capacity of the management team for managing risk and to assist the board in developing a risk management process with which they are comfortable. "We're very clear about who has responsibility for risk mitigation," he explains. "Our audit committee is the air traffic controller on risk management. They make sure each risk is assigned and tracked by a specific committee of the board."

From a trustee's vantage point, Hubbard says, "Risk management is interwoven in all of our processes. It's really the way that we do business. It provides a level of sophistication that helps us in our decision making from a financial perspective."

In many ways, the chief business officer's interaction with the board of trustees is about a blending of perspectives to form a total fiscal picture of the institution. To that end, CBOs value these relationships a great deal.

Chinniah describes his relationship with the University of Chicago's board as healthy and supportive. "I view my relationship with the board as working with senior advisers," he says. "They are full partners in my work, but they understand the boundaries between trustee and manager."

"We have an excellent relationship," says Rhames of his interaction with the Midlands Technical College board of trustees. "They value my opinion and give me the latitude to say what needs to be said."

Karns agrees that it's imperative that "CBOs aren't hesitant about relating areas of concern to the board. You need to have an open dialogue. You want the board to have confidence that while there may be opportunities for improvement in some areas, they will be addressed. You have to build that trust."

Certainly, trustees are equally aware of how important their relationships with CBOs are to achieving the goals and objectives that they have identified for the institutions they serve-and for their institutions to accomplish their specific missions.

"There's nothing more valuable to boards than good chief business officers," Weaver asserts. "They are so important to higher education institutions. By antici-pating boards' needs and staying abreast of trends in higher ed, chief business officers can really help lead them."

"Chief business officers play a vital and often-underappreciated role in helping us to educate students," Miles says. "It's more of a background role, but we couldn't do what we do without them."

APRYL MOTLEY, Columbia, Maryland, covers higher education business issues for Business Officer.

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A Strategic Approach to Finance

Most higher education leaders may have a firm grasp on the total budget size of their institutions, how much is allocated to each department, and how much is left at the end of the budget cycle. Yet, many leaders don't typically engage in financial discussions that focus on net revenue and return, contends Richard Staisloff, principal of rpk Group, and formerly vice president for finance and administration at the College of Notre Dame of Maryland, Baltimore.

"If we put X dollars and X faculty time and talent into a particular department or program, do we know what we get in terms of credit hours and degree completion?" asks Staisloff. "If we aren't tracking this, how can we make decisions about resource reallocation? For many institutions, it's time for a reality check about what actually drives student activity and what is really required to fund particular initiatives." In short, it's time for a much more strategic approach to finance.

Talk about return. Staisloff is among a group of higher education leaders and consultants conducting workshops for governing boards and senior administrators through the Strategic Finance Initiative of the Association of Governing Boards of Universities and Colleges. As part of a larger AGB "Governance for Student Success" project, supported by Lumina Foundation for Education, the AGB workshops are geared toward equipping governing boards and chief executives to weather an increasingly difficult fiscal environment of reduced earnings from endowments, reduced state support, and higher demand for enrollment, service, and public accountability.

As one key step, AGB's Strategic Finance Initiative will help boards and senior leaders better understand recent and likely future revenue and expense trends, and focus on achieving results to reinvest savings where they make the most strategic sense.

"If we assume that the largest level of resources is the money institutions already have, then it becomes imperative to reallocate these limited resources from places that don't drive mission and financial health to what does. And to do that, we have to first understand where we currently have our resources invested and assess the return of each of those investments," notes Staisloff. "We need to get the data, do the analysis, have the tough conversations, and develop an action plan to match available resources with strategic outcomes."

Follow the money trail. If institutions truly are entering a new normal, leaders need to bring a different set of questions to the table, along with new data and new tools, argues Staisloff. From a governance standpoint, what this means for boards is the need to shift from a focus on inputs (how many faculty, how many books in the library) to outcomes (how many students graduated)—and to focus beyond student access (getting in) to student success (completion).

To do that, institutional chief financial officers need to learn how to talk about productivity, efficiency, and return on investment in a language that everyone understands, notes Staisloff. "CFOs are in a great position of knowing what data to convey to the larger community," he says. "Their greater challenge is one of interpretation about the intersection of where money comes from, where it goes, and what we get for our investments, which is the precursor to making necessary decisions about where to refocus finite institution resources."

KARLA HIGNITE, Universal City, Texas, is a contributing editor for Business Officer. 

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Highlights for Chief Business Officers

As CBOs reflect on their relationships with boards of trustees, here are suggestions for strengthening the connection.

Stay abreast of overall economic trends, such as growth in inflation. "In preparing for financial discussions, there's greater and greater need for CBOs to really do their homework on economic forecasts," notes James M. Weaver, chair of the AGB Board of Directors. 

Explain your role. "Make sure that everyone is educated about the basics of what you do," says Bronté D. Jones, St. John's College treasurer. "Communicate up and down, with the board and on campus. I meet with budget managers regularly."

Frame issues in terms of what trustees need to do. "This is an important skill set," Nim Chinniah says. "There is powerful expertise in our trustees, and you have to figure out how you tap into it." Chinniah is vice president for administration and chief financial officer at the University of Chicago.

Collaborate with others. "To be responsive to board concerns and questions, you'll need to establish cooperation and collegiality with other senior managers," says Julie A. Karns, Rider University vice president for finance and treasurer.

Be accessible. "Our current chief business officer attends every board meeting and interacts with committees as well," says Marilyn French Hubbard. "He's very accessible and able to address questions. The communication is great; we're very informed." Hubbard is vice chair of the Central Michigan University trustees.

Make time for professional development. "With time and financial constraints, it's hard to do, but it's important to make time for professional development because of the network that you can build," Karns says. "Those experiences give you a strong peer network to call on, which can be invaluable. It's important for your own knowledge and institutional effectiveness."

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