Member Article

The most senior decision-making body of a university, the governing body (council) exists 'to oversee the development and adoption of institutional strategic plans and key policies, to monitor and review the institution's overall performance and to bear ultimate accountability for the institution'.

Like other governing bodies, university councils are subject to standards of corporate governance; standards which govern the way university organisations are managed and structured and in which they deal with their various stakeholders. This article considers the corporate governance regulations that apply to university councils.

Universities becoming more 'corporatised'

Public universities in Australia are established to serve public ends and receive significant public monies. As a result, they require governance with high levels of public accountability and transparency.

In the last two decades, the higher education sector in Australia has grown at a rapid rate. Universities have been required to supplement government funding with student fees and other sources of commercial income, such as the sale of consultancy services and the commercialisation of research and intellectual property. In certain respects, they have needed to become entrepreneurial organisations and, as a result, have required appropriate governance structures that allow them to be nimble and effective in rapidly changing economic environments. Today, even the smallest universities are comparable, in financial and other terms, to some of the most considerable corporations in Australia.

The regulatory framework for Australian universities

Universities across Australia operate within a combined federal and state regulatory regime. Most of Australia's universities are established as entities under separate, but very similar, state acts which define the governance framework that applies to each university. This framework creates the powers of governance and gives rise to the autonomy of universities.

Fundamentally, the council has final responsibility for the good governance of the university and the delivery of administrative, educational and research outcomes consistent with community expectations.

Comparison of basic duties of corporation directors and members of councils

The university enacting legislation places very similar duties on university council members to those duties applying to directors and other officers of a company, as identified below.

As evident from the table above, the duties placed on members of a university council are of a broadly similar nature as those placed on directors of a company. In fact, there are only a couple of noticeable differences in the university legislation, namely that there is no explicit duty to:

• exercise skill (in addition to the duty to exercise appropriate care and diligence), and
• prevent the university trading while insolvent.

New university enacting legislation in VictoriaThe governance of the higher education sector in Australia has been the subject of many reviews in recent years.

Following the Victorian Higher Education Legislation Review in 2008, new amended acts have been introduced into Parliament for each of Victoria's eight public universities (although they have not yet commenced operation), aimed at modernising and harmonising the existing university acts.

The duties of council members are largely unchanged, although the new acts contain an amended duty 'to exercise reasonable skill, appropriate care and diligence'.

The reforms in the Victorian legislation may soon be followed by universities in other states and territories of Australia.

National Governance Protocols and their replacement with a voluntary code

In 2004 a set of National Governance Protocols (protocols) were established for universities in Australia to address concerns about university governance and, more specifically, the skills and capacity of university councils to manage the organisational and financial risks of what had become very large enterprises.

The protocols operated as a conditional component of Commonwealth Government funding. The protocols required the insertion of fiduciary duties, equivalent to statutory duties in corporate law, into individual university enabling acts (as listed in the table above).

The protocols were designed to ensure a consistent national approach towards key aspects of governance among universities, and reflected in part the ASX Corporate Governance Principles and Recommendations – universities were even required to annually report compliance against the protocols. All universities were assessed against the protocols for the years 2004 to 2007 and deemed compliant.

In February 2008, the Commonwealth Government separated the protocols from funding requirements, in effect making these protocols voluntary. The Government also announced that the protocols would be replaced with a voluntary code, or set of best practice university governance principles, that will be owned and mandated by the higher education sector and will provide universities with flexibility in their governance arrangements.

The rationale for this change included that the measures for setting out governance arrangements had already been enacted through state and territory legislation, universities had taken steps to ensure compliance, and removal of the protocols would reduce the costs associated with compliance. It was also thought that a voluntary code would provide universities with flexibility in their governance arrangements.

Further improvements

Despite the recent advances in the area, certain industry commentators consider that unresolved issues remain in relation to governance in Australian universities.

A recent comprehensive review of university governance in Australia, undertaken in New South Wales by the General Purpose Standing Committee No. 2, suggested the following improvements:

• universities should place a greater emphasis on training and development across the sector and particularly of council members
• universities must have access to high-level financial skills; currently vital because of the financial crisis and volatility in financial markets
• universities need to tailor their governance arrangements to meet their specific needs, while bearing in mind that council members must act in accordance with the fundamental principles of good governance, including transparency and accountability, and
• cultural issues need more emphasis, as they are just as important for an effective governance system as structural and procedural ones.

ConclusionUniversities are a crucial part of Australia's social and economic infrastructure. The governance of Australian universities has changed significantly over recent years, as universities have adapted to a changing environment.

Although universities are different from other community organisations in many ways, their need for direction and monitoring makes them no different from organisations in either the corporate or public sector. They are obligated to satisfy the wider community by ensuring that they are operating appropriately and effectively.

It has been noted that 'the university is no longer a quiet place to teach and do scholarly work at a measured pace and contemplate the universe as in centuries past. It is a big, complex, demanding, competitive business …'. Consequently it is imperative for universities to continue to focus on their governance arrangements to ensure their viability in the future.