Just to recap the last few blogs:

First, ensuring that institutions are managing risk is pretty much the most important responsibility Boards of Governors have. They need the tools to understand how it is being done and where things need to improve.

Second, the most important risk to any institution is prestige. Yet few institutions bother to think clearly about how they are viewed by their key constituencies and why, particularly when it comes to the quality of graduates – which is fundamentally how a community judges quality. I am put in mind here of an anecdote from Phillip Delves Broughton’s Ahead of the Curve, which recounts his two years at Harvard Business School. A student goes to the registrar’s office and asks for some kind of special adjustment to his schedule. The clerk refused. The student argued. The clerk was adamant. “Why are you screwing me around?” asked the student in frustration. “I’m the customer.” The clerk shook her head. “No you’re not. You’re the product.” Which is exactly how good PSE institutions should think.

I digress. Point is: if institutions aren’t documenting how grads are being perceived by employers, how can they and the Board understand and mitigate the associated risk?

Third, there are a variety of things institutions can do to mitigate the main source of risk, but most of them require money. That incentivizes institutions to go out and generate more revenue – which in turn can generate more risk (both financial and reputational). This is one of those “There is no free lunch” situations.

You may be asking of course: if institutions need money, why not just be more frugal and generate funds from savings? It’s a good question. The snap, cynical (but nevertheless largely correct) answer is that it’s a lot harder, politically, to raise new money than to trim budgets. But remember also that being parsimonious can get in the way of legitimate prestige goals. As stupid as it may be, the public still equates quality with money, so to some extent a more parsimonious institution might be a less prestigious one (remember: higher education is to some extent a Veblen good). More reasonably, an institution which scrimps on wages may find itself unable to compete in the market for the top academic talent that bring prestige in the first place.

What should be clear from the foregoing is that there’s risk no matter what you do. The role of management is to identify risks and mitigate them. But it’s a balancing act: you still have to decide which risks to take, and under what circumstances. And risk matrices can’t really give you the answer to that. Because what makes one risk worth taking and another not is the reward at the other end. Which rewards are worth the risk?  That’s an entirely political question. And it’s the exact reason why external boards exist in the first place – to give impartial, community-rooted and stakeholder-informed guidance on rewards and risks.

But Boards can’t do that if the risks haven’t been well-quantified or explained in the first place. And I see a lot of variation among Canadian PSE institutions in how well this is done, particularly with respect to prestige risk. Some do it well, some not so well.

That’s not to say that Institutions are ignoring risk management – they all practice it to some degree. The issue is more the extent to which risk-management – not just around physical risks, but prestige, reputation and financial ones as well – is built into board-level decision making. Our institutions would be smarter and better-run if it were.

Bon week-end!