Australia relies heavily on its universities for R&D — and proposals to reform their governance should take this into account.
Universities occupy an unusual place in our innovation ecosystem. While Australian research and development (R&D) expenditure as a percentage of GDP is among the lowest in the OECD, the proportion of it channelled through the university sector is unusually high.
About 70 per cent of Australian university research is carried out in Group of Eight (Go8) universities (Sydney, Melbourne, Adelaide, Queensland, WA, NSW, Monash and ANU). This year, their combined research expenditure is $7.7b. Half comes from internal university resources (including international student fees), 30 per cent from Australian government grants and the remainder from other sources including state and local governments, business and philanthropy.
As with all their activities, university research capability is overseen by their respective governing bodies (council or senate) led by the chancellor, who functions as the body’s chair. Under the Higher Education Standards Framework (Threshold Standards) 2021 (Cth), the governing body is accountable for all the university’s operations. Their role usually includes strategic oversight, ensuring effective overall management and responsible financial and risk management. One of the governing body’s primary responsibilities is appointing the vice-chancellor as the CEO of the university and monitoring their performance.
A unique model
The universities have a unique governance model. Each is constituted by its own act of Parliament in the jurisdiction in which it was formed. Those acts determine how the governing body is comprised. Typically, the chancellor, vice- chancellor and presiding member of the academic board are members. Other members may be appointed by the state government (Commonwealth in the case of ANU) and by the body itself. Most universities also provide for members to be elected by and from the academic staff, general staff and students. Each Go8 university has a slightly different mix.
The Voluntary Code of Best Practice for the Governance of Australian Public Universities, adopted by the sector in 2010 and amended in 2018, recommends the governing body should not exceed 22 members and desirably be no more than 15 — still large by board standards. The code specifies it should include members with expertise in education, at least two with financial expertise and at least one with commercial expertise. Often, members are unpaid, or donate their remuneration back to the university.
Directors’ duty provisions in the Corporations Act 2001 (Cth) don’t apply to the governing bodies’ members. Instead, corresponding duties are set out in each university’s act. These typically include statutory duties to carry out their functions in good faith in the best interests of the university and for a proper purpose, to exercise reasonable care and diligence, and not to improperly use their position or information obtained through it. These statutory duties operate alongside their duties as fiduciaries (including in relation to conflicts) and the governance obligations that arise because the universities are registered with the Australian Charities and Not-for-profits Commission.
Unlike directors of commercial companies, there are no penalties for breach of duty. University acts generally provide for a member who breaches their duties to be removed from office.
Under challenge
Globally, university governance is under challenge. The COVID-19 pandemic, the spread of generative AI, and policy changes affecting funding and student mix have disrupted the universities’ education model, which in turn puts pressure on research capacity. In the US, handling of campus protests over the war in Gaza has been criticised, with several high-profile universities — including Harvard and Columbia — losing their leaders.
In Australia, the 2023 interim report of the Australian Universities Accord (AUA) panel noted “systemic issues persist across the higher education sector, including widespread underpayment of staff, suggesting governance arrangements could be improved. Sexual assault and harassment on campus is affecting the wellbeing of students and staff, and their ability to succeed”.
The report recommended the Commonwealth engage with governments and universities to improve university governance, including by focusing on “membership of governing bodies, including ensuring additional involvement of people with expertise in the business of universities”. This reflects the AUA panel’s view that, “Over the last two decades there has been a particular emphasis on appointing people with business expertise to councils. Business expertise must be balanced by council members who deeply understand the functions of universities, including learning and teaching, research and management”.
The recommendation provoked a strong response from the University Chancellors Council, which asserted that “universities in Australia have very high levels of governance, compliance and academic integrity”. It argued that universities “need to run like businesses all the while ensuring academic integrity and exceptional standards of teaching and learning and high-quality research”, that the “balance between academia and business is struck through careful implementation of well- established governance frameworks”, and the approach to governance is “on the whole, in line with what has been documented as best practice”.
The final report of the AUA was released in February. It noted the establishment of a cross- jurisdictional advisory body on strengthening university governance, particularly in areas of student and staff safety. In April, Commonwealth and state education ministers agreed to set up “an Expert Governance Council, based on a proposal from the University Chancellors Council, to develop new ‘University Governance Principles and Recommendations’ that responds to 10 priority areas for action and against which universities will be required to report their compliance”. Half of these go to increasing diversity and representative members on the governing bodies, and would require amendments to each university’s act.
Having the right mix of people on the governing body, with the right accountability, is critical to a university’s success. The trend at some universities towards appointing vice-chancellors without a research or higher education background makes the composition of the governing body even more important. Any governance reforms must take into account the central role of Go8 (and other) universities play in Australia’s R&D and innovation ecosystem — and their governing bodies’ ability to support it.
Dr Pamela Hanrahan is an Emerita Professor of the University of NSW and a consultant at Johnson Winter Slattery.
This article first appeared under the headline 'University Challenge’ in the November 2024 issue of Company Director magazine.
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