Current times present many challenges to leaders of higher education, not the least of which may be the exposure of boards of trustees ill prepared for timely and well-informed decision–making. Boards of trustees carry key roles in making sense of the future and in partnership with the administration to develop strategy to address that future. In addition, trustees are legally charged to oversee the financial health of their institutions, often the primary topic of board attention. However, often only a small group of more financially sophisticated members—identified as experts—truly understands the financial health indicators of their institution. This imbalance often leaves a majority of board members less confident in both short- and long-term decision–making.
We believe that three practices can help you balance decision-making, engage all of your trustees, and invite the right questions at the right time, leaving the details to the experts while enabling creative thinking across the board.
1. Simplify and Focus.
It’s helpful to keep in mind that what are generically called “financial updates” also encompass budget and resource allocation information. Why would that matter? As we noted at the outset, some board members easily grasp finances, which can be thought of as fiscal health: cash flow, assets and liabilities, investments and returns, audits, and so on. Still more understand a budget, which is simply a spending plan and the policies in place to control spending and align it with revenue. But, we believe, all board members can and should engage in resource allocation discussions – that is, how you use dollars, people, space, and time to fulfill your mission, be sustainable, and rise to meet your strategic challenges. Simply put then, the goal isn’t to present financial data, it’s to create a resource allocation narrative.
2. Ask Key Questions.
With a focus on strategic use of resources, independent college and university presidents and leaders can engage board members on a more meaningful level. Start with organizing institutional data around high-level categories. Next, ask the right questions and build a simple dashboard.
Here are six high-level categories and key questions to consider as you plan your own dashboards:
- Budget: Is the budget in equilibrium?
- Enrollment: What is our enrollment picture?
- Physical Assets: What is the condition of our physical assets?
- Fundraising: How are we doing in philanthropy?
- Endowment: What is the state of the endowment?
- Peer Comparisons: How do we compare to our peers?
3. Build a Dashboard Based on Analogies.
These key questions can be even more accessible to trustees when placed in the context of personal or small business finance. For example, for budget in the context of personal finance you would ask if your checkbook is balanced. And, for margin in a small business finance context you would ask if your core business is covering expenses. Remember that the goal is not presenting the requisite and expected financial data; it is creating an easily visualized institutional narrative. Using high-level categories and key questions as a foundation, Credo then focuses on six metrics to help institutions begin thinking about their narrative (see sample dashboard below). Most people looking at gauges like those below will immediately see that green is good while red is not. All they need is one data point to indicate just how good or not so good each current situation is.
Adding a second dashboard with five-year trends (see example below) provides a history of the performance behind the gauges and, more important, reflects an underlying resource allocation strategy. In this case, the trends are captured with short lines vs longer ones, and with years “in the red” or “in the black;” both are easily understood ways of making comparisons over time.
The decisions facing boards in today’s higher education climate demand fully informed trustees who collectively are able to quickly analyze and strategize. Trustees must be confident in their understanding of their institution’s financial health in order to contribute to the critical decision-making ahead.
What does your board report look like? Are you providing the right information to your board in ways that prompt the right questions that they can use for better decision-making?
Download this Board Financials Checklist as you prepare to ask adaptive questions of your board and customize the right dashboards for measuring financial performance and the sustainability of your institution.
What questions do you have about Board Development or Leading Through Disruption? Contact Credo anytime to start a conversation.