Although they don't mean to be, the members of the Finance Committee are usually the biggest bullies around the Board table. It doesn't matter whether the Board is strategic in its outlook or mundanely mired in operations, at the end of the day it is almost always the Finance Committee that sets the tone for deliberations.
There are a couple of reasons for this. To begin with, most Board members are aware that they can make any number of questionable decisions on a wide range of issues, but that as long as they are cautious with respect to financial management, they cannot go too far wrong. It is this aspect of the Board's fiduciary responsibility that often gets the most attention.
Secondly, for the average trustee, many of the financial discussions and decisions take place out of their comfort zone. They tune out during debates between zero-based and flat-lined budgeting, discussions of hard and soft income, and what constitute realistic projections of revenues and expenditures in the short, medium and long terms. Consequently, unless the Finance Committee is very careful, its members can ram through key financial decisions without the full understanding and authentic consent of many members of the Board.
Now you might think that that really wouldn't matter very much, but to be honest I have worked with many
Finance Committees or their Chairs that have a great handle on the fiscal long view, but don't necessarily have a clear understanding of the minutiae of budget management at the school level. I have seen many Boards get into financial trouble by glossing over some key indicators that are relatively unique to schools. To begin with, they need to project accurately in January for the next September so that they can set fees. Once this is done, the Board must create at least three budgets, each contingent on differing scenarios with respect to enrolments. Unfortunately this can often be undercut by the mistaken wish to lock in budgets in early spring before actual revenues can be determined.
Another complicating factor is the nature of on-going faculty contracts. In most schools these are confirmed in late spring which then fixes their largest operating cost, regardless of final revenue numbers. Heads are often reticent to hedge their bets on rehiring staff for fear that they will lose them to another school. Consequently they tend to staff based on the best-case scenario, rather than the worst.
Thirdly, Finance Committees are sometimes caught off guard by the fact that a 2% increase on the compensation grid can actually translate into a 4 - 4.5% hike in salary costs when you factor in experience increments.
So how do you avoid either disenfranchising some of your Board members, or putting undue pressure on the Finance Committee to get everything exactly right? There are a couple of tried and true methods. One is to have the Finance Committee prepare a White Paper outlining various options with respect to tuition, staffing, projected enrolments, etc. and their projected impact on the bottom line. Rather than go into a Board meeting armed with a hard and fast recommendation (the bully approach), the Finance Chair needs to empower her or his colleagues to actively engage in the decision-making process. A second tactic is to invite a disinterested observer who is familiar with the school budgeting process to sit in on these Board deliberations and ask the key questions of both the Committee and the Board. Former Finance Chairs, retired Business Officers, or retired Heads can bring some of that outside expertise to the table.
Finally, the Chair and the Governance Committee also have to make sure that every finance discussion takes place in the context of the Vision and Strategic goals of the school. That ensures that the "how can we do more with less?" discussion, becomes instead a deliberation on "what will it cost to do the things that will provide the best possible educational experience for the students in our care, and how will we finance them?"
When everyone around the table is fully engaged in discussions of school finance and spending priorities, there is no-one left to bully - even by accident!
There are a couple of reasons for this. To begin with, most Board members are aware that they can make any number of questionable decisions on a wide range of issues, but that as long as they are cautious with respect to financial management, they cannot go too far wrong. It is this aspect of the Board's fiduciary responsibility that often gets the most attention.
Secondly, for the average trustee, many of the financial discussions and decisions take place out of their comfort zone. They tune out during debates between zero-based and flat-lined budgeting, discussions of hard and soft income, and what constitute realistic projections of revenues and expenditures in the short, medium and long terms. Consequently, unless the Finance Committee is very careful, its members can ram through key financial decisions without the full understanding and authentic consent of many members of the Board.
Now you might think that that really wouldn't matter very much, but to be honest I have worked with many
Finance Committees or their Chairs that have a great handle on the fiscal long view, but don't necessarily have a clear understanding of the minutiae of budget management at the school level. I have seen many Boards get into financial trouble by glossing over some key indicators that are relatively unique to schools. To begin with, they need to project accurately in January for the next September so that they can set fees. Once this is done, the Board must create at least three budgets, each contingent on differing scenarios with respect to enrolments. Unfortunately this can often be undercut by the mistaken wish to lock in budgets in early spring before actual revenues can be determined.
Another complicating factor is the nature of on-going faculty contracts. In most schools these are confirmed in late spring which then fixes their largest operating cost, regardless of final revenue numbers. Heads are often reticent to hedge their bets on rehiring staff for fear that they will lose them to another school. Consequently they tend to staff based on the best-case scenario, rather than the worst.
Thirdly, Finance Committees are sometimes caught off guard by the fact that a 2% increase on the compensation grid can actually translate into a 4 - 4.5% hike in salary costs when you factor in experience increments.
So how do you avoid either disenfranchising some of your Board members, or putting undue pressure on the Finance Committee to get everything exactly right? There are a couple of tried and true methods. One is to have the Finance Committee prepare a White Paper outlining various options with respect to tuition, staffing, projected enrolments, etc. and their projected impact on the bottom line. Rather than go into a Board meeting armed with a hard and fast recommendation (the bully approach), the Finance Chair needs to empower her or his colleagues to actively engage in the decision-making process. A second tactic is to invite a disinterested observer who is familiar with the school budgeting process to sit in on these Board deliberations and ask the key questions of both the Committee and the Board. Former Finance Chairs, retired Business Officers, or retired Heads can bring some of that outside expertise to the table.
Finally, the Chair and the Governance Committee also have to make sure that every finance discussion takes place in the context of the Vision and Strategic goals of the school. That ensures that the "how can we do more with less?" discussion, becomes instead a deliberation on "what will it cost to do the things that will provide the best possible educational experience for the students in our care, and how will we finance them?"
When everyone around the table is fully engaged in discussions of school finance and spending priorities, there is no-one left to bully - even by accident!
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