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Colleges and universities have often perceived themselves as substantially different and separate from other for-profit and not-for-profit entities, and the outside world has historically viewed and treated them as such. Colleges and universities have been viewed as ivory towers, secluded and separated from the corporate (and thus the federal regulatory and, often, legal) world. Higher education was largely a self-created, self-perpetuating, insular, isolated, and self-regulating environment. In this culture, higher education institutions were generally governed under the traditional, independent "silos of power and silence" management model, with the right hand in one administrative area or unit often unaware of the left hand's mission, objectives, programs, practices, and contributions in another area.

John Nelson (2012), managing director for the Public Finance Group (Healthcare, Higher Education, Not-for-Profits) for Moody's Investors Service, observed that higher education culture is somewhat of a contradiction in that colleges and universities are often perceived as "liberal," whereas organizationally they tend to be "conservative and inward-looking."[1] Citing recent examples at Penn State and Harvard, he noted that colleges and universities can be "victims of their own success"; a past positive reputation can prevent boards from asking critical questions, and senior leadership from sharing troubling information with boards, and this can perpetuate a culture that isn't self-reflective, thus increasing the likelihood for a systemic risk management or compliance failure. The Freeh Report (2012) is instructive regarding not only the Penn State situation, but the hands-off and rubber-stamp culture of university boards and senior leaders more broadly. The Freeh Report found that the Penn State board failed in its duty to make reasonable inquiry and to demand action from the president, and that the president, a senior vice president, and the general counsel did not perform their duties.

The report calls these inactions a "failure of governance," noting that the "board did not have regular reporting procedures or committee structure to ensure disclosure of major risks to the University" and that "Penn State's 'Tone at the Top' for transparency, compliance, police reporting, and child protection was completely wrong, as shown by the inaction and concealment on the part of its most senior leaders, and followed by those at the bottom of the University's pyramid of power."

In his text regarding organizational structures in higher education, How Colleges Work, Birnbaum (1988) notes that, organizationally and culturally, colleges and universities differ in many ways from other organizations. He attributes this difference to several factors: the "dualistic" decision-making structure (comprised of faculty "shared governance" and administrative hierarchy); the lack of metrics to measure progress and assess accountability; and the lack of clarity and agreement within the academic organization on institutional goals (based, in part, on the often competing threefold mission of most academic organizations of teaching, research, and service). Because of these organizational differences, Birnbaum notes that the "processes, structures, and systems for accountability commonly used in business firms are not always sensible for [colleges and universities]" (p. 27).

While noting that colleges and universities are unique organizations, Birnbaum also observes that they have begun to adopt more general business practices, concluding that "institutions have become more administratively centralized because of requirements to rationalize budget formats, implement procedures that will pass judicial tests of equitable treatment, and speak with a single voice to powerful external agencies" (p. 17).

This evolution to a more businesslike culture for IHEs has been evolving since the 1960s and has brought significant societal changes while seeing the federal government, as well as state governments, begin to enact specific legislation affecting colleges and universities.[2] The proliferation of various laws and regulations, coupled with the rise of aggressive consumerism toward the end of the 1990s, has led to an increased risk of private legal claims against institutions of higher education – and their administrators – as well as a proliferation of regulatory and compliance requirements. Higher education is now generally treated like other business enterprises by judges, juries, and creative plaintiffs' attorneys, as well as by administrative and law enforcement agencies, federal regulators – and the public.

Mitroff, Diamond, and Alpaslan (2006) point out that despite their core educational mission, colleges and universities are really more like cities in terms of the number and variety of services they provide and the "businesses" they are in. They cite the University of Southern California (USC) as an example, noting that USC operates close to 20 different businesses, including food preparation, health care, and sporting events, and that each of these activities presents the university with different risks. Jean Chang (2012), former ERM director at Yale University, observed that IHEs are complicated businesses with millions of dollars at stake, but they don't like to think of themselves as "enterprises."

  • [1] Based on a March 13, 2012, phone interview.
  • [2] The Higher Education Act, up for renewal again in 2014, is a law almost 50 years old that governs the nation's student-aid programs and federal aid to colleges. It was signed into law in 1965 as part of President Johnson's Great Society agenda of domestic programs, and it has been reauthorized nine times since then, most recently in 2008. Additional examples at the federal level include Section 504 of the Rehabilitation Act of 1973, the Americans with Disabilities Act (ADA) (1990), Family Educational Rights and Privacy Act (FERPA) (1974, 1998, 2009), Health Insurance Portability and Accountability Act (HIPAA) (1996), Clery Act (1990), and Campus Sex Crimes Prevention Act (2000), among others. Lawsuits brought against institutions of higher education in which they and/or certain administrators at those institutions are accused of violating a particular federal law or a related legal right can lead to case decisions that impact that institution and perhaps others. Lawsuits can also have a significant impact even if they result in a settlement rather than a court decision. In May 2006, a group of 12 current and former deaf students at Utah State University sued the institution in U.S. District Court alleging that it had violated the Rehabilitation Act and the ADA by failing to provide enough fully qualified interpreters. The lawsuit also named the Utah State Board of Regents as defendants. After negotiations, the lawsuit was settled in April 2007 with the university agreeing to hire qualified, full-time interpreters at a ratio of one translator for every two deaf students. The lawsuit, the issues it raised, and its ultimate resolution received significant media attention, as well as attention from various organizations around the country promoting the interests of students who are deaf or have hearing deficiencies.
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