A Theory of Shared Governance in Higher Education

Abstract: This paper develops a stylized model that describes the relationship between the composition of board of trustees and the performance of universities that has been empirically documented. Two parties compose the board: the faculty members and the outside stakeholders. Both parties have private, soft and complementary information about a strategic decision that has to be taken. Due to conflict of interests, the communication will be noisy. Keeping the structure of information possessed by outside stakeholders fixed, we focus on the incentives to become informed faced by each faculty member who is also trustee. By choosing the number of board seats allocated to faculty members, it is possible to mitigate the costs related with the information (from its acquisition and transmission) and the agency problem. In the lights of this analysis, recommendations concerning public policies relating to the composition of board of trustees are discussed.