But What about Your Fiduciary Duty?

But What about Your Fiduciary Duty?

When Ron was a Nevada higher education regent, his board met one time at Lake Tahoe for a retreat.  An interesting development there yielded an important insight.

Public bodies occasionally hold such events, in which there are no business items on the agenda.  They do so to build relationships among board members, staff and some stakeholders, in this case faculty and staff in universities and colleges.  Usually, they’re held in bucolic or otherwise pleasant settings to promote congeniality.

It all sounds very good: building bridges, esprit, morale, understanding – even solidarity.  Folks can share insight, air differences and come to see each other’s viewpoint in comfortable informal non-threatening give-and-take sessions.  Without any formal business to consider, they don’t have to keep minutes, record votes, etc. and can thus talk with candor, not restraint.

Some sessions are led by a “facilitator”, generally a leader in the field from another town or state. Typically, they are provided by a professional association and trained in leading such groups.  Facilitators reflect the orthodox viewpoints of the association that provides them and thus of the stakeholders the associations represent.

One Lake Tahoe session was led by a former state college president, a woman who had a long career in higher education, especially in administration.  The key moment came in a discussion when she suggested that regents (and other officials on governing boards) have a duty to line up behind a board decision once a vote is taken and not continue to press their dissenting views when they lose a vote.  Once a policy or other decision is determined, she said, everyone should get on board and sell it to the public.

Ron disagreed.  He noted he had made rigorous arguments against the funding formula the board had adopted that was illogical and unfair to community colleges.  Because most regents were advocates for the two universities, no one had even tried to answer his arguments on the merits.  They had no answers for the correct points he raised.  Instead, they used the brute force of a self-interested majority to adopt the flawed formula.

Ron said he would have no integrity in arguing for what had become the company line when he had made compelling arguments against it that had gone unanswered.  So, he would continue to make his points not because he represented a district with a community college, but because the position was right and in the broad public interest.

Ultimately, the exasperated facilitator shrieked, “But what about your fiduciary duty?” It was a tyranny-of-words gambit intended to make the dissenter meekly shut up.  And the chancellor said it was time to move the discussion to the next topic.

Ironically, the facilitator had asked exactly the right question, but Ron didn’t get to explain why her implication was wrong.  The ultimate issue was, indeed, an official’s fiduciary duty.  But the key question was: To whom is the fiduciary duty owed?  Many stakeholders – i.e., special interests – want public officials to represent them and advocate their interests.

In their view, regents should carry the water for faculty, staff and students.  For K-12 and many other matters, this degenerates to: “Do it for the children!!”  Which really means for the adults.

But however sweet that proposition might sound to so-called stakeholders, regents are the governing board of higher education, not advocates for those special interests.  Regents (and other public officials) are elected by voters to represent the people and the broad public interest, so their fiduciary duty is owed to the voters, taxpayers (who pay the bill) and public interest.

Decades ago, the term “stakeholders” was invented as part of public choice theory to explain interest groups in politics and forces to which decision-makers respond.  Over time, special-interest advocates argued for selfish reasons that stakeholders should be treated on a par with the people, voters, taxpayers and broad public interest.

That is the ultimate corruption of politics and governance because it’s how special interests prey upon the broad public interest.  And it is the bastardization of sound theory.

All bodies, public and private, are vulnerable to such go-along-to-get-along non-logic, and many fall for it, especially in education, legislatures and big business.  That’s the problem, not the solution.

Ron Knecht is Nevada Controller.  James Smack is Deputy Controller.