“How would I know?”
An international school board chair asked how they would know if the school is doing well or not. “I know my role and try to avoid listening to parents or faculty who approach me on the side, but otherwise, everything I hear is filtered by the head of school. How would I know if a problem exists and isn’t being addressed unless I spend time in the school asking people?”
The above question gets at the heart of something called the “principal-agent problem.” The principal-agent problem is a conflict of interest that arises when the principal, in this case the board, delegates work to an agent, the head of school. The principal wants the head to act in the institution’s best interest, but the head may have their own or other interests at heart. This can lead to problems, such as the head taking actions that are not in the best interests of the school or that run counter to board-established policy. The potential for this to occur can create natural anxiety for many board members.
Obviously, one way to be sure that the head runs the school the way the board wishes is to closely watch everything that goes on—a situation that is neither healthy for the school nor feasible for the board. Who has the time and bandwidth to watch everything? Dozens of dissertations and scholarly papers suggest several ways to resolve the principal-agent problem in a corporate governance context, and these include:
Aligning incentives. One of the most common ways to resolve the principal-agent problem is to align the incentives of the principal/board and the agent/head. The board can do this by tying the agent’s compensation to the company’s performance. For example, the agent could receive deferred compensation that vests over time or a bonus based on achieving specific goals.
Monitoring the agent. Another way to resolve the principal-agent problem is to monitor the agent’s behavior. This is done by the board of trustees as a whole, the audit committee, the finance committee, and external accrediting bodies. Nonetheless, no acceptable degree of monitoring is going to be without some potential blind spots to the board—this is why regulators in the US and almost all Western countries say that the governors are entitled to rely on data provided by management or third parties (such as auditors and accreditors) to gauge the performance of the organization as a whole unless there is a clear and compelling reason to doubt the veracity of such data. Our guidance to boards and heads is that they agree on what data points are most relevant to evaluate school health and then organize head and committee reports around providing that information. If board members mistrust the data they get, we have a very different and more severe issue.
Enforcing contracts. The principal and the agent should enter into a contract that clearly defines the responsibilities of each party. Failure to meet those expectations on the part of the agent/head would be cause for termination or at least non-renewal of the contract.
In addition to the above, there are a number of other factors that can help to resolve the principal-agent problem, such as:
Transparency. The principal and the agent should have access to all relevant information about the company. This will help ensure that both parties make informed decisions about performance.
Trust. The principal and the agent should trust each other. This will help to build a relationship of mutual respect and cooperation. [Note: cultures vary widely in terms of trust; this becomes an issue in international schools where the predominate ethos is one of high trust, reflecting the Northern European and North American origins of many such schools, and host country culture, which might be low trust, as in South America, Central Asia, and the Middle East.]
Communication. The principal and the agent should communicate regularly with each other. This helps ensure that both parties know each other’s needs and concerns.
We think the solution likely rests in a combination of empathy (each party understanding the principal-agent dynamic), monitoring (agreeing first on what indicators will be reported), and trust (board members trusting more than might seem comfortable), at least until the evidence suggests that their trust is misplaced. It probably means more anxiety than some board members might find comfortable, but one can learn to tolerate uncertainty and eventually come to trust. It also means heads of schools will endure closer scrutiny and more questions than they would likely prefer--something they can also learn to tolerate.