Trusteeship - March/April 2021 - 39

and Performance (2017), defines risk appetite as the types and
amount of risk an organization is willing to accept in pursuit of its
objectives. Risk appetite is therefore not about risks in isolation,
but it is about an institution's strength of will to accept risk in
order to meet its stated objectives. Whether an institution has the
fortitude to achieve its vision in a VUCA environment, is contingent upon the readiness of the governing board to accept a certain
amount of risk in pursuit of strategic objectives along the journey.
Risk appetite is a concept likely familiar to trustees and one they
already understand in the context of the institution's endowment.
However, risk appetite is also applicable-albeit far less ingrained-
in strategic contexts. To develop a risk appetite, the authors of
Using Risk Appetite to Thrive in a Changing World suggest that
management and governing boards engage in (1) facilitated discussions related to mission and vision, (2) discussions related to strategies and objectives, and (3) analysis of performance.
Facilitated discussions about the mission and vision of the
institution enable trustees and university leaders to articulate their
implicit feelings about risk appetite, which are not always consistent between trustees and management or even among trustees.
The facilitated discussions can therefore serve to develop a shared
understanding of the institutional risk appetite, which provides
a platform for university leaders to develop a risk appetite statement that reflects a combined understanding of risk appetite.
Additional discussions related to strategies and objectives enable
management to prioritize strategies in light of the associated risk
appetite expressed by the governing board, and equip trustees to
have productive discussions with management about the pursuit
of particular strategies, again with reference to the articulated risk
appetite. Lastly, the analysis of performance involves the use of
modeling and data to test, retest, and validate the risk appetite,
which empowers trustees and management to refine risk appetite
as circumstances change and evolve.
Understanding and developing risk appetite, however, is only
the first step for governing boards in this regard. Trustees also have
a continuing obligation with respect to risk appetite because risk
appetite should evolve and change as the circumstances change.
In a VUCA environment, change is rapid so the institution's risk
appetite must be equally responsive, which means risk appetite
should be a standing item for the governing board.

Create a Culture of Innovation
Culture shapes attitudes and behaviors whereas cultural norms
determine what is encouraged or discouraged, accepted, or
rejected. Culture is important because the right institutional
culture will ensure the new risk paradigm sustains over time.
According to the AGB Board of Directors' Statement on Innovation
in Higher Education (2017), governing boards have a significant
responsibility to foster, engage, and support a culture of innova-

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tion. As previously mentioned, risk is inherent in business and
essential to the innovation necessary for higher education institutions to overcome the systemic and existential challenges they face.
An institutional culture that embraces risks and accepts failure has
the potential to light the spark of innovation that could bring prosperity to that institution.
The Harvard Business Review (January/February 2018) article
" The Leader's Guide to Corporate Culture " identifies four levers for
evolving a culture: (1) articulate the aspiration, (2) select and develop
leaders who align with the target culture, (3) use organizational conversations to underscore the importance of change, and (4) reinforce
the desired change through organizational design. Trustees must
take every opportunity to articulate the aspirational culture, which
the AGB Board of Directors' Statement on Innovation in Higher Education describes as a culture that motivates continued development
of new ideas, supports visionary ideas, rewards failure when appropriate and embraces risk. Governing boards and presidents/chancellors, in particular, must select and develop leaders who align with a
culture of innovation, because leaders at every level of the institution
are important catalysts for culture change. The use of organizational
conversations to support culture change is perhaps most consistent
with higher education norms, as it is in keeping with the principle
of shared governance. Governing boards and university leaders
can leverage existing opportunities and practices to articulate and
advocate for a culture of innovation. Lastly, governing boards and
university leaders can reinforce the culture of innovation by aligning
structures, systems, and processes-like tenure and promotion-to
support innovation and by extension risk-taking.

Closing Thoughts
It remains to be determined how higher education will emerge
from this VUCA environment, but it is undeniable that the landscape is already dramatically different. Higher education institutions, because of the critical role they play in a democratic society,
must rise to the occasion. Governing boards face a daunting task,
one that not many could have anticipated a few years prior. However, a new risk paradigm can light the way to transformation
by sparking an age of innovation on college and university campuses. Trustees have a critical role to play in adopting this new
risk paradigm. To be successful, trustees must (1) fix their gaze on
the distant future and lend their voice to creating a vision for the
institution that embraces risk, (2) establish a shared understanding of risk appetite, and (3) foster a culture of innovation. There is
great urgency in the current moment, but as fiduciaries, governing
boards are accountable for the long-term future of institutions.
Securing that future is worth the risk.
Steve K. Stoute, JD, serves as the vice president for strategic initiatives and
chief of staff at DePaul University. Email: sstoute@depaul.edu.

MAR. APR. 2021 TRUSTEESHIP 39

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