Laurentian University: Why no one was watching the books
The announcement that Laurentian university would file for creditor protection was shocking. A public university facing bankruptcy. How could this happen?
The hunt for explanations has begun: undergraduate enrolments had been declining; the provincial government cut tuition fees 10 per cent in 2019; the pandemic raised costs and depressed applications; Laurentian did a poor job of attracting high-paying international students; there are too many small undergraduate programs; professors’ salaries are too high; questionable accounting practices were being used.
each of these is a contributing factor, but the overarching cause is a failure of governance — both by Laurentian’s board and senior administrators and by the Ontario government.
Laurentian is a non-profit corporate body established by an act of the provincial legislature. Like most universities, it has a bicameral governance structure made up of the board of governors and the senate. The board has overall responsibility for management of the university, especially financial management, and has all powers except those specifically assigned to the senate. The senate is responsible for academic policy, deciding what degree programs to offer, what courses are needed for the degree, and so on. The majority of senate members are professors. The board appoints the president, who, as a kind of CEO, provides overall leadership and, together with vice-presidents for academic affairs and finance, prepares a budget to ensure that academic expenditures can be financed. The board must approve the budget. An outside report is being prepared, but it seems clear the board and senior administrators failed in their responsibility for the financial management of the university.
Although universities are autonomous, the provincial government is part of university governance. It regulates tuition fees, assists students financially, and determines the level of operating grants. It also oversees the university system.
For most of the postwar period, Ontario focused on expanding the system, providing operating grants based on enrolments, and improving access by improving student assistance — while pretty much leaving the universities to manage their own affairs. This approach generally worked well. but the province kept to this track despite the huge expansion of the system. In 2011, the government announced it would: fund 60,000 new places at universities and colleges, plus 6,000 new places at the graduate level at universities, and establish three new universities — despite offering no systematic analysis of the need for more spaces.
As it turned out, the demand for new university places did not materialize. Since 2012, enrolment of domestic students at Ontario universities has been flat. In its continuing focus on expansion, the province lost sight of a key reality: universities like Laurentian were going to have trouble because of the sharply declining number of people aged 18 to 24 in Northern Ontario. And attracting international students to northern universities would be especially challenging.
Having committed itself to expansion, however, the provincial government headed off in a new direction, deciding it needed to become more involved in shaping how universities were run. Left to their own devices, it believed, universities were becoming too much alike. What was needed was differentiation. Moreover, university activities should more closely align with government economic priorities. So, the government asked universities to identify their areas of strength, as well as the new areas they would specialize in, and government set out where they wanted universities to shift focus.
Strategic Mandate Agreements (SMAS) between the Ministry of Training, Colleges and universities and each university would codify the shift. universities would file annual reports, using increasingly elaborate metrics, to ensure they followed in these new strategic directions. All the strategizing came with minimal financial analysis, however. In its fascination with goals and metrics, the province lost sight of the basics. The SMA section titled “financial sustainability” was boilerplate: “It is the responsibility of the governing board and Senior Administrators of the university to identify, track, and address financial pressures and sustainability issues. At the same time, the Ministry has a financial stewardship role.”
In the third round of SMAS, the province shifted course again. Instead of funding universities based on enrolments, it would provide “performance-based funding” using the metrics developed under the first two SMAS. Laurentian and the provincial government signed their third SMA (2020-2025) only last November. Though Laurentian’s financial problems were already known, the SMA included no financial analysis; indeed, the section on financial sustainability was no longer required. The province clearly failed in its oversight responsibility.
does this mean we need a new governance model for our public universities? No, the basic structure remains sound. but both boards of governors and the province need to give higher priority to financial oversight. As part of SMA reporting, each board should be asked to report annually on its university’s financial position and the risks it faces over the next five years. These reports should be submitted to an independent third party — the Higher education Quality Council of Ontario, which was set up in 2005. The province should pull back from its intrusion into the strategic planning of individual universities to focus on its fundamental responsibility for stewardship of the university system, including seeing to its financial sustainability.