Final paper written for EDH6635: Org & Governance (Professor Brad Cox, Spring 2021)
Too often we only share the final product our writing but a great deal of our eduction is structured around the process of learning how to write. In an effort to minimize imposter syndrome, especially for readers who are also students, I am sharing a summary of written feedback at the end of the paper. Please keep in mind that course papers take a fraction of the time to curate than would a journal article or conference publication. What follows should be read as a first draft paper opposed to a publication.
The rising cost of attendance and questionable effectiveness of degree attainment has increased the demand for greater accountability in higher education institutions (HEIs). Accountability can be defined across a multitude of siloed fields which complicates the logic of organization and governance for HEIs. Agency theory as a framework proves relevant at the group and organization level, variable across paradigms, and allows exploring the shifts in decision making power. In this paper, I seek to expand the use of agency theory in higher education research by conceptualizing the interplay of performance-based funding (PBF) and popular national rankings using an example through the Florida State University System (FLSUS). Demands for greater accountability shift decision-making power based on the siloed field of measurement causing unintended consequences in an field where organization and governance is constantly in flux.
Reconceptualizing Accountability in Higher Education Through Agency Theory
Generally, the governance of American higher education institutions (HEIs) is organized in a hierarchy of systems. For example, the authority to establish a college or university in the state of Florida, USA resides in the state’s Board of Education who typically establish a Board of Governors (BOG) charged with decision making authority. Depending on the size of the state and number of institutions, this level could also include a Board of Regents and/or a Board of Trustees. Many institutions then turn to intuitional level governance by having their own Faculty Senate and Student Government system; it is worth noting that the impact of institutional level governance is beyond the scope of this paper.
HEIs receive financial support from state governing bodies that are tied to certain outcomes of effectiveness, a mechanism referred to as performance-based funding (PBF). Continuing with the example through the state of Florida, decisions to provide financial support to state universities resides in the power of the BOG that has outlined metrics of accountability intended to support its PBF system. In this paper, through an example of Florida’s PBF system, I seek to explore how demands for greater accountability have affected the organization and governance of higher education institutions (HEI) and to what extent these pressures yielded desired results or created unintended consequences. I begin by highlighting the inconsistencies in accountability measures then describe the theoretical framework of agency-theory to address how demands of greater accountability affect organization and governance. This description is followed by an application to the context of PBF on FLSUS to answer the extent to which these pressures yielded consequences.
Accountability in HE
Governing bodies that fund HEIs demand a certain level of accountability to ensure their financial impact will result in favorable outcomes. Demands for greater accountability of higher education institutions (HEIs) can stem from questioning the effectiveness of a degree against raising costs of tuition (Leveille, 2006). That is, accountability requires HEIs to answer for controlling costs by providing evidence of efficiencies. External stakeholders such as “students, parents, the general public, makers of public policy priorities, accrediting agencies, the providers of financial and other resources, and various supporters” demand greater transparency for financial investments, curriculum advancement, admission policies, student achievement, research, and other matters (Leveille, 2006, p. 7).
Brown (2017) identified seven accountability silos across higher education literature: assessment, accreditation, institutional research, institutional effectiveness, educational evaluation, educational measurement, and higher education public policy. Each field functions with its own unique logic and approach toward accountability but engages minimally across the other fields. The resulting disparate rationality leads to varied approaches to accountability thus impacting the organizational structure of governing boards. Based on these silos, ultimately who makes decisions is largely dependent on the accountability field being queried.
External influences on accountability can be assessed through an “accountability triangle” (Burke, 2005). This consists of a social triad of market, state, and profession of which HEIs are influenced and must give an account of their resources and achievement of outcomes. For example, market demands advocate performance-based funding (PBF) monitored by transfer rates, graduation rates, and alumni salaries (Brown, 2017). The social institution of state emphasizes the root metaphor of compliance and accountability of compliance standards are assessed through annual quantitative data collection, including the Internal Revenue Services (IRS), or through reviewing legal narratives. The social institution of the profession holds HEIs accountable through learning measures such as educational measurement or assessment of high impact practices or other student learning outcomes (Brown, 2017).
Bridging Accountability Silos and External Influences
Brown (2017) used organizational theory of an institutional logics framework to systematize disparate silos into a single model which matches external influences on HEIs with specific accountability silos (Table 1).
All three external influences of market, state, and profession use institutional effectiveness as an accountability measure. Institutional effectiveness “can be described as combining the processes of accreditation (state and profession) with an added emphasis organizational performance (market)” (Brown, 2017, p. 48). Popular national rankings often tied to performance-based funding (PBF) are one example measure of accountability in institutional effectiveness.
Conceptual Framework: Agency Theory
An agency relationship has arisen between two, or more, parties when “one, designated as the agent, acts for, on behalf of, or as representative for the other, designated the principal, in a particular domain of the decision problems” (Ross, 1973). In these relationships, the party acting as the agent chooses the actions for the principal that produce a desired outcome (Moe, 1984). This framework, also known as principal-agent theory/model, has been used to examine the government-HEI relationship where the government acts as the agent to HEI governance which serves as the principal (J Kivistö, 2005; Jussi Kivistö, 2008). At HEIs, trustees and administrators act as agents to make decisions on behalf of students, who assume the subordinate of principals, such as how to enroll and at what cost in addition to determinants of quality, which represent a desired outcome (James, 1990). The application of agency theory in higher education can be extended to explore performance-based funding (PBF) systems and popular national rankings (e.g., U.S. News & World Report) as an outcome of external pressures in accountability.
Components of Agency Theory
According to (Jussi Kivistö, 2008) three elements for an agency relationship must be present:
Tasks that the government delegates to a university;
Resources that the government allocates to a university for accomplishing those tasks; and
Government interest in governing the accomplishment of the tasks
Two assumptions regarding informal asymmetries and goal conflicts must also be present. The former is present when the agent possesses more information about the task assigned by the principal and the latter is met when the agents and principal’s desires are misaligned. These assumptions create what is referred to as an agency problem; misaligned goals in which the state (agent) wants to increase national prominence (outcome) thus forcing institutions (agents) to increase achievement without having to increase funding, but institutions seek to increase funding as a means to fulfill their missions.
Applications of Agency: National Rankings and PBF
National Rankings. In the field of higher education, national rankings such as those reported by U.S. News & World Report (USNWR) impact peer assessments of institutional prestige and effectiveness which often lead to decisions by the state for how much funding it should allocate. Such rankings can influence student’s decision to attend the university, faculty’s decision to accept employment, or motivate donors to provide resources (Bastedo & Bowman, 2010). However, these rankings have proven to have stronger effects on those within the field of higher education, such as administrators and alumni, than those who institutions are intended to serve, such as students and parents (Bastedo & Bowman, 2011). For example, Yeung et al. (2019) found a significant relationship between USNWR ranking and the salaries of presidents at public universities. From an agency theory perspective, results from their study suggest a college president acting as an agent, was rewarded by the board of trustees acting as the principal, for improving USNWR rankings as an outcome.
Ehrenberg (2003) describes how USNWR rankings are categorized and calculated by breaking down the three categories of institutions and the seven broad criteria of measurement used in the 2001 ranking of undergraduate institutions. Table 2 displays the three USNWR categories of institutions and the types of Carnegie classification of colleges and universities that comprise each category; institutions in the Regional University category are reported by quartile rankings with the country divided into four regions.
Criteria And Weights Used In USNWR 2001 Ranking Of Undergraduate Institutions (Ehrenberg, 2003, p. 151)
The seven broad criterion of measurement include, academic reputation, student selectivity, faculty resources, graduation and retention rates, financial resources, alumni giving, and graduation rate performance. Ehrenberg displayed these criterion and their subfactors along with corresponding weights in a table, reproduce here as Table 3. It is important to note that Ehrenberg emphasizes the total weight of each criterion varies across the USNWR categories (National University, National Liberal Arts College, or Regional University) and typically from year to year.
Performance-Based Funding (PBF). Broadly, PBF was a new accountability movement to keep HEIs in pace with the labor market by producing more graduates. In PBF, policy makers attempt to align HEIs with broader state goals and incentivize outputs rather than inputs. Dougherty and Reddy (2011) concluded PBF can lead to general impacts such as an increased awareness of state priorities or of institutions own performance, and increased status in competition. PBF’s impact on changes in organizational policy and practices include an increased use of data in institutional planning, academics improvements in sufficient department staffing, improved curricula or alteration in course offerings, and improvements in student services “with regard to registration, financial aid, first-year retention programs, counseling and advising, tutoring and supplemental services, and job placement services” (Dougherty & Reddy, 2011, p. 22).
While typically viewed as rewarding, PBF has several unintended consequences. First, rewarding colleges based on the number of credentials they produce often negates enough financial support to engage necessary campus resources to successfully achieve outcome (Hillman et al., 2015). In a more explicit incentive system, HEIs might swap out less rewarded activities such as advising for externally rewarded activities such as teaching large classes (James, 1990). Furthermore, PBF could result in increased costs for compliance, narrow institutional missions, restrict student admissions, grade inflation or other weaken of academic standards (Dougherty & Reddy, 2011). The overall model of PBF has been deemed ineffective in terms of its ability to increase college completions (Hillman et al., 2014), retention or graduation (Dougherty & Reddy, 2011).
In the context of this article, an application of agency theory is used primarily for the purpose of conceptualizing the unintended consequences demanding greater accountability has caused the fluid and inherently complex organization and governance of higher education. This application is structured, specifically using the state of Florida, around two questions:
How have demands for greater accountability affected the organization and governance of higher education institutions (HEI)?
To what extent have these pressures created yielded the desired results or created unintended consequences?
Components of Agency
An agency relationship exists between the Florida State University System (FLSUS) state, legislature, or taxpayers assuming the role of principal and higher education institutions (HEIs) assuming the role of agents. The two assumptions of informal asymmetries and goal conflicts are met thus creating an agency problem where the principal governs through outcome-based contracts, such as performance-based funding (PBF). In these outcome-based contracts, the principle (Board of Governors; BOG) identifies a specific outcome, such as a national ranking, then compensates the agent (HEIs) for achieving that outcome. I begin by exploring the national implications of such mechanisms before describing more specific state level implications.
Nationally, the U.S. News & World Report (USNWR) uses seven broad criteria across three categories that comprise the various HEIs depending on their Carnegie classification. One such criterion is Alumni giving. In this particular category, Alumni hold authority power in that they choose whether to donate, and in what nominal amount, to their former institution as a means of enhancing its ranking, which would then be rewarded by the principal (BOG) with additional funding. The HEI as principals in the state-HEI relationship are at the will of external forces, alumni, in meeting the outcome desired by the agent.
The second criterion of interest is student selectivity and acceptance rate. Institutions can increase their score by accepting a smaller portion of incoming freshmen than those who apply (Ehrenberg, 2003). In attempt to maintain authority in this criterion, many institutions have pursued early-decision processes where students who apply by November of their senior year agree to enroll if admitted and withdrawal any other applications they have submitted to other institutions if notified of their admission by December. The pressure on HEIs for more accountability in educating an incoming class that is representative of its community through performance in national rankings has the potential to further minoritize underrepresented populations since early decision applicants tend to come from upper-middle class families (Ehrenberg, 2003). To further add to the nebulas of organization and governance as it pertains to national rankings, students have reclaimed their authority by not participating in early-admissions processes. These two examples demonstrate how demands for greater accountability causes decision making authority to shift based on the accountability field being queried. With an understanding of nationwide considerations, it is now possible to provide a more narrow application of agency to the State of Florida.
Performance-Based Funding and Florida
Performance-based funding (PBF) has a long historical implementation in the state of Florida, with the current model being introduced to legislation in 2012 as a means of demonstrating success (Alesnik, 2020), or accountability. It seems straightforward to assume, based on agency theory, that the principal (the state) would have authority to award funds to institutions (agents) who meet specific outcomes. However, while the original bill did outline language specific to the Florida State University System (FLSUS) and PBF, it contained an amendment concerning preeminence standing as a component of its PFB model. This is concerning because institutions with preeminent standing are allocated additional funding compared to those institutions with emerging preeminent status. The state uses two metrics related to national rankings, previously described, to determine if a university is considered an emerging preeminent or a preeminent university (Alesnik, 2020):
“A top-50 ranking on a least two well-known and highly respected national university rankings. Including but not limited to, the U.S. News and World Report rankings, reflecting national preeminence, using the most recent rankings” (p. 128);
“A top -100 university national ranking for research expenditures in five or more science, technology, engineering or mathematics field of study, as reported by the NSF” (p. 129).
Here lies an additional agency problem. The metrics used by the principal to determine if the agent has achieved an intended outcome are used inconsistently from year to year and even across the three categories of institutions. This agency problem shifts authority in organization and governance from the state to alumni or even prospective students, back to universities. This is further convoluted as the Board of Governors act as a principal issuing performance-based mechanism of accountability, but the state allocates funds, leaving to question which regulating body is truly the principal in this agency relationship. Recently, institutional governance attempted to reclaim authority by proposing Senate Bill 72 which makes a motion to strike “as reported by the NSF” in the latter metric, which if approved, could change the status of some universities. This is an important juncture since only two of the 12 universities in the FLSUS – Florida State University (FSU) and University of Florida (UF) – qualify as preeminence. Current decision-making authority resides with Governor DeSantis, causing another shift in organization and governance.
Limitations and Challenges of AT
Several challenges exist in using agency theory as a lens for understanding organization and governance of higher education institutions (HEIs). First, agency theory gives attention to “mainly formal and economic aspects of government–university relation-ships” (Jussi Kivistö, 2008, p. 346) which negates HEIs as unique, socio-cultural organizations. This theory also makes certain behavioral assumptions about human motivations and behavior which ignores a wider range of motives such as trust or intrinsic motivation (Jussi Kivistö, 2008) as influenced by culture, norms, and values which are unique to each institution.
One limitation of using the FLSUS performance-based funding model as an example of the agency relationship is that the current model does not distinguish USNWR rankings regionally versus nationally. For example, Florida State University is ranked 58 nationally but top 25 in the specific category of “value” thus meeting, in some ways, the first metric of preeminent standing, but also fails to meet this metric in other ways. It is also important to highlight that PBF has different degrees of successes within-in versus across states (Hillman et al., 2014). Such that, it might be a successful system across the FLSUS example provided here, but it might be considered a failing model when compared to states like California or Texas with significantly more universities competing for funding thus needing to include metrics on preeminence versus emerging preeminence.
National rankings, such as the USNWR, are used as an accountability measure through the mechanism of PBF but are flawed given the malleable weight of metrics in year-to-year comparisons. This type of ranking, specifically by USNWR, is used to determine preeminence standings as an additional component to PBF in which universities, at least in the state of Florida, receive additional funding. Even though the USNWR has gained significant prominence over the years, its ranking system cannot keep up with the inherent complexity of higher education organization and governance; one could argue it further complicates these proceedings. Through components of agency theory, this creates additional agency problems when the metric used by the principal to determine if the agent has achieved the intended outcome is flexible and facilitates opportunistic behaviors by the agent that work against the principal. As Bess and Dee (2008) argue, demands for greater accountability shift the locus of decision making throughout the hierarchy of governance. In the case of higher education in Florida, the current PBF model leads to more confusion with multiple principals since the Board of Governors administers outcomes but the state regulates achievement and allocates funds based, in part, on a third-party ranking system influenced by prior years data and student compliance. Agency theory provides a useful framework, not owned by any particular paradigm, for conceptualizing the power state governing agencies (principles) hold over higher education institutions (agents). Principles use outcome-based governing methods (i.e., performance-based funding) over agents as a way to manage the agency problem.
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Summary of General Feedback
o totally reasonable to use agency theory to address US news and performance-based funding.
o Although there is ample citation throughout the document, there was a slight overreliance on direct quotes. Unless the original wording is truly distinctive and the same idea cannot be expressed in the student’s own words, we should try to use our own paraphrasing instead.
o The table of relative weights for the U.S. News & World Report’s really needs to be updated. The table you included is based on 20-year-old data. Those weighting criteria are updated regularly and newer stuff should be used in this paper, especially considering things like performance-based funding are relatively young policies, at least in Florida.
o You claim that students have “reclaim their authority by not participating in early admissions” but don’t offer any citation of that.
o Overall, you do a really good job of describing how agency theory allows us to recognize some of the inconsistencies or complications of performance-based funding.
o The biggest thing that is missing, however, is a discussion of whether the efforts at accountability have yielded the results that were intended. There isn’t a whole lot specific to the overarching goals of the policies, but there is even less about whether the real world implementation of those policies has yielded the type of results that the policies were set up to pursue.