Authority has to rest somewhere. Ultimately, you have to trust some body or someone. Trustees do exactly that: they receive the trust of the trusting. Trustees might be kings, or religious leaders, a group of citizens or professional lawyers. Often it is "we, the people", a trust bestowed upon the undifferentiated public.

Who guards the guards? is a perennial question because human beings are both frail and ingenious. Trustees can be corrupted; those who trust can be gullible. The old "12 good men and true" was a nice formulation for a jury system, like "your word is your bond" among the City's own "good men and true". But both were based on a potentially collusive trust between "people like us", the original "good" people. And the "good" people can sometimes let you down.

Bernard L. Madoff made us gasp because of the longevity of the trust bestowed in him, and the sheer extent of the betrayal. Best known for the $65 billion (?41 billion) fraud for which he is now serving a 150-year sentence, Madoff's web also included several education and research bodies. Madoff was treasurer of Yeshiva University's board of trustees in New York, as well as chair of the board of its Sy Syms School of Business. He was a major donor and had received an honorary degree.

But Madoff was not just an unfortunate moral example to that university's students and staff. Through board links, 8 per cent of the university's endowment, more than $100 million, was invested in his own fund.

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The question of who guards university guards is central to the question of institutional authority. It is answered around the world in many different ways. In Canada, governing bodies derive their powers from provincial authority. At the University of British Columbia, for instance, the Lieutenant Governor in Council appoints a majority of governors (trustees), representing the public's interest. And 15 tickets are available to the province's citizens to attend board meetings and check that their appointees and their university are doing a good job.

Other traditions are not always as proudly civic in focus. In a variety of European institutions the Church may hold authority, whereas in South and East Asia it may be the leading family or clan that has effective final authority. Latin America evolved a complex, communitarian model of governance involving students, staff and alumni. Sometimes, in the tradition of northern Europe, supervisory boards or courts oversee the work of a governing body, with varying degrees of involvement.

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British publicly funded universities are proud of their autonomy. For the most part, it has stood them in good stead. In recent years, also, universities have made much of the growing independence of governors from the day-to-day activity of the institution. The greatest trust is placed in this majority of governors because they are not dependent upon the institution itself.

The belief is that they can, therefore, exercise their responsibilities dispassionately, without fear or favour. Despite receiving public funds, the public - in the form of government or bureaucracy - cannot directly intervene in the autonomous institution. At best, it can insist on funding conditions, and it can regulate.

My Higher Education Policy Institute study, University Governance: Questions for a New Era, tackles governance from the viewpoint of authority. Who has the moral, or the legal, right to govern? What authority should they hold, or should be held over them?

The report approaches the topic through a study of the many interested parties in a university, such as students and staff, the state, business, the alumni, the broader community, as well as the interests of different generations. And it considers the skills, knowledge, background and set of values needed in those who aspire to govern over this complex of interests.

The study grew from a dissatisfaction with an extensive literature that is full of platitudes drawn from public or corporate life, yet short on appropriate governance principles for an autonomous 21st-century British university - an institution that inhabits that peculiar twilight zone between the public sector and the truly private realm. Much of that literature asserts "commonsense" models of best practice, along a rough spectrum from the commercial corporate to the collegial.

In these guides to practice there is a strong emphasis on questions of "how?", which can easily be interpreted as complacency in mission or the continuance of the assumptions of an existing governance class. But we are at the start of a new era, with many new pressures and strains, newly emerging funding stakes, and changing balances of interests. In this era, the key questions become more ones of "for and by whom?", "with what?", "to what end?" and, most simply, "why?".

Lord Browne of Madingley's report, Securing a Sustainable Future for Higher Education, released last October, clarified the new era with its shift from the public to the student as the undisputed majority funder of most English universities. This change profoundly affects any institution's governance compact with and between stakeholders.

The corporate, and particularly the banking, crisis had already been teaching us that governors need to understand more about an enterprise's core business and relate better to stakeholder interests. Put simply: university governors need to demonstrate knowledge of the core education-and-research business that they govern. There is no longer any role for educational, or banking, amateurism. Being a "good chap" is no longer enough.

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This, too, is an era of entrepreneurial necessity. Universities require swift, and sometimes confidential, decision-making by management, but equally responsive and informed oversight and support from governors. The world does not always wait for the quarterly meeting or committee endorsements, as the current scrambled timetable for setting new tuition fees and gaining Office for Fair Access approval well demonstrates.

The most rapidly growing financial stake in universities in coming decades will be the alumni, rather than the students. The newly boosted income-contingent loan system will see a majority of alumni making monthly repayments for up to 30 years. They should, and will, demand a stronger voice in university governance, perhaps - as in some US universities - a majority say, reflecting their new majority financial stake.

On the other hand, the state's stake, which independent governors were often seen as guarding, is lessened, through its declining proportion of funding. Indeed, in its report, Regulating Financial Sustainability in Higher Education, released at the beginning of March, the National Audit Office raises the issue of what the residual public interest would be in a university in receipt of no direct grant funding at all but whose students are receiving tuition-fee loans from the government.

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Meanwhile, the stake of business is unclear, and its authority even more uncertain. Financially, the direct stake is small, for most universities less than a couple of per cent. But its indirect stake, through general taxation or employee fee subsidy or through providing jobs to graduates, is considerable.

This changing configuration of interests will cause a move away from the current emphasis on independent, dispassionate, paternalistic governors, often still seeing themselves as playing an adjudicational role in the public interest (and sworn to uphold the Nolan Committee's "Seven Principles of Public Life"), towards a more active and passionate role for governors, more overtly reflecting the shifting balance of stakeholder interests, their funding contributions and, hence, the summary institutional interest.

In the autonomous British model, boards of governors ultimately take responsibility for all the activities of their institution. That includes the education-and-research business for which the university exists. But do they have the skills to do this? Recent history suggests the answer is sometimes yes, but often no.

Governors, in the new era, need to be chosen, or reappointed, on the basis of their knowledge of the institution's core business of education and research; their relevance to a matrix of needed professional skills, such as finance, audit, estates, human resources and the law; the degree of fit of their own disciplinary backgrounds with the institution's provision, and of their social backgrounds with the institution's profile or desired profile; and their awareness of the different values underpinning the institution, not just financial, human-capital and environmental, but also the symbolic values that drive scholarly regard and often give an early warning of reputational risk.

In an autonomous system, then, governing bodies need to satisfy the changing configuration of institutional stakeholders that they have, in total, all the attributes and abilities to promote and protect the complex institutional interest.

To the question of "who guards the guards?" in this autonomous world, then, the most cogent answer is the very diversity of the board, which becomes a powerful check upon any tendency to form cliques or cartels, or the formation of overly cosy internal consensus with management. And there is one trust of governors that is particularly crucial at this time of diminution of the public's stake: the protection of academic neutrality.

This is the most distinctive quality of the university, which distinguishes it from naturally partisan government, from profit-seeking business and from the spin we expect from the media. That neutrality is supported by the commitment to academic freedom: the profession of the truth without fear or favour, and the guarantee of protection in doing so.

We need governors who understand and support the university's role as academic standard bearer, as worthy thought-leader of its community, and as a source of trustworthy research results, however much external pressure may be brought to bear when that truth is controversial or threatens other aspects of the institutional interest.

Who are these emerging governors for the new era? Those with the strongest stake in the brand, those with a lifelong investment in the university's reputation, and those soon paying back their debt for up to half the remaining term of their natural life: the alumni.

What's at stake: excerpts from 'University Governance' report

The role of the state

By 2015 students will be the undisputed majority funders of most English universities. Government increasingly takes on the role of loan facility to students rather than direct funder of institutions for their educational provision. Any future teaching grants to institutions will be made to priority areas, such as sciences; any future student grants will be made to UK students for means-tested maintenance support. Through this transition, the state's stake, both moral and financial, is weakened and the stake of students, or more correctly alumni, is strengthened. On current projections, a majority of erstwhile students will still be making repayments against their government loan well into their fifties, when a majority will still not have paid it all back.

University's values

Knowledge (of the institution's core purposes), however, is not enough (for governors). Values are equally important, as they reflect the various goals of the academic enterprise. A university has several bottom lines. Financial, human-capital and environmental bottom lines, for instance, reflect different, but hopefully interlocking, values. Each institution will have a different balance between these values, reflected in its overall positioning as an autonomous institution. The most difficult value for independent governors to understand is often the symbolic, which can be the most powerful driver of scholarly regard. The symbolic is of huge importance in balancing intrinsic (good as something) and instrumental (good for something) aspects of the enterprise, and so minimising reputational risks.

Remuneration for governors

Is this asking too much from unremunerated governors? In an age of autonomous, increasingly entrepreneurial, largely self-funded universities there must be a greater annual expectation of governors than the traditional four or five board meetings, some additional committee work, and the occasional away day. In keeping with the privatisation that has been thrust upon the sector, it may be better that governors, or at least those in leading positions such as committee chairs, be remunerated. Better that than boards fail to exercise their responsibilities in a fully competent and dedicated fashion, and the entire institution be at higher risk. Of course, one aspect of the independence of the governors is then compromised - they also are on the payroll - but...that emphasis on independence may no longer be as appropriate as it once was.

Academic neutrality

Beyond being guardians of assets, strategic directions and institutional ethos, what governors are ultimately guarding is the very heart of the system: academic neutrality. That is why academic freedom is sometimes included in university charters, giving governors a special oversighting responsibility. This freedom allows academic staff to challenge received wisdom and be protected in doing so, however unpopular or controversial their ideas might be. On the other hand, the board has a role in guarding against political and commercial interference, with their un-neutral stances, especially in matters of academic standards or the integrity of research results. The case in March 2011 of Libyan relationships with the London School of Economics, leading to the resignation of its director, highlights how rapidly a reputation for academic neutrality can be tarnished. It emphasises the important role of governors in swiftly overseeing a remedy to such circumstances. At such moments it is those with the strongest stake in the brand - the alumni - who are among the keenest guardians of that neutral space.

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Corporate crisis

The move towards greater emulation of corporate models from the business world, initiated over the last decade, seems to have stalled, in part because of the inadequacy of the model for the corporate world itself and in part because of its lack of responsiveness to changing stakeholder interests. The very independence of governor interests in this model does not regularly transplant well to higher education. The current flurry of employability demands directly from government masks the failure of employers and business directly to establish a sufficient financial or moral stake within universities. The question for universities now is how to build more passionate, committed, representative governing bodies, without damaging existing links with employers or their involvement in institutional employability programmes. Of course, many alumni will themselves be employers, but the legitimacy of their stake comes more by virtue of the former than the latter characteristic.