A College Leader’s Guide to Risk-Taking

One of us, Bob Easter, served in a senior university leadership position. His executive assistant had his email password to help manage his inbox. An annual audit flagged this practice as a serious institutional risk. When presented with the audit findings, Bob said, “I accept the risk,” and asked for the next item to be discussed. The auditor was nonplussed and made it clear they believed the practice should be changed. Bob had to repeat himself: “I accept the risk.”

What was going on here?

It is the role of auditors and others, including lawyers, risk managers, contract staff and so on, to identify institutional risks. It is the responsibility of a leader to decide either accept the risk or to take action to address it. Unwillingness to understand and accept reasonable risk can encumber an institution with stifling delays and frustrating inaction—to say nothing of lost opportunity and a failure to deliver on institutional mission.

In fact, there are times when not being willing to take a risk poses a significant risk itself—one that, because it is the path of inaction, is less apparent in its immediate consequences.

What are the circumstances that foster a risk-averse culture in higher education, and what consequences flow from such a culture for institutional mission? Our experiences suggest that an individual leader grapples with issues of risk almost immediately on assuming a senior leadership position, and a common default option is to adopt decisions that minimize risks. We argue that it is a leadership responsibility to accept risk when appropriate and offer the following perspectives. Our guidelines emphasize the following questions: What kinds of risk are at stake? Who bears the potential consequences of risk, or, conversely, the potential consequences of inaction? What sorts of external considerations might influence when a risk is tolerable and when it is not?

We start with a set of simple observations: every decision entails risk, every action has unforeseeable and unintended consequences, and there is a worst-case scenario for almost every imaginable situation. And because it is a worst case, however unlikely it might be, if you are a campus leader, you can have a strong incentive to avoid the risk, even when the worst case is not a very likely outcome—all the while overlooking the unsurfaced costs of the risk avoidance in lost opportunities or administrative friction, or what Cass Sunstein calls “sludge.”

As we have pointed out, the factors that accentuate the risks of action often do not consider the risks of inaction. Paralysis of this sort can be crippling for an institution, while true leadership necessarily entails a willingness to take some risks. That’s what it means to lead. Too often, the default option is to seek to mitigate and avoid all foreseeable—or even imaginable—risks.

We are aware of a case where a large institutional agreement with an external partner was delayed so long by overcautious deliberations that other funders lost patience and pulled out. Some of the concerns were real, while others were hypothetical. What if the partner goes bankrupt, gets bought out by someone with interests adverse to the university and later tries to do something bad? Let’s build another clause into the contract. That choice, too, has consequences. Negotiations are extended, the discussions become completely lawyer-driven, contracts become so long and dense that many of the parties have no idea what is being agreed upon, and the original needs and interests of the leaders or researchers can be completely lost in the process.

Dealing With Different Kinds of Risks

There are different kinds of institutional risks that you as a college or university leader will have to face: financial, legal, reputational and so on. Those risks in turn, have different degrees of severity. Legal risk can be paralyzing; the prospect of endless lawsuits and legal fees is daunting for anyone. At the same time, at some point, sometimes being sued is the price of being in business. As a former leader we respect once said, “This is a matter of principle, and we will keep doing it until a court tells us we cannot.” Similarly, if a legal office adopts an attitude that it will settle all “nuisance” lawsuits under a certain dollar figure to avoid the litigation costs, word will spread in the legal community, and claims beneath that number will proliferate for the institution—and costs will rise.

Financial risk is a matter of degree and circumstance; some situations allow for a bit of gambling, but others do not. There is a difference in your taking a financial risk to stimulate research in a new area that may or may not yield further outside funding and taking a financial risk to invest funds needed to pay off mandatory retirement costs in a novel investment vehicle.

Reputational risk may be the most anxiety producing; damage to personal or institutional reputation can happen very quickly and take a long time to overcome. Advisers whose job it is to manage media and public relations are highly sensitive to such considerations. Some risks are worse in the imagination than they are in reality.

It can also be hard for a leader to sort out a short-term hit that can actually lead to a longer-term increase in respect and trust: for example, being openly transparent and sharing information about public institutional action against a faculty or staff member who has been sanctioned or fired for research or sexual misconduct may be a short-term embarrassment and reputation enhancing in the longer term—but only if the institution is forthright about the problem, its discovery processes, its standards and the steps being taken to prevent future such situations.

At the same time, institutional leaders shouldn’t implement a burdensome regime of rules and policies to govern those who haven’t transgressed in the first place. We all know about places where all faculty and staff were required to attend training meetings because of one bad actor, an approach that only increases cynicism and disengagement. One of us once worked in a unit where one staff member didn’t dress appropriately for her role. Rather than deal directly with that one staff member, the unit executive officer promulgated a dress code for all staff members—all of whom except the one were already dressing appropriately. The damage here to morale and reputation was significant and likely unappreciated by the unit executive officer.

Risk tolerance has several dimensions: one is a matter of your personality and style as a leader. Some leaders have a higher tolerance for risk, others are by nature more cautious. There is no single right way to cope with taking risks, but knowing yourself and your predispositions can alert you to the dangers of falling habitually into one extreme or the other. Other perspectives can help you to counterbalance your own inclinations. When facing a significant and potentially risky decision, it can be wise for you as a leader to seek the perspective of experienced individuals who are themselves outside the ongoing conversation; dedicated risk managers or colleagues who have served in parallel roles can often provide this sense of perspective and experience with similar cases.

An important question is the extent to which your personality elements are firmly ingrained and the extent to which they are themselves subject to learning and change. How can leaders become appropriately risk tolerant in support of institutional mission and goals, while also remaining circumspect, data informed and sensitive to opportunity? Consider: Is a degree of conservatism inherent in higher education leadership roles—or is it simply baked into our institutional structures?

Furthermore, as a leader you need to balance not only the amount of risk but the type of risk your institution can tolerate. For us, that means going back to your college’s fundamental mission and why the institution is in existence in the first place. For instance, is the risk different when considered from the perspective of constituents external to the institution rather than from the possible impact on its own reputation? In this context, you should also carefully consider why you took on the duties and responsibilities of the leadership position: When are you overly concerned about personal risks or conflating them with institutional ones?

Committees tend to overimagine potential risk, and this dynamic can often spin out of control. A shared, implicit mind-set of imagining worst-case scenarios can reinforce and accelerate that dynamic. For example, there’s a robust literature on how some institutional review boards have held back research involving human subjects by imagining exaggerated and hypothetical risks. As an institutional leader, you need to be aware of and leery about such dynamics as you consult and seek input.

Many other institutional constraints and influences can discourage risk-taking. Legal counselors and auditors perform essential services to universities, and risk management or mitigation is one of their foremost concerns. Managing risk is an interesting concept: Is it a matter of minimizing risk? Is it a matter of accepting the inevitability of (some) risk and seeking tolerable balances and trade-offs? Is it an attempt to quantify risk within a broadly utilitarian cost-benefit analysis?

Whatever the case, it is an abrogation of leadership to offload risk decisions to others, especially when you recognize the pressures that cause some advisers to be overcautious. There is a reason lawyers are called counselors; they should be providing you advice but not become decision-makers. Again, that’s your job.

A related element is the power hierarchy above you as the institutional leader: If you take a calculated risk, does the authority above you have your back if things go wrong? Will they throw you under the bus to protect themselves? Did you consult with those you report to—for instance, the president, if you are the provost, or the Board of Trustees if you are the president—before taking a significant risk, and what assurances did they give you?

Speaking more generally, a risk-averse institutional culture fosters a kind of inertia, even paralysis, that we find especially ill suited to the present moment in higher education, in which continuation of status quo thinking will mean extinction for many institutions. We do not need to rehash in depth here the multiple threats to higher education today: unstable funding; student debt; the demographic cliff; aggressive political attacks against university self-governance and bedrock principles like academic freedom and tenure; competition from the commercial sector, especially in providing online programs, certificates and other in-demand vocational training; and questions about the value of a higher education at all.

Given such trends, the risks of stasis and inaction today are particularly intense. The questions are many. Do senior leaders have a responsibility to tolerate risky decisions among subordinate leaders? Is shared risk a way of easing the strain of tough decisions; or does it make it harder? Can personal risk (reputation, acceptance, constituent support) be separated from long-term institutional risk?

We have called here for an approach that goes beyond the need to manage risk. We encourage campus leaders to embrace risk, or at least embrace the inevitability that risk comes with every big and important decision. Avoiding risks can mean avoiding big and important decisions, and we worry that a failure to accept risk-related issues could well foster greater mediocrity in U.S. higher education. Prudence and caution have their place, of course, but as with every virtue, you can have too little or too much of a good thing.