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The agency problem
The agency problem On Campus
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hen an organization takes its role in protecting health and safety seriously, it will state its policy on the matter, it will allow that policy to pervade its programs and organizations, it will balance authority and responsibility, and it will create a system of honest accountability. But, in the end, it will actually pay for policy implementation. Only when the organization fully funds the obligation will it meet its vision. Many organizations speak highly of their health and safety goals, and then fall flat on providing the actual resources necessary to meet those goals. Call it an ‘‘agency problem.’’ Business schools teach that the role of the corporation is the increase profits for the owners. We can debate (and often do) whether owners want long-term growth or a 10% spike in stock price at the end of the quarter. Regardless, the role of the corporation remains. And managers – as opposed to owners – in that corporation have a purpose in that mission. Their job is to spend the owners’ money wisely to achieve the goal. When this purpose conflicts with their own self-interest, the managers have an ‘‘agency problem.’’ Whether public or private, there are no owners in not-for-profit higher education.1 The institution operates in trust, with a board or regents or trustees setting the strategic vision, and managers – from the President and Provost, the faculty and administration, to the parttime on-call minimum wage workers – see to it that the institution achieves. Like the corporation, the not-for-profit institution does not operate with its own capital. Its funds, whether in cash from tuition that the controller will pay out as compensation or in endowment reserves, have come from families of students, patrons, and in some cases, growth on intellectual property. Managers, at every level, have an obligation to reduce the cost of their work to the institution, so the institution has the maximum flexibility to achieve its goal. This isn’t any fun for the managers. At every turn, they must watch for opportunities to do the work more efficiently, in a less
costly way, or to cut out work that need not occur in the first place. Covey calls this ‘‘sharpening the saw’’ when he applies it to personal effectiveness, but it works for effective organizations, too. Armed with proverbial sharp saws, managers can root out the truly extra expenses and remove them from the organization. And here’s the rub: what is ‘‘extra expense?’’ If the environmental services unit must adjust their waste management profiles to accommodate a new waste stream, is it ‘‘extra expense?’’ If, in some places, the work creates unsafe situations and leads to occupational injury or exposure, is prevention of that risk an ‘‘extra expense?’’ Some senior managers may view chemical health & safety programs as cost centers. They have a point, but only if the people in charge of those programs have not sharpened their own saws and cut out their own excess costs. Dismissing all or part of a safety program as ‘‘extra expense’’ takes the short view and fundamentally fails the enterprise. Health and safety managers don’t get away clean on this issue. If they don’t wield sharp saws, at least as sharp as others in the organization, they’re not asking for the organization to pay the real cost of a functional health & safety program. They’re asking the organization to cough up an inflated charge for a bloated program. It’s unreasonable to ask for, and we should thank our supervisors for pointing it out. It takes brutally honest and objective assessment to get to the real cost, and this is no fun. But it’s what the owners demand, and it’s what we agents must provide. Once we’ve taken that step, however, the institution must provide those necessary resources. Anything less compromises the vision and destroys credibility, to say nothing of the people who get hurt and the environmental impact. Those are probably not the outcomes the owners have in mind, and leadership that doesn’t fully fund its real health and safety obligations has its own agency problem. They should thank us for pointing it out.
1
There are owners in the private, for-profit education sector, and less than 10% of full-time equivalent enrollment participates in higher education at for-profit institutions. This column addresses the majority experience.
1871-5532/$32.00 doi:10.1016/j.jchas.2007.09.004
ß Division of Chemical Health and Safety of the American Chemical Society Elsevier Inc. All rights reserved.
25
W
hen an organization takes its role in protecting health and safety seriously, it will state its policy on the matter, it will allow that policy to pervade its programs and organizations, it will balance authority and responsibility, and it will create a system of honest accountability. But, in the end, it will actually pay for policy implementation. Only when the organization fully funds the obligation will it meet its vision. Many organizations speak highly of their health and safety goals, and then fall flat on providing the actual resources necessary to meet those goals. Call it an ‘‘agency problem.’’ Business schools teach that the role of the corporation is the increase profits for the owners. We can debate (and often do) whether owners want long-term growth or a 10% spike in stock price at the end of the quarter. Regardless, the role of the corporation remains. And managers – as opposed to owners – in that corporation have a purpose in that mission. Their job is to spend the owners’ money wisely to achieve the goal. When this purpose conflicts with their own self-interest, the managers have an ‘‘agency problem.’’ Whether public or private, there are no owners in not-for-profit higher education.1 The institution operates in trust, with a board or regents or trustees setting the strategic vision, and managers – from the President and Provost, the faculty and administration, to the parttime on-call minimum wage workers – see to it that the institution achieves. Like the corporation, the not-for-profit institution does not operate with its own capital. Its funds, whether in cash from tuition that the controller will pay out as compensation or in endowment reserves, have come from families of students, patrons, and in some cases, growth on intellectual property. Managers, at every level, have an obligation to reduce the cost of their work to the institution, so the institution has the maximum flexibility to achieve its goal. This isn’t any fun for the managers. At every turn, they must watch for opportunities to do the work more efficiently, in a less
costly way, or to cut out work that need not occur in the first place. Covey calls this ‘‘sharpening the saw’’ when he applies it to personal effectiveness, but it works for effective organizations, too. Armed with proverbial sharp saws, managers can root out the truly extra expenses and remove them from the organization. And here’s the rub: what is ‘‘extra expense?’’ If the environmental services unit must adjust their waste management profiles to accommodate a new waste stream, is it ‘‘extra expense?’’ If, in some places, the work creates unsafe situations and leads to occupational injury or exposure, is prevention of that risk an ‘‘extra expense?’’ Some senior managers may view chemical health & safety programs as cost centers. They have a point, but only if the people in charge of those programs have not sharpened their own saws and cut out their own excess costs. Dismissing all or part of a safety program as ‘‘extra expense’’ takes the short view and fundamentally fails the enterprise. Health and safety managers don’t get away clean on this issue. If they don’t wield sharp saws, at least as sharp as others in the organization, they’re not asking for the organization to pay the real cost of a functional health & safety program. They’re asking the organization to cough up an inflated charge for a bloated program. It’s unreasonable to ask for, and we should thank our supervisors for pointing it out. It takes brutally honest and objective assessment to get to the real cost, and this is no fun. But it’s what the owners demand, and it’s what we agents must provide. Once we’ve taken that step, however, the institution must provide those necessary resources. Anything less compromises the vision and destroys credibility, to say nothing of the people who get hurt and the environmental impact. Those are probably not the outcomes the owners have in mind, and leadership that doesn’t fully fund its real health and safety obligations has its own agency problem. They should thank us for pointing it out.
1
There are owners in the private, for-profit education sector, and less than 10% of full-time equivalent enrollment participates in higher education at for-profit institutions. This column addresses the majority experience.
1871-5532/$32.00 doi:10.1016/j.jchas.2007.09.004
ß Division of Chemical Health and Safety of the American Chemical Society Elsevier Inc. All rights reserved.
25