MINUTES

Minutes of a RETREAT Meeting

June 23, 2006

A retreat of the Arizona Board of Regents was held June 23, 2006, in the Northern Arizona University Ashurst Auditorium. Regent Bulla called the meeting to order at 8:45 a.m. on Friday, June 23, 2006

Also present were: President John Haeger, Dr. M. J. McMahon, and Ms. Christie Farley, Northern Arizona University; President Peter Likins, in-coming President Robert Shelton, Ms. Edith Auslander, and Ms. Carla Nunn, University of Arizona; President Michael Crow, and Dr. Christine Wilkinson, Arizona State University; Executive Director Joel Sideman, Secretary to the Board Peggy Martin, Mr. Michael Hunter, Ms. Cathy McGonigle, Ms. Stephanie Jacobson, Ms. Anne Barton, Central Office; and Ms. Marsha Yowell, Arizona Faculties Council.

Regent Bulla welcomed everyone to the annual retreat. Regent Bulla stated that the facilitator was Dr. B. J. Tatro, who will be helping during the brainstorming session later today.

Regent Bulla then stated that today is an opportunity for the Board to discuss larger issues in a relaxed atmosphere, without the time pressures of the normal business meeting. The theme for this retreat is "Moving Toward the Enterprise Model." This is a topic that has evolved from the Changing Directions and Redesign initiatives resulting in an unprecedented level of change. Concurrently, the Board and universities' accountability and decision-making processes must support this expanding, complex and dynamic enterprise model.

Regent Bulla stated that in preparation for this retreat it is important when discussing the movement from an agency to an enterprise model that the Board has a clear understanding of the enterprise term. In an Arizona Board of Regents Changing Directions Concept Paper on State Policy Issues and Options prepared for a Study Session in October 2002, a section on State Enterprise Models in part reads as follows:

The investment and leveraging of state resources by the universities for the purpose of generating additional revenues for higher education is different from the model of state subsidy through which a typical state agency operates. It may be characterized as a form of enterprise - not private but state enterprise.

To support such a change, the Board may seek to enable and encourage the universities to increase activities in a number of areas, including: student tuition, investment in research, program delivery to lucrative markets, capitalization of intellectual property, and development of an entrepreneurial faculty culture.

A second description using the enterprise term is from an October 2005, ASU presentation, "2015 The Future of Learning."

"Moving from Agency to Enterprise - from agency to enterprise - framework of investment, rhetoric of investment, focus on increased revenues and increased expectations, and university as an enterprise responsible for its own fate, an enterprise which the state government charters and empowers, and in which it invests."

Regent Bulla stated that the key issue today is what changes should the Board be making in accountability and oversight mechanisms as this system moves toward an enterprise model? The Board will identify these changes in a facilitated brainstorming session later this morning. It is also important to note that the enterprise model or concept is not a single cookie-cutter approach for the three universities. Each university's implementation of an enterprise concept must reflect its mission and how the concept best supports that university in the future.

Regent Bulla stated that recently he had the opportunity to address the Greater Phoenix Leadership business group. He shared some of the comments that he had made to them.

He stated that ASU and the UA were founded in the 1880's, NAU in the 1890's. For decades, ABOR and the universities have been legally a system and tended to act like an agency of the state. Some 20 years ago, it began to change.

Looking at the total budgets of the universities, the percentage of funds received from the legislature will be between 22 and 30%. He stated that when you are seeking somewhere in the neighborhood of 70-78% of your revenue from non-state funds you no longer can act as an agency, you need to move toward an enterprise model.

The Board has asked the universities to differentiate their missions, their product offerings and their pricing. When this happens, you need to do business differently, make decisions differently, quicker, and better. More information and data are needed faster, and you need IT systems that can get you the data.

At this retreat, and with a follow-up meeting in August, the Board can identify what it needs to do as the universities move toward an enterprise model. The Board needs to address, at a minimum, the following areas: human capital, resource acquisition and financial management, capital infrastructure and asset maintenance, information technology infrastructure and distance learning infrastructure, customers and knowledge production.

Regent Bulla then stated that President Crow and President Haeger will describe, for their respective universities, what it means to operate within the framework of an enterprise model and their vision for how they will move their universities toward this model. They also will describe the ways in which their universities currently are operating as an enterprise and the decision-making processes and systems needed to effectively operate in this fashion. Neither President Likins nor President Shelton will be expected to make a full presentation at this meeting, but will actively participate in the discussions, offering their perspectives and insight. Dr. Shelton will be asked to make a full presentation at a later meeting.

President Crow stated that he was going to take a slightly philosophical approach to the question of university as an enterprise vs. an agency. He said he would like to walk through some conceptual points that are critical to the understanding of how to move down the enterprise path. Some of the things that he will be saying are arguable or debatable, but they are being suggested as food for thought in today's discussion.

The universities create knowledge. What is a university in the broader social construct? Is it a production unit, is it a factory, is it a service organization? He stated that he would argue that it is none of those things and in some ways all of those things at the same time. But, it has a particular and unique role in society. That particular and unique role is that it is an organization that has taken on the task of adapting our society as it moves forward through learning and discovery. It is very different; fundamentally different than the function of any other class or organization. The university is an organization charged with adaptation. The university adapts through discovery, through learning, through advancing the way that things are done, the way that people do things, the way that people see things, the way that people build things. Universities are unique in their role performing that function. So that is the university's role in the broader context of society. What do the universities produce, what do they do? This is also important as you think about enterprise vs. agency. The university's job is to create knowledge. Very few organizations have the job to create knowledge. How is it created? It is created through the establishment of a critical thinking, creative environment for discovery and learning.

The universities store knowledge. The universities have a role in society where they store knowledge. They have massive libraries that cost $10-20 million a year to store knowledge. The university hires thousands and thousands of faculty members who, each in their own individual right, is a storehouse of knowledge, an expert in a narrow niche. The universities store knowledge as a society in people and the universities are where we concentrate this knowledge in broad areas of fields. The universities synthesize knowledge. That is, they use their ability to create, synthesize, apply knowledge through teaching and use. And most importantly, given that as our base, we transfer knowledge in two forms: people and stuff. The stuff can be ideas, new materials, concepts, but principally it is students. So the universities create knowledge, store knowledge, synthesize knowledge and transfer knowledge. A unique role.

This notion of what do we measure - who we are, what we are, where we're going. If you take the basic premise that the university's function is adaptation in society and its means to adaptation are creating knowledge, storing knowledge, synthesizing knowledge and transferring knowledge - the measure of whether or not you are successful in building a university is have you built a great university or have you not built a great university. Greatness of a university historically and appropriately is determined by the university's ability to create. That is what determines whether or not the institution is great. Where have the great new industries been dreamed up, where have the great new theories of democracy or theories of education or tools for learning, psychological understandings or genetic mappings or genetic understandings, where do those things come from? They come from the great universities. So greatness is measured as a function of the ability to create. In thinking about creation, what do we have to create as a university? What does the Board have to focus on? My assumption is that the Board of Regents of the State of Arizona wants three great universities. So the focus then is we have to create an environment for learning that produces every year the newest and most capable individuals in any field. So one measure of our ability to create is are we doing that. Are we creating those kinds of people? People who go out and do the kinds of things they need to do. Do we create new tools, new ideas, new understandings, new insight?

People worry about water all the time in Arizona. There are great creators relative to water all through the three universities. Do the universities have the leading center on the planet thinking about water and its use and its adaptive relationship with us? A university and its ability to create have to create a place for free and open discourse in discovery in all subjects. One of the measures is has the university done that. Has the university created this environment for learning, created this environment for discovery, created this place?

To build universities that are excellent, neither the market nor the government offers us the construct or the structure to be able to do this. It means that the university is a unique entity, going back to its purpose, a unique enterprise. It is not a corporation, it is not an agency. If you look at pure agency government universities around the world they are very, very bad. They cannot perform the functions that we are talking about. They can barely perform the delivery of the service of education much less the notion of what a great university should be. The market has not produced a great university. The forces of the market are different than the forces of discovery. What that means then, for this Board, is that while there are certainly tools from the government and tools from the market that help us shape and guide what a university might do, how it might be governed, how it might be managed, the university as an enterprise requires unique governance and unique managers, people who have the capacity to advance this kind of very unusual organization.

For universities or at least for great universities to emerge requires a unique space - not the market, not a corporation, not the government, not an agency. President Crow then outlined what he considered the absolutely essential elements to the success of the university as this unique enterprise, from a governance and from a management perspective. First, the institution, at all levels, must be intellectually driven. If the institution is an institution charged with creating knowledge, storing knowledge, synthesizing knowledge and transferring knowledge, its governance, its measures of success, its managers must be driven by the intellectual objectives. That is different than a market objective. In a market objective you look to the profit and loss statement, to the quarterly sales statements. Bureaucracies deliver services and, while universities certainly deliver services, their principle mission is beyond the service that they are delivering and, in fact, it has been the somewhat obsessive focus on only the service that is being delivered that has actually led to the separation between greatness and just being good as a university.

Second, and again these are within this unique university management space, there must be the following elements. The university must be focused on the acts of learning and discovery. The measurements are related to the acts of learning and the acts of discovery, related to what is being produced within those processes. Now unfortunately both learning and discovery are not easily modeled and not easily measured. So it is an inherent feature of the nature of the institution that is being managed and that the Board is governing that there are elements to its character which are nontrivial but difficult to measure. What did you do for me last month? What did you discover? You can talk about that but if someone says well, what does that mean, that is a little harder to measure.

Another element is that the university needs to be protected, it needs to be a protected space for free and open discourse, both internally and externally. How do you do that? How do you make that happen? Around the world people have been trying to build great universities for more than 1,000 years. This is an unusual community of organizations. There have been 1,000 years of practice and prior to that there were more than 1,000 years of the emergence of proto-universities, other kinds of institutions.

What is interesting is that if you look around the world, it appears that the greatest universities that exist on the planet have emerged in America, have emerged in the last 100 years and that there is a set of characteristics related to each of them and I think it is consistent to all the great universities that have emerged. One of those characteristics is that not one of the universities is a corporation and not one of them is an agency. All of them have emerged as enterprises. Some are owned by collectives of people, the State of California, the State of Michigan, the State of Virginia. Some of them are owned by themselves and have been self-perpetuated by a group of leaders over hundreds of years emerging private universities to greatness.

President Crow said that he woke up this morning to put some of his thoughts together, and stated that he did find several common characteristics between the institutions that have achieved greatness and those institutions striving for greatness, including universities in Arizona. These things will, to those who have spent their lives in business, sound somewhat funny, but the common characteristics of the institutions that are the most successful are: first, self determination of the intellectual agenda. This doesn't mean running amok or running off and doing strange things, but going to where curiosity takes you, going to where discovery is the driver, going to where you can design the teaching environment in a way that is adaptable and consistent with change and able to keep up with the rates of change in lots of subjects and not the Sanhedrin script that says this is how you teach, and this is how you will always teach, this is what we will always teach. That is what is meant by self determination of the intellectual agenda. Second, long term investment in the enterprise by multiple sources, largely with no long-term dominant source. That means that the institutions have to operate in a very different kind of modality relative to resource acquisition. Third, when I say ministerial here I do not mean the Board of Regents, but low levels of ministerial oversight. That means allowing the enterprises to find their way and measure them by their products as opposed to their processes. Some of which, by their very nature, are contrary to the entire concept of efficiency. President Crow stated that he doesn't know that efficiency is the means by which one determines the source of the origin of the universe and then ultimately teaches that. He doesn't know what efficiencies there are in that process because we don't know the way, we don't know the path, we don't know exactly how we are going to get there. So, this notion of oversight, ministerial oversight, if you look at all the great universities, the higher the level of ministerial oversight, the lower the level of greatness. It is a direct reverse correlation.

In all of these great institutions there is a constant focus on excellence, accepting nothing but excellence. No second rate teachers, no second rate faculty, no second rate administrators. Always focusing on excellence. There is a constant focus on competitiveness. One of the things that happened in the European university systems was that the ministries of education prevented many of these universities, almost all of them, from becoming enterprises because they controlled them by non-competitive processes. They said you have 800 faculty, let's see, we will give you $20,000 per year for the research for those 800 faculty and you can allocate it. But in the United States, the world works differently, you compete for the dollars against other institutions, you compete for resources, you strive to see who has the best idea and that competitiveness then becomes a central element of the success of the university. All of these institutions, if you were to ask them for their mission, they have a unified and clear mission. The mission is teaching and discovery excellence. It is very simple. The great universities do not debate their missions. They know what their missions are.

Now, in the very young state of Arizona, what happened was there were very few private institutions in Arizona, because there was nothing here in terms of educational enterprises and so the state stepped up and, in the constitution, wisely provided for the establishment of the universities and the universities were established to provide educational services. There are no great universities whose mission it is to provide only educational services. There are great universities that provide unbelievable educational services by doing what great universities do, creating the environment for discovery and learning. It is a critically important difference. If all anyone wants is educational services, they don't involve discovery, they don't involve adaptation, they just involve finding people that can teach out of textbooks that other people have written. You can buy those services on the cheap and deliver them in a business model in a way that is seemingly effective and efficient. But, it would not provide for Arizona the kind of institution that is needed to take on this adaptive, constructive role that a great university has as its purpose.

Now speaking only for ASU, this educational service design has been the core of the culture of the institution because that's what the mission of the institution has been. Along that line goes the following logic which has entrapped ASU until recently, and by recently it means the last 25 years or so, into a model where the institution was established to provide services to the people, funded by the government, which makes it an agency, and remember, there are no great universities that are agencies, there are no great universities that are funded in that model, there are no great universities that operate that way. So from ASU's perspective, to address this serious, limiting, historic design within the institution, the university has embarked in the last 4 years, entering our fifth year, to transform the institution from a service agency, and a very good one, a very successful, very well run educational service enterprise, to a university enterprise striving for greatness, drawing from the models of the best and also wanting to make certain that as things get designed, as we move from agency to enterprise that we do so in a way that fits Arizona.

So at ASU, the transition from agency to enterprise is focused on the following things: First, we work to establish a unique identity through our mission. Perhaps if we are successful, we can be the first of the great universities to be academically excellent, extremely inclusive and very impactful on the place that we are located. So when it comes to new program designs, new trajectories, and new ways to do things it is to establish that unique identity. Second, to set very high intellectual aspirations. The university will compete among the best on any front that it is engaged in or the university won't be engaged on that front. That doesn’t mean that the university will always win. Competition isn't about winning all the time; it is about being able to compete. You can't win all the time. The third thing that the university has done is establish creative competitiveness within the organization. No more across the board raises, no more let's just treat everybody the same. No one is the same. The university has worked to empower the faculty to compete nationally. The university spends 98% of its time looking at itself, not looking at where is the competition going, how are they evolving, what are they able to do, what are they able to create, how do they evolve their learning environments. The university has been working to build speed and adaptability into the organization. The agency mentality within ASU is so resource-constrained that the institution operated in a way where slowness was a way to make certain that things didn't happen. The university has worked hard to eliminate the culture of entitlement. The employees who worked for the institution believed that they were entitled to their jobs, entitled to their roles for life. It is very difficult to have those employees compete at the level necessary to become a great university.

The university has been focusing on the hiring of intellectual entrepreneurs. I mean intellectual entrepreneurs in the general sense. It doesn't mean the venture capital sense. It means in the sense of people who are creative risk takers. The university has been hiring these people as deans, it has been hiring these people as faculty, it has been hiring these people as administrators. It is about to launch and has just secured $10M in private support for a "University As Entrepreneur” initiative, where the university works to build an entrepreneurial thread through all of the schools, in nursing, in design. Not just in business and engineering where this sort of entrepreneurial spirit tends to concentrate, but throughout the entire institution, education, everywhere. The university has been changing its relationships with legislators and "donors" which the university now refers to as investors. It has been doing that as a way of changing the design of the relationship that it has with people. It has been doing all these things in a way that helps to move to this path of enterprise.

President Crow stated that from his perspective, the role of the Arizona Board of Regents is to facilitate the continued development from significant progress and positive trajectories to the building of three great universities in Arizona. Not three great educational service providers. To do that, the universities themselves and the Board have to come to an understanding of what that means, what is that path, and then what are the measures and the indicators of progress, and success and achievement and return on investment toward those objectives.

President Crow said that it is critically important in regard to these processes that we take a look at not only the universities but at the Board itself. He respectfully suggested that we find some way to think about the way in which the Board helps to facilitate this emergence of these great universities and what they can ultimately do.

President Haeger then said that he was going to talk about Northern Arizona University but also about a larger agenda not just for Northern Arizona University but for American higher education as a whole. He stated that he was reminded of Regent Bulla's earlier comment where he is worried about universities which get into an enterprise model because they will often do all sorts of things. It never dawned on him how much higher education worldwide was changing until some years ago when he went down and visited the autonomous University of Guadalajara. He was walking around and being shown different things and was talking to the president who said "I want to take you to some of our other enterprises." So, they visited their jewelry stores and they visited their retail operations and in a sense that takes enterprise exactly where Regent Bulla was talking about. President Haeger said he wants to guarantee the Board that he doesn't have any designs on opening a jewelry store.

But he has had an interest in the university as an enterprise for quite some time and the university is affected by our history. When he was in Maryland as provost and he watched state funding for the institution drop like a stone every year - where it went from 38-40% of the budget being state funded down to 20%, in a 5 year period. He literally sat in the university's cabinet at one point and actually voted as to whether or not the university should go private. And that is when it dawned on him that something was changing of great significance in American higher education.

The notion of enterprise in a university has very different meanings depending on the type and the kind of university that you are and where you are located and the resources of a given institution. President Haeger agreed that every university is striving to be great, but how that is defined will be very different for each institution.

Northern Arizona University is very different from the University of Arizona and Arizona State University. To describe what it is in very simple terms, it can be the best undergraduate institution in this state, actually, anywhere in the west. The Flagstaff campus has an extraordinarily strong research mission given the number of faculty on this campus and the 1600 graduate students, and the research gets national attention. But, the reality is, given NAU’s resources and where we are located, as an institution, NAU will never be one of the top 100 research universities in this country. There is no way to put together the kind of resource base to pull that off and not one of the top 100 research universities today would raise their hand and say “I would like to go out of the top 100 and I would like NAU to replace us.” It is a highly competitive environment.

Over the past 25 years, in addition to the teaching and research piece, NAU has developed an unusual capacity to serve the entire state in terms of adult learners in communities from Yuma to Prescott, to Tucson, Phoenix, and Thatcher. NAU's web delivery at this point is second to none and has been so recognized nationally. When you begin to define greatness as well as try to define how to run this enterprise model you have to do it in a way that fits this particular institution. We are moving towards very different kinds of institutions. For a very long time, higher education in this country defined itself by itself and we became almost arrogant. As institutions we didn't pay much attention to what the public thought the university ought to be doing. One of the alarming things when he was in Maryland, when asked why doesn't the state increase the budget – it was because they didn't think the university was doing what they wanted. And in a sense, the university suddenly had to come to terms with the fact that the university would like to go its own direction, but there was a public policy out there that someone else thought the university should be pursuing. As you look at the revenue sources for FY05 it tells you that NAU is an institution very dependent on state resources and tuition and fees and that is a reality that the university has to live with. The university really is a small business. It is possible that NAU could increase its auxiliary enterprises, but not by much.

NAU has gotten into the development game a little late. The chances of NAU getting 20% of their budget from private gifts and contracts would be a very difficult proposition over the next ten, fifteen, twenty-five years. The University of Arizona has demonstrated that it can be done, but it takes a very long time and very concentrated efforts.

President Haeger said that when he became president it dawned on him that the university was an enterprise and at that time the enterprise had significant budget difficulties because no one had been watching carefully enough what was happening in the external environment, enrollment, state funding, etc. What NAU has been able to do, over time, is to treat itself as an enterprise in which they had to develop their own investment assets. And what you see is that over time our efforts begin to build net assets that will allow NAU to take those assets, some kept as reserves and some to move back into those things in the institution that will make it truly excellent.

NAU knew four or five years ago that it had to begin to reinvest in itself. President Haeger than discussed some of the things that NAU had to invest in. One is NAU's niche in this state. If NAU is going to be truly excellent and lead all other universities it has to be the best undergraduate residential institution. You can't do that when advising ratios are 1 to 500. So, NAU invested heavily in the freshman year experience. NAU created what is called the Gateway Student Success Center. NAU began to hire many undergraduate advisors in order to make the student experience the best that they possibly could.

NAU also began to invest in its people. There was a time when NAU's faculty and staff salaries were very low and they were not only losing the best faculty and staff, but were not able to recruit. So NAU took a long term strategy to move salaries up so they are at least at the 50th percentile. Right now NAU is only at the 14th percentile of our peers nationally after four years of investment. NAU will continue to invest in faculty and staff salaries in each and every year. This year has been great because the legislature and the governor have committed to salary increases.

NAU is slowing making its way to reinvesting in the physical facilities on this campus and a lot of the reserve assets are going into renovating one building after another so that this campus has a physical environment for our students and our faculty and staff and becomes one of the best in Arizona.

NAU has changed its organizational structure. It used to have eleven colleges and schools, it had departments; it had research centers that reported to people, and other times research centers that didn't report to anybody. NAU went through a very difficult organizational restructuring of the institution to put them in a place so that they could move to being one of the best universities. Each one of the 40 research centers now reports to the deans of the six colleges, and research is tied to teaching in ways that it never was before. It is part of a single direction and goal for the university as a whole.

Then NAU tried to get into the modern world. One of the things that President Haeger heard when he first became president was that NAU was the state's best kept secret. His response to that was "and the advantage of that is what?" NAU was having enrollment problems. It needed to do what in marketing terms is called “rebranding the institution.” NAU needed to send a different message, one that captured a lot of attention.

President Haeger stated that now NAU is at what he would refer to as stage two of the pathway towards an enterprise institution. It is where NAU talks more about innovation, ideas, research and also about stewardship. Stewardship is really about who is this university responsible for, who do we serve? One example is in curriculum evolution, the growth and elaboration of programs at NAU. NAU needs to move to continue to frame new programs representing the changes in disciplines and the changes in the marketplace. Already NAU is a place where undergraduates come because they want a job. NAU gets the opportunity, while they are with us, to move students through a very strong, undergraduate liberal arts piece. These students are often first generation and they want to know that there is something at the end of those four years. As the institution has grown over time, many professional programs for undergraduates tend to be directed toward the marketplace. That will be one of the center pieces of NAU’s growth. It is one of the reasons why NAU is very excited about, potentially moving in the direction of the allied health fields. It meets the state’s demands, but it also meets the student needs.

As President Crow said, the universities are all about a combination of research, discovery, innovation and teaching. President Haeger said that he wanted to give the Board a better sense of how NAU's innovation and research piece differs from its colleagues at UA and ASU. When NAU talks about discovery it tends to center on the research here, which is about $19M of our $60M figure in terms of research output that brings in money to the universities. This is where you will find NIH grants, NSF grants, this is the research of biologists, chemists, etc. UA and ASU have a much larger portion of their funds dedicated to research and that shows the difference in the missions in terms of discovery and application. NAU is very much about discovery in some areas but is much more about instruction and application, and, in NAU's research money, you will find many grants that come from the Department of Education and from the State and take the university into the outside community.

Public service includes organizations like The Institute for Native Americans. NAU has a whole series of outreach initiatives, such as the Business Research Center. These kinds of initiatives do not generate positive revenue streams for the university. Many things in public service and instruction are costly. To give you an example, a Department of Education grant carries an overhead of 8%. The university is paying for that, it is a cost to the university. Should universities pay for that? Absolutely. It is very important as one of the leading teacher preparation institutions to receive the Department of Education grants. As the Board looks at the enterprise model, these matters are not going to help the university if the Board is looking only at the bottom line. It helps NAU fulfill its mission as a high-quality teacher preparation institution. That is true with public service as well. Despite the university receiving $50-60M in government grants and contracts, the actual indirect money that comes into the university, theoretically supporting all of these endeavors, is about $3.7M. It doesn't even begin to pay for the research agenda. But that is not the point, the point is it brings high quality faculty, our students are actively engaged in the research enterprise and it makes NAU a quality university. That is NAU's reality, very different from an institution such as the University of Arizona.

President Haeger turned to a discussion of what he believes it the next evolutionary step for NAU, what he would like to call regional stewardship, or place matters. These are not ideas original to John Haeger, there have been people working on these ideas for the last ten to twelve years. There is an excellent publication called Making Place Matter, and it talks about what can change in the future. When you look at Flagstaff, if you read about how universities are growing today, it is about idea communities. It is places where people of high intellectual capacity gather and the interchange between these people begins to create a different environment.

The silos are remarkably stiff. NAU hasn't yet in this community begun to move out of its silo. I refer to relationships, which sometimes are like wary predators in the wild, dancing around one another and deciding about whether we really ought to think about sharing resources and getting into partnerships. That doesn't mean that can't be done, but the university has a long way to go.

President Haeger stated that one of the reasons he drove the hotel/conference center project so hard for the last two years is that in his mind it is the single biggest breakthrough in this community. It is a partnership where the city government uses its money and the citizens of the community agree that a healthy NAU is critical to their future. The university tries to do other partnerships like that, because NAU can't do it all on its own. Another example of partnerships is TGen North - which is actually put together with federal dollars, city dollars and using the university's place. The university does not have any money invested in TGen North. TGen North is TGen, using NAU resources with some money from the federal government, which is the kind of partnership that has to happen in the future. One other example, The Rural Policy Institute, which you have not seen before, has recently been formed. NAU received an economic development administration grant that establishes a university center. There are only a few of these across the country. It will become a place where this kind of rural policy economic development discussion will begin. How is the Rural Policy Institute funded? There are one-third shares: a third from the university, a third from the county and a third from the city. That is the kind of potential that NAU has in the future.

The last piece to talk about, in terms of the enterprise mission of this university, is if you want to find a piece of what we do that is really an enterprise, look at distance learning. The whole philosophy behind it is different; the people who work for it are into the enterprise model. It is fast acting, responsive to the market place, and it is inside a traditional institution. This Board has supported it over the last 20-25 years. It is the statewide mission of Northern Arizona University. Each of the sites offers programming across the state. The notion that rural Arizona is not served with higher education programs is nonsense. It is absolutely, solely a political issue. It started very small back in the day of President Hughes when three to four programs were offered. Today most of these rural communities have access to 50+ undergraduate baccalaureate programs. There is no institution that could replicate this. Even a community college that moves to four-year status is not going to move to four-year status with 50 undergraduate baccalaureate programs. It can't happen. It is too expensive. But also, this is a very market sensitive operation and it is market sensitive because it is a niche. The demographics of distance learning students are different than NAU’s mountain campus students. What you need to concentrate on is that many of these students are older, they are place bound, they are work bound, and they tend to be part time. There are many more minority students and female students using distance learning. It gives you a sense of how different the distance learning student is from the mountain campus student which is primarily 18-21 year old students.

It is important to realize that this is very difficult to operate in a way that generates positive cash flow for NAU. This is a very different operation. 43% of what NAU does in the rural locations is negative, or at best breaking even. 100% of the urban locations are profitable. It is partly because the urban locations have larger populations and more students in the classroom.

The university is changing the three pillars (teaching, research and service), often separate in our higher education institutions, to a different model of a higher education institution. For many, many years, students came to the university and took courses and faculty members did not assume any responsibility for how that student did in their collegiate career. That is a teaching model. A learning model says to every department on the campus, every college, that how that student does is absolutely critical both to the state and to the economy, so the university becomes not a teaching institution, it is all about learning. President Haeger stated that he had done lots of research in his career, wrote books and so on. He stated that he did that primarily for John Haeger. That kind of research will always be important to the university, but when you start talking about innovation and research directed to purposes of improvement in society, or improvement in medicine or whatever, you are talking about teams of people and clusters of faculty and organizations like TGen and NAU and the city cooperating to get something done. It is a different mindset within the university.

And finally, service. It is defined this way in most of our documents in the universities: Service is about how the faculty member relates to their department or their college in terms of serving on committees, or expanding their involvement. What engagement is about relates to whole institutions. It is about becoming engaged and being a partner with the other people within the community. In traditional leadership you are worried about your institution and what it does, but in regional stewardship you have a commitment to place and you are responsible for what happens, in this case to Northern Arizona as a community.

Our pathway to the future has to be that we become a destination for undergraduate students from all over this country. If the university does that as an enterprise it will grow by 2000-5000 students in 10 years. If it doesn't it will lose an important niche as an institution. Distance learning has almost no limits in the sense of the number of students that want to access higher education and the university has to be ready to respond.

NAU will continue to need substantial state investments as it moves in the direction of regional stewardship. If the stewardship model works and NAU becomes properly engaged with the communities then city resources, and taxpayer dollars will be easier to free up to support this institution. That would be a significant change.

The financial reality for NAU is that increases in some combination of enrollment and tuition and fees are necessary and are especially critical if state support declines. Reinvestment of those assets in the Flagstaff campus and Distance Learning network builds the financial base for the future. So, NAU has to be a combination of one of the best educational institutions in the state and it has to have a sound financial model to get there.

Regent Bulla stated that the next order of business was to have a brainstorming session regarding what needs to be done to become an enterprise model.

B.J. Tatro stated that the question that is going to be addressed in the brainstorming session is: If the universities are to move toward the enterprise model, what needs to be done to accomplish this and what enhancements would need to be made in the board's accountability systems and oversight mechanisms with respect to human capital, resource acquisition and financial management, capital infrastructure and asset maintenance, information technology infrastructure and distance learning infrastructure, customers, and knowledge production?

The following comments were given for each category.

Human Capital

Superintendent Horne stated if professors are in the classroom only six to nine hours a week, then what amount of time is spent on research? The Board should determine whether it should expand the research function or if it makes more sense to expand the educational programs in order to be able to meet the demand for a baccalaureate education. If the Board is going to make a college education more affordable, it needs to find a way to compensate faculty for more time spent in the classroom.

Marsha Yowell stated that we need new ways to capture faculty engagement both in discovery and in learning.

Resource Acquisition and Financial Management

President Likins stated that the Board should analyze the uses and sources of funds and develop appropriate metrics for each institution based on the university's specific mission, which is reflected, in large part, by its primary source of funding.

Regent Palacios asked how the Board can have the best governance with the least interference to get us the best products. What is going to make the Regents feel good about the information they are getting without too much Board interference?

Regent Palacios also asked about the Ad Hoc Finance Committee. What information should the Board tell the Presidents the Regents believe they need to carry out their governance responsibilities?

Capital Infrastructure and Asset Maintenance

Regent Palacios asked in regards to the Capital Committee, what information should the Board tell the Presidents the Regent believe they need to carry out their governance responsibilities and vice versa, what should the Presidents tell the Board they need to carry out their responsibilities?

Customers

Regent Graff stated a general concern that the enterprise model may force the Board to be less student centered. He has no concerns about this particular Board becoming less student centered; however, this could be an issue with future Boards. He further stated that the Board needs to meet with students and let them know the trickle down effect of the move to the enterprise model. The Board needs a compelling message.

Regent Hermes stated that each campus should have an environment in which discourse with faculty and students is encouraged and improved.

President Haeger stated that up until this point, it has been viewed as the student's responsibility to graduate. Now it is everyone's responsibility to see that this happens and to improve the graduation rate.

Knowledge Production

Regent Jewett stated that the Board needs to focus on the relevance of our universities to society since the great hope of our society is tied to our universities. The Board needs to be able to demonstrate their success, focusing on graduation rates. The universities currently have about a 60% graduation rate, which is unacceptable, and the Board needs to address the root causes.

President Crow stated that the universities and the Board need to focus on graduation rates, but also need to provide a quality education, not retreating to lower and lower levels of quality like some other universities have done. He further stated that one-half of the students do not think they are going to graduate.

Superintendent Horne said that increasing the graduation rate should never mean lowering the standards.

Regent Stuart asked if it is common throughout the country to have a higher graduation rate in the enterprise model. President Crow stated that the universities and the Board should look at what the great universities have done to become great and what the Board can do to help make that happen in Arizona.

Other

President Haeger said the community expects assistance with economic development. Consequently, the relationship with the community will be important as the universities move toward an enterprise model.

Regent Stuart raised the following four questions, which he felt should be addressed: (1) What is the role of the faculty in a system moving towards an enterprise model, how will it impact them? (2) What is the role of the state legislature in a model in which the university system wants less dependence on general fund support for some parts of its mission and more support for other parts, factoring in the differentiated mission of the universities? (3) What is the role of students in a model which requires more direct participation on their part? And (4) What is the role of the Governor individually and what is the specific role of the Superintendent of Public Education as we move to an enterprise model?

President Likins stated that the universities and the Board need to consider the extent to which the universities bring in revenues and resources to the state through economic development, out-of-state students, etc.

Regent Mariucci stated that the Board should explore what we really mean by accountability and oversight mechanisms and be sure that we have the right ones. There is a common thread among President Haeger's and President Crow's comments, specifically three different functions: instruction (learning); research (discovery); and outreach (service or engagement). Accountability should be directed to those three areas.

Regent Jewett said that in regards to focused governance, as a Board, we need to address how to focus on governance rather than management.

Regent Calderón asked are whether this is a system or a confederacy? Do we as a Board marshal resources to achieve some sort of parity systemwide, including such things as bringing all of the buildings up to a certain level? Or should each university go out and advocate for its own priorities?

Regent Bulla asked how the Board should address the expected $12 to $13 million in over realized TRIF revenues. Should it be business as usual or should it be used to fund the system's priorities? He stated that this might include funding such things as the UA College of Medicine in Phoenix; community college partnerships; e-learning, common systems in the universities (if deemed feasible), etc.

President Crow suggested that the Board should ask the universities to submit plans for the objectives that they have been unable to achieve and how they would use TRIF funds to do so.

Regent Boice stated that he applauds the move toward the enterprise model. Whether we are pushed or pulled, we have no choice; the universities are going in that direction. The Board will need to focus on how they can generate the necessary resources in order to operate as an enterprise.

Regent Palacios said that with respect to usage of TRIF money, the Board has set the objectives for the universities, and the universities should not feel they are being raided if the Board decides how TRIF monies should be allocated to the universities.

Regent Bulla then asked the university presidents to present, at the August retreat, the metrics, measures, and management reports they currently use to evaluate their universities' progress and success in the following six categories addressed during the brainstorming session: human capital, resource acquisition and financial management, capital infrastructure and asset management, information technology infrastructure and distance learning infrastructure, customers, and knowledge production.

After assessment of this information, Regent Bulla stated that he would like the Board to determine if any additional accountability and oversight mechanisms are needed and to develop an appropriate action plan to enhance accountability and oversight, which likely will include modification of strategic plans.

Regent Bulla stated that one topic that will be discussed over the next month or so is what are we going to do with the extra $12-13M that we have from the 301 money. Does the Board just use traditional allocations or does the Board start funding priorities or critical needs in the system, such as the medical school, building renewal money, common technology systems, etc? The Board needs to decide what is important and determine how it is going to allocate this money.

Regent Bulla thanked everyone for their input. He asked the universities to come back in August with what they have in each of these areas for the Board to look at and what the Board might need to ask additionally. The Board needs to take these kinds of ideas and thoughts and get them into an action program. Hopefully, we will have a better feel for where we need to be in the future. Arizona is very fortunate, we have three great universities, but they can be even greater. If the Board can take the resources they have and build on that, find other avenues of resources, aspire to greatness and know how to measure greatness and know what to do to get to greatness, we will know when we can claim success. We must continue to improve.

The meeting adjourned at 12:30 p.m.

SUBMITTED BY:

_________________________________
Peggy Martin
Secretary to the Board

APPROVED BY:

__________________________________
Robert B. Bulla
President

ATTEST:

____________________________________
Jack Jewett
Secretary

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