Who Owns Indiana University?
Who owns Indiana University?
I’ll approach that question from the legal angle. Things can get complicated, because as law students learn in their Property class, “owns” means a lot of things having to do with the object being owned.
The simple answer is that the State of Indiana is the beneficial owner and the Board of Trustees is the non-beneficial owner, the legal owner. But I’ll need to explain the terms “beneficial owner” and “non-beneficial owner”, which come from the law of trusts. And to do that, I need to explain how a trust works. As a first approximation, it means that the Board of Trustees makes all the decisions about Indiana University, but they have a duty to make those decisions for the benefit of the State of Indiana, and if they make the decisions for their own benefit, or if they are too careless about how they make decisions, they are in legal trouble.
The General Governance Scheme for Indiana University
In a trust, a grantor gives property to trustees to manage on behalf of beneficiaries under specific conditions. Trusts can be individually tailored to an unlimited extent,and do not need to be filed with the government. I could as grantor put $10,000 in trust for my son Ben as beneficiary, with his Uncle Andrew as sole trustee, under condition that Andrew only uses the money for sending Ben on vacations to France, and subject to my taking the money back in five years if I feel like it. Indiana University is a revocable trust for which the State of Indiana is the original grantor and is also the beneficiary, with the Board of Trustees as trustees, the trust document being a section of the Indiana statutes, subject to amendment according to the Indiana Constitution including the possibility of eliminating the trust and giving complete control to the Governor.1
Note what this means. The only people with legal control over Indiana University are the Board of Trustees and the Indiana state government. Not the faculty, not the alumni, not the students, not the citizens of Bloomington, not the staff, not the university administration— including the President, Chancellor, and Provost. These people are called “stakeholders”, which means they care about how IU is run, but they have no legal power whatsoever.
To be sure, the faculty, staff, and Administration make a lot of university decisions, but only to the extent that the Trustees delegate this power to them. The Trustees can always countermand an employee’s decision, or take away their authority, or even fire them.
The Trustees have the legal authority to countermand or fire, but this is constrained by any contracts they have made. If the Trustees give a professor tenure, that means they have promised not to fire the professor except “for cause” (e.g., running a prostitution ring, as one professor did in the 1980’s), in exchange for his agreeing to work at IU. They still have the legal power to fire the professor, but if they do so they must pay him money damages to make him just as well off as if they had not fired him. If the Trustees hire a contractor to erect a building and then decide to switch contractors, they can do that, but they must pay money damages to the contractor for breaching the contract. If they hire a President on a five-year contract and then fire him without cause, they must pay money damages, which are usually pre-specified in the contract since both sides know such a firing might come up (coach’s contracts a fortiori).
Also, when the Trustees delegate authority to someone— the President, for example— that someone’s decisions bind the Trustees legally. If the President hires Joe Sixpack as janitor, it is as if the Trustees hired him: if they fire Joe, they must pay money damages. This is true even if the Trustees specifically told the President not to hire Joe, because usually presidents have the authority to hire janitors and it’s unreasonable to expect Joe to know that this president doesn’t. In legal terms, the Trustees are the principal and the President is the agent, and he has the actual authority or the apparent authority to hire janitors.2
The trust is a revocable one, though, because the grantor can always take the property back. The state government can always amend Indiana law to abolish the Board of Trustees and put the Governor in its place. They can even abolish Indiana University and sell off all the property. The only complications are (a) any existing contracts (such as tenure for professors) have to be honored, or compensated via money damages, and (b) if anyone has given donations to Indiana University, their donations have to be returned or used for a similar purpose, e.g. transferred to another state university, the doctrine of cy pres.3 That is because though a gift is not a contract, which must have material benefits to both sides, a gift like this does create a “constructive trust”, a trust that is legally binding but does not have a written trust document. A court will rule that the donor gave the money to Indiana University under the implicit condition that it be used for Indiana University.
It is also important to realize that the nonbeneficial ownership has a precise structure. It is not the individual trustees, but the Board of Trustees that is the nonbeneficial owner and has the authority to make decisions. One trustee by himself, even the Chairman, has zero legal authority. That is why when a couple of trustees awarded $582,000 to President McRobbie for being willing to stay on an extra semester past his contract, the award was invalid. Professor of Law Steve Sanders pointed this out, and the entire Board had to meet and ratify the decision. Only after that was it legal; before that, it was actually criminal to pay out that money. I think it was no coincidence that Indiana University Chief Counsel Simmons was fired shortly after the ratification.
Thus, if 4 Trustees strongly object to a decision made by 5 Trustees in a formal vote, it doesn’t matter. The Board of Trustees’ decision is made by majority vote, whether it is 5 to 4, 8 to 1, or 9 to 0.
The power of the state government is also constrained. The Governor has no authority to make decisions for Indiana University. Neither does the Indiana House of Representatives, or the Senate. They can complain all they want, but they have zero power. Zero power individually, that is. If the House and Senate pass a bill the two of them combined have absolute power over IU. If the two of them agree, they can do whatever they want. This is so even if the Governor hates it; in Indiana, the Governor’s veto can be overridden by simple majorities rather than a 2/3 vote. Even if the House and Senate disagree, via the state budget each individually has a certain amount of power. The House can refuse to include any money for IU in this year’s budget, and even if the Senate wants to fund IU, IU won’t get anything, because both have to agree on a budget bill. Similarly, the Senate can unilaterally refuse to agree to a budget that includes money for IU. This budgetary power is very different from direct power, however. It is, in principle, no different than the power the National Science Foundation has to stop funding research grants, or the power an alum has to stop donating, or the power a professor has to threaten to leave for another university, or the power a student has to transfer. The only difference is that the state contribution to IU’s budget is bigger.
Thus, the answer to this Substack’s question is that the Board of Trustees owns Indiana University, subject to its fiduciary duty to the State of Indiana and the power of the State of Indiana to take the university back at any time.
The Specific Governance Rules for Indiana University
As I said earlier, trusts are individually tailored. Thus, we must look at the trust document to see exactly what powers are given by the grantor to the trustee— what powers are given by the State of Indiana to the Board of Trustees. Look to “Title 21: Higher Education” in the Indiana code.4 Article 20 “Indiana University” deals with Indiana University specifically, but most of the trust document is to be found in Article 21, which delineates the powers of the board of trustees of state colleges generally. IN Code §21-38-3-1 (2024) gives the Board of Trustees the power to hire employees:
The board of trustees of a state educational institution may employ:
(1) officers;
(2) faculty;
(3) employees;
(4) consultants; and
(5) counsel;
necessary or convenient to aid in the formulation and implementation of the state educational institution's policies and to execute the will of the board of trustees within its particular institution.
IN Code §21-31-2-4 (2024) says the Board has nonbeneficial ownership of the property and can make use of the income:
(1) possess all the real and personal property of Indiana University for its benefit;
(2) take and hold, in their corporate name, any real or personal property for the benefit of Indiana University; and
(3) expend the income of Indiana University for its benefit.
IN Code § 21-32-3-1 (2024) says that if allowed elsewhere in the Code (is it?), IU can sell bond to finance itself:
A state educational institution with power to issue bonds may sell bonds at public or negotiated sale:
(1) for the price or prices;
(2) in the manner; and
(3) at the time or times;
determined by the state educational institution.
IN Code §21-39-2-2 (2024) is perhaps redundant, but it says IU can discipline its employees and students:
(b) The board of trustees of a state educational institution may govern, by regulation and other means, the conduct of students, faculty, employees, and others while upon the property owned, used, or occupied by the state educational institution.
IN Code §21-39-2-3 (2024) is a little more specific about discipline:
(b) The board of trustees of a state educational institution may govern, by lawful means, the conduct of the state educational institution's students, faculty, and employees, wherever the conduct might occur, to prevent unlawful or objectionable acts that:
(1) seriously threaten the ability of the state educational institution to maintain the state educational institution's facilities; or
(2) violate the reasonable rules and standards of the state educational institution designed to protect the academic community from unlawful conduct or conduct presenting a serious threat to person or property of the academic community.
And, for my last example, IN Code §21-41-2-1 (2024) says the Board is in charge of what is taught and how it is taught:
The board of trustees of a state educational institution may prescribe the curricula and courses of study offered by the state educational institution and define the standards of proficiency and satisfaction within the curricula and courses established by the state educational institution.
There are also a few limitations on trustee power. IN Code §21-41-2-2 (2024) says:
a state educational institution may not:
(1) establish any new branch, regional campus, campus, or extension center;
(2) establish any new or additional academic college or school; or
(3) offer any:
(A) new associate, baccalaureate, or graduate degree; or
(B) additional program of two (2) semesters or an equivalent duration leading to a certificate or other indication of accomplishment;
without the approval of the commission for higher education or without specific authorization by the general assembly.
Another constraint is that the Trustees may not delegate authority to take political stands irrelevant to university operations to administrators or professors. The Institutional Neutrality policy as written only applies to “employees”, not to the Board of Trustees. They can vote for Indiana University to condemn the prime minister of Hungary if they want, or any other silly political resolution. This should be amended to include them in the ban on politics too.
A final example of a limitation is a clause many in the IU faculty objected to when it was passed by the Statehouse in 2024:5 the Board cannot punish a professor via post-tenure review just because of his publicly expressed political stances or his criticism of the Board or the University:
The board of trustees of an institution may not consider the following actions by a faculty member:
(1) Expressing dissent or engaging in research or public commentary on subjects.
(2) Criticizing the institution's leadership.
(3) Engaging in any political activity conducted outside the faculty member's teaching duties at the institution.
I have quoted the Indiana statutes at such length because even if you are interested in university governance generally, not just Indiana University, it’s good to look at a particular case to see how the rules are written. Each university is different— even each state university. For an example of that, see my June 6 post, “Fire the Worthless Trustees of the University of Florida.” The University Florida has some of its trustees appointed by the Governor, two elected by faculty and students and a third ex officio, and some appointed by the “Board of Governors”, a committee that has some members chosen by the Governor and some ex officio. In Florida, all gubernatorial and Board of Governors appointments must also be confirmed by the Senate. It’s still a trust, but a more complicated one.
It would also be possible for a state to set up a trust in which decisions about curriculum, teaching, and discipline were made by the faculty. I don’t know of any such public university and I doubt very much that one exists. It would be more likely to find a private university like that, though I know of none in the United States. In England, this is the way Oxford and Cambridge started, and in many ways how they still are. Individual colleges— Oxford’s Nuffield or Cambridge’s Trinity, for example— were founded by Lord Nuffield (the Morris Motors millionaire) and Henry VIII (the king with all the wives). Their governing body consists of the Fellows of the College, who are something like tenured professors in America. Much of the teaching, though not all, is done by the fellows (including junior fellows) in whatever way the College wants. I don’t know about discipline in modern times, but the Colleges administered it historically, even to the extent that the city authorities did not have jurisdiction over students. The University, on the other hand, also administered discipline and had the power to grant degrees and to write the tests required for a degree, and this power over degrees is retained by the University in the present day.
Thus, the Board of Trustees owns Indiana University. To change that, whether to give the power to the Governor or to faculty, would require an act of the state legislature, signed by the Governor. And this is how public universities generally are governed.
Footnotes
For readers who know economics: a trust is not really a principal-agt relationship. The trustee is not the agent of the grantor or the beneficiary. He cannot be fired, and he has no contract with either of them. Indeed, even the relationship between a corporation’s shareholders and its board of directors is not really a principal-agent relationship. See my very obscurely published paper: "A Theory of Trustees, and Other Thoughts," in Public Debt and its Finance in a Model of a Macroeconomic Policy Game: Papers Presented at a Workshop held in Antalya, Turkey on October 10- 11, 1997, edited by Tahire Akder. This paper combined a brief description of my work on negotiation with comments on other papers presented on central banking and a new paradigm for thinking of judges and central bankers as trustees working on behalf of beneficiaries as directed by settlors. It has my 4 P's Theory of motivation: Place, Pride, Policy, and Power. Available, including a post- publication postscript adding Principle, http://rasmusen.org/published/Rasmusen_98.BOOK.trustees.NEW.pdf).
See also my notes for a new paper based on this, in Ascii-latex or pdf (http://rasmusen.org/papers/trustees-rasmusen.pdf) and the discussion in Ramseyer and Rasmusen’s Measuring Judicial Independence.
One of my favorite papers is about this. It is nontechnical, so you could easily read it. "The Economics of Agency Law and Contract Formation," American Law and Economics Review, 6 (2): 369-409 (Fall 2004). This article uses the economic approach to address issues that arise in agency law when agents make contracts on behalf of principals. The main issue is whether the principal should be bound when the agent makes a contract with some third party on his behalf which the principal would immediately wish to disavow. The resulting tradeoffs resemble those in tort law, so the least-cost-avoider principle is useful for deciding when contracts are valid and may be the underlying logic behind a number of different legal doctrines applied to agency cases. In particular, an efficiency explanation can be found for the undisclosed principal rule, which says that the principal is generally bound even when the third party is unaware that the agent is acting as an agent for him.
http://www.rasmusen.org/published/rasmusen-04-ALER-agency.pdf
I was going to say that the donations had to be “returned or used for a similar purpose, e.g. transferred to Purdue University,” but given the old rivalry between IU and Purdue, that might not count as a similar purpose. We smile, but that is true, and a court could reasonably find it so.
My links are to the 2024 Indiana Code; since then, the rules for choosing Trustees have changed. In 2025, the Statehouse passed a number of new provisions about Indiana University at the end of the session, putting them in the final budget bill. One provision eliminated the 3 alumni-elected trustee positions and converted them to governor-appointed positions. The bill also stated that faculty governance, e.g. the Bloomington Faculty Council, was purely advisory, with no actual authority except what the Trustees grant to faculty members such as the Chairman of a department. Those of us who knew the university’s legal structure smiled at that provision, because it changed absolutely nothing; faculty committees were purely advisory even before the bill was passed.
To be fair, it was other parts of the bill that they objected to, but they ignored the fact that this bill provided the first and only statutory protection for tenured faculty.
Ten minutes after posting, I fixed a mistake: I had said it required a 2/3 vote to override a veto, but it only takes a simple majority in Indiana.