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The secret of Harvard’s success: alumniJodi Hilton/The Globe and Mail

No country dominates any industry as much as the United States dominates higher education. According to Shanghai Jiao Tong University's academic ranking of world universities, for example, 17 of the world's 20 best universities are American, with Harvard topping the list by a substantial margin.

The traditional explanation for this phenomenon – America's wealth, large population, generous research funding, widespread private philanthropy, and ability to attract scholars from around the world – is incomplete. Although the U.S. boasts the world's largest economy, it makes up only a quarter of global GDP and possesses roughly a 20th of the world's population. And its support for research is not unique.

Moreover, according to the accepted explanation, countries such as France, Germany, Japan and even China and India should also be represented at the top of global university rankings. But they appear only sparsely in such rankings, if at all.

In fact, these countries lack a crucial piece of the puzzle: America's innovative governance model for higher education.

Harvard was established as a public institution in 1636 by authorities of the Massachusetts Bay Colony. Its value to Massachusetts is exemplified in the Commonwealth's post-independence state constitution, ratified in 1780, which includes a section about the university's function and boundaries.

When Harvard alumni dominated the Massachusetts legislature, the university was given support and consideration. But in the 1840s, mass immigration, fuelled by the Irish potato famine, altered the state's demographic balance, enabling populists to gain control of the legislature.

Almost immediately, Harvard came under attack for being too elitist and too expensive. Even its curriculum was challenged. Over the next two decades, the state increasingly impeded Harvard's functioning by refusing to release funds and obstructing the appointment of professors. In 1862, the legislature even blocked a university president's appointment.

In response, Harvard requested that it be placed "out of the reach of ordinary political strife and change" and into the "hands of alumni who have the interests of education most at heart." On April 29, 1865, this radical proposal scraped through the Massachusetts General Court (the state's bicameral legislature), owing to intense lobbying and the goodwill generated by Harvard alumni's distinguished service for the Union during the Civil War. Since then, Harvard's Board of Overseers has been controlled by alumni.

Inspired by Harvard's success, other universities – starting with Yale and the College of William and Mary – took similar action. This "genuine American method," as Charles William Eliot, Harvard's longest-serving president, called it, became the norm not only for private universities but also for public institutions (such as the University of Michigan and Purdue) and even religious institutions (such as the University of Notre Dame and Duke).

Today, 19 of the top 20 American universities in U.S. News and World Report's rankings are controlled by alumni (defined as 50 per cent or more representation on the board of trustees). The exception, the California Institute of Technology, has a board with 40 per cent alumni representation. Of the top five, three (Harvard, Yale and Columbia) are managed entirely by alumni. On average, alumni make up 63 per cent of the boards of the top 100 U.S. universities, both public and private.

In general, a higher percentage of alumni on the board is associated with a higher ranking, increased selectivity and a larger endowment. After all, no group cares more about a university's prestige than its alumni, who gain or lose esteem as their alma mater's ranking rises or falls. Indeed, alumni have the most incentive to donate generously and manage the university effectively. Given their intimate knowledge of the university, alumni are also the most effective leaders.

All great universities are non-profit organizations, created to administer higher education, which benefits society as a whole. But U.S. universities found a way to integrate competition's benefits into the European concept of non-profit, or so-called eleemosynary, corporations. The lack of profit does not diminish an alumni-dominated board's incentive to compete for prestige by, for example, hiring distinguished faculty, accepting meritorious students or striving for athletic or artistic achievement.

Using alumni to infuse the benefits of competition into non-profit institutions exemplifies the genius of American adaptation. Countries that aspire to compete with U.S. universities should take note.

Shailendra Raj Mehta is a visiting professor at the Indian Institute of Management in Ahmedabad and academic director of Duke Corporate Education at Duke University.