The excellence of US universities is globally recognised. We argue that this is in a large measure a consequence of their unique form of governance – that is alumni governance.

In particular we will show that universities suffer from the full complement of market failures including externalities, public goods, asymmetric information, adverse selection and moral hazard. Therefore, their organisation is no simple task and is the product of a complex historical process.

We compare five forms of governance prevalent today (market, State, faculty, trusts and alumni) and show why alumni governance strictly dominates them all.

Alumni governance will be shown to be a rational response to these factors that prevent the market from properly operating in the case of universities.

Data on the board composition of over 200 of the top US universities will be presented. We will also touch upon the factors which led to the evolution of this unique historical form.

We will also dwell upon how the rest of the world may learn from this unique form of Governance.