Which Form of Organizational Governance Supports Freedom of Teaching and Increases Their Perception of Relevance? Empirical Evidence from Two Types of Higher Education Institutions

New Public Management caused an ‘economic turn’ in universities to managerial governance. The leadership literature distinguishes two modes of governance, which can also be applied to the governance of universities: transactional and transformational modes of governance. Transactional governance encompasses all forms of managerial governance, which includes selective incentives and monitoring capacity. The theoretical underpinning of this mode can be found in Principal-Agent Theory which is the theoretical underpinning of New Public Management. Whereas transformational governance covers, on the one hand, the means of restructuring the roles of principals and agents or the interaction situation in the organization, on the other hand, it also addresses all the means of restructuring the relationship between perceived environment and motivation, as can be seen in Self-Determination Theory. Other elements of transformational governance are social norms such as those that inform the quality of research or approaches to teaching. As such, the main research question is: What has more impact on professors’ perceptions of the significance attributed to academic teaching in Germany – transactional or transformational governance? Two hypotheses for transactional and two hypotheses for transformational governance are developed. The research question is answered with the help of two quantitative surveys, one conducted in 2009 with a sample of 1,119 German research university professors and another conducted in 2011 with a sample of 942 German professors from universities of applied sciences. The main findings are that transactional governance has no impact on the perception of the significance attributed to academic teaching whereas transformational governance has ample influence. Under the bottom line, economic instruments could produce not intended effects but without an increase of the perceived relevance of teaching.