Three key challenges are: (1) trust and trustworthiness, (2) balance of vigilance and docility, and most important, (3) the regard for public goods.
When people do not trust others to do the right thing, or do not deserve to be trusted to do the right thing, we try to make up for the trust deficit by writing down rules and procedures to impose order and bring about some predictability. Unfortunately, rules are poor substitutes for judgment, and coarsen communication, relationships, and performance in workplace and in society at large. But in absence of trust, there are no clear alternatives to rules. If a powerful politician calls the director/vice-chancellor of a university demanding the opportunity to speak to the community for political purposes, he/she is violating the trust placed in him/her by the public. The system reacts by trying to draft rules on who can and cannot speak, erring on the side of isolating the university community from legitimate and rich social and political engagement. If a member of faculty uses university resources for personal benefit, the system reacts by drafting rules that err on the side of preventing efficient and legitimate uses of resources. One can come up with many examples. In universities where the output of faculty (and the university) is so difficult to measure, this problem is especially critical, and writing of rules to try to measure faculty's intellectual contributions just makes it worse. What scares most people about taking such responsibilities is walking into an environment where trust and trustworthiness are weak, and not valued sufficiently by the governance structure and the community at large.
Universities, like all societies, face the problem of dispersed information (Nobel Laureate F. A. Hayek, American Economic Review 1945). On one hand it is critical that all people in positions of power be monitored by those who have the information about the consequences of their actions (e.g., employees, faculty, and students in the university and general public in society). On the other hand, it is also important that those who are governed have a degree of docility (Nobel Laureate Herbert A. Simon, American Economic Review 1993) to accept the decisions of legitimate authority even if they impose some inconvenience, and give the authority some benefit of doubt, instead of rising immediately in protest against every and all actions which are, or appear to be, ill-advised. Protests carried out judiciously help governance of the system by feeding information to those who run the place; indiscriminate protests vitiate the environment, destroy reputations, and push authority into a defensive posture behind the rules and become non-transparent. The second fear that scares people from accepting such positions is the risk that the governance structure and the community may not act with a reasonable balance between vigilance and docility.
The third, and in my assessment the most important, issue is the lack of regard for public goods and externalities. Excessive regard for private goods (my house, my car, my children, my safety) without balancing it with public goods/bads (filth outside my house, effect of my car on city air, traffic congestion, and walkability of the street outside my house, effect of private schools on quality of public education, effect of street parking of cars in residential neighborhoods blocking access of fire engines) are just a few examples. Although these examples are chosen from everyday life, they are also applicable to academia. In fact, academic communities often have more intense externalities than elsewhere,with actions of members of a university having important impact on others. For example, when one faculty member lingers over a cup of tea to arrive late in the class, it affects the punctuality of students in all other classes. The possibility that the community may not value the public goods sufficiently, and transfer the burden of recognizing and enforcing the consequences of extensive externalities within the university to the director scares potential candidates. Such a responsibility immediately puts the director in an untenable position.
None of these three factors belong to the category that (like material resources) either the Board of Governors or the Ministry of Human Resource Development can offer a candidate on a platter. However, the former can, in their own day-to-day functions and decisions, consider how their choices will have consequences along these three dimensions. The same applies to the faculty and staff. Building a fruitful and rewarding academic institution is like growing a tree. No matter how badly I wish to eat mango for dinner today, my ability to do so depends on whether I planted and nurtured a mango tree over the past ten years. Likewise, if I wish to have mango on the table ten years from now, time to start is now. When even the subsidized apex institutions like IITs and IIMs focus their primary attention on the revenue generating degrees (B.Tech. and MBAs respectively) instead of dealing with the problem of insufficient top talent in teaching and scholarship by using their subsidies to support the negative-revenue PhD programs, it is clear that we have some distance to go to recognize and deal with the externalities in the domain of higher education in India.