Globalization, the transfer to knowledge society exposes the environment of higher education institutions (HEIs) to increasingly complex operating conditions. The universities have to address additional demanding tasks with often-staggering public funding at their disposal. The paper aims to depict the interaction of government – managers – and higher education (HE) sector – employees – in the context of recent university governance reforms, which in its essence is another manifestation of managerialist policy followed by the government. The paper starts with contextual information on the HE system in Latvia and its antecedently limited public funding. It then touches the introduction of the performance-based funding model. The review of the funding model came as a reaction to dramatic public funding cuts within the higher education sector that were triggered by the economic crisis 2009-2012. The paper outlines the expectations of the higher education sector that additional public funding will be invested as soon as the new funding model is implemented. However, quite surprisingly for the higher education sector, the newly elected government decides to reform the internal governance of public higher education institutions instead. The depicted context is analyzed against the concept of managerialism and its influence on the higher education sector, specifically on the deterioration of collegiality as the traditional form of university governance. The paper explains, why the plans to reform the university governance in Latvia by introducing university boards with external stakeholders represented there have been met ambiguously by the higher education sector. The authors seek to answer the seemingly irrational series of actions taken by the Latvian government and do so referring to phenomena of managerial ideology, as well as cautions against the rule of uncompromising, forthright managerialism within the public sector. The article finds, however, that pure collegiality is no longer viable in the higher education sector in Latvia, and different manifestations of managerialism are there to stay in the higher education sector. Therefore, ways need to be found to adopt and draw benefits from the induced changes. Understanding the rational reasons behind seemingly irrational reforms introduced by the government is the first step in this direction. The next step, but this would be then the subject of further researches, would be to detect the conditions in which the incoming managerialism may undermine or reinforce the quality of higher education.