First, you must be certain of the positions taken by your department associates. From that knowledge you can begin to effectively deal with the position taken by the University. Remember, the grass roots of your discipline are within the undergraduate population. As previously discussed, your department's survival and prosperity depends, to a great extent, on numbers. Without a strong following at the undergraduate level, you'll not develop the graduate students you require.
Balance is essential.
This question will be answered by the way in which you perform. The well informed and communicative chair, having built strong departmental relationships and a detailed and defendable data base is in a position to lead and challenge. Don't find yourself in the position of being a defender.