Martin Coleman's speech on evolution or fundamental change to governance

Deputy Chair of the OfS Board, Martin Coleman, spoke at the Advance HE conference this week.

Martin Coleman's speech on evolution or fundamental change to governance

The role of governing bodies of higher education providers has never been more important. And I would like to start by thanking members of governing bodies, and those who support them, for their commitment and contribution that they make. I have experienced this at first hand. Early in my career I served as an academic staff representative on a University Council and, more recently, I was a member of the Council of the University of Kent. To serve effectively as a governing body member, and most people do serve effectively, requires time, thought and energy and the level of commitment required is getting even greater. We do not take such contributions, mostly voluntary, for granted.

One of my responsibilities at the OfS is to chair the Provider Risk Committee which oversees the registration process and is the decision-maker on the more difficult applications. I want to bring you up to date on how the process is developing; some of the major issues we have been considering and what this means for governing bodies.

Before I do that I would like to put the work we do, and what we expect of governing bodies, in context. Higher education is a public service and also provides a private benefit. It is a public service because the future of our country depends on the quality and effectiveness of our universities, and other higher education providers, and because a fair society requires that the opportunities provided by higher education should be open to all regardless of background. This is why the sector benefits from considerable public financial support. It is a private benefit because those who succeed in the higher education system have advantages – intellectual, social and economic - which will help them in their future lives and careers. Students incur significant costs to access these benefits.

Our regulatory system is designed to protect the public interest in the success of the system and to safeguard the interests of students. The public interest in a good quality, viable and accessible higher education system is obvious. But why are we also concerned with student safeguarding? Because students are making one of the most expensive purchases of their life and, for many, incurring significant debt to do so; they are one-shot players (they will never have done this before); they are dealing with large powerful experienced institutions and getting it wrong may damage their future life chances. They are vulnerable consumers and it is right that they are protected.

Neither the public not private objectives of higher education would be properly fulfilled if we left the system exposed, unshielded, to the winds, ravages and creative destruction of the full blast of market forces. So, when we talk about a market in higher education, it is a very particular type of market in which providers are incentivised to innovate and respond to developing needs and students are offered a good choice of quality providers. But a market that is regulated so that standards are ensured, public interests advanced and students properly safeguarded.

I know that some people do not like the term ‘consumer’ when applied to students. They see it as indicating the commoditisation of a public good; as focusing on a student’s rights rather than their obligations and as undermining the value of collective student representation. I understand these concerns but believe them to be exaggerated. They assume binary choices when, in practice, the world is much more complex: higher education has elements of a public good and a private benefit; students have rights and obligations; student interests can be protected by both individual rights and collective representation. 

You will know that the legislation setting up the new regulatory regime - the Higher Education and Research Act 2017 - requires every institution that wishes to receive some form of public support, whether in grant funding or admitting students in receipt of public loans, to register with the Office for Students and registration is only possible if a number of initial conditions of registration are satisfied. There is no carryover provision under which providers previously regulated by HEFCE or the DfE can automatically be registered under the new regime. The new system comes fully into force on 1 August 2019, so we are having to consider applications from all providers who wish to be registered in a relatively short timeframe.

There are three sets of decisions that the OfS has to make. The first is if the provider is eligible for registration - whether it is an English institution offering higher education. This is straightforward for most institutions although, even here, there are a few difficult cases, for example, in what circumstances can a provider which is part of an international undertaking be regarded as an English provider?

The second set of decisions concern whether the provider satisfies the initial registration conditions. If it does we must register it. If it does not we may not register it. The registration conditions are expressed, as they must be, in technical language but they reflect the public purposes and student interests that higher education serves covering matters such as standards and quality; financial sustainability; effective governance and management; student protection and access and participation. This is a big responsibility and not just because of the impact on students and the wider public. For most providers the registration decision is existential. While the statutory framework does not prevent non-registered providers offering higher education courses, such a provider would not have access to public funds including funding for research, would not be able to admit students in receipt of public loans, may not be able to sponsor international students, could not acquire or retain degree awarding powers and would not be able to call itself a ‘university’.

The third set of decisions relate to providers who satisfy the first two. We consider the likelihood and potential consequences of a future breach of conditions. We might impose 'mitigating measures' such as enhanced monitoring, additional reporting obligations or further conditions in addition to the standard ones.  

So you can see the scale of the task both in terms of numbers – over 450 providers to consider – and the significance and complexity of the process. We have an excellent team working on this. Many applications have been dealt with speedily. Others take longer, for example because they are more complex, because not all the requested information is provided in the initial application or because there are areas of doubt or concern and we have asked for more details to try to resolve these.

We are conscious that this has not been an easy process, particularly for smaller providers. But it is a one-off. Once registered, providers will have to ensure continuing compliance with conditions but they will not have to incur the full burden of the registration process again. And the ongoing process will be risk related. Providers for whom we consider the risk of a breach to be low can expect a lesser regulatory burden than under the old system while, for other providers, our focus will be on areas of performance that present an increased risk.

Let me give you a flavour of some of the issues we have had to consider. 

Continuation and completion rates are an important indicator of quality and standards. These vary between providers, and may within a particular provider vary between different types of students, for example full-time and part-time. Some variation may be expected depending on the demographics of the particular student group but we have seen providers – a small minority – where continuation and completion rates are very low across a number of student groups. Whether one is considering the public interest in ensuring proper value from the system, or the interests of students who expend considerable time, money and commitment entering a course, this is not acceptable. There are of course cases where student non-continuation can be reasonably explained. But in other cases this will materially influence our decision whether to register a provider. And, if we do register, we would look to strict mitigation, such as requiring an action plan to address weak performance. It may also give us cause to consider the quality of governing bodies that have been prepared to accept such a situation.

The importance of financial viability and sustainability is obvious and not just because the institution is, directly or indirectly, supported by public money. A provider that is not financially sustainable risks letting down its students by being unable to deliver education of the scope and quality required and promised. We therefore take this seriously. We will not register providers that cannot demonstrate that they are financially viable and sustainable and, where there are concerns about future sustainability, we shall impose mitigations.

We have seen cases where the future financial sustainability of the institution is based on projections of increases in student numbers or cost savings. In some cases these are entirely reasonable, for example we have seen planned student growth related to the opening of a new medical school, medicine being a high student demand subject. In some other cases we are more sceptical. You will know that the UK demographics point to a downturn in the number of 18-20 year-olds until 2021. You also know how hard it is to recruit older students, desirable as such recruitment is. The enrolment of additional EU and other international students is a further challenge in current circumstances. No responsible governing body should be signing-off business or financial plans based on student growth or savings without fully interrogating the credibility and feasibility of those proposals.

We have made clear that we are not in a position to bail-out providers that are not financially sustainable. This does not mean that we shall sit by when there are indicators that a provider is in trouble. An important purpose of the system of mitigations is to identify risks before they escalate to a position in which the provider is not sustainable. And, whether or not there are mitigations, if the circumstances of a provider change for the worse, we need to know about it.

Student protection plans (SPPs) are an important element of this. They set out how student interests will be safeguarded in the event of course or institutional closure. The time to make such plans is before problems materialise. SPPs must be risk-related: the greater the risk to the continuation of study for students the more detailed the plan must be. Some of the plans that we have seen need to be improved and we have been engaging in discussions with those providers.

A vigilant and effective governing body is the first line of defence in protecting public and student interests. Governing bodies are on the ground and are best placed to oversee and scrutinise institutional performance. They will usually get the first signals of impeding difficulties.

Responsible and competent governing bodies are anyway focused on matters such as quality and financial viability and do not need the added incentive of ensuring regulatory compliance to encourage them to address such matters.

But, because governance and leadership are so critical to institutional effectiveness and student protection, the registration provisions impose important obligations directly on governing bodies. Providers must have in place adequate and effective management and governance arrangements to comply with all conditions of registration. This is not a passive role. We understand that governing bodies consist, in the main, of part-time members and it is not their job to be involved in day-to-day decision-making. But we do expect governing bodies to appoint competent senior managers and effectively oversee their performance; to properly scrutinise and challenge management proposals including investment propositions and financial plans; to review data, and other evidence, on quality and standards, and discuss areas of potential concern, for example poor continuation and completion rates.

Good governance requires proper scrutiny, challenge and an appropriate degree of scepticism. Failures in outcomes can often be traced back to inadequate governance.

Most governing bodies understand these responsibilities and fulfil them diligently. A few are less adequate. Governing bodies need to consider carefully whether their composition, structure, behaviours, challenges and relationships are effective to support them in fulfilling their obligations. The better the governance of the provider the less likely it is that we, as a regulator, will need to intervene.

An outside observer might ask why would anyone want to serve on a governing body given the responsibilities involved. But many people do, and for good reason. Members of higher education governing bodies: contribute to the transformation of the lives of students of different backgrounds; support cutting edge research; help advance knowledge and culture; and have a major influence on the local and national economy. Not all institutions do all of this but all do some of it. There are few other public service roles where the holders have the opportunity to make such a wide-ranging and important impact.

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