Green Paper - Proposed Deregulation of Higher Education Corporations

This article looks at some of the proposals for deregulation for Higher Education Corporations (HECs) from a constitutional perspective.

For HECs, the key principle which underpins the proposals is the concept of 'institutional autonomy'. There is a clear recognition that HECs are now sufficiently mature institutions and that they should have a greater degree of control over how they organise their constitutional arrangements, including their governance structures.

The intention is to create a more level playing field between HECs and universities constituted in other ways (e.g. as Royal Charter bodies or Designated Institutions, both of which already have greater flexibility in these matters).

What are the proposals?

The key proposals are that:

• the constitutional arrangements for HECs, which are presently governed by the Education Reform Act 1988, should be simplified
• Privy Council consent should not be required to all changes to an HEC's Instrument and Articles of Government

The Green Paper contains a longer term proposal to remove responsibility for overseeing changes to HECs' governing documents from the Privy Council and vest it in the Office for Students, as and when it is established.

The fact that this is a Green Paper means that there is an inherent degree of uncertainty in relation to the way in which it is ultimately implemented, but there are some key proposals that are worth bearing in mind.

What do they mean?

In general terms, simplifying the constitutional arrangements under the 1988 Act is likely to give individual HECs more flexibility to make and amend governance arrangements to meet their own needs rather than those of HECs generally. This should enable them to respond to changes in the way they operate more quickly and to plan their governance proactively to support any planned strategic change. Removing the requirement for Privy Council consent is also likely to reduce the cost and time involved in making such changes.

One significant unknown at this stage, is the scope of those aspects of HECs' constitutional arrangements which the government regards as of 'public interest' and which ought therefore to remain subject to the consent of the Privy Council before alteration.

Currently, such issues include the delegation of the governing body's powers, its composition and quorum for conducting business, provisions in relation to academic freedom and the standard provisions in relation to the suspension, dismissal of staff etc. Our view at this stage is that a number of these provisions are likely to cease to be regarded as being of public interest, which means there will be an opportunity for HECs to make and amend their own constitutional provisions in relation to them.

What may HECs wish to think about?

Some of the issues that HECs may wish to address if a significant degree of deregulation is introduced are:

The composition of the board of governors

• This is currently precisely prescribed by an HEC's Instrument and sometimes result in a large board which includes a number of prescribed governorships for staff and students, which may not be fit for purpose on either a governance or an operational level. Looking at universities in the context of the wider charitable sector, current best practice suggests that the composition and size of an institution's board of governors should be driven primarily by the range of skills and experience that it needs in order to operate most effectively, with due regard to the extent to which an institution's stakeholders need to be represented at governor level.
   
• From a practical perspective, best practice suggests that a board of governors which has a large number of members is less able to operate effectively and efficiently. While it is obviously not possible to prescribe a minimum and maximum numbers of governors, recent experience across the wider charitable sector suggests that a board made up of between seven and fifteen governors can be more effective than a board of 20 plus.
   
• HECs may want to look at governors' terms of office. Best practice suggests a cap on the length of a term of three or four years and a cap on the number of terms for which a governor can hold office before a 'cooling off' period will apply.

Governors' term of office

• The circumstances in which a governor ceases to hold office are also usually relatively limited under an HEC's Instrument. Deregulation would enable HECs to more easily incorporate a much wider set of circumstances in which a governor can cease to hold office, bringing  them much more into line with the provisions one would expect to apply to charity trustees more generally. This would include, for example, being found guilty of a criminal offence or other conduct which may damage the reputation of an institution.
   
• HECs may want to look at altering the provisions for governors' meetings with a view to creating more flexibility including, for example, the ability to summon short notice meetings in an emergency and also to enable governors to take part in meetings electronically.

Suspension and dismissal of staff

• The Articles of HECs usually contain a series of standard provisions in relation to the suspension and dismissal of staff. This is a key area in which HECs could seek to create more flexibility. For example, complying with provisions in an institution's Articles that go beyond employment law best practice can hamper dealings with senior staff when seeking to address performance or capability issues.

Student unions

• It is worth noting that one of the areas currently categorised as of 'public interest' is in relation to students unions. Given the suggestion in the Green Paper that the government is looking at the way in which the relationship between universities and their students unions is regulated more generally, it is possible that these provisions may also cease to be subject to any form of Privy Council control.

Wider governance powers

• The powers of HECs are currently set out in the 1988 Act and are, in some respects, not in line with the wide range of powers that a modern university requires in order to be able to deliver its objectives with a high degree of flexibility. While there is a general power under the 1988 Act to do anything incidental to the conduct of an HEI, this is of uncertain scope and can, in our experience, be an issue where an HEC wishes to engage with a third party which requires evidence that the HEC can enter into a transaction which is not supported by an express power in the 1988 Act. This would include a financial institution seeking evidence that an HEC has the power to enter into a derivate transaction or issue a bond. Clearly, this can mean additional cost and delay in practice.
   
• There are a few governance areas which are not generally reflected in the Instrument and Articles of HECs but which one would often expect to see in relation to some other universities and the wider charitable sector. A key area is conflict of interest. Deregulation could give more flexibility to bring such issues in line with a particular HEC's specific requirements.

The opportunity to remove more constitutional arrangements from Privy Council is also likely to simplify the way in which they are documented. While Instruments and Articles currently anticipate that the governors can make a series of rules and byelaws which can be altered by the governors themselves, the Green Paper is likely to present an opportunity for the Instrument and Articles to become shorter framework documents.  The majority of the provisions required in order to ensure the efficient governance and operation can be dealt with under rules or regulations made by the governors and amended by them from time to time.

Finally, the Green Paper has implications for HECs' ability to make their own decisions about their 'future operating model', particularly in relation to private funding. It is difficult to say at this stage whether the final output of this process will lead to any significant change, although the proposal in the Green Paper that an HEC should have the legal ability to dissolve itself and transfer its assets might be a first step in allowing HECs to move away from how they currently fund and deliver their services.

The Future

It is too early to comment in any detail in a meaningful way until further details of the proposals emerge but it does appear that HECs will have the benefit of increased flexibility from the deregulation proposed.

For more informationon on the Green Paper and the impact it may have on your governance arrangements, please contact Con Alexander on 0117 314 5214.