The white paper was followed by new system of regulation in the Higher Education and Research Act 2017 and in 2017 the Office for Students (OfS) became the new regulator of the higher education sector with a specific responsibility to take a pro-competitive approach and, viewing students as consumers, a pro-consumer approach. As experience of the new regime has grown it is clear that there are real opportunities for providers to do things differently and that the OfS appears to be encouraging them to do so.
The OfS published its regulatory framework in 2018, Securing student success: Regulatory Framework for higher education in England. The approach to regulation taken in the framework, and as it has evolved since, is notable for the absence of specific detailed requirements. Instead the framework sets out relatively high-level statements of required outcomes. The overall effect is that there is considerable freedom to bring in new structures and approaches as to how those outcomes are realised. The old ways of doing things are not assumed to be the best, or even necessarily desirable, ways of doing things for all providers.
There is a real willingness to enable private capital to play a part, so long as the outcomes for the delivery of higher education are met. Investing as the owner of a private provider of higher education therefore requires a balance to be achieved between the financial interests of the investors and the public interest in educational outcomes. Documenting the balance of the relationship through the governing documents of the provider is key to demonstrating that appropriate governance arrangements are in place to enable the delivery of the required outcomes. Broadly speaking, so long as the governance arrangements enable the institution to operate as an independent academic body, investors can enjoy extensive freedom to deal with the institution as an investment.
The governance structure will therefore always incorporate certain protections and restraints to enable academic freedom to be maintained and to flourish, but within the framework it is possible to create board structures that can operate with the dynamism and energy more commonly associated with the free market part of the economy. They can be tailored to suit sophisticated institutional investors or much simpler ownership structures.
In relation to matters of management and governance, the OfS' requirement is to have in place 'adequate and effective' management and governance arrangements that will deliver in practice the required outcomes. This means that not only must the institution have suitable governing documents but it must demonstrate that it is operating in a way that is consistent with its governing instruments to achieve the required outcomes. In particular it must show that it seeks to achieve its objectives, that its decisions are informed by its values and that decisions are in fact taken by the body or individual identified in the governing documents without coercion or covert influence. However, within this it is still possible to have arrangements for investors to maintain a level of control of board appointments and thereby of overall strategy and direction.
On applying to register, the institution must submit a self-assessment of its management and governance. This will include submitting copies of the governing documents which, again illustrating the approach of the OfS generally, includes not just the formal constitution but all the documents adopted by the provider that describe any of its objectives, values, or powers. It must describe who has a role in decision-making, how the provider takes decisions about how to exercise its functions and how it monitors them. For private providers the governing documents will typically include shareholder agreements, schemes of delegation, committee terms of reference, policy statements and conflicts of interest rules. However, the existence of and terms of any particular documents are not prescribed.
The OfS makes a judgment about the arrangements that are appropriate in each case, having regard to the scale and complexity of the organisation. The objective is that the overall effect of the all the documents dealing with any aspect of governance, when taken together, can fairly be seen to enable the required outcomes and that the institution operates effectively in compliance with its governing documents.
Since the application process is very much about showing that adequate governance arrangements are in place, not just by describing the provider's governance documents but also by showing that the way the provider operates reflects what is stated in the documents, providers should expect the OfS to pay close attention to any responses that appear to be formulaic or that suggest a mismatch between the description of behaviours, management workings etc. as set out in the application and the terms of governing documents.
Whether the provider is a large institution with substantial funding from an overseas equity fund or smaller family owned and funded institution, the principle is the same - so long as shareholder and investor considerations do not undermine the ability of the institution to operate as an independent academic body and comply with its regulatory conditions, the corporate structure can be as imaginative as possible.