governance in higher education corporations: a consideration of the constitution created by the 1992...

Governance in HigherEducation Corporations:A Consideration of theConstitution Created by the1992 ActMichael Knight, South Bank University

Abstract

This article argues that the constitutions of higher education corporationscreated by the 1992 Further and Higher Education Act are flawed. It arguesthat the constitutions were created with insufficient regard both for precedentsfor the creation of universities and also for emerging problems and principlesof corporate governance. This resulted in a model of governance whichmaximised the role of the vice-chancellor or chief executive and ‘independentmembers’ of governing bodies, limited the participation of staff and students,and allocated a restricted role to academic boards. This article examines anumber of the problems arising from inadequacies in governance in a numberof post-1992 universities and their similarity with problems arising in furthereducation colleges who shared common governance arrangements from the1992 Act. This article compares these problems with governance problems inAustralian universities and concludes that there is a need to reform the gover-nance arrangements created by the 1992 Act.

Pre-and post-1992 universities have different governance structures.The question of different forms of governance for pre-and post-1992universities was considered by the Nolan Committee, which concludedthat ‘Many of the institutions have evolved systems of governance overmany years and it would require evidence of substantial misconduct tojustify sweeping changes. We received no such evidence’ (CommitteeOn Standards In Public Life, 1996, p. 3). The conclusions of Nolanwere noted and re-affirmed by the Dearing Committee (Dearing, 1997,para. 15.35). The model of governance that Dearing favoured wasindeed very much closer to the post- rather than the pre-1992 model.

Higher Education Quarterly, 0951–5224Volume 56, No. 3, July 2002, pp 276–286

Blackwell Publishers Ltd. 2002, 108 Cowley Road, Oxford OX4 1JF, UKand 350 Main Street, Malden, MA 02148, USA.

The reports of Nolan in 1996 and of Dearing in 1997, however,predated most of the ‘causes célèbres’ in higher and further educationgovernance. At the time when the Nolan Committee was taking itsevidence and reporting, only a small number of problems – atHuddersfield University, Portsmouth University and Derby College,Wilmorton – were in the public domain. Major causes célèbres in higher(Glasgow Caledonian, Southampton Institute, Swansea Institute andThames Valley) and further education (Barnsley, Basildon, Bilston,Coventry-Hereward College, Gwent, Halton and Moray) had yet toemerge.

There is a growing recognition, however, of the need for a review ofgovernance arrangements across the sector, as for example was arguedby Farrington (Farrington, 1995, p. 33) and, from a different perspec-tive, in a report by PA Consulting (Higher Education Funding Councilfor England, 2000). The need for a review is enhanced by the currentconcern for mergers and rationalisation (Council for Industry andHigher Education, 2001) and the difficulties that different governancearrangements would present for mergers across the former binarydivide: for example, would a new, merged institution adopt a pre- orpost-1992 governance model?

Some commentators consider that this need for wholesale reformacross the sector precludes any special focus on governance in the statu-tory HECS.1 Hall and Hyams comment:

it has been suggested that the constitutional structure of the statutory univer-sities, with its stress on corporate managerialism, a mainly ‘lay’ board, andoptional staff and student board members, make those institutions particu-larly susceptible to misgovernance. . . . This response is probably unwar-ranted and it detracts from a cogent argument that the governance systemsof all universities, chartered and statutory, need to be reviewed. (Hall andHyams, 1998, pp. 29–30)

However, what Hall and Hyams do not address is why the acute prob-lems of management and governance have been confined almost exclu-sively to the statutory HECS, with the notable exception of Cardiff inthe 1980s (Shattock, 1988) and recent, seemingly Cambridge-specific,problems (Shattock, 2001). It is the assertion of this article that theneed for general governance reform across the sector should not detractfrom the priority of dealing with the specific problems arising from the1988 and 1992 Acts.2

The 1992 Act created universities with insufficient regard for theprecedents of the creation of previous UK universities. Looking at ‘theformer university colleges which awarded degrees of the University of

Governance in HE Corporations 277

Blackwell Publishers Ltd. 2002

London’ (Committee of University Chairmen, 2001, p. 6), it is salutaryto see the very long individual apprenticeships that these institutionshad to serve to obtain university status. Shinn discusses UniversityGrants Committee (UGC) criteria for promotion of an institution touniversity status and gives as an example the long route that theUniversity College at Nottingham, opened in 1881, followed in becom-ing a university during the period from 1921 until 1948 when it finallyobtained its charter. The principal reason that Nottingham’s charterwas withheld for so long was because of the over-dominant role of laymembers in the college’s constitution (Shinn, 1986, pp. 119–129).

The ‘group of universities established in the 1960s’ (Committee ofUniversity Chairmen, 2001, p. 6), were remarkable in being created asnew universities ab initio. They adopted the modes of governance of theestablished universities. Of critical importance, however, was the use ofAcademic Planning Boards and Advisory Committees. James, writing ofthe establishment of York, gave a useful summary:

an Academic Planning Board was appointed, representing a broad spectrumof academic experience, though rightly small in numbers. The creation ofthese boards, the composition of which was suggested by the UniversityGrants Committee, for the seven new universities was an innovation. Newuniversities created before the war had been university colleges, denied fulluniversity status, and giving the degrees of London University. When Keelewas founded a new pattern was tried, in which it gave its own degrees, butsome control over academic policy was exercised by three sponsoring univer-sities. With the seven new universities yet another method was tried. Fulluniversity status [was] accorded straight away, including the power to giveboth first and higher degrees, but in their early years the integrity of theiracademic standards, their senior appointments, and the broad outlines oftheir studies [were] under the general supervision of their academic planningboards. (James, 1966, p. 34–5)

When the Robbins Committee considered the role of the thencolleges of advanced technology (CATS), the report concluded thatthey should receive university status and that:

It also follows that these institutions should have the forms of governmentappropriate to university status. For example, the boards of studies shouldassume the character and powers of a university senate . . .; and that imme-diate steps be taken to grant charters and to transfer responsibility for financeto the body responsible for university finance. In this respect the status of theColleges of Advanced Technology should at once become equivalent to thatof existing universities. As regards powers of self-government, we recommendthat an Academic Advisory Committee, similar to the committees which theUniversity Grants Committee has established for each of the new universities,should be created for each college. These committees should be charged with

278 Higher Education Quarterly


the duty of reviewing courses and approving the arrangements for degrees,including the appointment and the service of external examiners. They wouldalso satisfy themselves about the procedure for appointing academic staff.They should continue to discharge these functions until such time as theinstitutions are judged ripe for complete independence. We expect that forsome of the colleges arrangements of this sort will not prove to be needed formore than a very short period. (Committee on Higher Education, 1963,paras. 394–5)

It is interesting to note the significance which the Robbins reportafforded to royal charters not only in relation to the CATs above butalso in its recommendation for establishing the Council for NationalAcademic Awards (CNAA). The report stated (para. 433) that ‘Wethink that it would contribute to the standing of the Council and of itsawards if it could be established under royal charter’. The CNAAobtained its royal charter in September 1964 (Silver, 1990, p. 45).

In contrast to these precedents, the post-1992 universities werecreated by the 1992 Act without the individual apprenticeship of theearlier UGC model, nor the safeguards of the academic planning boardsor academic advisory committees of the new universities of the 1960sand former CATS. The post-1992 universities had been freed fromlocal authority control by the 1988 Act, and with the 1992 Act, thechecks that had been exercised by the CNAA were removed. Whilst itis possible to compare the role of the CNAA in bringing institutions touniversity status with that of academic advisory committees for CATs,the CATs had experienced similar lengthy working with the predeces-sor of the CNAA, the National Council for Technological Awards, butstill had academic advisory committees in their early years as universi-ties. Moreover, the roles of the academic advisory committees and theCNAA were not the same, as Silver made clear (Silver, 1990, p. 61).

Arguably, there was also insufficient regard in framing the 1988 and1992 legislation for the then emerging problems and principles ofcorporate governance. The post-1992 university governance modelrelied on aspects of an imported, problematic, commercial-businessmodel, with high reliance on non-executive directors. It is questionableto what extent the governance of education should mirror commerce:Farrington refutes ‘the implied analogy between a board of directorsand a governing body’(Farrington, 1995, pp. 29–30). Furthermore, therole of the non-executive director in business has itself proved to beproblematic and has been subject to criticism (Mayer, 2000). The1988 and 1992 Acts may be seen to be based on the principles of a‘stewardship’ rather than an ‘agency’ theory of governance leading to



insufficient checks and balances. Tricker distinguishes these theories asfollows:

The traditional notion of the company and its governance is rooted incompany law. The theoretical underpinning is normative, based on the beliefthat stewardship will be exercised by the directors to whom the company(that is the shareholder-members meeting together in a properly convenedmeeting) has delegated responsibility and authority, while requiring appro-priate accountability. Such a stewardship theory of corporate governance isan adjunct of classical management theories. It is predicated on the belief inthe just and honest man, acting for the good of others, under the law.

More recently agency theory has offered an alternative view on corporategovernance. The firm is presented as a nexus of contracts between princi-pal and agents, with shareholders being the principals and the directorstheir agents. Agency theory argues that agents will act with rational self-interest, not with the virtuous, wise and just behaviour assumed in the stew-ardship model. Consequently checks and balances are needed, with theirinevitable agency costs, to counteract potential abuses of power. (Tricker,1994, p. 4)

The method of creating the post 1992 universities is all the moresurprising when one looks at the history of governance in the former poly-technics. Pratt, in his chronicle of the ‘Polytechnic Experiment’, asserted:

One of the key features of the polytechnic sector of higher education was thenature of governance of institutions. Unlike the universities, the polytechnicswere local authority institutions. Their relationship with local educationauthorities proved to be one of the most difficult problems they faced. It wasthis that, perhaps more than any other issue, led to the abolition of the poly-technic sector. (Pratt, 1997, p. 274)

The governance model for the statutory HECS affords a limited rolefor staff and student representation on governing bodies. Farringtonnoted with regard to the Education Acts of 1988 and 1992 that ‘Inthose institutions with an instrument of government made under thislegislation the extraordinary situation has arisen in which there is nolegal requirement for any staff or student governors’ (Farrington, 1995,p. 23). This remains the case although following Huddersfield,Committee of University Chairman (CUC) guidance is that ‘it isstrongly recommended that governing bodies should not exercise theirpower to exclude such members’ (Committee of University Chairmen,2001, para. 4.50). It is surely unsatisfactory, however, for the represen-tation of staff and students to rely on CUC guidance, not least given thesignificant role of staff in whistle-blowing on malpractice, and given thatstudents are now making such large financial as well as time investmentsin obtaining their qualifications.



Another problem in the governance arrangements established by the1998 Act is that academic boards in the statutory HECS have arestricted role compared to the pre-1992 university senate. Shattockconsidered that

The 1992-style governing body may or may not be an effective structure foraccountability purposes but unless it is partnered by a powerful academicboard which has real influence on the way the institution is run it is unlikelyto be able to deliver high quality academic performance. It is not for nothingthat the constitutions of the pre-1992 universities represent a binary struc-ture where a Senate’s ‘supreme authority’ in academic matters is guaranteedby statute, and balances with the governing body’s powers in relation tofinance and overall management. (Shattock, 1998, p. 44)

Similarly, McNay contrasts the academic boards of modern univer-sities, which are advisory to the executive, with the much strongerpowers of senates in older, chartered, universities (McNay, 1999, p.42). The weakness of the academic board in the post-1992 universitiesis also, in part, a legacy of their weakness in the polytechnic era. Therehad been long and considerable concern over the generally perceivedweakness of the operation of academic boards in polytechnics incontrast to the university senate (Pratt, 1997, p. 297).

However, the principal flaw in the governance arrangements estab-lished by the 1988 and 1992 Acts is that governance is predominantlyof a lay nature, and that the lay boards, as constituted, have proven tobe an ineffective governance check on management. A number of recur-rent problems have been revealed by reports on the causes célèbres infurther and higher education referred to above. Among these are thefollowing:

• governing bodies have provided inadequate oversight of institutions’activities;

• governing bodies have failed to ensure that chief executives act withthe authority of the governing body and are fully accountable to it;

• strategic planning has been undertaken with little involvement ofgoverning body members;

• ill-considered ventures have been entered into, including inappropri-ate overseas activities, operations of subsidiary companies and fran-chising;

• major financial problems, sometimes (in further education) involvingusing allegedly inflated figures to support funding claims;

• alleged financial improprieties by senior management, includingremuneration and severance packages and overseas travel.



The above problems may be seen as the products of a predominantlylay governance system as created by the 1988 and 1992 Acts, whichafforded considerable autonomy to governing bodies, with limitedexternal reviews and checks by funding councils and ministries, partic-ularly in higher education. The problems are a clear result of this gover-nance system because, as a number of the reports reveal:

• the time commitment that can be expected from unpaid lay governorsis limited and hence meetings of the governing body and its commit-tees are often infrequent (and less frequent than meetings of companydirectors in the business sector);

• the lay membership is usually under-trained to deal with the scale andcomplexities of modern further and higher education; such trainingwould of course add to the time commitment of governors;

• lay governors are greatly dependent on the executive for reliable,timely and full information. This can readily create a culture in whichthe governing body is over-reliant on such information without beingin a position critically to evaluate it. Senior management can abuse thisdependence effectively to control the form and content of how issuesare presented, and limit and restrict any challenge from governors;

• both external and internal audit processes have often failed to providean adequate independent check and source of information to gover-nors; audit committees, which are normally composed of lay gover-nors only, have often proved inadequate and untrained;

• the system in statutory HECs, whereby lay governors are appointedonly by existing lay governors to serve on the board (in contrast to pre-1992 universities where appointments have to be approved by the fullgoverning body), can lead to an insufficient range of expertise in theboard to fulfil adequately its responsibilities and can allow power to beconcentrated in a small cabal of governors and senior staff. It may alsobe incompatible with the Nolan principles on standards in public life;

• clerks to governing bodies may not be sufficiently detached from theday-to-day management of the institution for the governing body tobe given independent advice.

By contrast, in a shared-governance system characteristic of mostpre-1992 universities, the governing body with its significant full-timesenior academic membership has a wider expert- and inside-knowledgeof the sector and the institution, which can provide a more effectivecheck on senior management, particularly when there is often a lessestablished managerialist culture than in many post-1992 institutions.Whilst predominantly lay governance systems may operate successfully



in other countries, notably the USA, the key differences are the meth-ods of appointment of board members compared with the present UKsystem outlined above, as well as the high status afforded to Americanuniversity trustees.

Problems arising from these inadequacies in the governance arrange-ments for the statutory HECs were writ large in the further educationcolleges whose governance arrangements came from the same legisla-tion. The problems arising in a number of these colleges received widecomment and publicity, and resulted in the introduction of significantmodifications to the instruments and articles of government (FurtherEducation Funding Council, 1999). In contrast, for higher educationthe legislation remains unaltered and hence the risk of exposure togovernance problems remains.

Recent Australian experience offers a warning for governance in UKhigher education. The binary divide was also abolished in Australia, andUK changes in higher education governance have mirrored trends inAustralia, where legislation has been similar and the 1995 HigherEducation Management Review (Commonwealth of Australia, 1995)influenced the Dearing Committee. Meek and Wood, authorities onuniversity governance in Australia, have written:

Management practices within Australian institutions are not, contrary towhat is often portrayed in the popular press, in disarray. Nonetheless, it isclear that the push towards corporate management styles and characteristicsis creating a great deal of pressure within and between all levels of manage-ment. The results reported above suggest increased conflict and alienationamongst rank and file staff as institutions become more corporate like andmanagerial in orientation. The executive appears in danger of increasinglydistancing itself from the collegial needs and philosophical outlooks of mostacademic staff, while itself lacking confidence in the institutions’ peakgoverning body. This is hardly a formula for successfully meeting the presentand future management challenges facing Australian higher education.(Meek and Wood, 1998, p. 179)

Another significant analysis of governance trends in Australian highereducation is provided by Marginson and Considine (2000), who iden-tified the development of an ‘Enterprise University’ culture in Australia.Widespread concerns about a number of governance-related causescélèbres in Australian universities led to the establishment of a SenateInquiry, which reported in September 2001. The report expressedconcern that:

Changes to policy and financial settings for the sector and to managementand governance arrangements within institutions . . . have significant, andpossibly unintended, consequences for the nature and role of universities in



Australia. Universities are being transformed from public, albeitautonomous, institutions, with a primary role of providing education andresearch for the longer-term benefit of the broader Australian community,into institutions increasingly concerned with meeting the short-term, andoverwhelmingly economic, needs of the market and ensuring their ownfinancial survival. Many are now conceiving themselves as ‘entrepreneurialuniversities’ with an ultimate goal of financial self-reliance and, in somecases, global ambitions. As a consequence, what has previously been consid-ered as a national system of higher education is now in peril of dissolving intosmaller, even individual, units involved in debilitating competition. Undersuch circumstances, the collective value of Australian universities to nationalprograms and needs is in danger of being sorely reduced. (SenateEmployment Workplace Relations Small Business and EducationCommittee, 2001, p. 14)

Since the governance arrangements created by the 1992 Act haveproven to be so flawed, this paper in conclusion asserts that there is aneed to reform the governance arrangements for the statutory HECs,based on an established ideal of university governance; and that thestatutory HECs should be encouraged, on an individual basis, to seek aroyal charter. An ideal of university governance was outlined byEustace, ‘that universities (and other academic bodies) should becomposed of scholars not as individuals but as a body – literally, aclerisy . . . – a body formed as equal scholars who are able to order theirown affairs’ . Similarly, Halsey and Trow argued ‘that in Britain thereis a distinctive idea of the university which serves also as an ideal. . . .the internal affairs of the ideal university should be governed by ademocracy of its own academic members’ (Halsey and Trow, 1971, p.67). The current problems and proposed reforms at Cambridge,however, highlight that governance by the clerisy can be too exclusiveand that there is a need for some external representation to provideshared governance.

The decision to create new universities in 1992 by statute rather thanby charter failed to take proper account, not only of this ideal of univer-sity governance, but also of the role of the royal charter in British soci-ety. Farrington asked, ‘Are there in fact any advantages in having a royalcharter in the 1990s?’ and concluded, ‘it is a fact of English life thatthere remains a certain kudos about the possession of a charter from theSovereign. Institutions created in pursuance of a public general statute,although for practical purposes on a generally equal footing with theothers, nonetheless are . . . different in the scope of their legal powersand for both of these reasons the new institutions (and possibly theancients) may yet seek charters of their own’ (Farrington, 1998, pp.37–8). Perhaps some encouragement for institutions to seek a royal



charter could be recognised in the ‘lightness of touch’ of externalscrutiny for chartered institutions. Such a move to a common charteredstatus could perhaps help remove some of the perceived divisivenessbetween pre- and post-1992 institutions.

Finally, the governance arrangements for the statutory HECs can beargued to be problematic not only for the statutory HECs but also forthe chartered universities. There are dangers for the pre-1992 universi-ties of failing to protect the ideal of university chartered governance.Shattock warned,

The concept of bicameral governance, conceived in the nineteenth century toprotect academics from lay intervention into academic affairs, can no longerbe regarded as inviolable within universities, because it has already beenbreached in the post-1992 universities. Indeed it may even be that the impactof size, financial constraint and the sheer burden of self government in themodern period have sufficiently undermined academic morale that manyacademic communities would do little to defend the independent decision –making powers of their senates, if called to do so. (Shattock, 1999, p. 277)

Statutory governance should not be recognised as an end-type but as aproblematic transitional form to chartered governance consistent with atraditional ideal and with the practice of pre-1992 universities.

Notes

1. In this paper the term ‘statutory higher education corporations’ (‘statutory HECs’) willbe taken to include the post-1992 universities and the Colleges of Higher Education.

2. In this paper the 1992 Further and Higher Education Act is referred to as the ‘1992Act’ and the 1988 Education Reform Act as the ‘1998 Act’.

References

Committee of University Chairmen (2001) Guide for Members of Governing Bodies ofUniversities and Colleges in England, Wales and Northern Ireland. 3rd ed. 01/20. Bristol:Higher Education Funding Council for England.

Committee on Higher Education (1963) Higher Education. Report of the committeeappointed by the Prime Minister under the Chairmanship of Lord Robbins 1961–63. Cmnd.2154 (The Robbins Report). London: Her Majesty’s Stationery Office.

Committee on Standards In Public Life (1996) Local Public Spending Bodies. Further andHigher Education Bodies (including Universities), Grant Maintained Schools, Training andEnterprise Councils and Local Enterprise Companies, Registered Housing Associations.Second Report of the committee of Standards in Public Life. Chairman Lord Nolan. VolumeI: Report (Cm 3270–1). London.

Commonwealth of Australia (1995) Higher Education Management Review. Report ofHigher Education Management Review Committee (The Hoare Report). Canberra:Australian Government Publishing Services.

Council for Industry and Higher Education, The (2001) Cooperation and Collaboration:Informing the Debate. London: The Council for Industry and Higher Education.



(Dearing Committee) National Committee of Inquiry into Higher Education (1997)Higher Education in the Learning Society: Main Report. London: The Stationery Office.

Eustace, R. (1987) ‘The English Ideal of University Governance – a missing rationale andsome implications’. Studies in Higher Education, 12, pp. 7–22.

Farrington, D. (1998) Law of Higher Education. 2nd ed. London: Butterworths.Farrington, D. (1995) ‘Universities and Corporate Governance: a model for the future’.

Hume Papers on Public Policy, 3, pp. 21–38.Further Education Funding Council (1999) Instruments and Articles of Government:

Modifications (Circular 99/30). Coventry: The Further Education Funding Council.Hall, J. and Hyams, O. (1998) ‘Governance in an Era of Accountability and Potential

Personal Liability’. In D. Palfreyman and D. Warner (eds.), Higher Education and theLaw. A Guide for Managers (Ch. 3). Buckingham: SRHE and Open University Press.

Halsey, A. H. and Trow, M. A. (1971) The British Academics. London: Faber and Faber.Higher Education Funding Council for England (2000) Better accountability for higher

education. Summary of a review for the HEFCE by PA Consulting. Report August 00/36.Bristol: Higher Education Funding Council for England.

Marginson, S. and Considine, M. (2000) The Enterprise University. Power, Governance andReinvention in Australia. Cambridge: Cambridge University Press.

Mayer, C. (2000) ‘Corporate Governance in the UK’. Hume Papers on Public Policy, 8, pp.1–9.

McNay, I. (1999) ‘Changing cultures in UK higher education: the state as corporatemarket bureaucracy and the emergent academic enterprise’. In D. Braun and F.-X.Merrien (eds.), Towards a New Model of Governance for Universities? A ComparativeView (pp. 34–58). London: Jessica Kingsley.

Meek, L. and Wood, F. Q. (1998) ‘Higher education governance and management:Australia’. Higher Education Policy, 11, pp. 165–181.

Pratt, J. (1997) The polytechnic experiment 1965 – 1992. Buckingham: SRHE and OpenUniversity Press.

Rusholme, L. J. O. (1966) ‘The University of York’. In M. G. Ross (ed.), New Universitiesin the Modern World. London: Macmillan.

Senate Employment Workplace Relations Small Business and Education Committee.(2001) Universities in Crisis. Inquiry into the Capacity of Public Universities to MeetAustralia’s Higher Education Needs. Canberra: Parliament of Australia.

Shattock, M. (1988) ‘Financial Management in Universities: the Lessons from UniversityCollege, Cardiff’. Financial Accountability & Management, 4, pp. 99–112.

Shattock, M. (1998) ‘Dearing on Governance – The Wrong Prescription’. HigherEducation Quarterly, 52, pp. 35–47.

Shattock, M. (1999) ‘Governance and management in universities: the way we live now’.Journal of Education Policy, 14, pp. 271–282.

Shattock, M. (2001, 2 November) ‘CAPSA and Its Implementation. Report to the AuditCommittee and the Board of Scrutiny University of Cambridge. 25 October 2001.Part B: Review of University management and governance issues arising out of theCAPSA project’. Cambridge University Reporter, pp. 177–205.

Shinn, C. H. (1986) Paying the Piper. The Development of the University Grants Committee1919–1946. Lewes, East Sussex: Falmer Press.

Silver, H. (1990) A Higher Education. The Council for National Academic Awards and BritishHigher Education 1964–89. London: Falmer Press.

Tricker, R. I. (1994) International Corporate Governance: Text, Readings and Cases.Singapore: Prentice Hall.



governance in higher education corporations: a consideration of the constitution created by the 1992...

Documents