Is the time right to reform the auditors?

The world’s largest audit companies are the external auditors for the majority of higher education providers in the UK. Governing bodies rely upon their work but is this reliance justified? Our governance editor David Williams says a new, hard-hitting book, Bean Counters: the triumph of the accountants and how they broke capitalism, argues it may not be.

A former tax inspector, who writes for Private Eye magazine, Richard Brooks traces the roots of auditing back to the nineteenth century and the fraudulent practices associated with the development of the railways. The auditor was an independent and trusted agent exposing cases of fraud and false accounting. Their independence and actions checked the excesses of capitalism. The roots of today’s Big Four accountancy firms can be traced back to the early audit companies.

In a tough assessment of their power and influence, Brooks offers multiple examples where the auditors failed in their primary task of finding or exposing false accounting.

Brooks believes the independence and actions of the large audit companies no longer align with those of their predecessors. He says today’s auditors are compromised by conflicts of interests. An audit offers the opportunity to sell a client non-audit services (eg. tax advice, management consultancy) and boost their fees. The latter, rather than the former, is their primary objective.

He notes that when auditing financial statements, too often auditors fail to challenge management. False accounting is either not identified, or only identified at a late date by the auditor. If junior members of an audit team raise concerns about an organisation’s business practices, they are often over-ruled by their seniors. He says that too often organisations ‘fall over’ shortly after gaining a clean audit opinion. Regulators are in most cases ineffective, current or past senior members of the Big Four often serving on their governing bodies.

Brooks sees the process as circular, with the influence and lobbying of the auditors limiting reform and allowing existing business practices to continue. He suggests “…most accountancy failings are less about dishonesty and more of tales of insufficient courage, curiosity and independence of thought in the face of huge commercial incentives.”

The collapse of Carillion, including the application of accounting standards which were signed-off by the auditors, suggests criticism about the rules and their application (see, for example, the Financial Times, 18 June 2018) has substance. Further, the recent parliamentary select committee’s report into Carillion’s collapse laments the weakness in the checks and balances on the company shown by three regulators. Criticisms of one, the Financial Reporting Council (FRC), as “chronically passive” and “timid” and requiring cultural change, are requoted in the call for evidence as part of the current review of the FRC.

Cynics might suggest the FRC’s recent findings that the audit quality of the ‘Big Four’ has declined, comes late in the day. The FRC finds a significant number of audits require improvement, not least in the challenge to management and the exercise of professional scepticism. Is the same true of audits in higher education?

What needs to change then – the rules, the auditors or the regulators? Brooks believes the system of setting accounting standards (the rules), the functioning of the auditors and their regulation (the checks) are fundamentally broken. Tinkering will not result in an effective system of audit. The Big Four should be broken-up and their accounting and consultancy services separated – a fundamental flaw is that the auditee pays the auditor. For this to be addressed, auditing should become a public regulatory function funded by taxation/levies. Auditing should be conducted in the public and not the private interest. To create an effective multi-level approach, independent regulation is also required.

How far might some of the issues about audit influence the current revision of the Committee of University Chairs (CUC) handbook for HEI audit committees? Equally, in future, will the competent authority for audit (the FRC) expect more of auditors? Will the regulatory bodies for higher education in the different nations of the UK, require enhanced assurance from the auditors?

Future standards and regulation do not detract from the current need for all institutions to have an effective audit committee. Effectiveness includes ensuring that the external auditors are indeed challenging management, testing key assumptions behind financial forecasts and exercising appropriate professional scepticism.

Auditors are a vital part of the governance system and any suggestion that their work is not effective has to be taken seriously.

Further information for governors about audit can be found via this linkDavid Williams edits Advance HE’s governance pages.

Dates for our governor development programme 2018/19 are now available

Are governors facing information overload?

Four clear baubles containing who where when how why

Governors must have confidence in the information that they are being given. They also need it to be clear, concise and timely information upon which they can rely. Simon Perks asks how that can be achieved.

The Advance HE project, integrated thinking and reporting (IT&R) can help governors and their institutions to focus on material issues and take a holistic approach to strategic governance. Ten HEIs are participating in a pilot project to examine how universities can better report on how they create value, particularly to critical stakeholders such as governors and students.

The higher education sector and the responsibilities of individual institutions are becoming ever more complex. Institutions are actively seeking approaches to deal with the range of issues and challenges with which governing bodies are required to concern themselves, and scrutiny of what institutions do and how they do it has risen swiftly to the top of the political and media agenda. Consequently, the need for governors to obtain reliable assurance on their institutions’ activities has never before been so great.

Whilst a holistic approach to stakeholder engagement is part of the integrated thinking and reporting concept, the need for governors to engage in the process of short, medium and long term value creation and to be part of the communication process to demonstrate that value is critical. You can read more about putting all stakeholders at the heart of value creation here.

The drive for greater and better information, and assurance took centre stage in the recent workshop for the IT&R project and the needs of governors featured strongly.

“Governors need to know what their institution is doing”, explained Simon Taylor, director of financial services at Sheffield Hallam University and a governor of Barnsley College.

“They need to know the risks that it is facing. And they need clear assurance around the management of risk, exposure to fraud and other challenges”.

As the challenges faced by institutions and the assurances required by governors grow, so too do the number and length of reports that governors are expected to read. Participants in the IT&R project agreed, that can make it difficult for governors to stay on top of the information provided to them. Furthermore, reports to governors on specific issues do not always set out the bigger picture. And in their drive to provide full and complete information, such reports may not highlight adequately the issues that are of most concern to the governing body.

We need a more holistic way of thinking about our institutions’ activities and of reporting to governors. And integrated thinking and reporting provides a way of doing just that.

The project draws on the principles and practice of the international Integrated Reporting (IIRC) framework, which is designed to allow organisations across all sectors to communicate more clearly how they create value in the short, medium and long term. An integrated report should be concise yet reliable, complete yet focused on material issues. Ideal, then, for governors.

The benefits to governors of such an approach to reporting are clear. It provides a complete and inclusive insight into the institution and its activities. It focuses on how the institution creates value for its students, staff, funders and society. It considers how well the institution uses the financial and other resources available to it. And it provides information on the institution’s failures as well as its successes. In short, it goes behind the facts and the figures to really tell the institution’s story.

Participants agree though, that an integrated approach to reporting to governors can only work if governors themselves are engaged actively in developing the reporting framework. What issues are most important to them? What information do they want? How frequently do they need it? How would they like to see it presented? What other assurances do they require?

By creating clear, concise and insightful reports that get quickly to the heart of the issues facing institutions, these institutions can help governors to focus on what is important. To see the bigger picture.To gain insight into what the institution is doing and the challenges that it might face. That is what integrated thinking and reporting is all about. And that, surely, is what being a governor is all about, too.

Simon Perks has written two “Getting to Grips With” guides for Advance HE: Getting to Grips With Finance and Getting to Grips with Efficiency. He is the founder of Sockmonkey Consulting. Click here to find out more about the IT&R project, or come to our national event on 11 September. Browse our extensive resources for governors and sign up to our governance new alert service.

Portal to a more diverse future?

Photo montage of diverse faces

Higher education is waking up to the reality that diversifying governing boards will be imperative to the future success of universities. Ahead of the launch of the Board Vacancies portal, Jenny Tester, Project Associate for the Board Diversification Project at the Leadership Foundation discusses the diversity case for increasing the transparency of university board vacancies.

The Parker Review and the Davies Report have shone light on the lack of BME and female representation on boards in FTSE 100 companies. These reports, and the narrative surrounding them, challenge businesses, executive search firms and industries to take action to improve board diversity without the use of enforced quotas.

At a time when the cultural climate is one of action against discrimination, with high profile topics such as the gender pay gap and the #MeToo movement dominating the headlines, the opportunity for advancing diversity is unparalleled. In higher education, the Higher Education Funding Council for England (Hefce) has set a target of 40% female representation on boards by 2020. Last month Scottish legislation was passed requiring public boards, which includes universities, to comprise 50% women by 2020.

According to the report Women Count (Jarboe, 2016) women make up 36% of boards and 19% of Chairs (up from 32% and 12% respectively). In order to meet Hefce’s target on gender alone, the pace of female appointments to board positions needs to increase significantly over the next year. Although much of the current focus on diversifying boards has centred on increasing BME and female representation, the case for diversity should be viewed through a much broader lens.

Diverse perspectives, expertise and experiences strengthens the effectiveness of governing boards, combating unconscious bias and groupthink, enabling governors to interrogate the HEI with the benefit of a breadth of knowledge and experience, and inspiring a future generation from diverse backgrounds to get involved. Ahead of the Leadership Foundation’s Equality, Diversity and Inclusion Retreat, Simon Fanshawe explored how diversity can be advanced through cultural considerations in this recent blog post.

Universities are being urged to reform widening participation – increasing student representation from different socioeconomic backgrounds, ethnicities and geographical regions. As the focus shifts to put the student at the centre of higher education, with tax-payer and student return-on-investment central to the debate, pressure will grow for governing bodies to mirror the diversity of the student body and communities they serve.

The challenge

Despite goodwill in higher education, and a recognition of the need for change, the reality of recruitment practices for board appointments often results in the appointment of ‘the usual suspects’, typically from a narrow demographic. A recent survey conducted by AHUA and the Leadership Foundation found over 50% of board vacancies are not publicly advertised, relying on the networks of the Chair and board members to identify suitable candidates. Although this can be an effective way of securing strong candidates who would have otherwise not considered a university board appointment, it does narrow the pool of candidates to those in the board’s immediate network and risks marginalising those beyond.

Potential candidates who have not built networks in higher education therefore lack the necessary visibility and are less likely to be made aware of opportunities. Couple this with the tendency to hire in the image of self, when only 19% of Chairs are female, and the result is a hiring norm which perpetuates rather than tackles inequality. Where vacancies are advertised, their placements range from newspapers which target a certain readership to higher education recruitment pages which lack the visibility to candidates outside the higher education sector. Higher education now needs to make tangible changes to achieve board diversity. As board recruitment processes can last months, in order to meet Hefce’s target we need to take action now or female representation will fall short by 2020.

Possible solutions

In order to attract a more diverse pool of candidates, there needs to be an increase in the transparency and accessibility of vacancies. For those considering a board level appointment in higher education, a central hub to locate vacancies will serve to increase the transparency of board appointment processes and send a message of inclusivity and accessibility to candidates from diverse backgrounds.

As part of a broader project aimed at diversifying boards in higher education, the Leadership Foundation, in collaboration with the Committee of University Chairs, is piloting a board vacancies portal aimed at providing a central repository of board vacancies across the sector. Not only will the portal provide a central space for those considering board appointments in higher education to locate vacancies, it will also draw new talent to the sector through a series of partnerships with networks and organisations seeking to support diversity. The portal is currently being trialled with a select number of opportunities, with a view to launching sector-wide in September 2018.

The portal is only one strand of the Board Diversification Project, funded by Hefce, Hefcw and the Department for the Economy in Northern Ireland, which includes practical, related initiatives to support greater diversity within higher education boards and those applying for board roles, whether in higher education or outside the sector.

Other strands include:

– Developing a Board Appointment Diversity Framework in partnership with the leading search firms in the sector. This follows from recommendations from the Leadership Foundation report ‘Increasing the diversity of senior leaders in higher education: the role of executive search firms’ authored by Professor Simonetta Manfredi in March 2017.

– Piloting two board readiness workshops following feedback from our Women Onto Boards alumni development survey showing 75% of respondents would be interested in further support in order to develop the right profile and skills.

– Conducting a scoping study to assess the feasibility, effectiveness and practicalities of developing a Board Apprenticeship Scheme in the higher education sector providing aspiring board members with a risk-free environment to gain the necessary knowledge and experience to pursue a board appointment.

The sector has significant opportunity, during times of upheaval and uncertainty, to make tangible changes to the diversity of its governing boards, and in so doing strengthening the quality of its governance for the future.

Jenny Tester is a project associate managing the Board Diversification Project at the Leadership Foundation for Higher Education. The project aims to increase gender and BME diversity on university boards through practical, related initiatives. Jenny was previously a senior consultant at an executive search firm, leading senior appointments in higher education.

5 steps to managing uncertainty

‘Managing uncertainty’ is a recurring and challenging aspect of leadership. Following his presentation at our recent governance conference, we asked Garry Honey of Better Boards, to summarise his 5-steps approach for governing bodies.

Uncertainty is a challenge for management boards and governing bodies within higher education

Acronyms like TUNA (turbulent-uncertain-novel-ambiguous) or VUCA (volatile, uncertain, complex, ambiguous) have been used to qualify new turbulent or volatile environments in which decisions need to be made. It is no coincidence that the key words ‘uncertainty’ and ‘ambiguity’ occur in both acronyms. The question we try to answer is – how should higher education leaders manage uncertainty to best advantage?

A governing body has a distinctly different role from a management board, yet there are some aspects shared by both. The most significant is having a vision of the future and making decisions around strategy and risk within the context of an environment containing uncertainty. Managing uncertainty is a leadership challenge.

An active approach

The first step towards managing uncertainty is to adopt an active approach to reducing risk which involves rejecting the traditional risk matrix based on probability and impact. This standard approach to risk management can be worse than useless as it can lead to misplaced confidence that all risks are known and understood; it ignores the fact that problems for organisations generally have multiple causes rather than a single risk event. The approach also leads managers and boards to ignore risks which they think will have a low probability but which could have a disastrous result. Instead, re-profile risk based on different axes: ease of control and ease of prediction. This will enable the leadership to actively reduce risk, and determine specific actions to improve control or prediction – a real benefit.

What’s on the risk register?

The second step is to separate risk, which can be estimated and assessed, from uncertainty which is simply unknown. Many risk registers conflate the two yet there is a growing realisation that a separation can be helpful. It is a matter of determining whether there is sufficient information to determine an outcome, where there is not there is uncertainty. The risk register should focus on outcomes which can be measured, the remainder being uncertainties.

Four types of uncertainty

The third step is to appreciate the four different types of uncertainty ranging from known-knowns to unknown-unknowns. The distinction between known-unknowns (jigsaw-type) and unknown-knowns (library-type) is most critical as correct labelling will determine the most suitable response. In each case information needs to be gathered but the method and location will be different.

Setting up coping mechanisms

The fourth step is the coping mechanism to deal with different types of uncertainty and the resources required to secure and act on it. This is where the governing body needs to work with the management board to calculate the cost-benefit of reducing uncertainty, especially where in some cases forecasts and estimates will inevitably be the more prudent option.

Avoid groupthink: be brave

The fifth and final step in managing uncertainty is to eliminate misplaced certainty. This is the human element inherent in cognitive bias and assumptions. This is challenging the conventional wisdom and beliefs that can render a board too complacent for sound judgement: anchoring, referencing, confirmation bias, over optimism, risk aversion, cognitive dissonance and groupthink.

Effective governance and leadership requires collective responsibility, yet a board is comprised of a disparate group of individuals so achieving this can be difficult. Improving board effectiveness is not simply a matter of getting the right people or processes, but of securing the right mind-set around the table. Judgement is the framework in which decisions are made collectively so this needs to be well-informed and free from prejudice. Bravery is needed to challenge some assumptions.

Why is bravery important? Because forecasting the future is rarely accurate, a cynic will say there are only two types of forecast: lucky and wrong! Higher education faces uncertainties about success metrics. Historically measured by research excellence and global ranking, today universities are expected to perform in student satisfaction and alumni employability rankings. Many universities failed to achieve the rankings they expected in TEF, because their priorities are on research excellence and the funding this attracts. The resources for research are not the same as for teaching.

Bravery is also important in the governing body when it comes to defining value to other stakeholders, such as the Treasury or Government. Who in your remuneration committee will challenge a vice-chancellor salary award or suggest that staff morale should be a higher priority? Furthermore, how should a governing body view the recruitment of foreign students to courses because they pay higher fees and represent a lucrative income stream?

The biggest challenge for universities comes in the wake of the NAO report suggesting that the sector as a whole delivers poor value for money. A loan-based system has a very different dynamic to a grant-based one, creating ‘customers’ who decide on the cost-benefit of a university education within the context of their career.  For the next generation student debt repayment could become a burden as big as mortgage repayment for ours. There is uncertainty about the purpose of higher education and hence how value is determined. There are 130 universities in the UK which, as one delegate commented ‘all operate the same strategy’. Is this sustainable?

Garry Honey is the co-founder of Better Boards, leadership advisors on governance and risk issues. He has worked with several universities and leading business schools together with his colleague and co-founder Paul Moxey. Better Boards works with governing bodies and leadership teams to help them implement this five step process to managing uncertainty. 

For more on the Leadership Foundation’s series of programmes and events for those working in governance in higher education, including our new Academic Governance resources visit: www.lfhe.ac.uk/governance

 

How I got onto a board

Jenny Ames worked in academia for 35 years across eight universities. Keen to join a board she attended a Women onto Boards event in 2017 and was appointed board member of Aneurin Leisure in July 2017. Here she reflects on her personal journey to board member.  

Becoming a board member is something that I started to seriously consider around 10 years ago, but the seeds were sown much earlier at the beginning of my career.

My background is in food chemistry research, as an applied subject this meant much of my research involved collaborating with industry. For example my first postdoctoral contract was funded by an American multi-national and following that as a head of my research group, most of my grants involved at least one external company. I enjoyed working with people from the private sector, learning how their companies operated and seeing my expertise being applied to address the challenges they faced. They valued my knowledge and ability to manage my research team and deliver projects on time. I got a sense of achievement.

Get a mentor or coach who is right for you

When I started my academic career in the early 1980s, there was no Leadership Foundation and, at least in my university, no culture of formal mentoring or coaching. From 2005-2017 I lived away from the family home in the week and progressed my career at four universities in different parts of the UK. It became important to me to be part of the community where I worked. I had also reached the stage where I had a wealth of experience that others could benefit from, including mentoring however, it was only in my last 10 years in academia that I myself benefited from various mentors and coaches to whom I will always be grateful.

The most valuable experience I had was with a professional coach and it was she who encouraged me to work towards a board role. The advice was three-fold: find someone who has such a role and ask to shadow them, go on a course so you understand more about what it involves, and join the Institute of Directors (IoD). I didn’t get around to shadowing someone but I did join the IoD.

Learn the basics

Importantly, my faculty supported me to attend an intensive two-day programme, The Effective Non-Executive Director, run by the Financial Times. This covered the soft skills and the hard skills required of a successful non-executive director (NED). This course gave me the tools I needed and it included a session with a NED head hunter. She advised that for someone who hadn’t been on a board before (like me), a good place to start was as a school governor or a trustee of a charity. Another attendee suggested joining Women on Boards to find possible roles. I also engaged with Reach Volunteering and I registered on the SGOSS Governors for Schools website.

Understand the value of the skills you do have and know your own values

It was the SGOSS site where I found an advert for a school governor about 10 miles from my flat. I applied, met with the head teacher and chair and deputy chair of the Board of Governors and was appointed.

I have a separate CV and covering letter template for board roles. The focus is hard skills like budgeting, health and safety, and governance. Soft skills include committee chairing and mentoring. I do not have any children, and so had no experience or knowledge of the current school system, but working at a local university was attractive to the school along with my experience of, for example, managing budgets and chairing large, formal meetings (although all in a research context). It was also important to be able to demonstrate that my values about enabling people to reach their potential aligned with their own.

This role got me off the starting blocks and I was very fortunate to find myself in an excellently run school. I learnt a lot about school education and was able to contribute to the finance and resource sub-committee. I left after a year as I was moving to another university.

Use your network

Early in 2017 I attended one of the Leadership Foundation Women onto Boards events aimed at encouraging more women to apply for a board position. Having given up the school governor role and done nothing since I decided to look for a new position. One point made at the event was that men often get a board position by asking someone in their network for help. Having a large and diverse network, I decided to take this approach. I had recently met someone at a regional IoD meeting and was due to follow up with him. When I asked for advice about a board role, he mentioned that something was coming up that might suit me. He put me in touch with the organisation so I could find out more. Shortly afterwards the job was advertised nationally and I applied. I was interviewed in June and appointed in July 2017 as a member of the board of trustees at Aneurin Leisure in South Wales.  It is early days and I plan to spend a day with the trust to help me to better understand how I can contribute.

A final word

It is important to join an organisation that you feel passionate about. One whose values align with your own. You are contributing your time and skills, usually for free. If you and the organisation are well aligned, you will both be amply rewarded.


Women onto Boards
For more information about the series including dates, location, pricing and how to book your place visit the Women onto Boards homepage.

Governor Development
Find out the latest in governance, including recent publications and what’s next in the Governor Development Programme, via our website

Our Equality and Diversity Programmes
The Leadership Foundation for Higher Education is committed to addressing the lack of representation in senior executive leadership positions of both women and people from BME backgrounds. You can find out more here.

About Jenny
Jenny Ames had a 35 year academic career across eight universities before establishing Jenny Ames Consulting Ltd in 2017. She works with universities, businesses and their stakeholders to develop strategy and talent and initiate and nurture cross sector collaborations. Jenny is now a member of the board at Aneurin Leisure and an Aurora role model.

 

11 Key Insights from Higher Education Governors



Following the recent launch of our updated Framework for Supporting Governing Body Effectiveness Reviews, Helen Baird discusses some of the findings emerging from analysis of survey data from our governing body effectiveness reviews, and outlines our new comparative analysis and insight service. 

Last year we reviewed and updated the Framework for considering the effectiveness of higher education governing bodies. The drivers for the review were changes to higher education governance since the Framework was first introduced in 2010, broader sectoral developments and the evolution of ideas on good governance more generally.

The main conclusion from our research with the sector was that the three elements of the Framework remain an effective basis for considering governing body effectiveness. These are enablers of effective governance (processes), working relationships and behaviours, and outcomes of an effective governing body. We also found that as well as looking internally at their own governance, universities would value better comparative information to assess the relative effectiveness of their governing bodies and learn from peers. However, they required meaningful information and insights, rather than simply comparisons of what can be easily measured, such as size or composition of governing bodies.

Consequently, the Leadership Foundation has developed a new and unique comparative analysis and insight service, making use of the growing dataset we are building from the anonymised results of surveys as part of effectiveness reviews we undertake. As our new dataset develops, there will be potential to add other more ‘descriptive’ data from providers or from that collected by HESA, to enable more sophisticated analysis to benefit the sector and individual universities.

While our current dataset is relatively small at present, early analysis (carried out by Kay Renfrew, a Leadership Foundation associate consultant) has enabled us to produce some emerging findings which are worth sharing. These should be treated with caution and they will be subjected to further testing and analysis as the dataset grows. Some notable findings from surveys of 232 governors within eight institutions are as follows.

  1. While in some areas questions remain, there is almost universal agreement amongst the governors surveyed that there is a genuine and shared commitment by the governing body and the executive to ensure effective governance.
  2. There are variations in the extent to which governing bodies review their own performance and demonstrate a commitment to continuous improvement, from a low of 60% of governors agreeing that this takes place at one institution to 92% in another. Governors in small institutions (65%) were less likely to agree that this takes place, compared with those at medium-sized or larger institutions (80% and 81%).
  3. Although there are high levels of agreement that there are effective arrangements in place for involving staff and students in the governing body, this view is more prevalent amongst lay and co-opted members (93% and 100%) than with staff and student members (83% and 80%).
  4. Staff members are less likely to agree that there are mechanisms in place to give the governing body confidence in the arrangements for monitoring the quality of teaching and learning. Only 67% of staff members agree with this statement, compared with 78% of lay members and 80% of student members. There is also variation between institutions in terms of their size, with governors in larger institutions more likely to agree this is the case (82%), than in medium or small institutions (62% and 69%).
  5. Governing bodies were confident there are mechanisms in place to enable assurance to be derived about financial stability, data integrity and value for money, with 100% of governors from four of the institutions agreeing this was the case. The lowest figure for an institution was 74%. However, there was variation between the views of lay and staff members with 93% of lay members agreeing compared with 78% of staff members.
  6. There was considerable variation in the views of lay and staff members that there are processes in place to ensure the recruitment of governing body members addresses equality and diversity requirements. While 90% of lay members agree, only 56% of staff members do.
  7. There is also variation at institutional level on whether recruitment, succession planning and reward is effectively undertaken, with only 56% agreeing in one institution and 92% at another. Lay members are more likely to agree this is the case than staff members, but the difference is less pronounced than in the case of equality and diversity.
  8. Individual institutions varied greatly as to whether the contribution of all members is reviewed regularly (lowest 35% of governors agreeing and highest 75%). Variation was also found in the responses as to whether regular performance reviews of the Vice Chancellor are undertaken. At one institution only 54% of governors agreed, rising to 92% at another (although at most institutions under 70% agreed).
  9. Most governors agreed that the governing body was provided with reliable and up-to-date information to ensure it is fully informed of its legal and regulatory responsibilities. However, they were less convinced that there is effective communication between the governing body and key stakeholder bodies. In one institution only 46% agreed, with the highest percentage agreeing reaching 83%. While staff and lay members had similar levels of agreement (78% and 74%), only 33% of student members agreed.
  10. There is also variation at institutional level on whether the governing body actively reviews the extent to which existing corporate governance arrangements will be appropriate to meet long term strategic plans, ranging from 45% of governors agreeing at one institution to 90% at another. Lay members are more likely to agree than staff members, and in this case small sized institutions are most likely to agree.
  11. It seems existing arrangements for academic governance to meet long term strategic plans are not reviewed in the same way as matters of corporate governance. In one institution only 36% agreed that they were reviewed, with the highest level of conformation being 75%. Lay members were slightly less likely to agree (61%) than staff members (67%). A higher percentage of respondents at large institutions agreed (72%) compared to medium (56%) or small institutions (53%).

In summary, it seems that not all institutions regularly undertake reviews of their own performance, including the contribution that individual members make. Similarly, there is variation in whether reviews of the vice chancellor’s performance or the quality of teaching and learning take place, or are reported to the governing body. There is however general agreement that governing body members are committed to effective governance, and that working relationships are in the main positive. Interestingly, the views of Lay and Staff governors can vary considerably. Overall, Staff members were less positive than Lay members, perhaps suggesting that they perceive the governing body to be less effective in its role.

Further analysis will be undertaken and the results disseminated as we develop our comparative analysis and insight service. For further information please visit www.lfhe.ac.uk/en/governance-new/governing-body-effectiveness/index.cfm

Helen Baird is a Managing Consultant in the Leadership Foundation’s strategic consultancy team and led the recent review and revision of the Framework for Supporting Governing Body Effectiveness Reviews.

Take a look at our next Governor Development Programme, Governance professionals in higher education for clerks, secretaries and staff in the professional support teams. The programme starts on Tuesday 5 December 2017, London. For more information, click here

 

Challenges facing good governance

We are delighted to have launched our 2017-18 governance year with a joint event with HEPI, the leading policy institute of higher education in the UK. In this blog post we provide a summary of the debate on the challenges facing good governance that took place last month, which included contributions from governors and governance specialists from within and outside of higher education.

Following adverse comments in the press on its leadership and speculation about changes to the future funding of the English higher education system, the panel session organised by the Leadership Foundation and Higher Education Policy Institute on the challenges facing good governance in higher education proved timely.

The panel brought together individuals working in higher education, those who had chaired and served on governing bodies and those involved with regulation and governance in other sectors of the economy. Panel members offered different perspectives on higher education governance, noting areas of strength, but also highlighting aspects of governance that needed attention.

The context of the discussion was the scale of change facing institutions. ‘Winners’ and ‘losers’ were emerging from competition for students and funding. Balancing the academic and business aspects of running an institution had become more challenging. A dynamic environment made conventional five-year strategic plans a thing of the past. The changes were placing greater demands on governing bodies, changing the manner in which they needed to operate.

Central to good governance was the relationship between the head of the institution and the executive team and the governing body. A culture of openness and trust, was needed to encourage governors to act as ‘critical friends’; able to question and support the institution’s leadership as appropriate. There should be ‘no surprises’. The role of governors was summed-up as ‘noses in; hands out’.

Good governance meant that it was insufficient to focus on structure: attention needs to be paid to processes. In this context, it was important to examine how governance really operated, and not how it was described on paper.

Engagement of the governing body with the institution was critical: ‘lazy’ governance should be avoided. Governors need to hear about issues, while being mindful that the actions to address any issues raised would normally fall to the executive. Effective engagement might mean, for example, participating in staff and student forums held outside of the formal meetings of the governing body. Similarly, in the reverse direction, academic staff might need to be educated about the work of the governing body and its members. Each needed to understand the other.

The composition and orientation of a governing body was key to underpinning effective governance. As governing bodies were now expected to seek assurance about academic governance, the need to have lay governors with an understanding of the higher education sector had grown. Equally, it was important to have members who would forensically examine matters in great detail (e.g. in relation to matters of audit and compliance) as well as individuals who had a deep understanding of finance. Similarly, a governing body should have individuals amongst its membership who had a creative mindset, thereby helping to avoid a governing body becoming overly risk-adverse.

Governors must be able to demonstrate that they are competent in discharging their responsibilities. There should be a process of governor evaluation allowing a conversation between, say, an independent governor and the chair of the governing body to take place at regular intervals. Where a governor was unable to contribute effectively, the individual should be asked to step-down from the governing body.

Chairs and heads of institutions should discuss and agree how the governance within the institution would operate. Setting the right ‘tone’ in the boardroom was crucial. This could, for example, mean encouraging the executive to share ideas, as part of a process of testing and development, with the governing body at a formative stage, rather putting a chosen and well-developed option to the governing body for endorsement.

There was a high-risk that following the most recent criticism levelled at higher education, the sector would respond in a defensive manner: this would be a mistake. The danger was that the sector ‘feels sorry for itself’. Far better to reflect on the matters raised, consider carefully and then respond. Universities also had the opportunity to learn from the mistakes made in other sectors, and to avoid making the same mistakes. The observation was made that ‘universities don’t have the right to be silent’. Accountability was an essential part of autonomy. The risk was that if institutions did not take early and effective action, someone else would.

It was noted that in comparison to other professions such as law and medicine, academic staff were in an easier place in relation to professional codes of practice. For these other professions, there were explicit codes of behaviour, and an individual was at risk of facing sanctions if they failed to adhere to them.

An element of radicalism was needed in relation to institutional governance. The following conditions needed to be met:

• Governance needed to be perceived as honest and independent
• The role of a university, including the balance between teaching and research, needed to be made clear
• The processes of governance needed to be sufficiently open and transparent
• ‘Active’ trust needed to be achieved

Critically it was important to invest time into making the board process meaningful.

As one speaker noted, being a governor might be characterised as ‘intelligent people, asking stupid questions’.

David Williams is the editor of the Leadership Foundation’s governance website. We are hosting a major governance conference Governance: Improving Effectiveness for a New Age on Thursday 30 November. To book places for this conference or on our other governance development programmes and events, or to access our governance resources please go to www.lfhe.ac.uk/governance

To find out more about the work of HEPI, and also whether your institution is a member of the HEPI University Partnership Programme (providing advance embargoed access to all HEPI reports and briefing papers), please contact Sarah Isles, s.isles@hepi.ac.uk at HEPI.