College Insolvency, Public Assets & the #CollegeOfTheFuture

Who controls your college? 

The next question is, who owns your assets?

Are you a public asset or an independent corporate business? 

These aren’t trick question. They are deadly serious questions and I’m sure I’ll get a mixed response.

Last question. What does the college of the future look like?

Let me answer by saying I have spent decades in the FE sector and love colleges. I want to see colleges survive and thrive. But I’m also a realist and know that, contrary to popular, colleges don’t have a great public profile.  

Recent college failures leading to insolvency, expense scandals, the rapid departure of too many CEOs, debate on the college of the future and a general election are not easy bedfellows.

They have however led to headlines and perhaps the worst run of negative FE PR since incorporation. 

We need to change that. It can be done but we have to go back to basics and rethink FE. 

Note I say rethink FE, not rethink colleges. 

We need to rethink FE, not assume colleges are sacrosanct.

Why?

Because to start by thinking about the future of colleges makes the assumption that they are needed and will continue in some form or other. I think this is a rash assumption and stops us being objective. 

There’s evidence that education and skills are needed post 16. But that doesn’t automatically mean that colleges are essential. We may not like the idea but the work of colleges could be given to schools and universities. 

Unthinkable you might say.  But it’s not impossible. In fact if I’m objective about it I can find many rationale arguments to support the idea. 

A future government, or fickle politicians, could decide to ignore colleges and put all their funding into schools and universities. Colleges have no right to be funded and, even if you think they have, an Act of Parliament could quickly change that.

Who Owns Your College?

Until incorporation most colleges were owned and controlled by county councils. 

Colleges are strange animals. The 1992 Act set them up as freestanding public bodies regulated by government. They are non-profit exempt charities that are registered with companies house. They are recognised by government for things like the delivery of degrees which are usually awarded by a university and the funding of other college courses is largely via ESFA.  

So we have public bodies that, unlike government agencies, can become insolvent. Most of the regulations stem from taking funding. Without it colleges could perhaps avoid Ofsted completely. As far as I know this has never been tested in the courts.  

Colleges decide which courses they want to run. They can launch new courses and cull those they no longer want to run. They are not compelled to run particular courses but choose to apply for funding to run particular courses. It’s largely their choice. 

Many colleges also generate income from full cost courses, the letting of premises, sale of assets, etc. In the main they decide on how they will use this income. 

Despite some restrictions on the use of these funds colleges are essentially, bearing in mind the above conditions, as free as any other business to run as independent bodies.  

Though colleges often choose to apply for course funding they aren’t owned by the government. The Insolvency regime supports this notion. Government departments can’t go into insolvency. Colleges can, and do.

Colleges are  independent regulated legal entities.

Who Controls Colleges?

As registered legal entities corporations are controlled by their board. The board; advised by the CEO and their team, devise direction and strategy, support and constructively challenge the executive, who carry out the decisions.

The board are largely non-executive (college staff being the exception, though not even the CEO is compelled to be a board member). It’s not the non -execs role to carry out the day to day running of the business, though they should arguably be visiting, gathering information and observing so they can conduct their roles as board members. 

However, where a college chooses to take funding there will be conditions attached. For example Ofsted inspections are a condition of funding and can have a huge impact on colleges. 

The directors’ responsibility is first and foremost to the company (it’s no good saying students come first if that means the college goes bust, fiduciary duties are paramount).

Colleges are not compelled to run specific courses, unless as a condition of funding, especially if the funding is insufficient. Indeed, should they knowingly decide to deliver such courses, and go insolvent, they could be held to have breached their fiduciary duty.

This is a serious matter and could result in them being banned from being directors of any UK registered company, or imprisoned if fraud took place.   

Who Owns a College’s Assets?

Colleges own their assets though certain conditions have historically applied where assets such as buildings have been sold.

These restricted funds could only be used for particular purposes, such as capital purposes.

What Does The College of the Future Look Like?

Much will depend on whether a college chooses to deliver funded courses. If a college is dependant on funding, and it is withdrawn, the college may go to the wall. Arguably, after years of the sector complaining of underfunding, all colleges should have decreased their dependence on such funding. At the extreme they may still be delivering skills and education but will have chosen a different business model. FE is full of providers that have nil dependence on public funding; hence my earlier comment about the future of colleges.

Complaining that we were underfunded is no defence when insolvent. 

What is clear to me is that Insolvency has changed the role of the board. In the past we could volunteer as a governor and, if we got it wrong, the worst that usually happened was that the government would bail out the college. Now if the college becomes insolvent we are responsible. Board members now need to spend more time on running their colleges. 

I’ll delve into other possible scenarios regards the college of the future in a future document. 

Should College Boards Be Paid

There’s been a recent debate about whether chairs should be paid. The roles can now take days per week and as a precedent clerks are paid.  

However I think payment alone isn’t enough. Though it widens the selection field, to include those that can’t otherwise afford to serve, it doesn’t necessarily improve the skills and mindset of applicants. 

I strongly believe there is a case for independent chairs, possibly professionally qualified, but the key is that they are independent. Not appointed by the government, or the CEO, but selected via interview from individuals or businesses specialising in their provision. 

It’s argued that this will destroy the relationship between chairs and CEOs. I see no evidence of this in sectors where it’s now commonplace. Rather I see CEOs having professional support and boards confident that the executive aren’t selective over information provision. 

If the sector doesn’t face up to this challenge the government might impose it as a condition of funding, and not a strategy that will keep them solvent without public funding reliance. 

Independent, professional, qualified, paid chairs are the norm in some sectors.

Stefan Drew, previously director of marketing at two FHE colleges and for over a decade has consulted with colleges, universities and private providers throughout the UK, Europe, Africa and the US.

Connect with Stefan on LinkedIn.