FE Survival, Financial Viability, Insolvency and the Role of Governors

FE is big business.

2.2 million students study with various providers each year, in a £7billion turnover business.

Many people say FE shouldn’t be regarded as a business. They point to a host of ethical and moral issues and I can’t argue with this. But however strongly the word business is argued the advent of college insolvency legislation makes this a moot point.

Any sector that turns over £7billion, and can become insolvent, had better regard itself as a business sector, that needs to understand that trading while insolvent is a criminal offence, for which the directors can be held responsible.

Governors can ensure they hold the “get out of jail” card, but more of that later.

Who Owns and Controls FE Providers?

Prior to incorporation early in the 1990s I recall principals purposefully going overspent, and getting their knuckles rapped by the Chief Education Officer, as they knew this meant a bigger budget the following year.

Since incorporation colleges have assumed they own and control colleges. In many senses that has been true except for one thing. “Government” in its various guises have been able to take “control” in certain circumstances. Never has this been more obvious than under Area Reviews where some colleges were recommended to merge.

Not all colleges took that advice. After all it was recommendation and the reality is that the governors make the ultimate decision. But some governors struggled to find their “get out of jail” card.

And in recent months we’ve seen “government” intervention of another type. Its come about because providers are significantly vulnerable due to government funded courses being the main income stream for most colleges. Most colleges are highly reliant on government funding and a gentle nudge has sometimes been necessary when they struggled financially.

These gentle nudges have resulted in some principals and governors spending more time with their families.

Where such huge amounts of tax payers money are involved this hasn’t necessarily been a bad thing. In fact it could be argued that it is one of the very necessary checks and balances the sector needs.

It does however pose a question. Who really owns and controls colleges?

Getting Back to Basics

If principals and governors can be nudged to spend more time with their families then many would argue the governance process is broken. They may need their “get out of jail” card. Because surely, a board should be diligent, foresee and plan for problems and take action without “government” having to take action?

Indeed the role of the board is quite clear.

Corporations are responsible for the determination and periodic review of the educational character and mission of the institution and for the oversight of its activities.

Certainly as autonomous institutions incorporated by Act of Parliament, colleges have the freedom to innovate and respond flexibly, tailoring their provision to the needs of individuals, businesses and employers, and their community.

In many senses they do this on a regular basis. New courses commence and old ones are retired each year. But I would argue they work within a Groupthink straightjacket that could steal their “get out of jail” card.

Of course colleges are also charities and subject to their regulation. This means they must determine their purpose. Often this is quite vague and will say something like …..

Our purpose is to provide high quality further education and training for [county/area name] people and businesses. The College’s mission is to enhance the lives of our students and other customers, helping them to reach their potential through learning.

This level of imprecision is not a bad thing. It gives them the flexibility that the law permits.

And if it is the board that sets the direction and strategy of the institution, as I believe boards should, then they need to focus on their overall objectives as an education business and purpose imprecision can be an asset.

This of course creates the debate about where responsibility and ultimate control lies. It’s an oft argued point in many commercial businesses. Should the board bend to the will of shareholders? Is the role of the board to support the CEO and allow the CEO to determine direction?

On one hand it is argued that boards are remote, with the executive closer to the business, whilst on the other hand it is the board that is legally liable for the success or failure of a business.

Personally I believe the board should set direction whilst the management determines the strategy and tactics. Arguably strategy might be the remit of the board in some cases but I don’t normally find that useful as a matter of course.

So Much Latitude But Little Control

As indicated earlier, corporations have a lot of latitude in what they deliver. That being the case, and with claims of underfunding being rife, I wonder why institutions stubbornly stick with a curriculum that ties them to a funding regime that is so restrictive.  

Certainly there are still many financially viable colleges, but the evidence is clear. College reserves have significantly decreased over recent years and too many providers are receiving notices of financial concern. I’ve yet to meet a provider that claims to be overfunded and the stance of FE is that they are unfairly treated compared with other parts of the sector and are struggling to make ends meet.

Simple economics tells me one thing. When someone else determines the funding, and/or value or price of the service you offer, and major overheads such as labour are never going to drop, there is a huge problem. The economic seesaw has an income side where course funding cannot be changed by providers and an expenditure side that is steadily increasing in weight.

Every time a seesaw topples towards financial ruin we see government nudging the provider to “let the principal go”, refresh its board or merge with another college (though this is possibly likely to cease now we know big isn’t always beautiful – see my previous article that foresaw Steve Joyce’s recent words)

To reinforce this situation the Insolvency legislation will see governors legally liable for college failure, especially where wrongful trading is proved. Are there enough “get out of jail” cards to go around?

Rebalancing the Seesaw

Rebalancing the seesaw is actually very simple. But not without consequence.

Amongst other things, governors need to ensure the income side of the seesaw is more controllable. They can ask government to fund courses at a higher rate (good luck with that) or they need to be less reliant on funded courses.

At the extreme end of this argument this would mean no funded courses.

Is it desirable? What happens if we ignore this notion? Is this scenario survivable?

Not under the present form of Groupthink that pervades FE. I refer to the Groupthink that believes FE primarily exists to provide funded courses for 16-19 year olds.

As important as this group is, colleges have to think about their survival. Do they continue the uneven battle that sees so many go to the wall in various ways (there are now 297 colleges in England, at Incorporation there were about 550). Do they deliver courses today with no hope for the future?

The responsibility for 16-19 education lies with government; NOT with individual colleges. Colleges have latitude under legislation to provide whatever they deem most appropriate and have a responsibility to survive.

So if we ignore Groupthink it makes sense for boards to consider dropping some (maybe ALL) funded courses in favour of full cost courses. It seems impossible, but consider the number of private providers that run nothing but full cost courses for all age groups AND find people willing to pay.

It would possibly mean some providers shrinking in size. This seems wrong in so many ways. But only if you subscribe to Groupthink and believe providing funded courses is more important than an institution surviving. Boards have a responsibility to see their businesses survive not merge. Boards have to ask themselves about their purpose which for many focuses on local people. Are they being true to those people when they cede responsibility to College Groups that are increasingly based at the other end of the country?

Boards can already be accused of being too remote in that they meet infrequently; see papers written by management that may have a different perspective (and no need of a “get out of jail” card), and are rarely encouraged to sit in a classroom, wander around a college or meet staff informally.

In the new world we are likely to be told that small is beautiful, large groups don’t solve many problems and that employers and the public don’t always want funded/accredited courses.

In the HE sector non funded institutions are not unknown. Private universities are to be found.

Where do you see FE being in a few years’ time? Will governors be governing?

Stefan Drew, FHE Marketing Consultant

Copyright © 2018 FE News

About Stefan Drew: Stefan was 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