Charitably minded watchdog frets over for-profits

Any attempt to legislate to make it easier for private companies to take over universities could be challenged by one of the government's own watchdogs, it has emerged.

November 10, 2011

The potential impediment to buyouts has been identified amid concerns over efforts by private higher education providers to court David Willetts, with the universities and science minister holding a dozen meetings with such firms in the year to June.

Last month, Times Higher Education reported on the prediction by Glynne Stanfield, a partner in the education group at law firm Eversheds, that a private equity firm or provider would buy a UK university in whole or in part "within the next six months".

However, the pace of change has set alarm bells ringing at the Charity Commission, which has asked the government for "reassurance" that its higher education reforms will not set an "alarming" precedent by removing protections that safeguard the charitable status of universities.

In its submission to the government's "technical" consultation on regulatory reform, the charities watchdog says it is concerned about speculation that the higher education White Paper "opens the possibility" for universities - which are charitable organisations - to convert to non-charitable for-profit status.

It points out that the law prevents charities from simply transferring assets - including land and "brand" value - to for-profits without them being sold at their true market value, with the proceeds used for the public benefit - such as providing bursaries.

"For government to make any other provision that did not fully safeguard charitable interests in a higher education institution would set an alarming precedent in charity law, with serious implications for the whole charitable sector," the consultation response says.

Viability study

The Charity Commission said it had since been reassured by the government, but its position raises questions over whether university takeovers are viable propositions.

The Higher Education Funding Council for England, which acts as the "principal" charity regulator for most universities, reacted to the Charity Commission's submission with its own advice, warning universities that a "charity cannot just stop being a charity".

Nicola Hart, head of the universities group at law firm Pinsent Masons, which regularly acts for more than 40 institutions, said the issue highlighted how the difference between charitable and for-profit status was the "really important" distinction in higher education and should determine which bodies received public money.

Pinsent Masons' response to the consultation says that the problem with the government's proposals is that for-profit providers "would be given access to public funds when they have no corresponding obligations in relation to public benefit and the long-term interests of the sector".

However, Mr Stanfield disputed any suggestion that charity law could block takeovers.

"There is absolutely no embargo on any university in effect moving to the profit from the not-for-profit sector," he said.

Such a move would not be without precedent.

When the examination board Edexcel - a charity - was effectively taken over by publishing giant Pearson in 2003, a charitable foundation retained a 25 per cent stake in the new commercial operation.

The issue could be tested relatively soon following reports that the College of Law - which is not Hefce-funded but a charity with degree-awarding powers - has been considering a buyout by private investors.

Any change of ownership would raise further questions about the control of degree-awarding powers in the event of buyouts, an issue that unsettled many experts after for-profit provider BPP was taken over by the US' Apollo Group in 2009.

In their own submission to the technical consultation, academics from various groups campaigning against the White Paper call for "urgent" clarification of the issue.

Meanwhile, THE understands that Warburg Pincus - the US private equity firm, representatives of which met Mr Willetts during round-table discussions over reforms to the sector - has expressed an interest in the College of Law's future.

It is understood that the equity firm has also been giving presentations on its business models to vice-chancellors at UK state-funded universities.

You'll consider us at home and part of the furniture, private firms predict

A senior executive at global outsourcing firm Serco has forecast the emergence of "significantly different models" in the way universities run non-academic services, with joint work with the private sector becoming "part of the normal discourse".

The predictions were made at Adapting to Disruptive Times: Emerging Models for HE Provision, a conference held at the University of London Senate House in which different private firms explained how they were stepping up their involvement in higher education.

Education providers Kaplan UK and Pearson outlined plans for courses tailored to the needs of employers, while Serco, a FTSE 100 company, has previously set out how it could provide "back office" and estate management services.

Ken Sloan, director for universities and higher education at Serco, told delegates at the conference on 3 November: "In five years, I think there will be significantly different models in relation to the professional side of the way in which universities run."

This could involve "shared services private-public partnerships", said Mr Sloan, a former deputy registrar at the University of Warwick.

Mr Sloan added that during his time at Warwick, "the private sector was often seen as the 'thing over there' and was discussed in a language that was somewhat unflattering". Over the next five years, he predicted, "conversations around different sectors and how they work together...will just become part of the normal discourse".

Roxanne Stockwell, managing director for higher education at Pearson, another FTSE 100 company, discussed the firm's honours degree course in business and management - scheduled to begin in September 2012.

The academic content of the course was being developed with advice from "three voices of equal importance", she said. These are the graduate-recruitment directors of BT and Cisco, "representing the employer voice"; Aaron Porter, former president of the National Union of Students, who now runs his own consultancy; and Nigel Slack, professor of operations management and strategy at Warwick Business School.

Ms Stockwell said Pearson's courses would be about both education and "trying to make sure students...are useful employees. We don't see a conflict between [them]."

Answering a question from the audience, she said Pearson was "not planning on being really aggressive on [student] numbers for the first few years. Once credibility sets in, you can start to think about more significant expansion."

At other sessions, it was discussed whether the UK sector was in the midst of truly disruptive change or merely in another phase of an ongoing process.

Malcolm Gillies, vice-chancellor of London Metropolitan University, floated three radical options open to state-funded universities.

"Doing something really different, maybe going private" is one, he said; the others are "withdrawing from all face-to-face teaching, going virtual; or doing things you've never done before - having a full focus on education and not being concerned about that other part of the university nexus, research".

Geoffrey Crossick, the University of London's vice-chancellor, said he was concerned about a possible divide between students educated at traditional, residential, research-based universities and the greater number of less-advantaged students likely to go into distance learning or short degrees in the future.

He presented a vision of a "future dystopia" in which the residential- university experience becomes "socially restricted", and there is "more widening participation, but much less social mobility".

Eva Egron-Polak, secretary general of the International Association of Universities, said the conference had convinced her that in the UK there is "a variety of institutions that together create a provision of higher education and research, but it is no longer a sector".

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