So who owns our universities then?

December 22, 1995

The Nolan inquiry assumes that standards in public life need to be different and implicitly higher than in private life, or at the very least the public nature of the activity requires conduct to be more open and visible. Most people would agree with that although some, including myself, would argue that the public/private distinction is in reality extremely blurred and that so-called "private" institutions should be subject to the same principles of openness and visibility as so-called "public" institutions.

So what makes an organisation "public"? I suppose the key criteria are that it receives its funds from public sources, ie taxation, and is deemed to spend these funds for the public good. Government, both central and local, is in this category. Equally, those bodies known as quangos which make detailed allocations of government funds such as the Higher Education Funding Council seem pretty unambiguously public in this sense. And so, most people would agree, are universities even though they are, legally, independent private-sector institutions.

Despite the legal position I would not dispute the public nature of university provision. Indeed, I only wish more of that ethos was evident in our funding and culture. The relationship between the funding council and the universities is increasingly a contractual one - so much money for so many students with penalties for non-delivery of the contract.

In essence, the relationship has moved from a shared ethos of values and discussion of common purposes to a market relationship, albeit between a monopolist buyer and many sellers.

So what is the difference between a university depending on public funds for say, 70 per cent of its income and a private company, in say, the arms manufacturing business relying on Ministry of Defence contracts for an equal amount of its income? One is clearly considered to be in the public sector and the other in the private sector.

One answer is, of course, ownership. The capital for the defence company is provided by its shareholders who "own" it while the capital for the university is provided from public funds. Well, after a budget which reduced the public finance contribution to university capital programmes by a third and extolled the private finance initiative as a substitute, this distinction too is becoming blurred. More so when it is revealed that the universities have Pounds 1.6 billion of private finance in their present capital stock.

Nor does the argument that the majority of assets in the universities have been provided from public funds hold much water. Over the past decade the Government has relentlessly converted public assets into private assets through its privatisation programme and why could it or should it not do the same with the universities?

Not all of these privatisations have involved the sale of shares to the public. A number have involved management or joint management and staff buy-outs. It would not take anything very complicated to apply the same approach to the universities given the stage we have reached already.

Such a move would certainly clarify the ownership question, and all the other governance questions which follow, and it would also bring a number of other benefits. The terms of the buy-out could set down, for example, the objectives of the university, the constitution of its governing body, the manner of election and certain areas of internal governance. The university as an independent charitable trust owned by its management and staff would be free to engage contractually with all manner of funding bodies, including funding councils. Financial oversight would be provided by the Charity Commissioners statutorily and by those providing funds in order to protect their contracts.

There would be many details to work out before there could be confidence that this move would deliver a more effective, efficient and responsive higher education system. But I believe it has the potential to do so and is worth exploring. Moreover, I also believe it is possible by offering a range of ownership models to make it ideologically neutral.

At present we have the worst of both worlds. On the one hand, we experience reductions in public funding hand-in-hand with relentless exhortation and pressure to be more entrepreneurial and market-oriented, involving risk-taking.

On the other hand, there is a heavy emphasis on the public accountability implications of risk-taking which fails and the introduction of all manner of bureaucratic safeguards against the waste of public funds.

It is a curious phenomenon that as the proportion of our expenditure which comes from public funds reduces so the bureaucratic hoops we have to go through to receive and be accountable for these funds increase. On funding and numbers alone my university deals with the funding council, the Further Education Funding Council, the Teacher Training Agency, the regional health authority and local education authorities. To these bodies and the Higher Education Statistics Agency, together with the company and tax authorities, we have to make nearly 30 separate returns of information each year, most of them requiring complex work. Moreover, the funding council is now introducing a system whereby if we do not send our returns in on time we will be fined!

To these returns on funding and numbers we must add all the accountability work concerned with quality assurance. Apart from the Higher Education Quality Council audit visits which we have experienced, we expect to be subjected to 12 quality assessment visits from the funding council in the next two years. Oh - and do not forget about the research assessment exercise.

I strongly support the principle of accountability for all funds, not just public ones, but the balance has swung too far. It would be nice to think that Nolan might report that the risk of misuse of funds from having significantly fewer returns and more flexibility in contracts was minimal and worth taking.

I am not sanguine. All the pressure is in the opposite direction. And indeed once you are obsessed with the issue of accountability there is no logical place to stop. During the hearing of the Public Accounts Committee into the Huddersfield Affair one MP relentlessly pursued Graeme Davies - then chief executive of the funding council - on why the council did not intervene in determining whether vice chancellors should be allowed cars or private health insurance.

Professor's Davies's continuing insistence that this was a matter for the governors of each university who employed the vice chancellors did not satisfy him. He clearly believed it was a funding council matter of the use of public funds and that it should be one of the elements included in the contract between the funding council and the universities.

So the issues which are at the forefront of the governance debate are, I believe, second-order questions. How many governors, what constituencies they come from, who elects and appoints them, who they are accountable to and the openness, transparency and integrity of the conduct of their business are all important questions to which, as far as I am concerned, there are self-evident answers if the first-order questions, which are not being addressed, are considered first. These are what sort of organisations are or should universities become and what is their relationship with their sources of funding?

The debate which has been going on in the corporate world about governance offers us more insight into the issues and guidance as to the way forward than the Standards in Public Life approach of Nolan. The key questions which are being addressed in the corporate world are - what are the criteria for determining "ownership" of the company?

If ownership is determined by capital ownership is there any necessity to take account of other stakeholders and how is this to be done? If ownership is not exclusively through "capital", who are the other owners? How do the owners exercise their control and in particular how are the directors chosen? The debate on governance in universities remains muddled because it has not addressed the fundamental question which must be answered before all others - who are the owners?

Leslie Wagner is vice chancellor of Leeds Metropolitan University. The above is an extract from his speech at the SRHB conference at Heriot Watt University.

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