Whistleblowers: Famous for the wrong reasons

From Beatle's dream to troubled 'fame school', Phil Baty charts the drama at Lipa.

Sir Paul McCartney said it was "the proudest day" of his life when the Queen opened the Liverpool Institute of Performing Arts (Lipa) in 1996.

With a £1 million donation, and, according to the publicity, "a little help from his friends" at Liverpool City Council and in the entertainment industry, Sir Paul had saved his old Georgian grammar school from dereliction, transforming it into the "fame school". He said: "We are giving a chance to young kids and I'm paying a little back to a city which gave me a lot. My dream really has come true."

The dream soon turned sour - into a nightmare that culminated this week in revelations of a breakdown of morale and communication threatening the institute's reputation.

The THES has been reporting shortcomings of management and accountability since January, revealed in a leaked funding council audit. Now we have obtained an internal "management review" report, which catalogues an "extremely worrying breakdown in communication... which poses a real threat to the effective management of the higher education provision". Senior staff appear to be voting with their feet and abandoning Lipa.

In 1996, after a blaze of glowing publicity helped by a starry list of promised celebrity lecturers (including Dire Straits guitarist Mark Knopfler and singer/songwriter Elvis Costello), trouble seemed far away. There were thousands of applicants for the few hundred places on higher education courses validated by Liverpool John Moores University.

Within months of the enrolment of the first 200 students, there were reports of financial difficulties. In August 1996, costs of renovating the building, in Mount Street, near Toxteth, were spiralling. By November, Lipa was forced to deny rumours of its impending closure. Later that year, Sir Paul, who had provided a further £1 million, was reportedly lobbying the prime minister for financial help.

Refurbishment had mounted to £13.5 million, £6 million more than estimated. Lipa Holdings, the property development company set up by Lipa, breached company law when it failed to submit its 1999 accounts to Companies House by the May 2000 deadline. The company was put into voluntary liquidation with an estimated deficiency of £7.8 million last November.

But as well as the unforeseen financial difficulties, there were mounting concerns with the institute's financial and management accountability, highlighted in a leaked joint audit report of Lipa's controls by the Higher Education Funding Council for England and LJMU, which The THES was prevented from publishing after an injunction was threatened.

Last month, Lipa's chief executive, Mark Featherstone-Witty, handed The THES the final version of the audit report's recommendations. He said it proved that Lipa was not failing in its accountability to Companies House or to the Charity Commission, or that there had been any lack of probity. But the report concluded that fundamental improvements to governance and management were needed before Lipa could "satisfy the demands of public accountability". As a private company receiving public funds for higher education courses, Lipa's management arrangements did not "currently meet the... demanding standards of the higher education sector", Hefce said.

Mr Featherstone-Witty has said most of Hefce's 47 recommendations for improvements have been fully implemented, or are in progress. But the Hefce report, and the fact of its leak by a senior member of staff to The THES , highlighted a deeper malaise at Lipa: a sense that management is not only failing in its accountability to the financial auditors, but is failing to be properly accountable to the dedicated staff holding the institute together.

A confidential first draft of an internal management report, commissioned by Lipa and written by Lipa's former head of music, Arthur Bernstein, reveals the extent of the breakdown.

"Lipa used to be a place where someone could approach anyone concerning just about anything," Mr Bernstein says. "Sadly, that is no longer the case."

Mr Bernstein says that interpersonal communication - "by that I mean people actually talking to each other" - has deteriorated alarmingly. "Instead of seeking each other out, people avoid one another... mature individuals with important managerial responsibilities should be able to engage in a bit of verbal sparring without it leading to complete breakdowns in communication."

The problem is in danger of seriously undermining Lipa's provision, which Mr Bernstein acknowledges is "cutting edge". "With regard to personal interaction, there have been some extremely worrying breakdowns in communication between key members of Lipa's academic management structure which pose a real threat to the effective management of the higher education provision," he says.

Mr Bernstein warns that various initiatives designed to improve communications, such as special directorate bulletins and email protocols, may be "positive developments to be encouraged". But he said they "verge on tokenism in an environment where personal communication is at its all-time ebb".

The communications problems have been revealed, and greatly exacerbated, by an unpopular management restructuring exercise, initiated last summer after a report from external consultants. Staff felt excluded from consultation on the changes, which were designed to create a "flatter" management structure and accommodate the rapid growth of higher education provision.

Indeed, so disillusioned are some staff, Mr Bernstein says, that they believes that the restructure itself is in part designed to shut them up.

He says: "Within Lipa the process (of organisational change) is widely viewed among HE staff with some degree of suspicion as having been designed and driven not so much by the need to accommodate growth, but by a desire to sideline dissent within the organisation... A strong current exists which questions the driving force behind the recent organisational change."

In October last year, 53 members of staff supported a resolution. It said: "While we agree in principle the strategic direction... we have no confidence in the process which has brought about the... review document. We have no confidence in the proposed change of management structure."

Whatever the intention of the restructure, its effects are clear to Mr Bernstein: "There is a strong current of opinion that there is now no adequate forum through which staff can communicate and debate issues with Lipa management and council," the Bernstein report says. "It is widely held that staff opinions are filtered, stifled, misrepresented and not fully or seriously considered. This feeling has been reinforced and exacerbated by the increasingly authoritarian tone of council and the dismissive manner with which staff feel they are treated.

"Staff increasingly see the leadership as more distant and isolated. A considerable abyss has opened up between council and staff and the resulting feeling of alienation serves no useful purpose in moving the institution's business forward."

Staff did not really know what the role of chief executive was and felt a number of appointments lacked transparency. "There seems to be a lack of clarity among staff regarding the institutional interpretation of due process and equal opportunities. This has a direct impact on the credibility and effectiveness of management and needs to be clarified," the Bernstein report says.

Mr Bernstein says it is "a worrying sign that so much inter-personal communication is being channelled through grievance procedures, and union and legal representatives". He says Lipa must adopt a pledge to re-open lost lines of communication and to rebuild confidence in each other.

The report pulls few punches: "It is incumbent on the directors to conduct the management of the directorate strictly according to the established protocols, in an environment of openness, clarity and the utmost probity."

Mr Featherstone-Witty would not discuss the Bernstein report this week. He said: "Arthur Bernstein's report, which was initiated by myself, is now progressing towards the third draft. The copy which has been sent to you is out of date and inaccurate. This has been accepted by the author and we are making good progress towards finalising an accurate version, complete with management responses." He said he would discuss the document after "due process" is completed.

When formally agreed, the recommendations first made in the first draft in February will come too late. Numerous staff and senior figures have apparently had enough.

Last year, chair designate of the governing council, Patrick McKenna, left the council after less than a year, dismissing Lipa's strategic plan as "complete rubbish".

In October 2000, Donna Soto-Morettini, the head of acting, wrote an open letter to Flo Clucas, the chair of governors, that said: "I can't work happily in the place Lipa has become." Ms Clucas responded with her own open letter in which she warned: "I have said to other staff: nobody in this institution is indispensable." She accused Ms Soto-Morettini of self-interest.

In March this year, head of assessment and performance and design, Paul Kleiman handed in his resignation with an open letter to governors. He said the restructure had merely given the people already in top jobs "grander titles" and complained that the creative, academic staff were being ignored. Mr Kleiman said his resignation "boils down to something quite simple and obvious - the importance of having one's knowledge, experience and skills respected and valued and, reciprocally, to be able to respect the abilities, qualities and values of those who purport to lead, manage and govern".

Head of music Ian Gardner resigned as the staff representative on the council, complaining that staff views were being ignored.

Perhaps most controversially, David Price, the former director of higher education programmes credited with building Lipa's reputation for high-quality higher education, departed last year with the comment: "While I still believe in the direction the strategic plan is moving the institution in, events over the summer, and the process of re-structuring, have meant that I see the way to achieve our goals quite differently to the principal and council."

Mr Price was replaced as acting head by Nick Phillips. After three months in the post, Lipa confirmed in May that "for personal reasons" Dr Phillips "wished to return to his former post as senior lecturer". Lipa now has another stand-in and has been struggling to fill the post.

Mr Featherstone-Witty told The THES : "Staff are warmly welcomed to contribute to the achievement [of the strategic goals], but equally invited to consider their long-term future with the institute should they disagree with the direction set by the governing body." It would seem that many of them are doing just that.