Funding reforms will hurt universities, but their autonomy can help them

Out-Law Analysis | 26 Oct 2010 | 12:13 pm | 3 min. read

OPINION: Universities in the UK have had a nerve-racking month. Lord Browne proposed controversial changes to higher education funding, then a week later the Government announced that the sector will face massive cuts. But there is reason to be positive.

Former BP Chairman Lord Browne chaired an 11-month review of higher education funding. He concluded that funding contributions should shift from taxpayer to student. Earlier this week, the Government announced, as part of its comprehensive spending review (CSR), that it planned to spend £2.9 billion less on the sector.

These changes suggest upheaval for the universities sector. However, universities can take steps to meet these challenges.  Legally autonomous, they have the powers and flexibility to raise capital, develop alternative funding streams, and potentially become less state-dependent.

Right now, universities will be reviewing their revenue generating activities and plans. Sometimes a university's structure is seen as a barrier to these activities, but it does not have to be.

Almost all universities in the UK are charities and public bodies. As such, they are accountable for the public funds they receive, and they have to act in the best interests of the institution. In an effort to balance this status with a desire to make money, we have come across fiendishly-complex corporate structures. Generally, there is no need for such complexity.

Where a commercial activity is large enough potentially to affect the university's charitable status, routing it through a subsidiary company is a straightforward solution. Just make sure there is a clear structure with arm's length, commercial agreements in place for loans and funding, because a university must be able to justify as an investment any funds it puts into a subsidiary. 

Introducing performance management can also help the bottom line. For the last five years it has been open to universities of all types to amend their governance and constitutional structures quite radically, yet few have taken advantage of the opportunity. 

Older universities in England and Wales are now free to undertake the complete removal of the so-called "model statute" which set a rigid template for academic staff employment procedures.

They can replace it with modern, fit-for-purpose disciplinary and grievance procedures, harmonised with those for non-academic staff.  This is the change which allows the introduction of performance management – a concept unknown to the model statute's drafters. Post-1992 institutions in England have similar freedom to amend constitutional employment provisions.

Governance reforms can introduce a relaxation of decision-making rules, to accelerate reactions to the rapidly-changing external environment. Constitutions, committee structures and governing body membership can all be unclogged, clarified and updated to be fit for today's purposes. A shorter, simpler constitution tends to provide much greater flexibility for the future.

Globally, one in three higher education students studies in a private institution. Increasingly, universities in the UK will behave like their private competition overseas. We will see more
outsourcing of non-core businesses, for example, and partnerships will be formed to exploit capital assets here and abroad.

Competition at home will get tougher, too: BPP and Kaplan now supply undergraduate education for profit on these shores, but the only surprise is how long that took to happen. Other providers will follow their lead: we know that institutions in India and China are looking to set up in the UK. The enterprising UK institution, perhaps one without a business school, could characterise that as an opportunity for collaboration.

Meanwhile, risk management has become more important than ever. Too often, deals are not recorded in a written contract or, when they are, key provisions are omitted. We come across contracts omitting the boilerplate basics, like a clause to identify the parties' choice of law; or one that explains how disputes should be resolved; or provisions on termination. For the avoidance of doubt, documenting a joint venture in a professional and modern way does not devalue the academic side of an arrangement or the quality of the relationship.

The reforms might prompt mergers, but for most, particularly for larger institutions, this will be less attractive than collaboration. Mergers tend to be expensive, slow to implement and high risk. Instead, more institutions will collaborate, without necessarily ceasing to compete. The University of London has pioneered a collaboration model that will be attractive to other regional groupings, allowing each party to retain its autonomy and brand while combining strengths and sharing services.

There are many ways in which an institution's autonomy can be exploited to improve its operational performance. Universities undoubtedly are facing tough times, but taking advantage of their own structural flexibility is one way to meet the challenges ahead.

By Nicola Hart, head of the universities group at Pinsent Masons, the law firm behind OUT-LAW.COM.