Wednesday, 7 January 2015

Learning from the Bank

Two news stories (I use the word in its loosest sense) prompt thoughts about university governance. Don’t be surprised by the first one: as Perry Mason so often said, I’ll show relevance.

The first is the publication, by the Bank of England, of the minutes of its Court (governing body) from just before the financial crisis of 2007. The BBC runs this story today: the gist of it is that the reports to the governors seem to have flagged difficulties with liquidity in the financial sector, but no action was taken. The BBC report is worth reading in full, but here are some of the most relevant parts:

Firstly, quoting Andrew Tyrie MP, chair of the Treasury Select Committee:
"Even when questions were asked by individual non-executive directors, the executive usually presented a unified front to the Court, apparently rendering it of little or no use as a forum for creative discussion and constructive challenge," he said.
"The non-executive directors appear to have done little thinking of their own about financial stability and to have added little or no substantive value to the Bank's work on it," Mr Tyrie added.

And here’s Lord John McFall, the chair of the Treasury Select Committee at the time:
"They all missed wider picture. They missed the interconnectedness of the whole financial system...when Lehman went down it was a real catastrophe."
Double ouch. And it gets worse: here’s Andrew Tyrie again:
"The minutes show that during the crisis the Bank of England did not have a board worthy of the name. This mattered. And it still matters"
So what’s the second story? Well, it isn’t news today, but at the end of last year the Committee of University Chairs (CUC) published the long-awaited new version of its Higher Education Code of Governance. This has regulatory force for universities, via the funding councils (Scotland has a different document to the other home nations, but the principal is the same.) The Code of Governance sets out the expectations about what a university’s governing body must do, should do and could do:
“its purpose is to identify the key values and practices on which the effective governance of UK HEIs is based, in order to help deliver institutional mission and success.” (Page 4, Preface)
The Code then goes on to say:
“it sets out principles and practices which any organisation operating within the sector will need to apply in order to show that it conducts its business with due respect for the public interest.” (Page 5, Using the Code)
Which firmly places the delivery of a university’s mission, and its success, as matters of public interest.

This is more significant than it might seem. The code also identifies:
“Autonomy as the best guarantee of quality and international reputation.” (Page 8, Core Values)
And it is in the tension between these two values: public interest and institutional autonomy – that the challenge lies.

A papal bull - from Glasgow University
The public has always had an interest in universities: early universities received royal charters, or Papal Bulls, to enable them to operate within a system of law where power was very clearly in the hands of the monarch, or the church. The charters typically provided for the universities to be self-governing (that is, to have autonomy), but when push came to shove the charters and bulls made clear the source of the power.
A non-papal bull

Often – certainly in relation to UK chartered universities - the charters also established a court, comprising representatives of trades, professions, or areas, which (using a more modern vocabulary) had a scrutiny function. This is a good medieval approach to governance, conceptually based upon an ordered, hierarchical society.

The modern university governing body derives from this: lay members, without a vested interest in the university, comprise the majority. This gives a check on the actions of the university, in theory.

And now let’s revisit the BBC story that I started with: the criticism of the Bank of England’s governors. The criticism of the governors is that they did not challenge the executive sufficiently (especially when the executive presented a united front); that they did not understand the system in which the Bank of England played a part; and they did not demonstrate independent thinking.

The Higher Education Code of Governance seeks to help avoid this kind of problem, but there’s still important work to be done. The Leadership Foundation for Higher Education does important work in providing resources and training for governors; and the CUC itself provides a forum for chairs of governors to learn from one another. This should help to ensure that governors can be sufficiently knowledgeable (but note also that Roger Brown, writing in Perspectives, argued that all university governing bodies should include a former Vice-Chancellor.)

And challenge? In my experience a united front by a senior management team has a powerful effect on a governing body. This is to be expected: executive teams do have a lot of expertise, experience and competence. Challenge is therefore difficult. It may feel like the governors attempting to be executive (for example, replicating the discussions around a business case which have been gone through by the executive). It may involve the governors articulating more fundamental questions about strategy and vision which may be undermining, and certainly can be a distraction when a strategy has been set in place. Neither will feel comfortable for the executive, nor probably for the governors.

So universities are faced with a dilemma. The right degree of challenge requires a degree of distance between governors and executive, to help overcome normal inhibitions about undermining your own team; and yet closeness is needed to help understand the sector and the organisation.

There’s no simple answer to this, but there’s a simple question: Who’d be a governor?

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