A charitable organisation as operationally complex as a university, needs governing documents which promote effective governance. This means keeping the governance framework up to date and fit for purpose, so that it reflects and supports the way the university is run and takes account of the wider regulatory framework it operates in.
However, many universities face legal and procedural obstacles when it comes to amending their governing documents. Higher education sector responses to a recent Law Commission consultation mentioned the lengthy and challenging processes which have been a deterrent to bringing forward reorganisational change and which leave universities with inconvenient, inappropriate and out-of-date governing documents.
Streamlining the Process for Amending Governing Documents
The Law Commission has now published a report containing a wide range of recommendations to chip off some of the regulatory ‘barnacles’ which slow down charities. Universities may not be subject to the full extent of the charity law red tape which applies to registered charities, but when it comes to amending their governing documents, they are often in a worse position.
Amendments by universities constituted by Royal Charter and Acts of Parliament are subject to multiple layers of scrutiny by the Privy Council, the Charity Commission, the Office for Civil Society and in some cases Parliament. The processes are typically long, cumbersome and expensive. Of particular interest to the HE sector will therefore be the recommendations which seek to make it easier for these charities to make changes to their governing documents.
The Law Commission’s recommendations by no means sweep away all regulation of changes to governing documents. Rather they are a call to focus that regulation on a core of provisions reflecting matters of public interest and an attempt to make the regulatory burden much more a function of principle rather than the historical accident of the way an organisation was established. However, if the combination of new statutory powers and recommendations to streamline the approval processes are enacted, many universities are likely to benefit from a less cumbersome regime for making constitutional changes in the future.
The recommendations still need to go through the Parliamentary process, but the Law Commission’s charities project already has form for success, having had their proposals on social investment enacted last year.
New Regulatory Landscape
The Law Commission’s timing here is impeccable, as universities will soon have to navigate the new regulatory framework governing them under the Higher Education and Research Act 2017 (HERA), and by the new Office for Students. At the time of writing, we are awaiting imminent publication of consultation on how the regulatory framework under the Office for Students will work in practice. Good governance in the wider third sector is also very much on the political agenda, following the high-profile collapse of Kids Company, a new Charity Governance Code and the Charity Commission exercising its range of new enforcement powers.
Public Interest Matters – Impact of HERA 2017
One important step universities can take to position themselves best for the future is to reallocate the provisions of their governing documents, so that only the matters which are deemed to be relevant to the public interest, form part of their charters and statutes. Other provisions can be ‘decanted’ to regulations or ordinances, freeing them from the scrutiny of the Privy Council and other regulators.
Universities have been encouraged previously by government to liberalise their governing documents in this way. In 2006, the Westminster Government wrote to Vice-Chancellors in England, and the Welsh Government wrote to Vice-Chancellors in Wales, setting out categories of provisions that they considered to be in the public interest, thereby requiring Privy Council oversight, and those that did not. Universities were invited to reallocate those matters not falling within the public interest categories to subsidiary documents out of Privy Council control.
Some universities took the opportunity at that stage to overhaul their governing documents, but many did not. It was more difficult for higher education corporations (HECs) to take up this invitation, given the prescriptive requirements of the Education Reform Act 1988, with regard to the contents of their Instrument and Articles of Government.
HERA now paves the way for reallocation to be put on a statutory footing. The Office for Students is required to publish a list of principles applicable to the governance of English universities, which will help to ensure that they perform their functions in the public interest. This means that there will be formal guidance to replace the 2006 letter, following consultation with the sector, which sets out the public interest matters. Universities can be required, as a condition of registration with the Office for Students, to amend their governing documents in line with the public interest matters.
For HECs, HERA will also facilitate reallocation in accordance with the Office for Students’ guidance by removing the prescriptive requirements of their governing documents.
HERA only applies to English universities, so those in Wales will continue to be governed by the existing law. The Law Commission has recommended that the Welsh Government considers measures to address the current problems faced by Welsh universities in amending their governing documents.
Other Law Commission recommendations which may be of interest to universities include:
– More flexibility to amend the purposes and governing documents of charities under the trusteeship of the university, and extending and streamlining the current powers to spend the capital of permanent endowment funds held by the university. These measures will help universities to administer their funds as efficiently as possible and ensure that they are applied towards purposes which give the maximum benefit to the university’s students.
– The repeal of the detailed provisions in the Universities and College Estates Act 1925 in relation to the disposal of land which apply to the Universities and Colleges of Oxford, Cambridge and Durham to be replaced by general powers of ownership similar to those which trustees of charitable trusts have.
The outcome of the Office for Students’ consultation on determining the public interest matters, obviously cannot be prejudged and it will be interesting to see how much further (if at all) its approach goes towards deregulation than the 2006 letter.
The principle of academic freedom is required by HERA to be on the list and it was also suggested in the Parliamentary debate leading up to HERA’s enactment that a principle underscoring the importance of free speech could be included, if the Office for Students considered it appropriate.
In anticipation of the HERA reforms and in the hope (and expectation) that the Law Commission’s recommendations will be enacted, now is the time for universities to be thinking ahead to whether their governance procedures need updating:
– Do they accurately reflect the roles and responsibilities of all of the different bodies involved in the university’s governance?
– Are the lines of delegation and accountability sufficiently clear?
– Do they give the Governors the powers they need to manage the university’s assets and operations effectively?
– Are the procedures with respect to staff up to date and compliant? Bear in mind that where the Model Statute or other provisions concerning affected staff are to be reviewed, time may need to be factored into the process for collective consultation with staff and unions.
Ultimately, the question of how well your governing documents will serve you in the new regulatory landscape, may be difficult to answer with any certainty now. However, the key aim should be to put in place a framework which gives you the flexibility to update your governance over time to respond to new challenges, embrace opportunities and reflect the approach of your new principal regulator. VWV have been proud to provide legal consultancy to the Law Commission on this project.
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Rachel Tonkin is a senior associate at VWV. She can be contacted on 0117 314 5397 or at email@example.com
Con Alexander is a partner at VWV. He can be contacted on 0117 314 5214 or at firstname.lastname@example.org