Everyone loves taking a peek behind the curtain: getting an insight into a world that we know exists but do not normally get to see. Fly-on-the-wall TV programmes, offering a glimpse of the inner workings of a bustling Manchester school or a busy maternity unit, have proved hugely popular in recent years.

Researchers at the University of Stirling are now using a similar tactic to glean information about one of the last secret gardens left in education: college governing boards. The project will film at eight colleges and training providers across the UK and report back next year.

Access to top-level decision-making of this kind is rare in both the public and private sectors, says Cate Watson, principal investigator on the project and professor of education at Stirling. “The interesting thing about governing is that no one knows what ‘governing’ is,” she explains. “We’re going to be going in there and teasing this out. The codes upon which boards base their work are not based on empirical evidence but on normative statements saying what boards should be doing.”

The cost of governance failures is huge in both the corporate and not-for-profit spheres. The names of organisations where things have gone wrong are notorious: the Mid Staffordshire NHS Foundation Trust, Kids Company, Learndirect. Even if the body involved manages to survive in some form, such organisations rarely recover from the resulting reputational damage.

A new insolvency regime, introduced last week, aims to protect learners from the most serious consequences of a similar failure of governance in an FE college. And it means that the stakes for individual governors have risen: if they are found to be responsible for serious wrongdoing, they could end up being barred from being a company director.

The new system, brought in under the Technical and Further Education Act 2017, is part of a shift towards a form of governance closer to that used in the private sector. So what impact is this likely to have on the behaviour of those who make the decisions? What evidence is available on good practice - both within and outside the sector - to guide them through this high-stakes environment?

Louise Thomson, head of policy at the ICSA, the professional body for governance, believes the hallmarks of good governance are fairly transferable between organisations. The focus in the charity sector on benefactors, for instance, is broadly similar to how colleges approach students, she says. In the corporate world, the emphasis is on shareholders, but that is changing in some quarters “with a greater focus on corporate responsibility and wider stakeholders”.

There is rising awareness of the importance of strong governance in FE. In his annual report for 2017-18, FE commissioner Richard Atkins wrote that “college boards need to be realistic, particularly about forecasted revenue, and have the right expertise to do this; and governors need to have the strength and expertise to challenge robustly”.

‘Robust’ management required

Similarly, in her speech to the Association of Colleges’ annual conference last November, skills minister Anne Milton said she had seen colleges in “severe financial circumstances” that could have been avoided if they’d had a strong board and leadership. “Well-meaning governors, they may be. But in this day and age, robust financial management and leadership is the route to a successful college.”

There has been a recurring theme in the failure of “weak” boards to rein in “charismatic” leaders, according to a 2017 report on school governance by Tony Breslin from the Royal Society for the Arts (RSA). “When weak governance meets charismatic leadership, the outcome is rarely positive - in education (as the fall from grace of a number of so-called ‘superheads’ illustrates) or in any other setting,” he writes.

In the 2013 Creating Excellence in College Governance report for the Association of Colleges, Dr Sue Pember - now director of policy and external relations at adult education body Holex - argues that governors at some failed colleges knew something was wrong “but did not feel able to speak up and were therefore unable to hold the senior leadership team to account”. She adds: “They were not able to challenge effectively and did not have the data and information to underpin their position.”

The accountability methods of the further education sector are beginning to align more closely with those found in the corporate world, a joint discussion paper published last month by Collab Group and Shakespeare Martineau concludes.

“The introduction of a new insolvency regime for further [education] means that colleges in financial trouble are likely to receive less government support. So, colleges will be forced to undergo mergers or they will go bust,” the report states.

Bedford College Group governor Sheila Selwood, who also advises other colleges on governance, says that reductions in funding have forced colleges to think more commercially for at least the past decade, but the insolvency regime could lead to more mergers, larger college groups and potentially more corporate governance structures such as subsidiaries and federations.

“As colleges get larger and their structures more complex, different models and structures of governance may be necessary. How you structure governance will change but the fundamentals of governance will not - the need for highly skilled people, with the right skills, who can work together in a collegiate manner.

“Merged colleges or larger colleges will start to look at subsidiaries, for example, for professional services - like catering or cleaning or for managing support staff or the HR function of the college. There are also colleges that are in federations or have academy chains or sixth-form colleges.

“What you might end up with is an overarching group of governors, but underneath or within that will be other governing bodies, or ‘mini-boards’, with directors for things like professional services. What is important is that you get strong legal advice when setting that up.”

Two-way flow

Many governors in the education world already have a background in business. A report by the RSA focusing on the schools sector notes a two-way flow between company directors and school governors - with both deeming the other valuable for board-level discussions.

But those from the world of business could be in for a shock when taking a position on a college board. “People have an image that being a college governor is just like a school governor, but it is much more businesslike,” Selwood says. “The hardest challenge for people from the business world is getting their heads around the financial and funding challenges for colleges and the shifting government strategies. They also sometimes find that it’s hard for colleges to shift direction quickly - but they can challenge a college to make a change.”

Colleges’ designation as exempt charities, as well as their public service missions, makes them distinct from commercial corporations, argues Seb Schmoller, chair of governors at Sheffield College.

“I don’t think the fact that we’re an exempt charity has ever not been in our minds [as governors]. That is how we operate. But of course, we have to be businesslike. I think sometimes new governors are not clear colleges are charities and we have become more explicit in our recruitment that this is the kind of organisation colleges are.

“The insolvency regime doesn’t change us being an exempt charity and it doesn’t alter the requirement on the corporation to be businesslike in the way we govern. What it does is make it more explicit that no one is going to pick up the tab if you blow it.”

Schmoller says there is a distinction between how colleges are categorised and how they operate. On the one hand, they are classed by the Office for National Statistics as being part of the private sector; on the other, they feel as if they are part of the public sector and are often referred to as such.

“If you’re a for-profit company, you would be accountable to your shareholders,” he says. “As a governor in a college, the accountabilities are different, because colleges are charities, regulated by the secretary of state. But - having experience of several boards of educational charities regulated by the Charity Commission - the governance process feels very similar.

“Some colleges may run commercial ventures that provide a substantial part of their turnover, and some may perhaps have come unstuck in recent years through expecting that commercial activity would save their bacon. But the underlying requirement on governors to govern colleges as charities must be a cornerstone. As [Baroness] Helena Kennedy put it in Learning Works: widening participation in further education over 20 years ago, colleges need to be business-like: but they are not businesses.”

For Dr Roger Barker, head of corporate governance at the Institute of Directors, the task of governing on a college board is fundamentally the same as sitting on the board of a for-profit company. Colleges may have a quite different mission from companies, but the basic duties of a director are focused on the duty of care to the organisation they represent.

Failure is a fact of life

The introduction of the new insolvency regime should make governors acutely aware of their responsibilities to act properly and carry out the duties necessary to protect their college. While it is far from certain that any will actually go bust, this risk is a fact of life in the business world, says Barker.

“In the private sector, companies are succeeding or failing all the time. The key thing that will be observed when a company goes into administration or is being liquidated is the behaviours and actions of the directors leading up to that point.”

In preparing a report for the government’s Insolvency Service, an insolvency practitioner will look at the processes that have been carried out by the directors. “Specifically, when the directors made the decision to stop trading or operating,” Barker continues. “If directors are carrying on operations for a long time to the detriment of creditors - that is what could create real problems for directors and they could become personally liable for the debts of creditors and you could be disqualified from being a director in the future.”

For well-meaning college governors who have given up large chunks of their time to support a local community asset, the prospect of being barred may sound alarming. But this is exactly the process that the new regime has put in place.

As a result of a modification of the Company Directors Disqualification Act 1986, any college governor found responsible for wrongdoing in respect of the management of an FE body may be disqualified from acting as a governor - and even a company director - in the future.

Should any problems be looming on the horizon at a college, Barker’s advice for governors is exactly the same as he offers to struggling businesses: get an independent financial adviser in - fast.

And while the stakes may have got higher for individual governors, this toughening up of the system is the only way to improve standards of governance, he believes. “If governors are not behaving properly, are there going to be any meaningful effects? If not, then the insolvency regime will not have a substantive effect on behaviour.”

George Ryan is an FE reporter for Tes

This article originally appeared in the 8 February 2019 issue under the headline “Corporate culture shock”