Colleges could thrive as companies, says paper

5th February 2010 at 00:00
157 Group report proposes radical shake-up that would see FE institutions running everything from schools and training providers to cleaning firms

Just as Tesco and Sainsbury's now sell everything from potatoes to personal finance, what is to stop a college exploiting its brand to run schools, universities, private training companies, student financial services or even an office cleaning business?

The answer, according to a paper by law firm Eversheds, is nothing.

The report, commissioned by the 157 Group of leading colleges and published this week, argues that institutions should be allowed to convert from a corporation to a company structure, bringing additional business freedoms and flexibilities.

Glynne Stanfield, a partner at Eversheds and author of the report, notes a rise in the number of colleges seeking advice on joint venture companies and subsidiaries as they are forced to consider new income streams and business opportunities as a result of funding pressures. He predicts a rise in colleges seeking merger for the same reasons.

The paper, which shares a number of ideas with a report that Mr Stanfield produced for Universities UK last November, suggests that restructuring can take a number of forms.

One key model is federation. This involves a college acting as a parent company running numerous distinct businesses, some of which might trade under different brands. The Newcastle College Group, which runs four separate divisions, is held up as an example.

"I think we will see more of a group corporate structure in FE," Mr Stanfield said. "For example, Shell and BP operate under their own brand name but also through a number of sub-brands across different spheres.

"This could either be a federal structure, where the college is a parent company with lots of business interests, or a confederation, where the college body is subordinate to an overarching company structure of which it is one part of the business."

The model allows colleges to take over other colleges, buy or partner with private training providers, and set up subsidiary companies providing, for example, work-based learning.

"Taking it a step further, the group could establish a services company to provide staff and other services to the group - and possibly, subject to capacity, outside of the group," the paper argues.

Staff working in different parts of a federated FE business would almost certainly be working on different contracts, terms and conditions, Mr Stanfield said.

There should be few constraints on what colleges can own, although Mr Stanfield said that operations would almost certainly have some congruity to the core business.

In addition to setting up their own subsidiaries Mr Stanfield envisages colleges snapping up state schools and academies, public schools that find trading tough in the downturn and even universities destabilised by funding cuts.

"I think we will see some further education institutions that are financially strong and well run looking to take over small and perhaps failing higher education institutions," he said.

An adjunct to this is that larger colleges are increasingly likely to apply for the power to award their own degrees, according to the paper. The same logic is applied in the report to the ownership of colleges.

"With public backing, it would be possible for a private sector body or management to take over the business of a college, or simply for the college to be transferred into a private body for no cost," the paper says.

"The private body could continue the public teaching functions of the colleges through a contract with the relevant funding body."

Such private sector buy-outs could come from overseas, perhaps the US, the paper suggests. A more radical proposal is that colleges could be subject to management buy-out. This would involve transferring the colleges to a company owned by the institutions' management and private backers.

"It is a very radical model and it is impossible to do under current legislation," Mr Stanfield said. "Perhaps other politicians might be more open to that idea.

"One of the benefits of a private buy-out is that you get the attributes of private sector value for money while transferring the risk off the government balance sheets."

Another benefit deriving from a company structure would be the access it afforded to equity from third parties - something that is far harder to achieve for college corporations as currently formed. The paper suggests that this could take the form of a loan issue on the London Stock Exchange and bond issues. The paper also outlines possible VAT benefits for college subsidiaries.

Ian Pryce, principal of Bedford College and vice-chair of the 157 Group, said: "Our paper is designed to provoke discussion and therefore contains ideas that may prove to be unpalatable or too risky as well as ideas that may engender significant improvements in quality and financial efficiency.

"Our sector has many world-class colleges that will want to remain internationally and nationally competitive. They will not want to be constrained by current corporate structures if this jeopardises their competitiveness.

"It is inevitable that some colleges will wish to form alliances with companies, overseas institutions, etc. I think management buy-outs are more problematic.

"Personally, I think the publicly funded further education core must stay accountable to local communities and be protected from any potential losses in riskier non-local activity, just like the idea that investment banking arms should not damage the retail high street part of a bank."

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