Governance News Alert: Scottish Funding Council (SFC): SFC’s Expectations of Good Governance

The report is designed to enhance good governance and sets out what the funding council has learned about sector and institutional governance from an analysis of governance effectiveness review (GER) reports. It also draws on Professor Pamela Gillies’ report on the financial challenges faced by the University of Dundee. The SFC report provides clarity about expectations of sector governance and sets out proposals for increasing its institutional scrutiny. While it focuses naturally on governance issues in Scottish HE, it offers important learning for all HE providers regardless of location and regulatory environment, and address universal principles of good governance.

The full report can be found at: https://www.sfc.ac.uk/wp-content/uploads/2025/09/Good-Governance-Outcome-expectations_final.pdf

At-a-glance:

• Analysis of university GER reports highlighted a number of key strengths that institutions should aim for, including governing body member skills and experience and the quality of governing body and committee papers. About half of GER reports highlighted a culture of respect, openness and inclusion and constructive relationships as a strength. Other reports commented favourably, but less directly, on these areas (p4 and p5)
   
• The GER reports often focus on development and do not always have a strong element of assurance. An exclusive focus in GER reports on areas for development does not provide assurance as to whether current arrangements are adequate and effective. The assurance element is vitally important and therefore GERs should be designed to provide both assurance and development opportunities for governing bodies (p5)
   
• No standard approach to GERs is used within the sector and there can be significant variation in the approach adopted by reviewers. Reviewers should provide assurance on oversight of financial sustainability by providing triangulation of evidence. Approaches should include document review, observation of governing body and committee meetings, a survey or questionnaire, interviews and a workshop to gather governing body members’ views (p6)
   
• Some institutions are long overdue an external governance effectiveness review. The SFC expects reviews to be taken as soon as possible to address this area of non-compliance with the governance code. In future GERs should be undertaken on schedule (p5)
   
• Institutions have not always shared the reports with SFC in a timely way and SFC has not always or consistently chased provision or publication of the reports or reviewed those that it has received (p5)
   
• Few GER reports commented on the quality of financial oversight by the governing body and, where there was comment, this was relatively superficial. Many GERs did not mention finance or financial oversight at all in the report. A lack of appropriate challenge and oversight can lead to financial issues not being identified or addressed in a timely way. This can have significant adverse consequences for the institution (p6)
   
• Induction and training and development should be improved for governing body members, including students (p6)
   
• The Gillies Report found that effective governance relies not only on systems and processes, but on a culture that values questioning and critical appraisal at all levels, without fear, and encourages curiosity and engagement to uncover risks and issues worthy of debate. Transparency, accountability and evidence-based decision making are also crucial, as are regular updates on sensitive matters, clear communication and unbiased minutes. It also empathised the importance of audit committee independence and objectivity, avoiding overlap with other committees to prevent bias (p9)
   
• The report notes that the dual role of the university secretary as chief operating officer is a potential conflict of interest. This is not a common arrangement in the Scottish university sector, but instances outside of the University of Dundee do occur (p10)
   
• As well as sending GERs to the SFC, universities should submit to SFC regular updates on the implementation of recommendations of the GERs (these should be the updates provided to the institution’s Court / Board of Management) (p11)
   
• Non-compliance with the governance code must be reported to the SFC, including details of the non-compliance, how it has arisen and how it will be rectified or explained (p11)
   
• Breaches of Financial Memorandum (FM) must be reported to the SFC eg failure to observe statutory regulations or obligations, mismanagement of funding, financial irregularity, fraud, systems failures, breakdown of management or governance relations, etc (p11)
   
• Institutions should have clear and appropriate whistleblowing policies that are readily accessible to staff and students and clear communication to alert staff to these (p12)
   
• The funding council may undertake scrutiny of internal and external audit reports and institutional strategies to explore any implications for governance (p12)
   
• The SFC will work with the Committee of Scottish Chairs and Universities Scotland to develop guidance about the process for recruiting chairs of court to ensure candidates have the necessary experience and skills

Implications for governance:

The SFC report, published following the crisis of governance at Dundee University which necessitated a £40 million bail out, attempts to provide clarity about the funding council’s governance expectations and lays out proposals for enhanced institutional scrutiny.

The new report is in addition to existing guidance, such as the Scottish Code of Good Higher Education Governance, Financial Memoranda and more recently the Outcome Framework and Assurance Model, published in June. Institutions in England have similar codes and frameworks.

While the Expectations of Good Governance report is, of course, aimed at Scottish institutions, the principles it outlines provide key learnings for all HE providers, regardless of location and regulatory environment.

One crucial finding from the SFC analysis of GERs and the Gillies review is the potential weakness in financial oversight, of particular concern at a time when universities are struggling to balance the books. For instance, few GER reports commented on the quality of financial oversight at institutions, or it was mentioned only superficially.

The SFC report also revealed a tendency in GER reports to focus on areas for development rather than provide an assessment of whether current arrangements are adequate and effective. Without assurance over existing arrangements, it points out, it is unclear whether the recommended developments are intended to enhance and improve already effective arrangements or to rectify arrangements that are, in effect, inadequate and ineffective. 

Council/board culture was pinpointed by the Gillies report as another area of potential concern. Effective governance requires a culture that values questioning and critical appraisal at all levels, it said. While the analysis of GER reports found this at many universities, it was not highlighted in all. 

When setting out the terms of any GER, internal or external, boards may want to consider highlighting priority areas and stressing the need for assurances about current arrangements for financial oversight and risk management, as well as an appraisal of existing board culture.

GER reports should be accompanied by a rolling action plan to track the implementation of recommendations, the report says. The testing of this should be a clear component of the GER process. Going forward, the SFC will be requiring institutions to provide “regular updates” on the implementation of recommendations from internal and external reviews. Boards may want to consider the action taken following their most recent internal or external review of governance and whether it has been effective.

The SFC report recommends a number of practical steps that can be taken to protect transparency and objectivity and guard against group think and bias.  Independence of the audit committee should be assured and an overlap of membership with the other committee should be avoided, for instance. Whistleblowing arrangements should be reviewed and sign-posted.

Induction and training and development for board members is another area where improvements can be made. The SFC is considering whether such training should be made mandatory.

“Undertaking suitable and appropriately frequent training is important in both ensuring that institutions have good oversight and that governing body members are supported in undertaking their work as trustees,” the report says.

The highlighting of this aspect of good governance may provide a timely reminder to institutions of the need to not only provide opportunities for training and development but to consider the quality of what is on offer and the extent to which all board members are encouraged to participate.