"The Governor View" - Franchise arrangements

An expansion in the UK higher education franchising market in recent years has seen the number of students enrolled on courses delivered by partner institutions more than double from 50,440 in 2018/19 to 108,600 in 2021/22, accounting for nearly 5 per cent of the total student population.

This rapid growth is increasingly under the spotlight. A National Audit Office investigation into student finance at franchised providers, published in January 2024, raised significant concerns about the nature, quality, outcomes and governance of some for-profit provision, as well as gaps in regulation. Evidence of a £2.2 million student loan fraud uncovered by the NAO prompted a rash of headlines about “organised crime” in HE.

More headlines were generated by a Public Accounts Committee (PAC) report in April 2024. It raised further concerns about transparency and oversight of the burgeoning franchise market.

In light of the findings, the Office for Students launched its own investigation, outlined in a 12-page Insight Brief that has recently been published. It found that students with no qualifications and poor levels of English were being recruited on to some courses. The regulator concluded that some institutions were prioritising financial benefits over quality, and that while franchise arrangements can widen access, they present significant risks for institutions if they are not managed properly. 

For some governors who spoke to Advance HE about issues raised in the OfS report, effective oversight of contractual arrangements has proved a challenge.  One, at a university in the south of England, felt he had “very little handle” on the subject and suspected the same was true of many governors.

“I have a lot of confidence in the executive so I would be quite surprised if we have any arrangements that are cause for concern,” he said. “On the other hand, I’m aware that off-campus franchises generally are a money spinner and leave it open for corners to be cut. Put generously, it is a widening participation activity but you could argue it is about scraping the barrel to get the numbers.”

This governor points to the importance of enabling students to experience higher education who might not otherwise have done so. Lower completion rates in this instance are not necessarily a cause for alarm, he said. But neither should these students experience a “cut-down” version of what their peers are receiving. 

“Across the sector we have not been keeping a close eye on this generally,” he said. “From a governing board perspective, there’s a reluctance to intrude too much in nut and bolt details. But in the case of franchising, perhaps some boards are not sufficiently involved. There is perhaps too much reliance on the executive to draw things to your attention.”

A former governor who recently stepped down from a new university said she was not surprised that some contracting arrangements were being revealed to be substandard.

“Most industries I work with are very poor when it comes to contracting so this isn’t specific to higher education,” she said. “There is an element of taking your eyes off the ball, with the feeling that ‘we’ve dealt with that; someone else is taking care of it’. But legally speaking you are still on the hook, you are still liable to the end user, which is the student.”

Governing boards need to ensure the executive carry out “top notch due diligence” on new contractual arrangements, she warned. 

“They need to meet expectations that they have done their homework on what that specific partner would bring to the institution and students. It should not be about cost and who is the cheapest. It is about the outcomes, which are very rarely looked at in due diligence processes in my experience.”

With existing partnerships, governors should question how quality is assured and the kind of access the lead provider has to data on external campuses, she added.

“There can be too much reliance on academic subcommittees or their equivalent to police the standard and if you raise questions, you are told ‘the subcommittee is dealing with that’.  But that is not assurance; we are being reassured but that is not the same thing. Are we content to take the risk of actually not knowing anything and just being told? That is the real issue and how we, as a sector, have arrived at this situation.”

By contrast, a governing board member of a new university in central England, reports that at his institution, an “awful lot” is shared with governors and time is spent discussing franchise arrangements.

“We do try to keep a balance between the contractual detail, which I think is the domain of the executive, and the strategic aspects which are quite properly the domain of governors,” he said. “We have a partnership strategy with clear milestones and objectives which was taken to the governing body for approval.”

According to this board member, oversight and regulation of the franchise market has failed to keep up with recent changes. Whereas 30 years ago, most partnerships would have been with the heavily-regulated Further Education (FE) sector, the move to encourage more competition and new entrants has “opened a back door” to franchisees intent on “driving for rapid growth”.

The status of unregistered providers, clear lines of responsibility, ensuring transparency and issues around the termination of arrangements are all problematic areas, according to the board member. 

“There’s a lot of murkiness and confusion, and I think the majority of governors find these arrangements entirely confusing, complex and difficult. Governors should be receiving outcomes data for the franchise and be scrutinising them and holding the executive to account. They also need to be holding executives to account on management controls, process, procedures and strategy.”

At his institution, risks around subcontracting arrangements are flagged on the risk register, frequent meetings are held between senior management at the university and the partner organisation, and independent attendance checks are carried out at the franchise campus.

“We think we are really on it and doing lots of checks, but the mood music around franchise is that it is cowboy territory,” he added. “These arrangements are not all in the same category and there is a fear they will all be tarnished. There are many examples of long-standing arrangements that have not increased numbers or profits and are doing a good job with hard to reach students.”

The OfS Insight Brief raises important points on the governance of franchise arrangements. It says it is “essential” that boards have the skills – in strategy, finance, commerce and audit - to scrutinise the business models of partners and weigh up the benefits and risks to the lead provider and students.

Skill gaps should be addressed through recruitment or procurement of consultants, induction and training given to all board members and robust succession planning prioritised, it says. The OfS also suggests remuneration of the chair or board members to encourage people with the necessary skills to apply (permission can be sought from the Charity Commission to allow this).

It also covers a concern flagged by governors who spoke to Advance HE: ensuring that governing boards receive the right kind of information in sufficient detail to give them confidence in any subcontract arrangements.

A recent report for the Higher Education Policy Institute by Professor Nick Braisby, Ian Harper and Professor Damien Page, of Buckinghamshire New University, calls for a new and robust sector-owned code of practice and recommends that the OfS adds a new section to its register backed up by “light-touch, low-cost and timely regulation”. 

While not amounting to a code of practise, a 14-page Universities UK franchise governance framework, published in July, sets out principles for managing risk in franchised partnerships and some practical steps universities can take to do this.

Some governors are worried that as a sector-response to what is being portrayed as a “wild west” of franchising, the framework may not be enough to placate ministers.

“I sense some draconian regulation coming,” warned one board member. “The only way a university can protect itself is to absolutely get on the front foot, to think about what might come their way and try to sort it out. It could cost money but the sector needs to get on top of it.”