The Big Conversation: shaping the future of higher education governance

Advance HE Chief Executive, Alison Johns, introduces a new governance project as part of our Global Member Benefit Theme for 2024-25, Governing and Leading Transformation.

The news headlines are currently full of stories of higher education institutions announcing significant deficits and the need to reduce their payroll to mitigate them. It seems no institution is immune, and the pain is being felt across the whole sector.

Over the last few weeks, both the Scottish and Welsh Governments have announced additional funding to provide some temporary relief but, welcome as it is, it will barely scratch the surface.

Why is the sector facing such challenges with financial sustainability? Are these challenges a result of failures of governance as some suggest, or it is more complex than that?

Figure 1. Transparent Approach to Costing (TRAC) graph adapted to academic culture that provides information about the costs and the financial sustainability of activities, institutions and HE provision. The graph shows most recently published data for 2022-23 clearly shows that the majority of HE activity is run at a loss, — Figure 1: the most recently published TRAC data for 2022-23 clearly shows that the majority of HE activity is run at a loss.

Struggle

When you look at the data, it’s not hard to see why HE institutions are struggling at the moment.

The Transparent Approach to Costing (TRAC) is an activity-based costing system adapted to academic culture that provides information about the costs and the financial sustainability of activities, institutions and higher education provision. The most recently published data for 2022-23 (Figure 1 above) clearly shows that the majority of HE activity is run at a loss, with only non-publicly funded teaching (mainly international and postgraduate education) and other non-commercial activities returning a profit. This isn’t enough to offset the cost of publicly funded teaching and research. Overall, this resulted in a deficit of around £2.8bn for the sector in 2022-23.

Since then, the problem has been further exasperated by the rising cost of living. A recent report by the Association of University Directors of Estates (AUDE) indicates that property operating costs have risen sharply, rising by 35 per cent in the last two years, and energy costs have nearly doubled in the last two years. In addition, non-publicly funded teaching has come under increasing pressure as applications from international and postgraduate students have dropped year on year as a result of changes of government policy on visas.

Governance effectiveness

So have there been failures of governance? Advance HE conducts governance effectiveness surveys in the majority of our governance effectiveness reviews. We have recently analysed the results from 1,338 respondents to the survey from 75 institutions in England, Wales, Scotland, Northern Ireland and Ireland.

It should be recognised that this is a perception survey where respondents assess their own and their institution’s performance, however, the nature of the reviews encourages an open and honest exercise.

In 2024 the highest scoring measure in the survey is, “mechanisms are in place to enable the governing body to be assured as to the organisation’s financial resilience and overall sustainability”, with 97% of respondents agreeing that this is the case. However, this feels somewhat out of sync with what we are observing in the sector, so what is really happening?

When we delve a little deeper into the survey results and examine the qualitative feedback, the situation becomes clearer. Governors are confident that the mechanisms are in place to provide assurance about financial sustainability, but that doesn’t mean that they are happy with the outcome. In the words of one governor, “the mechanisms provide visibility of how difficult the situation is, and we understand the scope of the challenge, but that’s a world away from navigating it successfully”.

Either the scale of the challenge, the lack of control that institutions have over some of the key factors (eg national immigration policy), and/or the implementation of the assurance mechanisms themselves, mean that governing bodies and their institutions have struggled to respond and adapt to the financial challenges they face.

Does this indicate a failure of governance? Our reviews provide clear evidence that most governing bodies are well-sighted on the issues, so perhaps this is more about the speed of change within the sector and how governance can effectively support transformation.

The big questions we need to tackle immediately are: how does the governance of HE need to change in the future so that the sector is better able to address these challenges, and how can the HE sector bodies work collaboratively to help?

Challenge

At Advance HE’s annual governance conference in December, the interim Chair of the Office for Students (OfS), Sir David Behan challenged the sector, stating that:

“institutions need strong leadership and governance not only to weather the storm but to put in place the kind of transformational plans that will ensure they survive and thrive. Despite being buffeted by external factors beyond their immediate control, institutions need to recognise and embrace their own agency”.

We are very conscious that one of the opportunities and challenges for the future of HE governance is to consider how the sector can collaborate more. We are entering a phase where, despite the limitations imposed by an HE market, we need to be able to work together to grow and respond to some of the collective challenges as opposed to trying to manage all of the challenges independently.

That is why Advance HE is launching ‘The Big Conversation’ in partnership with CUC, UUK, GuildHE, Independent Higher Education (IHE) and AHUA. The aim is to support a national level discussion about the future of HE governance in the UK, drawing on insight and perspectives from beyond HE and across the world.

The Big Conversation workshops

We will be running a series of workshops from March to June covering topics such as:

Are governing bodies receiving the right information to focus on long-term strategy as well as immediate financial concerns, and to measure what matters?
The purpose of governance in creating sustainable institutions in the public interest.
Enabling effective decision making through structure, culture and skills.
The governance of mergers and acquisitions.

We will also be collating insights and experience from higher education institutions who have recently gone through mergers and/or acquisitions so that we can develop sector guidance to benefit other institutions considering merger, helping them navigate the complex process more effectively.

Alison is the Chief Executive of Advance HE. She was appointed in the autumn 2017, to lead the merger of three national agencies which created Advance HE in 2018. Prior to that, she was the Chief Executive of the Leadership Foundation for Higher Education (LFHE). Find out more about Alison.