How governance contributes to financially and socially sustainable institutions

Governance in higher education plays a critical role in ensuring that universities and other higher education providers fulfil their collective mission to advance the public interest, itself a complex and evolving concept. The governance structures and policies in place determine the long-term sustainability of these institutions, both financially and more broadly in terms of social and environmental responsibility.

Effective governance balances the needs of stakeholders - including students, staff, regulators, government and the wider communities they serve - while maintaining financial viability and academic integrity. Managing risk across such a broad set of interests can be challenging. Long-term strategies may use tools such as Environmental Social Governance, to build sustainable and resilient institutions better able to predict and navigate future shifts. 

Financial sustainability through effective governance 

Financial sustainability is a cornerstone of higher education governance. Without sound financial management, universities and other higher education providers risk more than just their own financial future.  

The reputation of UK higher education depends on sustainable financial models that create enduring institutions. Governance is critical to ensuring financial stability that outlasts a provider’s current executive leadership by: 

1. Strategic budgeting and resource allocation

• Governing bodies are responsible for agreeing financial strategies that align with the institutional strategy and mission, with an essential role in balancing the interests of financial stakeholders (eg financial stakeholders for higher education providers vary by institutional type but will include banks; for some providers this may also include shareholders, parent companies, charities and investors), with the interests of other categories of stakeholder and the wider public interest.
• Prioritising spending on core and value adding activity while ensuring overall operational efficiency.
• Balancing short-term financial management with longer term financial strategy and risk. 

2. Diversification of sustainable revenue streams

• The governing body, taking account of their institution’s size and mission, will seek to ensure a sustainable mix and balance of income sources and increasingly, given the pressure on capped domestic tuition fees, new sources of revenue.
• In addition to the internal cross-subsidies that exist within some providers, consideration will also be given to commercial activity which can be undertaken by institutions as an added source of income.
• Given the rapid pace of change in the global higher education landscape, the governing body will create an agile environment that encourages calculated risk-taking, leading to innovative, revenue-generating sources.   

3. Accountability and transparency

• As well as providing scrutiny of budgets, forecasts and accounts, governing bodies will ensure compliance with reporting standards and commission audits to validate the robustness of the information provided. This will include effective reporting mechanisms where different layers of governance are empowered and enabled to evaluate both operational and strategic information.
• Transparent financial decisions and tracking of financial forecasting reliability to build trust among stakeholders. 

While the economic headwinds facing the entire sector at present are well understood, the extent to which governance has ensured financial sustainability has clearly varied. Governing bodies have, particularly in recent times, needed to adapt their approaches to meet the rising financial challenges and risks. In particular, stress-testing assumptions about student recruitment targets, scenario planning for different potential outcomes, developing contingencies and needing to become more agile to adapt to a changing and at times volatile environment.  

Almost all higher education providers receive income from a range of sources, and further diversification can help to secure their sustainability. For many, however, a large share of their revenue ultimately derives from public funds, including student loans and government grants. In this context, ensuring that money is well spent and institutions are operating sustainably is crucial, in addition to the regulatory and statutory requirements which come alongside the receipt of this funding. Value for money, for stakeholders and funders, should be a regular discussion at governing body meetings. 

Sustainability in a broader context 

For higher education there is an inextricable link between academic and social sustainability and financial viability. The strong role of stakeholders, and the public interest in protecting the collective reputation of higher education, means that governing bodies must balance their financial risk with their role in ensuring the broader academic, social and environmental sustainability of institutions.  

1. Academic sustainability

• Governance ensures that universities and other higher education providers maintain high academic standards and adapt curricula to meet evolving societal needs.
• Research, industry engagement and innovation foster a thriving academic environment that remains relevant over time.
• Governing bodies ensure delivery models adapt to changing student needs and create accessible routes into and through higher education. 

2. Social responsibility and equity

• Higher education is regarded as a public good and providers should consider their responsibility, duty and obligations in relation to promoting and enhancing diversity and inclusion.
• Governance frameworks and regulatory requirements provide oversight in relation to the equality of opportunity, helping to ensure that underrepresented groups can access, participate in and succeed through their learning journey.
• Policies regarding working practices, freedom of speech and ethical partnerships also fall under governance oversight. 

3. Environmental sustainability

• Providers will adopt sustainability policies to consider their impact on the environment and how they can make a more positive impact. 

Providers have placed a growing importance on considering their wider sustainability not just through teaching and research, but also in how they are governed and what they oversee. This includes articulating sustainability through the institutional strategy, performance measures to track progress, defining and implementing policies and agreeing resources to meet these sustainability objectives.  

The role of stakeholders in governance 

Effective governance requires the involvement of multiple stakeholders to ensure that decision-making reflects an understanding of diverse perspectives and interests relevant to the institution. 

1. Academic, professional and staff

• Staff are a key audience, and there will be a two-way dialogue to develop institutional strategy, cascade policies and ensure the institution remains true to its mission.
• Academic governance ensures that quality and standards are met and maintained. 

2. Students

• Student representation and involvement in governance ensures that the perspective of students informs decision making.
• Most institutions will have students embedded in decision making throughout the institution as a direct means to respond to student need. 

3. Government and regulatory bodies

• Providers comply with statutory and regulatory requirements (across multiple regulators). 

4. Alumni

• The alumni community will, to differing degrees, have an ongoing vested interest in the institution and remains an important audience with which to maintain a relationship.
• Alumni will rely on governing bodies supporting the longevity of the institution to ensure their qualifications hold value over time.  

5. Employers and business

• Providers both as a supply of graduates and in the creation of knowledge and research will have multiple reasons to engage with employers, business and industry to share their expertise.
• Some providers will have more direct relationships with employers through funding, professional accreditation, provision of professional training and CPD or the exchange of staff.  

6. Civic and industry engagement

• Institutions play an important role in their communities – local, industry, social or cultural. They may be a significant employer, an influencer or connector, bringing people together over shared interests.
• Connection with national and local policy makers such as local and combined authorities, skills groupings, think tanks, quangos, charities etc 

Creating sustainable institutions in the public interest 

Governance in higher education is fundamental to ensuring that universities and other higher education providers are both financially and socially sustainable. Through strategic financial management, inclusive decision-making and forward-looking policies, governance helps institutions fulfil their mission to educate, innovate and serve society.  

By upholding principles of transparency, accountability and adaptability, higher education governance can create resilient institutions that thrive in an ever-changing world while prioritising the public interest. 

To explore the issues raised in this blog, please join us for the second of our Big Conversation sessions which will take place on 29 April between 8.30am – 9.30am. Find out more  

Aaron Porter is Associate Director Governance, Advance HE. 

Mary Curnock Cook is Chair, Dyson Institute of Engineering and Technology, a member of IHE. 

Kamran Razmdoost is Dean, ESCP Business School London, a member of IHE.