Good college governance: consultation

Section 3 - Good Governance Task Group Recommendation 9: more sanctions are considered so that a wider range of measures is available, if necessary

Possible sanctions

Recommendation 9(a) of Task Group report

Scottish Ministers will consult on

i) Ministerial powers

i. to suspend any or all board members (except the principal) when considering a removal order
ii. bar people from college boards, even if they have since left the board
iii. to direct colleges in the face of a board not governing appropriately.

ii) requiring co-operation of assigned colleges in SFC reviews. Meantime, this should be given effect through the Financial Memorandum mechanisms.

iii) SFC's powers to attend and address meetings in failing to meet criteria to be publicly funded.

iv) SFC and regional strategic body powers to attend and address meetings relevant committee meetings.

v) extending the powers of the Auditor General for Scotland to conduct economy, efficiency and effectiveness examinations so that all publicly funded colleges can be subject to such examinations.

vi) clarifying that the powers of an appointing body's powers includes a power to suspend, in line with other appointments.

3.1 In its supporting material report the Task Group, explained:

Different mechanisms are in place to ensure accountability of boards and of individual board members. We consider that much more could be done with better use of existing powers - and we make recommendations on this, including in relation to SFC taking a more pro-active approach. However, it has become evident from recent governance failures that a wider range of sanctions and powers should be available to tackle any emerging problems. The very existence of enhanced sanctions/powers should help to 'focus minds' on ensuring that proper governance is always followed. However, it is important that relevant bodies have appropriate sanctions/powers to handle matters effectively.

3.2 The Task Group's review of powers and sanctions is at Annex B of its supporting material report.

Ministerial powers

Suspend any or all board members (except the principal) when considering a removal order

QUESTION 7: Should Ministers have powers to suspend any or all board members (except the principal) in circumstances where they consider this appropriate while they carry out further consideration as to whether a removal order is warranted?

3.3 Scottish Ministers currently have powers to remove by order any or all board members of an incorporated college board (except the principal) for board failure ^[19] . Board failure includes a serious breach or repeated breaches of terms and conditions of grant. It therefore includes non-compliance with the Scottish Public Finance Manual ( SPFM), Financial Memorandum and Governance Code as compliance with them is a term and condition of grant. Board failure also includes failure to provide an appropriate standard of education or to discharge their duties properly as well as mismanagement of their financial or other affairs. The power of removal can also be used if Scottish Ministers are informed that a college no longer meets the criteria set out in section 7(2) of the 2005 Act for receipt of public funding. Scottish Ministers used their power to remove members from the Glasgow Clyde College Board in October 2015. Ministers have similar powers to remove members from a Regional Board ^[20] . Removed members are disqualified from appointment to the board of an incorporated college, a Regional Board and the Scottish Further and Higher Education Funding Council ( SFC).

3.4 At Glasgow Clyde College, the College itself had powers, which the former chair exercised, to suspend the college principal while an investigation was carried out. Ministers generally have no such powers to suspend college board members that they are considering whether to remove by order from a board because of board failure. Under the current legislation in relation to college boards, if Scottish Ministers were to consider whether to remove board members by order, the board members would continue to be responsible for governing the college while Ministers investigated the circumstances.

3.5 Depending on the circumstances, it may not always be appropriate for board members to remain in office while Ministers investigate.

Bar people from boards, even if they have since left the board

QUESTION 8: Should Ministers have power, when making a removal order, to include someone who has since left the board but was a member during the period for which Ministers consider there was board failure with the effect that the person is disqualified from any other boards?

3.6 The disqualification on appointment to the board of an incorporated college, a Regional Board and the SFC only applies where board members are removed from office by an order made by Ministers under the 1992 Act or the 2005 Act. So if a board member were to vacate office or resign from office before a removal order is made or comes into force, they would not be barred from such office as a consequence of that order. That board member may also have been equally responsible for the board failure as any members that Ministers ultimately determine to remove by order and arguably that member who had already left the board should then also be disqualified from future appointment to a college sector board.

Power to direct colleges in the face of a board not governing appropriately

QUESTION 9: Should Ministers have powers to direct (a) incorporated colleges and (b) Regional Boards?

QUESTION 10: If Ministers were to have such powers (1) should they be limited to circumstances where they consider a board is not governing appropriately? (2) should Ministers' powers be (a) in addition or (b) instead of the current power of direction that vests with regional strategic bodies?

3.7 When colleges were incorporated in 1993, Ministers had a wider power ^[21] to give boards of management directions of a general or specific character with regard to the discharge of the board's functions and the board was required to follow such directions. Ministers had this power until it was removed in 2006 ^[22] as a means of colleges retaining their charitable status without being made exempt from the Ministerial control aspect of the charity test. Despite this, the Office of the Scottish Charity Regulator ( OSCR) gave a very clear sign in 2007 that the constitutions of incorporated colleges continued not to meet the requirements of charitable status as Ministers still had other powers to direct or otherwise control their activities. In 2008 Ministers (by now a different administration following an election the previous year) decided that the other Ministerial controls should be kept. The part of the test requiring that charities are not directed or controlled by Ministers was then disapplied in relation to colleges to ensure that they did not fail the charity test because of Ministerial controls ^[23] . It is proposed that Ministers should have a power to direct colleges when they consider that a college board is not governing appropriately, so this would be a narrower power than the previous power in the 1992 Act.

3.8 Given that incorporated colleges are now exempt from the Ministerial controls aspect of the charity test, Ministers could have a power of direction without this affecting the colleges' charitable status as this part of the test would continue not to apply to colleges.

3.9 Two other things have changed in the intervening period:

1) Incorporated colleges are now classified as public bodies for the purposes of the Office of National Statistics. One consequence of this is that incorporated colleges are now required to comply with the Scottish Public Finance Manual, as a term and condition of grant. They are therefore more clearly public bodies for which Ministers have a direct interest.

2) As a result of changes introduced by the 2013 Act, regional strategic bodies have a power of direction in relation to incorporated colleges assigned to them. So a power of direction already exists in relation to nine of the twenty incorporated colleges. One potential use of such power by a regional strategic body could be to require an assigned incorporated college board to take action college board members may consider, in their role as charity trustees, is not in the best interests of the college as a charity (whether or not they see the action as in the best interests of the region overall). The college board would be required to comply with any direction from the regional strategic body and board members would not be in breach of their trustee duties in terms of the Charities and Trustee Investment (Scotland) Act 2005 . ^[24] Any Ministerial power could be in addition to the direction-making powers of regional strategic bodies. It could also potentially replace them. If regional strategic bodies were to lose their power of direction, given it is proposed the Ministers' powers would be narrower, Ministerial direction could not be used to ensure regional interests are met in the way described here.

3.10 It should also be noted that OSCR has a power to issue directions to require colleges that are charities to stop taking an action in specific circumstances.

3.11 Where there is financial mismanagement at a college or regional strategic body, Ministers have powers to direct the SFC to provide financial support to it. This could involve requiring the SFC to require a regional strategic body to provide financial support to an assigned college ^[25] .

3.12 Ministers' powers in relation to incorporated colleges are generally similar to their powers in relation to Regional Boards. Ministers have for example powers to remove board members from an incorporated college and a Regional Board.

3.13 Powers of direction are generally viewed as an ultimate deterrent: their utility largely deriving from the fact they exist and that bodies will modify their behaviour as a result. It is possible that the existence of such a power might have previously focussed minds in relation to matters such as severance, as such a power might have provided a means for Ministers to have stepped in decisively to ensure that decisions were made appropriately. It is possible that limiting the use of any direction-making power to a board, that in Ministers' view is not governing appropriately, may in practice mean that the power cannot be used with the speed that may, when necessary, be required.

3.14 As public bodies, it could be viewed as right and proper that ultimately the democratic will of Ministers can be asserted where it is absolutely necessary to do so, not least as this may protect the reputation of the sector more generally in the face of a board not governing appropriately

Requiring co-operation of assigned colleges in SFC reviews

QUESTION 11: Should assigned colleges be required by legislation to co-operate with a SFC review under section 7C(7) of the 2005 Act?

3.15 There is a range of criteria that must be met for a college or university to remain eligible in principle to be publicly funded. The criteria are set out in section 7(2) of the 2005 Act. It is for the SFC to consider whether every college has suitable provision to meet the criteria set out in section 7(2). It has this role whether or not it or a regional strategic body funds a college. ^[26]

3.16 The SFC has used its powers once under section 7C(7) of the 2005 Act to review whether a college continued to meet the 7(2) criteria. However, the college was still funded by the SFC at the time of the review. And it has raised the question as to whether co-operation with the review may be more difficult to obtain in relation to a college which is not directly funded by the SFC. Given the legislation enables the SFC to carry out a review of an assigned college whether or not the SFC directly funds it, there should be no doubt that the College should be required to co-operate fully with such a review. The Task Group recommended that, as an interim measure, a requirement should be placed on an assigned college through the Financial Memorandum process ( i.e. it should be a condition of grant to co-operate with such a review), and that longer-term this could be a legislative requirement.

SFC powers to attend and address meetings
SFC and regional strategic body powers to attend and address relevant committee meetings

QUESTION 12: Should SFC have powers to attend and address meetings if it has concerns about an assigned college's ability to meet the criteria set out in section 7(2) of the 2005 Act?

QUESTION 13: Should the existing powers of the SFC and regional strategic bodies to attend and address meetings of a governing body be extended to include relevant committee meetings?

3.17 A member of the SFC Board has a right to attend and address a meeting of a college board or regional strategic body if SFC is concerned about the financial support it provides to that college or regional strategic body ^[27] . Regional strategic bodies have a similar right to attend and address college board meetings in relation to financial support which they provide to their assigned colleges ^[28] .

3.18 Going forward, it is possible that the SFC may have concerns about whether an assigned college ( i.e. not directly funded by it) still has suitable provision to meet the criteria set out in section 7(2) of the 2005 Act.

3.19 It is also conceivable that the SFC and/or regional strategic body may wish to address a meeting of a committee set up by either a college board or a regional strategic body because of its concerns. At the moment there are no powers to attend or address committee meetings.

Role of Auditor General for Scotland: economy, efficiency and effectiveness examinations

QUESTION 14: Should the powers of the Auditor General for Scotland to conduct economy, efficiency and effectiveness examinations be extended to include all relevant non-incorporated colleges?

3.20 The Auditor Scotland for Scotland ( AGS) is responsible for auditing the accounts of incorporated colleges and Regional Boards ^[29] . The AGS also has powers to conduct economy, efficiency and effectiveness examinations of incorporated colleges, higher education institutions and the three regional strategic bodies ^[30] . The Accounts Commission for Scotland has similar powers in relation to local authorities, which include the two local authority run colleges (Orkney and Shetland Colleges).

3.21 However, the AGS currently has no such power in relation to three non-incorporated colleges ^[31] that receive public funds directly from either the SFC or a regional strategic body. The Task Group found this is incongruous.

Powers of persons to appoint board members to suspend those board members

QUESTION 15: Should legislation be clear that the power of a person or body to appoint college board members includes a power to suspend any board member that they have appointed?

3.22 As a result of section 5 of the Interpretation and Legislative Reform (Scotland) Act 2010, powers in an Act of the Scottish Parliament to appoint a person, expressly include a power to suspend them. Therefore it is clear that Ministers' powers to appoint someone to a Regional Board include a power to suspend them, as that power is contained in the 2005 Act which is an Act of the Scottish Parliament. However, most college sector appointments are made under the 1992 Act. This Act is not an Act of the Scottish Parliament, so it is less evident that the power of a person or body to appoint college board members under the 1992 Act includes a power subsequently to suspend a board member whom that person or body has appointed. Assigned incorporated colleges board include a chair appointed by the regional strategic body and non-executive board members appointed by the regional strategic body.

3.23 The Task Group considered there to be no reason why the powers should be different in this regard: college sector appointments should be in line with other appointments made under Scottish legislation.