Review of further education governance in Scotland

E. Governance and the new Regional Boards

In examining how Boards currently operate and how they might in future we were challenged by the following question

' Why should we have Boards in the first place and why are they needed.'

This question challenges, as we should always do, the orthodoxy of structure and how Colleges operate specifically.

However we believe that, in short, Boards exist to 'look after things' and to ensure that Colleges are looked after properly and can be seen to be so.

Given those simple but exact criteria we looked at many formulations. We also agreed that the essence of a Board is to create the strategy in line with the overarching priorities of the Government.

Appointment of Chairs and Boards

Before getting to the specifics of how the above is done we recommend that

New Chairs and Boards are recruited and appointed to manage and govern the new regions.

This does not mean that existing Chairs or Board members cannot apply for positions on the new Regional Boards but they would have to apply and go through the new process with everyone else.

Also, as we set out below, we recognise we are asking the new style Regional Boards to do something that is significantly different, and more challenging, from what individual governing bodies do now. We are not sure that, without a far more tightly defined recruitment process, we will get the significant leadership skills required on the Boards.

However we believe that a key requirement of governance should be to have a regard to the achievement of good outcomes. That should be the approach to setting out the key requirements of Boards. It is against those requirements that Boards should be selected and judged going forward. Therefore we recommend that

The new Regional Chairs and Boards be selected using an outcome based approach to determine the skills necessary to carry out their task and once in post each Board should be audited against that set of agreed outcomes.

These outcomes are listed in the section on how Boards will operate.

Currently the way of choosing Boards and then Chairs does not easily fit with best practice in any form of corporate governance that we can find. Also like many other things this is done differently between individual Colleges.

Therefore for consistency and continuity with other like entities which receive the majority of their funding from the public sector, and which were set up to be within the public sector in the first place, we recommend

That the Chair is appointed in line with the principles and procedures which apply to the public appointments system, though we do not believe that the new regional bodies need be 'public bodies' in the formal sense. We recommend that the appropriate Minister in charge of this sector endorses the appointment.

We believe this will create a binding link between the Regional Chair and Government. It signifies clearly that strategic responsibility lies primarily at a national level with regions reflecting that in their own strategies. This relationship of 'shareholder' endorsement is no different than would exist in the private sector, especially with publicly quoted companies, where it is unlikely a new Chair would be appointed without the prior endorsement of key shareholders.

In terms of the appointments process to be used, currently what are termed regulated appointments are scrutinised by the Public Appointments Commissioner for Scotland. The code of practice sets out the requirements of the process used to appoint board members. To ensure Ministers comply with the code, the Commissioner's office scrutinises the approach planned and processes used.

We believe that a Public Appointments Assessor should be created to ensure good practice in appointments to College Boards. The Assessor will not be a member of the interview panel. Their role would be to scrutinise appointment activity, to offer an opinion on code compliance and to intervene where non compliance is observed. A risk assessment would be done on the appointment round to determine how involved the Assessor should be.

While we are not recommending that Colleges should become public bodies we do feel that the above system gives the rigour and transparency that is needed. Within Scottish Government's Human Resources Directorate there is a team called the HR Public Appointments Centre of Excellence which might be invited to take this process and apply it outwith the public body environment to ensure it is followed.

Therefore we recommend that

The Chair of the new regional entity, using principles and procedures of the Public Appointments system, leads the process of appointing the Board, as set out below. That Board should be a maximum of 12 members and contain within that number one member of staff and the elected President of the Student Association to represent the learner The latter two would have the same roles and responsibilities as other Board members.

While the Chair will be an integral and critical part of the process of appointing the Board they will not be doing it on their own. Following the same procedures as are used in the Public Appointments system they will have to put together a group of people to work with them to ensure that the appointments are open and transparent and meet the needs of, and have the skills to deliver the outcomes for the region. As well as ensuring that there is a correct balance of skills on the new Regional Boards, we would also wish the group to reflect best practice on diversity, especially in terms of gender and ethnicity, to ensure that the new Regional Boards reflect the diversity of the community they serve. Therefore the group will consist of probably up to six people including officials from Scottish Government, plus also, critically, representatives from the region to be governed, with proper representation of the staff and the learner.

The candidates thus identified as suitable for appointment will then be put to Ministers for endorsement.

How the Regional Board will operate

The outcomes for the Chair and the Board are set out below, in the way that they would be given to the Board, and in a way that allows them to form part of an auditing process. This is the basis of a recommendation that

Each Regional Chair and Board will be audited annually or at an appropriate time to ensure that they are fulfilling their agreed outcomes. If they are not doing so a programme of action will be put into place to rectify areas of concern or failure. This could ultimately lead to the removal of the Chair and/ or Board if they do not fulfil the required outcomes.

i) The Chair and the Board should employ a Principal to work with them to develop the outcomes set out below and then put in place the regional strategy and then a structure and staff to deliver it.

ii) The Chair and Board should create an FE strategy for their region which delivers the outcomes Government and the community require. Part of that strategy should be to set out how all stakeholders including learners and staff will be involved in its implementation and review.

iii) Within the strategy the Chair and Board should create a corporate structure which the Regional Board will put in place, operate and control to provide the best solution for the implementation of the strategy within that region. It should take into account the strengths and weaknesses of what already exists and look at how those strengths, be they in 'brand' or other forms of expertise, can be utilised. The structure should take account of the financial and other guidelines which will have been provided by Government and its agencies on their requirements in the regions. This will allow each region to choose the corporate structure which works best for it without being restricted by anything other than the usual Government rules on the use of public funds given to them. However it has to be clear that the only 'recognised' Board in terms of Government and funding from any source in FE, and control of the region, is the Regional Board and any others would be subordinate to it and under its control.

iv) The strategy for the region should take into account the views and aspirations of all stakeholders, and of the community, but specifically central would be those of Government and the agencies which operate in this area. The strategy should also recognise the interests of the learner, staff, local industry, and other post 16 education institutions. Each stakeholder will be a formal signatory to the strategy and should participate fully in its formulation and delivery.

v) The strategy for the region should clearly set out how it will use, manage and control the learning access points ( LAPs), and where they fit within the strategy. The strategy should also set out a development plan for LAPs making clear how they might develop and/ or change into the future.

vi) The strategy for the region should set out how the Board will manage financially the organisation in an effective and sustainable way over time as well as on an annual basis. We do not think that this should necessarily mean that each new entity has to make a surplus all the time. From our examination there is evidence to suggest that currently some Boards appear scared to make a deficit, which may not be a good thing for a variety of reasons. Part of that reluctance may be attributable to the guidance that was given by SFC over the last decade. It might have encouraged only short term thinking and we would wish the new Regional Boards to demonstrate an ability to take account of the longer term and provide a sustainable financial future for the region. This could include spending to save in the knowledge that this may not give a surplus every year.

vii) The strategy for the region should include how it will deal with HE both in terms of delivery within the College and also in terms of articulation with local HE providers and into the HE sector more widely. The strategy would also cover what other forms of FE and vocational post 16 education are being delivered in the region and how that can best be integrated or partnered to gain extra benefit for the learner.

viii) The strategy for the region should include how it will work with schools in the region to benefit those still at school and also how it will incorporate the benefits of Curriculum for Excellence into a workable relationship.

ix) The Board should agree a Business Plan, an annual operating plan and budget with the Principal which delivers the regional strategy as well as manages effectively the funding given to the organisation.

x) The Chair and the Board should be responsible and accountable for the funding allocated to them and should have in place systems and processes that allow them to monitor and account for its use, measured against the outcomes the funding was given to them for. The Chair and Board will agree with Government and its funding agencies the appropriate processes and procedures to allow the Principal to use the funding in an appropriate manner in the implementation of the regional Strategy.

xi) The Chair and the Board should put in place an appropriate set of procedures around financial management and delegation which allows both the organisation to run effectively but also maintains the overall accountability of the Board.

xii) An appropriate committee structure should be put in place under the Board to monitor and advise on specific parts of the governance and operation of the organisation. These should include a mandatory Audit Committee and Nominations Committee, and others to fit with the structure and needs of the region. Committees should be there to inform the Board on key matters and only make decisions in their own right if so delegated by the Board. In establishing who should be members of this committee from beyond the Board, the Board should ensure that it contains representation from those affected by the actions of the Board. Reflecting the need to ensure that there is the correct mix of skills and diversity on the main Regional Board, the same processes in terms of representation should be applied to these committees. Their operation should also be seen to be as transparent as that of the main Board.

xiii) The Board should put in place processes and procedures to ensure that it can fulfil its role of supporting, monitoring and scrutinising the work of the Principal and senior staff in whatever way it feels appropriate so that the Board can feel accountable, and be held to account, for the decisions made by the Principal and management.

xiv) The Board should ensure that public funding is applied only on areas or projects that bring benefit directly to the learner.

xv) The Board should ensure that the learner, staff and other relevant and appropriate stakeholders in that region are involved in the ongoing monitoring and appraisal of the implementation of the strategy.

xvi) The Board should have in place processes and procedures which allow all members of the Board to attend all parts of the Board meetings other than where an individual is specifically not allowed to do so under a 'Conflicts of Interest' procedure which the Regional Board has in place consistent with the requirements of ethical standards legislation. Conflicts are defined as a situation in which a person has a private or personal interest sufficient to appear to influence the objective exercise of his or her official duties as a Board member. It is not just about money but about any factors that a reasonable person might think are likely to bias a Board members judgement.

xvii) The Chair specifically, but also the Board, should demonstrate that they are part of an evolving strategic discussion across the FE Sector looking at ways to better guide and manage the Sector. That should include the identification of duplication which adds no value, its eradication and the sharing and use of best practice.

xviii) The Chair and Board should demonstrate that they are part of a national FE Strategy, and contribute effectively to its creation and its delivery.

The above list, we believe, contains the basis of what outcomes should look like for Regional Boards, but we are sure as the process unfolds that others will be added. Indeed the whole essence of our drive to make the College Sector an evolving one would say if that does not happen then the Boards and the sector are not operating in the way we would wish.

Also, fulfilling all the above we feel will require a different type and time commitment of Chair and Board compared to that which exists at the moment. That is why we are recommending that all the Regional Boards should be entirely new entities although in the 'transition' section later in this report we make some recommendations on how that may be achieved.

Also since the Chair's role will be bigger both in terms of geography, in many cases, and in function as well we recommend

Chairs of the individual Regional Boards should be remunerated in the same manner as Chairs of some other public entities.

We also feel that moving to the above outcomes driven structure will give much clearer definition of the roles and responsibilities of the new organisations than currently exists and which causes many of the challenges that we have identified.

The Chair is clearly seen as 'the leader' working with the Board to put in place what they are all charged to do. The Principal is the employee of the Board and as such is directly responsible and accountable to them for all that the role of Principal encompasses.

This does not mean that the Chair or the Board are 'executive', as they will remain Non Executive. However this clear delineation will ensure that Chairs and Boards understand what it is that it is they that are responsible and accountable for.

We also discussed at length whether the Principal should or should not be a statutory member of the Board. On one side of the argument there is a good case for stating that the Principal should not as it is difficult to be scrutinised by something that you are part of. But there is also an argument from the other side to say that to deliver a strategy that you need to be part of the entity and discussions that create it. Much is to do with the relationship and way of working Boards agree is best for them. Therefore within those parameters we recommend that

The Principal should attend all Board meetings other than where it would be inappropriate to do so. The Principal though should be involved with the Board on all discussion to do with the creation of the strategy which the Principal and his/her team will have to deliver.

The above decision, though, should be part of the auditing framework that the Chair and Board are judged against.

We believe the list of outcomes for the Boards, and the relationship it infers with others, also forces Chairs and Boards to put in place processes and procedures to make engagement with others really happen, and that this should be part of everyday activity in a way which does not occur at present.

It also ties each region into a national system which we will discuss further later in this report.

The outcomes based approach which we recommend for the new regional governance structure is also auditable. We have not recommended conclusively who does that, but we have discussed both with Audit Scotland, Education Scotland and SFC how that might be done. Each sees the purpose of having measurement in this regard, and is confident that it can put in place the process and procedures that will make this happen. However this will take some time, and therefore we recommend that

By December 2012 Audit Scotland, Education Scotland, and the Scottish Funding Council work together to put in place an auditing framework which will allow the outcomes driven approach pursued by the new Regional Board to be judged and monitored effectively.

This will take away a lot of the formal reporting that goes on currently, not all of which we believe is fully understood by Boards. Best practice in all forms of regulation now says that the way to gain maximum benefit and cultural buy-in is to pick the right people to carry out the task in the first place, trust them to get on with what you have asked them to do; then audit them periodically and at random, and if found wanting as a result, have a clear system of either returning to compliance or being removed at the extreme. Audit Scotland is also carrying out pilot exercises with Local Authorities to see how self-evaluation can be built into that process effectively, and once that is established we believe that it would add benefit here as well.

In terms of other key rules for Boards we recommend

Repeal of the requirement which remains in the 1992 Act that the Board of Management must contain a nominee of the local enterprise company

This provision dates back to 1992, not long after the creation of Scottish Enterprise and Highlands & Islands Enterprise and their respective networks of local enterprise companies ( LECs). It was undoubtedly intended to create a formal link between colleges and the enterprise networks, and was consistent with the view that the governance of the newly-incorporated colleges should be aligned to economic development priorities as well as business.

We understand that despite the abolition of LECs a legislative opportunity has not yet been found to remove this now-redundant requirement. We recommend that this is now undertaken. We do not recommend however that the provision is replaced by any updated requirement that the enterprise networks in their current form should similarly have a statutory place on a college board. We consider that to be in line with the outcome driven approach in which we recommend Boards should be as free as possible to determine their own approach to the outcome-based requirements on them outlined elsewhere in the report. That will inevitably involve maintaining close links with both the business community and the Government's economic development agencies. We do not feel however that this need be prescribed in law.

Chairs of the Regional Boards should serve one term (four years), with the option for a further term at the decision of the Minster concerned.

Members of a Board of Management should serve for one term, with the option of reappointment for a further term at the decision of the Board. A subsequent term or terms of appointment should thereafter be permissible, but only following open recruitment procedures to fill the vacancy which are consistent with the practice on appointments recommended elsewhere.

Once appointed for an initial four year term, a Board member can currently serve for up to a further two terms without, in our observation, being subject in every case to open recruitment procedures. That means a board member may serve for up to 12 years, only having once at the start been subject to open recruitment procedures.

We believe that Boards need to achieve a more appropriate balance between the retention of experience and expertise on the one hand, and the infusion of new blood on the other. We consider therefore that the extension of the initial term without going to open recruitment should be possible only once, giving a maximum of 8 years that anyone could serve. Thereafter, it may be possible for the same person to seek a further appointment, but only alongside other candidates as part of an open recruitment exercise.

Repeal of the provision which requires, where a Board member leaves before the completion of her/his term, that the successor's first term of appointment should cover only the 'unexpired' term of the departed board member.

Our investigation suggests that this provision is widely ignored, or not even understood. We think that it was introduced in 1992 with a view to there being, every four years, a sector-wide exercise of appointments and reappointments. This is clearly not now the case. We therefore recommend that this provision is repealed and combined with the recommendation immediately below.

Boards should have the flexibility to make appointments for periods of up to four years, rather than for a fixed period of four years as at present.

Currently boards may appoint new members, or reappoint existing members, only for a fixed period of four years. We see no reason to constrain boards in this way. There may well be circumstances where boards, for a variety of reasons, wish to make an appointment for reasons which could be addressed by appointment for a shorter term. We therefore recommend that boards are given the flexibility to do so if they choose.

Boards should be free to make an appointment regardless of the age of the candidate.

Currently boards may not appoint a new member or re-appoint an existing member who is over age 70. We understand the likely thinking in 1992, when this restriction was introduced, was that board members should be of an age which connects with, and have direct knowledge of, the requirements of business. We consider however that the current provision is likely to be open to challenge in terms of age discrimination, but more fundamentally goes against current best practice thinking in this area. People should be appointed to the Board of any entity in terms of their ability to add value to it. Many individuals over 70 now not only sit on Boards but add greatly to the performance of them so we see no reason why this should not apply in the FE Sector as well. Therefore while we do believe that Ministers should seek detailed legal advice on this point, not least to ascertain what is required under age discrimination legislation, we believe that this change should be made regardless of that, in view of the wider benefit it could bring.

The current inability of a board to elect a Chair, who is a councillor or a council employee, should be removed.

We understand why the UK government of the day, in 1992, might have sought to ensure that the removal of colleges from local authority control should not risk frustration (however remote that risk might have been) through the appointment of perhaps a senior local authority official or councillor as the Chair of the Board. We consider however that, whatever justification for that rule might then have existed, there is no longer a case for denying the Board the ability to act in accordance with its judgment. We consider, however, that the other restrictions on who may be the Chair [the student association nominated member, the Principal and the staff-elected member] continue to be valid and we propose no change in that respect.