Of all the current headwinds faced by the higher education sector, one of the most challenging is a lack of expertise and experience in the area of structural change.
In an environment where radical collaboration and merger are increasingly seen – rightly or wrongly – as a solution to the sector’s financial challenges, the expertise needed to broker and execute a successful merger or other collaboration seems to be patchy.
As, arguably, are the somewhat different competences required to steward the longer term strategic integration of two or more distinct institutions, each with their own teaching and research portfolios and cultures. The answer to the question “who has done this before?” can only be answered in the affirmative by a handful of people.
This issue was acknowledged in Mills & Reeve’s joint report with Wonkhe Connect More with the following insight from a one of the heads of institution we interviewed:
We all have a skills matrix for boards and for courts and for councils. I think, increasingly, that needs to reflect people who’ve got some expertise and some background in this space…I don’t think there are many vice chancellors who would necessarily have the skills, the knowledge, and the background. Really, this is new territory, potentially, for us, it’s new turf.
Of course, it wasn’t always thus. One of the ironies of the current dearth of experience is that large numbers of providers are themselves the product of historic mergers and collaborations. Taking the long view, the history of many providers is a complex genealogy, a narrative of mergers past and more recent.
In part, the steady decline in institutional experience of these things was the natural result of a relatively benign financial environment. It’s easy to forget in the current climate but the period of low inflation and cheap borrowing meant that, at an institutional level, there was little impetus to challenge the operating model and, of course, the introduction of a marketised funding model meant that competition, rather than collaboration, was very much the order of the day.
That marketised model was also accompanied by a marked shift in approach from the regulator. While HEFCE adopted a relatively low-key approach to mergers and collaboration – generally leaving the impetus to come together to institutions themselves – it did publish guidance on mergers and had a collaboration and restructuring fund to assist institutions to explore and implement structural change.
Crucially, HEFCE was widely accepted to be a neutral broker who would help facilitate institutions coming together – and it had the funding to help smooth the path. By contrast, OfS, in its response to a question from the House of Lords Industry and Regulators Committee, made it clear that it does not consider itself to have “the remit, powers or funding to intervene to prevent closure or to facilitate mergers or acquisitions.”
Skills gap
Where, then, does that leave providers? Typically, there is a reliance on the institution’s executive team, in particular, the vice chancellor, to steer the merger. But most higher education executives are not from the business world with experience in mergers and to a significant degree they have a conflict of interest. There is also a need to continue with their day jobs and manage business as usual in case the merger doesn’t happen.
The next most obvious port of call is to look for expertise among their own governing bodies, and, specifically, their external members. After all, one of the main motivations of having lay external members is to draw upon their expertise and to fill gaps which (understandably enough) exist within the skill sets of senior management teams and the institution more widely.
The problem, however, is that merger and radical collaboration require a very particular set of skills. It’s very easy for universities to get starry-eyed about a governor just because they happen to be an investment banker, an accountant, or have experience of public sector mergers in the NHS, for example. But the skills required in a university merger or a complex debt restructuring are very specific and even a governing body which is well-stocked with members from across different professional services and backgrounds cannot assume that its trustees have the requisite expertise to drive forward a merger of two institutions.
Of course, an institution can buy in a certain level of expertise. But what perhaps can’t always be replicated by professional advice are the experience and war stories of those who have lived and breathed mergers and collaborations from the inside – particularly from the education and adjacent sectors. In Mills & Reeve’s joint report with KPMG UK – Radical collaboration: a playbook – we drew out some of those lived experiences in the form of case studies. However, written case studies need to be seasoned with real-life personal experience. What is really needed when scoping a potential merger or other kind of radical collaboration is access to a “hive mind” of critical friends.
An HE Commissioner model
Other sectors have taken a strategic approach to developing this expertise. The Further Education Commissioner is the most obvious parallel. Between 2015 and 2019 the FE sector saw 57 mergers, three federations, three joint FE and HE institutions and 23 academy conversions. If most of UK higher education no longer has institutional memory of mergers, FE has it in bucket loads.
The FE Commissioner and their team offer a range of services to FE colleges – ranging from informal chats and financial health checks, through to more formal invention assessments. Their team – a mix of former leaders and finance professionals from within the sector – have genuinely seen and done it all before. Higher education deserves the same deep pool of knowledge to draw on, especially if the worst case scenario of institutional insolvency and/or disorderly market exit is to be avoided.
For this to work successfully in HE there would need to be some level of funding and a decision as to whether a commissioner’s role might sit within DfE or OfS. Our sense – particularly given the size and complexity of universities and the involvement of key stakeholders such as banks and private placement bondholders – is that there will still be a large role played by private sector consultants, lawyers, and accountants. However, there is room for a more collegiate level of engagement from DfE and OfS than arguably exists at present.
As well as pooling expertise on how to collaborate, placing an HE commissioner role on a formal footing might also allow it to broker conversations between providers seeking to work together more closely – something which, in our experience, is done very hesitantly at present, both because of the fear of breaching competition rules and, more generally, because every potential collaboration partner is, in a very real sense, also a competitor.
What can’t be underestimated is how urgently this function is needed. Providers are capable of doing this alone, as recent examples such as the Anglia Ruskin/Writtle and St George’s/City mergers testify. However, how much better for the long-term future of the sector it would surely be if providers had ready access to some critical friends and some “protected” spaces to have conversations about how best to achieve and implement forms of radical collaboration.
This article is published in association with Mills & Reeve.
