[SEETLLD AGWG-P11]
REVIEW OF SCOTLAND'S COLLEGES
WORKING GROUP: ACCOUNTABILITY AND GOVERNANCE IN INCORPORATED COLLEGES
ISSUES PAPER
Purpose
1. To provide a basis for discussion on the following issues, which are specifically mentioned in the Group's remit, within the context of the outcome of the previous review of Governance and Accountability and relevant new factors such as the Charities and Trustee Investment (Scotland) Act 2005. The issues are:
· whether boards should be responsible for appointing their own membership, including the chair of the board;
· whether the chair and other board members should be remunerated (whether from existing resources or not);
· the length of board membership for chairs of colleges;
· the current statutory requirement for 50% of board members to have capacity in "industrial, commercial or employment matters or the practice of any profession"."
Board appointments
2. The 2002 consultation paper 'Governance and Accountability in the Further Education Sector' [1] quoted the Auditor General's Report "Governance and Financial Management at Moray College" Executive Summary:
"One feature [of the Moray problems which may contain wider risks for the sector] is the responsibility of college boards of management to appoint their own board members. This arrangement may not comply with the general expectation that there should be open, transparent and impartial procedures for making public appointments."
3. The consultation paper advised that the Committee on Standards in Public Life (chaired at the time by Lord Nolan) appeared to see no inherent incompatibility between the practice of appointment of members by the board and adherence to the Committee's principles underlying its Code of Practice for Public Appointments Procedures.
4. The consultation paper continued by saying:
"External appointment (eg by Ministers, or others) of all or a major part of a board's membership could be seen as eroding the status of the board as a legally independent, free-standing and autonomous body, and its 'corporate' ownership of its responsibilities and duties. Moreover, if Ministers or others were to appoint or reappoint more than 500 board members every four years there could be accusations of patronage, bureaucracy and centralisation. It would also raise practical difficulties. Colleges are at the heart of local communities and it is unlikely that central or national bodies would be in a position to do a 'better' job than existing boards in making the new appointments with the right new skills to govern well a local institution in a local setting."
5. The 'Report of Ministerial Review of Governance and Accountability in the Further Education Sector' published by the Scottish Executive in March 2003 advised that:
"Having looked closely at the issue, Ministers do not consider that the ability of Boards to have a central role in appointing their own members, of itself, jeopardises standards of governance and accountability. Many colleges themselves, in their response, felt that this issue is strongly linked to college autonomy, and that any change in favour of a system of appointments by Ministers or other external agencies could impact on that autonomy. Ministers nevertheless are aware of the need to ensure the highest possible level of public confidence in the appointments process followed by college Boards, and intend therefore to consider further, along with ASC and SFEFC, the case for some form of external scrutiny or involvement, either in appointments decisions (perhaps through the involvement of an approved panel of independent advisers or assessors), or through regular audits of the outcome of appointment exercises."
Survey of Boards
6. The Executive wrote to the chairs of incorporated colleges at the end of July 2005 asking them to return a survey to build up a picture of how Boards have changed over the previous two years. A total of 31 responses were received from Scotland's (then) 41 incorporated colleges.
7. The analysis showed that seven colleges had commissioned external involvement in the appointment process. Twenty three had not, and one had not recruited. Examples of their use were on interview panels. They included:
· Ethnicity Experts
· Legal Practices
· Other College Chairs
· Chambers Of Commerce
· Insurance Assessor
· Trades House
· SQA
· ASC.
Charities and Trustee Investment (Scotland) Act 2005
8. The 2005 Act does not require colleges to appoint their own members. It would not be incompatible with the Act's provisions for Scottish Ministers (or others) to appoint members of college boards.
Further consideration
9. Members are invited to discuss whether there are any new factors that would suggest that the boards should not be responsible for appointing their own membership. The Group's specific remit includes consideration of the appointment of the college chair, and whether the college board should (as at present) be responsible for appointment the college chair. Members are invited to consider whether there is a case for Scottish Ministers (or others) to appoint the college chair, and to identify any advantages and disadvantages.
10. Members are also invited to consider whether further measures are necessary to ensure external scrutiny of appointments if boards are to continue to be responsible for appointments.
Remuneration
11. The 2002 consultation paper mentioned that:
"The issue of remuneration is frequently suggested in this context as a way of improving quality of recruits and of retention. Although it may be a material factor for some potential board members, the Committee for Standards in Public Life considered that it would strike at the heart of the voluntary principle. It is also arguable that, to make a real difference to recruitment, significant costs would have to be incurred by the sector. Few, if any, other bodies which have functions and constitutions comparable to college boards offer payment beyond the reimbursement of expenses."
12. The 2003 Ministerial Report advised that:
"With regard to the possible remuneration of Board members, Ministers have decided that no change should be made. There was no substantial call from consultation respondents for the introduction of remuneration for the normal activities of Board members, nor was there any strong view expressed that paying Board members would lead to improved governance and accountability."
Charities and Trustee Investment (Scotland) Act 2005
13. The Explanatory Notes of the 2005 Act [2] explain that:
" Section 67 provides that a charity trustee may not normally be paid for carrying out the duties and functions of being a charity trustee, unless specific authority for this is provided. This stems from the existing position that charities are generally understood to be voluntary organisations and that charity trustees will offer their services as such with no payment. However, under certain circumstances, it is acceptable that a charity trustee may be paid for being a trustee or for carrying out additional services on behalf of the charity, i.e. services that another person (not a trustee) might otherwise undertake for payment."
14. If incorporated colleges wish to remain charities they are unable to remunerate members of boards in their capacity as board members. Boards members, including the chair of the boards, are therefore unable to be remunerated.
Further consideration
15. Members' views on this conclusion are welcomed.
Length of Board Membership for Chairs of Colleges
16. The 2002 consultation paper said that:
"there is a limit on the number of years which a person may serve on a college board of management (currently twelve years in total). There will always be arguments to support a maximum period of service in terms of encouraging new ideas and experience and maintaining a capacity to adapt to identify and meet changing local needs. It may be however that a lower maximum limit would more appropriately be placed on the total length of service permitted on a board, to strike a better balance between experience and the bringing in of new skills."
17. The 2003 Ministerial Report advised that:
"Ministers intend that, save in exceptional circumstances, members of college Boards will in future be able to serve a maximum of two terms (ie 8 years). There was substantial support for the view that the current limit, which can allow service of up to 12 years, is too long. Ministers consider that such a change would be consistent with the need to refresh and modernise more widely the thinking of Boards and their ability to learn from best practice in other sectors and in industry and commerce. Ministers recognise that this may cause difficulties for some colleges, eg rural colleges, which sometimes find difficulty in attracting Board members. Ministers also recognise some Boards may see a shorter time limit on membership as contributing to the loss of vital expertise. Ministers consider that any need by a college Board to retain or attract specific expertise however - say at a key point in a relocation or building project - can be catered for through a Board's power of co-option to committees."
18. In 'Governance And Accountability in the Further Education Sector: Consultation Paper on Proposed Changes to FE College Boards of Management' [3], published in July 2004, the Executive consulted on the following questions:
- Against what criteria should applications for an extension to the 8 year rule be considered?
- What should be the process for determining an application to extend?
- Should a time limit be imposed on the duration of an extension?
Charities and Trustee Investment (Scotland) Act 2005
19. The 2005 Act does not impact on this issue.
Further consideration
20. Ministers are still considering their response to the consultation exercise. That said, members may wish to consider whether there is a case for a different approach to be taken to the length of board membership of chairs of college boards. Might it, for example, be advantageous for chairs to have longer experience of college boards, given their special responsibilities, or does the same need for time limits to ensure new ideas apply equally to them?
Current 50% Statutory Requirement
21. Paragraph 3(3) of schedule 2 to the Further and Higher Education (Scotland) Act 1992 provides that:
"Not less than one half of the total number of members of the board shall be appointed by the board from among persons, not being members of the staff or full-time students of the college, appearing to them to have experience of, and to have shown capacity in, industrial, commercial or employment matters or the practice of any profession; and one such person shall be a person nominated by the local enterprise company for the area in which the college is located."
2002/03 Review of Governance and Accountability
22. The 2002 consultation paper did not seek specific views on the continued appropriateness of the 50% requirement. No evidence was found that the provision was having an adverse impact on the operations of boards, and no mention of it was made in the Ministerial response.
Charities and Trustee Investment (Scotland) Act 2005
23. The 2005 Act does not impact on the 50% statutory requirement issue.
24. The 2005 Act is germane to the appointment of a nominee (though it does not preclude such an appointment). The Explanatory Notes of the 2005 Act explain that:
"Section 66 sets out the general duty of care that charity trustees must follow. These are a codification of existing law and practice. Subsection (1) requires a charity trustee to act in the interests of the charity. In particular they have to seek to ensure that the charity acts consistently with its purposes and that they act with a level of care and diligence that is reasonably expected of someone managing another's affairs. Subsection (1)(c) requires a charity trustee to avoid a conflict of interest which may arise between the charity and any person responsible for their appointment as a charity trustee. If such circumstances arise, the charity trustee must put the interests of the charity before those of the person responsible for their appointment. Where another duty prevents them from doing that, the charity trustee must disclose the conflicting interest to the charity and not participate in any decision of the other charity trustees with respect to the matter in question. A charity trustee has a duty to ensure that a charity complies with any requirements of this Act (subsection (2)). However, subsection (3) provides a caveat that none of the above duties require a charity trustee to act otherwise than is imposed on them by other enactment. Hence, the general charity trustee duties do not exempt them from acting, for instance in accordance with health and safety legislation, or for charitable companies, with companies legislation. A breach of the general duties (to act in the interests of the charity, and to ensure that the charity complies with any direction, requirement, notice or duty imposed on it by virtue of the Act) is to be treated as misconduct in the administration of a charity, although OSCR must act proportionately in taking any action where it appears that misconduct has occurred. OSCR has a general duty (under section 1(9) to act proportionately and only in cases in which action is needed in all its regulatory activities. In addition, (under section 31(10)), OSCR may not suspend a charity trustee if it considers they have acted honestly and reasonably and ought to be fairly excused. Subsection (5) requires all charity trustees to act collectively, taking steps that are reasonably practicable to ensure that any breach of general duty by a charity trustee is corrected by that trustee and not repeated, and also that the trustee is removed as a trustee if they have been in serious or persistent breach of those duties."
25. Members may wish to consider the wider implications of section 66 of the 2005 Act.
26. The General FE Colleges Instruments and Articles in England 2006 [4] provide that "not more than seven members who have at any time been engaged or employed in business, industry, a profession or in any other field of employment relevant to the activities of the institution ("business members")". This means that at its maximum membership (27) just over ¼ of members would be business members.
27. Members are invited to consider whether there have been any substantive changes since the 2002 review that would suggest that further consideration should be given to this issue. Is the provision, for example, too prescriptive? Has it meant that some potential members that have shown capacity in equally useful fields have been precluded from board membership? Does the provision skew the field of potential board membership at the cost of greater diversity of members? Would the removal or amendment of the provision have an adverse impact on a board's ability to secure financial security?
28. Members are invited to ask representatives from Scottish Enterprise and Highlands and Enterprise , and a local enterprise company nominated college board member, along to a future meeting to hear their views on the current statutory provision that colleges boards contain a person nominated by a local enterprise company.
Action
29. The Group is invited to consider whether it would value consulting over a six/eight week period on some of these matters (and perhaps others) by seeking views from the organisations involved in the Review of Scotland's Colleges.
30. The Group need not come to any firm conclusions on the substantive issues ahead of consideration of the Group's commissioned research.
Reviews Team: Scotland 's Colleges
June 2006
[1] http://www.scotland.gov.uk/consultations/education/govandaccfe.pdf
[2] http://www.opsi.gov.uk/legislation/scotland/en2005/05en10-a.htm
[3] http://www.scotland.gov.uk/consultations/lifelonglearning/febm-00.asp
[4] http://www.dfes.gov.uk/furthereducation/documents.shtml