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Abstract
The recent decades have seen rapid growth in the number of private-sector organisations
offering higher education in many countries, and in the scale of their operations. This is a
global trend, leading to the introduction of new forms of governance into higher education,
especially in commercial for-profit companies. Whereas traditional universities are unitary
corporate entities, for-profit colleges and universities are often part of a corporate group,
and an individual college may not have its own governing body at all, but be answerable to
other levels within the group.
The paper explores the challenges this poses to national and regional quality assurance and
accreditation agencies and issues such as:
how do these new corporate structures differ from the familiar traditional ones?
do they provide sufficient oversight of educational quality?
are they compatible with educational quality?
what standards of corporate and academic governance should agencies evaluate
them against?
in a group structure, which board should be the governing body of the college?
which board should be held responsible for academic quality, and how can this be
identified?
Introduction
The recent decades have seen rapid growth in the number of private-sector organisations
offering higher education (HE) in many countries, and in the scale of their operations.
There is a wide spectrum of reliance on private as opposed to public higher education across
the world, as measured by the percentage of enrolments. In some large countries,
enrolments in private institutions are very high (e.g. Japan 80%, Brazil 70%); in other
countries enrolments in private institutions have been below 10% (e.g. Australian and New
Zealand, Denmark, Sweden and many European countries) (UNESCO 2009 and OECD 2010).
While private universities and colleges have been a major part of the US HE scene for a long
time (26% of enrolments and rising), in recent times HE in Europe (especially the UK) and
Australia (4% of enrolments) has remained largely the preserve of public institutions
created, funded and regulated by governments.
Before considering these, let us go back a step and consider where we in HE have come
from, and first what we mean by private as opposed to public higher education.
The purest form of public HE institution would be one that was:
Incorporated as a company
Owned by private interests
Entirely funded by fees
For Profit (FP), i.e. distributions are made to shareholders or owners.
Historically, most HE institutions have not conformed entirely to either of these pure types.
The first model of HE governance was the collegial model. Companies of scholars formed
themselves into colleges, often under the oversight of the ecclesiastical authorities. At
various times these colleges were granted charters by the authorities of the day, giving
them legal personality and various rights and privileges to organise their affairs. The colleges
were largely self-governing and governed by the scholars.
The monarch might provide some initial funding in the form of an endowment (usually
confiscated from some luckless monastery that was suppressed). But there were no
recurrent operating grants provided by governments in this first phase of the history of the
university.
The collegial model lives on in modified form in some of the ancient universities, such as the
u i e sities of O fo d a d Ca idge. Not o l a e the olleges still go e ed the do s ,
but the universities themselves retain many of their medieval governing structures. For
example, although Cambridge now has a smaller Council that is designated as the principal
executive and policy-making body of the University, its supreme governing body is the
Regent House. Membership of the ‘ege t House is o p ised of all the esta lished
academic staff members of the colleges and of the University faculties, together with some
academic managers and administrative officials, amounting to a total of more than 3,800
people, according to the Regent House section of the University website (accessed 10
January 2011). This body must approve all University statutes a d o stitutio al ules.
Afte a p e ious e ie Wass ‘epo t the Cou il, ot the ‘ege t House, had ee
desig ated as the p i ipal e e uti e a d poli -making body of the U i e sit . The
Council was constituted on a similar representative basis to the governing bodies of most
not-for-profit universities, with members elected by various constituencies including the
colleges, members of the Regent House, Professors and Readers, and students. For the first
time, in 2002, three external members (out of a total of 23) were introduced (Cambridge
University 2002).
Similar moves were made at Oxford, and it is evident that both universities have been trying
to evolve more towards the governance model that had long since become standard
throughout the world, with variations: the university as a public corporation. This became
almost a universal model, with some variations, by the second half of the twentieth century,
as governments took over responsibility for funding universities and establishing new
universities.
The main features of the public corporation model in the English-speaking countries (or
A glosphe e ha e ee as follows:
While universities in both the UK and Australia almost all confirm to this type, UNESCO
lassifies the all as pu li i stitutio s i the ase of Aust alia, a d go e e t-
depe da t p i ate i stitutio s i the ase of the UK, p esu a l e ause the UK
universities also have the status of charitable corporations.
The rise in the power of CEOs has necessarily involved a great loss of power by the academic
community, which has responded badly and in some cases resisted. There have been many
But the modern universities have hugely greater resources to manage than their medieval
predecessors, with budgets that can run to some billions of dollars, physical assets worth
perhaps a hundred times that amount, and thousands of employees. A committee of life-
time scholars is unlikely to contain the range of skills and experience or the unity of purpose
necessary to deploy and manage assets at this scale.
Nowhere in the Anglosphere has the push-back against managerial power been so
pronounced, and so successful, as in Oxbridge. In 2006, the Vice-Chancellor of Oxford, a
New Zealander who (significantly) came from a business background and was not a former
academic (so doubly an outsider!), tried to push through reforms that would have seen the
Oxford Council have a majority of external members (8 out of 15, instead of 4 out of 26). But
he was not successful.
In most universities, however, the triumph of the corporate model has been nearly
complete, and the only vestiges of the collegiate model that remain are the minority of
places reserved on the governing body for academic staff and students.
In the UK and Australia, the first cracks in the facade of state monopoly of HE appeared with
the founding of the University of Buckingham (1983) in the UK and Bond University (1987) in
Australia. While both of these were NFP institutions, they were both founded with private
money, and funded entirely or largely by private fees. They are in a way transitional
institutions, and this is reflected in their governance structures.
Bond University was described in the Australian Senate in 1995 as a su p isi g eatio – a
singular and atypical flowering out of the entrepreneurial excesses and misdeeds of the
s (Hansard, 25 October 1995). The University was effectively a spin-off from a large
property development by two joint venturers: Bond Corporation and the Japanese EIE
Corporation. While the establishment funding came from private developers, the university
operating company was always an NFP enterprise.
There are 30 members of the company representing various stakeholder groups (staff,
students, alumni, community), and these e e s i tu ele t a s all U i e sit Cou il
of no more than 10 members to oversee the operations of the University. Bond was given
its university status by an Act of the Queensland Parliament.
The University of Buckingham was founded by individuals who believed in the power of
private initiative, and was constituted through a Royal Charter in the time-honoured way. It
has a governing Council, again structured on a representative basis.
Both these universities were founded as private initiatives, and both had to make their way
without government operating grants. It is interesting that they have both been
But their corporate structures have been largely modelled on the state-funded government
universities, and so conform very closely to the public corporation model. They represent a
variant on that model, which we can call the NFP private corporation model. The two
Catholic Universities that have been founded in Australia subsequently (Australian Catholic
University and Notre Dame University) have also been variants of this model.
The foundation of the University of Phoenix in 1976 saw the advent of an entirely new
model of corporate governance on the HE scene, which we can call the commercial
corporate model.
The University of Phoenix Phoe i was not founded as an act of public benevolence, but
was conceived from the beginning as a commercial venture. There was no attempt to
quarantine the university operations into an NFP legal vehicle. Both the educational
operations and the support functions are part of the commercial enterprise.
It can be argued that there is no absolute distinction between the objectives of commercial
companies and those of NFP companies. One of Phoenix s ai goals is to make university
study more accessible to social groups that previously did not participate as much in it much
as the traditional school-leaver cohorts, and so Phoenix would maintain that it has a social
function as much as any other university.
A critical difference between the FP organisations and the NFP organisations, however, is
that there are no investors in an NFP organisation. Typically, investors are there to achieve a
financial return on their investment. They may have other objectives, and may wish to
support those companies that pursue their commercial objectives in ways that are
consistent with social responsibility. While this may be a necessary condition for their
investment, it is rarely a sufficient condition. And investors in Western countries in these
times are not renowned for taking a long-term view. Many are driven by the need to make
returns quickly, and to meet targets that are, at best medium term, but often quarterly.
This changes the whole character of an organisation, and has profound implications for
corporate governance. In the NFP sector, we often tend to characterise the difference in
exaggerated terms, and are quick to convict commercial colleges of sacrificing quality in
order to increase profits. The differences, in my experience, are more subtle, and are
increasingly blurred by the progressive withdrawal of governments from full funding of HE
institutions.
However, both FP and NFP organisations necessarily make trade-offs between quality and
cost. NFP organisations do not have unlimited funds available to support quality, so
inevitably there has to be a process of rationing of quality initiatives in the NFP organisation,
in which possible initiatives are prioritised, and some will miss out in the final budget for the
year. There needs to be an iterative dialogue between the academic side and the corporate
side of the NFP organisation in order to achieve the maximum quality possible with the
funds available.
A similar dialogue will ensue in an FP organisation. Academic staff will come forward with
their ideas for quality initiatives (the employment of more staff in the learning and teaching
unit, or improvements to the learning management system) and these will be scrutinised by
the corporate executives who will select what can be included in the budget.
So, commonly, the final decisions about what goes into the budget and what is left out are
endorsed by a top manager from the academic stream, before being submitted to the
governing body for final approval. In NFP organisations it is rare for these decisions to be
considered on the basis of the return on investment to be achieved, on the grounds that the
objectives in NFP organisations are qualitative and not quantitative. Much of the budgets of
NFP organisations are taken up with continuing operations that in past years were financed
by government grants. So, budgets were often conceptualised in terms of deducting costs
from the grants.
This model needs to change even in NFP organisations as the balance of their funding shifts
o e a d o e to a ds self-ge e ated fee i o e. Whe e e the o ga isatio eeds to
draw on its reserves to finance a new development, it is appropriate to calculate the return
on that investment. In some cases, such as the introduction of new information systems, the
i est e t is to e ade i the o ga isatio s usi ess ope atio s, a d the return may in
fact be purely quantitative, for example in the form of savings made with the new systems
compared with existing manual systems. Even if the return can be expressed only in
qualitative terms (e.g. increased capability to undertake research in a given area to be
financed by competitive government grants), it is an important discipline to require
proponents to routinely detail what the return is going to be in their proposals, and to
quantify it wherever appropriate.
The proposals that are most likely to be received favourably in this environment are ones in
which capital investment in infrastructure leads to improvements in productivity (e.g.
replacing live lectures with recorded ones) or ones which can be linked very directly to
student satisfaction (e.g. placing impressive-looking audio-visual equipment in every
classroom). Whereas in the NFP environment, we need to place our hopes for
i p o e e ts i ualit to a la ge e te t i suppl side p essu es f o fa ult to i p o e
aspects such as the staff:student ratios, in the FP environment pressure for improvements in
quality is more likely to emanate from the consumers.
The FP organisation that seeks to improve the bottom line by cutting important aspects of
quality that impact on the student experience and course outcomes is unlikely to prosper.
The FP universities and colleges that are successful typically invest each year in quality and
productivity in ways that improve the student experience and course outcomes. This leads
to enhancement of their reputation and more students are attracted to the college, thus
increasing revenue. That increased revenue can be divided between a return to the
investors (in the form of a dividend) and a further investment in quality, which in turn will
contribute to increasing student demand further. Thus an ascending or positive spiral is
created. This trend leads towards expansion of the business and often diversification.
Conversely, the organisation that cuts quality in order to pay dividends will not prosper. As
facilities and customer service decline, a descending spiral will set in in which student
demand drops, leading to declining revenue, leading to further cuts and so on. This trend
may end in insolvency.
The trend towards expansion and diversification that were identified earlier in successful
corporate ventures gives rise to the formation of corporate groups. The University of
Phoenix is now part of the Apollo Group. As it has come to dominate its original target
markets, it realised that it would have to form new corporate entities to seek out new
markets. Consequently, the Apollo Group was formed, including not only Phoenix, but also
other entities such as Apollo Global, which was formed in 1997 according to its website
(accessed 1 February 2011), and incorporates new businesses both inside the USA and
offshore, such as BPP in the UK, a private college that was acquired by Apollo Global and has
been granted degree-awarding powers by the UK government, as well as universities in
Chile and Mexico.
Apollo Group itself, the holding company, had a board of 14 members in December 2010
(according to its annual Information Statement to the US Securities and Exchange
Commission), 9 of whom were classed as independent. Of these 9 independent directors,
only 4 had prior management experience in a higher education institution, and only three
had experience as an educational (as opposed to corporate) manager.
One of the issues that emerges from the growth of FP education is the extent to which the
members of the governing bodies understand HE. The Board of Apollo Global is heavily
dominated by Group executive directors and by external directors from the corporate
world. Only one member of the board would have the expertise and experience to guide the
board on decisions relating to the theory or practice of education.
It could be argued that the Group Board is dedicated to corporate expansion, rather than
running the individual universities or colleges that make up the group. In the case of the
University of Phoenix, 4 of the 15 have senior experience in academic management of HE
(26%).
These boards look very different from the traditional collegial boards. There is no
representation from members of the college community, and there are few members with
any kind of experience of academic affairs or academic management. Does this matter?
Arguably it does matter. Design and delivery of HE programs is the core business of the
organisation, and it is desirable for members of a governing body to understand the core
business. Corporate members will have a good grasp of issues relating to generic corporate
The one that recurs time and time again with FP colleges (although it is not confined to the
FP sector) is student attrition. Across the English-speaking world, some private and most FP
colleges, having arrived late on the scene, often have open, non-selective admission
policies, and often take in students who do not have high enough admission scores to gain
entry to more prestigious and well-established NFP colleges. Like the University of Phoenix,
they pride themselves on increasing access to HE, and indeed they can make a genuine
contribution to it.
However, going hand in hand with the open admission policy, these colleges also often
experience much higher attrition rates than the selective universities and colleges. This has
recently become a live political issue in the USA because FP colleges are seen as marketing
aggressively to these groups, growing their business on the basis of public funding to those
students, but the students then drop out disproportionately and do not complete their
courses, so their critics question whether the public is receiving a sufficient return on its
investment (United States Senate 2010).
This is both a financial problem and an educational problem. It is more expensive to recruit
new students than it is to re-enrol existing students, so colleges need to be able to reduce
their attrition levels in order to prosper. In coming to grips with their attrition problem,
governing boards need to understand a range of factors that contribute to causing the
problem (some of which are so iologi al i atu e a d outside the ollege s o t ol a d
also need to understand the student support and teaching approaches that can be deployed
to try and counteract it. A board that attacks the problem only through generic executive
management strategies may make strategic errors.
It is inevitable that investors who have put up their own funds to finance the organisation
will want to have the most influence over how their funds are spent. It is unrealistic to
expect they will always defer to the hired help, to even the limited extent that managers do
these days in the NFP university.
What we can expect, however, is that the organisation should have some way of bridging
this corporate/academic divide.
Starting from the top, it is very important, both for academic quality and for the financial
viability of the organisation, that the membership of the Board should include individuals
who have senior experience in managing HE organisations, and an understanding of the
academic quality issues. Investors may be resistant to the idea of having impractical
academics (as they see them) on their Board making business decisions about their money.
But it is not hard to seek out people who have both business and academic experience. For
example, the business faculties of our universities commonly have adjunct professors who
are commonly former business executives who have decided to give back to the community
by training the next generation. Some of these adjunct professors would make ideal
independent board members for an FP college or group.
A major challenge that we face evaluating these organisations is to work out who to hold
accountable for quality. First, who is the governing body in these group structures – the
college board or the group board? In some cases there may even be an extra layer. For
example, there are cases in which a college is bought out by a group, which has then been
itself bought out by a private equity fund.
So an obvious question for a quality agency to pursue in a case such as this is: who is in
charge in such a scenario? The board of directors of the college may be comprised of group
In general, we would not expect private equity fund managers to take an active part in the
day-to-day management of all the businesses that they invest in. Their approach would be
more like that of any institutional investor in a company. They may set financial targets for
the business to achieve (especially return on their investment), but it is unlikely that they
would prescribe the ways and means of achieving these targets. However, they may have a
representative on the college or group board with a watching brief. So in this scenario we
would expect the college board and the group board to take any actions necessary to
improve quality.
And who in the management structure do we hold accountable? We can expect that the
Group, in pursuit of profitability, will want to achieve efficiencies by deploying many group
systems, rather than having individual systems for each of its colleges. In a group of 6
colleges, it would be highly inefficient to have 6 different student information systems, 6
different human resource systems or 6 different financial systems. These should all be
integrated. The integration may also extend to the learning management system and the
production of multimedia learning materials. If there is sufficient customisation for the
needs of each college, the economies of scale that can be achieved in this way can
potentially be favourable to quality.
So, to sum up, one of the major decisions a quality or accreditation agency needs to make in
approaching a group is the extent to which we should we be reviewing each college as if it
were a stand-alone organisation and the extent to which we should be reviewing the group
as a group. It may be inefficient for the quality agency to assess the group governance
system and the group learning management system and production of learning materials on
6 different occasions with six different panels, as if we had never encountered these before.
Should we instead undertake a review of the group and its systems in the first instance, and
then draw on this collective review as we evaluate each individual college and how it applies
these systems and its own particular processes to its particular mission?
Most importantly, we need to remain open to the variations between models. In each case
we need to go into the college or group and explore what types of decisions are made at
what level and by whom. We need to map out which decisions are made by:
Which decisions are referred upwards at each level? Are any decisions referred up to the
private equity company?
And finally, while there is an important policy debate to be pursued about the balance
between private and public education within any country, a quality review should not start
from any particular standpoint on these issues. If we are reviewing an FP college, the fact
that it is FP is a donnée, and our task is to find out whether this particular variant of the FP
corporate structure works or does not work. Does it deliver educational quality or not? Are
the investors investing in quality or not?
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