I have yet to meet a leader or board member in HE or FE not concerned over the financial consequences of COVID19. Threats to income streams are palpable. It could be the obvious international student income, commercial income from events, or other third-stream activities with business. Or perhaps the undercurrent of concern that domestic students may not want to engage in a different learning environment, or more worryingly digital poverty is a major barrier to them being able to do so effectively. A further question is how sustainable current funding streams from government are. Will these change as government struggles to manage the cost to the economy of the pandemic?
Remember this is all about people
Cost pressures are easier to quantify with many digital strategies being accelerated at pace, alongside adaptations to physical infrastructure to enable appropriate social distancing. Some institutions have already announced redundancy schemes, setting aside costs to cover the consequential call on resources. Staff and learners are understandably anxious about the future, and behaviours are beginning to change. More attention needs to be paid to mental health and wellbeing. Staff and students are the heartbeat of our organisations. We all have difficult choices to make about where and how we invest for the future, and how we can create the capacity to do so.
A forward view on finance
Commentators often talk about the differences between HE and FE. In terms of financial management, oversight and governance, the similarities are unsurprisingly, profound.
Financial sustainability is paramount. A short term view, or a focus on past performance in management accounting and reporting will not suffice. Interpreting performance, adding known variables and risk factors and presenting a forward-looking view is vital. Financial monitoring reports should focus on knowing what we know now; what the year end will look like; what the following 3 years will look like; when cash will become difficult to manage; and how close we are to meeting lender and regulator targets. Only with this information, alongside a risk assessment on forecasts, can the Executive and Board make appropriate decisions about any strategic or tactical action required, in a swift and timely manner.
In times of volatility, the operating position, solvency, debt levels and contingency requirements all need constant review. Judgements on income and cost pressures should be supported by assured data and professional expertise.
A high-performing board
How can a Vice Chancellor, Chief Executive or Principal manage the current competing pressures and lead their institution to a sustainable, stable, reputable place. And how do boards and CEO’s interact to ensure the focus on financial management is appropriate, timely and effective.
The Chief Executive Officer and senior leadership team play a key role in setting the standards of behaviour, and cultural values and expectations of the organisation. Successful financial management requires transparency, openness, an understanding of risk-based judgements, contingency planning, and timely action. The leadership team need to be clear about priorities and ambitions and consultative with staff and students. With clear ambition, open dialogue and transparent decision making there should be no financial ‘surprises’.
The Chief Executive Officer, as accountable officer, is dependent on the Chief Financial Officer (CFO). The CFO, in addition to holding the appropriate professional skills and qualifications, needs to be a trusted colleague on the leadership team. She/he should have the organisational knowledge to provide the CEO with detailed financial scenarios on a timely basis. Constructive debate and challenge should take place on the scenarios. The discussions that then happen in Board are well informed and critically appraised.
Cut through complexity
The role of the Board in financial matters, although clear in terms of responsibility is often difficult to deliver. The complexity of the material, the different backgrounds of Board members, the depth/volume/quality of the paperwork given to Board and the time available for scrutiny creates an interesting challenge.
Often Board papers are filled with compliance and regulatory paperwork, including the swathes of financial reporting. It takes a skilled Chair of Board to direct members to key areas of the agenda and allow sufficient time for debate on significant matters. It also requires a CEO to be open, transparent and clear with the Board on matters of urgency, as well as strategy. The Board members often bring significant skills and knowledge to the table but find it hard to contextualise their experience in an HE/FE environment. The CEO can facilitate that sharing of expertise by how they communicate with and support the Board members. In my experience, Boards that work well are when the Chair and the CEO are inclusive and open with all members and listen carefully to the contributions being made.
Reliance on data and information alongside trust in individuals, are an important part of the Governor assurance framework. Board members should have confidence in all three so that Board meetings avoid detailed scrutiny of data and focus on the questions/issues that the information and data raises. With an open and constructive challenge approach to the Executive, the Board should be able to gain the assurance they need, to be sure matters are being managed appropriately. The Board can then focus on matters of significant concern or opportunity.
This is entirely true of financial management during the uncertain period we are in. The focus should be on assurance on the immediate, then scrutinising assumptions about the future and any potential risks or opportunities. For those Boards and Executive teams who already have trusted, strong, and open approaches to working together, this will simply carry on. For those where relationships have perhaps not been as effective, they need to move swiftly to ensure information and data is reliable and relationships built on trust.
A focus on strategy
It is always interesting for Boards in their annual review to consider how much time was spent on regulatory compliance versus strategy. I would like to imagine at the end of the 2020/2021 academic year the balance has shifted away from regulatory compliance to strategic discussions about future options.
The financial state of an institution is of course a consequence of various circumstances and decisions. It is not an end goal in itself. The purpose of our HE and FE sectors is to deliver outstanding education, research and opportunities to our students, communities and business partners. Governing bodies need always to be mindful of our charitable objects and purpose whilst determining how to ensure a financially sustainable future.
Shirley Atkinson OBE, Emerita Professor and former Vice Chancellor of the University of Sunderland, Governor of the NCG College Group, Chair of NESTEM Foundation Charity, and Chair of Members at the Beacon of Light School.