7th annual University Governance and Regulations Forum
Tuesday 4 – Wednesday 5 September 2012
Hotel Realm, Canberra
MANAGING THE EFFECTS OF RECENT REFORMS
AT THE INSTITUTIONAL LEVEL
Professor Jan Thomas
Vice-Chancellor and President, University of Southern Queensland
During my time with you today I’d like to review the nature of regulatory reform in Australian higher education, as a basis for putting the current round of reforms into some form of context, and to discuss the implications of these reforms for the governance-management interface in Australian universities.
As I’ve noted here, my key message to you is that there is no need to be anxious about the new regulatory environment. HOWEVER, .....
Now, to begin:
While it has been said so many times as to have become a cliché, it is the case that change has been a constant feature of Australian higher education for many decades now. However, it is also true that the sector reforms currently underway present as being particularly significant and the regulatory environment in which universities are now operating has certainly tightened.
This is occurring through the setting of hard targets for universities in ‘compact’ agreements, through the introduction of performance-based funding as an incentive for improved learning & teaching performance, through the deregulation of publicly funded undergraduate places from 2012 to create the conditions for free market forces to influence university behaviours and, perhaps most noticeably, through the introduction of TEQSA as an auditor and regulator with teeth.
As well, associated regulatory reforms include the revised and strengthened Australian Qualifications Framework (AQF), enhancements to the Higher Education Student Services and Amenities Bill, and beefed up ESOS legislation to provide greater protections for international students. These last reforms are significant in that they provide the enhanced consumer protection needed to underpin the government’s move to a more market-driven system for higher education. It is no accident that on its home page, TEQSA states that its “primary aim is to ensure that students receive a high quality education at any Australian higher education provider” as TEQSA has essentially been established as a regulator for the new higher education free market with the power to enforce the minimum standards now being put in place.
As impressive as these raft of reforms are, we must appreciate that they are actually only the current manifestation of a continuum of processes that have been underway essentially since the conclusion of World War II – when the government first began to take a real interest in universities as useful assets and tools for public policy – and, particularly, since the Federal government took over the responsibility for funding universities in the early 1970s which elevated it to the position of the major change agent for the sector.
Over the years, the Commonwealth has used its position to become ever more effective in obliging universities to support national priorities – to the extent that the loud cries from the sector about threats to institutional autonomy that were commonly heard throughout the 1980s and ‘90s now barely register as a whimper. Universities now fully accept their role in nation-building and are increasingly moving to meaningfully engage with their communities – with regional universities such as my own taking a lead with regard to the latter.
It is worthwhile to consider how the government has utilised different forms of regulation – and, indeed, deregulation – over the years to achieve its ends.
Examples of sector regulation employed successfully over the last few decades include:
• The introduction of the higher education equity framework in 1990 in the form of A Fair Chance for All. The use of agreed frameworks is an age-old method of ‘soft’ regulation and guided compliance. Keen observers around at the time noticed that A Fair Chance for All appeared tentatively as a discussion paper by the Commonwealth and actually became policy by stealth without a formal equity policy actually being written. The Department mustn’t have believed its luck!
• In the wake of the Dawkins reforms, the government introduced “annual profiles meetings” between the Department and each university to discuss university performance. These annual meetings have continued under various guises ever since. Around this time the government also introduced regular reporting to support these discussions – which, again, served to establish the Higher Education Data Collections and what has come down to as now as the Institutional Performance Portfolio Process and the Compacts negotiations.
• What I have referred to here as “push factors” is another group of strategies that the government has in its armoury. An example is the use by the Howard government after 1996 of decreasing per student public funding as an intentional strategy to make universities less dependent on government funding and to encourage improved performance through competition. During this period the rise in public funding lagged behind the rise of costs so that all universities were obliged to grow student numbers in order to stay ahead financially. As well, universities were pushed into exploring the limited avenues for raising non-government revenue initially available to them. Of course, the most spectacularly successful of these has been the area of international education which the sector has raised to the level of a major export industry for Australia – remarkably achieving this within regulatory frameworks that private industry would find intolerable. This impressive business achievement is often overlooked by government and the private sector alike.
• The introduction of AUQA in 2001 had a major impact on encouraging universities to improve their management, business and governance. This was achieved in a way that amounted to soft regulation owing to the approach taken by AUQA’s Executive Director, David Woodhouse. I am a great admirer of David – he was the right person for the time. After a somewhat messy and failed attempt at a quality framework for the sector in the 1990s, David determined that the AUQA approach to audit would be consultation rich, supportive and non-confrontational – with public disclosure as the stick. This moderate, relatively non-threatening but effective approach was particularly important for getting the idea of a quality framework accepted in its early stages. And more credit to David that during his time as ED of AUQA, business practices in the sector developed and matured immeasurably.
• However, a tougher approach was taken by the government to introduce the National Governance Protocols in 2003, with compliance made a condition for access to a pool of funds; which equates to the leverage the government obtains through strategies such as performance funding or basing access to the SRE on ERA assessments. Money always provides a sound basis for influencing behaviours.
Subsequently, the recent government reforms that have involved the lifting of undergraduate enrolment caps from this year, a regulatory framework more conducive to the entry of new market competitors and an environment where fee deregulation seems likely in the near future has served to expose universities much more to free market forces in their domestic operations. Although, it now appears that the sustainability of having no enrolment caps in place is in serious doubt, these most recent reforms have come as ‘the next step’ – albeit a dramatic one – of a process that has seen the higher education market gradually deregulated over the last two decades.
The trend over the years has been for a hardening of the regulatory environment on universities as the market itself becomes increasingly deregulated. This is most clearly embodied in the employment of the TEQSA Act as seriously tough legislation, and the introduction of TEQSA which has real power to enforce this tough legislation. And there has been a degree of anxiety created by these tightened regulations.
But I make the point again that we are at the current stage of a process that has been going on for some time – so little about the current reforms are overly surprising. The move to a market-driven sector has accompanied the move from traditional models of university governance and management towards what we might refer to as more corporate or managerial models – which has been taking place over several decades. It is worth noting that the landmark book The Enterprise University by Simon Marginson and Mark Considine - which described “the new kind of higher education institution” - was published in 2000, just as the first version of the National Protocols for Higher Education Approval Processes were released, and before the establishment of AUQA in 2001 and the release of the National Governance Protocols in 2003. Hence, the trend for managerialism was well and truly underway and having a major impact before these landmark sector reforms in the early 2000s. So the trends which has seen us move on from AUQA into TEQSA, that have enshrined the basic principles of the National Protocols into the emerging Higher Education Standards Framework, and that have sought to improve higher education management further through the availability of new tools such as the Regulatory Risk Framework released by TEQSA in February this year, take the form of an ongoing narrative which has obliged us to continually respond and readjust.
Viewed from this perspective, there is little in the emerging regulatory environment that should cause university managers much alarm.
For example, this is a list of some of the requirements under the new Threshold Standards.
• Sufficient financial resources to ensure the achievement of its higher education objectives (2.2)
• Business continuity plans and financial and tuition safeguards (2.3)
• Operations are well managed in accordance with legal requirements and Australian accounting standards (2.4)
• Financial records are accurate and independently audited (2.5)
• Has a corporate governing body (3.1, 3.2)
• Corporate governing body regularly monitors potential risks (3.4)
• Corporate governing body ensures that all delegations are appropriate, documented, observed and regularly reviewed (3.5)
• Corporate governing body has approved a strategic plan (3.6)
• Corporate and academic governance arrangements demonstrate effective policy management, maintenance of academic standards and effective quality assurance arrangements (3.8)
• Primacy of academic integrity (section 4)
It’s very hard to argue against any of these as practices that we wouldn’t – or don’t already – have in place anyway to ensure the sound operations and a successful future for our institutions.
However, this does not mean that there aren’t issues that we need to discuss and be concerned about in relation to the emerging regulatory environment.
I would like to present some of these to you now
The first is that there are, of course, considerations with regard to the cost of compliance and reporting. This has been a major focus of discussion between Universities Australia and the government as history tells us that departments and agencies will tend to demand more information than is actually required to achieve desired ends. I don’t believe that there is a good understanding even now amongst many in the Department about just how expensive mandatory reporting can be – both in terms of direct costs, and in terms of the opportunity costs involved in collecting information for agencies rather than the information that institutions themselves find useful. These costs can be extreme for small institutions which lack the capacity for realising economies of scale.
There is a need for continued dialogue and diligence to ensure a reasonable balance between reporting burden and accountability.
My second point relates to the tendency for the government to employ hard regulation in the sector. At a conference earlier this year, Australian Catholic University’s Vice-Chancellor Professor Greg Craven noted the anxiety that TEQSA had created, including “concerned whispers” about universities receiving letters from TEQSA. Greg is quoted as saying: “Let me break the awful news to you: you are all going to sooner or later receive a letter from TEQSA, and will probably get to the point where every single one of us has at least one missive from TEQSA on one subject at any given point in time.”
Greg’s is a keen insight into the realisation that if a regulator looks hard enough then all of us at some time will be found wanting. The issue of whether the sector’s anxiety about this is justified or not really will be indicated by the attitude of the regulator. If the aim of the regulator is to support improved practice in higher education by working with universities then there is no need to be anxious. I remind you again of the impact that David Woodhouse achieved through AUQA by seeing his role as supporting quality improvement through educating and empowering the sector and through an approach that was non-confrontational and consultative. I believe that there are serious lessons to be learned here.
Finally, I’d like to raise a number of issues relating to the degree to which the nature of the regulatory environment serves to support effective university governance, and particularly on its impact on university Councils.
As Vice-Chancellor and President of USQ I am both the CEO of my organisation and a member of my university’s governing body. This twin perspective provides me a great deal of empathy with the challenges facing university Councils in the modern context. We must remember that university governing bodies are still an evolving construct – and the pressures on Council members are significant and increasing.
As a Fellow of the Australian Institute of Company Directors I am also aware that the situation is also difficult for Corporate Directors and Boards. This is somewhat ironic as for over a decade we have been asked to use corporate governance as the model for university governance. As in the corporate world, Council members are obliged to consider their roles, responsibilities and liabilities under both legislation and case law. What can we learn from the private sector in this regard? In a media release dated 23 February of this year, John Colvin, Chief Executive and Managing Director of the Australian Institute of Company Directors had this to say:
“... the prescriptive regulatory response taken by our parliamentarians and regulators is placing an increasing burden on directors and is becoming increasingly dysfunctional. The plethora of liability laws is stifling business, investment and job creation. They are anti-business, a drag on Australia’s prosperity and impact our international competitiveness.”
Remember that these comments were made with regard to corporate Australia, but all members of Councils of Australian universities will fully identify with John Colvin’s assessment.
In the same media release, Mr Colvin noted that:
“There must be a clear separation between the roles of boards, directors and executive management teams to optimise corporate performance.”
However, he notes that the difference between what the community expects from non-executive directors and how directors realistically perform their roles – something he refers to as the “expectation gap” – impedes corporate performance.
How much more difficult then is it for university governance, when not only are: “Corporate governance arrangements [required to] demonstrate a clear distinction between governance and management responsibilities” under section 3.3 of the Threshold Standards; but also that: “The higher education provider’s corporate governing body protects the academic integrity and quality of the higher education provider’s higher education operations through academic governance arrangements that provide a clear and discernable separation between corporate and academic governance” under section 3.7. This, of course, adds an extra layer of complexity to a situation that even corporate Australia already sees as a complex situation.
A major role for a university Council is to set the risk appetite for the organisation. As John Colvin noted for corporate Australia, an overbearing regulatory environment has the potential to tie down an organisation by obliging it to adopt an overly cautious risk appetite – with the effects described for corporations of “stifling business” being the same for universities.
Remember that innovation carries inherent risk. Without some risk taking innovation is seriously impeded, and what is a university without innovation. This again highlights the need for a balanced approach to sector regulation. There is enough pressure on university governance already. Overbearing regulation will just make that task all the more difficult and work against exactly what it is attempting to achieve – a productive, efficient and effective higher education sector achieving the best outcomes for its stakeholders.
A second very different example concerns the requirement enshrined in the original National Protocols and retained in the Threshold Standards: “to promote and protect free intellectual inquiry.” Academic freedom is a core principle for universities. The capacity to question conventional wisdom and to provide a critique of society sits alongside producing future leaders and generating new knowledge as residing at the heart of what universities exist to do. However, this fundamental principle can also lead to behaviours that would be intolerable in the corporate world – such as staff publicly questioning institutional directions or engaging in debates that may be deemed not to be in the best interests of the institution.
A regulatory environment that obliges universities to be overly risk averse and that is not sensitive to the nature of universities could put into jeopardy this very important role for universities of public commentary; and create untold dilemmas for university Councils. Again, this implies the need for considerate and responsible approaches by the new university regulator.
Finally, John Colvin made reference to the negative impact of “the plethora of liability laws” on corporate Australia. Needless to say, the implications for non-executive directors of decisions such as Morley & Ors v ASIC – which if you don’t know has promoted legal advice to Councils that includes “the inability to wholly rely on information provided to them by management” – is less than helpful in establishing the trust needed between a university Council and senior management.
We really do operate in a challenging environment.
So, to conclude: I’d like to leave you with an elaboration on the key message I mentioned at the beginning of my presentation.
1. Regulation is a constant part of our operating environment
2. Regulation, in itself, should not make us anxious
However, 3. this does not mean we can afford to relax. There is always a need to approach considerations of regulation with an appropriate degree of caution
Tell a friend!