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Independent Schools seminar


The Independent Schools Magazine held a seminar at Blake Lapthorn solicitors offices in Oxford with its education team.

The Independent Schools Magazine held a seminar at Blake Lapthorn solicitors offices in Oxford with its education team.

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  • 1. Independent schools seminar 9 February 2010
  • 2. Governors’ duties - what you need to know Adrian Pashley, senior solicitor Charities and Education team E: adrian.pashley@bllaw.co.uk T: 023 8085 7004
  • 3. Duties & responsibilities of Governors Key duty: advance purposes of charity Responsible for proper administration of charity Ultimately responsible for everything charity does Act reasonably and prudently Safeguard and protect assets Act collectively Act in best interests of charity Avoid conflicts of interest
  • 4. Case study – St Peters Independent School Charity Commission Investigation Headmaster - allegations of physical harm Failing educational, welfare and organisational standards Failure to address complaints made about child protection and about the school and staff
  • 5. The Governors’ response No action against Head - allegations unfounded and malicious Ignored advice of agencies to suspend Head to retire at end of academic year Head to return as a consultant to effect ‘hand over’ Access to pupils to be monitor Ofsted inspection Did this satisfy the Charity Commission?
  • 6. No….Commission found Governors failed to discharge their duty to act in the best interest of the School, its pupils, staff and stakeholders – Inadequate management of allegations about the Head – Failure to take adequate steps to protect beneficiaries (pupils) – Inadequate supervision and monitoring of activities of the School – Inadequate Child protection policies and procedures Complaints policy Decision-making processes Risk management processes
  • 7. Intervention by the Commission Initial investigation - misleading information given Formal inquiry 1st direction for protection of charity - failure to comply 2nd direction for protection of charity – Governance review (six months) – Reports to Commission
  • 8. Governance Review Delegation (policies and procedures) Procedures to ensure Governors engaged in the supervision of the school its staff and activities Complaints procedure Child protection policies and procedures, training Risk management strategy Make up of the Board of Governors
  • 9. The lessons Governors responsible for overall management of the administration of the School – Act as a team, collective decision-making Governors ultimately accountable and responsible for decisions or actions of staff – Clear lines of accountability – Adequate reporting mechanisms
  • 10. The lessons (cont…) Pay particular attention to the inherent risks associated with the work React quickly and responsibly to allegations of harm Have adequate policies to safeguard pupils - implement them - monitor them Protect the School’s reputation - manage risks and complaints
  • 11. The lessons (cont….) Manage complaints - openly and transparently under a procedure Report serious incidents - significant risk to property, work, pupils, reputation IMMEDIATE - otherwise in the annual return
  • 12. Conclusion Governors must be familiar with what their role entails by way of governance and the management of operational risk Formal induction Trustee training
  • 13. Adrian Pashley senior solicitor, Charities and Education team New Kings Court, Tollgate, Chandlers Ford, Eastleigh SO53 3LG E: adrian.pashley@bllaw.co.uk T: 023 8085 7004
  • 14. AFFORDABILITY In 1980 average school fees were equivalent to 22% of median salary In 2010 average school fees are equivalent to 40% of median salary
  • 15. AVOIDING NASTY SURPRISES Strategy versus Tactics This means that independent schools are now 60% ‘more expensive’ than 30 years ago
  • 16. Pupil Numbers Are numbers down throughout the school? Is there an inverted pyramid? Are enrolments dropping? Are there fewer footfalls/visits? Have there been changes in relationship/s with feeder schools? Has a recent marketing campaign or plan for growth failed or stalled?
  • 17. Facilities Are you able to fully provide for current curriculum? Are parents asking for facilities you are not able to offer? Are your competitors’ facilities superior or are they marketing new facilities? If your school is on leased premises- is the lease coming to an end or is a rent review pending?
  • 18. Competition Is there a new school in the area- this could be a State school or Academy? Has a local State school markedly improved its results and/or facilities?
  • 19. Public Relations Has your school suffered recently from ‘Bad’ PR such as a food poisoning incident, bulling, child molestation claim, accident? Has your Head changed recently or been absent due to illness etc? Has the school recently been inspected with an outcome below expectations? Has there been an increase in parents’ complaints?
  • 20. Strategic Have you been approached recently by another school/group proposing a takeover or merger? Are you considering going co-ed, changing/limiting the current age range/s, changing catchment area?
  • 21. Governance Are you able to recruit Governors with the right skills or standing? Has there been a falling out between Governors or the Senior Management Team? Are your constitutional documents too restrictive?
  • 22. Financial Has expenditure (including Capex) exceeded income for some time? Hve you been ‘forced’ to sell-off land or cash-in investments to fund general operation? Has your Bank reduced your overdraft facility or refused credit? Have your accountants/auditors raised concerns over your status as a ‘going concern’? Have you raised your fees at a rate exceeding the market average? Has there been an increase in requests for bursaries, scholarships and/or financial aid? Have you had increasing difficulty in recovering unpaid fees?
  • 23. Staffing Does expenditure on salaries (including add-ons) exceed 60% of your general fee income? Are you suffering from a deteriorating pupil/staff ratio? Have you made significant redundancies in the last three years? Are a number of your key staff retiring? In the case of non-Charitable Trust schools- are the owners nearing retirement without a defined ‘succession’ plan in place? Has there been a loss of confidence/morale amongst the staff with an increase in turnover?
  • 24. Key Tasks Check through Key Indicators to review current standing Anticipate what might happen when you are in the ‘good times’- do not wait for the ‘bad times’ Strategise for the school evolving to meet future trends, aspirations and needs Avoid temporary ‘tactical’ solutions Include all known external factors Agree a realistic vision for the school Involve all stakeholders in the implementation of the vision Seek ‘Change Agents’ from within the staff
  • 26. isbi schools helping parents find schools • helping schools find pupils www.isbi.com schools • schools@isbi.com • 01980 620575 Andrew McEwen Consultant with isbi educational consultants ‘Avoiding nasty surprises – strategy versus tactics’
  • 27. Future options: school mergers and buy  outs Peter Story, Consultant with isbi educational consultants www.isbi.com • schools@isbi.com • 01980 620575
  • 28. Mergers and buy outs The main objective of a merger or buy out is to improve the business The customers (the parents) expect changes and need to be reassured,    while the new management will want to initiate changes. So the  parents need to be able to buy into the new vision As parents pay substantial fees they often believe they have a role in  managing a school.  In many charitable schools they hold the majority on the board of governors. This can skew the decision making process Any merger or buy out of a school with parents and pupils feelings  being involved will have problems.  With detailed planning most can  be overcome but, to be a success, by the time of an announcement  there must be a clear vision, with all major decisions made, and this  must be communicated by the new management  As an illustration of what can go right and wrong, my personal experience  of a buy out and a merger. Both closed premises and moved pupils onto a  new site...   
  • 29. The buy out The proprietor of the school had had enough and it was probably  making a loss.   He wanted out, but with dignity and with the school’s name and general  ethos   being maintained He realised  his involvement, once the change of management had  taken place,  would be minimal, and he accepted that fact Prior to the announcement which, by design, came as a complete  surprise to  the parents, the management of the purchasing school had worked out  the  answers to the likely questions The key one was the retention of the Headmaster, it showed a degree  of  continuity At the parents’ evening, two days after the announcement, the new  management were able to present their vision The outcome We retained over 50% of the pupils. But, considering it was a day school  and that it was being moved 14 miles from a town to deep into the  country, we believed this was a success, especially as within 12 months we 
  • 30. The merger We started discussions three years before it took place. But talks fell  through as  the senior partner in the merger (there is always one) would not  guarantee to  run the junior partner exactly as it was being run A majority of the junior partner’s governors realised that their model  was not  financially viable, but there were parent governors who felt it could at  least run  on in its uneconomic mode, at least until their own children were due  to leave  Two and a half years later they were back, asking for new talks, as the  banks  were threatening to foreclose
  • 31. The merger, continued... As a result negotiations were hasty, with concessions on both sides and  key  decisions (staffing, fee levels, etc) had not been concluded prior to the  announcement being made It was made, at the bank's insistence, just prior to the start of the  Summer  holidays, giving parents a good long time to look elsewhere A further cause of problems was the agreement to let the junior  partners’ governors make the announcement to their parents, giving their version  of what they felt they had retained of their school’s ethos and modus  operandi  The outcome Despite efforts of the senior partner’s management to correct some of  the  statements that had been made, and to keep parents informed of the  other decisions as and when they were made, the parents found it difficult to  see a  complete picture Other schools had established visions they could buy into
  • 32. Future options: sales and mergers Pat Carter, Chairman of National SchoolTransfer and isbi schools www.nationalschooltransfer.com • info@nationalschooltransfer.com • 01980 621251
  • 33. School closures – 2009 and 2010 In 2009 school closures were prominently reported in the media Yet, as the ISC noted, actual closures in 2009 were similar to 2008 Lost jobs will affect families with children in the independent sector Analysts predict more pupils will be lost this September than last So there is likely to be a genuine increase in schools closing in 2010  On top of which some schools face problems with bank funding
  • 34. However, all is not lost NST’s experience suggests three key messages:  Schools do not have to close IF trustees/owners plan far enough  ahead A merger or sale can save a school, but take advice well in  advance True of charitable trust schools as well as proprietorial schools
  • 35. Charities CAN merge and transfer A charity’s assets – the school – can be sold  The proceeds are then used to meet the charitable objectives This can free trustees from running a business (the school) Simplifying their job to just running the charity itself Memorandum and Articles of Association may need amending Key message: a failing charitable school CAN be saved by  sale/merger
  • 36. Competition – charitable trusts and proprietorial Charitable schools swim in the same waters as proprietorial But in changing times they cannot respond as quickly to a  problem  Or to an opportunity in the market place An owner can make decisions without calling a meeting of  governors Proprietorial schools may be able to weather financial storms  better  than some charities
  • 37. Planning and confidentiality are crucial in mergers and transfers Proprietorial schools can merge and transfer with greater ease Confidentiality crucial to avoid parent and staff uncertainty  Information must be disseminated to as few people as possible An orderly merger or transfer requires  Organisation Forward planning  Advice from appropriate bodies  If not planned meticulously the potential for mistakes increases  The worst case is a leak before loose ends are tied up Which can precipitate the very problems one is trying to avoid!
  • 38. School transfer... retention, cost and confidentiality The majority of 90+ schools NST has merged/transferred in 18  years  have seen pupil retention of well over 90% No school likes to admit openly that it is facing difficulties, but... A free audit of the school’s circumstances can often be  organised Advice on sale and transfer is in guaranteed complete  confidence
  • 39. Public Benefit Joss Saunders, partner Charities and Education team E: joss.saunders@bllaw.co.uk T: 07711 443142
  • 40. Revision Removal of presumption of benefit There must be an identifiable benefit or benefits – be clear what the benefits are – benefits must be related to aims – benefits must be balanced against any detriment or harm Benefit must be to the public or a section of the public – beneficiaries must be appropriate to the aims – opportunity must not be unreasonably restricted by geographical or other restrictions or by ability to pay any fees charged – people in poverty must not be excluded from the opportunity to benefit – any private benefits must be incidental 5 schools assessed July 2009: 3 satisfy the tests Up to 5 years to prove benefit
  • 41. 7 pointers to pass the test Allocate responsibility Understand the requirement Assess the benefit Keep records Reporting and review Make necessary adjustments Avoid the pitfalls
  • 42. Allocate responsibility Usually a governor Clear Terms of Reference Report to Governing Body, who carry the responsibility
  • 43. Understand the requirement Knowledge base Charity Commission guidance – general – on education – on fee charging charities – example annual reports – outcome of 5 assessments published July 2009 Keeping up to date
  • 44. Assess the school’s public benefit delivery Legal purposes Fees Bursaries Community involvement Other outreach
  • 45. What do your objects say: between a rock and a hard place To advance the education of the pupils of the school To promote and provide for the advancement of education and in connection therewith to conduct, carry on, acquire and develop in the United Kingdom any boarding or day school or schools for the education of children of either or both sexes The advancement of education by the conduct of a school near Oxford for buys and girls up to the age of twelve
  • 46. Keep records Keeping minutes Assembling statistics Successes and failures Admissions and rejections Applications for assistance Who are the people who benefit? Measuring against objectives
  • 47. Reporting: making the case Charity Commission – Alltown example Review Publicly available Accessible by parents
  • 48. Make adjustments Aims Decision making Financial accessibility – fee setting – bursary fund and fundraising New projects
  • 49. 9 Pitfalls to avoid Lack of governor buy-in Not understanding the real meaning of the objects Tokenism Is the strategy sustainable? Is there a genuine means test? Failing to keep records It can’t just be any community involvement Ignoring the Commission’s guidance Failing to respond to Commission feedback
  • 50. What does the future hold? Does change of government mean change of rule? Litigation challenge and the guidance What if you fail the test?
  • 51. Joss Saunders Partner, Charities and Education team Seacourt Tower, West Way Oxford OX2 0FB E: joss.saunders@bllaw.co.uk T: 07711 443142
  • 52. Safeguarding income in difficult times 9 February 2010 James Ragg, Partner - Charities and Schools www.hwca.com
  • 53. This recession Speed of onset Delayed impact Multiple effects – Parents’ income – Overall economic uncertainty – Availability of finance www.hwca.com
  • 54. Information Timely budgets and projections Fast actual results – speed vs accuracy Early initiation of key decision-making Focus on hard to control areas Construct “what-if?” scenarios and pre-plan actions www.hwca.com
  • 55. Contribution Limited entry points, multiple exit points Short-term direct effect of recession - hopefully Long-lasting effect of a small entry Some income better than none, but… – Beware widespread or long-lasting discounts – Try and understand why parents buy Are all current discounts cost-effective? www.hwca.com
  • 56. Summary Ensure speedy reporting of results A guesstimate in good time outweighs certainty arriving too late Forecasting pupil entry and exits is key Parental confidence is vital www.hwca.com
  • 57. Finding and Evaluating Sources of Finance for Capital Projects and Working Capital Dorothea Dunn, Director of Education Santander Corporate Banking February 2010
  • 58. THE JOURNEY……………
  • 59. Clear and Mutual Understanding of Your Circumstances • Downturn in economy • Performance • Change – Today’s risks different to those of a year ago • No Room for Complacency
  • 60. Homework! • How diversified is your school’s income? • How effective is your fundraising? • Do you have fixed cost structure – teaching/administrative staff contracts? • Are there sufficient reserves/cash for potential problems in the future?
  • 61. What To Do Next ….. • Clear Development Plan • Awareness of Market Place • Viability of Operation/Project • Remain focussed with mindset to endorse change if necessary
  • 62. Good News! • Funding is available for well run schools with sensible and conservative policies Refinance of existing facilities from other lenders Development facilities Facilities Revolving credit term loan facilities Working capital facilities Revolving credit up to 2 years, capital holiday and Terms interest only repayment Term loans up to 20 years Computers, telephone systems, catering equipment, Asset Finance coaches etc Interest Rate Certainity of rate Mangement Assist with planning cashflows
  • 63. Banks Evaluation What to include to give credibility to your proposition Reputation/market/range of School subjects/competition/regulation/capacity to borrow Financial Performance Financial Projections – how robust? Historic Accounts Strategic Plan Management Vision for future Quality of Management team Business expertise/academic background Previous experience
  • 64. Relationships • Cannot underestimate the importance of relationships • One size does not fit all! • Building a track record • If Existing Bank Not Engaging – Don’t suffer in silence – Find a new one! “Nothing can undermine a relationship more completely than a lack of trust” Robert Solomon, Leadership Now
  • 65. Meet The Thames Valley Team The Santander Group worldwide has always believed in building long term relationships. We work closely with our customers to understand their business and aim to be true partners in promoting their success. This same approach underpins the Thames Valley Education Team Vanessa McCormack Dorothea Dunn Justin Hayward Chris Worsley Regional Director Relationship Director Relationship Director Relationship Manager 07798 581850 07920 531722 07809 493739 07809 493701 Vanessa.mccormack@alliance- Dorothea.dunn@santander.co.uk Justin.hayward@alliance- chris.worlsey@alliance- leicester.co.uk leicester.co.uk leicester.co.uk
  • 66. 66 Banco Santander S.A. and (name of company) advise that this presentation contains representations regarding forecasts and estimates. Said forecasts and estimates are included in several sections of this document and they include, among others, remarks on the development of future business and future returns. Although these forecasts and estimates represent our opinions regarding future business expectations, perhaps certain risks, uncertainties and other relevant factors may lead the earnings to be materially different from what is expected. Included among these factors are (1) the situation of the market, macroeconomic factors, regulatory and government guidelines, (2) variations in domestic and international stock exchanges, exchange rates and interest rates, (3) competitive pressure, (4) technology developments, (5) changes in the financial position and credit standing of our customers, debtors or counterparts. The risk factors and other fundamental factors that we have stated could have an adverse effect on our business and on the performance and earnings described and contained in our past reports, or in those that we shall present in the future, including those filed with regulatory and supervisory entities, including the Securities Exchange Commission of the United States of America. N.B.: The information contained in this publication has not been audited. However, the preparation of the consolidated accounts has been established on the basis of generally accepted accounting principles and criteria.
  • 67. Charitable Status Benefits vs. Costs 9 February 2010 Henry Briggs, Schools partner www.hwca.com
  • 68. Charitable Status Benefits vs. Costs ISC Claims for sector as a whole Make up 83% charitable Effects of 12 years of Hard Labour – More or less charities? – Assisted places scheme replaced Will it now change? www.hwca.com
  • 69. Hopeful Hall Hypothetical example Pupils 200 £000’s Fee Income 1,800 Teachers Costs (1,260) Other expenses (324) Surplus before taxes and bursaries 216 HEAD Mr Faith, only shareholder Co. Ltd by guarantee Site Owned by Co. worth £3m No depreciation Assumption All non bursary fee remissions the same for both www.hwca.com
  • 70. Hopeful Hall 1) Profit from Education Ltd £000’s Surplus 216 Rates (36) Corp. Tax (38) £74k ‘cost of profit’ Net Surplus 142 2) Registered charity Ltd 7% 5% Bursaries Surplus 216 216 ‘cost of charity’ Bursaries (126) (90) Net Surplus 90 126 3) Profit > Charity 52 16 www.hwca.com
  • 71. 4) Endowment to cover £’000’s Either income from Angels Association 40 13 or Capital Endowment 1,300 400 (Estimated yield of 4%) www.hwca.com
  • 72. HOPEFUL HALL EVEN MORE PROFIT FROM EDUCATION Profit Motive Surpluses in sector more like 20% due to - • Tighter control of costs • Economies of scale on administration/ Senior staff salaries • May have less ‘social’ or historic burden compared to charitable competitors Other Advantages – • Ability to raise capital • No governing body! (streamlined decision making) www.hwca.com
  • 73. WHAT ABOUT VAT? Not significantly affected by charitable status (advertising only) Supply of Education outside the scope of VAT For Mr Faith the cost might be c. £40k For all schools, opportunities are on – – Boarding Houses, new builds – Facilities such as sports halls, swimming pools www.hwca.com
  • 74. Charitable Status Benefits vs. Costs Conclusions Should existing charities consider change? Governing document Charitable assets Existing charities on whom change is forced will need to devise scheme with Charity Commission Non Charitable Schools in existence may well keep the status quo Effect on start ups Future shape of sector www.hwca.com
  • 75. Charitable Status Benefits vs. Costs Predictions Growth of ‘For Profit’ Schools in Independent sector Possible outsourcing in maintained sector The Swedish Model? www.hwca.com
  • 76. Legal structures and Independent schools Adrian Pashley senior solicitor Charities and Education team
  • 77. Charitable structures Trust or unincorporated association Company – usually limited by guarantee Royal Charter body Statutory corporation Watch this space! Charitable Incorporated Organisation (CIO)
  • 78. Non-charitable Sole trader Partnership Companies limited by shares – School trading companies Community Interest Company (CIC) – Social Enterprise
  • 79. In more detail…. Trust or unincorporated association - deed/scheme/constitution - Governors are the charity trustees - no separate legal identity - Governors personally liable individually and collectively for all the debts of the school - liability unlimited But… entitled to indemnity from the assets of the trust for all proper actions
  • 80. In more detail…. Company (limited by guarantee) – memorandum and articles – Governors are directors/charity trustees – separate membership (usually Governors) – separate legal entity – liability limited to the level of guarantee (nominal) – Governors remain personally liable for acts in breach of trust/certain criminal offences – update for Companies Act 2006
  • 81. Added Comfort CC and court can relieve a trustee if he/she has ‘acted reasonably, honestly and ought fairly to be excused’ Manage operational risk: - includes choice of structure - adequate insurances with appropriate levels of cover (employer’s liability, professional indemnity, public liability, property, vehicle) - contractual wording - limit liability to asset value - trustee indemnity insurance
  • 82. Trustee indemnity insurance Insurance against claims for breach of trust or duty as trustees including negligence or default in their capacity as directors of a corporate charity NOT – normal third party claims or – pay debts of unincorporated charity But it cannot cover criminal penalties, costs or where governor knew or ought to have known actions not in school’s interests
  • 83. The future? Charitable Incorporated Organisation (CIO) – registered/regulated by Commission only – model constitution – limited liability/corporate body – two-tier (trustees/members) – conversion from CLG – likely to be popular with smaller charities – simpler to administer (?) – when?!
  • 84. Community Interest Companies (CIC) Relatively new form for social enterprise CLS, CLG or PLC CIC Regulator and Regulations ‘Community interest test’ Limited scope for investment – cap on dividends – cap on interest payments on debts/debentures More limited tax advantages
  • 85. Trading subsidiaries Non-primary purpose trading activities – lettings – events Companies limited by shares Directors - at least one non-governor Tax VAT No subsidy - trading agreement
  • 86. Current and future trends Mergers – Ethos and culture – Strategic drivers – Structure – Compatibility of fees and awards – Due diligence – Compatible objects? – Power to merge
  • 87. Current and future trends (cont…) Convert to CIC? Sale to corporate Academies – conversion – lead sponsor Grant-giving trust Partnering & collaboration “Franchising”
  • 88. Adrian Pashley senior solicitor, Charities and Education team New Kings Court, Tollgate, Chandlers Ford, Eastleigh SO53 3LG adrian.pashley@bllaw.co.uk