The importance of good governance

What it is, and why it matters

Good governance is one of the cornerstones of any well-run organisation, and schools are no exception. Whilst the phrase “corporate governance” perhaps traditionally suggests board rooms and directors - rather than classrooms and playing fields - the concept is increasingly taking hold throughout society as a means of creating long-term value. And whilst always being so much more than just a business, at its core an independent school has risks to manage and stakeholders to please just the same.

Corporate governance covers a wide range of issues: from implementing appropriate decision-making processes and promoting diversity amongst leadership; to engaging with the local community and managing matters such as sustainability, safeguarding and health and safety. Similarly, its benefits are multitude: increasing efficiencies, mitigating risk and reputational damage, reducing costs and increasing value. It therefore follows that a well governed organisation will be a better place to work, and a better asset to its community – both of which are of importance for independent schools, particularly in light of the ongoing effects of Covid-19, which have emphasised the importance of maintaining good relations and exacerbated financial difficulties for many schools.  

Looking to sell – or not?

In particular, being able to demonstrate good governance can be of significant advantage should the decision be made to sell. There are many reasons why that decision might be made – the opportunity to consolidate, to expand, to raise funds for investment elsewhere, or to secure the long-term future of the school. Whatever the reason, having an effective governance system in place at the point that decision is made will undoubtedly be of benefit: from potentially securing a higher price or better deal terms, to keeping down costs and time spent on the transaction process itself.

It is certainly something that a well-advised buyer will be looking for as they carry out their due diligence on all aspects of the school: all staff, parent and supplier contracts; all assets and equipment; the property out of which the school is operated, and so on. The key for any school therefore is both not to leave it too late to put systems of good governance in place, and to ensure that core documentation demonstrating that good governance is easily available. Even if a sale of the school is not on the horizon, getting things “in order” is always advisable from a risk management and operational efficiency perspective, and (as we have seen over the past year) circumstances can change rapidly – so it does no harm to be prepared.  

Key areas

In particular, schools should focus on the following areas:

• Contracts

Of critical importance is the school’s contract with parents. This should be clearly drafted, particularly around any notice requirements of informing parents of a change to the contract or the ownership of the school. Consider reviewing the contract on a fairly regular basis to ensure it complies with, for example, any updates to data protection law and the school’s medium to long term strategic plans (e.g. if a sale is being contemplated for 12 – 24 months’ time, make sure the contract is clearly transferable to a buyer).  

Ensure that the school’s key contracts with commercial third parties (e.g. with caterers, for IT equipment, any agency staff) are signed up by both parties and are easily accessible. A buyer will look to review these contracts in some detail as it decides what it does and doesn’t need to take on as part of the sale, and what ongoing financial liabilities are attached to the school. It can be helpful to have a schedule to hand of all of the school’s key contracts, containing important information such as termination date, whether the contract automatically renews, and whether the contract can be transferred by the school to a third party (i.e. the buyer). Separately, consider reviewing supply chains and the identity of the third parties the school contracts with, to ensure they match the school’s values and are also operating in a responsible, sustainable manner. 

• Staff

As with key commercial contracts, all staff (teaching and non-teaching) should have signed employment contracts with the school. Ideally, any template contracts used for multiple staff members should be reviewed fairly regularly to ensure compliance with employment law (e.g. around issues such as sick pay, holiday pay, notice periods, pension entitlements), and ensure that special benefits offered to key employees (e.g. headteacher and bursar) are clearly recorded, either in the employment contract or a separate legally binding document signed by both parties. Keep a clear record of the school’s participation in any pension scheme and the members of staff enrolled in each scheme.

• Licences and Consents

Make sure any licences or consents needed to run the school are renewed and that you can evidence compliance (e.g. registration numbers or certificates, confirmation emails or letters). For example, if your school offers boarding facilities for international pupils, are all of your immigration licences up to date. In the event of a sale, are there any third-party consents you would need to obtain before you could agree to the sale or transfer certain of the school’s assets? Are you aware of these and do you know who you would need to contact? Are those contact details up to date? Often, transactions can move quickly, so knowing what permissions you will need to proceed and who can give them can help avoid any delays.

• Policies

A well-drafted range of policies – from educational and pastoral matters such as anti-bullying and diversity and inclusion, to more operational matters such as health and safety and data protection – can demonstrate the systems in place at the school that make it a safe and compliant environment for pupils and staff. These should be reviewed regularly and updated as necessary. Consider undertaking an annual policy review to identify any gaps.

• Intellectual Property

Consider whether certain intellectual property of the school (e.g. its logo, its name) should be registered in order to enhance its value and protect it from use or challenge by third parties. Be clear as to who owns intellectual property – anything created by staff as part of their employment should belong to the school, so ensure provisions stating this are included in their employment contracts.

• Property / Environmental

Of fundamental importance is the school’s premises. Planning permissions, health and safety compliance, and not least the condition of the buildings will all be of huge interest to a buyer, and so these aspects should be kept on top of. Consider too the school’s impact on the local (and wider) environment and if any changes can be made to help sustainability (e.g. by reducing the school’s carbon footprint). This is a topic of growing importance, and one that is likely to be of increasing interest to staff, parents and pupils as the school’s key “stakeholders”.

Looking to the future

Ensuring that those responsible for the governance and leadership of the school truly understand how the school operates, should ultimately lead to the school being run in a better way, which in turn and over time can reduce costs and increase competitive advantage, and enhance the school’s culture and ethos. Responsibility for these issues should not sit with one person, but should permeate all parts of the leadership team. Consider the identity of the leadership team itself: appointing a diverse group of individuals, who are open to addressing a variety of issues (not just financial), and who are willing to challenge and question long-held views, can drive positive change. This change doesn’t have to be overnight, but should be ongoing, measured and always undertaken in the best interests of the school.

If you require further information about anything covered in this briefing, please contact Anthony Turner, India Benjamin, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2021

Please note this content was originally published in the Spring 2021 edition of the Independent Schools’ Bursars Association (ISBA) termly magazine, “The Bursar’s Review”, issued 26 February 2021, and is reproduced with the kind permission of ISBA.