Friday March 12, 2021

Restructuring Advisory Partners, Philip Watkins and Andrew Sheridan explore how trustees can develop turnaround strategies for schools in distress.

With the government’s roadmap to ease lockdown restrictions underway, and children returning to classrooms again, schools can now plan for the months ahead with more clarity.

While the UK’s independent education sector has shown great resilience in the face of the coronavirus pandemic, ongoing economic challenges, shifts in the way we live and work, and competition from public sector schools will continue to impact the sector.

Despite the sector’s resilience, some schools will be entering into the post-lockdown period facing operational and financial headwinds.

For schools that are charitable trusts in status and experiencing these pressures, it is crucial that their board of trustees – the group responsible for a school achieving its charitable objectives – take the necessary steps to adapt or evolve their strategy.

Here, as in all turnarounds, proactive action will be key, and throughout it is helpful that trustees keep their core duties in mind.

Responding to challenges

Challenging periods can naturally cause trustees and governors to adopt a reactive stance, focusing on implementing short-term ‘fire fighting’ measures to manage complexities, rather than taking a longer-term, more holistic, view.

This can particularly be the case when boards of governors are removed from the day-to-day running of the school, and make decisions based on instinct or with incomplete information.

Taking a moment to review and reflect on their fundamental duties as trustees can be a helpful first step for governing boards in moving from this reactive ‘fire fighting’ stance to a proactive longer-term strategic footing.

In their roles, trustees must:

1. act in the best interest of beneficiaries – which, in the case of independent schools, are the current and future pupils;
2. manage the charity’s resources responsibly, maintaining a ‘duty of prudence’, protecting assets and making sure inappropriate risks are avoided;
3. act with reasonable care and skill in their role – ensuring that they have good information to base their decisions on, and that they are seeking the right advice during periods of difficulty.

In times of crisis, trustees could overlook these principles as they focus on the task at hand. For example, in lossmaking situations, boards might initially be pre-occupied with protecting current beneficiaries – which could ultimately be to the detriment of future beneficiaries as the charity’s assets are eroded and its capital is deployed on a dwindling number of pupils.

When it comes to turnaround situations, challenging decisions have to be made.

In line with their duty to act with reasonable skill and care, it is vital that any decisions trustees make are based on good historic and forward-looking operational, financial and management information.

Trustees should take ownership of their decisions, challenging, where necessary, to ensure that information that they are presented with when making decisions is complete, accurate and relevant and not based on hope.

With the right information in place, trustees can then formulate an effective, practical long-term plan that respects their duties, and acts in line with their responsibility to beneficiaries.

This could involve introducing drivers to increase pupil numbers; implementing strategies to reconfigure resources; exploring staff reorganisation; scaling back on overheads or making investment in facilities.

It might also involve selling surplus land. However, in the charitable sector, this should only be on the basis that it is likely and reasonable that the overall viability of the school can be re-established, and is subject to strict Charity Commission regulations.

Even once a plan has been developed, it will be necessary that trustees are prepared with a contingency strategy, again keeping their wider duties in mind.

In turnaround situations, this could mean exploring a charitable merger or business and assets sale. Ultimately, this could preserve the value of the school’s assets as a charity for future beneficiaries – albeit different ones to those they serve now.

Being a trustee is an important position, and carries personal liability in certain rare situations. However, the risk of this can be completely mitigated by boards making reasonable decisions based on good information.

Ultimately, the earlier trustees recognise that their school is facing a growing problem that requires change, the more options, time and resources they will have to implement a turnaround.

Keeping their wider duties in mind will ensure they are acting with the school’s beneficiaries’ best interests at heart, at all times.

In case you missed it, we recently published our Restructuring in the independent education sector publication, in which we explore the impact of the pandemic and the risks and opportunities the future holds.

Click the image below to read our education publication.

 

Now is the time to review, adapt and evolve. Our team of specialist advisers are on-hand to support every step of your business journey, providing integrated and tailored guidance that empowers your business to succeed in the new economy. If you are keen to assess your options, please don’t hesitate to contact us.