Review of University Governance

Review of
University Governance

May 2002

State of Victoria, May 2002

Department of Education & Training
PO Box 266D
Melbourne VIC 3001
http://www.eduweb.vic.gov.au/highered/
higher.education@edumail.vic.gov.au

CONTENTS

SUMMARY................................................................................................................................. 3
RECOMMENDATIONS............................................................................................................ 6
CHAPTER 1: INTRODUCTION............................................................................................ 10
1.1 Background.............................................................................................................. 10
1.2 Establishment and terms of reference................................................................... 10
1.3 Composition............................................................................................................. 11
1.4 Submissions and consultations............................................................................... 11
CHAPTER 2: OVERALL APPROACH.................................................................................. 12
2.1 Origins and principles............................................................................................. 12
2.2 Options ..................................................................................................................... 15
CHAPTER 3: GENERAL GOVERNANCE AND ACCOUNTABILITY FRAMEWORK... 20
3.1 Councils obligations and responsibilities .............................................................. 20
3.2 Governance procedures .......................................................................................... 29
3.3 External oversight and review ............................................................................... 36
CHAPTER 4: COMMERCIAL ACTIVITIES........................................................................ 46
4.1 Range of universities commercial activities......................................................... 46
4.2 Issues raised by the Auditor-General of Victoria................................................. 47
4.3 Issues raised in submissions and generally ........................................................... 47
4.4 Existing accountability mechanisms...................................................................... 52
CHAPTER 5: MANAGING RISKS THROUGH GOOD GOVERNANCE .......................... 58
5.1 Risk planning, management, monitoring and review.......................................... 58
5.2 Limiting liability...................................................................................................... 59
5.3 Effective council responsibility for controlled entities......................................... 60
5.4 Management of risks incurred by entities not controlled by the university...... 62
5.5 Consolidated accountability of multiple commercial subsidiaries ..................... 62
5.6 Management of international programs ............................................................... 64
CONCLUSION......................................................................................................................... 65
APPENDIX 1: UNIVERSITY GOVERNANCE IN OTHER JURISDICTIONS................. 67
A1.1 Commonwealth........................................................................................................ 67
A1.2 Australian Capital Territory.................................................................................. 68
A1.3 New South Wales..................................................................................................... 69
A1.4 Northern Territory.................................................................................................. 72
A1.5 Queensland............................................................................................................... 72
A1.6 South Australia........................................................................................................ 75
A1.7 Tasmania.................................................................................................................. 75

A1.8 Western Australia ................................................................................................... 76
A1.9 New Zealand ............................................................................................................ 77
A1.10 Canada.................................................................................................................. 79
A1.11 United Kingdom.................................................................................................. 81
A1.12 United States of America .................................................................................... 84
APPENDIX 2: TYPES OF UNIVERSITIES COMMERCIAL ACTIVITIES .................... 88
A2.1 Coursework commercial activities......................................................................... 88
A2.2 Commercial non coursework services ................................................................... 88
A2.3 Commercial research.............................................................................................. 89
A2.4 Real property........................................................................................................... 90
APPENDIX 3: UNIVERSITIES CONTROLLED ENTITIES............................................. 91
APPENDIX 4: UNIVERSITIES POWER TO FORM COMPANIES................................. 96
APPENDIX 5: TWO BRIEF CASE NOTES.......................................................................... 99
Councillors responsibilities:.............................................................................................. 99
Councillors access to information: ................................................................................. 100
APPENDIX 6: SUPPORTING MATERIAL ........................................................................ 103
References .......................................................................................................................... 103
Acronyms and abbreviations............................................................................................ 106
Tables.................................................................................................................................. 106
APPENDIX 7: CALL FOR SUBMISSIONS........................................................................ 107
Submissions received......................................................................................................... 110

Review of University Governance 3 Summary
SUMMARY

Victorias universities are public institutions established to serve public ends. Yet not
all, and increasingly less, of their funding is from public sources (paragraph 1.1). The
mix of universities finance has changed over time between State and Commonwealth
governments and between public and private sources. We are experiencing one of the
lowest levels of public funding of universities, at least since WWII, with a
correspondingly high reliance on private and particularly commercial sources of income
(paragraph 4.3.1). This review was established in part to consider how the public
interest in Victorias universities might be protected and advanced, notwithstanding
their historically high and increasing levels of private funding, maintaining transparency
in the use of public funds, and the operations of controlled entities, and ensuring that
public resources are not diverted to other activities.

The review considered arrangements in other jurisdictions, particularly in New South
Wales, which have been changed recently, and Queensland, which the review
understands is contemplating changes (paragraphs A1.3 and A1.5). These arrangements
differ in detail, but essentially require universities to submit their proposed new
commercial activities (NSW) and/or their commercial plans and strategies (NSW and
Queensland) to the State Government for approval before they are implemented.

In considering and recommending options to the Minister, the review concluded that the
main choice is between increasing the Ministers oversight of universities commercial
activities along the lines introduced and proposed in NSW and Queensland, or
strengthening university councils oversight of their universities commercial activities
and so strengthening their role in protecting the public interest.

Requiring universities to submit their proposed commercial activities and strategies for
approval before they undertake them, or any other increased Ministerial control of
universities commercial activities, removes the responsibility for making critical
decisions from university councils, vice chancellors and academic boards, each of
which has a vital role in university governance. It shifts commercial and other risks
from universities to government, and could undermine university councils
responsibility for their own universities actions.

In the reviews opinion requiring prior Ministerial approval of specific commercial
activities would weaken, not strengthen universities governance. The review therefore
proposes a distinctively Victorian approach, which strengthens universities governance
by increasing the responsibilities of university councils to oversee their universitys
commercial activities and to protect the public interest, and correspondingly increases
their capacity to discharge those increased responsibilities. The review believes that
university councils discharge of these increased responsibilities should be transparent
and open to public scrutiny as well as being accountable to the Minister.

The review proposes a system of corporate governance and accountability to
Government that sheets home responsibility to universities to advance their public
purposes, with transparent governance of and effective accountability for all their
activities, including their commercial ventures. The intent of the recommended changes
is to enhance public confidence that effective decisions are being made by those who
are charged with responsibility for advancing the universities public purposes.

To give effect to this approach, the review recommends that all universities have objects
specified in their Acts which include serving the public interest by promoting critical
inquiry (recommendation 1); that university councils adopt roles which include
monitoring systems of control and accountability including monitoring controlled
entities (recommendation 3) and; that councils conflicts of interests provisions be
strengthened (recommendation 6). The review recommends a number of other changes
to increase university councils monitoring of commercial activities and to strengthen
their role in advancing their universities public objects.

Since the management of commercial activities is essentially the management of risk,
the review recommends that universities be required to assure Government that they are
managing risk responsibly and transparently. This is the subject of an extensive
discussion (chapter 5) and detailed recommendation (recommendation 22). While good
risk management controls the level of risk in each area of the university, the council is
ultimately responsible for commercial risk as with all university governance. The
review therefore recommends that university councils establish effective oversight of
each controlled entity including each of their corporate subsidiaries that incur
substantial risk (recommendation 24).

Because of the increasing importance of university councils exercise of commercial
judgement the review recommends that, in determining the councillors to be appointed
by the Governor in Council, and by the council itself, regard should be given to
ensuring that there are an adequate number of council members with commercial
expertise (recommendation 10). In view of the increasing importance of achieving an
appropriate range and depth of expertise on council, the review recommends that all
universities adopt systematic procedures for nominating prospective members of
council and that this responsibility be delegated explicitly to a nominations committee
of council. This role may be assumed by an existing council committee
(recommendation 11).

Councillors should be supported in their role by a provision in universities Acts stating
explicitly that their duty is to act solely in the interests of the university taken as a whole
having regard to its objects (recommendation 5).

The review received valuable advice from the Auditor-General of Victoria, Mr W
Cameron (paragraph 1.4). In view of the advice of the Auditor-General of Victoria, the
review concluded that no additional regulation is needed to assure the public that
universities are meeting appropriate standards of probity and financial administration
generally (paragraph 5.3).

The reviews terms of reference included university governance generally, and the
review considered a number of general governance issues raised by members and in
several helpful submissions received in response to a public invitation (chapter 2). The
review also received valuable advice on a number of matters from the Victorian
Ombudsman, Dr B Perry.

Dr Perry advised that the university visitors jurisdiction overlapped with that of the
ombudsman, as indeed it overlaps with that of a number of other bodies. The review
believes that retention of the university visitors jurisdiction to review university
decisions is now anachronistic, as it does not assist people seeking to review
universities decisions and may delay them in identifying the most appropriate forum.

The review therefore recommends that universities Acts be changed to provide that the
university visitor has ceremonial functions only (recommendation 16). The review notes
that the visitors review function has been removed in Tasmania and NSW without any
substantive loss of right or convenience to members of universities in those States
(paragraph 3.3.4).

The review found a surprising lack of knowledge of the role of the Victorian
Ombudsman in reviewing universities decisions and recommended that the Victorian
Ombudsman and the Victorian Vice-Chancellors Committee prepare and publish a
statement of the role of the Victorian Ombudsman in reviewing universities decisions
(recommendation 14). Further that universities codify and collate their various internal
student grievance procedures and publish them with information about the rights and
procedures for submitting complaints to the Victorian Ombudsman (recommendation
15).

The reviews full recommendations are set out in the next section and throughout the
subsequent text. The review is confident that implementing its recommendations will do
much to assure the public that Victorias universities are properly meeting the public
interest. However, the review believes that the public will be interested in progress in
implementing the reviews recommendations, and notes that the governance of technical
and further education institutes, which has implications for the dual sector universities,
is shortly to be reviewed by the Victorian Learning and Employment Skills
Commission. The review therefore recommends, finally, that in November 2003 the
Department of Education and Training re-examine the implementation of this review
and consider any implications for university governance arising out of the Victorian
Learning and Employment Skills Commissions review of the governance of technical
and further education institutes (recommendation 25).

Review of University Governance 6 Recommendations
RECOMMENDATIONS

Recommendation 1: universities objects specified in Acts (paragraph 3.1.1)
That all universities have objects specified in their Acts.
That universities objects include serving the public interest by promoting critical inquiry.

Recommendation 2: specification of councils functions in Acts (paragraph 3.1.2)
That no change be made to the specification of councils functions in universities Acts.

Recommendation 3: councils functions (paragraph 3.1.2)
That university councils adopt among their primary responsibilities:
1. to appoint the vice chancellor as the university's chief executive officer, and to monitor
her/his performance;
2. to identify the mission and strategic direction of the university;
3. to define policy and procedures consistent with legal requirements and community
expectations;
4. to establish and monitor systems of control and accountability including monitoring
controlled entities;
5. to review and monitor both the management of the university and its performance as an
institution; and
6. risk management.

Recommendation 4: non delegation of primary council responsibilities (paragraph 3.1.2)
That university councils normally not delegate their primary responsibilities.

Recommendation 5: councillors responsibilities (paragraph 3.1.3)
That universities Acts state explicitly that council members duty is to act solely in the
interests of the university taken as a whole having regard to its objects.

Recommendation 6: conflicts of interest (paragraph 3.1.4)
That the more comprehensive provisions protecting against conflicts of interest in the Acts for
RMIT, Swinburne University of Technology, the University of Ballarat and Victoria
University of Technology be extended to all Victorian universities.

Recommendation 7: developing councillors leadership and governance (paragraph 3.1.5)
That the Victorian Office of Higher Education mounts a program to develop councillors
leadership and governance.

Recommendation 8: remuneration of councillors (paragraph 3.1.6)
That the government consider whether external councillors should be remunerated within
Victorian Government guidelines at levels that reflect the varying size and complexity of
Victorian universities and the additional responsibilities borne by chancellors and council
members who are also members of key committees.


Recommendation 9: no change to councils composition (paragraph 3.2.1)
That councils composition remain unchanged.

Recommendation 10: range of expertise on council (paragraph 3.2.2)
That in determining councillors appointed by the Governor in Council and by the council
itself, regard should be had to ensuring that council membership reflects and assists the
realisation of the unique mission, goals and objectives of each university. Where that includes
substantial vocational education and training councils should include an adequate number of
councillors with a background in vocational education, training and employment; and where
that includes substantial commercial activity councils should include an adequate number of
councillors with commercial expertise.

Recommendation 11: council nominations committee (paragraph 3.2.2)
That all universities adopt systematic procedures for nominating prospective members of
council for appointment by the Governor in Council and for those appointed by the council
itself and that this responsibility be delegated explicitly to a nominations committee of
council. An existing council may assume this role committee but the nominations committee
should fairly reflect the composition of the whole council.

Recommendation 12: extension of councillors terms (paragraph 3.2.3)
That universities Acts be amended to provide that if the term of a councillor appointed by the
Governor in Council expires before a replacement is appointed or they are appointed for a
subsequent term, the council members term be extended until a full appointment is made.

Recommendation 13: academic boards (paragraph 3.2.5)
That academic boards strong role in universities academic governance provided in
universities Acts be retained.

Recommendation 14: Victorian ombudsman (paragraph 3.3.3)
That the Victorian Ombudsman and the Victorian Vice-Chancellors Committee prepare and
publish a statement of the role of the Victorian Ombudsman in reviewing universities
decisions.

Recommendation 15: internal student grievance procedures (paragraph 3.3.3)
That universities codify and collate their various internal student grievance procedures and
publish them with information about the right and procedure for submitting complaints to the
Victorian Ombudsman.

Recommendation 16: university visitor (paragraph 3.3.4)
That universities Acts be changed to provide that the university visitor has ceremonial
functions only.

Recommendation 17: inconsistent Commonwealth and Victorian accounting conventions
(paragraph 3.3.9)
That the Commonwealth and Victorian governments examine their accounting and auditing
conventions jointly with a view to minimising the circumstances where Commonwealth and
Victorian bodies qualify universities financial statements because of different accounting
treatments.

Recommendation 18: public funds for proper purposes (paragraph 4.3.2)
That councils state explicitly in their annual report of operations that the university allocated
its public funds to the purposes specified by the Government or funding body, and that this
statement be audited.

Recommendation 19: minimising overlap of duplicate audits (paragraph 4.4.4)
That the Office of Higher Education coordinate consultations with the Auditor-General for
Victoria and universities with a view to minimising duplicate audits and clarifying
arrangements where duplicate audits are considered necessary.

Recommendation 20: removal of doubt about auditing companies established overseas
(paragraph 4.4.7)
That the Government legislate as necessary to remove any doubt in the mandate of the
Auditor-General to audit companies that are controlled by Victorian universities but are
established overseas.

Recommendation 21: controlled overseas companies to comply with Australian GAAP
(paragraph 4.4.7)
That companies that are controlled by Victorian universities but established overseas submit
financial statements in Australian currency that complies with Australian generally accepted
accounting principles.

Recommendation 22: risk planning, management, monitoring and review (paragraph 5.1)
That universities be required to include in their annual report on operations their progress in
handling risk by:

(a) including risks in plans;
(b) managing risk;
(c) monitoring risk;
(d) reviewing risk management regularly to take account of universities changed
circumstances and activities; and
(e) making risk management public.

Recommendation 23: limiting liability (paragraph 5.2)
That universities include in their risk management strategies consultancy services and other
commercial activities and consider conducting these activities through entities with limited
liability.

Recommendation 24: effective council oversight of controlled entities (paragraph 5.3)
That university councils establish effective oversight of controlled entities which incur
substantial risk by:

(a) ensuring that their boards possess the skills, knowledge and experience necessary to
provide proper stewardship and control of the entity;
(b) appointing to boards at least some independent directors and preferably a majority of
independent directors;
(c) ensuring that boards adopt and evaluate regularly a written statement of their own
governance principles;
(d) ensuring that boards document a clear corporate and business strategy which reports
and updates annually the companys long term objectives and includes an annual
business plan containing achievable and measurable performance targets and
milestones;
(e) establishing and documenting clear expectations of reporting to council, such as a draft
business plan for consideration and approval before the commencement of each
financial year and monthly or at least quarterly reports against the business plan.

Recommendation 25: follow-up on implementation (Conclusion)
That the Department of Education and Training review the implementation of this review in
November 2003.

Review of University Governance 10 Introduction
CHAPTER 1: INTRODUCTION

1.1 Background
Victorias universities are public institutions established to serve public ends. But increasingly
less of their funding is from public sources. Over the last decade the balance of universities
financing has altered dramatically from a dependence upon Commonwealth grants to an
increasingly greater reliance on student fees and commercial earnings. The increasing pace of
consequent changes to universities, and the questions raised by the Auditor-General for
Victoria about universities management of those changes lead the Victorian Government to
establish a review of university governance.

Universities governance is, of course, more than just accountability for financial management
and the review was also asked to consider governance issues generally. The last major national
review of Australian university governance was the Higher education management review
chaired by David Hoare (1996). Following the Hoare review the Victorian Government
established a ministerial committee of advice on university governance in Victoria chaired by
the Hon Haddon Storey MP, a former Minister for Tertiary Education and Training (1997).
Following the recommendations of the Storey Committee the Victorian Government legislated
several important changes to the composition and powers of universities councils.

It became timely for a review to examine the experience of those changes and account for
subsequent developments in university governance and governance generally.

1.2 Establishment and terms of reference
On 4 December 2001 the Hon Lynne Kosky MP, then Minister for Post Compulsory
Education, Training and Employment and now Minister for Education and Training
announced the review of university governance to examine the accountability of Victorias
public universities.

The reviews terms of reference were:

1. In light of their role as public institutions, review the existing corporate governance
arrangements of the Victorian universities, and examine accountabilities within that
framework.
2. Examine issues raised by recent audit processes about the commercial activities of
public universities.
3. Identify the manner in which these issues are addressed in similar higher education
systems in other States and countries.
4. Develop options to enable Government and the Victorian universities to ensure
appropriate corporate governance and accountability arrangements that adequately
reflect and protect the public interest.

Review of University Governance 11 Introduction

1.3 Composition
The Minister constituted the review thus:

Chair
Mr Stuart Hamilton, Secretary, Department of Education, Employment and Training, Victoria.

Members
Professor Alan Gilbert, Vice Chancellor, University of Melbourne;
Mr Bruce Hartnett, Chief Executive Officer of the Australian Government Employees
Superannuation Trust;
Professor Simon Marginson, Director, Monash Centre for Research in International Education;
Ms Fran Thorn, Deputy Secretary of the Department of Premier and Cabinet;
Professor Iain Wallace, Vice Chancellor, Swinburne University of Technology;
Professor Geoff Wilson, Vice Chancellor, Deakin University and Chair of the Victorian Vice-
Chancellors Committee.

Secretary
Dr Terry Stokes, Director, Office of Higher Education, Department of Education Employment
& Training, Victoria.

Mr Gavin Moodie undertook research for the review and drafted this report (except for the
following sentence). The members of the review record their thanks to Mr Moodie for so ably
capturing their views, and to the Victoria University of Technology for making his services
available.

1.4 Submissions and consultations
The Minister asked the review to consult widely with stakeholders, particularly those in higher
education and the Victorian Government. The review invited submissions by advertisement in
the national and Victorian press on 12 December 2001, and also wrote separately inviting
submissions from chancellors and vice chancellors of public Victorian universities, the
Australian Education Union, Council of Australian Postgraduate Associations, National
Tertiary Education Industry Union (Victorian Branch), National Union of Students and the
Victorian Vice-Chancellors Committee.

The review published an issues paper to provide background and to identify some of the
specific issues to be considered in addition to its terms of reference. The call for submissions
and issues paper are set out in Appendix 7. In its call for submissions the review indicated its
plan to report by the end of March 2002. The review undertook to receive submissions any
time before it reported but said that submissions would be most useful if received by Friday 1
February 2002. A list of submissions is given in Appendix 7.

In addition to receiving written submissions the review received oral submissions from the
Victorian Ombudsman, Dr B Perry, and the Auditor-General of Victoria, Mr W Cameron and
held consultations with officers of the Department of Treasury and Finance, the Department of
Science, Technology & Innovation and the Victorian Auditor-Generals Office.

Review of University Governance 12 General Governance and Accountabilities
CHAPTER 2: OVERALL APPROACH

In light of their role as public institutions, review the existing corporate
governance arrangements of the Victorian universities, and examine
accountabilities within that framework.

The review opens this chapter by recounting the origins, nature and philosophy of universities.
While the review does not seek to offer original research or insights into the history and nature
of universities, or even to survey the voluminous literature on the subject, universities
histories inform some of the contemporary issues in university governance.

The review then considers the various approaches to improving governance, and applies its
preferred approach to the overall governance framework (Chapter 3); commercial activity
(Chapter 4) and more generally to the management of risk in universities (Chapter 5) and
proposes enhancements where necessary. Specific issues relating to commercial activities and
risk management are dealt with in subsequent chapters.

2.1 Origins and principles

2.1.1 Origins
1

The revival of classical learning in the 12
th
century led to the development of two traditions of
institutions of higher learning. In southern Europe civilisation was fostered by city-states
within which developed schools of mainly secular higher learning. Scholars were engaged by
studentsthe sons of wealthy merchants and the aristocracyto teach the vocations of law,
medicine and the writing of letters. In northern Europe the church fostered higher education.
Cathedral schools developed to propagate higher learning, mostly in theology and philosophy,
largely for vocations in the church. These universities were established under the authority of
the Pope and the local Bishop and were controlled by the chancellor, who was an ecclesiastic,
usually a Bishop.

Groups of teachers and students studying and learning together gradually formed themselves
into a more structured association. In time this developed into a formal organisation or
universitas, which originally referred to any legally defined guild or corporation. In southern
Europe universities were governed by the guild of students. In Paris the masters formed
themselves into a guild to protect their mutual interests. From around 1210 the body of
teachers and students had begun to be referred to as the university of masters and students.
The name university came to be applied exclusively to the academic corporation from the
15
th
century.

From the 12
th
and 13
th
centuries university colleges were increasingly established in Britain by
private patronage and later by royal charter. The model for these colleges was a charitable
corporation such as hospitals for the maintenance and relief of poor and impotent persons.
The patron would settle property upon a corporation established by deed similar to a modern
trust deed. The corporation would be required to carry out the objects in the manner set out in
the deed. Patrons adopted from the church the practice of appointing delegates or visitors to
conduct periodic inspections or visitations to ensure that their wishes set out in the deed were
being met. In time visitors came to settle disputes between members of the corporation.

1
Much of the material in this sub section is taken from Patterson, Glenys (1997) The university from
Ancient Greece to the 20
th
century, The Dunmore Press Ltd: Palmerston North.

Modern universities are direct descendants of the archetypal universities of the Middle Ages.
Gellert (1993: 237-43) posits three dominant models of the development of modern European
universities over the last two centuries: the German or research university established with the
foundation of the University of Berlin in 1810 by Wilhelm von Humboldt, which became the
most influential model of the 19
th
century (Clark, 1983: 22); the British model of character
formation or liberal education which is expounded in Cardinal Newmans The idea of a
university; and the French or professional training model of the grandes ecoles.

Each of these historical traditions has shaped contemporary universities. The structure and
practices of the medieval university were drawn from the established institutions of the day
the church, the monastery and the guildwhich live on:

From the church was borrowed the idea of the supra-national organisation, something above
and beyond parochial interests; a hierarchy in the form of a chancellor, a rector, a dean; rituals
such as convocation; and colourful dress in the form of academic gowns. From the monastery
came the idea of separatenessan institution insulated from the practical world, a self-
governing community to make its own rules and develop its own way of life. From the guild
came the concept of a community of individuals bound together by an oath of mutual support
and common obedience to elected officials and with authority to select its own members.
(Ross, 1976: 13)

There is nothing in the history or tradition of universities that makes them antipathetical to at
least some contemporary commercial developments. Universities have charged tuition fees
since their inception; they have managed residential colleges; they have established and
managed commercial businesses such as university presses (regulation of the book trade was
one of universities earliest privileges); and wealthy universities have managed significant
property holdings and other investments. Universities have also traditionally resisted control
by civic authority, which in modern times includes the state.

The current questioning of universities role and governance in the light of their increasing
reliance on commercial income reflects their recent past as largely Government-funded
institutions. However it needs to be examined in the light of universities longer historical
reliance on private and commercial income. One interpretation of universities history is that
they have maintained their continuity of existenceuniversities are one of the few institutions
that have a continuous lineage from the Middle Agesby changing and adapting to new
circumstances. The review can be seen as an important stage of adjustment to new
circumstances. Traditionally universities have also been slow to change, lest they risk their
central values or compromise their main purposes. The review has sought to balance the
tension between universities cautious approach and modern societys insistence on faster
change.

2.1.2 Governance, leadership, management and administration
Marginson and Considine conceive of university governance very broadly to encompass
internal relationships, external relationships, and the intersection between them and link this
to universities identity, or at least to their self-conception

Governance is concerned with the determination of value inside universities, their systems of
decision-making and resource allocation, their mission and purposes, the patterns of authority
and hierarchy, and the relationship of universities as institutions to the different academic
worlds within and the worlds of government, business and community without. It embraces
leadership, management and strategy.
* * *

Governance is where the academic disciplines are joined to other social institutions, where
universities become externally referenced and collectively conscious. Governance is where the
identity of each university as a distinctive social and cultural institution is shaped, within a
global knowledge economy. Here the potential of governance is ambiguous. On the one
hand, it can be the medium for the one-way subordination of universities to other social agents
or designs. On the other, it offers the one distinctive means whereby individual universities
can remake themselves along innovative lines; and universities as a group can offer the wider
community an example of self-invention.
(Marginson and Considine, 2000: 7-8)

Of course the congruence of governance and (self) identity is contingent: other longstanding
institutions maintain a continuity of identity through discontinuities of structure and
governance broadly conceived. But the fact that universities see their governance as shaping
their identity, and the long historical development of that identity, explains the controversy
surrounding the expansion of commercial values and changes to the roles of various bodies
within the university, noted later in this report.

The reviews terms of reference concern corporate governance, which is normally understood
more narrowly than Marginson and Considines meaning to refer to decision-making
structures and processes, and more recently to accountability for performance (House of
Commons Public Accounts Committee, 1994).

Attention is normally concentrated on the most senior decision-making body, councils in
Victorian universities, whereupon a distinction between governance and management is
standard. The position of the Higher education management review remains authoritative

The governing body exists to oversee the development and adoption of institutional strategic
plans and key policies, to monitor and review the institutions overall performance and to bear
ultimate accountability for the institution. Its activities should be principally those of guidance
and review, rather than executive management, and its members should recognise their
overriding responsibility to bring diverse viewpoints together for the advancement of the
institution rather than to represent sectional interests.
(Hoare, 1995: summary)

Michael Gallagher, former First Assistant Secretary, Higher Education Division, distinguished
governance, leadership, management and administration thus (2001)

Governance is the structure of relationships that bring about organisational coherence, authorise
policies, plans and decisions, and account for their probity, responsiveness and cost-effectiveness.
Leadership is seeing opportunities and setting strategic directions, and investing in and drawing
on peoples capabilities to develop organisational purposes and values. Management is achieving
intended outcomes through the allocation of responsibilities and resources, and monitoring their
efficiency and effectiveness. Administration is the implementation of authorised procedures and
the application of systems to achieve agreed results.

The Auditor-General for Australia expanded upon corporate governance thus

Drawing on this wealth of best practice, corporate governance boils down to how an organisation
is managed, its corporate and other structures, its culture, its policies and strategies, and the ways
in which it deals with its various stakeholders. Or put simply, it is the system by which companies
are directed and controlled. The governance framework is concerned with structures and processes
for decision-making and with the controls and behaviours that support effective accountability for
performance outcomes and results. This encompasses:

defining and monitoring the strategic direction;
defining policy and procedures to operate within the legal and social requirements;
establishing control and accountability systems;
reviewing and monitoring management and the organisations performance; and
risk management.

The key components of corporate governance in both the private and public sectors are business
planning, internal controls including risk management, performance monitoring and
accountability and relationships with stakeholders. The framework requires clear identification
and articulation of responsibility as well as a real understanding and appreciation of the various
relationships between the organisations stakeholders and those who are entrusted to manage
resources and deliver required outputs and outcomes.
(Barrett and Richards, 2001)

The review adopts Barrett and Richards statement of corporate governance in its discussion of
university councils governance responsibilities later in this report (paragraph 2.2).

2.1.3 University governance in other jurisdictions

Identify the manner in which these issues are addressed in similar higher
education systems in other States and countries.

The review observed that corporate governance issues being considered by universities in
Canada, the UK and the US arise correspondingly from reductions in Government funding in
those countries. While each jurisdiction is different, there are striking similarities in
universities increased reliance on student fees and other sources of commercial income.
Aotearoa-New Zealand universities have relied heavily on student fees for several years.
Likewise, there is concern in all of the jurisdictions studied at the effect of the increasing
commercialisation of universities on the discharge of their core responsibilities to society, and
in some jurisdictions on the implications for relations between universities and government.

While all governments responses to these concerns are informative, not surprisingly the
review gained most assistance from jurisdictions most similar to Victoria. The governments of
New South Wales and Queensland have recently considered some of the issues raised in the
review, and their positions are considered throughout the relevant parts of this report. The
reviews full report on other jurisdictions forms Appendix 1.

2.2 Options
The Governments fourth term of reference for the review was to

Develop options to enable Government and the Victorian universities to ensure
appropriate corporate governance and accountability arrangements that adequately
reflect and protect the public interest.

The review considered 4 options.

Option 1: fixed limit on universities commercial activities

The first option open to Government is to limit universities commercial activities to those it
considers acceptable, and prohibit all others. Thus, the Victorian Government might permit
universities to charge overseas students tuition fees under certain conditions, but prohibit
universities from charging fees for Victorian students, or Victorian undergraduate students. Or
the Government may permit universities to earn income from activities they are conducting in
any case for a public purpose, but not to establish new activities for the sole or dominant
purpose of earning income.

This option was not put directly in any submission to the review, although it could perhaps be
inferred from some of them, and it has not been implemented in any Australian jurisdiction.
The review does not support this option because it would limit universities opportunities to
supplement falling Government grants with commercial income. It would put Victorian
universities at a commercial disadvantage with public universities in other States and overseas,
and it would restrict the flexibility with which universities could respond to changing
circumstances and new opportunities.

Option 2: require prior approval of commercial activities

A second option is to require universities to seek approval before undertaking any major new
commercial activity, a gatekeeper role as RMITs submission expressed it. The review
understands this to be the gist of NSWs recent Universities Legislation Amendment
(Financial and Other Powers) Act 2001, which several students submissions argued should
also be introduced in Victoria. The advantage of this approach is that the Government would
be able to assure itself in advance that universities activities are consistent with the
Governments view of the public interest.

From Governments perspective there are disadvantages with this approach:

1. It would involve Government more closely in commercial decisions, thus exposing it
to greater moral risk if not strictly greater legal risk should a commercial activity not
succeed.
2. It would inevitably engage Government more directly in management choices and
decisions, which traditionally governments and universities prefer to have settled
within universities.
3. It would stifle initiative and entrepreneurship during a time when governments are
encouraging universities to earn external income to reduce their reliance on
government funding.

From the universities perspective, this option would stifle initiative and entrepreneurship
during a time when the federal government is encouraging universities to earn external income
to reduce their reliance on government funding. While universities may prefer to rely mainly
on public funding and public research grants, this is an unrealistic hope in the present
circumstances.

This option would have the additional disadvantage of undermining university councils
responsibility for their own universitys actions since it would substitute the judgements of
governments for that of university councils, vice chancellors and academic boards.

Option 3: establish a stronger and more transparent system of accountability that advances
universities public purposes

A third option is to establish an enhanced system of corporate governance and accountability
which assures the Government, and through it the public, that their interest is protected. This
option involves five stages of transparent governance and accountability:

1. establishing universities objects or public purposes in their Acts of Parliament;
2. establishing and equipping university councils with the capacity to govern their
universities in accordance with their universities objects determined by Parliament;
3. ensuring that university councils have a membership that reflects and assists the
realisation of the unique public mission, goals and objectives of each university;
4. monitoring councils and their universities achievement of their objects through their
annual public report of operations and financial statements;
5. providing the capacity for oversight and review of universities by the Minister, the
Treasurer and parliamentary officers.
This option of a system of greater accountability rather than approval of individual cases is the
approach adopted for prudential assurance by the Commonwealth Department of Education,
Science and Training, and for quality assurance by the Ministerial Council on Education,
Employment, Training and Youth Affairs through the Australian Universities Quality Agency.

Option 4: laissez-faire

A fourth option is laissez-faireallowing universities to determine their role and to develop in
accordance with the fees and other support they attract from the community, perhaps
supplemented by a public subsidy. This has been the option followed by the state for most of
universities history since their foundation in the Middle Ages. It was also the British
Conservative Partys platform in the recent election. The party proposed that each university
be given a substantial foundation grant that would generate sufficient interest and other
income to fund their operations in perpetuity. While this option was discussed, it was also
strongly opposed by the NTEU in its presentation of the issue to the Senate inquiry, and was
not supported in any submission to this review.

Preferred option: establish an enhanced system of accountability that advances universities
objects

No submission advocated option 1 to impose a fixed limit on universities commercial
activities and no submission advocated option 4, laissez-faire. While it was still open for the
review to recommend one of these options, they are deemed to be beyond what would be
acceptable to the broad Victorian community, and so were not considered in detail by the
review.

The review believes that the main choice is between option 2, to require prior approval of
commercial activities and option 3, to establish an enhanced system of accountability that
advances universities public purposes. This is in turn a choice between strengthening the
Ministers oversight of universities commercial activities or strengthening university
councils oversight of their universities commercial activities thus strengthening their role in
protecting the public interest. Strengthening the Ministers oversight of universities
commercial activities would weaken, not strengthen universities governance since it would

tend to substitute the judgements of governments for that of university councils, vice
chancellors and academic boards, each of which has a vital role in university governance.

The review therefore proposes a distinctively Victorian approach whereby the Government
establishes a stronger and more transparent system of corporate governance and accountability
that advances universities objects, but leaves universities the discretion of making their own
decisions within that system of governance and accountability. This mixed approach to
university governance and accountability reflects universities mixed sources of public and
private funding. It would be a distinctively Victorian model of transparent self-regulation in
the public interest.

Since the management of commercial activities is essentially the management of risk, the
review concluded that one of the important governance issues arising from universities
increased commercial activities is the management of risk, and the review recommended that
universities undertake open and transparent risk planning, management, monitoring and
review (recommendation 22, paragraph 5.1).

The review recommended further that universities include in their risk management strategies
consultancy services and other commercial activities, and consider conducting these activities
through entities with limited liability (recommendation 23, paragraph 5.2). The review also
recommended that university councils establish effective oversight of controlled entities that
incur substantial risk (recommendation 24, paragraph 5.3).

While the review recommended that councils composition remain unchanged
(recommendation 9, paragraph 3.2.1) it also recommended that in determining councillors
appointed by the Governor in Council and by the council itself, regard should be had to
ensuring that council membership reflects and assists the realisation of the unique mission,
goals and objectives of each university. This would include, where appropriate, that there be
an adequate number of councillors with relevant commercial expertise and with a background
in vocational education, training and employment (recommendation 10, paragraph 3.2.2).

To achieve an appropriate balance of experience and expertise on councils the review
recommended that all universities adopt systematic procedures for nominating prospective
members of council for appointment by the Governor in Council, and for those appointed by
the council itself, and that this responsibility be delegated explicitly to a nominations
committee of council. An existing council committee might assume this role, but the
nominations committee should fairly reflect the composition of the whole council
(recommendation 11, paragraph 3.2.2).

The review recommended a number of machinery and stability-building measures on the
extension of councillors terms (recommendation 12, paragraph 3.2.3), the allocation of public
funds to proper purposes (recommendation 18, paragraph 4.3.2), minimising overlap of
duplicate audits (recommendation 19, paragraph 4.4.4), the removal of doubt about auditing
companies established overseas (recommendation 20, paragraph 4.4.7), the compliance of
overseas companies with Australian GAAP (recommendation 21, paragraph 4.4.7), and the
removal or at least minimisation of inconsistent Commonwealth and Victorian accounting
conventions (recommendation 17, paragraph 3.3.7).

Many of the reviews recommendations would take some time to implement, and the reviews
comments on dual sector issues (paragraph 3.2.6) await the findings of the Victorian Learning
and Employment Skills Commissions review of the governance of Technical and Further

Education Institutes. It would therefore be valuable for the Department of Education and
Training to conduct a follow-up of the implementation of this review in November 2003.

Recommendation 25: follow-up on implementation
That the Department of Education and Training review the implementation of this review in
November 2003.


CHAPTER 3: GENERAL GOVERNANCE AND ACCOUNTABILITY FRAMEWORK

3.1 Councils obligations and responsibilities
Victorian universities are governed by their councils and, being established under Acts of the
Victorian Parliament, are generally accountable to Parliament. They are specifically
accountable to the Victorian Minister for Education; to the Treasurer for several of their
commercial arrangements; and to the Commonwealth Department of Education, Science and
Training and other Commonwealth bodies. In addition the Auditor-General for Victoria, the
Victorian Ombudsman, the Human Rights and Equal Opportunity Commissioner and other
specialist bodies oversee various aspects of universities activities.

3.1.1 Universities objects
Universities only have powers to pursue their objects, and are accountable for advancing their
objects. All public Victorian universities except the University of Melbourne have their
objects specified in their Acts.

Universities objects do not have a common form or content. However, they typically include:

(a) the development of an institution to conduct teaching, research and related activities;
(b) the provision of balanced and liberal education;
(c) providing educational, cultural and other facilities;
(d) the advancement and application of research;
(e) participating in commercial ventures and activities;
(f) fostering the general welfare of students;
(g) providing opportunities for staff development;
(h) conferring prescribed degrees and other awards;
(i) generally the development and carrying on of a university.

Most Acts also include some object distinctive of the university, such as

the development and provision of educational, cultural, professional, technical and vocational
services to the community and in particular the fostering of participation in post-secondary
education of persons living or working in Central and Western Victoria (University of
Ballarat);

to provide tertiary education at university level for students attending the University and to
provide the opportunity for tertiary education at university level to all qualified persons
whether within or outside Victoria by means of external studies programmes (Deakin
University);

services to the community and in particular the fostering of participation in a university of
technology of persons living or working in the northern metropolitan region of Melbourne
(RMIT);

the development of a strong international dimension to the University's teaching, research,
consultancy, development, service and other activities (RMIT);


services to the community and in particular the fostering of participation in a university of
technology of persons living or working in the Outer Eastern region of Melbourne (Swinburne
University of Technology);

the enhancement through the development of knowledge and skills of the ability to shape
technology, social and economic processes and to recognise, understand and take account of
the ethical environmental and other implications of such processes (Swinburne University of
Technology);

services to the community and in particular the fostering of participation in post-secondary
education for persons living or working in the Western Metropolitan Region of Melbourne
(Victoria University of Technology).

RMIT, Swinburne and VUTs objects also include

the provision of programs, products and services in ways that take account of the principles of
equity and social justice.

La Trobe Universitys objects are distinctive both in their form and in their explicit reference
to serving the community

The objects of the University shall be-

(a) to serve the community and in particular the citizens of Victoria-
(i) by making knowledge available for the benefit of all; and
(ii) by providing an institution in which all enrolled students will have the
opportunity of fitting themselves for life as well as becoming learned in a
particular branch or branches of learning;

(b) in particular-
(i) to provide facilities for study and education and to give instruction and
training in such branches of learning as may from time to time be prescribed
by the Statutes;
(ii) to foster by teaching study and research the advancement of learning and the
dissemination of knowledge;
(iii) to foster the general welfare and development of all enrolled students; and
(iii) to confer or grant after examination the several degrees of Bachelor Master
and Doctor and such other degrees, diplomas and other awards as are
prescribed;

(c) to provide such facilities for the aforesaid objects as the Council deems necessary or
conducive for their attainment.

There is an extensive and learned literature on the ownership, objects and purposes of
universities. The review did not revisit this literature. However, it notes that the national
protocols for higher education approval processes adopted by the Ministerial Council for
Education, Employment, Training and Youth Affairs provide that an Australian university will
demonstrate the features set out below, which include the commitment of teachers,
researchers, course designers and assessors to free inquiry and the systematic advancement of
knowledge (2000: 2.14)

authorisation by law to award higher education qualifications across a range of fields and
to set standards for those qualifications which are equivalent to Australian and
international standards;
teaching and learning that engage with advanced knowledge and inquiry;
a culture of sustained scholarship extending from that which informs inquiry and basic
teaching and learning, to the creation of new knowledge through research, and original
creative endeavour;
commitment of teachers, researchers, course designers and assessors to free inquiry and
the systematic advancement of knowledge; and
governance, procedural rules, organisation, admission policies, financial arrangements
and quality assurance processes, which are underpinned by the values and goals outlined
above, and which are sufficient to ensure the integrity of the institution's academic
programs; and
sufficient financial and other resources to enable the institutions program to be delivered
and sustained into the future.

In its issues paper the review therefore invited views on whether universities objects should
refer explicitly to serving the public interest by promoting critical inquiry. There was a
generally positive response to this proposal. In its submission the Council of Australian
Postgraduate Associations drew attention to the Aotearoa-New Zealand legislation, which
specifies that an essential characteristic of universities is that They accept a role as critic and
conscience of society (New Zealand Government, 1995).

A universitys objects state the universitys scope of action. By not specifying some or any
objects for a university, and thus be seen to be stating shared goals, Parliament misses an
opportunity to serve the public interest and promote public confidence in universities as
institutions. University legislation should also establish effective governance arrangements for
the mechanism for protecting the standards of the universitys awards and of the research and
other public services universities provide.

One of the core responsibilities of universities is serve the public interest by to promoting
critical inquiry, and this should be on the shared goals for universities. The review intends to
convey three concepts by this object. First, that universities will promote critical inquiry
internally. This is a reformulation of the protection of intellectual or academic freedom, but
hopefully one that avoids the difficulties of previous formulations. Secondly, that universities
will promote critical inquiry in the general community. The third concept the review seeks to
express by this object is that the ultimate purpose of promoting critical inquiry is to serve the
public interest.

Recommendation 1
That all universities have objects specified in their Acts.
That universities objects include serving the public interest by promoting critical inquiry.

Government could establish a broad framework within which universities may be invited to
formulate their own objects clauses from their own orientations, which reflect their distinctive
roles. In its submission the University of Melbourne drew attention to a goal expressed in its
strategic plan

to serve the wider community by making the resources and expertise of the university
available to enrich the intellectual, cultural, educational, economic and social life of the city of
Melbourne, State of Victoria and the wider community, and in particular promoting
international consciousness, understanding and engagement.

The University expresses a further goal of

enriching cultural and community life, elevating public awareness of educational, scientific
and artistic developments, and promoting informed intellectual discourse and political debate
in the wider society.

Interestingly, two submissions argued that not only should universities objects refer explicitly
to serving the public interest by promoting critical inquiry, but the terms of students
enrolment and staffs engagement should also incorporate this commitment. While this may be
an attractive suggestion for some universities, the review believes that its adoption should be
left to the discretion of each university.

3.1.2 Councils functions
Victorian universities Acts specify their councils functions in two forms. Sub section 7 (1) of
the Acts of the University of Ballarat, RMIT, Swinburne University of Technology and
Victoria University of Technology provide simply

7. The Council
(1) The Council is the governing authority of the University and has the direction and
superintendence of the University.

The Acts of the other universities specify their councils functions in two parts, as the
governing body of the university and later as having the entire direction and superintendence
of the affairs of the university supplementary to their staffing powers. These provisions are in
sections 6 and 22 of the Acts except for the Melbourne University Act 1958 wherein the
corresponding provisions are made by sections 5 and 15. The following provisions are taken
from the Deakin University Act 1974 and the La Trobe University Act 1964. The
corresponding provisions of the Melbourne University Act 1958 and Monash University Act
1958 have minor variations in wording.

6. Council to be governing body of University
The Council shall be the governing authority of the University.
* * *
22. Staff of the University
Subject to this Act and the Statutes and regulations the Council may appoint and terminate the
appointment of any member of the staff of the University and shall have the entire direction and
superintendence of the affairs concerns and property of the University.

In its issues paper the review invited views on whether councils functions should be specified
more fully and there was a comprehensive range of views on the point. Universities were
content with the current provisions in their Acts, pointing out that their councils functions are
elaborated elsewhere in their Acts, such as their responsibility to appoint a vice chancellor and
their authority to propose statutes, make regulations and award degrees.

One submission argued that the provisions of councils responsibilities in universities Acts
should be expanded at least to include determining major policies and strategic directions and
establishing accountability frameworks and monitoring performance (taken from Storey,

1997: 4) and might also include these examples to give greater focus to councils: appointing,
and if necessary, terminating the appointment of the vice chancellor; monitoring the
performance of the vice chancellor; approving the strategic direction of the university;
approving statutes, regulations and major policies; approving the conferral of degrees and
other awards; approving the allocation of resources and assuring that allocations are consistent
with the universitys strategic direction; acting as the interface between the university and the
community (Corcoran, page 7). These are essential principles of governance, corporate or
otherwise. While the review was not convinced that they should be included in universities
Acts, the review agrees that they are useful in directing councillors attentions to their duties,
and includes them in the statement of university councils primary responsibilities
(recommendation 3).

The submissions from student organisations argued that councils functions should be
elaborated, with the Council of Australian Postgraduate Associations submitting that
universities Acts should specify the functions of councils along the lines provided in NSW by
the Universities Legislation Amendment (Financial and Other Powers) Act 2001

(1A) The Council is the governing authority of the University and has the functions conferred
or imposed on it by or under this Act or any other Act. The Council:
(a) acts for and on behalf of the University in the exercise of the Universitys functions,
and
(b) has the control and management of the affairs and concerns of the University, and
(c) may act in all matters concerning the University in such manner as appears to the
Council to be best calculated to promote the object and interests of the University.

No submission argued that councils powers or the discharge of their responsibilities was
limited or inhibited by their current formulation in Acts. There is therefore no need to change
the specification of councils functions in universities Acts to increase their powers or
responsibilities.

Recommendation 2: specification of councils functions in Acts
That no change be made to the specification of councils functions in universities Acts.

However, there would be benefit in adopting a statement of councils functions to concentrate
councillors attention on core council responsibilities. Of the corporate governance statements
considered by the review, the best is the Auditor-General for Australias corporate governance
framework quoted above in paragraph 2.2 (Barrett and Richards, 2001), with the addition of
the signal responsibility for appointing the vice chancellor as the universitys chief executive
officer.

Recommendation 3: councils functions
That university councils adopt among their primary responsibilities:
1. to appoint the vice chancellor as the university's chief executive officer, and to monitor
her/his performance;
2. to identify the mission and strategic direction of the university;
3. to define policy and procedures consistent with legal requirements and community
expectations;
4. to establish and monitor systems of control and accountability including monitoring
controlled entities;
5. to review and monitor both the management of the university and its performance as an
institution; and
6. risk management.

Councils might implement this recommendation by adopting this statement, or an agreed
variation, as a standing resolution that could then be used in councils annual review of its own
performance.

While councils will of course take advice on the discharge of their responsibilities from the
vice chancellor, academic board and from committees they establish from time to time, in the
end they should take responsibility for these functions themselves, and not merely endorse a
decision taken elsewhere. There will, of course, be occasions when it is necessary and
appropriate for councils to delegate one of their primary responsibilities for subsequent
endorsement by the full council, but this should not be a normal practice.

Recommendation 4: non delegation of primary council responsibilities
That university councils normally not delegate their primary responsibilities.

Later in the report the review considers the balance of responsibilities between Government,
university councils and other parts of the university for risk management (chapter 4).

3.1.3 Councillors responsibilities and access to information
Universities, their councils and councillors invest considerable effort in informing themselves
of councillors responsibilities. Deakin University, Monash University, Swinburne University
of Technology and the University of Melbourne all provided the review with their materials to
induct councillors and keep them briefed on their responsibilities. However, an ongoing
problem with some councillors elected by students and staff is their misapprehension of their
responsibilitiesa misapprehension repeated in some students submissions to the review.

In Appendix 5 the review summarises Bennetts v Board of Fire Commissioners of New South
Wales and others (1967) 87 WN (Pt 1) 307 which stated the law for Victoria that a
councillors duty is to act in the interests of the university taken as a whole having regard to its
objects. In its issues paper the review noted that sub section 8 (3) of the University of
Tasmania Act 1992 (Tas) provides somewhat differently

(3) A member of the council is responsible and accountable to the council rather than to
any constituent body by which he or she was appointed or elected;

The review invited submissions on whether universities Acts should explicitly specify that
council members responsibility is to the council rather than as a representative of an
electorate, such as is provided by the University of Tasmania Act 1992 (Tas). A range of views
was submitted to the review. Most universities supported the proposal.

The Australian Catholic University submitted further that the responsibilities for members of
boards of directors of public corporations, under which its own university is constituted and
governed, was a good general model of university governance. However, the University of
Ballarat submitted that in view of the clear precedent of Bennetts case, specific legislative
provision is redundant and would be unlikely to change a member of councils behaviour.

The point made by the University of Ballarat is well taken. On the other hand, in its
submission the RMIT student union said in response to this proposal

. . . from the point of view of a democratic body the idea of restricting the ability of members
rights to comment directly goes against the purpose of such a body.

The review concluded that notwithstanding the clear precedent of Bennetts v Board of Fire
Commissioners of New South Wales and others it would be beneficial to codify its effect in
universities Acts to bring it prominently to councillors attention.

Recommendation 5: councillors responsibilities
That universities Acts state explicitly that council members duty is to act solely in the
interests of the university taken as a whole having regard to its objects.

Bennetts v Board of Fire Commissioners of New South Wales and others decided that a
member of a board may be denied access to material relevant to the boards responsibilities
because he was proposing to use it to advance interests other than and arguably inimical to
those for which the board was established. That is not to limit councillors access to
information generally, even where a councillor is an internal member of the university or is
elected by staff or students.

In general, all councillors however appointed have a right of access to all information relevant
to their councils responsibilities, which are the direction and superintendence of the
university, the entire direction and superintendence of the affairs of the university, the
entire direction and superintendence of the affairs concerns and property of the university or
the governing of the university, to adopt the various formulations of councils
responsibilities in universities Acts.

The authority for these propositions is Re: Tom Molomby and: Geoffrey Whitehead and
Australian Broadcasting Corporation (1985) FCR 541, which is also summarised in
Appendix 5.

3.1.4 Conflicts of interests
The National Tertiary Education Industry Union drew attention in its submission to different
levels of protection against conflicts of interest in universities Acts. The Acts of Deakin

University, La Trobe University, Monash University and the University of Melbourne provide
simply
19. Disqualification from voting by reason of pecuniary interest
No member of the Council shall be entitled to vote either in the Council or in any
committee thereof on any subject in which he has a direct pecuniary interest, and if
any such member votes his vote shall be disallowed.

Sub section 19 (2) of the La Trobe University Act 1964 further provides
(2) Although a member must not vote on a subject in which the member has a direct
pecuniary interest, the member may take part in a discussion of the subject at a meeting
of the Council or any of its committees.

In contrast, the Acts of the newer universities (Ballarat, RMIT, Swinburne and VUT) provide:

16. Pecuniary interests
(1) A member of the Council who has a pecuniary interest in a matter being considered or
about to be considered by the Council must, as soon as practicable after the relevant
facts have come to his or her knowledge, declare the nature of the interest at a meeting
of the Council or in writing addressed to the Chancellor.
(2) If the Chancellor receives a written declaration under sub-section (1), the Chancellor
must report it, or cause it to be reported, at the next meeting of the Council.
(3) The person presiding at a meeting at which a declaration is made under sub-section (1)
or reported under sub-section (2) must cause a record of the declaration to be made in
the minutes of the meeting.
(4) After a declaration is made under sub-section (1) by a member of the Council
(a) unless the Council otherwise directs, the member must not be present during any
deliberation with respect to that matter; and
(b) the member is not entitled to vote on the matter; and
(c) if the member does vote on the matter, the vote must be disallowed.

The review accepts the NTEUs submission that adopting the more comprehensive provisions
protecting against conflicts of interest in the Acts for RMIT, Swinburne University of
Technology, the University of Ballarat and Victoria University of Technology for all Victorian
universities would increase the publics perception of the probity of councils decision-
making.

Recommendation 6: conflicts of interest
That the more comprehensive provisions protecting against conflicts of interest in the Acts for
RMIT, Swinburne University of Technology, the University of Ballarat and Victoria
University of Technology be extended to all Victorian universities.

3.1.5 Developing and supporting councillors leadership and governance
The preceding two sections illustrate the importance and sensitivity of councillors role in
university governance. Of course, councillors duties also include expending appropriate care,
skill and attention to their responsibilities and in Chapter 3 the review elaborates councillors
role in the governance of universities commercial activities. The review later recommends

that councils have increased responsibilities for overseeing their universitys commercial
activities and protecting the public interest.

Councillors can be supported in their responsibilities and the performance of governing boards
can be improved by systematic development of councillors (Chait et al, 1996). The review has
already noted the effort that universities, their councils and councillors invest in informing
themselves of councillors responsibilities (paragraph 3.1.3). While much of councillors
induction and development is about matters specific to each university and is therefore best
done by universities individually, there are clearly issues in common. There are advantages in
conducting some development of councillors leadership and governance jointlyit provides
an opportunity for councillors to share their experiences, and it shares the cost and makes the
best use of the time of international experts who may be engaged to develop councillors
leadership and governance. This is an appropriate role for the Office of Higher Education.

Recommendation 7: developing councillors leadership and governance
That the Victorian Office of Higher Education mounts a program to develop councillors
leadership and governance.

3.1.6 Remuneration of councillors
Members of university councils are reimbursed for their out of pocket expenses, but no
member of council is remunerated explicitly for their work on council. Councillors who are
also staff of the university have their council duties included in their normal duties, but
otherwise all councillors including students donate their time to performing their council
duties. This spirit of volunteerism and public service reflects universities originsat least in
northern Europeas eleemosynary or charitable institutions.

The practice of similar bodies varies. All members of the board of CSIRO except for
Commonwealth Government employees are paid a fee determined by the Federal
Remuneration Tribunal: Chair$53,400 pa, member$22,500 pa, member of the board who is
the chair of the CSIRO audit committeean additional $10,000 pa, and members of the board
who are members of the CSIRO audit committeean additional $5,000 pa. Non-executive
members of the Council of the National Library of Australia are also remunerated at a rate
determined by the Federal Remuneration Tribunal. The chair receives $19,300; deputy chair
$13,600 and members $9,600 per annum plus 8 percent superannuation. The directors of
Melbourne Health, which is responsible for the Royal Melbourne Hospital, receive $12,000
per annum and the chair receives $25,000 per annum. On the other hand, the members of the
Council of Trustees of the National Gallery of Victoria and the members of the Board of The
Walter and Eliza Hall Institute are not remunerated for their services.

Deakin University, along with a number of private submissions strongly supported the
retention of honorary membership of university councils. They noted that there is no general
problem with the current honorary membership of council. It preserves a valuable tradition of
public service that has been central to universities purposes since their foundation. They
argued that the rates of pay provided in Government regulations would place university
councils at the level of second string company directorships and thus would be likely to reduce
the quality of those willing to accept council appointment. While the general trend is toward
professionalising public service, including service on bodies similar to university councils,
there is no need for universities to follow that trend.

On the other hand, universities are placing increasing demands on councillors time and
expertise as the public is increasing its reliance on councils as the primary mechanism for
universities accountability. Remunerating councillors would fairly recompense them for the
time and expertise they contribute to the university; it would ensure that the very high calibre
of councillors was maintained; and it would signify the seriousness with which universities,
and the Government, took the role. Remunerating councillors would also strengthen their role,
since it would indicate to other members of the university and the general public that it is a
professional role treated professionally by the Government and the university. Universities pay
directors fees to members of boards of subsidiary companies. Universities therefore maintain
the anomaly of paying fees to members of boards of subordinate and related entities, but do
not remunerate the members of councils who are ultimately responsible for monitoring the
performance of those bodies.

Councillors rates of remuneration should be different for ordinary council members,
councillors who are members of key committees such as audit committee and finance
committee, and the chancellor. The rates should also be in a range to account for institutions
different size and complexity.

Recommendation 8: remuneration of councillors
That the government consider whether external councillors should be remunerated within
Victorian Government guidelines at levels that reflect the varying size and complexity of
Victorian universities and the additional responsibilities borne by chancellors and council
members who are also members of key committees.

The review considers other measures to strengthen the role of councillors later in this report.

3.2 Governance procedures
In this section the review considers universities councils composition and membership and
the important role of academic boards in university governance.

3.2.1 Composition of councils
Since the implementation of the recommendations of the Storey Committee all Victorian
universities council have comprised these 21 members:

the Chancellor;
the Vice-Chancellor;
the Chair of the Academic Board;
three persons elected by and from the staff of the University prescribed by the Statutes;
two persons elected by and from the students enrolled at the University prescribed by
the Statutes;
six persons appointed by the Governor in Council;
one person appointed by the Minister;
six persons appointed by the Council.

The councils of the four dual sector universities with a significant proportion of vocational
education and training and higher education load (the University of Ballarat, RMIT,
Swinburne University of Technology and Victoria University of Technology) also include

the Chairperson of the Board of Technical Studies.

The composition of universities councils is contentious. The submissions from student
organisations generally argued that councils should be broadly representative of the
community and should provide extensive opportunities for staff and students to participate in
the governance of the university at the highest level. Another perspective, presented by the
Hoare review, for example, is that councils should have a stronger decision-making role which
would be achieved by reducing the number of councillors and, as the NTEU observed in its
submission, by reducing the proportion of councillors appointed for their representation of
stakeholders, and increasing the proportion appointed for their expertise, mainly commercial
expertise.

The main principle underlying the current composition of Victorian universities councils
remains that of giving universities major stakeholders a voice in their governance. These
stakeholders are identified as the principal and the chief executive officers, the presiding
officers of the academic decision-making body or bodies, the academic and the general staff,
the students, the responsible Minister, and the wider communityas determined by the State
Government and by the council itself. It will be evident that about one third of the council is
drawn from within the university and about two thirds from outside if it.

Stakeholder representation is a general principle of university government across the
Australian Statesalthough other constituencies are also identified, for example, graduates
and members of parliament. Specific representation for the latter groups was withdrawn with
the reduction in the size of university councils, which followed the recommendations of the
Storey Committee. Also the balance of membership internal and external to the university
varies in the States.

The review did not identify the composition of councils in its issues paper as a matter that it
would consider specifically. Nonetheless, the issue is fairly raised by the reviews terms of
reference. The review has considered carefully the arguments for reviewing councils
composition made in submissions and elsewhere, but has confirmed its initial view that there
would be little benefit in reopening this issue, for the following reasons.

While university councils may be as susceptible to improvement as any other body, the review
saw no fault or flaw in councils operations that would be improved by changing their
composition. There are opportunities for improvement in their strategic orientation and
management of performance, but these opportunities may be pursued by their leadership and
their current agendanot necessarily by a change in their composition.

As the review argues later, the most important current issue for university corporate
governance is risk planning, management, monitoring and review. The council is ultimately
responsible for risk management as it is for other aspects of corporate governance. Arguably
university councils would improve the management of commercial risk by being similar to
company boards of directorssmaller and chosen mainly for their expertise rather than for
their representation of stakeholders. But risk management is a responsibility of the whole
university not just of councils, and university councils have other important responsibilities
that are furthered by their representation of stakeholders. University councils should not be

changed in the hope of improving one aspect of their performance, if that would compromise
others of their responsibilities, which are of equal or greater importance, if not of
contemporary prominence.

The composition of universities councils is contentious. To get beyond the positions of
specific interest groups the review would have to consider fundamental issues about the
nature, purposes and ownership of universities. While these are important matters, the review
has concentrated its efforts on the pragmatic issues that motivated the Government in
establishing the review. There is no obstacle and there would be considerable benefit from the
review considering fundamental issues in addition to the pragmatic issues it has concentrated
on, but this would extend the review process by several months and would frustrate the
Governments purpose of taking prompt and effective action on some specific concerns raised
by the Auditor-General and others.

Even were the composition of university councils to be reopened; there is no guarantee that it
would be improved in the eyes of those seeking a review. As many submissions observed, the
current emphasis in public debate and public policy is on economic issues, where the values of
private interests currently predominate. The 1997 changes are no doubt part of this trend, as
some submissions notedbut are not necessarily its apogee. As public funding of universities
continues to fall universities have increased their commercial activities and income, beyond
the levels of 1997. Every indication is that this trend will increase, at least in the short and
medium term. It is therefore likely that universities increased commercial activities would be
an important, perhaps decisive factor in changing university councils.

The review concluded therefore that the composition of universities councils should remain
unchanged until a major flaw or problem is identified or until circumstances change
sufficiently to warrant a fundamental review of the nature, purposes and ownership of
universities.

Recommendation 9
That councils composition remain unchanged.

The review now considers councils membershiphow specific positions are filled.

3.2.2 Qualifications and representation of councillors
All universities councils must include:

one person with substantial business experience; and
one person with qualifications and experience in financial matters.

In addition the councils of the dual sector universities with substantial higher education and
vocational education and training load (University of Ballarat, RMIT, Swinburne University of
Technology and Victoria University of Technology) must include:

one person who has substantial knowledge or experience of vocational education and
training.

Councils of 4 universities have geographic qualifications for their members

University of Ballarat:
two must be persons who live or work in the Ballarat region,
one must be a person who lives or works in the Wimmera region;

La Trobe University:
two must be persons who have experience and interests in the Bendigo region,
one must be a person who has experience and interests in the Albury-Wodonga region;

Swinburne University of Technology:
one must be a person who resides in the Outer Eastern region of Melbourne;

Victoria University of Technology:
three must be persons who live or work in or about the Western Metropolitan Region
of Melbourne.

While Monash University has no prescribed geographic representation on its council,
Gippsland University College and Gippsland University College advisory council have been
established pursuant to section 24A of the Monash University Act 1958.

The review believes that the councils of the dual sector institutions with significant
proportions of their load in both higher education and vocational education and training need
to have available to them knowledge and experience which covers the full range of their
activities. This includes but is not restricted to people with a teaching or administrative
background in vocational education and training. The council also needs to be informed about
business, industrys and the broader communitys changing needs for vocational education
and training.

As the Victorian Government has already recognised, an important protection against financial
risk is oversight by a well-informed council with expertise relevant to the risk being managed,
and sufficient independence to exercise judgement separately from the universitys
management. The review notes the observation of the National Tertiary Education Industry
Union in its submission that the composition of councils has shifted in part from
representation of stakeholders to the inclusion of relevant expertise. But in view of the scale
and range of universities commercial activities, councils need members with expertise in the
oversight of commercial activities and experience in the exercise of fiduciary responsibilities,
if they are to main an effective oversight of the universities commercial activities.

Not all Victorian universities are engaged in the same type of commercial activities, or at least
not to the same extent as each other. Some universities such as the Royal Melbourne Institute
of Technology have a high proportion of earned income from international student fees.
Others such as The University of Melbourne and Monash University earn a high proportion of
their income from commercial research and consultancies. Deakin University earns a high
proportion of its income from postgraduate training and professional development, and other
universities such as the dual sector universities also earn large sums from providing training
through the Commonwealths user choice and other commercial arrangements.

This suggests that the external expertise needed on university councils should be chosen to
reflect the specific needs of each university as they change over time. This can be achieved by
appropriate appointments from time to time to the six members of council appointed by the
Governor in Council, and the further six appointed by the council itself.


Recommendation 10: range of expertise on council
That in determining councillors appointed by the Governor in Council and by the council
itself, regard should be had to ensuring that council membership reflects and assists the
realisation of the unique mission, goals and objectives of each university. Where that includes
substantial vocational education and training councils should include an adequate number of
councillors with a background in vocational education, training and employment; and where
that includes substantial commercial activity councils should include an adequate number of
councillors with commercial expertise.

The identification and nomination of members of council appointed by the Governor in
Council and those appointed by the council itself has always required discretion and
sensitivity. In view of the increasing reliance being placed on these appointments to achieve an
appropriate range and depth of expertise on council, all universities should adopt systematic
procedures for nominating prospective members of council and should delegate their
implementation explicitly to a council committee. This might be an existing committee but it
should have a composition that fairly reflects the composition of the whole council. While the
review understands that most universities already adopt such a procedure, it is sufficiently
important to make it an explicit requirement.

Recommendation 11: council nominations committee
That all universities adopt systematic procedures for nominating prospective members of
council for appointment by the Governor in Council and for those appointed by the council
itself and that this responsibility be delegated explicitly to a nominations committee of
council. An existing council may assume this role committee but the nominations committee
should fairly reflect the composition of the whole council.

3.2.3 Extension of councillors terms
Several universities observed that the appointment of councillors by the Governor in Council
and by the Minister had occurred after the vacancy in council had arisen, leaving the council
without its full membership. This causes embarrassment and can risk universities capacity to
govern. An example is when the vacancy is the member with substantial business experience,
or the member with qualifications and experience in financial matters, who councils typically
ask to chair their finance committee and take other distinctive roles. The review sought views
on whether universities Acts should be amended to provide that if a member of councils term
expires before a replacement is appointed, or they are appointed for a subsequent term, the
council members term is extended for up to six months or until a full appointment is made.

There were submissions supporting and opposing the suggestion. Those in favour argued that
it was a sensible administrative expedient. Those opposing considered it gratuitous, or that it
might unfortunately encourage tardiness in making council appointments. On balance the
review considered it desirable to protect against unavoidable delays in making council
appointments.

Recommendation 12: extension of councillors terms
That universities Acts be amended to provide that if the term of a councillor appointed by the
Governor in Council expires before a replacement is appointed or they are appointed for a
subsequent term, the council members term be extended until a full appointment is made.

3.2.4 Councils quorum and operations
The review invited views on whether councils operations and quorums should be specified
more fully, for example in university statutes. The review accepts the view submitted by
universities and several others that councils quorum and operations are adequately provided
in existing legislation. The most important provisions are in universities Acts and in their
statutes, which as subordinate legislation are already subject to the Ministers scrutiny as
sought in one students submission.

3.2.5 Academic boards
The review was reminded of the important role served by academic boards in university
governance by the report of Professor David Peningtons review of the University of
Adelaides council committees (2002). The provisions of the various Victorian universities
Acts differ in detail, but these provisions from the University of Ballarat Act 1993 are
essentially common to all Victorian universities

27. Academic Board
(1) There shall be an Academic Board for the purposes of
(a) academic oversight of prescribed academic programs and courses of
study of higher education in the University; and
(b) providing advice to the Council on the conduct and content of those
programs and courses.
* * *
29. Powers of Academic Board
The Academic Board
(a) may discuss and submit to the Council an opinion on any matter relating
to prescribed programs of the University and, in particular, may make to
the Council such recommendations as it thinks proper with respect to
instruction, studies, discipline, examinations, assessments, research,
degrees and diplomas in those programs of the University; and
(b) must report to the Council on all matters submitted to it by the Council
for report; and
(c) has such other powers and duties as are conferred or imposed upon it by
this Act or by the Statutes or regulations; and
(d) subject to this Act and except as otherwise prescribed by the Statutes and
regulations, may regulate its own proceedings.
* * *
32. Statutes and regulations affecting courses of study
(1) Before a Statute or regulation concerning a degree or diploma, or any matter
affecting programs or studies referred to in section 27 is made, amended or
revoked by the Council, the Council must submit the proposal to the Academic
Board for its report.

(2) If the Council declares a proposed Statute or regulation to which sub-section
(1) applies to be urgent, the Council may make the Statute or regulation
without complying with sub-section (1).
(3) A Statute or regulation made under sub-section (2) ceases to have effect at the
expiration of 6 months after it is made, unless it sooner expires or is revoked.
(4) If the Academic Board does not report to the Council within 2 months (or such
longer or shorter period as the Council determines in any particular case) after
submission of a proposed Statute or regulation to the Academic Board, the
Council may make, amend or revoke the Statute or regulation without the
report.

These powers make academic boards the custodian of universities academic standard, which
is central to their role as academic institutions. Such an important role for the academic board
with the university council is sometimes described as a bicameral system of academic
governance. The review believes that Victorian universities are fortunate in having their
academic boards roles sufficiently provided in universities Acts and that therefore no change
is needed. Nonetheless, the review believes it is desirable to recall the importance of academic
boards in maintaining academic standards.

Recommendation 13: academic boards
That academic boards strong role in universities academic governance provided in
universities Acts be retained.

3.2.6 Dual sector issues
Victoria leads Australia in the number and size of its dual sector institutionsuniversities with
significant load in both higher education and vocational education and training. Victoria
currently has four dual sector universities: the University of Ballarat, RMIT, Swinburne
University of Technology and Victoria University of Technology; and the University of
Melbourne has a small proportion of vocational education and training load in its Institute of
Land and Food Resources. Vocational education and training is a large, and in some cases the
largest, part of the student load in the other dual sector institutions.

The review notes that governance of technical and further education institutes is shortly to be
reviewed by the Victorian Learning and Employment Skills Commission, and suggests that the
issues raised by the dual sector institutions could be considered further when this review is
completed. Two issues are reported here.

(a) Boards of TAFE in addition to Boards of Technical Studies
The Acts of the dual sector universities provide for a Board of Technical Studies for TAFE
analogous to higher educations Academic Board. The Acts of three of the four dual sector
universities provide additionally for a Board of Technical and Further Education that may
discuss and submit to the Council an opinion on any matter relating to the prescribed technical
and further education programs of the University. The role of and need for Boards of TAFE
in addition to Boards of Technical Studies and the inconsistency between the four dual sector
universities needs to be addressed.

(b) Reconciliation of different sectors accountability arrangements
In view of Victorias leadership in establishing and developing dual sector universities, the
review suggests that the Victorian Government consider approaching the Commonwealth to
commission a joint study to reconcile the different higher education and vocational education
and training reporting and accountability arrangements for study and teaching load, student
fees, financial reporting, and capital planning. The Department of Education and Training
could undertake some preliminary work in mapping current arrangements in Victoria.

3.3 External oversight and review
In this section the review recounts universities general accountability to Parliament and to
parliamentary officers.

3.3.1 Annual report of operations
Government, Parliament and the general public oversee universities governance through their
annual report of operations. Universities are required by the Financial Management Act 1994
(Vic) to report annually on their operations on matters required by the Minister, and the
Minister may further require universities to provide additional information required by her
45. Report of operations and financial statements to be prepared
(1) As soon as practicable after the end of each financial year
(b) a public body must cause to be prepared, in accordance with this Part, a report of
its operations during the financial year;
* * *
48. Report of operations
A report of operations referred to in section 45
(a) must be in a form and contain information determined by the accountable officer
to be appropriate; and
(b) must contain any other information required by the Minister.
* * *
51. Relevant Minister may require additional information
The relevant Minister may in writing direct a public body to include in a report of operations
or financial statements such additional information as he or she considers necessary or
appropriate in the public interest.

The Minister thus has the power to require universities to operate more transparently by
including additional information in their reports of operations or financial statements, a power
the Minister has exercised from time to time.

3.3.2 Victorian ombudsman
Universities are also accountable for specific decisions to the Ombudsman. The administrative
decisions of all Australian public universities, including all Victorian universities, are subject
to review by their State or Territory ombudsman. The responsibilities of the Victorian
Ombudsman are provided in the Ombudsman Act 1973 (Vic).

The main authority of the Ombudsman is given in subsection 13 (1) of the Act

13. Functions and jurisdiction

(1) The principal function of the Ombudsman shall be to enquire into or
investigate any administrative action taken in any Government Department or
Public Statutory Body to which this Act applies . . .

(a) Administrative action
Administrative action is defined in section 2 of the Act

administrative action means any action relating to a matter of administration, and includes
(a) a decision and an act;
(b) the refusal or failure to take a decision or to perform an act;
(c) the formulation of a proposal or intention; and
(d) the making of a recommendation (including a recommendation made to a
Minister);

Administration is interpreted very broadly, and would include decisions taken in teaching,
research or by senior management that are academic in character. Ombudsmen in Victoria,
South Australia and NSW routinely review decisions on student selection and assessment,
notwithstanding that they involve the exercise of academic judgement. But as the Victorian
Ombudsman, Dr B Perry emphasised in his consultation with the review, the Ombudsman
does not investigate the substance of complaints about academic issues, but whether the
university has an adequate, transparent and fair process for deciding the matter at issue, and
whether the university had followed that process in the case complained of.

Notwithstanding the breadth of the Ombudsmans jurisdiction, sub section 13 (5) of the Act
precludes the Ombudsman from investigating decisions about employees terms and
conditions of employmentincluding appointments, promotions and redundanciesunless
the Ombudsman considers that the matter merits investigation . . . to avoid injustice.

(b) Enquiries and investigations
The Ombudsman may conduct an investigation on her or his motion, in response to a
complaint (sub section 14 (1)) or on a reference from a House of Parliament (sub section 16
(1)). The Ombudsman may conduct an enquiry to determine whether to conduct and
investigation or whether the matter may be resolved informally (section 13A).

(c) Alternative remedy
Sub section 13 (4) precludes the Ombudsman from investigating any matter where the
aggrieved person has a right of appeal or review by a court, Royal Commission or a tribunal
constituted by or under any enactment unless the Ombudsman considers that in the particular
circumstances it would not be reasonable to expect the person to resort to the alternative or
the matter merits investigation . . . to avoid injustice. A tribunal constituted by or under any
enactment would include a tribunal or appeal committee established by a universitys statute
or regulation.

(d) Power to compel testimony
The Ombudsman has the powers of a Royal Commissioner to summons witnesses, examine
them on oath, compel the production of documents (subsection 18(1)) and the power to enter
and inspect premises (section 21).

(e) Comments and reports
The Ombudsman must give a body an opportunity to comment where an adverse report may
be made (sub section 17 (4)).

Sub section 23 (1) provides that the Ombudsman may find that an administrative action:

(a) appears to have been taken contrary to law;
(b) was unreasonable unjust oppressive or improperly discriminatory;
(c) was in accordance with a rule of law . . . that is . . . unreasonable unjust oppressive or
improperly discriminatory;
(d) was taken . . . for an improper purpose or on irrelevant grounds, or on the taking into
account of irrelevant considerations;
(e) was . . . made in the exercise of a power or discretion and the reasons for the decisions
were not, but should have been, given;
(f) was based wholly or partly on a mistake of law or fact; or
(g) was wrong.

In these circumstances, other than an investigation referred by Parliament, the Ombudsman
must report her or his opinion and reasons to the appropriate authority and send a copy to the
responsible Minister (sub sections 23 (2) and (3)).

If the authority does not take appropriate steps in response to a report the Ombudsman may,
after considering any comments made by the authority, send a copy of the report to the
Governor in Council and before each House of Parliament (sub sections 23 (5) and (6)).

The Ombudsman has no power to impose a sanction for failure to act on a report or
recommendations other than this power to submit an adverse report to Parliament.

In his consultation with the review the Victorian Ombudsman, Dr B Perry, reported that there
was no distinction between the way universities were treated under the Ombudsman Act 1973
and other public bodies. Dr Perry reported that in the previous year his office had dealt with 44
complaints, almost half of which were appeals against decisions under the Freedom of
Information Act 1982, the rest being complaints about student assessment and staffing matters.

Dr Perry reported that while the number of complaints upheld was small, they had been upheld
because there was not an adequate process within the university, or because in a particular
case the university had not followed that process. While the Ombudsman was satisfied with
universities responses to his findings and recommendations, he regretted that universities did
not always follow transparent and fair processes that avoided adverse findings.

3.3.3 Proposal for national universities Ombudsmans office
Notwithstanding that the administrative decisions of all Australian public universities are
subject to review by their State or Territory Pmbudsman, the Senate Employment, Workplace
Relations, Small Business and Education References Committee of inquiry into the capacity of
public universities to meet Australias higher education needs recommended

that a national universities ombudsman be appointed, funded by the Commonwealth, after
consultation with the states and national representative bodies on higher education, including
staff and students, and that such an office include the power to investigate ancillary fees and
charges and to conciliate complaints [including investigating complaints from] students
enrolled in Australian programs off-shore . . . (recommendation 12);


The Senate Committee did not explain what advantage it saw in one national ombudsmans
office over eight State and Territory ombudsmen reviewing universities administrative
decisions, nor did it say whether a national ombudsmans office would replace or complement
the jurisdiction of the State and Territory ombudsmen.

There are several difficulties with the proposal for a national universities ombudsman. The
Commonwealth does not have constitutional power over universities, so a Commonwealth
ombudsmans power would have to derive from:

(a) one of the Commonwealths heads of powers such as the provision of benefits to
students (Constitution paragraph xxiiiA), in which case the ombudsmans jurisdiction
would be limited to that head of power;
(b) a condition of the Higher Education Funding Act 1988, in which case the
ombudsmans jurisdiction would be limited to that Acts purposes;
(c) a referral of power by State Governments.

Establishing a Commonwealth university ombudsmans office under (a) or (b) would leave the
need for a Victorian Ombudsman to handle matters not within the jurisdiction of the
Commonwealth Ombudsman, leading to duplication and public confusion.

The strongest argument for a national universities ombudsmans office was submitted by the
National Tertiary Education Industry Union, which argued that a national office would
concentrate knowledge and expertise. However, in his consultation with the review the
Victorian ombudsman Dr Perry observed that much of the ombudsmans inquiries arise under
State legislation such as the Freedom of Information Act 1982 (Vic) and the Whistleblowers
Protection Act 2001 (Vic) which are quite different in other States and Territories. In Dr
Perrys opinion much of the work of a national universities ombudsman would have to be
handled differently and probably separately for each jurisdiction, thus removing any advantage
of consistency of national approach or economy of scale such an institution might have.

Furthermore, there is a danger that a national ombudsmans office would be more remote from
complainants and the universities it would investigate.

No university supported the establishment of a national universities ombudsman. However, all
students submissions supported the proposal for a national universities ombudsman, some
apparently ignorant of the Victorian Ombudsmans jurisdiction and others under the
impression that a national universities ombudsman would have jurisdiction to to investigate
all aspects of university commercial activity or to ensure that universities commercial
activities and other non traditional practices meet appropriate auditing standards and are
subject to adequate probity controls. As is elaborated in the next section and in greater detail
later in this report, these are properly the responsibility of the Auditor-General, not the
Ombudsman. The Auditor-General already has most of the powers necessary to discharge his
responsibilities, and where he doesnt, the review recommends elsewhere that these powers be
strengthened.

In view of the lack of a general understanding of the role of the Victorian Ombudsman in
reviewing universities decisions it would be desirable to have an accessible statement of the
role of the Victorian Ombudsman which might be published on web sites, in university
calendars and in a pamphlet. Developing the statement jointly with the Victorian Vice-

Chancellors Committee would support its dissemination throughout universities and its
incorporation within standard university publications.

Recommendation 14: Victorian Ombudsman
That the Victorian Ombudsman and the Victorian Vice-Chancellors Committee prepare and
publish a statement of the role of the Victorian Ombudsman in reviewing universities
decisions.

The RMIT student union observed that universities internal complaints and grievance
processes are too fragmented to be easily followed. Good governance includes clear and
accessible complaints and grievance procedures. The review believes that students of all
universities would benefit from a codification or at least a collation of their universitys
various internal student grievance procedures, which might be published with information
about the rights and procedures for submitting complaints to the Victorian Ombudsman.

Recommendation 15: internal student grievance procedures
That universities codify and collate their various internal student grievance procedures and
publish them with information about the right and procedure for submitting complaints to the
Victorian Ombudsman.

3.3.4 University visitor
All Victorian universities are subject to review by the university visitor, which by legislation is
the Governor of Victoria. By custom the Governor appoints a referee to advise on petitions,
who is traditionally a current or retired judge of the Supreme Court of Victoria. The Victorian
Ombudsman Dr Perry advised that the university Visitors jurisdiction overlapped with the
Ombudsmans jurisdiction, as indeed it overlaps with the Victorian Civil and Administrative
Appeals Tribunal, the Supreme Court of Victoria and the Australian Industrial Relations
Commission. Dr Perry reported that his office was able to avoid the duplication of inquiries
and to discourage forum shopping by declining to reinvestigate matters already addressed by
the Visitor.

The multiplicity of forums for review of universities decisions does not enhance the
effectiveness of any one forum. Neither does it expand the various remedies available to a
person seeking to review a universitys decision. Indeed, it can be confusing and present an
obstacle to an efficient and expeditious solution as prospective petitioners investigate the
Visitors jurisdiction and its advantages over other forums.

The university visitor is an ancient and honourable office (Szlawski, 1983; Price & Whalley,
1996). Something is lost when a charming tradition is discarded and when universities break
their links with their past, however tenuous. Nonetheless, the review believes that retention of
the university visitors jurisdiction to review university decisions is now anachronisticit
does not assist people seeking to review universities decisions and may delay them in
identifying the most appropriate forum.

The review notes that the Visitors review function has been removed in Tasmania and NSW,
without any substantive loss of right or convenience to members of universities in those States.

Recommendation 16: university visitor
That universities Acts be changed to provide that the university visitor has ceremonial
functions only.

3.3.5 Auditor-General for Victoria
Section 45 of the Financial Management Act 1994 requires the accountable officer of each
public body including each university to prepare financial statements of the university and
submit them to the Auditor-General within eight weeks of the end of the financial year, which
in turn must be tabled before each House of Parliament with the universitys annual report of
operations. Section 49 of the Act provide that financial statements

(a) must contain such information as is required by the Minister; and
(b) must be prepared in a manner and form approved by the Minister; and
(c) must present fairly the financial transactions of the department or public body during
the financial year to which they relate; and
(d) must present fairly the financial position of the department or public body as at the
end of that year; and
(e) must be certified by the accountable officer for the department or public body in the
manner approved by the Minister.

Universities are required by the Financial Management Act 1994 to make all their financial
records available, in addition to their financial statements. This gives the Auditor-General very
wide powers of review of universities finances.

3.3.6 Solvency and probity audits
The main vehicle for universities financial accountability is the independent external audit of
their financial statements. Universities are required to have their financial statements audited
by the Auditor-General by part 3 of the Audit Act 1994

PART 3--PUBLIC SECTOR AUDITS AND REPORTS

8. Audit of authorities

(1) The financial statements of each authority must from time to time and at least once
in each year be audited by the Auditor-General.
(2) The Auditor-General may dispense with all or any part of an audit of the financial
statements of an authority in any year.
(3) The Auditor-General may audit any report of operations of an authority under
section 45 of the Financial Management Act 1994 to determine whether any
performance indicators in the report of operations
(a) are relevant to any stated objectives of the authority; and
(b) are appropriate for the assessment of the authority's actual performance;
and
(c) fairly represent the authority's actual performance.

9. Report on audit of financial statements


(1) The Auditor-General must make a report on each audit of the financial statements
of an authority to
(a) the authority; and
(b) the Minister responsible for the authority; and
(c) the Minister administering this section.
(2) The report under sub-section (1) must be made within 4 weeks after the day on
which the financial statements were received by the Auditor-General for auditing.

Universities are required to submit their controlled companies accounts to the Auditor-
General for audit and must submit financial statements to the Treasurer and include them in
their annual reports, in addition to meeting the standard requirements of the Australian
Securities Commission and Companies (Victoria) Code. Universities must submit to their
councils an annual auditors report for all their companies with an annual income of more than
$100,000.

Audits may be conducted either by the Auditor-Generals office itself, or by the Auditor-
General contracting an auditor in private practice. If the Auditor-General appoints an auditor
in private practice to act as a universitys external auditor it would be theoretically possible for
the university to engage its auditor for other work such as management consultancy or
advising on financial arrangements. This would obviously be inappropriate, especially in view
of the size and prominence of some recent business collapses in Australia and overseas.
However, the risk of such conflicts arising and being maintained for more than a year are
minimal since external university auditors are appointed by the Auditor-General, not the
university.

3.3.7 Technically qualified audits
2

Victorian universities financial statements are commonly subject to a qualified audit report
for two reasons. The Commonwealth normally pays universities their operating grants
monthly in advance. In December each year the Commonwealth pays universities operating
grants two months in advance. Universities financial year is the calendar year. Universities
therefore receive at the end of one financial year a payment that spans two financial years.

Universities are required to prepare their financial statements in accordance with the
requirements of the Financial Management Act 1994, which calls for compliance with the
Australian Accounting Standards. The Auditor-General of Victoria issues a qualified audit
report on the universities financial statements for these grants because, in the Auditor-
Generals opinion, the universities do not report these transactions in accordance with the
relevant Australian Accounting Standard.

Most Victorian universities report these grants as deferred revenue and with a corresponding
liability. The Auditor-General believes that Australian Accounting Standard AAS15
Revenue requires that the grants be reported as revenue in the period in which the funds
(asset) are received. As the universities control those funds upon receipt, it is probable that the
economic benefits of the contribution will flow to the universities and the amount of the
contributions be measured reliably.

2. The review thanks Mr Rob Fearnside, Director, Education and State and Regional Development,
Victorian Auditor-Generals Office for his constructive comments on a draft of this report and for his
contribution of much of the material in sections 2.5.7 and 4.3.


The second cause for qualification is the treatment of superannuation. In January 1999 the
Victorian Minister for Finance issued a ministerial directive under the Financial Management
Act 1994 requiring universities to include on their balance sheets the liability for staff
superannuation entitlements under the Victorian Sate scheme, for which the Victorian
Government had made no funding provision. By arrangement with the Commonwealth these
liabilities are met by the Commonwealth as they emerge annually, but the Commonwealth has
not established a capital fund to meet the State superannuation liabilities, nor does it recognise
a liability for these amounts in their financial statements. The universities recognise, as a
receivable from the Commonwealth, an asset equivalent to the liability for the unfunded
superannuation.

The Auditor-General qualifies the financial statements of universities because the universities
do not control the future Commonwealth Government funding associated with the unfunded
superannuation liability and therefore an asset does not exist under Australian accounting
requirements. The Parliamentary Accounts and Estimates Committee of the Victorian
Parliament in a Report Unfunded Superannuation Liabilities in the Financial Reports of
Victorian Universities issued in March 2001 accepted the approach taken by the Auditor-
General.

While these qualifications to universities financial statements are a result of disagreements
between Commonwealth and Victorian officials on technical accounting issues rather than for
substantive questions about universities solvency or probity, they nonetheless raise a
tolerance or acceptance of qualified audit certificates which the review believes is most
unfortunate. The review believes that it would be highly desirable to remove, or at least
minimise the circumstances where Commonwealth and Victorian bodies qualify universities
financial statements because of different accounting treatments. The Auditor-General for
Victoria reported that he was part of a review of Australian accounting standards that would
remove at least one inconsistency giving rise to qualified audits.

Recommendation 17: inconsistent Commonwealth and Victorian accounting conventions
That the Commonwealth and Victorian governments examine their accounting and auditing
conventions jointly with a view to minimising the circumstances where Commonwealth and
Victorian bodies qualify universities financial statements because of different accounting
treatments.

3.3.8 Performance audits
Sub section 16 (1) of the Audit Act 1994 gives the Auditor-General authority to commission a
performance audit if the Auditor-General considers it necessary to determine whether an
authority is achieving its objectives effectively and doing so economically and efficiently and
in compliance with all relevant Acts.

A performance audit must not question the merits of policy objectives of the Government
(sub section 16 (6)), where policy objectives include a Government policy direction of a
Minister, a policy statement in any Budget Paper, a statement of objectives in a corporate plan
of an authority approved by a Minister, or any other document evidencing a policy decision of
the Government or a Minister.

The Auditor-General is required to prepare specifications for performance audits in
consultation with the Parliamentary Committee and the body being audited. The body has an
opportunity to read and comment on the performance audit report, and comments are included
in the report. Reports are given to each House of Parliament.

In many instances assessment of performance is not simply the objective application of a
defined standard, but the exercise of judgement over which experts may disagree. Statements
in performance audits are therefore qualitatively different to statements in solvency and
probity audits, and this qualitative distinction should be observed. The review notes that the
Audit (Further Amendment) Bill 2001 would make clearer the distinction between issues
arising from financial audits which might question solvency or probity, and issues arising from
performance audits which are more likely to question strategic or commercial opinions or
judgements.

Universities specific accountabilities to the Auditor-General of Victoria for their commercial
activities are detailed in the next chapter.

3.3.9 National and Commonwealth accountabilities
Victorian universities are also generally accountable to several other Commonwealth and State
bodies. The two most important accountabilities are described here.

(a) Commonwealth Department of Education, Science and Training
Victorian universities receive 99 percent of their public funding from the Commonwealth
Government. Therefore an important external accountability is to the Commonwealth
Department of Education, Science and Training. All public universities in Australia, including
all public Victorian universities, are required to report extensively and in detail to the
Commonwealth Department of Education, Science and Training, formerly the Department of
Education, Training and Youth Affairs. Each year a team of senior departmental officials also
visits each university to discuss their reports in detail, their submissions on the forthcoming
triennium, and any matters raised by the Commonwealth or the university.

Since 1998 the department has monitored universities financial situation carefully. The
department calculates measures of financial health for each university and extrapolates the
measures to the end of the triennium. The department and universities thus have early warning
of any potential financial difficulty.

(b) Australian Universities Quality Agency
Also part of general university accountability is accountability for quality. The
Commonwealth has recently increased its monitoring of universities quality, leading to the
establishment of the Australian Universities Quality Agency. The agency plans to audit each
university in depth every five years

Academic audits of self-accrediting institutions will be whole-of-institution audits based on a
self-assessment and a site visit. AUQA will investigate the extent to which the institutions are
achieving their missions and objectives. They will assess the adequacy of the institutions
quality assurance arrangements in the key areas of teaching and learning, research and
management, including the institutions overseas activities. They will also assess the
institutions success in maintaining standards consistent with university education in
Australia. AUQA will make use of panels of experts with substantial senior academic and
administrative experience in higher education (in Australia and abroad) to undertake the

audits. The audits will endeavour to minimise the additional workload for universities and
AUQA will pay particular attention to supporting the diversity of the higher education sector.
(AUQA, 2002)

In addition, the Department of Education, Science and Training plans to maintain its annual
monitoring of universities quality, which is likely to require universities to continue reporting
annually at least, the results of their course experience questionnaire survey, postgraduate
research experience questionnaire survey and graduate destination survey.

Review of University Governance 46 Commercial activities
CHAPTER 4: COMMERCIAL ACTIVITIES
This chapter opens with a description of the range of universities commercial activities. It
then considers issues raised by the Auditor-General for Victoria and elsewhere and the extent
to which existing accountability mechanisms need to be strengthened to meet the concerns
identified.

4.1 Range of universities commercial activities
The review was greatly assisted by the overview of commercial activities provided by some
universities. This section therefore gives a brief account of Victorian universities commercial
activities and current governance arrangements.

Victorias public universities differ markedly in their size. From the smallest but still
substantial University of Ballarat, which has annual higher education revenue of some $53
million, to Monash University and the University of Melbourne, which have annual revenue
over ten times greater. For the purposes of consistency only higher education revenue reported
by the Commonwealth Department of Education, Science and Training is considered here.
This understates substantially the total revenue of universities with substantial TAFE activities
(RMIT, Swinburne University, the University of Ballarat and Victoria University of
Technology) since they earn almost as much income from vocational education and training as
they do from higher education.

Despite the considerable variation in the size of Victorian universities, they all earn substantial
proportions of their income from commercial activities. There are different definitions of
commercial, external, non government and outside earnings, which give different
impressions of the extent of universities commercial activities. The figure used here of
earned income is taken from the Department of Education, Science and Technologys report
for the 2002 to 2004 triennium. DEST defines earned income as university operating revenue
less Commonwealth operating grants, HECS and State grants.

TABLE 4.1: HIGHER EDUCATION REVENUE OF VICTORIAN UNIVERSITIES AND % OF
EARNED INCOME, 1999

Institution Revenue
($million)
% earned
income
Deakin University 277 41%
La Trobe University 254 31%
Monash University 559 46%
RMIT 319 46%
Swinburne University 112 38%
The University of Melbourne 589 36%
University of Ballarat 53 37%
Victoria University of Technology 160 33%
Total Victoria 2,323 39%

Sources: DETYA (2000) Finance 1999: Selected Higher Education Statistics,
http://www.detya.gov.au/highered/statpubs.htm#financepubs; DEST (2001) Higher
Education Report for the 2002 to 2004 Triennium, Table D1a: Indicators of the diversity of
the Australian higher education system;
http://www.detya.gov.au/highered/he_report/2002_2004/html/appendix_d.htm#td_1

While Victorian universities have about the same level of commercial activity, they have very
different types of commercial activities. Monash University submitted to the review a

comprehensive overview of its commercial activities, which it grouped into four clusters:
coursework, services, research and property. Monash Universitys grouping is adopted in a
more detailed description of universities commercial activities given in Appendix 2.

Examine issues raised by recent audit processes about the commercial
activities of public universities.

4.2 Issues raised by the Auditor-General of Victoria
The review considered the issues raised by three recent reports of the Auditor-General of
Victoria: the Report on ministerial portfolios June 2001: Education, Employment and
Training, which reported on the status of the Bio21 project and on Melbourne University
Private Limited; Performance audit report #29: international student programs in
universities; and International students in Victorian universities (2002). The review was also
assisted by a submission from and consultations with the Victorian Auditor-Generals Office.

It is not the reviews role to revisit the specific matters investigated by the Auditor-General
and universities responses to his reports. Rather, it is to review the issues raised by the
Auditor-General that concern Victorian universities commercial activities generally. The
issues relevant to the review are:

1. the need to involve the Auditor-General in the accountability for universities
commercial activities (arising from paragraph 3.1.39 of the report on ministerial
portfolios June 2001);
2. the need to assure a management framework which provides appropriate monitoring of
universities commercial activities (arising from paragraph 3.1.36 of the report on
ministerial portfolios June 2001);
3. the need for universities to ensure that detailed business plans which incorporate a
detailed risk analysis are prepared for universities commercial activities and are
comprehensively reviewed by universities (arising from paragraph 3.1.84 of the report
on ministerial portfolios June 2001);
4. the desirability of universities with a substantial number of subsidiaries engaged in
commercial activities establishing a university subsidiaries committee or similar body
to oversee the financial and operational activities of the universitys various
subsidiaries and strengthen the monitoring of major subsidiaries activities and
financial performance (arising from paragraph 3.1.68 of the report on ministerial
portfolios June 2001);
5. the desirability of establishing for international student programs more formal and
systematic strategic planning, marketing, financial administration and public assurance
of the maintenance of academic standards including the maintenance of academic
standards in off shore programs (arising from performance audit report #29:
international student programs in universities, 1993).

4.3 Issues raised in submissions and generally
Four broad issues arising from universities commercial activities were raised in submissions
and elsewhere:
1. the shift of funding from Government to private sources and a perceived shift of
universities emphasis from public service to private benefit;

2. the possibility that commercial activities may be funded from public funds;
3. the risk of financial failure; and
5. the risk of failure to comply with standards of good financial administration.

4.3.1 Shift from public to private funding
As many submissions observed, Commonwealth and State Government grants combined have
fallen from 61 percent of universities revenue in 1995 to 48 percent in 1999. Balancing the
dramatic fall in Government grants have been increases in income since 1989 from
international student fees (up 10 percent), students Higher Education Contribution Scheme
(HECS) and other Australian student fees (up 9 percent) and commercial and other income,
which has increased by 14 percent (DEET, 1990: table 36; DETYA, 2001a: table 0199).

Combined Government grants are now the lowest proportion of university funding since
WWII.

TABLE 4.3.1A: UNIVERSITY INCOME BY SOURCE, AUSTRALIA, 1939 TO 1999 (%)

Source of income 1939 1951 1961 1971 1981 1987 1995 1999
State Government 44.9 43.7 36.3 35.7 0.8 1.0 1.4 1.1
Commonwealth Government 0 20.5 43.9 43.0 89.3 82.9 59.2 47.0
Student contributions 31.7 16.7 8.6 10.4 0 2.3 19.8 31.3
Investments, endowments, gifts 16.1 8.5 6.2 5.5 4.4 5.4 5.2 4.4
Other income 7.2 10.5 5.0 5.3 5.5 8.3 14.5 16.2
TOTAL 99.9 99.9 100 99.9 100 99.9 100 100

Sources: 1939-1987: Department of Employment, Education and Training (1993) National report
on Australias higher education sector (Blue Book), table 4.6; 1995, 1999: Department of
Education, Training and Youth Affairs (1997, 2001) Finance 1995, 1999: Selected Higher
Education Statistics, table 1, http://www.detya.gov.au/highered/statpubs.htm#financepubs

The Commonwealth Department of Education, Science and Training interprets the increase in
universities non-government revenue as indicating that they are more responsive to wider
economic needs and that they are serving their communities better (DETYA, 2001b: 6). The
Commonwealth expects the proportion of universities revenue from Government grants to fall
by a further 8 percent during the forthcoming triennium (DETYA, 2001b: summary.
Notwithstanding these shifts in the proportion of Government-subsidised and full fee-paying
income, it is important to note that the absolute number of Government-subsidised students
has increased over the last decade.

TABLE 4.3.1B: VICTORIAN HIGHER EDUCATION STUDENTS BY TYPE, 1990 AND 2000

Student type 1990 2000
Government subsidised students 94,410 109,763
Non-overseas fee-paying undergraduate students 0 1,923
Non-overseas fee-paying postgraduate students 800* 7,332
Other non-overseas fee-paying 2,200* 1,039
Overseas fee-paying students 3,000* 29,357

Sources: DETYA (2000) Students 2000: Selected Higher Education Statistics, table 64;
DEET (1991) Higher Education Funding Report for the 1990-92 Triennium, table 5.1;
* Estimate from DEET (1990) Selected Higher Education Statistics 1990, table 36.


That is to say, universities increase in commercial activities has not displaced their role of
providing publicly funded education, but has been an additional role. Nonetheless, the
increased reliance on non Government income over the last decade has affected universities in
a number of ways and has implications for the governance of universities more generally.

(a) Increase in the range and scale of commercial activities
Universities have increased their non Government income not only by attracting private
support for existing activities, but also by introducing new activities specifically to earn non
Government income. Thus universities provide new and more commercial consultancy
services, mount new courses and professional development programs for a fee, produce
materials for profit and have even established new campuses overseas as extra sources of
income. While all these developments have been in addition to and have not displaced
universities public activities, they nonetheless change the recent character of universities from
institutions conducting only, or at least mainly, public activities to institutions conducting a
mix of public and private activities.

(b) Increased competition and increased financial risk
Universities are experiencing increased competition from private providers of educational
services, from other universities which are also expanding their commercial activities, and
even from other public universities for the provision publicly funded education. To give a
recent example of the latter; in 2001 universities competed with each other for 2000 publicly
funded teaching places under the Commonwealths Backing Australias Ability: An Innovation
Action Plan for the Future, as they have competed vigorously for public research funds since
the 1960s.

With increased competition for public and private funds has come the increased risk that
universities income will not reach budget projections and perhaps not cover budgeted costs.

(c) Involvement of commercial judgement
Universities are increasingly taking commercial factors into account in making decisions.
University managers at all levels routinely prepare and examine business plans and budgets,
and at least at senior levels management regularly scrutinises due diligence reports, cash-flow
projections, the safety margin, current ratio and debt to equity ratios of the university and its
entities. There has been a corresponding increase in the involvement of people with
commercial experience and expertise in university decision-making. Indeed, one of the
changes to university councils introduced in 1997 in response to the recommendations of the
Storey Committee was to specify that of the six members of council appointed by the
Governor in Council and the further six appointed by the Council, one must be a person with
substantial business experience and one must be a person with qualifications and experience in
financial matters.

(d) Stronger management
Associated with the increase in the exercise of commercial judgement and the involvement of
people with commercial expertise in university decision-making is the introduction of more
business-like management processes. Declarations of pecuniary interest, tender boards, service
agreements between units within the university, risk management and strong accountability for
financial performance are now standard within universities. There has also been an increase in
the executive power of managers and boards, although this is probably due as much if not
more to the increased size, complexity and accountability of universities as to the increase in
their commercial activities.


(e) Prominence of commercial values
Underlying all these changes is the increased prominence of commercial values in university
decision-making. While this is frequently overstated, it is nonetheless true that erosion of
public funding and the concomitant increase in commercial and financial risk have caused
universities to become more concerned with the financial viability of courses, departments,
campuses and activities generally than they were two decades ago.

Together and separately these changes are called with varying degrees of accuracy: competition,
commercialisation, corporatisation, entrepreneurialism, marketisation, privatisation, and even
managerialism. Several submissions invited the review to deprecate these developments, and
some submissions at least implied that universities commercial activities should be restricted to
pressuring Governments to restore previous levels of public funding.

Conclusion: core issue
The core issue for the review is: in view of the reduction of universities public funding and
the concomitant increase in their commercial activities, what are the appropriate governance
arrangements to enhance the public value of universities and to protect them and ultimately the
Government from financial risk?

4.3.2 Source of funds for commercial activities
Some submissions expressed concern that some universities may have diverted public funds to
support their commercial activities. The public needs to be assured that its funds are spent on
the purposes for which they are intended.

The Commonwealth provides almost 99 percent of universities public funds (DETYA,
2001a). There are three different but reinforcing accountability regimes to ensure that these
funds are allocated to the purposes specified by the Commonwealth. First, the Commonwealth
requires universities to submit financial statements which are audited for accuracy, probity
and, increasingly, for effectiveness. All universities submit statements that are passed without
substantial qualification by the Auditor-General of Victoria.

Secondly, the Commonwealth requires universities to submit detailed statistical reports on
students and their study load, which assures the Commonwealth that universities provide the
educational services they are funded to provide. All Victorian universities (and indeed most
Australian universities) provide educational services well above the minimum required by the
Commonwealth. The Commonwealth crosschecks universities financial statements with their
student statistical and load reports and assures itself that there is no substantial discrepancy.

Thirdly, each publicly funded student is provided with a statement of their HECS liability each
semester they are enrolled, which is checked for accuracy by the student, checked for
consistency with separate student load reports by the Commonwealth, and reconciled with
separate tax liability reports by the Australian Taxation Office.

Notwithstanding these detailed checks, this issue is essentially one of public confidence. It is
not sufficient that Government and university managers acquit public funds correctly: the
process of public accountability must be sufficiently transparent to convince the public, lest
the publics confidence in universities waver and therefore funding decline. The Victorian
Government already has detailed information on universities use of public funds since it

receives copies of universities submissions reports to the Commonwealth. But the Victorian
Government, and through it the public, may legitimately seek open assurance that there is no
diversion of public funds to commercial or other unauthorised purpose.

Recommendation 18: public funds for proper purposes
That councils state explicitly in their annual report of operations that the university allocated
its public funds to the purposes specified by the Government or funding body, and that this
statement be audited.

4.3.3 Financial vulnerability
Public institutions have a responsibility not to waste public resources, which includes not
diminishing publicly funded assets by exposing them to commercial risk. A number of
submissions feared that some universities are inappropriately exposing publicly funded assets
to commercial risk. The Commonwealth Department of Education, Science and Training
(formerly DETYA) analyses institutions financial statements closely as part of the
Commonwealths prudential assurance responsibilities. This analysis includes the calculation
of five indicators of financial health and their projection for three years in advance. Each year
the Department reports publicly in general terms on institutions financial health (DETYA
2001b: section 1.5). These reports show that Victorian universities are not vulnerable
financially. However, financial vulnerability frequently arises not from exposure to
commercial risk but from over-reliance on Government grants, which as we have seen are
falling while major costs such as staff salaries are increasing.

4.3.4 Good financial administration
Some submissions expressed concern at the risk of failure to comply with standards of good
financial administration, and a few claimed that in some cases these standards were not met.
Protecting against failure of financial administration is the responsibility of the university
council and its management. One important mechanism for discharging this responsibility is to
ensure that there is a robust and vigorous audit program that reviews all aspects of the
universitys operations.

In his consultations with the review the Auditor-General of Victoria, Mr W Cameron reported
that there was no distinction between the way his office treated universities and other public
bodies. Mr Cameron reported that his office had not found many difficulties with universities
financial procedures as statutory corporations, that universities current audit arrangements are
adequate for assuring good financial administration for these purposes, and that universities
responded well to the issues raised by his office. Mr Cameron encouraged universities audit
committees to keep his office informed of issues and queries that arise during the year. In
addition, although it is perhaps not appreciated as widely as it might be, anyone may report on
concerns about a universitys financial administration to its independent external auditor.

Conclusion: no additional financial and probity assurance needed
In view of the advice of the Auditor-General of Victoria, the review concludes that no
additional regulation is needed to assure the public that universities are meeting appropriate
standards of probity and financial administration generally.

4.4 Existing accountability mechanisms
The extent of liability and the nature of accountability for commercial activities depend on the
legal entity through which the activities are conducted. The table below summarises the
position for the entities most commonly used by Victorian universities.

Type of entity Example Type of accountability
Statutory corporation. La Trobe University Union,
established under the
universitys statute 10.
Public bodysection 45
of the Financial
Management Act 1994.

Companywholly owned
subsidiary.
The Meanjin Company
Limited.
Section 53A of the
Financial Management
Act 1994;
Sub section 37 (8) of
universities Acts;
Corporations Law.
Company controlled by the
university but not a wholly
owned subsidiary.
Monash Unicomm Pty Ltd. Sub section 37 (8) of
universities Acts;
Corporations Law.
Company not controlled by
the university.
VTAC Solutions Pty Ltd. Corporations Law.
Trust Sydney Rubbo memorial
trust.
Section 45 of the
Act 1994.
Partnership Possibly some activities of
the Australian Technology
Network.
Section 45 of the
Act 1994.
Joint venture Possibly the Melbourne and
Monash protocol for
collaborative endeavours.
Section 45 of the
Act 1994.

These are discussed in more detail in the following sections.

4.4.1 Statutory Corporation
All publicly funded universities trade as statutory corporationsthrough the powers invested
in them in their Acts. For example, universities trade as statutory corporations when they enrol
domestic fee-paying post graduate students in the university rather than in an associated
company. The University of Ballarats Business Development Centre manages the universitys
halls of residence and the University of Ballarat Information Technology Services. Some of La
Trobe Universitys commercial activities are conducted through the La Trobe University
Union, established under the universitys statute 10. La Trobe University Union hires out
venues, sells food and provides catering services commercially. (La Trobe Union in turn has
established a fully owned subsidiary La Trobe Marketing Pty Ltd, a company limited by
shares, to sell insignia products for the university). Swinburne University has established an
internal unit Swinburne Knowledge to guide schools and research centres on the
commercialisation of intellectual property.

Universities liability for loss is unlimited when they trade as statutory corporations since their
Acts do not explicitly limit liability.

The Minister may require a university to include additional information in its annual report of
operations or financial statements (section 51) and to submit financial statements for part of a
financial year (sub section 52 (2)). The Minister may further require a universitys accountable
officer to provide the Minister with any financial information requested by the . . . Minister
(subsection 44A (1)).

Universities are also required by section 5 of the Tertiary Education Act 1993 to supply the
Minister with any information that he or she may reasonably require for the effective
monitoring, development and planning of post-secondary education in Victoria.

4.4.2 Wholly owned subsidiaries
Universities have historically established companies to give a separate identity, autonomy and
accountability to special activities. For example, the University of Melbourne established The
Meanjin Company Limited to publish a journal of fine writing and provocative ideas as its
web site proclaims (2002). Universities are increasingly conducting existing and new activities
through companies (Phillips Fox, 2001: 10). The Victorian Auditor-General offices list of
universities controlled entities, many of which are wholly owned subsidiaries, is included as
Appendix 3 to this report.

Most trading companies have their liability limited to the value of the shares subscribed by
their shareholders, which can be as little as $2, or if they are a company limited by guarantee
as is The Meanjin Company Limited, to the extent of their guarantee.

Section 53A of the Financial Management Act 1994 requires wholly owned subsidiaries of
statutory authorities including wholly owned subsidiaries of universities to submit annual
reports to the Minister. This is in addition to the accountability requirements for controlled
companies, which are described in the next section.

4.4.3 Controlled companies
Universities accountability for companies turns crucially on whether they control the
company. The Victorian Auditor-Generals office included in its submission a list of
universities controlled entities, which is appended to this report. A university controls a
company if it owns a majority of its shares51 percent or more. A university may also control
a company if it has a minority shareholding if, for example, it has the largest minority
shareholding. Their articles of association determine the control of companies limited by
guarantee rather than by shares. Control can therefore be difficult to determine. Control is
defined in sub sections 37 (6) and (7) of universities Acts dealing with the power to form
companies (Appendix 3) which incorporates the control test specified from time to time by the
Corporations Law.

The University Acts (Further Amendment) Act 1995 (No. 70/1995) amended each universitys
Act to give the universitys council power to form or participate in companies. The provisions
of the University of Ballarat Act 1993 set out in Appendix 4 are identical to those in other
universities Acts. It will be noted that as specified by sub section 37 (8) there must be an audit
by the Auditor-General of all companies formed by the university in which the university has a
controlling interest, as specified by paragraph 37 (5) (b). But there is no requirement for the
Auditor-Generals audit of any other type of entity controlled by universities, such as joint
ventures, associations and partnerships. This issue is considered later in this chapter.

4.4.4 Possible duplicate audit of controlled companies
The requirement of sub section 37 (8) to have controlled companies accounts audited by the
Auditor-General is in addition to the auditing requirements of the Corporations Law provided
in 37 (9)
37. Formation and membership of companies
(8) Where the University forms, participates in the formation of or is a member of, a
limited company to which sub-section (5) applies, the accounts of the limited company
must be audited annually by the Auditor-General or a person authorised by the
Auditor-General.
(9) The requirements of sub-section (8) are in addition to the requirements of the
Corporations Law of Victoria.

In its submission the Victorian Auditor-Generals office noted that this sometimes resulted in
two different auditors conducting two separate audits and publishing two separate reports. The
review agreed that this was a source of potential confusion that should be clarified.

Recommendation 19: minimising overlap of duplicate audits
That the Office of Higher Education coordinate consultations with the Auditor-General for
Victoria and universities with a view to minimising duplicate audits and clarifying
arrangements where duplicate audits are considered necessary.

4.4.5 Entities not controlled by the university
All universities trade through companies which no one university controls. For example, all
Victorian universities are members of and own shares in the Victorian Tertiary Admissions
Centre, or more precisely VTAC Solutions Pty Ltd. Since no one university owns a majority
of shares in the company and the participating institutions share control, VTAC Solutions Pty
Ltd is not controlled by any one university. Likewise all Australian universities are members
of the Australian Vice-Chancellors Committee Ltd, which in turn wholly owns Higher Ed
Systems Pty Ltd, which provides administrative systems to higher education. One such service
is UniJob a HES initiative endorsed by the AV-CC as its web site proclaims
(http://www.seek.com.au/hes/), which is operated by SEEK Communications Ltd.

Other examples of companies in which each university has a minority participation are Open
Learning Australia which is a private company owned and controlled jointly by seven
Australian universities, including Victorias Monash University, RMIT and Swinburne
University; Universitas 21, an international network of 18 member universities in 10 countries
founded by the University of Melbourne; and RMITs membership of the Global University
Alliance with the on-line education company NextEd, the University of South Australia and
seven overseas universities.

It is very difficult for a jurisdiction to specify unilateral accountability for companies not
controlled by the universities in its jurisdiction. For example, if Victoria were to specify
accountability requirements for companies in which Victorian universities had minority
participation, the Australian Vice-Chancellors Committee Ltd would have to comply with
Victorias requirements as well as the national requirements. Elsewhere the review recounts
some of the difficulties caused for universities by different Commonwealth and Victorian
governments treatment of universities financial statements. If other States or Territories were
to specify its own requirements, the AVCC would soon be in the impossible position of having
to comply with multiple accountability requirements. Similar considerations apply to

partnerships, joint ventures and other non-corporate entities not controlled by any one
university.

Largely because of these complexities the review recommends no change to the current formal
legal position, which does not require universities to account for non-controlled entities
beyond the standard accountability requirements of the Corporation Law. However, in the
section on risk management the review recommends that universities exposure to commercial
and other risks through entities they do not control be managed fully, carefully and
transparently.

4.4.6 Non corporate entities controlled by the university
Universities trade through several types of non-corporate entities, many of which they control.
Three are discussed here: trusts, partnerships and joint ventures. All universities have express
and constructive or implied trusts. For example, a university that receives $1,000 on behalf of
a professional association for a prize awarded in the associations name probably holds the
funds on trust for the association. Some universities hold extensive trust funds. Monash
University reported in its submission that if the university owns <50 percent of a company it
considers it to be not a controlled entity, and it is put into Monash Commercial Trust of which
the university is the sole beneficiary.

Some universities may trade through partnerships. RMIT is a member, with four other
Australian universities, of the Australian Technology Network. The universities have
registered Australian Technology Network (ATN) as a business name, but not as a company.
It is therefore possible that for some projects the network trades as a partnership, which has
strong obligations between partners. For example, a partner is jointly liable for the debts of the
firm or partnership, notwithstanding that the debts were incurred by other partners or members
of the firm (but not for debts that members of the firm incurred outside the partnership).

Universities sometimes trade through joint ventures or joint arrangements, which normally
have narrower and less onerous obligations than a partnership which are either specified in a
joint venture agreement or, if necessary, inferred from the nature of the relationship and the
course of dealings between the joint venturers. Thus, a university might conduct an education
and training program for a companys employees through a joint venture with the company.
The University of Melbourne and Monash University have established the Melbourne and
Monash Protocol for Collaborative Endeavours, which arguably is a joint venture.
(http://www.unimelb.edu.au/about/melbmonash/)

Universities include reports on their controlled non-corporate entities in their annual reports on
operations and financial statements. Universities are required by the Financial Management
Act 1994 to make all their financial records available, including records of controlled non-
corporate entities, so the Auditor-General can exercise an effective supervisory role over these
bodies.

While universities often publish separate annual reports and financial statements of their
controlled non-corporate entities, they are not required to do so. This is relevant to the first
issue the review noted, which had been raised by the Auditor-General for Victoriathe need
to involve the Auditor-General in the accountability for universities commercial activities.
The review was advised that the Auditor-General intends to audit all entities controlled by
universities, irrespective of the form of their association. Nonetheless, any gap in the Auditor-
Generals responsibility for auditing these entities should be filled. The review was advised

that the Audit (Further Amendment) Bill 2001 currently before Parliament would achieve this
aim.

4.4.7 Controlled companies established overseas
All universities conduct commercial activities in Victoria, all participate in commercial
activities interstate and most if not all conduct commercial activities off shore. In its
submission the Victorian Auditor-Generals office reported that Deakin University had
established DeakinPrime, the corporate arm of Deakin University, in the USA; Monash
University had established Monash Southern Africa Pty Ltd and Monash University South
Africa to manage its campus in South Africa; RMIT had established RMIT (Malaysia) Sdn
Bhd; the University of Melbourne had established Melbourne Enterprises International
(Taiwan) Ltd, Melbourne Enterprises International (New Zealand) Ltd, Hawthorn Edinburgh
Ltd in the UK, and Hawthorn English Language Centre (Canada) Ltd; and that Victoria
University of Technology had established Victoria University of Technology (Singapore) Pte
Ltd.

Recently the Victorian Government approved RMITs application for a loan of $31.5 million
from the International Finance Corporation and the Asian Development Bank to build a
private university campus in Vietnam (Kosky, 2002; RMIT, 2002).

Subsection 37 (15) of the University of Ballarat Act 1993 extracted in Appendix 4 above
provides
(15) In this section, "limited company" has the same meaning as in the Corporations Law
of Victoria.

In its submission the Victorian Auditor-Generals office reported that it had received advice
that companies established overseas are not necessarily companies within the meaning of the
Corporations Law of Victoria. Since other Victorian universities have identical provisions in
their Acts this caused the Victorian Auditor-Generals office to doubt its mandate to audit
companies controlled by universities but established overseas. The Victorian Auditor-
Generals office nonetheless audits these companies, but the review agrees with the office that
any doubt in its audit mandate should be removed.

Recommendation 20: removal of doubt about auditing companies established overseas
That the Government legislate as necessary to remove any doubt in the mandate of the
Auditor-General to audit companies that are controlled by Victorian universities but are
established overseas.

The Victorian Auditor-Generals office submitted that there is currently no requirement for
universities controlled companies established overseas to prepare financial statements in
accordance with Australian generally accepted accounting principles, and furthermore, that
reports in foreign currencies may nevertheless accord with Australian accounting principles.
The review agrees that all universities controlled entities, including those registered off shore,
should comply with Australian generally accepted accounting principles and report in
Australian currency.


Recommendation 21: controlled overseas companies to comply with Australian GAAP
That companies that are controlled by Victorian universities but established overseas submit
financial statements in Australian currency that complies with Australian generally accepted
accounting principles.

Review of University Governance 58 Managing risks
CHAPTER 5: MANAGING RISKS THROUGH GOOD GOVERNANCE
The review considers risk management generally and then some specific issues in universities
management of commercial risk.

5.1 Risk planning, management, monitoring and review
Universities are exposed to a range of financial risks that are not covered by their financial
statements and other existing reporting requirements. For example, a member of a university
staff might provide negligent advice as part of a commercial consultancy on the geological
potential of a mine, or on the capability of an invention promoted by a public company that
results in large numbers of investors losing substantial funds. A member of staff may defame a
public figure in the mass media, exposing the university to defamation damages of millions of
dollars. A university may invest too heavily in an overseas campus and be unable to withdraw
without considerable financial loss. A class of students may suffer extensive harm in a
practical class or on a field trip, or a building may collapse or infect all its occupants with a
harmful disease.

Universities may also be exposed to commercial risks through their minority participation in
companies or other entities they do not control fully. An example given in paragraph 4.4.5 is
Open Learning Australia which is owned and controlled jointly by seven Australian
universities, but in which each university has minority participation.

A different kind of risk, although one that might equally cause substantial financial loss to a
university and the public generally, is failure to exploit intellectual property adequately. An
invention may be disclosed before it is protected by patent, or a patent although owned by a
university may not be exploited sufficiently vigorously during its currency. More prosaically,
through inadvertence, a university may allow a member of staff to earn private income from
exploiting the universitys intellectual property, for example, by the staff member publishing a
textbook privately. Although the sums in individual cases may be modest, in aggregate they
may be a substantial loss of potential income to the university and therefore to the public.

The range of financial risks evident from even these few examples indicates that there is no
single and certainly no simple measure to protect universities against financial risk. Simply
withdrawing from commercial activities will not protect universities from exposure to
substantial financial risk associated with almost all of their public activities.

A third type of risk is risk to academic standing or reputation generally. Universities are alive
to this riskindeed, some might believe that they and their academic boards guard their
academic reputation too conservatively.

A fourth, familiar risk is that of prosecution for failure to comply with legal obligations.

A fifth risk is moral risk. The risk that while an institution may act within the law and may
suffer no financial loss, it is perceived to act below the standard expected of institutions of that
type. Examples of moral risk are the risk of being perceived as being too motivated by
commercial gain; as not sufficiently responsive to the public interest; or as being preoccupied
with its institutional interests and overlooking those of its students or the public.

A range of measures is required to protect universities against these risks. All universities have
risk management strategies, although admittedly of varying comprehensiveness and often with
little prominence.


Universities should have a risk management strategy that is comprehensive in scope (covering
risks that are financial, legal, industrial and moral, including risks to reputation, and that of not
complying with appropriate equity, occupational health and safety and environmental
standards); comprehensive in range (covering activities that are publicly funded and
commercial, on shore and off shore, academic and general); systematic; and that meets the
appropriate standard (Australian risk management standard AS/NZS 4360 1999).

Risks should be:
(a) planned, for example, by including provision for contingencies in strategic plans;
(b) managed by the level of the organisation incurring the risk;
(c) monitored at senior levels;
(d) reviewed regularly to take account of universities changed circumstances and
activities; and
(e) public.

Recommendation 22: risk planning, management, monitoring and review
That universities be required to include in their annual report on operations their progress in
handling risk by:
(a) including risks in plans;
(b) managing risk;
(c) monitoring risk;
(d) reviewing risk management regularly to take account of universities changed
circumstances and activities; and
(e) making risk management public.

Adoption of this proposal would address the third issue the review noted had been raised by
the Auditor-General for Victoria, the need for universities to ensure that detailed business
plans, which incorporate a detailed risk analysis, are prepared for universities commercial
activities and are comprehensively reviewed by universities.

Deakin University, Monash University, Swinburne University of Technology and the
University of Melbourne included in their submissions to the review brief statements of their
risk management strategies. In addition, the University of Melbourne has commissioned an
authoritative independent credit rating agency to give it a credit rating (the university is rated
at AA, the highest for non-Government bodies) and publishing such ratings assures the public
that universities are meeting the highest commercial prudential standards.

5.2 Limiting liability
In many circumstances it is appropriate for universities to trade as statutory corporations
notwithstanding that this exposes them to unlimited liability. For example, when they engage
staff and charge students fees. But universities should limit their liability when they undertake
more risky or speculative ventures by conducting them through an entity with limited liability.

An obvious but not negligible risk is from university staff providing consultancy advice and
other commercial services on university letterhead or using the universitys email, perhaps
also using their university title or at least not making sufficiently clear to the recipient the
capacity in which they are providing advice. In some circumstances ultimate liability for such
activities could be borne by the university, which as a statutory corporation has unlimited
liability. It is far preferable for such services to be provided through an entity with limited
liability.

The review believes that it would be useful to universities internally and would contribute to
public understanding and confidence for universities to assure the public that they have
appropriate risk management strategies for consultancy services and other risky or speculative
commercial activities.

Recommendation 23: limiting liability
That universities include in their risk management strategies consultancy services and other
commercial activities and consider conducting these activities through entities with limited
liability.

5.3 Effective council responsibility for controlled entities
2

In addition to being responsible for general university governance considered in Chapter 2, the
university council is clearly ultimately responsible for all entities controlled by the university.
Control is defined in sub sections 37 (6) and (7) of universities Acts dealing with the power to
form companies (Appendix 4), which incorporates the control test specified from time to time
by the Corporations Law. Good corporate governance requires the council to exercise full and
effective control and to monitor the executive management of their controlled entities. An
effective system of corporate governance will facilitate decision-making and appropriate
delegation of responsibility for the university within an effective framework of accountability.
This requires the councils effective involvement in strategic policy, risk management and
performance assessment. Such arrangements should ensure that the varying interests of
stakeholders are appropriately balanced; that decisions are made in a rational, informed and
transparent fashion; and that those decisions contribute to the universitys overall efficiency
and effectiveness.

Councils should ensure the representation of sufficient expertise and experience on the boards
of controlled entities to safeguard the universitys long-term interests. This entails ensuring
that appropriately selected boards are appointed to controlled entities and that they function in
the most effective manner possible. Collectively board members should possess the skills,
knowledge and experience necessary to provide proper stewardship and control of the entity,
and to ensure that an effective control structure and systems are in place to manage, among
other things, the major risks faced by the body; reporting performance to stakeholders; and
complying with applicable laws and regulations.

In addition, councils need to consider whether and to what extent the board should include
members independent of management and of the researchers directly involved in the
enterprise. The Victorian Auditor-Generals office advises that while there are differing views,
the better practice is to include independent directors to ensure that boards have input from

2
The review thanks Mr Rob Fearnside, Director, Education and State and Regional Development,
Victorian Auditor-Generals Office for his constructive comments on a draft of this report and for his
contribution of much of the material in sections 2.5.7 and 4.3.

members who exercise judgement free from any business, management or other relationship.
In some cases boards comprise a majority of independent directors to avoid potential or
perceived concerns that a board dominated by management and researchers might advance
interests of an individual above those of the company and its owner.

The board of the associated entity should develop a written statement of its own governance
principles and regularly evaluate them. The governance arrangements should document:
- board structure;
- desired qualifications and experience of board members;
- format and timing of board meetings and processes for preparing agenda
items and the availability of material and information to enable informed
discussion by directors;
- the need to establish appropriate committees;
- procedures for dealing with conflicts of interest, dissent and resignation;
- schedule of matters specifically reserved for board decision;
- rights of directors to seek independent professional advice;
- a code of conduct and business practice for board members;
- a register of pecuniary interests which is up to date and covers both
members of the board and staff.
Where board members find that there is a conflict of interest, they should formally declare the
conflict and abstain from voting on the issue that gave rise to the conflict. It is essential that all
associated entities have clear procedures for dealing with these circumstances.

Since the universitys long-term interest in many of its associated entities is to have any
research developed to a point where the underlying value of the research is taken up by
industry, it is important that a clear and documented corporate and business strategy be
developed. Boards should document the companys objectives in a long-term corporate
strategy, updated annually, with an annual business plan containing achievable and measurable
performance targets and milestones.

It is also appropriate to establish clear lines of reporting between the university council and the
boards of associated entities. Since representatives on the boards of associated entities assume
legal responsibilities as directors in their own right and have responsibilities to act in the best
interests of the associated entities, an informal understanding to keep the council adequately
informed is not sufficient. A memorandum of understanding that sets out the minimum
information flows between the two parties best deals this with. For example, it is desirable for
a council to request a draft business plan from its associated entities for consideration and
approval before the commencement of each financial year, and to receive monthly or at least
quarterly reports made against that business plan.

The business plan, at a minimum, would include information about:

- the nature and scope of business activities for the company;
- financial estimates and accounting policies employed in their
preparation;
- performance targets, including

revenue targets,
return on investment targets, and
dividend levels;
- major investment/divestment activities including proposed sources of
funds or policy on retention of funds from divestment.

Recommendation 24: effective council oversight of controlled entities
That university councils establish effective oversight of controlled entities which incur
substantial risk by:
(a) ensuring that their boards possess the skills, knowledge and experience necessary to
provide proper stewardship and control of the entity;
(b) appointing to boards at least some independent directors and preferably a majority of
independent directors;
(c) ensuring that boards adopt and evaluate regularly a written statement of their own
governance principles;
(d) ensuring that boards document a clear corporate and business strategy which reports
and updates annually the companys long term objectives and includes an annual
business plan containing achievable and measurable performance targets and
milestones;
(e) establishing and documenting clear expectations of reporting to council, such as a draft
business plan for consideration and approval before the commencement of each
financial year and monthly or at least quarterly reports against the business plan.

Adoption of this proposal would address the second issue the review noted had been raised by
the Auditor-General for Victoria, the need to assure a management framework that provides
appropriate monitoring of universities commercial activities.

The review has noted above that each universitys Act gives the Auditor-General right of
access at all times to the books, securities, accounts and vouchers of university limited
companies and may require additional information from company officers, irrespective of the
size of the company or the level of risk it may incur.

5.4 Management of risks incurred by entities not controlled by the university
Universities may be exposed to risk by entities which are associated with them but which they
do not control. Examples are companies in which a university has a minority interest (perhaps
with several other universities), companies limited by guarantee rather than by shares, trusts,
partnerships and joint ventures. The diversity of non-controlled entities and the different risks
to which they may expose their universities makes it difficult to prescribe a single rule or way
of protecting against such risks. However, these risks should be covered explicitly in
universities risk management programs described in paragraph 5.1.

5.5 Consolidated accountability of multiple commercial subsidiaries
The fourth issue the review noted had been raised by the Auditor-General for Victoria was the
desirability of universities, with a substantial number of subsidiaries engaged in commercial
activity, establishing a university subsidiaries committee or similar body to oversee the

financial and operational activities of the universitys various subsidiaries and strengthen the
monitoring of major subsidiaries activities and financial performance.

Three universities have substantial numbers of subsidiaries engaged in commercial activity:
Monash University, RMIT and the University of Melbourne. Each has established different
mechanisms to oversee their commercial subsidiaries. In its submission Monash University
reported that in 2001 it established Monash Commercial Pty Ltd as a wholly owned subsidiary
to monitor the financial performance of the universitys subsidiary commercial entities, ensure
that the commercial entities are aligned with the universitys goals, attract equity and interact
with the commercial world. A support group that reports to the chief executive officer,
administers Monash Commercial. The support group provides accounting and payroll services,
company secretary services, and taxation, legal and financial advice. The group also includes a
commercialisation manager to develop appropriate risk management practices and ensure that
adequate due diligence is carried out before commercial decisions are taken by the companys
commercialisation executive committee. Monash Commercial reports to council after each
board meeting and is subject to the audit, risk management and compliance reviews of the
universitys internal audit.

RMIT coordinates its commercial activities through four companies: RMIT Innovation Ltd,
which packages the universitys research and development solutions; RMIT International P/L,
which promotes and develops RMITs global business through the recruitment of on-shore
international students and through international business development, consultancy, training,
research and project management services; and RMIT Training P/L which says it works
creatively with its partners to deliver innovative knowledge and people management solutions
to improve the performance of individuals and organisations.

The University of Melbourne oversees the financial and operational activities of its various
subsidiaries through a university subsidiaries sub committee. Three of the five members of this
sub committee are external members of council. The university established the subsidiaries
sub committee in November 2000, after the Auditor-General made his initial findings. The
Auditor-General reported that the establishment of this committee should strengthen the
monitoring of Melbourne University Private Ltds activities and financial performance
(paragraph 3.1.68 of the report on ministerial portfolios June 2001).

The review adopts the Auditor-Generals recommendation that universities with a substantial
number of subsidiaries engaged in commercial activities should establish an appropriate and
transparent governance mechanism for overseeing the subsidiaries on behalf of council. An
appropriate mechanism would be a holding company such as Monash Commercial Pty Ltd, a
consolidation of companies such as at RMIT, or a university subsidiaries sub committee such
as at the University of Melbourne. The mechanism should:

1) ensure that the activities of the universitys subsidiaries are congruent with the
universitys objects;
2) recommend on the subsidiaries strategy;
3) monitor subsidiaries planning and performance; and
4) report on subsidiaries performance against plans.

In addition the mechanism might have other, internal roles such as coordinating activities and
pooling expertise.

5.6 Management of international programs
In his performance audit report #29 on international student programs in universities the
Auditor-General for Victoria reported that because universities are enrolling more local
students than the number of students specifically funded by the Commonwealth Government,
and international full-fee paying students do not compete for local places, there cannot be any
displacement of local students (paragraph 3.25). The Auditor-General made a similar finding
in his 2002 report International students in Victorian universities. This is a helpful finding,
since it corrects the popular misunderstanding that international students take places that
would otherwise be filled by Government-funded domestic students.

The fifth issue the review noted had been raised by the Auditor-General was the desirability of
establishing for international student programs more formal and systematic strategic planning,
marketing, financial administration and public assurance of the maintenance of academic
standards including the maintenance of academic standards in off shore programs (arising
from performance audit report #29: international student programs in universities, 1993). In
his subsequent report on International students in Victorian universities the Auditor-General
found that considerable progress had been made since the 1993 report. He concluded that
international student programs which were relatively new in 1993 are now conducted more
efficiently and with more rigorous procedures (paragraph 8.2).

The review therefore concludes that the issues raised by the Auditor-General about the
management of universities international programs that were live at the time of the
establishment of the review are no longer current and that no further change is required at this
stage.

Review of University Governance 65 Conclusion
CONCLUSION

The preceding chapters have shown that university governance is complicated by the
development of practices over different times, by the engagement of different interests, and by
the involvement of different stakeholders. The review has been unable to provide a simple or
even single formula to solve all the issues and resolve all the tensions in contemporary
university governance. But if there is a theme to the review, it is that universities governance
may be strengthened by increasing councils responsibilities for overseeing their universitys
commercial activities and protecting the public interest.

The review has recommended that all universities should have objects specified in their Acts
which should include serving the public interest by promoting critical inquiry
(recommendation 1, paragraph 3.1.1). While no change should be made to the specification of
councils functions in universities Acts (recommendation 2, paragraph 3.1.2), the review
recommended that universities adopt a statement of their primary responsibilities.

Councils primary responsibilities should include appointing the vice chancellor and
monitoring her/his performance; identifying the universitys mission and strategic direction;
defining policy and procedures consistent with legal requirements and community
expectations; establishing and monitoring systems of control and accountability including
monitoring controlled entities; reviewing and monitoring both the management of the
university and its performance as an institution; and, importantly in view of universities
increasing commercial activities, risk management ( recommendation 3, paragraph 3.1.2).
Councils should not normally delegate these responsibilities (recommendation 4, paragraph
3.1.2).

In view of the increased reliance being placed on councillors the review recommended that
universities Acts state explicitly that council members duty is to act solely in the interests of
the university taken as a whole having regard to its objects (recommendation 5, paragraph
3.1.2) and that the more comprehensive provisions protecting against conflicts of interest in
the Acts for RMIT, Swinburne University of Technology, the University of Ballarat and
Victoria University of Technology be extended to all Victorian universities (recommendation
6, paragraph 3.1.4).

The review made two recommendations to support councillors in discharging their increased
responsibilities; on the development of councillors leadership and governance
(recommendation 7, paragraph 3.1.5); and, on the remuneration of councillors. In view of the
sensitivity of the latter the review recommended that the Government consider whether
external councillors should be remunerated within Victorian Government guidelines at levels
that reflect the varying size and complexity of Victorian universities and the additional
responsibilities borne by chancellors and council members who are also members of key
committees (recommendation 8, paragraph 3.1.6).

While the review made no recommendation to change current practice, it wished to record the
importance of academic boards in university governance as the custodian of universities
academic standard, which is central to their role as academic institutions. The review
concluded that a strong academic board is essential to maintain academic standards and
recommended that academic boards strong role in universities academic governance
provided in universities Acts be retained (recommendation 13, paragraph 3.2.5).

Review of University Governance 66 Conclusion
The review considered review and appeal mechanisms, which are an important part of
universities accountability. The review did not believe that the university visitor added
significantly to existing remedies and therefore recommended that universities Acts be
changed to provide that the university visitor has ceremonial functions only (recommendation
16, paragraph 3.3.4). The review recommended measures to improve the accessibility of
review by the Victorian Ombudsman (recommendation 14, paragraph 3.3.3) and universities
internal review procedures (recommendation 15, paragraph 3.3.3).

While the review opened with the general university governance issues raised by its terms of
reference, it spent much of its time considering issues arising from the increase in universities
commercial activities that precipitated the review. The review believes that its
recommendations will strengthen the governance of those activities both though councils
and subordinate entities. This will maintain transparency in the use of public funds, and in the
operations of controlled entities, and ensure that public resources are not diverted to other
activities.

Review of University Governance 67 Other jurisdictions
APPENDIX 1: UNIVERSITY GOVERNANCE IN OTHER JURISDICTIONS

Identify the manner in which these issues are addressed in similar higher
education systems in other States and countries.

The review briefly examines how selected university governance issues are addressed in other
jurisdictions, first in Australasia.

A1.1 Commonwealth
The Commonwealth has established one university, the Australian National University in
Canberra. The Australian National University Act 1991 (Cwth) has unexceptional provisions
aside from
Taxation

48. (1) Subject to subsection (2), the University is not subject to taxation under the laws of the
Commonwealth or of a State or Territory.
(2) The University is subject to payroll tax under the law of a State or Territory.

ANU is subject to the Commonwealth Authorities and Companies Act 1997 (Cwth) that
provides reporting and other obligations for Commonwealth authorities and companies, which
again are unexceptional.

The Commonwealth Government has adopted governance arrangements for Commonwealth
government business enterprises (1997) that provide these principles

1.1 The Commonwealths relationship to its GBEs is similar to the relationship between a
holding company and its subsidiaries, features of which include:
a. a strong interest in the performance and financial returns of the GBE;
b. reporting and accountability arrangements that facilitate active oversight by
the shareholder; and
c. action by the shareholder in relation to the strategic direction of its GBEs
where it prefers a different direction from the one proposed.

1.2 The Commonwealths ownership interest is represented by two Shareholder
Ministers, the portfolio Minister (that is the Minister responsible for the portfolio in
which the GBE is located) and the Finance Minister.
* * *
1.3 The guiding principles of the governance arrangements are:
a. Shareholder Ministers exercise strategic control consistent with their
accountability to the Parliament and the public.
b. Shareholder Ministers set clear objectives for GBEs;
i. any Community Service Obligations (CSOs) that a GBE is to
undertake are generally specified through contractual arrangements.
c. The directors of a GBE develop the business strategies and handle the day-to-
day management policies.
d. The directors of a GBE ensure that:
i. the GBEs activities are conducted so as to minimise any divergence
of interests between the GBE and the shareholders;
ii. GBEs are managed in the best interests of the shareholders; and
iii. GBEs and their officers maintain the highest standards of integrity,
accountability and responsibility.

e. Required standards of disclosure are satisfied. In particular, timely disclosure
is to be made by GBEs of information:
i. which may affect the shareholder value of the organisation;
ii. which may influence Government decisions in relation to the GBE; or
iii. in which the Government has a legitimate interest.
f. Information is produced for the shareholder and the community according to
the highest standards;
i. where appropriate, information enables ready comparison with other
relevant information.
g. The Shareholder Ministers must be consulted on matters of significance.

These principles are not appropriate for Victorian universities since apart from anything else,
they would reduce universities public service to community service obligations specified by
contract.

A1.2 Australian Capital Territory
The Australian Capital Territorys second university, the University of Canberra is established
under ACT legislation. The University of Canberra Act 1989 (ACT) provides for familiar
functions or objects of the university, but additionally it provides for

Values and principles of the University

6A. The University shall have an objective of implementing the following values and
principles:
(a) service to scholarship and the education of the Australian people;
(b) responsiveness to the needs of Australia;
(c) fairness and integrity;
(d) efficiency and effectiveness;
(e) accountability for the performance of the University's functions.

The university is subject to the Financial Management Act 1996 (ACT) which provides

Statements of intent
58. (1) A Territory authority shall, in respect of each financial year, provide to the Treasurer a
statement of intent.
(2) A statement of intent shall be in such form as the Treasurer requires and be provided to the
Treasurer within such period as the Treasurer specifies.
(3) A statement of intent shall include -
(a) an estimated operating statement for the authority for the year;
(b) a statement of the assets and liabilities of the authority at the commencement of the
year or, if the statement of intent is required to be provided before the commencement
of the year, a statement of the assets and liabilities that the authority is expected to
have at the commencement of the year;
(c) a statement of the assets and liabilities that it is planned that the authority will have at
the end of the year;
(d) a statement of estimated cash flows of the authority for the year;
(e) a statement of the objectives of the authority for the year;
(f) a statement of the nature and scope of the activities to be undertaken by the authority
during the year;

(g) the performance criteria and other measures by which the performance of the
authority may be assessed in relation to its objectives for the year; and
(h) such other information as the Treasurer directs.

The University of Canberra Act 1989 requires the university to report only on entities in which
it has a controlling interest

Reporting requirements

38. Where the University has a controlling interest in a company or joint venture within the
meaning of the Auditor-General Act 1996, the University shall-
(a) within 14 days after the lodgement of any report, return or statement relating to the
company or joint venture with the Australian Securities Commission, submit a copy of the
report, return or statement to the Treasurer; and
(b) include a summary of the operations of the company or joint venture during a financial
year of the company or joint venture, together with a summary of the financial statements in
respect of those operations, in the first annual report of the University prepared after the end of
that year.

A1.3 New South Wales
The Audit Office of NSWs Guide to better practice for public sector governing and advisory
boards (1988) provides useful guidance and checklists on governance generally.
The New South Wales Parliament recently enacted the Universities Legislation Amendment
(Financial and Other Powers) Act 2001, but the Act had not been proclaimed at the time of
preparing this report. The main differences between the NSW Act and the current provisions
of Victorian legislation are set out below.

A1.3.1 University objects, main functions and other functions
The NSW Act would establish for each university a hierarchy of:

1. objects;
2. main functions;
3. other functions (see, for example, section 2 of the Act);

and these objects and functions would be substantially the same for each university.
In comparison all Victorian universities except the University of Melbourne have their objects
specified in their Acts, but unlike the NSW Act, Victorian universities objects do not have a
common form or content. However, most include common elements.

A1.3.2 Functions of Council
The NSW Act would specify the functions of all university councils thus

(1A) The council:
(a) acts for and on behalf of the university in the exercise of the universitys
functions, and
(b) has the control and management of the affairs and concerns of the university,
and
(c) may act in all matters concerning the university in such manner as appears to
the council to be best calculated to promote the object and interests of the
university (clause 6).


The Acts of the four newer universities provide simply that the council is the governing
authority of the university and has the direction and superintendence of the university. The
Acts of the older Victorian universities specify their councils functions in two parts, as the
governing body of the university and later as having the entire direction and superintendence
of the affairs of the university supplementary to their staffing powers.

A1.3.3 Borrowing and investment powers
The borrowing power provided by the NSW Act (section 10) would be less extensive than the
common provisions in Victorian legislation, and the NSW Act would require universities to
get the Minister and the Treasurers approval to invest funds and to engage a funds manager
(section 19).

A1.3.4 Participate in commercial vehicles and controlled entities
The provisions of the NSW Act giving each university power to participate in commercial
vehicles (section 11) are less extensive than those provided in Victorian legislation.

Victorian legislation authorises universities to participate in companies, which have objects
incidental or conducive to the attainment of any of the objects of the university. Arguably the
NSW provision (section 14) would be somewhat more restrictive

(1) The council must ensure that a controlled entity does not exercise any function or engage
in any activity that the university is not authorised by or under this Act to exercise or engage
in, except to the extent that the council is permitted to do so by the Minister under this section.
(2) The Minister may, by order in writing, permit the council to authorise a controlled entity to
exercise a function or engage in an activity of the kind referred to in subsection (1).
Permission may be given in respect of a specified function or activity or functions or activities
of a specified class.
(3) The Governor may make regulations providing that subsection (1) does not apply to
functions or activities of a specified class.

A1.3.5 Commercial activities: guidelines, register and reports
The NSW Acts definition of university commercial activity includes any activity engaged
in by or on behalf of the university in the exercise of commercial functions of the university
(section 16). This definition is wider than the universitys participation in commercial entities
and would include, for example, universities commercial activities as statutory corporations.

The NSW Act would provide guidelines for universities commercial activities (section 16)

24B Guidelines for commercial activities
(1) The Minister on the advice of the Treasurer may approve guidelines requiring specified
processes and procedures to be followed in connection with university commercial activities.
(2) The council may submit proposals for the guidelines to the Minister for approval.
(3) Without limitation, the guidelines may contain provision for or with respect to the
following in connection with university commercial activities:
(a) requiring feasibility and due diligence assessment,
(b) requiring the identification of appropriate governance and administrative
arrangements (including as to legal structures and audit requirements),

(c) requiring the undertaking of risk assessment and risk management measures,
(d) regulating and imposing requirements concerning the delegation by the
council of any of its functions under this Act in connection with university
commercial activities,
(e) declaring a specified activity to be a university commercial activity for the
purposes of paragraph (b) of the definition of that expression in section 24A.
(4) The council must ensure that the guidelines are complied with.

The NSW Act would further require councils to maintain a register of commercial activities

24C Register of commercial activities

(1) The council is to maintain a register of university commercial activities and is to enter and
keep in the register the following details of each of those activities:
(a) a description of the activity,
(b) details of all parties who participate in the activity,
(c) details of any appointment by or on behalf of the university to relevant boards
or other governing bodies,
(d) details of any meetings at which relevant matters were considered and
approved for the purposes of compliance with the guidelines,
(e) such other details as the guidelines may require.
(2) The guidelines may make provision for the following:
(a) exempting specified activities or activities of a specified class from all or
specified requirements of this section,
(b) altering the details to be included in the register in respect of specified
activities or activities of a specified class
(c) enabling related activities to be treated as a single activity for the purposes of
the register.
(3) The council must comply with any request by the Minister to provide the Minister with a
copy of the register or any extract from the register.

The NSW Act would give the Minister power to require universities to report on commercial
activities

24D Reports to Minister on commercial activities
(1) The Minister may request a report from the council as to university commercial activities or
as to any particular university commercial activity or aspect of a university commercial activity.
(2) The council must provide a report to the Minister in accordance with the Ministers request.

A1.3.6 Ombudsman and Auditor-General
The NSW Act would give the Minister power to refer a university commercial activity to the
Auditor-General or Ombudsman (section 16) and would require councils to include in each
annual report a report of any action taken by the council to implement any recommendation of
the Ombudsman or the Auditor-General whether it arose from a ministerial reference or not
(section 15).

A1.4 Northern Territory
Section 5 of the Northern Territory University Act initially provided an expected range of
functions for the university but a subsequent amendment added
(ca) to liaise with industry, trade, commerce, the community, professional organisations and
training committees;
(cb) to undertake research taking advantage of the human and physical resources of the
University and where appropriate consider commercial exploitation of such
research;

Section 2 of the Act requires the university to gain the Northern Territory Treasurers approval
to establish companies.

A1.5 Queensland
The Queensland Government is preparing a Higher Education Amendment Bill to, amongst
other things, improve the governance of universities commercial activities. The Queensland
Office of Higher Education was good enough to give the review copies of its discussion paper
of September 2001 and supporting documents. The discussion paper says that as far as it
concerns commercial activities, the purpose of the Higher Education Amendment Bill is to
amend the authorising legislation of all public universities in Queensland to:

provide public universities in Queensland with the necessary legislative capacity to
engage in appropriate commercial activities while, at the same time, minimising the
financial exposure of the State and ensuring reasonable checks, balances and
accountabilities are in place;
require that public universities in Queensland wishing to engage in commercial activities
meet certain guidelines approved by the Minister for Education and issued pursuant to
their authorising legislation;
make explicit the responsibilities of university governing bodies for activities to be
undertaken under these guidelines.

The discussion paper concludes about commercial activities
In summary, The University of Queensland Act 1998 (and the authorising legislation of other
public universities in Queensland) should be amended to make it clear that the University may
engage in appropriate commercial activities as it sees fit. Such activities may include pure
commercial ventures in areas not directly related to the core education, research and
scholarship functions of the university. However, such activities would be subject to a range
of checks and balances, which might include some or all of the following requirements:
in accord with the notion of providing a corporate veil of protection across all public
universities in Queensland, the commercial activities of the University of Queensland
should be managed and undertaken essentially by companies established by the university
under corporations law;
any income derived from commercial ventures undertaken by companies established by
the university must be used ultimately to further the universitys core education, research
and scholarship functions (although it is recognised that revenue from commercial
activities may in the short and medium terms be used to fund other commercial ventures);
any income derived from commercial ventures of these companies must be fully declared
and reflected clearly in the accounting reports of these companies and, ultimately, within
the universitys overarching balance sheet, and subject to the normal accountability, audit
and reporting requirements applied to statutory authorities;

the Senate, as the governing body with overarching responsibility for managing university
affairs, is responsible for approving commercial ventures and assuring the integrity of
these ventures;
all commercial ventures undertaken by the university should be in accord with the
requirements contained in a set of guidelines approved by the Minister for Education (and
to be issued pursuant to the authorising legislation of all public universities in
Queensland). These Guidelines would cover a range of required risk assessment and other
measures designed to quarantine risk associated with commercial ventures, particularly in
terms of limiting risk to public funds;
the university would submit bi-annually a commercial ventures framework to the Minister
for Education which would outline broadly the proposed nature of commercial ventures to
be undertaken in the forthcoming period, the specific safeguards to be put in place by the
university to minimise risk, and the nature of reporting arrangements to the Senate (and, if
necessary, to the Minister and the Treasurer) in relation to these ventures. The Minister
would have the capacity to request amendments to this framework, if necessary. A
courtesy copy of this framework would be provided to the Treasurer; and,
an upper limit of investments or commercial ventures involving public funds, which may
be pursued by the university at its own discretion, might be set, and this limit could be
approved jointly by the Minister for Education and the Treasurer. (Initially, this limit
could be $10M). Investments or commercial ventures in excess of the approved limit and
involving public funds would need to be approved by the Minister and Treasurer. The
approved limit would also be subject to joint review and amendment by the Minister and
the Treasurer.

The Queensland Office of Higher Educations draft ministerial guidelines for public
universities in Queensland undertaking commercial activities would have limited application
(3) For the purposes of these Guidelines, commercial activities or ventures are defined as
significant non-operational activities which may be related to the financial exploitation
of intellectual property and other university resources, or may be approved by the
governing body as contributing to the long-term interests of the university. The
Guidelines are not intended to encompass commercial arrangements that universities
enter into concerning routine operational matters (eg. cleaning contracts and the like).

The guidelines state several fundamental principles
Fundamental Principles
(5) The principles outlined below should underpin all considerations regarding
commercial ventures and activities to be undertaken by public universities in
Queensland.
(6) Governing bodies of universities should be the primary decision-makers with respect
to commercial ventures. These governing bodies should be accountable and have
overarching responsibility for such ventures.
(7) In making decisions about participating in commercial ventures, governing bodies
must determine whether such ventures are in the overall best interests of the
university.
(8) Governing bodies must undertake an appropriate risk-assessment in making decisions
about participation in commercial ventures. This is necessary to isolate and quarantine
the risk associated with commercial ventures, particularly in terms of limiting risk to
public funds. It is also essential that governing bodies protect the physical assets of
institutions, which have been provided largely from the public purse, and that this
consideration forms part of the risk-assessment.

(9) As part of the risk assessment phase, the decisions of governing bodies as to whether
to participate in a commercial venture should be based on the following criteria:
the viability of the proposed commercial venture (financial viability and
sustainability of the venture in the short, medium and longer terms); and,
the appropriateness of the proposed commercial venture particularly in terms of
its consistency with the universitys core teaching, research and scholarship
purposes, and consistency with and potential to advance the overall interests of
the university.
(10) A corporate veil of protection should cover the commercial ventures of universities.
This needs to be reflected in the administrative structure with all commercial ventures
of universities being progressed through companies established under corporations
law. These companies should operate at arms length from the institution. The
governing bodies of universities have overarching responsibility for such companies.
(11) An intervening corporate entity may be established to help ensure that companies
operate at arms length from the institution. The corporate entity may have the
following responsibilities:
appoint directors of subsidiary companies or approve directors of other companies
owned or controlled by the university;
hold shares on behalf of the university (if considered appropriate by the governing
body of the university);
monitor the activities of university companies; and,
alert the governing body of the university to any matters of material interest
regarding the activities or affairs of university companies.
(12) Companies established to undertake commercial ventures should report to governing
bodies on their operations. In reporting to their governing bodies, companies should
provide the following information:
quarterly profit and loss statements;
quarterly balance sheets;
any changes in the membership of Boards of Directors;
any changes in the distribution of shares in subsidiary companies;
details on material issues or events affecting the current or future operations of
companies;
full financial statements; and,
an annual report.
(13) Where possible, the full provisions of the Financial Administration and Audit Act
1977 and the normal auditing regime of the Auditor-General should apply to
companies established by the governing bodies of universities to undertake
commercial ventures.
(14) Any revenue gained by universities through commercial ventures should be directed
ultimately to the purposes of the university. It is recognised that this may not always
be possible and that, on occasions, revenue from commercial ventures may be needed
to fund other commercial ventures in the short term. The governing body of the
university should determine the distribution of any funds derived from major
commercial activities.

(15) Governing bodies of universities should maintain a register of major commercial
activities. This register may be provided to the Minister for Education or the Treasurer
upon request.

Finally, the Queensland Office of Higher Education proposes that the guidelines be
reviewed externally after 2 years.

A1.6 South Australia
The Acts of each of South Australias 3 universities specify their councils functions in more
detail than is common

(2) The Council is the governing body of the University and has as its principal
responsibilities
(a) overseeing the management and development of the University; and
(b) devising or approving strategic plans and major policies for the University;
and
(c) monitoring and reviewing the operation of the University.

Nonetheless, in his review of the University of Adelaides council committees Professor David
Penington recommended that the universitys Act should be amended to set out councils
functions and powers more explicitly. Professor Penington said that councils governing role
includes
the critical role of appointment of a vice-chancellor,
broad oversight of the quality of management,
approval of strategic policy,
ensuring that the institution is and will continue to remain solvent,
ensuring that the university is complying with its external obligations,
ensuring the university is performing its functions for students and the community to a
high standard, and
that the council is performing its governance functions in a manner fitting for a leading
research-intensive university.

A1.7 Tasmania
The University of Tasmania is established by the University of Tasmania Act 1992. A recent
amendment adds sub section 8 (3) which provides
(3) A member of the Council is responsible and accountable to the Council rather than to any
constituent body by which he or she was appointed or elected.

The same amendment changed the role of the visitor to ceremonial only.
Visitor
17. (1) In this section, "Governor" means the Governor of the State and not the Governor
acting with the advice of the Executive Council.
(2) The Governor is the Visitor of the University but has ceremonial functions only.

(3) The Visitor has no functions or jurisdiction with respect to the resolution of disputes or
any other matter concerning the affairs of the University other than a matter involving the
exercise of ceremonial functions only.

A1.8 Western Australia
Western Australian universities financial management is governed by the Financial
Administration and Audit Act 1985 (WA). Financial reports are provided by section 58 of the
Act
58. Treasurer's Instructions
(1) The Treasurer may prepare and issue and amend instructions, in this Act called the
"Treasurer's Instructions", with respect to the annual report required to be prepared under
section 66, including instructions with respect to accounting standards and other requirements
for the preparation of financial statements required under section 67, but instructions issued
under this section shall not be inconsistent with this Act or the regulations.
(2) Without limiting the generality of subsection (1), the Treasurer may issue instructions
relating to --
(a) the establishment and keeping of the accounts of statutory authorities including
accounts of subsidiary and related bodies;
(b) the form and content of financial statements and reports on the operations of statutory
authorities and their subsidiary and related bodies, including information to be disclosed
in respect of affiliated bodies; and
(c) the preparation of performance indicators of statutory authorities and their subsidiary
and related bodies.
(3) The Treasurer's Instructions may be issued --
(a) so as to apply --
(i) at all times or at a specified time;
(ii) to all statutory authorities and their subsidiary and related bodies or to specified
statutory authorities or subsidiary or related bodies;
(b) so as to require a matter affected by the instructions to be --
(i) in accordance with a specified standard or specified requirement;
(ii) approved by or to the satisfaction of a specified person or body or a specified class
of person or body;
(c) so as to confer a discretionary authority on a specified person or body or a specified
class of person or body;
(d) so as to empower the Treasurer by written direction issued generally or in a particular
case to supplement the requirements of the instructions; and
(e) so as to provide, or to empower the Treasurer to provide by written direction, in a
specified case or class of case for the exemption of persons or things or a class of persons
or things from the provisions of the instructions, whether unconditionally or on specified
conditions or conditions additionally imposed and either wholly or to such an extent as is
specified or otherwise determined.
(4) Subject to this Act, every accountable authority and officer shall comply with the
Treasurer's Instructions.
(5) In subsection (3) "specified" means specified in the instructions.

(6) The Treasurer shall cause to be published in the Gazette notice of the making or
amendment of Treasurer's Instructions, but notices under this subsection need not include the
text of the instructions or the amendment.

A1.9 New Zealand
The legislative provisions for all New Zealand educational bodies including universities are
made in the Education Acts 1964-1995. New Zealands universities are listed in the 13
th

schedule: University of Auckland, University of Canterbury, Lincoln University, Massey
University, University of Otago, University of Waikato, and Victoria University of
Wellington.
Paragraph 162 (2) (a) of the Act provides that in recommending to the Governor-General the
establishment of a university the minister shall take into account
(a) That universities have all the following characteristics and other tertiary institutions have
one or more of those characteristics:
(i) They are primarily concerned with more advanced learning, the principal aim being
to develop intellectual independence:
(ii) Their research and teaching are closely interdependent and most of their teaching
is done by people who are active in advancing knowledge:
(iii) They meet international standards of research and teaching:
(iv) They are a repository of knowledge and expertise:
(v) They accept a role as critic and conscience of society; and
(b) That---
(i) A college of education is characterised by teaching and research required for the
pre-school, compulsory and post-compulsory sectors of education, and for associated
social and educational service roles:
(ii) A polytechnic is characterised by a wide diversity of continuing education,
including vocational training, that contributes to the maintenance, advancement, and
dissemination of knowledge and expertise and promotes community learning, and by
research, particularly applied and technological research, that aids development:
(iii) A university is characterised by a wide diversity of teaching and research,
especially at a higher level, that maintains, advances, disseminates, and assists the
application of, knowledge, develops intellectual independence, and promotes
community learning:
(iv) A wananga is characterised by teaching and research that maintains, advances,
and disseminates knowledge and develops intellectual independence, and assists the
application of knowledge regarding ahuatanga Maori (Maori tradition) according to
tikanga Maori (Maori custom).

Furthermore, sub section 254 (3) of the Act, which provides the general powers of the New
Zealand Qualifications Authority indicates
(3) The Authority shall not consent to the granting of an award that is described as a degree
unless it is satisfied that the award recognises the completion of a course of advanced learning
that---
(a) Is taught mainly by people engaged in research; and
(b) Emphasises general principles and basic knowledge as the basis for self-directed
work and learning.


Section 161 of the New Zealand Education Acts 1964-1995 seeks to preserve and enhance
academic freedom and institutional autonomy
161. Academic freedom---
(1) It is declared to be the intention of Parliament in enacting the provisions of this Act
relating to institutions that academic freedom and the autonomy of institutions are to be
preserved and enhanced.
(2) For the purposes of this section, academic freedom, in relation to an institution, means---
(a) The freedom of academic staff and students, within the law, to question and test
received wisdom, to put forward new ideas and to state controversial or unpopular
opinions:
(b) The freedom of academic staff and students to engage in research:
(c) The freedom of the institution and its staff to regulate the subject matter of courses
taught at the institution:
(d) The freedom of the institution and its staff to teach and assess students in the
manner they consider best promotes learning:
(e) The freedom of the institution through its chief executive to appoint its own staff.
(3) In exercising their academic freedom and autonomy, institutions shall act in a manner that
is consistent with---
(a) The need for the maintenance by institutions of the highest ethical standards and
the need to permit public scrutiny to ensure the maintenance of those standards; and
(b) The need for accountability by institutions and the proper use by institutions of
resources allocated to them.
(4) In the performance of their functions the Councils and chief executives of institutions,
Ministers, and authorities and agencies of the Crown shall act in all respects so as to give
effect to the intention of Parliament as expressed in this section.

Section 180 of the Act provides for the functions and duties of councils
180. Functions of Councils---
The functions of the Council of an institution are---
(a) To appoint a chief executive in accordance with the State Sector Act 1988:
(b) To prepare and negotiate with the Secretary as to the charter of the institution in
accordance with this Part:
(c) To approve statements of objectives in accordance with section 41 (2) (d) of the Public
Finance Act 1989 as that section has effect by virtue of section 203 of this Act:
(d) To ensure that the institution is managed in accordance with its charter and the statements
of objectives:
(e) To determine the policies of the institution in relation to the implementation of its charter,
the carrying out of the statements of objectives and, subject to the State Sector Act 1988, the
management of its affairs.

Section 181 provides the duties of councils
181. Duties of Councils---It is the duty of the Council of an institution, in the performance of
its functions and the exercise of its powers,---

(a) To strive to ensure that the institution attains the highest standards of excellence in
education, training, and research:
(b) To acknowledge the principles of the Treaty of Waitangi:
(c) To encourage the greatest possible participation by the communities served by the
institution so as to maximise the educational potential of all members of those communities
with particular emphasis on those groups in those communities that are under-represented
among the students of the institution:
(d) To ensure that the institution does not discriminate unfairly against any person:
(e) To ensure that systems are established for the co-ordination of, and accountability for,
activities within the institution to ensure the responsible use of public resources:
(f) To ensure that proper standards of integrity, conduct, and concern for---
(i) The public interest; and
(ii) The wellbeing of students attending the institution---
are maintained.

The value of such exhortatory provisions is questionable. The New Zealand Government
requires institutions to charge tuition fees (sub section 227 (2)) which students pay up front or
by taking out commercial loans. Councils presumably have a duty to maintain their
universitys solvency (although this isnt provided for explicitly in the Act), which they must
balance against, for example, their duty not to discriminate unfairly and to ensure that
concern for the public interest is maintained. By stating some but possibly not all duties in
such general terms, it is unclear how this onerous responsibility is to be carried out.

Section 184 of the Act provides for each institution to have a written charter prepared after
appropriate consultation (section 185), which is submitted to the minister for approval (section
188). The minister may specify that charters set out goals and purposes for (sub section 190
(2))
(a) Standards of teaching and learning to be achieved at institutions; and
(b) Codes or principles of conduct or administration to be observed in the management of the
affairs of institutions.

New Zealand universities financial accountability is provided by the Public Finance Act
1989, which includes familiar provisions. However, sub section 41 (2) (e) of the Public
Finance Act 1989 also requires institutions to submit a statement of objectives for each year
and sub section (2) (f) requires institutions to submit a statement of service performance
reporting the achievement of the years objectives. Paragraph 203 (2) (c) of the Education Acts
1964-1995 further provides that institutions councils shall submit

(iii) A list of the performance indicators that the Council thinks will enable it to prepare the
statement of service performance required by subsection (2) (f) of that section to be included
in the institutions annual financial statements.

A1.10 Canada
Canada is a federation like Australia, but unlike Australia, the federal government has little
involvement in education, including higher education. There is no federal ministry for
education; most of the federal Canadian governments involvement in higher education is as a
funder of research through the Natural Sciences and Engineering Research Council of Canada.

In 1998/89 the federal government allocated only 1.6 percent of its program grants to higher
education, down from 3.3 percent in 79/80 (British Columbia, 1999).

While public funding remains the main source of income for universities, governments have
dramatically cut their support in recent years. The Association of Universities and Colleges of
Canada kindly provided figures on the source of income of Canadian universities, which show
that Government funding fell by 16 percent from 76 percent in 1989 to 60 percent of total
university income in 1999. The Canadian Association of University Teachers (1999) says that
much of this fall was from cuts transfers from the federal government to the provinces. Most
of the shortfall was made up by increased fee income (+10 percent), but there were also very
high proportionate increases in income from non-government grants and contracts and sales of
services and products.

TABLE A1.10A: SOURCES OF INCOME OF CANADIAN UNIVERSITIES, 1989 AND 1999

Source 1989 1999
Government 76% 60%
Fees 12% 22%
Gifts, donations, non-government grants and contracts 7% 10%
Sales of services, products, investment income and miscellaneous income 6% 8%

Source: Herb O'Heron, Association of Universities and Colleges of Canada, personal
communication.

Canadian higher education is very much shaped by its 10 provinces and 3 territories, which
range considerably in population size. The province closest to Victorias population size of 4.7
million is British Columbia, which has a population of 4 million. British Columbia has 28
public, post secondary education institutions and 7 universitiesthe British Columbia Open
University, University of British Columbia, the University of Northern British Columbia,
Royal Roads University, Simon Fraser University, the private Trinity Western University
established by the Evangelical Free Churches of America, and the University of Victoria.
Most of British Columbias public universities are governed by the University Act. This has
unexceptional provisions, except for

Minister not to interfere
48 (1) The minister must not interfere in the exercise of powers conferred on a university, its
board, senate and other constituent bodies by this Act respecting any of the following:
(a) the formulation and adoption of academic policies and standards;
(b) the establishment of standards for admission and graduation;
(c) the selection and appointment of staff.
(2) Despite subsection (1), a university must not establish a new degree program without the
approval of the minister.
(Queens Printer of British Columbia, 2000)

The University of British Columbia, a member of Universitas 21, reports this increase in
commercial research activity


TABLE A1.10B: UNIVERSITY OF BRITISH COLUMBIA TECHNOLOGY COMMERCIALISATION

Measure 1994/95 1996/97
Total UBC research funding $125 m $134 m
Industry-sponsored research funding $23 m $31 m
Industry-related Government funding $4 m $4 m
Invention disclosures 108 108
Patents filed 70 75
Patents issued 29 35
Licence agreements signed 18 15
Royalty income $1 m $1 m
Equity $2 m $7 m

Source: Livingstone (1997) table 2: UBC technology commercialisation highlights.

The university reports familiar difficulties in getting venture capital (Livingstone, 1997: para
3.2)
Until recently, the lack of established sources of financing for spin-off creation has proven to
be the biggest single obstacle to creating and advancing these companies. Launching a
company was dependent on private investment, which in turn brought its own set of
challenges. Because of the lack of concrete assets or even fully identified markets, start-ups
are viewed by many investors as risky ventures that were difficult to value and risky to
finance.

Moreover, potential investors are often discouraged by the long development times and lack of
short-term returns associated with high technology spin-offs. These issues, coupled with tax
regimes in B.C. and Canada that do little to encourage entrepreneurship, make it extremely
difficult to form knowledge-based start-ups.
* * *
Complicating the issue of securing financing is the problem of obtaining the right kind of
support at the right time. . . Typically, the most critical funding shortage occurs at the
development stage of the research, and at the initial seed and early stage of a company. . . .

After incorporation, many of the spin-off companies looked to the government for support.
This was often accomplished through accessing the programs from [various province and
federal sources, including] Revenue Canadas scientific research and experimental
development tax credits. This support came at a critical time in the companies development.
In many cases it was one of the few sources of financing for the early stage research and
development projects, and it also served as an independent confirmation to early stage
investors of the validity of the technology. Of the UBC spin-off companies surveyed . . . over
$24 million was obtained from government sources in support of the 71 companies during the
period 1984 to 1997.

A1.11 United Kingdom
The Nolan Committee on standards in public life reviewed the governance of higher education
institutions broadly in 1996. The committee found (1996: para 97)

The right of individuals to pursue lines of research and publication which may be unpopular or
controversial seems to us to be fundamental to the success of universities, reflected in the
debates of senates and the like, as an academic institution.

The committee adopted the definition of academic freedom in paragraph 202 (2) (a) of the
UKs Education Reform Act 1988

(2) In exercising those functions, the Commissioners shall have regard to the need
(a) to ensure that academic staff have freedom within the law to question and test received
wisdom, and to put forward new ideas and controversial or unpopular opinions, without
placing themselves in jeopardy of losing their jobs or privileges they may have at their
institutions;

The committee recommended

R7. Institutions of higher and further education should make it clear that the institution
permits staff to speak freely and without being subject to disciplinary sanctions or
victimisation about academic standards and related matters, providing they do so lawfully,
without malice, and in the public interest.

In 1997 the Dearing national committee of inquiry into higher education found several
problems with UK universities governance and according proposed the development of a
universities governance code

We consider that . . . there is merit in deriving a code of practice for governance, and that
institutions should report in their annual report on their compliance with the code.

Purposes of the code
15.38 The purposes of the code we propose are straightforward. First, to ensure that
institutions governing bodies can make their decisions in a way which is effective,
transparent and timely. Secondly, to provide a basis for familiarity with the governance
arrangements within institutions. Thirdly, to ensure there is appropriate membership of the
ultimate decision-making body. Fourthly, to ensure that governing bodies can meet their
obligations to their wider constituencies inside and outside the institution. The code therefore
aims to assist institutions with what we regard as their decision-making requirement and their
consultative obligation.

Components of the code
15.39 The code of practice for institutional governance which we propose has the following
components:
unambiguous identity of the governing body;
clarity of decision making;
appropriate membership and size of the governing body;
arrangements for engaging formally with external constituencies;
a rolling review of the effectiveness of the governing body and institution;
reporting annually on institutional performance;
arrangements to address grievances by students and staff;
effective academic governance.

Victorian universities largely meet this standard.

In common with all the other jurisdictions reviewed, UK higher education institutions have
compensated for cuts in public funding by expanding their commercial activities. Public
funding from (teaching) funding councils and research councils fell from 48 percent of all
higher education institutions income in 1994-95 to 44.2 percent in 1999-2000, and is

projected to fall further to 43.5 percent in 2004-05. This has been replaced mostly by income
from overseas students fees, other research funding and other operating income.

TABLE A1.11: UK HIGHER EDUCATION INSTITUTIONS DIVERSITY OF INCOME
1994-95 TO 2004-05

1994-95 1999-2000 2004-05
% actual % actual % forecast
Funding council grants 42.9 39.4 37.6
Research councils 5.1 4.8 5.9
Sub total public funding 48.0 44.2 43.5
Overseas fees 4.7 5.6 6.8
Other fees 18.4 17.7 18.7
Other research 9.6 10.6 11.7
Other services rendered 4.1 4.6 4.2
Residences and catering 6.7 7.1 6.9
Other operating income 6.0 7.7 6.5
Endowments 2.4 2.4 1.7
Sub total private funding 51.9 55.7 56.5
Total 100.0 100.0 100.0

Source: Higher Education Funding Council for England (2001a) Analysis of corporate plans,
outcomes of 2001 financial forecasts and annual operating statements, report 01/71, annex C.

In its Guide for members of governing bodies of universities the Committee of University
Chairmen, or chancellors as they would be known in Australia, noted the Higher Education
Council for Englands support for universities commercial activities (2001: Annex A)

Consultancies and other services

Institutions are increasingly undertaking consultancies for, and providing other services to,
external bodies on a commercial basis. The scope of such consultancies and services is wide,
ranging from advice on business development to the testing of products and goods, and the
letting of university accommodation. Many universities and colleges have established separate
companies to market their services with profits covenanted back to the institution. The
HEFCE has published guidance for institutions on working with such companies and joint
ventures, Related companies: good practice guidelines (HEFCE 00/58), which is available on
its web site. The HEFCE Higher Education Reach Out to Business and the Community
programme (HEROBC) is designed to help HEIs develop an infrastructure for working with
businesses and the wider community.

The Higher Education Council for England (2001: para 19) notes the risks of institutions
increasing reliance on commercial sources of income

19. There remain financial risks facing universities and colleges. These need to be managed,
and include:
a. The increasingly diverse range of income sources, both public and non-public, and
the increasing competition in markets. (Although in some respects greater diversity is
a means of reducing risk, the new income sources may be less stable and reliable than
established sources such as HEFCE grants).

Accordingly the funding council has published a number of guides on risk management (2001):


Risk management in the higher education sector

Demand for improved corporate governance, including risk management and internal control,
has been a feature of the last decadeand a considerable body of advice exists for both the
private and the public sectors.

Drawing on that advice, and examples of best practice, the HEFCE and the sectors
representative bodies have produced guidance specifically for higher education. It is not
prescriptive, as there is no single correct approach for all institutions. However, we hope that
institutions will find it useful in reviewing and, if appropriate, improving their current
approach to risk management. It includes:

Risk management: a briefing for governors and senior managers (HEFCE 01/24), an
introduction to help the governing body and head of a university or college to assess risk
management in their own institution;

Risk management: a guide to good practice (HEFCE 01/28), a practical guide aimed at those
involved in planning, launching and implementing a risk management programme;
Supporting materials, illustrative case studies, a sample risk management policy, and a list of
typical risks faced by higher education institutions.

Since 1998 the UK Government has sponsored several projects to develop higher education
institutions understanding of their internal costs (KPMG Management Consulting, 1997)

A fundamental premise of the study was that HEIs need robust costing systems so they can be
aware of the full costs of their activities. This produces a number of benefits, including:
greater understanding of the financial implications of academic and other decisions;
a more strategic approach to financial planning;
a more consistent approach throughout the institution to evaluating existing and new
activities;
a more credible basis for pricing and negotiation with commercial clients.

The Government established a joint costing and pricing steering group comprising the higher
education funding councils and institutions representative bodies to help universities and
colleges improve their strategic and operational decision making by developing and
implementing good practice in costing and pricing. Funds are provided for all institutions to
participate (Joint Costing and Pricing Steering Group, 2001).

A1.12 United States of America
Higher education in the USA is, of course, a very large businessthere are of the order 15
million students in 4,000 or so institutions. These institutions are also very diverse. Whole
categories of institution in the USA are unrepresented in Australiafor example the large
number of two-year community colleges, many of whose graduates go on to study, with
advanced standing, in the four-year universities; as well there are the generally small, private
liberal arts colleges which only teach at the baccalaureate level.

There are three types of higher education institutions in the US:
1. public institutions, such as the University of California at Berkeley;
2. private not for profit institutions, such as Harvard University; and

3. private for profit institutions, such as the National Technological University and the
University of Phoenix.
As in Australia, the constitutional responsibility for higher education lies with the States. But,
unlike Australia, the primary government support for public institutions remains with the
States (and, in the case of community colleges, local government). US Federal Government
financial support for higher education is primarily for research (like that of Canada), and for
student assistance (a subsidy to tuition costs). This student assistance is only available to
institutions that are accredited by the voluntary regional accreditation agencies, but is
available to students who attend private as well as public institutions.

The public institutions are commonly organised into systems, or networks as might be the closest
analogy in Australia. There are 52 such systems in 38 of the States. A number of States have
more than one systemCalifornia has three, Texas 6. They may be defined as comprising 2 or
more institutions that share a common governing board and have a system chief executive officer
who is not the CEO of any member institution. The only comparable system in Australia was the
former federal structure of the University of Western Sydney. Most US systems involve many
more member institutions than the three that formed UWS. They sometimes consist of all the
institutions of a particular type in a given state, and sometimes they include a range of types of
institution. So, for example, California has one system for research universities (the University
of California), another for the four-year non-doctoral degree granting institutions (the State
University of California), and a third consisting of the community colleges. By contrast
Tennessee has one system consisting of four year and research-based institutions (the University
of Tennessee system); and another that includes some of those, plus one community college, and
what would be TAFE institutes in Australia (the Tennessee Board of Regents system). In
Tennessee most community colleges are free standing.

The general model of governance in US public higher educations systems is a single Board of
Trustees, with about 17 members, all of whom are appointed by the State Governor. There is
often one student Trustee (who is not elected), but usually no academic or general staff
representation. Neither the system CEO nor the institution CEOs are members ex officioand
the latter do not generally attend meetings either. Members of Boards of Trustees are
commonly chosen to represent regions of the State. A third will usually retire at a time, and
appointees are usually of the same political party as the Governor. Sometimes appointments
have to be confirmed by State legislatures. In addition, there is often a Board of Regents or
Higher Education Commission with responsibility for higher education, or even education as
whole, across the State. These are composed in a similar way. At this peak level, there is a
CEO whose role combines that of an Australian Minister and Head of Department.

Free standing public institutions (which often occur in States with systems), will have their
own Boards of Trustees, composed much as those for systems. Community colleges often
have Boards that are partly (when organised into systems) or wholly elected by the local
community.

Private higher education institutions, ancient and modern, generally have self-perpetuating
governing bodies that are substantially larger than in the public sector (30-40 members is
common). Again, staff are not usually representedalthough graduates usually are. Membership
is a mixture of wisdom and wealth, with many governing board members chosen chiefly for
their capacity to donate large sums to the institution. All members of private institutions
governing bodies are often expected to contribute financially, according to their means.

The near 100 percent external membership of the governing bodies of US higher education
institutions, public and private, is widely supported. On the other hand, the political
considerations that affect appointment to the governing bodies of public systems are
commonly regarded as having disadvantages. Members are seen to represent narrow, sectoral
or geographical interests, and often to be serving larger political agendas or personal
ambitions.

US higher education institution CEOs (variously called President or Chancellor) has
considerable freedom of operationprobably even more than Australian Vice-Chancellors. In
private institutions, this results partly from the focus of the governing board on raising
contributions to the endowment. Within public systems, the institution CEO reports not to the
governing board, but to the system CEO (also variously called President or Chancellor). In
both public and private institutions, the selection of the CEO is seen as a critical role of the
governing body. The selection of the presiding officer, by contrast (where they are not
appointed by the State Governor) is of less importance than it would be in Australia.

The importance of State financial support for public institutions of higher education has
declined in the USA. Typically, it might represent about 20 percent of income. Student tuition
fees are commonly of about the same order. Generally, however, institutions and systems are
not free to set tuition fees, which are determined (or the level of increase restricted) by State
Governments.

Any Australian observer of US higher education is struck by the wealth of the country and of
its higher education institutions. Nonetheless, in the USA too, public institutions are relying
more on private income

One . . . central concern[s] is that the distinction between public and private institutions
continues to diminish as the need for external, non state sources of revenue continues to grow.
The result . . . is a need for additional public trustees who have the influence, the inclination,
and often the personal capacity to find private money.
(Besnette et al, 1998)

. . . many of the best known public and private non-profit universitiesfor example NYU,
Columbia, Duke, Stanford, Chicago, Nebraska, and Marylandhave established for-profit
subsidiaries or united with for-profit firms in joint educational enterprises.
The academic community is taking on other characteristics of the commercial world as well,
such as outsourcing and high executive salaries.
(Newman & Couturier, 2001)

Public and private not-for-profit institutions are normally tax-exempt. US tax laws have two
significant implications for universities corporate governance:
1. there is a very considerable tax benefit and therefore encouragement for wealthy
people and corporations to donate money to tax exempt bodies; and
2. there is a corresponding considerable benefit for tax exempt bodies to retain their tax
exempt status.

There is therefore a reinforcing cycle for public and private not for profit universities to
maximise non-government income from donations and bequests, which in turn are promoted
by the tax laws.

The most important restriction on universities commercial activities, then, is not any principle
of public interest or corporate governance, but the conditions for maintaining tax-exempt
status, which seem somewhat narrower in the US than in Australia.

Review of University Governance 88 Types of commercial activities
APPENDIX 2: TYPES OF UNIVERSITIES COMMERCIAL ACTIVITIES

The review was greatly assisted by the overview of commercial activities provided by some
universities. This appendix therefore gives a survey of Victorian universities commercial
activities, which provide concrete examples of the issues raised.
A2.1 Coursework commercial activities
All Victorian universities offer their courses commercially, although to very different extents.
The table below shows the total higher education student load for each Victorian university in
2000 and the % of their load occupied by students paying the higher education contribution
scheme (HECS), the % of student load supported by Australian postgraduate (research)
awards, % who are international fee-paying students, % domestic postgraduate fee-paying, and
% domestic undergraduate fee-paying. It will be noted that 31 percent of Victorian student
load is not HECS-paying, ranging from 43 percent at RMIT to 14 percent at the University of
Ballarat.

TABLE A2.1: TOTAL HIGHER EDUCATION STUDENT LOAD AND % BY FEE-PAYING STATUS, 2000

Total
student
load
(EFTSU)
HECS Aust
postgrad
(research)
awards
internat
students
domestic
p-grad
fee-paying
domestic
u-grad
fee-paying
Deakin University 17,338 79% 2% 11% 7% 1%
La Trobe University 16,632 84% 4% 10% 3% 0%
Monash University 33,211 64% 5% 24% 5% 2%
RMIT 24,651 57% 2% 34% 7% 1%
Swinburne University 9,275 66% 2% 20% 11% 1%
University of Melbourne 28,856 66% 8% 17% 6% 3%
University of Ballarat 3,935 86% 1% 10% 4% 0%
Victoria University of Technology 13,178 80% 1% 17% 2% 0%
Total Victoria 147,074 69% 4% 20% 5% 1%

Source: DEST (2000) Students 2000: Selected Higher Education Statistics, Table 64. Actual student load for all
students by higher education contribution scheme status, State and institution, 2000,
http://www.detya.gov.au/highered/statistics/tables/students2000.htm

Universities provide a range of services to support and complement coursework programs,
including government-funded programs, for fees that recover the costs of providing the
services or, in some cases, generate a surplus. Traditional examples are charges for excursions
and printed course notes and university colleges charges for tutorials.

Most if not all universities offer a range of student and staff support services by a variety of
commercial arrangements, such as child care centres, health services, and accommodation and
part time job search services. All universities manage sports centres that hire facilities and
offer classes commercially. Most universities offer library services commercially, which range
from providing access to the librarys collection for an annual membership fee to commercial
search and research services.

A2.2 Commercial non coursework services
All universities offer for fee short courses that dont lead to credit towards a university award,
and thus would not be included in the previous section on coursework services. Thus,
continuing education and short course units offer access to standard and special lectures and

short courses for a fee; departments with special expertise offer short courses in areas such as
computing, migration agent and real estate agency; and many university student associations
offer recreation courses commercially.

Many universities operate ancillary operations such as theatres, art galleries, museums and
other cultural facilities.

All universities attract income for the award of scholarships and prizes, and all universities
seek income from donations, bequests and alumni activities.

All universities charge users other than staff for photocopying and printing, and some
universities include these in a comprehensive graphic design, colour printing and binding
service.

All universities manage campus bookshops commercially, some manage university presses
and all publish journals. For example, the University of Melbourne publishes Meanjin, a
journal of fine writing and provocative ideas through Meanjin Company Limited, a company
limited by guarantee.

Many universities offer various computing services commercially.

Another example is occupational health and safety counselling which La Trobe Universitys
counselling service provides commercially.

A2.3 Commercial research
Included under commercial research is testing which uses known techniques but nonetheless
requires special skill or facilities available at the university. Examples are testing and
calibrating speed cameras, food analysis, conducting statistical tests, translating uncommon
languages, and testing elite athletes fitness. All universities provide such testing services
commercially.

Also included under this heading are evaluation and management consultancies generally.
Examples are supporting the self-assessments the Victorian Government requires of all public
schools, evaluation of customer satisfaction, and providing advice on corporate governance.
All universities provide evaluation and general management services commercially.

All universities also provide commissioned research commercially. Examples are writing
commissioned histories, preparing environment impact statements, testing the strength of a
joint under novel load conditions, and determining why a key compound such as a dye is
behaving unexpectedly.

Commercial research also includes universities commercialisation of research initially
conducted as part of their core activities. Prominent examples are the development and sale of
the cochlear implant or bionic ear by the University of Melbourne and Cochlear Limited, and
invitro fertilisation by the Monash Institute of Reproduction and Development and Monash
IVF.

While all universities seek to develop and exploit intellectual property arising out of their
teaching and research, the extent of their commercialisation of research tends to be related to
the amount of research they conduct, which differs markedly between institutions. In its
submission Monash University listed several companies it had established or in which it

participates to exploit a patent or group of patents and other items of intellectual property.
Examples in which Monash University has shares of from 25 percent to 50 percent are
Pharmon Ltd, BioGenome, Pulmosonix P/L and IngenKO P/L.

As Monash University and Swinburne University argued in their submissions, fundamental to
capitalising on intellectual property is access to pre-seed funding for the earliest stages of
commercialisation during which viability is determined through proof of concept procedures.
At present there is a well-recognised gap in Australia for pre-seed funding. The
Commonwealth Government has announced that it will be establishing a competitive pre-seed
fund to assist in bridging the venture capital gap for commercialisation of public sector
research.

The Victorian Government has a number of programs aimed at encouraging and supporting
commercialisation of public sector research, by addressing other aspects of the
commercialisation pathway. For example, under the Technology Commercialisation Program,
the Victorian Government has established service contracts with a number of
commercialisation service providers specifically to provide management assistance, market
support and access to private sector finance for early stage technology ventures
(http://www.innovation.vic.gov.au/programs/). Some of these service providers have a specific
focus on commercialisation of public sector research. For example, a contract has been
established with Biocomm International Limited, whose members include Melbourne's leading
medical research institutes (http://www.biocomm.com.au).

A2.4 Real property
All universities hold and develop land and buildingsreal propertycommercially at least to
some extent. Thus, all universities hire out rooms commercially individually and for
conferences, manage accommodation for students and staff, and let university premises for
shops and other commercial services on campus.

Review of University Governance 91 Universities controlled entities
APPENDIX 3: UNIVERSITIES CONTROLLED ENTITIES
This table was taken from the submission of the Victorian Auditor-Generals office.

UNIVERSITIES AND
CONTROLLED ENTITIES
DATE
FORMED
MAIN ACTIVITIES
Deakin University 1974
Unilink Ltd 1/07/88 Provision of consultancy for government,
industry, commerce and the profession on
behalf of the Deakin Australia division of the
University. Costs incurred by the company
($6.4 million in 1999) are reimbursed by the
University. Theses costs are almost
exclusively employment costs of consultants.
Deakin Software Services Pty
Ltd- now known as Callista
Software Services
1/07/88 Marketing and support of the Student
Information System "Callista" developed by
the University and related software systems.
Deakin Prime 22/06/00 Provision of education and consultancy
services in the USA.
La Trobe University 1964
La Trobe University Housing Ltd 1970 Provision of accommodation to staff and
students within the campus
environs/management of residences.
La Trobe International Pty Ltd 1991
La Trobe Marketing Pty Ltd
Betec Ltd 9/07/91 The company is inactive.
Pexmont Pty Ltd -Renamed in
2000 as International Education
Network Pty Ltd
1990 The company was purchased by the University
in 1990 and remains inactive.
Mt.Buller Education Facility Unit
Trust
1/03/98 The company was purchased from Buller Ski
Lifts and provides a university campus at Mt
Buller.
Dova Port Pty Ltd The company is now 100 percent owned by
the University with a paid up capital of $2. It
is the trustee of the Mt Buller Education
Facility Unit Trust and has no transactions in
its own right. The University holds a 100
percent interest in the unit trust, which is
responsible for the construction and operation
of the Mt Buller Educational Facility.
Monash University 1958
Maccine Pty Ltd 2000 Development of and commercialising of
animal cloning technology.
Montech Pty Ltd 1/12/86 Marketing and sale of technology developed
predominantly at Monash University.
Monash Digital Media 22/06/05 Provision of Multimedia Services.

UNIVERSITIES AND
CONTROLLED ENTITIES
DATE
FORMED
MAIN ACTIVITIES
Montech Medical Developments
Pty Ltd
11/06/93 Undertaking research, development,
consulting and other services and promoting
the use of the results of University research. Is
closely related to the parent entity.
Monash IVF Pty Ltd 1/07/88 Provision of infertility medical services.
Monash Ultrasound Trust 1/01/91 Provision of ultrasound services.
Monash IVF Pathology Services
Trust
1/01/91 Provision of IVF pathology services.
Monash University Foundation
Trust
28/07/83 Provision of financial support to Monash
University from funds derived from
investments, rental and bequests.
Monash Unicomm Pty Ltd 1/01/98 Overseeing the administration and provision of
services of the Monash University Union.
Monash International Pty Ltd 2/05/94 Provision of services for the Universitys
international activities.
Monash Language Centre Pty Ltd 1/01/95 Provision of language teaching services.
Monash Mt Eliza Graduate
School of Business and
Government Ltd - sold to the
University of Queensland in 2000
1/08/94 Providing management development and
training programs and postgraduate courses in
management. The school intends to separate
from the University from 31 December 2000.
Sir John Monash Business Centre
Pty Ltd
16/07/90 Provision of training, conference facilities,
adult education and other related services.
Year Ltd
30/04/92 Operation and administration, under
agreement on behalf of the University, of a
foundation year program for international
students seeking to enter undergraduate
courses at both Monash University and other
Australian universities. The company is
currently inactive.
AMPASC Pty Ltd 24/07/97 Provision of education and training programs
for the Ambulance Service and other bodies
by the Ambulance Officer Training Centre
under operating agreement with the company.
The company has not traded since the
termination of this agreement on 30 November
1999.
Monash Reproductive Pathology
and Genetics Pty Ltd
1/01/98 The company is a trustee of the Monash IVF
Pathology Services Trust.
Monash Ulrasound Pty Ltd 1/01/98 The company is trustee of the Monash
Ultrasound Trust. The company distributes the
trust earnings to the beneficiary.
Pty Ltd
2/02/95 The company is trustee of the Monash
University Foundation.

UNIVERSITIES AND
CONTROLLED ENTITIES
DATE
FORMED
MAIN ACTIVITIES
Royal Melbourne Institute of
Technology
1992
RMIT Union 1/01/93 Provision of student union services.
Meltech Services Ltd 1/07/92 To act as a nominee company for the RMIT
Union. The company has not recently traded
and is not expected to do so.
RMIT Innovation Ltd Provision of services to help faculties achieve
their strategic R&D objectives. The company
also operates an independent test laboratory
for computer hardware, software and
peripherals.
RMIT Training Pty Ltd 1/01/97 Provision of knowledge and people
management solutions including training
related programs, consultancies, market
research, study tours, English language
services, call centre services, employment
placement services, on-line publishing
services.
RMIT International Pty Ltd 1/12/95 Assisting the university to attain its goal of
internationalisation.
RMIT Resources Ltd 1/07/96 Provision of corporate support services to
other RMIT companies. These activities
ceased during 1999 and the company is
expected to remain inactive as a shelf
company.
RMIT Foundation A trust for the provision of financial support to
the University from funds derived from
investments, gifts and donations. Is controlled
by the RMIT council.
RMIT (Malaysia) SDN BHD Provision of education services, which ceased
in 1999.
Citytech Pty Ltd 1/07/92 The company is not currently active.
Spatial Innovations Pty Ltd IT and Systems Development.
Swinburne University of
Technology
1992
Swinburne Ltd 1992
Neurometic Systems Pty Ltd Scientific research and development.
Institute for Innovation and
Enterprise Ltd
1/07/92 The company is trustee of the discretionary
trust Brain Sciences Institute Trust. The trust's
activities centre on neuroscience research and
development. The trust was financially
inactive in 1999.
Centre for Innovation and
Enterprise Pty Ltd
1/07/96 The company is a trustee of the discretionary
trust Centre for Innovation and Enterprise.

UNIVERSITIES AND
CONTROLLED ENTITIES
DATE
FORMED
MAIN ACTIVITIES
Centre for Innovation and
Enterprise
7/1/1992 Provision of education and training services.
Swinburne Graduate School of
Integrative Medicine Pty Ltd
1/01/99 Provision of postgraduate training in
alternative medicine to members of the
medical profession.
National Institute of Circus Arts
Limited
27/10/98 Provision of training in circus arts.
Technology Training Company
Ltd
2/02/98 The company is a tertiary and training
institution that operates in Laem Chabang,
Thailand. The University owns 49 percent of
the company.
The University of Melbourne 1853
Australian International Health
Institute Ltd
Provision of consultancy and advisory
services and education and training in health
promotion, health policy and systems
development, health care delivery and health
reform.
Australian Music Examination
Board (Vic) Ltd
1918 Provision of graded assessments for students
of music, speech and drama, and singing.
Australian National Academy of
Music Ltd
Provision of training for musicians who aspire
to national or international careers in music.
Melbourne Enterprises
International Ltd
24/09/90 Developing an international market for
services provided by the University and
assisting the academic community of the
University in its commercially oriented
activities. The company has divisions in
consulting, business development, English
language education and testing. In 1999, the
profits of the company were boosted by the
sale of Melbourne IT.
International (NZ)
English Language Centre for International
Students.
International (Taiwan)
English Language Centre for International
Students.
Melbourne Research Enterprises
Ltd

Hexima Ltd 1/07/97 Developing and commercialising the NaPI
gene technology licensed to the company by
the University.
ASAP Information Services Pty
Ltd - Renamed as Melbourne
Information Services

Provision of Information Management
Services.

UNIVERSITIES AND
CONTROLLED ENTITIES
DATE
FORMED
MAIN ACTIVITIES
Land and Food Services Ltd 1/07/92 Consulting in the agricultural industry,
providing advice and running educational
courses.
Melbourne University Private Ltd
- Merged with MEIL in 2000
1/07/98 The company is a 'private university' involved
in the provision of demand driven educational
services, predominantly to people already in
employment seeking further professional
education or skills upgrading. The company
operates by outsourcing most of its
educational programs.
MUP Services Pty Ltd 1/07/98
The School of Forestry Creswick
Ltd

The Meanjin Company Limited 1/03/98 Publication, promotion and distribution of the
Meanjin quarterly journal, which is a forum
for writing on Australian culture and society.
Victorian College of the Arts 1/11/72 Provision of arts (dance, drama, music etc)
training. The College affiliated with the
University on 1 July 1991.
University of Ballarat 1993
The School of Mines and
Industries Ballarat Ltd
The company is a TAFE campus of the
University, providing programs such as
applied science, building studies, business,
hospitality, rural studies, manufacturing and
technology, and community services.
Inskill Ltd
Victoria University of
Technology
1990
Victoria University Enterprises
Pty Ltd

Technology Foundation Ltd
Trustee of the Victoria University of
Technology Foundation.
Technology Foundation

Technology (Singapore) Pte Ltd
1999 Issued capital of 2 ordinary shares acquired in
1999. The University has 100 percent control
over the company's equity. In 1999 the
University advanced $66,000 to the company
to assist with its start up costs.

Review of University Governance 96 Power to form companies

APPENDIX 4: UNIVERSITIES POWER TO FORM COMPANIES
The University Acts (Further Amendment) Act 1995 (No. 70/1995) amended each universitys
Act to give the universitys council power to form or participate in companies. The provisions
of the University of Ballarat Act 1993 set out below are identical to those in other universities
Acts.
Formation and membership of companies
(1) If, in the opinion of the Council, it is in the interests of the management or conduct of
the affairs or concerns of the University to do so, the University may form or
participate in the formation of a limited company the objects of which are objects
incidental or conducive to the attainment of any of the objects of the University.
(2) Without limiting the generality of sub-section (1), the University may, if in the opinion
of the Council, it is in the interests of the management or conduct of the affairs or
concerns of the University to do so, form or participate in the formation of a limited
company the objects of which include one or more of the following objects
(a) providing facilities for study and education;
(b) undertaking research, development, consultancy and other services for industrial
or commercial organizations, public bodies or individuals;
(c) aiding and engaging in the development, promotion and use of the results of
university research;
(d) preparing, publishing or distributing literary or artistic work, audio or audio-
visual material or computer software;
(e) seeking or encouraging gifts to the University or its students;
(f) promoting or assisting drama, music or the visual arts.
(3) In addition to the powers of the University under sections 34 and 36, the University
may, if in the opinion of the Council, it is in the interests of the management or
conduct of the affairs or concerns of the University to do so, be a member of a limited
company the objects of which are incidental or conducive to the attainment of any of
the objects of the University.
(4) The University must not form, participate in the formation of or be a member of, a
limited company (other than under the powers of the University under sections 34 and
36) unless
(a) the objects of the limited company are incidental or conducive to the attainment
of any of the objects of the University; and
(b) the memorandum or articles of association of the limited company provide that
(i) the company must not alter the memorandum or articles of association of
the limited company unless the Council has by resolution authorized the
alteration; and
(ii) the company must, where its total annual income exceeds, or may
reasonably be expected to exceed, $100 000, cause a report by a registered
company auditor on the accounts of the company to be made every twelve
months and to be submitted to the Council within three months after the
end of each twelve month period to which the report relates.

(5) Where
(a) the University forms, participates in the formation of or is a member of, a limited
company (other than under the powers of the University under sections 34 and
36) the objects of which are incidental or conducive to the attainment of any of
the objects of the University; and
(b) the University has a controlling interest in that company
the University
(ba) must notify the Minister, within 30 days after the formation, participation or
membership, of the name of the company and the reasons the Council decided
that the formation, participation or membership was in the interests of the
management or conduct of the affairs or concerns of the University; and
(c) must include in its annual report a copy of the accounts of the limited company in
respect of the financial year ending during the period to which the University's
annual report relates; and
(d) within 14 days of lodging any report, statement or return in respect of the limited
company with the Australian Securities Commission under the Corporations Law
of Victoria, must submit a copy of the report, statement or return to the
Treasurer.
(6) For the purposes of sub-section (5), the University has a controlling interest in a
company if the University is, within the meaning of the Corporations Law of Victoria
as varied by sub-section (7), a substantial shareholder in that Company.
(7) For the purposes of determining whether the University is a substantial shareholder in a
company, the provisions of the Corporations Law of Victoria apply as if a reference in
section 708(5) of the Corporations Law of Victoria to the prescribed percentage were a
reference to 50 per centum.
(8) Where the University forms, participates in the formation of or is a member of, a
limited company to which sub-section (5) applies, the accounts of the limited company
must be audited annually by the Auditor-General or a person authorised by the
Auditor-General.
(9) The requirements of sub-section (8) are in addition to the requirements of the
Corporations Law of Victoria.
(10) The University must pay to the Consolidated Fund an amount to be determined by the
Auditor-General to defray the costs and expenses of an audit under this section.
(11) The following provisions apply to the annual audit under sub-section (8)
(a) the Auditor-General and each person authorised by the Auditor-General has with
respect to the accounts of the limited company all the powers conferred on the
Auditor-General by any law relating to the auditing of public accounts;
(b) the limited company must within three months after 31 December in each year
cause its accounts to be balanced to that date and a statement of accounts to be
prepared and submitted to the Auditor-General;
(c) The statement of accounts must be prepared in the manner and in the form
approved by the Treasurer and must present fairly the financial transactions of

the limited company during the year and the financial position of the limited
company at the end of the year;
(d) The Auditor-General must forward to the Treasurer a copy of the audited annual
accounts.
(12) Without limiting the generality of sub-section (11)(a), the Auditor-General and each
person authorised by the Auditor-General
(a) has right of access at all times to the books, securities, accounts and vouchers of
the limited company; and
(b) may require from an officer or employee of the limited company any
information, assistance and explanations necessary for the performance of the
duties of the Auditor-General or person in relation to the audit.
(13) Sub-sections (8), (10) and (12) do not apply to a limited company of which the
University has ceased to be a member before the last preceding annual audit.
(14) If, in the opinion of the Council, the management or conduct of the affairs or concerns
of the University requires the University so to do, the University may
(a) be a member of a corporation, other than a limited company, or an association or
partnership;
(b) form, or participate in the formation of, a corporation, other than a limited
company, or an association or partnership; or
(c) enter into a joint venture with another person or persons
the objects or purposes of which include one or more of the following objects or
purposes
(d) providing facilities or services for study, research or education;
(e) undertaking research, development, consultancy or other services for commercial
organizations, public bodies or individuals;
(f) aiding or engaging in the development or promotion of university research or the
application or use of the results of such research;
(g) preparing, publishing, distributing or licensing the use of literary or artistic work,
audio or audio-visual material or computer software;
(h) seeking or encouraging gifts to the University or for University purposes;
(i) promoting or assisting drama, music, or the visual arts.
(14A) If the University does any of the things referred to in sub-section (14)(a), (b) or (c), the
University must, within 30 days after doing so, notify the Minister of the name or
description of the corporation, association, partnership or joint venture and the reasons
why the Council decided the membership, formation or participation or entry into the
joint venture was in the interests of the management or conduct of the affairs or
concerns of the University.
(15) In this section, "limited company" has the same meaning as in the Corporations Law
of Victoria.

Review of University Governance 99 Two brief case notes
APPENDIX 5: TWO BRIEF CASE NOTES
Councillors responsibilities:
Bennetts v Board of Fire Commissioners of New South Wales and others
Councillors duties were determined by Justice Street (as he then was, later Chief Justice) in
Bennetts v Board of Fire Commissioners of New South Wales and others (1967) 87 WN (Pt 1)
307. Bennetts case concerned the NSW fire brigade, which was governed by the Board of Fire
Commissioners of New South Wales established under the Fire Brigade Act, 1909-1965
(NSW). The Board of Fire Commissioners comprised 5 persons: the president who was
appointed by the Governor, a person elected by the municipalities and shires covered by the
Board, a person elected by insurance companies, a person elected by volunteer fire officers,
and a person elected by the permanent fire officers who were members of the NSW Fire
Brigade Employees Union, Mr Bennetts.

The fire brigades management recommended to the Board of Commissioners that it appeal
against an award obtained by the NSW Fire Brigade Employees Union, informed at least
partly by counsels opinion on the prospects of an appeal. Mr Bennetts sought access to
counsels opinion. The president said that the advice would be made available to Mr Bennetts
if he undertook not to pass on its terms to the union. Mr Bennetts declined to give such an
assurance. The Board decided to appeal against the award without formally receiving
counsels opinion and Mr Bennetts sought a declaration that the board was not entitled to
refuse to produce the opinion to him and further that the boards decision to appeal the award
was void for the alleged procedural defect in withholding material information from a board
member. The court decided against Mr Bennetts.

Street J said (at page 310)

Each of the persons on such a board owes his membership to a particular interest group; but a
member will be derelict in his duty if he uses his membership as a means to promote the
particular interests of the group that chose him.

Later on the same page Street J says

The consideration which must in board affairs govern each individual member is the
advancement of the public purpose for which parliament has set up the board. A member must
never loose sight of this governing consideration.

And towards the end of that page Street J says

If the members of boards such as the present board constantly keep before them their
overriding duty to the board to promote the purposes for which it exists, then they should have
little difficulty in discharging honourably their public duty, and there will be perhaps little
likelihood of litigation such as is presently before the court eventuating.

On page 311 Street J says

. . . for the purposes of emphasis, I repeat what I have said earlier. It is entirely foreign to the
purpose for which this or any other board exists to contemplate a member of the board being
representative of a particular group or a particular body. Once a group has elected a member
he assumes office as a member of the board and becomes subject to the overriding and

predominant duty to serve the interests of the board in preference, on every occasion upon
which a conflict may arise, to serving the interests of the group which appointed him.

The last passage was taken by the editor of the law reports as the ratio decidendi of the
judgement, but as Dr M Williams of Logie-Smith Lanyon Lawyers pointed out in an
elaboration of his submission, read out of context the last passage could be understood as
deciding that a board members duty is to the board, whereas his Honour was saying that a
board members duty is to the boards interests or to the purposes for which it was established.

Dr Williams further pointed out that Street Js decision in Bennetts is the law of Victoria since
it was approved by the Full Court of the Supreme Court of Victoria in R v. Industrial Appeals
Court; ex parte Maher [1978] VR 126, 141 (Starke, McInerney & Crockett JJ). In that case the
Full Court quoted extensively from Street Js judgement including the passages extracted
above from page 310, but not from his Honours reiteration on page 311. Bennetts was also
cited with approval by Heerey J in Trade Practices Commission v Santos Ltd (1992) ATPR
41-194, 40,624 in support of the proposition that directors . . . owe their first obligation to the
company on whose Board they sit.

Councillors access to information:
Re: Tom Molomby and: Geoffrey Whitehead and Australian Broadcasting Corporation
Bennetts v Board of Fire Commissioners of New South Wales and others decided that a
member of a board may be denied access to material relevant to the boards responsibilities
because he was proposing to use it to advance interests other than and arguably inimical to
those for which the board was established. That is not to limit councillors access to
information generally, even where a councillor is an internal member of the university or is
elected by staff or students.

In general, all councillors however appointed have a right of access to all information relevant
to their councils responsibilities, which are the direction and superintendence of the
university, the entire direction and superintendence of the affairs of the university, the
entire direction and superintendence of the affairs concerns and property of the university or
the governing of the university, to adopt the various formulations of councils
responsibilities in universities Acts.

The main exception to this general rule is where it can be shown that the councillor is not
acting in the interests for which the council was established. Further, the onus is not on the
councillor to demonstrate that they are acting in the appropriate interest. The onus is on the
person seeking to deny access to information that the councillor is not acting in the interests
for which the council was established.

The authority for these propositions is Re: Tom Molomby and: Geoffrey Whitehead and
Australian Broadcasting Corporation (1985) FCR 541
<http://www.austlii.edu.au/au/cases/cth/federal_ct/unrep1981.html>. This case concerns Tom
Molomby, a staff-elected member of the ABC Board, who sought access to documents about a
sizeable consultancy let by the corporation, a sizeable and prominent defamation suit settled
by the corporation and documents about the corporations principal legal officer. Geoffrey
Whitehead, the managing director of the corporation, declined to provide the documents.

The case was heard before a single judge of the Federal Court, Beaumont J, who ordered that
Molomby be given access to the documents he sought. His Honour said

In my opinion, in declining access to Mr. Molomby, Mr. Whitehead fell into an error of law.
The error consisted of a failure to recognize that, as a Director of the Corporation, Mr.
Molomby had a prima facie entitlement to access to the corporate material and that, in the
absence of good cause to the contrary, and none existed here, Mr. Molomby should be
permitted to inspect the documents nominated by him.

The court held further that councillors access to documents is not restricted by their being
confidential

A separate argument was advanced on behalf of the respondents with respect to the agreement
made between the Corporation and Mr. Irving Warren. In the first place, it was submitted that
the presence in the agreement of a confidentiality provision justified withholding it from Mr.
Molomby. But the presence of a secrecy clause could hardly preclude inspection of the
document by a member of the Board of one of the parties to the agreement. Once he had
inspected it, Mr. Molomby would, of course, be bound to observe the contractual
confidentiality. That is another question. The only issue here is his right to inspect the material
and it is not suggested that Mr. Molomby might use the information thus obtained to the
detriment of the interests of the Corporation.

Neither is this a right granted at the discretion of the council

Finally, it was argued on behalf of the respondents that the claim for relief should be denied
because these are matters for the Board, as a whole, to decide. This is not so. A Directors right
to inspect corporate material is a legal right which in no sense depends upon the views of the
Board. Access may be denied for good cause, as Bennetts Case shows, but that apart, the
Board is no more able to act as the arbiter of a Directors rights in this regard than is the
Corporations Managing Director.

Beaumont J cited Street, C.J in Edman v. Ross (l922) 22 S.R. (N.S.W.) 35l in support of the
onus of proof being on the person seeking to deny access to information (at p.36l)

The right to inspect documents, and, if necessary, to take copies of them is essential to the
proper performance of a directors duties and, though I am not prepared to say that the Court
might not restrain him in the exercise of this right if satisfied affirmatively that his intention
was to abuse the confidence reposed in him and materially to injure the company, it is true
nevertheless, that its exercise is, generally speaking, not a matter of discretion with the Court
and that he cannot be called upon to furnish his reasons before being allowed to exercise it. In
the absence of clear proof to the contrary the Court must assume that he will exercise it for the
benefit of his company.

Beaumont J notes another exception to this rule is where it may be necessary for a director of
a corporation or a councillor of a council who is not a member of a committee dealing with a
particular matter to show good reason for accessa need to know. He cites Lord
Brightmans judgement in Birmingham City District Council v. O (l983) A.C. 578 (at p.594)

In the case of a committee of which he is a member, a councillor as a general rule will ex
hypothesi have good reason for access to all written material of such committee. So I do not
doubt that each member of the social services committee is entitled by virtue of his office to
see all the papers which have come into the possession of a social worker in the course of his
duties as an employee of the council. There is no room for any secrecy as between a social
worker and a member of the social services committee.

In the case of a committee of which the councillor is not a member, different considerations
must apply. The outside councillor, as I will call him, has no automatic right of access to
documentary material. Of him, it cannot be said that he necessarily has good reason, and is

necessarily entitled, to inspect all written material in the possession of the council and every
committee and the officers thereof. What Donaldson L.J. described as a need to know must
be demonstrated.

This exception should be read in the light of the reviews observations in section 3.1.2 and its
recommendation (recommendation 4) that university councils should not normally delegate
their primary responsibilities, which include appointing the vice chancellor and monitoring her
or his performance, identifying the universitys mission and strategic direction, defining policy
and procedures consistent with legal requirements and community expectations, establishing
and monitoring systems of control and accountability including monitoring controlled entities,
reviewing and monitoring both the management of the university and its performance as an
institution, and risk management. That is to say, it is a principle of good corporate governance
as well as a legal requirement that councils discharge their responsibilities transparently.

Review of University Governance 103 References
APPENDIX 6: SUPPORTING MATERIAL

References
AUDIT OFFICE OF NEW SOUTH WALES (1998) On board: guide to better practice for public
sector governing and advisory boards, http://www.audit.nsw.gov.au/guides-
bp/OnBoard-April98.PDF
AUDITOR-GENERAL OF VICTORIA (1993) Performance audit report #29: international student
programs in universities, http://www.audit.vic.gov.au/sr29/ags29cv.htm
AUDITOR-GENERAL OF VICTORIA (2001) Report on ministerial portfolios June 2001: Education,
Employment and Training, http://www.audit.vic.gov.au/mp2001/mp01doe.htm
AUSTRALIAN UNIVERSITIES QUALITY AGENCY (2002) AUQA information,
http://www.auqa.edu.au/aboutauqa/index.shtml
BARRETT, PAT AND RICHARDS, RON (2001) Corporate Governancemore than good
management, address to the CPA South Australia Annual Congress 2001, Adelaide,
16 November, http://www.anao.gov.au
BESNETTE, FRANK, FOXLEY, CECELIA, JORDAN, STEPHEN, PERRY, TAD & RICHEY, WAYNE
(1998) Sweeping reform of public trusteeship? Not all boards need it. Trusteeship,
vol 6 no 3 (May/June 1998), http://www.agb.org/ and enter Besnette in the site search
engine.
BRITISH COLUMBIA MINISTRY OF ADVANCED EDUCATION, TRAINING AND TECHNOLOGY (1999)
Federal spending on post-secondary education. Transfers to provinces: trends and
consequences, http://www.aved.gov.bc.ca/policy/
CANADIAN ASSOCIATION OF UNIVERSITY TEACHERS (1999) Canadas universities mean
business CAUT Commentary, vol 1 no 1 May/June 1999
CHAIT, RICHARD P, HOLLAND, THOMAS P & TAYLOR, BARBARA E (1996) Improving the
performance of governing boards, Phoenix: Oryx Press.
CLARK, BURTON R (1983) The higher education system: academic organisation in cross-
national perspective, Berkeley: University of California Press.
COMMONWEALTH GOVERNMENT (1997) Governance arrangements for Commonwealth
government business enterprises,
http://www.finance.gov.au/budgetgroup/other%5Fguidance%5Fnotes/governance%5F
arrangements%5Ffor%5Fco.html
DEARING, RON (Chair) (1997) Higher education in the learning society, report of the National
Committee of Inquiry Into Higher Education, http://www.leeds.ac.uk/educol/ncihe/
DEET (1990) Selected higher education statistics 1990, table 36.
DEET (1991) Higher Education Funding Report for the 1990-92 Triennium.
DETYA (2000) Students 2000: Selected Higher Education Statistics.
DETYA (2001a) Finance 1999: Selected Higher Education Statistics, table 0199.
DETYA (2001b) Higher Education Report for the 20022004 triennium.
ERNST & YOUNG (2000) A Study to develop a costing method for the Australian higher
education sector: final report,
http://www.detya.gov.au/archive/highered/otherpub/costing/costing.pdf
GALLAGHER, MICHAEL (2001) Modern university governancea national perspective, paper
presented at The idea of a university: enterprise or academy? conference organised
by the Australia Institute and Manning Clark House, the Australian National
University, http://www.detya.gov.au/highered/otherpub/mod_uni_gov/default.htm
GELLERT, C (1993) Structures and functional differentiation: remarks on changing paradigms
in of tertiary education in Europe in C Gellert (ed) Higher education in Europe,
Jessica Kingsley Publishers: London.

HOARE, DAVID (chair) (1995) Higher education management review: report of the committee
of inquiry, AGPS: Canberra
http://www.detya.gov.au/archive/highered/otherpub/hoare/hoareidx.htm.
HOUSE OF COMMONS PUBLIC ACCOUNTS COMMITTEE (1994) Eighth report: the proper
conduct of public business, session 1993-94, January 1994, quoted in Ian McPhee
(2001) Strategies for better governance, paper delivered at PSMPC conference on
corporate governance, 17 August, http://www.anao.gov.au.
KOSKY, LYNNE (2002) Bracks Government backs $31.5 million RMIT Vietnam venture,
Media release, 14 March.
LIVINGSTONE, ANGUS (1997) Report on UBC spin-off company formation and growth,
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%20Companies/spin2.htm#1068549
MARGINSON, SIMON & CONSIDINE, MARK (2000) The enterprise university: power,
governance and reinvention in Australia, Cambridge University Press: Cambridge.
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MINISTERIAL COUNCIL FOR EDUCATION, EMPLOYMENT, TRAINING AND YOUTH AFFAIRS (2000)
National protocols for higher education approval processes,
http://www.detya.gov.au/highered/mceetya_cop.htm
NEW ZEALAND GOVERNMENT (1995) Education Acts 1964-1995, paragraph 162 (4) (a) (v),
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th
century, The
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PENINGTON, DAVID (2002) Review of council committees of Adelaide University,
http://www.adelaide.edu.au/pr/media/releases/2002/pennington.pdf
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Evaluations and Investigations Programme 01/19,
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PRICE, DAVID M & WHALLEY, PEREGRINE W F (1996) The university visitor and university
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RSM ROBSON RHODES (2000) Related companies: recommended practice guidelines,
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SENATE EMPLOYMENT, WORKPLACE RELATIONS, SMALL BUSINESS AND EDUCATION
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inquiry into the capacity of public universities to meet Australias higher education
needs.
http://www.aph.gov.au/senate/committee/eet_ctte/public%20uni/report/index.htm

STOREY, HADDON (chair) (1997) University governance in Victoria, report of the ministerial
committee of advice on university governance in Victoria, Government of Victoria,
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Review of University Governance 106 Abbreviations and tables

Acronyms and abbreviations

ABC Australian Broadcasting Corporation
CSIRO Commonwealth Scientific and Industrial Research Organisation
DEET (Commonwealth) Department of Employment, Education and Training
DETYA (Commonwealth) Department of Education, Training and Youth Affairs
HECS Higher education Contribution Scheme
NTEU National Tertiary Education Industry Union

Tables
Table 3.1: Higher education revenue of Victorian universities and % of earned income,
1999
Table 3.3.1a: University income by source, Australia, 1939 to 1999 (%)
Table 3.3.1b: Victorian higher education students by type, 1990 and 2000
Table A1.10a: Sources of income of Canadian universities, 1989 and 1999
Table A1.10b: University of British Columbia technology commercialisation.
Table A1.11: UK higher education institutions diversity of income 1994-95 to 2004-05
Table A2.1: Total higher education student load and % by fee-paying status, 2000

Review of University Governance 107 Call for submissions
APPENDIX 7: CALL FOR SUBMISSIONS

STATE OF VICTORIA
REVIEW OF UNIVERSITY GOVERNANCE

This paper sets out some issues the review considers germane to its terms of reference.
Submissions are not restricted to them, but other matters raised will need to be related to the
terms of reference if they are to be of use to the review.

Terms of Reference
1. In light of their role as public institutions, review the existing corporate governance
arrangements of the Victorian universities, and examine accountabilities within that
framework.
2. Examine issues raised by recent audit processes about the commercial activities of public
universities.
3. Identify the manner in which these issues are addressed in similar higher education
systems in other States and countries.
4. Develop options to enable Government and the Victorian universities to ensure appropriate
corporate governance and accountability arrangements that adequately reflect and protect
the public interest.

Background
Since the first foundation in 1853 Victorian universities have been financed by a combination
of bequests and donations, Government grants, student fees and commercial earnings.
Accordingly, universities governance has been a mixture of Government oversight, collegial
decision-making and commercial decision-making.

The last major review of Australian university governance was Hoare, D (chair) (1995) Higher
education management review: report of the committee of inquiry, AGPS: Canberra
http://www.detya.gov.au/archive/highered/otherpub/hoare/hoareidx.htm. The Storey
Committee that resulted in changes to the number and composition of universities councils
followed that review in Victoria in 1996. This review does not presently propose to re-open
the number and broad composition of university councils.

However, the balance of universities financing has changed greatly in the last decade from a
heavy reliance on Commonwealth grants to greater reliance on student fees and other
commercial earnings. Victorian universities income from Commonwealth grants declined
from 59 percent in 1989 to 41 percent in 1999, while income from international student fees
rose from 1 percent to 11 percent. While income from donations and bequests remained stable
at around 2 percent, in the same period commercial and other income rose from 13 percent to
33 percent.

Broad aim
The review will seek agreement between the Victorian Government and Victorian universities
on measures to enhance Victorian universities critical cultural, social and economic
contribution to the State and nationally by adopting, where necessary or desirable, improved
governance arrangements ensuring that universities commercial risks and overall finances are
managed responsibility to support the publics confidence in universities discharge of their
responsibilities.


Specific issues
The review has agreed consider these specific issues:

(a) whether universities objects or strategic plans should refer explicitly to serving the
public interest by promoting critical inquiry;
(b) whether universities Acts should explicitly specify that council members
responsibility is to the council rather than as a representative of an electorate, such as
this provision from sub section 8 (3) of the University of Tasmania Act 1992 (Tas)
(3) A member of the council is responsible and accountable to the council rather
than to any constituent body by which he or she was appointed or elected;
(c) whether universities Acts should provide that if a member of councils term expires
before a replacement is appointed or they are appointed for a subsequent term, the
council members term is extended for up to six months or until a full appointment is
made;
(d) whether councils functions should be specified more fully;
(e) whether councils operations and quorums should be specified more fully, for example
in university statutes;
(f) the possibilities of reducing duplication and in some cases conflicts between Victorian
and Commonwealth financial, general reporting and audit requirements;
(g) whether, in view of the jurisdictions of the Victorian ombudsman and of the courts and
various tribunals, there is a need for any other avenue for appeal against universities
decisions;
(h) in particular,
(i) whether there is a need for a national universities ombudsman;
(ii) whether to adopt provisions such as sub sections 17 (2) and (3) of the
University of Tasmania Act 1992 (Tas)
(2) The Governor is the Visitor of the university but has ceremonial
functions only.
(3) The Visitor has no functions or jurisdiction with respect to the
resolution of disputes or any other matter concerning the affairs of the
university other than a matter involving the exercise of ceremonial
functions only;
(i) what might be included in a statement of best practice in university governance as it
relates to commercial activity, for example, for inclusion in Ministerial guidelines.
Timelines
The review plans to report by the end of March 2002. Submissions will be received any time
before the review reports but will be most useful if submitted by Friday 1 February 2002.

Secretariat
Further information may be obtained from, and submissions should be addressed to:

Dr Terry Stokes
Director, Office of Higher Education
Department of Education Employment & Training, Victoria

PO Box 266D
Melbourne VIC 3001
Email: stokes.terry.d@edumail.vic.gov.au
Telephone: (03) 9637 3866.


Submissions received
The review received submissions from:
Association for the Public University
Australian University Alumni Council
Australian Catholic University
Council of Australian Postgraduate Associations
Mr R J Cochrane
Mr P Corcoran
Deakin University
Department of Treasury and Finance
Monash University
Mr D Nardella, MLA
National Tertiary Education Industry Unionjoint presentation by the Victorian Division and
the National Office
Royal Melbourne Institute of Technology
RMIT student union
Swinburne University of Technology
University of Ballarat
University of Melbourne
University of Melbourne Postgraduate Association
Victoria University of Technology
Victorian Auditor-Generals Office
Dr Mark R Williams.

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Review of University Governance

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