Private eyes: decision-making and governance in independent schools under scrutiny
By Julian Hammond, Alison Baker and Alexandra Lane
Private education is a multi-billion dollar industry in Australia. In 2022, sixteen of the most prestigious and wealthy schools in Victoria alone reported revenue of more than $1 billion annually.
Against this backdrop Australia’s private schools are increasingly being forced to embrace a new reality, by being held accountable to both fee-paying parents as their primary funders as well as external parties, including the media, government and regulatory bodies.
Previously, schools could safely operate as they saw fit with self-governed boards and councils. We are increasingly seeing a shift towards the governance of schools and their decision makers being called into question either by the school community itself, in the media or ultimately in the courtroom.
We expect that this shift towards increased scrutiny and transparency will continue. In this article, we set out some recent key issues in this space.
The operation of the private and independent school sector in Australia
The national representative body for Australia’s independent school sector, Independent Schools Australia, explains the operation of private and independent schools as follows:
‘Each independent school is responsible for its own educational programs, financial decisions, staffing, co-curricular content and ongoing development and is accountable to its governing body, within the bounds of legislation and government policy’.
The majority of private schools are governed by a self-appointed school board or council, whose role it is to oversee decision making on behalf of the school. There are typically two ways private schools operate.
- The first is where private schools are corporate entities limited by guarantee. These schools are public companies with a board of directors appointed, with those directors subject to the provisions of the Corporations Act 2001 (Cth). This is known as an ‘Incorporated Board’ and is adopted by the vast majority of independent schools in Australia.
- Alternatively, a private school may appoint an advisory board which uses an agreed upon terms of reference to provide support and guidance to the school. This is known as an ‘Unincorporated Board’. Generally, the decisions made by these boards are non-binding. Those appointed to an Unincorporated Board are not subject to the statutory duties and liabilities imposed on directors under the Corporations Act 2001 (Cth), although there are general-law duties which they will be required to uphold (ie duties of good faith and to act with proper care and skill).
Generally, the decision-making powers of the incorporated Board are unfettered and governed only by internal policies. This position is contrary to the public-school sector, which is run by, and is accountable to, departments within the various state governments.
As with any private sector businesses, issues of transparency and governance have the potential to cause financial, reputational and legal issues. Transgressions can range from a failure to abide by school policies, to more serious breaches of legislation. For incorporated Boards, these breaches can include misuse of funds or of the fiduciary duties owed under the Corporations Act 2001 (Cth) to, act honestly and in the best interests of the school, to avoid conflicts and to exercise due care and skill.
Called to the principal’s office: schools called into question
Recent examples of public scrutiny of the independent school sector have included:
- a Victorian private school being placed into administration, with allegations of potential misuse of funds being reported in the media;
- a Victorian independent school which had a four-year legal battle with a parent of a student who alleged that the school had failed to follow its own election rules for its junior school parents’ association. The parent alleged that the school had failed to hold open and transparent election processes for the association, stand down members of the association after reaching the maximum term and mischaracterised the endorsement requirements. Ultimately, the parent was successful in the litigation. The matter received media coverage and the school was required to review and update the rules governing the association;
- allegations that a New South Wales private school board made plans to fly its headmaster (alongside his wife) and the deputy headmaster first class to a rowing regatta at which students were participating at a cost of tens of thousands of dollars to parents;
- issues in the appointment of a high-profile headmaster at a Victorian independent school. Again, this was a matter with significant media coverage, and presented substantial reputational and governance risks for the school;
- reports about use of funds at a New South Wales independent school and allegations reported in the media that the principal proposed to install a private plunge pool at his private residence using school funds;
- the resignation of eleven council members (including all seven female members) from an independent Victorian school alumni board amidst claims of a toxic culture for female members and governance failings; and
- a Queensland independent school was required to back-pay staff $2 million and enter into an enforceable undertaking with the Fair Work Ombudsman.
These incidents are just a handful of recent examples which illustrate the need for greater transparency, and checks and balances in the private and independent school sector. The risk of failing to uphold standards or making decisions entirely in private is that schools will become the subject of scrutiny, either by parents, their own staff members, the public or regulatory bodies.
As part of a response to these issues, the Australian Institute of Company Directors is set to provide governance training to more than 250 independent school board members across New South Wales. Courses will be offered over two days, with topics such as conflict of interest and use of public funds to be covered.
Achieving top marks: how can schools prepare themselves?
The spotlight is on Australia’s independent and private school sector. Schools are being challenged by more prescriptive regulatory requirements, increased social pressures and greater scrutiny from all areas. To ensure that your school is best placed to avoid allegations that can raise issues of governance, financial or reputational risk, a proactive approach is key.
While every school is different, examples of steps that can be taken include:
- ensuring a school board or council has a mix of professional individuals who possess a wealth of different experience. Appointments should be regularly reviewed.
- governance and ethics training should be provided to school boards or councils on a regular basis. Hall & Wilcox has an extensive governance and ethics program which can assist school boards or councils to navigate these issues.
- regularly review policies and procedures to ensure that they reflect best practice. If there is uncertainty, it may be useful to obtain professional guidance on the development and implementation of such policies. Anyone involved in management should be well versed in these policies and procedures.
- regularly review and assess compliance with the National Employment Standards and applicable modern awards and enterprise agreements.
- if a complaint is made, engage external advisors to assist early in order to avoid the dispute expanding, litigation being commenced and increased media scrutiny. This form of crisis management can scale up or down depending on the seriousness of the issue at hand.
We recommend proactively undertaking a review of your policies, procedures and governance systems to ensure that decision-making is enabled and initiated by sound governance.
If you require assistance in reviewing your current policies, rules or regulations please get in touch with a member of our Commercial Disputes Resolution team below.
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