Academies: Conflicts of interest

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In light of two damning reports looking into conflicts of interest within academies, legal expert Tom Wainwright warns of the importance of having clear policies to prevent conflicts arising.

A recent report prepared for the House of Commons Education Select Committee is likely to raise new questions about whether governance procedures at academy schools are sufficiently robust.

The report from the University of London’s Institute of Education, which focuses specifically on conflicts of interest, found that while regulation of conflicts of interest has improved over the last two years, some serious concerns remain.

The report’s more eye-catching findings have already made national headlines.

Despite interviewing only 14 individuals working in the academy sector, the report’s authors unearthed stories such as those of the school which paid a company run by a friend of the head £50,000 for a one-day training course, and the chair of governors who told staff that they would be dismissed if they discussed contraception or abortion with students.

Most of the report is less lurid and makes clear that in almost all instances academies are run by honourable people working under intense pressure, noting in particular that deliberate fraud was “rare”.

Nonetheless, it still expresses a number of concerns that need to be addressed. Chief among these, and as highlighted by the examples above, is a clear lack of understanding of the issues around conflicts of interest in the academy sector. The report also found that funding agreements did not include the appropriate checks and balances that an academised system requires. 

Finally, the report suggested that “connected party transactions” (for example, when an academy purchases goods or services from a company for which one of its board works) may not be subject to sufficient scrutiny. Although these transactions are permitted, the conflict has to be recognised and authorised by the relevant academy trust’s board.

A similar report produced by the Committee of Public Accounts in June concluded that the Education Funding Authority (EFA) did not know enough about conflicts of interest in academies and the risks that they pose to the proper use of public money.

These reports, along with the recent “Trojan Horse” controversy and the government’s desire to avoid adverse publicity for a flagship policy in an election year, mean that the EFA will be focusing on academy governance in the coming months. 

In light of this, there are a number of key steps academies can take to ensure that their conflict of interest policies and processes are fit for purpose.

Know what a conflict is

The view of one person consulted by the Institute of Education was that conflicts of interest are not well understood in the school sector. 

It is generally presumed that everyone knows what a conflict is, but any governance lawyer will be able to tell you about instances of boards being convinced a conflict exists when it doesn’t, and of boards refusing to accept the presence of one when it does. 

Conflicts are usually easiest to spot when they are financial, but they can also relate to personal interests or conflicts of loyalty between the academy trust and another person or organisation. 

The problems that can be caused by what the report refers to as “intangible conflicts of interest that do not involve money” in particular became evident when details of the Birmingham Trojan Horse schools began to emerge, highlighting the relative inability of the system to detect these types of cases.

The articles of association

The model academy trust articles of association allow academy trusts to enter into connected party transactions with companies that a director either owns, is employed by or acts as a consultant for, provided that a number of conditions are met.

First, the remuneration paid cannot exceed an amount that is deemed reasonable in the circumstances. 

Second, the director in question should not attend, form part of the quorum or vote at the meeting at which the matter that is the subject of the conflict is discussed. 

Third, the board must be satisfied that it is in the interests of the academy trust to employ or to contract with the organisation that the director is linked to rather than with any other person or organisation – and the reasons for their decision must be recorded in the meeting’s minutes.

Finally, it must be the case that a majority of the other directors in office have received no such payments or benefit.

The Academies Handbook

Academy trusts must comply with the Handbook, which was most recently updated in August. 

The Handbook requires that boards must ensure that requirements for managing connected party transactions are applied across their academy trust. 

Chairs and the accounting officer must ensure that their capacity to control and influence does not conflict with these requirements. 

Academy trusts must also ensure that a competitive tendering policy is in place and that it is followed.

There is a balance to be struck between giving academies the independence that is their key characteristic while still ensuring that sufficient levels of scrutiny are still in place. 

Until relatively recently, the Department for Education’s focus was on school conversion rather than governance, and the speed with which the academisation programme expanded perhaps made some governance failures inevitable. 

Academies should be expecting the Department to take steps to shift its focus in the very near future and be prepared to demonstrate that their conflict of interest policies can stand up to a higher level of scrutiny.

  • Tom Wainwright is senior solicitor in the education sector at business law firm DWF.

Further information
  • The Institute of Education report referenced in this article is available via http://bit.ly/1wZwhJN
  • Read SecEd’s coverage of the Institute of Education report at the time of its publication via http://bit.ly/1ztqAox
  • The Committee of Public Accounts’ June 2014 report referenced is available via http://bit.ly/1EeSG6F


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