House of Commons - Academies and free schools

Academies and free schools - Education Contents

5 Sponsorship and regulation of academy chains

Effectiveness of academy chains and sponsors

124. In May 2014 the DfE produced a briefing report for sponsors on "What does a high performing academy sponsor look like?". The analysis looked at a sample of 88 sponsors who had a chain of at least three schools that were open by November 2012. From this, the DfE drew out common principles for high performing sponsors (defined in terms of improvement in results and overall for schools in the chain):

· High performing sponsors grow carefully, understanding their own capacity, the challenges they take on and navigating key transition points well. [Moving from] 5-10 [schools] is a particularly challenging growth period.

· In terms of school mix, high performing sponsors are more likely to have a blend of sponsored and converter projects-those with 90% sponsored do not tend to perform as well.

· High performing sponsors plan growth in terms of developing geographical clusters of schools and maximising opportunities for collaboration.

· High performing sponsors have strong and determined CEOs with a clear moral purpose that is well transmitted to all staff.

· High performing sponsors value commercial skills and invest in financial leadership beyond 5-6 [schools]. FD [Finance Director] and COO [Chief Operating Officer] appointments are often external.

· Most high-performing sponsors provide cross-group progression and CPD. They hire senior teachers to work across more than one school and nurture future leaders in-house.

· High performing sponsors are more likely to have visibly clear and accountable governance arrangements and small boards.

· High performing sponsors have a middle or 'regional' management tier led by educationalists when they grow to 5+.

· High performing sponsors understand the importance of financial planning and invest in this.

· High performing sponsors have protocols for taking control of failing schools. Their action is always swift and assertive.

· High performing sponsors usually describe their approach to sustaining school improvement in terms of 'earned autonomy'.

· High performing sponsors usually have strong partnerships with schools in the wider system.[201]

125. Others have also tried to isolate the characteristics that make some chains more effective than others. The Sutton Trust research into the impact of academy chains on low income students identified key factors in successful chains as being "a measured approach to expansion, and the importance of building up strong experience of strategies for improving schools".[202] In addition, Robert Hill has produced two reports on academy chains for the National College of Teaching and Leaderships and concluded that the core determinant is a shared ethos.[203] He explained in a blog that

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126. Ofsted's 2014 inspections of failing chains led it to similar conclusions. Its inspectors found the four MATs inspected "shared the same basic problems" which were: not enough challenge, ineffective leadership, weak middle leadership; a prevalence of low quality teaching; and children not ready for secondary school.[205]

127. The NAO in examining the DfE's oversight of schools concluded that "The Department does not yet know why some academy sponsors are more successful than others".[206] It found that "The Department challenges sponsors when it has concerns, but does not routinely collect information from sponsors on the types of support they give schools" and that the inability of Ofsted to inspect academy sponsors or multi-academy trusts means that "there is no independent source of information about the quality of their work" (see further below).[207] The NAO acknowledged the DfE's ongoing research into effectiveness of sponsors and its intention to "use the new regional schools commissioners and headteacher boards to strengthen its understanding of successful sponsorship"[208] but still recommended that "The Department should ensure that it has an independent source of information for assessing the quality, capacity and performance of academy sponsors."[209]

Importance of geographical coherence

128. Frank Green, Schools Commissioner and previously CEO of Leigh Academies, told us of the importance of academy chains having a geographical base:

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129. Sir Daniel Moynihan of Harris agreed that "There is clearly coherence in geographical proximity", with particular benefits for enabling experienced heads to coach less experienced ones.[211] He suggested that "if not compulsory, [geographical clustering] should be advisory".[212] The managing director of Prospects, which is divesting itself of its academies, accepted that the geographical spread of their schools had created "difficulties and vulnerabilities".[213] Clustering can also be beneficial to the relationship between the MAT and the local authority: David Whalley from Calderdale District Council told us: "It is much easier to have a dialogue with a trust board who meet within your local authority than somebody from a considerable distance away".[214]

Expansion of chains and approval of new sponsors

130. Neerav Kingsland of New Schools for New Orleans, advised us that the pace of change was important; in order to ensure high quality schools and sponsors, the optimum rate of growth in charter schools should not exceed 5% per year.[215] In England the push to expand the academies programme has resulted in a growth rate far in excess of this. Given that the DfE itself identified expansion rates of chains as a key risk factor affecting effectiveness, it is perhaps hardly surprising that a number of high profile chains have been found to be failing in the last year.

131. Witnesses agreed that rapid expansion was at the heart of the problem. Lucy Heller, CEO of ARK, told us that "It is undoubtedly the case that some of the chains grew too fast".[216] She speculated that the reason some chains expanded rapidly was due to "a financial imperative that if you are going to build resource at the centre, that is expensive. They were partly growing in order to spread their overheads." Sir Daniel Moynihan of Harris Academies agreed that "some academy chains have grown […] too quickly, and that growth has not been controlled".[217] He attributed this to any business growing at a fast rate, rather than a problem specific to academies, and suggested that what was needed was "sensible, steady growth that is well paced to match your resources to improve the schools that you have".[218]

132. Evidence to the inquiry suggests that the pressure to expand the academies programme rapidly, and the associated need to identify an increasing number of sponsors has led in the past to inadequate vetting by the DfE of potential sponsors prior to authorization. Robert Hill told us that the original accreditation scheme had been "torn up" because it "was too bureaucratic" and had been replaced by a scheme that "was almost too light-touch".[219] The extremely high rate of sponsor approval (only 25 out of 704 applications to become a sponsor have been declined; 35 were undecided, as of November 2014)[220] appears to support this view. At the same time, it appears that the DfE urged existing sponsors to take on new responsibilities even where it should have been clear that they were not in a position to do so. We heard evidence from the managing director of Prospects, a chain which had been capped and yet was asked by the DfE to transfer an academy into the trust just weeks before going into administration.[221] He told us "[the DfE] thought it was going to be a better solution, but by the very nature of that transferring in that put Prospects Academies Trust into a more vulnerable position".[222]

133. It has been argued that some of these difficulties may be in the past. Robert Hill considered that "we are now moving to a position where there is proper assessment of all sponsors".[223] However, it is hard to judge the effectiveness of DfE assessment, given the scant information published by the DfE on the performance of academy chains as opposed to the individual schools. It has published profiles of five sponsors but it has not released similar analysis which it is known to undertake on other sponsors.[224] One journalist has been pursuing the DfE through Freedom of Information requests to release the grades awarded by the DfE to each academy trust/sponsor and the guidance on how these grades are allocated.[225] The DfE has consistently refused to disclose the information on the ground that disclosure would prejudice the effective conduct of public affairs.[226] This does little to improve public confidence in the system.

Appointment of sponsors

134. Although the beauty parade where a number of potential sponsors visited schools has now ended, we received much written evidence critical of the consultation process undergone before a school is transferred to a particular sponsor. At the moment, the DfE invites the potential sponsor to run the consultation. This was felt to be problematic by many, with David Wolfe QC telling us that "the process almost seems calculated to create friction" because "it is not at all clear to parents who is making what decisions, whether it is really a decision to be made or whether they are just being told [who the sponsor will be]".[227] The chief executive of Harris, Sir Daniel Moynihan, suggested that "it may well be better if somebody independent runs the consultation and then presents that to the Secretary of State for the Secretary of State to make his or her decision".[228]

Capped or paused chains

135. The DfE has a policy of halting the expansion of chains temporarily by pausing or capping them. The NAO described this as the DfE's "main lever for influencing sponsors".[229] The number of chains on the capped list has varied throughout our inquiry: 25 were listed as paused in evidence submitted on 25 February 2014 but by October, there were 18 sponsors who had been paused.[230] Frank Green explained that when chains are 'paused':

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136. The criteria by which academy trusts are monitored and capped are not in the public domain. Chris Wormald of the DFE confirmed to the PAC that "We take a case-by-case view" with "no hard and fast answer" to what are the circumstances in which the DfE would pause a chain.[232] Nick Weller, representing the Independent Academies Association, recommended that there should be "more tie-up between Ofsted and the DfE in terms of the judgments made about sponsors, and about who can and cannot sponsor, because there are gaps there".[233] Anastasia de Waal of Civitas agreed that "There needs to be more Ofsted involvement" in decisions on capping, telling us: "It seems odd that Ofsted is essentially removed from the equation, and that this is between the academy or the other school and the Department".[234]

Conflicts of interest

137. Potential conflicts of interest can arise in academies through the procurement of services from parent companies, key management personnel or their friends and families or associated organisations or individuals. These are known as related party transactions and they are permitted under the Academies Financial Handbook, provided that they have resulted from open and transparent procurement procedures and that potential conflicts of interest are adequately and appropriately managed.[235] They must be disclosed in the accounts of the academy trust. The EFA state that the most common types of related transactions disclosed are the purchase, sale, lease or donation of goods, services, property, or money.[236] Since November 2013, the DfE has adopted a policy that all related party transactions in an academy trust must be at cost only, with no profit allowed.[237]

138. Speaking to the PAC, Emma Knights of the NGA observed that "our perception is that schools do not [handle conflicts of interest] as well as the rest of the charitable sector", first because "there are probably more opportunities for conflicts" and "Secondly, there is less understanding about what constitutes a conflict".[238] She also considered that the policy of "at cost" exacerbated the situation by encouraging interested parties to put in lower bids than others.[239] In particular, she wanted to see "a much bigger warning bell about relationships" because fraud reports "almost invariably" covered circumstances where "somebody is related to somebody else".[240]

139. We commissioned research from the Institute of Education which concluded that "conflicts of interest are common in academy trusts… [and] the checks and balances on academy trusts in relation to conflicts of interest are still too weak".[241] This echoed the Academies Commission, the National Audit Office and the PAC in questioning the capacity of the EFA to monitor funding agreements and hold academies to account for the use of public funds. In June 2014, for example, the PAC concluded that the EFA needed to do more to address potential conflicts of interest in academies, expressing concern that "individuals with connections to both academy trusts and private companies may have benefitted personally or their companies many have benefitted from their position when providing trusts with goods and services".[242]

140. Witnesses to our inquiry raised similar issues with regard to transparency over the allocation of resources and the potential for the misuse of public funds.[243] Henry Stewart identified "one of the problems" of academy chains as the amount of money "that has gone to companies of which the trustees of the academy or the chain are directors".[244] Kevin Courtney of the NUT recommended that to increase transparency each individual school within a trust should publish its accounts [currently, accounts are published at the trust level] and that related-party transactions should be banned.[245] Jay Altman agreed that there "should be total transparency" on how money is spent within a trust.[246]

141. The EFA has refused to ban related-party transactions. It published a review in November 2014 of how such transactions are monitored, concluding that of the 976 academy trusts (43.3% of all trusts in 2012-13) which disclosed related party transactions, only 54 had transactions which required further investigation and only 17 trusts had transactions that were then deemed irregular or improper.[247] The EFA has recently issued new guidance on auditing "at cost" transactions (although an NAO study found that "auditors remain concerned that this will be difficult to apply"[248]⁾ and has firmly stated that the guidance and the package of measures set out in its review represents "an unprecedented level of transparency, accountability and scrutiny, to parents, the public, EFA and to Parliament".[249] The EFA was equally robust in defending its position in a letter to us from Peter Lauener, its Chief Executive, in October 2014.[250]

Termination of funding agreements

142. The model funding agreement for academies and free schools runs for seven years. There have been several iterations of the model agreement which have given progressively more control to the DfE but many academies have been set up on earlier agreements which restrict the DfE's ability to intervene. The NAO has pointed out that "In particular, it is difficult for the Department to terminate an agreement signed before December 2012, even when there is underperformance, without giving 7 years' notice, unless a mutual agreement can be reached with the trust".[251] Only where a school is in 'special measures', and where a monitoring visit has found progress to be 'inadequate', can the DfE terminate the agreement without notice.[252] The DfE has amended older funding agreements to strengthen its intervention powers for 240 academies but this can only be done through negotiation with individual academy trusts.[253]

143. Several witnesses questioned the length of the funding agreement and the process for reviewing it in individual cases prior to renewal. For example, United Learning suggested that funding agreements could "take a different form-something like renewable licences": "Agreements need to be long enough (e.g. at least five years) to allow continuity but their renewal would be automatic only if the agreed aims are achieved".[254] The charter model used in the US, which has been, in some ways, a blueprint for academies in England, gives more control to the authorities. A charter is issued for a fixed period of typically three to five years, and if the school does not meet the proportion of students reaching pre-set outcomes in that time, the charter is cancelled and the school closed. Jay Altman of FirstLine Schools, New Orleans told us that quality was maintained by a ruthless imposition of the charter:

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144. Chains may unilaterally decide to terminate the sponsorship arrangement with an academy in the chain without consulting the school but sponsored academies are not allowed to leave the chain without the agreement of the sponsor, even in cases where a chain has collapsed. The Independent Academies Association suggested that an outstanding school should have the option to leave its group and set up as a sponsor, "providing that doing so will demonstrably not impact negatively on the capacity of the existing sponsor".[256] This condition could answer concerns such as those expressed by Theodore Agnew (CEO of Inspiration Trust) and Sir Daniel Moynihan (CEO of Harris Academies) who were both broadly against granting good and outstanding schools the autonomy to leave a sponsor voluntarily because of the value of good schools as a resource to help bad schools,[257] and the investment made in them.[258] Sir Daniel put forward the compromise that there could be an appeal system for schools wishing to leave a chain.[259]

145. The Secretary of State recognised the concern that allowing a school to leave might undermine other schools in the chain that were relying on it for support and collaboration, but she also acknowledged that "we do not want to see unhappy relationships continue; that does not benefit anybody".[260] She did not give a commitment to examine this question but assured us that "the system is continually evolving and kept under review".[261]

Failure of chains

146. The DfE can intervene in an academy trust if there are concerns about its performance or about the management or governance of an academy. This is done through a pre-warning notice letter, followed if necessary by a warning notice and then the termination of the funding agreement. The most high profile instance of a chain being required to terminate sponsorship arrangements with the academies in its chain is E-ACT, which was ordered to dispose of ten academies. Robert Hill highlighted the problems facing some chains and criticised the lack of transparency of the process of oversight by the DfE. He told us that:

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147. Although some chains have failed, these have been of a size that has not destabilised the whole system. Given the expansion of some chains, the DfE needs to prepare for a failure on a wider scale. During our visit to the Netherlands in 2013, we heard about the serious impact caused by the collapse of a school board. It is not at all clear what would happen here in a similar situation. Frank Green told us that a protocol was being developed on the process to be followed with regard to individual schools when a chain failed, with the DfE learning lessons from the experience with E-ACT.[263] He undertook to submit the protocol to us once it had been completed, although we have yet to receive it.

Ofsted inspection of chains

148. In our report on School partnerships and collaboration, we recommended that Ofsted be given the power to inspect academy chains in the same way that they inspect local authorities.[264] In the last year, Ofsted has begun coordinating the inspection of schools within a chain in some of the weaker academy trusts but Her Majesty's Chief Inspector of Schools has made it clear that he would like to be able to inspect the chains themselves, right up to head office. During this inquiry, the issue was raised with several witnesses, all of whom—except those from the DfE—supported the granting of such powers to Ofsted. For example, Sir David Carter, the new Regional Schools Commissioner for the South West and former academy chain chief executive, told us:

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149. Sir Michael Wilshaw explained to the PAC the kind of questions asked about a local authority to "test whether it has got the right strategies in place".[266] These would also apply to academy chains. Sir Michael argued that one of the reasons that some chains had failed was that "the quality of leadership at the centre of the chain has not been good enough and the trusteeship has not been good enough", leading to head teachers in the individual schools feeling "unsupported, unchallenged and unclear about the general direction of travel" which was "the responsibility of the central team".[267] It was therefore essential that the central team formed part of the inspection.

150. The arguments in favour of inspection of chains by Ofsted are strengthened by the evidence we have received about governance in multi-academy trusts. As David Wolfe told us,

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151. Emma Knight of the National Governors' Association told the PAC that the failure of "a lot of MATs [… to] lay out their scheme of delegation well, or in some cases […] at all", was leading to "an awful lot of confusion" amongst members of local governing boards as to their duties and powers.[269] She suggested that there was a lack of expertise in some MATs in determining which schools deserved earned autonomy and which did not.[270] The intention of the DfE to remove the requirement for individual schools within trusts to have even advisory boards at the local level further emphasises the centrality of the trust and the need to ensure proper scrutiny of its activities.[271]

152. The Secretary of State has made it clear that she does not intend to extend Ofsted's powers in this way. She argued that "Ofsted is about inspecting outcomes-school outcomes, school results and what is happening in schools"[272] and that "I am clear from looking at these four Ofsted reports [on batch inspections of schools in chains] that it has the powers to ask to look at the support that the sponsors are offering to the schools in their chain".[273] The Secretary of State also disputed the analogy between local authorities and chains, stating that "Academy chains are not school improvement services".[274] Informally, we have also heard concern that Ofsted inspection would stifle innovation within chains by introducing a model of how they should be run.

153. After our evidence session, the Secretary of State copied to us a letter to Sir Michael Wilshaw, setting out her position.[275] Subsequently, Sir Michael explained to the PAC his concern that, under the approach set out by the Secretary of State, it was possible that the chief executive of a chain might question the framework under which Ofsted was operating,[276] implying that inspectors were going beyond their remit.

Conclusions and recommendations on chains

154. The DfE has begun looking at what makes chains effective but more needs to be done and the results of this work need to be better disseminated. We recommend that the DfE build on its existing analysis of the characteristics of academy chains by examining best practice and the operation of effective chains, in order to inform the active promotion of best practice across all Multi Academy Trusts.

155. We recommend that the DfE analyse and monitor the performance and other data relating to academy chains, and publish the results broken down by school and trust, in the interests of transparency and accountability.

156. Greater transparency is also needed regarding the process and criteria by which sponsors are authorised and matched with schools. This information should be clearly set out and be in the public domain. The process of authorisation and approval has improved but could still be sharpened. Greater transparency over DfE decision-making will help in encouraging new sponsors to come forward and to understand what will be required of them. We recommend that the Government outline the process and criteria by which sponsors are authorised and matched with schools.

157. Conflicts of interests in trusts are a real issue, as shown by the cases which have come to light so far, and they are magnified in the public eye by the latent potential for the misuse, apparent or actual, of public money. It is essential that academy trustees act as trustees and on the Nolan principles of conduct in public life. We acknowledge that the DfE has responded and strengthened the system but we believe that the Department should go further. We recommend that the DfE take further steps to strengthen the regulations for governance in academy trusts and that the EFA revise its guidance on at cost transactions to make expectations of academies clearer.

158. Our evidence suggests that the oversight of chains needs to be improved in several areas. We recommend that the accountability and monitoring system for chains, and the criteria used to 'pause' their expansion, be made more transparent and open. The DfE should publish the process and criteria that will be used in reviewing and renewing academy funding agreements.

159. Lessons should be learned from the US experience of charter schools with regard to oversight arrangements. We recommend that the Government reconsider the appropriate length of funding agreements, with a view to reducing it to five years, and publish its assessment.

160. We recommend that the DfE create a mechanism for schools to be able to leave academy chains where the relationship is no longer appropriate.

161. We also recommend that the DfE develop a failure regime for chains, as in the Netherlands, and publish a protocol for dealing with the failure of a large chain as well as how individual schools will be treated when a chain indicates that it can no longer run them.

162. We have listened carefully to the arguments put forward by the DfE against inspections of chains by Ofsted but we remain unconvinced. We believe that an Ofsted inspection judgement for each academy chain would improve Multi Academy Trusts in the same way as it has schools and local authorities. We also believe that, given the failure of some high profile academy chains, the grading of academy chains and corresponding report information would help Regional Schools Commissioners monitor chain performance, and would give parents important information about the academy chain that stands behind their school.

163. We recommend that Her Majesty's Chief Inspector of Schools be given the powers he has called for in respect of inspecting academy chains.

164. We recommend that all academies and chains publish in their annual accounts the salary and other remunerations of senior leaders within bands.

201 What does a high performing academy sponsor look like? Report for sponsors, DfE analysis (May 2014) Back

202 Chain Effects; The impact of academy chains on low income students, Merryn Hutchings, Becky Francis and Robert De Vries, Sutton Trust (July 2014) Back

203 http://dera.ioe.ac.uk/14536/1/the-growth-of-academy-chains%5B1%5D.pdf Back

204 https://roberthilleducationblog.com/academy-chains/ Back

205 Ofsted Annual Report on Schools, 2013-14, p.33 Back

206 NAO, Academies and maintained schools: Oversight and intervention, HC (2014-15) 721, p10 Back

207 NAO, Academies and maintained schools: Oversight and intervention, HC (2014-15) 721, p10 Back

208 NAO, Academies and maintained schools: Oversight and intervention, HC (2014-15) 721, p10 Back

209 NAO, Academies and maintained schools: Oversight and intervention, HC (2014-15) 721, p11 Back

210 Q555 Back

211 Q965 Back

212 Ibid Back