NCH – new company structure

When the original company, Grayling Hall, was founded as a company limited by share back in July 2010 (note the date, before the Browne review was published) Grayling was one of two shareholders: the other was John Hall a strong opponent of public services who had previously sponsored David Willetts when he was in opposition.

Grayling Hall changed its name to New College of the Humanities Limited before the college was launched last summer.. By far the largest shareholders, over 30 per cent of the company, are the Swiss family Ebstein who run the venture capital firm Meru AG based in Lucerne. They go unmentioned on the NCH website.

Private equity and venture capital is well served on the board. Many of the illustrious associated professors also took shares in this company, which is a profit-distributing entity

The separate charity, New College of the Humanities Trust (Registered Charity Number: 1141608),  was set up to oversee bursaries and scholarships to support study at the company.

Alongside the high fees (£18000 headline fee per year), the profit distributing nature of the company attracted criticism from those who think educational establishments that aspire to be ‘Oxbridge colleges in London’ should be charities.

But earlier this year, I noticed that Grayling had begun to deny that NCH was ‘for-profit’. I have never had much confidence in Grayling’s grasp of the business and presumed either that he rightly understood that he was unlikely to be making any profits for quite some time or that the company had altered its constitution in some way to become a ‘non-profit distributing body’ in order to benefit from VAT exemption on fees.

Here is the first time I heard Grayling make this claim. Grayling states, “… technically, NCH is a not-for-profit organisation so that’s a misunderstanding …”. That appearance on the BBC is back in January.  19 January 2012 to be precise. Remember the date.

However, it was only after a couple of interviews appeared online this week that I roused myself to look take a look at Companies House. This one in particular with The New Humanist gave some details of a new structure.

“This model, he says, has been misrepresented and misunderstood by his critics. He takes me through the detail. The NCH is in fact three entities. There’s the college itself, which is a not-for-profit enterprise; a trust whose job is to raise an endowment (there is already £250,000 in the bank, with “much more to come”) to fund students who need it; and a service company. This last, a profit-making arm, is owned by the 30 or so individuals who have provided the seed funding (he doesn’t name them but says it isn’t a secret and includes some of the star professors on the staff).”

So there are three entities now – there were only two last summer.  Something has changed: the college is now not-for-profit, there’s the trust, and here’s what looks like our new friend, a ‘services company’. And, yes, it may end up being a shared services company:

“… once the service company is up and running it can bid for contracts with other institutions which will allow them to realise a return on investment, and then some. We should not be squeamish about this, Grayling says. Why shouldn’t investors see some kind of return?”

So we have a new company in the mix and the original investors were investing in that, not the college. Really? That wasn’t my understanding and Grayling certainly wasn’t saying this last summer. So, anyway, after a short trip to Companies House website, what did I find?

In early March, New College of the Humanities Limited (the for-profit company) changed its name to Tertiary Education Services Limited (Company No. 07317195).

And hang on what’s this? A company that was called Tertiary Education Services Limited (Company No. 07917776) changed its name at the same time to New College for the Humanities Limited. Aha!

When was this company set up? 20 January 2012.

So the third company was set up after the BBC interview and the names were switched in March.

Is the new company not-for-profit?

First, what is now NCH Limited is a wholly owned subsidiary of TES Limited. That is, the ‘services company’ is not an arm, it is the parent: it is the teaching college that is the arm. And although the latter’s articles state that it is not allowed to distribute property or profits via dividends to shareholders,  payments can be made to directors ‘for their service to the company as directors’ and ‘for any other service which they undertake for the company’.

So technically, it is not-for-profit but the directors can take out money: the directors include the significant equity backers of TES limited (inc. Grayling, his CEO, four of the TES non-executive board and the Ebsteins – though not the star professors).

Ok, so what does this mean?

It is not that the critics did not understand the original structure, it is that the structure was changed this year and the group now has a new subsidiary teaching arm.

The ‘college’ will pay rent and other services fees to the controlling company, which is for-profit. The major shareholders of TES limited can also claim fees for their roles as directors of the subsidiary. There are plenty of ways for money to move out of the college operation. As such, the set-up looks very like what was being proposed at London Metropolitan.

Our habits of thought are being challenged by new developments and working out where and how the money flows is now an important part of understanding English higher education.

The interview with New Humanist continues:

‘Though we think of them as public institutions, all universities are independent private corporations – given subsidies by the government to teach our children – and all of them, he says, have “third leg” spin-off money making businesses: “Everyone knows Oxford and Cambridge earn hundreds of millions from their publishing operations and science development, UCL owns 11 or 12 companies, one of them manufactures compression socks, designed by one of their staff, they sell millions.” His argument in a nutshell is that NCH in this respect is really no different from any other university.’

Grayling’s claim that he is only doing what the established universities are doing is not true – their subsidiaries may make profits, but any surplus or profit goes up the chain to the charitable teaching institution.

NCH works the other way – the teaching institution is a subsidiary of the profit-distributing company. The money moves in the opposite direction.

Imagine if the sock company owned UCL and you would be close to the mark.

Private investment is about to boom in the UK and we need to be clear about these mechanisms.

I wish Grayling would get his story straight about ‘profits’ and stop muddying the waters, then we could concentrate on looking at what the teaching arm actually achieves.  After all, this is what he claims he wants.

This post originally appeared at Critical Education.