The Governance of Merger in South African Higher Education

August 2004

A Research Report prepared for CHE by Martin Hall, Ashley Symes and Thierry Luescher

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Terms of Reference and Approach (103Kb ~ 1 min)
Background and Context (305Kb ~ 2 min)
System-Level Governance for Mergers (127Kb ~ 1 min)
Institutional Governance and the Process of Merger (303Kb ~ 2 min)
Conclusion (148Kb ~ 1 min)
Bibliography (99Kb ~ 1 min)
Appendix A (204Kb ~ 1 min)

Executive Summary

The restructuring of the South African higher education system ranges widely across mergers, incorporations, the creation of new institutional forms, and regional-level programme collaboration and rationalisation. The focus of this investigation is the governance of merger in South African public higher education, with a subsidiary focus on governance in the contexts of incorporation and multi-campus institutions. Merger is taken to mean the combination of two or more separate institutions into a single entity with a single governing body and chief executive body. Incorporation refers to the process whereby a subdivision of one institution is incorporated into another institution, without affecting the latter’s legal status. The term multi-campus is used to refer to unitary institutions with geographically distant delivery sites. By governance is meant the structures and processes of policy design, decision-making and oversight of policy implementation.

The first chapter of this report sets out the objectives, scope and methodology of the investigation. The enquiry’s three primary objectives are:

• To develop a conceptual and contextualised framework for merger governance in South African public higher education;
• To interrogate the state of preparation, with respect to governance capacity, of the higher education system and its institutions, for the complex process of restructuring on which they have embarked; and
• To make proposals regarding system-wide and institutional-level governance to facilitate effective and efficient restructuring that will enable a sustained focus on transformation in the higher education sector.

The methodology was developed on the basis of four key considerations:

• The work needed to build upon prior research into how to promote effective governance in South African higher education;
• The timing of the investigation meant it had to take into account theoretical, policy and legal viewpoints affecting mergers, as well as rapidly emerging realities to be interpreted and commented upon;
• The study had to be sensitive to the position of institutions directly affected by restructuring; and
• The study had to achieve a sharp and manageable focus in a complex field.

The second chapter draws together frameworks that support the enquiry, namely: a review of international perspectives on higher education mergers and their governance, a review of the policy and legal framework for restructuring South African higher education, and the development of an analytical framework for merger governance against which the findings of the report can be interpreted and tested. Finally, the chapter derives from these frameworks a set of principles for good merger governance in South Africa’s restructuring higher education system.

The chapter argues that, given South Africa’s history, higher education restructuring in this country is essentially sui generis: it is a politically-driven process that aims in the first instance to achieve the fitness of purpose of all institutions. Thus international perspectives serve to provide useful experience and insights, but not to define, in and of themselves, the policy directions South Africa should take. The policy and legal framework for restructuring must be evaluated in terms of what it reveals about, and how it supports, specifically South African reasons for structural change. An analytical framework for the governance of restructuring must ascribe values of good governance that are consistent with the transformative goals of South African policy.

The third chapter focuses on issues which arise at the point of intersection between higher education system-level governance and institutional governance. It discusses key questions of substance, capacity and resources in the process of merger which could influence the nature of the relationship between state and sector, and hence the nature of restructuring outcomes. In particular, this part of the report highlights potential mismatch in the respective expectations of the state and the higher education sector, especially as these relate to the nature of capacity and support provided by the state, and the Ministry’s framework for financing mergers and incorporations.

The chapter argues that a key danger of South Africa’s higher education restructuring process, as driven by political will, is the absence of alternatives to mandatory mergers. Yet if restructuring is to be a means to the achievement of the goals of national policy, state and sector must see their way clear to negotiating mergers and incorporations to common benefit.

The fourth chapter considers institutional (and inter-institutional) governance in the process of merger, linked to three distinct phases, namely: pre-merger, transitional and integration phases. A particular focus of the chapter is to highlight potential ‘unintended consequences’ of the merger process, drawing on the perspectives of institutions in the study sample, and to make suggestions for good merger governance in each of the phases.

The study finds that the pre-merger phase is characterised by institutional merger structures, as well as joint merger structures. It investigates the necessary linkages to be established between such structures, and with statutory institutional governance structures and stakeholders, in order to give effect to ‘equal partnership’ and participation. The study considers critical outcomes of the pre-merger phase, in so far as these are required to support effective merger governance. In addition to those items required by the Minister for gazetting a merger or incorporation, the report gives particular attention to due diligence investigations, the Memorandum of Agreement and the merger plan. It argues that these are essential elements in ensuring sound decision-making and adequate preparation for transition to a merged institution.

With respect to the transitional phase, the report gives particular attention to the Interim Council which is the key statutory governance structure of this phase. It finds that key challenges are posed for and by the Interim Council in constructing effective linkages between the pre-merger and integration phases. Accordingly, it argues that institutions must prepare carefully for the transitional phase, in order to ensure that the Interim Council, interim management, and other interim governance structures, which are set out in the Standard Institutional Statute, serve the needs of the merger process to an optimal degree. The integration phase of merger is the period during which the merged institution establishes and implements its vision and mission, establishes its culture, integrates teaching and research, and aligns policies, systems and procedures. The integration sections of this chapter evaluate how governance can best support these aspects of the merger. Particular attention is paid to Council’s overall accountability for merger integration and the establishment of institutional culture and identity, to the complexities and needs of academic integration, and to considerations in creating a governance model for multi-campus institutions resulting from merger.

The final chapter draws together and summarises the key findings, interpretations and conclusions of the aforegoing chapters and formulates them as a set of observations that are seen as important for informing a full consideration of the governance of merger. Thus the chapter may be read on its own as a summary of this investigation. Conclusions include:

• Successful restructuring outcomes will depend upon the ability of state and institutions to negotiate specific mergers and incorporations to common benefit.
• There is a danger that the principle of ‘equal partnership’ in mergers, and especially in incorporations, may not be applied consistently in practice; governance in the premerger phase must give careful attention to this.
• Councils should carefully assess the specific due diligence needs of the merger or incorporation in which they are involved, notwithstanding the due diligence guidelines that have been published by the Ministry.
• A Memorandum of Agreement and merger plan are key frameworks for merger governance that should be developed in the pre-merger phase; mechanisms are required to ensure that goodwill and momentum established through these mechanisms are carried through to the transitional and integration phases of the merger.
• Given inherent challenges posed by and for the Interim Council, institutions must take into account the specific circumstances of their merger in selecting a preferred model for the Interim Council.
• In governance terms, the process of establishing institutional culture and identity requires conscious attempts to plan, implement and monitor institutional development; the Council of the merged institution must exercise its accountability in this respect.
• Decisions respecting academic integration should be driven by a defined vision and mission and should be taken only once that is in place.
• Models for multi-campus governance should be evaluated in terms of their likely impact on effective operational and academic integration, as well as on the creation of a new institutional culture and identity in the merged institution.