What can higher education learn from the collapse of Thomas Cook?

1. “One-offs" happen all the time

Thomas Cook has been buffeted by “one offs” - volcanic ash clouds in 2010, the Arab spring in 2011, heat waves and Brexit. In the face of increased uncertainty and damaging ‘events’, the board should have focused on debt reduction to increase resilience of the business.

HE institutions waiting for the upturn in demographics and resolution of Brexit to deliver student numbers take note - there will be other “one off” events in these uncertain times.

2. Customers change their behaviour and you have to change with it… fast

Thomas Cook’s business model didn’t change as people changed the way they booked holidays - for example still having high street outlets when people were booking online. 

“One might argue that the product mix on offer at Thomas Cook did not align with what its customers really wanted.” - Jonathan Manning, Business Live HE institutions that don’t have a deep understanding of their ‘customers’ (the way they make decisions, how they want to be communicated with, how they learn and what they expect from their university) will die at the hands of nimbler competition. Now is the time to ensure you have the right market intelligence at your fingertips, you are looking ahead to predict what your students will expect of you, you know what your competitors are doing and how they are changing. 

3. This government will allow painful failures to happen

The UK government refused to bail out Thomas Cook, saying it would create a ‘moral hazard’ and increase risks taken by businesses if they thought the government wouldn’t let them fail. 

Does this sound remarkably like the rhetoric used around allowing university failures? If we were ever to doubt whether they would allow a university to fail, look at how the government has allowed Thomas Cook to fail. They would rather spend government money on getting holidaymakers home in the short-term, rather than helping to save a business with thousands of employees and the investment money of pension funds in the long-term.

HE institutions face many challenges with continued reductions in student numbers, heavy borrowing for capital programmes and rising salary and pension costs. It might be wise to review the assumptions built into your institution’s financial strategy, and consider the criticism that Thomas Cook leadership faced for not focusing harder on reducing debt and looking to long-term financial sustainability. 

4. It’s all about governance

Boris Johnson decided to immediately home in on the directors of Thomas Cook, saying, “One is driven to reflect whether the directors of these companies are properly incentivised.” The failure of Thomas Cook will now be subject to an inquiry by the Insolvency service who has been asked by Andrea Leadsom to look at directors' conduct "immediately prior to and at insolvency". Governance in all sectors is the focus of much attention from regulators. Now is the time to review your institution’s governance - whether it is ‘due’ or not.

5. Remuneration is the ‘hot’ story

In the face of thousands losing their jobs, tens of thousands stranded on holiday and the damage to pension funds, the focus of the media has swiftly turned to the pay packages of the directors of Thomas Cook. Questions have been asked about how their pay was or wasn’t linked to performance, and the governance decisions made around their remuneration. 

Given the significant focus of attention on HE leadership remuneration, we can see how this will become the focus of attention if and when failures happen in HE. If you haven’t reviewed your remuneration policies and processes, do it now.

First published on https://www.halpinpartnership.com/debate/

Sources and further reading:

• https://www.theguardian.com/business/nils-pratley-on-finance/2019/sep/24/the-thomas-cook-chairman-needs-to-answer-some-questions
• https://www.business-live.co.uk/enterprise/thomas-cook-collapse-finance-happened-16964473
• https://www.bloomberg.com/news/articles/2019-09-23/johnson-zeroes-in-on-directors-role-after-thomas-cook-failure
• https://www.bbc.co.uk/news/business-49805014
• https://www.telegraph.co.uk/business/2019/09/24/city-watchdog-joins-chorus-calling-thomas-cook-investigation/