The number of UK schools establishing schools overseas continues to grow. The interest in this area was graphically demonstrated at the annual Practical Strategies conference Veale Wasbrough Vizards ran last autumn. The company invited an audience of UK independent school heads and bursars attending a seminar on international projects to indicate whether they were presently in active talks with investors regarding an international project. Forty-four per cent said they were. Clearly, that was a self-selecting audience, but the results nevertheless reinforce the view that the level of activity behind the scenes considerably outweighs the relatively small number of ‘franchise’ schools that have opened so far.
So what can schools embarking on the process learn from those that have gone before?
Protect your name and crest
Perhaps surprisingly, you probably have no rights in your school’s name outside the UK. So a third party could perfectly legally begin to use your school’s name without your consent. This is not just a theoretical problem – it has happened on several occasions. The third party could even register your name as a trademark, which would entitle it to forbid you from using your name in the relevant country.
The answer to this problem is to register your name and crest as trademarks, which is something that most substantial schools have already done in the UK. The cost of registering trademarks overseas can be controlled by devising a strategy that accurately reflects your priorities. Most schools will have filed initial trademark applications by the time they begin serious discussions with a potential project partner.
In many countries, a trademark registration will cost no more than the airfare to the initial meeting, so it is a sensible step to take even before the project is guaranteed to proceed.
Finding the right partner(s)
The right project partner(s) will have many qualities, including:
• Access to finance
• A long-term perspective
• A collaborative approach
• A good knowledge of the local market.
Once you have found what appears to be the right partner, it is vital to check their credentials. Googling is a good start, but is not enough in itself. Typically, it will be worth engaging a third party to conduct financial (and other) checks. Meetings – both at your school and in the relevant territory – are a crucial way of understanding what each party has to offer and establishing a rapport.
Try to keep things simple
These are substantial projects, and keeping them simple is not always possible. Sometimes unwanted complexity arises from the local regulatory regime or from the structure of project partners. However, simplicity remains a worthwhile aim that will help to promote a smooth negotiation process and avoid misunderstandings as to how the school is to operate in practice.
Veale Wasbrough Vizards typically favour a licence model, where the UK school licenses its name and crest to project partners who agree to operate the new school in accordance with the ethos and quality standards set by the UK school.
Sometimes a project is proposed that involves a joint venture company being established in which the UK school and its project partners will own shares. This approach requires more complex documentation, creates doubt as to the financial returns and gives rise to greater risk.
Sometimes it is suggested that the UK school will operate the new overseas school and that project partners will simply provide the finance. This model greatly increases the level of risk for the UK school and the time it will need to devote to the project. And there is no guarantee that the resulting school will be any better or the financial returns any greater. Prior experience shows that UK schools typically wish to keep things simpler.
It is also worth keeping the style of the project agreements themselves simple. They will need to be understood by people working many years in the future, who were not involved in the negotiation process and whose first language is not English. Using plain English and a simple style will help avoid misunderstandings.
What are the risks, and how can they be mitigated?
Key risks are:
- Reputational damage to the UK school. This risk can be mitigated by: putting in place a detailed agreement giving you extensive control over the ethos and operation of the overseas school; a mechanism allowing you to terminate the arrangement if the operators of the overseas school fail to maintain standards; ongoing and systematic scrutiny of the overseas school.
- Insufficient demand. This risk can be mitigated by: commissioning an independent examination of the local market before embarking on the project; structuring your revenue streams so that the project still makes financial sense even if demand does not meet your project partners’ projections.
- The overseas school diverting investment and management time from the UK school. This risk can be mitigated by defining clearly in the project agreement the role of the UK school’s personnel. The project agreement should also reinforce the principle that the UK school will not contribute financially to the project.
- Local regulations. It is important to get advice from a trusted local lawyer on the local regulatory framework
It can help discussions to agree a brief memorandum of understanding with a potential project partner at an early stage. It is important to make clear which parts of it are non-binding (such as provisions setting out the proposed structure of the project) and which parts are binding (such as provisions restricting the use of trademarks).
The final project agreement should set out a clear, practical and detailed framework for the operation of the school and the relationship between the project partners.
It will cover matters such as the following (among many others):
- The new school’s policies and procedures. These should closely reflect the UK school’s own policies and procedures, with a view to ensuring that its ethos is accurately replicated in the new school.
- Payments to the UK school.
- The UK school’s right to monitor and control the quality of the new school. This is a key issue for ensuring the long-term success of the project.
- Your right to terminate if project partners fail to operate the school as agreed.
- The Bribery Act. This recent UK legislation potentially renders a UK school criminally liable for the acts of project partners, even if the UK school was unaware of those acts. UK schools have a defence if they can point to the enforcement of suitable contractual clauses that address the subject of bribery.
Aside from the obvious financial benefits of a successful international project, UK schools have found that their projects can provide valuable opportunities for sporting and cultural links, exchanges of pupils and staff, the development of an international community of alumni and increased international prestige.
These projects can never be entirely risk-free, and international projects are not for everyone. However, increasingly, schools are concluding that the potential benefits outweigh the risks, and there are many ways in which those risks can be reduced and managed.
Practical Strategies is a key-note event for many independent schools. Details of this year’s event on 16 September at the IoD London can be found at www.vwv.co.uk