Learning about change

  • Date:01 Aug 2015
  • Type:Company Director Magazine

Domini Stuart considers the increasing corporatisation of the Australian childcare industry over the past decade and finds a fragmented sector experiencing significant change.

Each year over 1.57 million Australian children attend some form of early childhood service partly funded by the Federal Government and, according to budget estimates, this will grow to 1.79 million in 2016 to 2017.

Yet the early childhood education and care (ECEC) sector is highly fragmented, a miscellany of approved providers including sole operators, private and listed for-profit organisations, not-for-profit (NFP) organisations, church and local government bodies providing long day care, family day care, pre-schools and after school care. More than 80 per cent of providers supply only one service, while just one per cent offer 25 centres or more.

Successive federal governments supported the consolidation of services into large corporate entities as a way of gaining efficiencies, improving regulatory compliance and achieving more consistent quality. Then the collapse of ABC Learning exposed the associated risk.

“A sudden drop in supply has significant social and economic consequences that require intervention,” says Samantha Page, chief executive officer of peak early childhood lobby group Early Childhood Australia. “Large NFP providers tend to be less risk-tolerant and more stable, but lack access to capital for large-scale expansion to meet growing demand.”

For years, the early childhood industry has been very suspicious of all for-profit ventures but, despite the ABC Learning debacle, Kathy Walker, founding director of parenting and education consultancy Early Life Foundations, believes this is starting to change. “I think this is a good thing – I’ve seen some very good for-profit models in the past 10 years,” she says. “However, I have also found vast differences in the quality of care provided by both sectors and I think we have a long way to go before we achieve consistent quality across the board.”

Legislation and reform
There is a wide range of financial and governance models across ECEC and, as all providers are regulated by every level of government, keeping abreast of legislation and reform is an ongoing challenge for every organisation. The most significant regulation is the national quality framework (NQF). Introduced in 2012, it set minimum standards and established a rating system for most providers. It also harmonised and streamlined many state-based regulatory processes, though some anomalies remain. For example, the NQF embraces all long day care centres and pre-schools but they are still funded differently.

“From a governance point of view this means that, if your organisation offers both, you have two different funding sources and financial models,” says Darren Mitchell, president of SDN Children’s Services, an NFP provider of early childhood education and care. 

“As each state and territory funds preschool differently, you could also have two different funding formulae within the same centre,” Mitchell adds.

Boards are preparing to incorporate changes to the NQF planned for 2016 and also the $1.3 billion-a-year childcare package due to take effect from 1 July 2017. “This is designed to improve childcare affordability for most low and middle income working families and get more mothers into work,” says Wendy McCarthy AO MAICD, director of Goodstart Early Learning, the consortium of NFP organisations that bought many of the failed ABC Learning centres. “However, legislation is due to be put before parliament in the next six months and it is not yet clear whether the Senate will support all of the changes.”

A quality service
Qualified teachers and educators achieve quality outcomes in childcare but Australia is short of both, creating problems with recruitment and retention. “It recently became mandatory for everyone working in childcare to have, or be studying for, a Certificate III but, rather than increasing the number of well-qualified workers, it has triggered a huge increase in the number of disreputable trainers,” says Walker. “Very, very young people can gain a certificate from the childcare centre they happen to be working in without any experience of the world outside that, so the qualification means very little. I believe we are still 20 or 30 years away from having a strong workforce with an appropriate level of knowledge.”

Low wages continue to act as a disincentive but, if they rise as a result of the equal remuneration case currently before the Fair Work Commission, this could have a significant effect on providers’ costs. “Like many other NFPs we invest in permanent staff to support quality outcomes,” says Mitchell.

“We pay most of them through an enterprise agreement that offers above award wages and, as a result, staff costs represent around 80 per cent of our total expenditure. One of the ECEC sector’s biggest challenge is balancing increasing costs with affordability for families.”

Safety must be a priority in any childcare environment.  “A child-safe culture is more than getting clearance from a working with children check,” says Page. “It must start with the board or committee and permeate the whole organisation.”

The safety of the workforce is also crucial. “Apart from the obvious concern for staff wellbeing, the operational costs associated with workplace injuries can disadvantage the whole sector,” says McCarthy.

“For instance, one centre that falls short of its safety obligations can elevate workers compensation premiums across the board. We embedded a safety culture in every aspect of the organisation and this enabled us to achieve significant savings in workers compensation premiums in the last financial year.”

A particular responsibility
For parents, the chance of finding appropriate childcare depends to a large extent on where they live and what they do. “Some centres, particularly those in the inner city, have very, very long waiting lists,” says Walker.  “And many centres find it difficult to accommodate the needs of parents who work part-time or on different shifts.”

This goes some way to explaining why Australia has one of the lowest rates of female workforce participation of any industrialised country. “Removing barriers to workforce participation would lead to greater economic productivity in the longer term,” says McCarthy. “According to the Grattan Institute, if we raised our female workforce participation rate to that of Canada, the economy would gain $25 billion a year.”

Good childcare is also a key investment in children’s early learning and development. “There is increasing evidence that quality early learning for young children is associated with significant cognitive and socio-emotional benefits,” says Page. This imposes a unique set of responsibilities on boards which may lack the skills and experience to fulfil them.

“I believe that all child care and educational institutions, whether for-profit or NFP, should have external early childhood professionals on the board to provide guidance in terms of practice,” says Walker. “I also believe this will become increasingly important as research continues to clarify what young children need in that birth-to-five age range and more parents start to look for evidence-based high-quality programs. Of course, some boards already take this very seriously and are very professional in their approach to governance, but there are many without an appropriate body of knowledge. I find this very disturbing,”she says.

One of the proposed changes to the national quality standard is a greater focus on risk management but how well this is implemented will, again, depend on the quality of the board. “Many boards are starting to take a more sophisticated approach to risk but few small and medium providers have the capability to assess the impact of changes to government policy and regulation,” says Page.

A long history
No company could survive for over a century without resilience and adaptability. SDN has also managed to stay true to its original mission. “The social justice values and vision that motivated the women of 1905 to start a service for working-class women and their children are still relevant to us today, though our services and funding models are continually changing to meet evolving needs,” says Mitchell.

He believes that successive boards have played a significant role in the company’s longevity. “We have always been very careful to select directors whose values support our continuity of purpose,” he says. “And, while our president must stand down after one three-year term, directors are allowed to serve for longer, and I think this has helped the board to take a long-term view in its decision-making. Our board is also committed to learning and continuous improvement and budget for board members to complete the Australian Institute of Company Directors’ Company Directors Course.

“This is very time-consuming but our organisation has so much impact on children in their most formative years that we can’t afford to have directors who don’t understand the demands of the role and take their responsibility seriously.”