Shopping around for a better way to operate? Try John Lewis

Debates about UK university finances concentrate on income and ignore how the cash is spent even as evidence mounts about escalating university management and administration costs. More money on management means less for teaching and research. If we are to see the current crisis as an opportunity, we need to promote radical alternative models for running universities.

Management cost increases can be seen as the product of governance failures. Although commercial firms are led by managers, they have shareholders and work within markets, both of which help to discipline managerial behaviour, especially around costs. Universities have no shareholders, only an amorphous group of stakeholders with little, if any, formal power. The markets they operate within are weak: universities are oligopolistic suppliers and the state is in effect the sole customer, albeit sometimes by proxy.

This power asymmetry produces an inefficient, managerially top-heavy sector. Although academics' work is monitored, assessed and audited, managerial effectiveness remains largely unexamined.

The governance roles of university councils or boards are formally similar to those of shareholders. But they are a poor proxy for shareholders - as they make no financial investment, they have no financial vested interest to defend. If shareholders cash out, this can signal falling market confidence, threatening managers' jobs. But if members of governing bodies resign, there is no market to register doubts over organisational performance.

Members can work altruistically, and many will, but to rely on this assumes much about how they are appointed and held accountable. In Wales, Leighton Andrews, the education minister, has called university governance the "last resting place of the crachach" - a Welsh word for a powerful, unelected upper-class elite.

UK universities have become increasingly corporatised. Senior staff see themselves as corporate executives. Administrators have become managers, and greater in number and salary. In the absence of an effective governing owner, a managerial capitalist elite has assumed control.

These weaknesses have prompted various "fixes". One is repeated government efforts to tweak universities' behaviour via funding and performance audit. Another is state encouragement of private sector competition in the hope of strengthening markets. Such interventions have proved largely ineffective, and sometimes outright damaging.

An alternative way ahead may lie in reasserting the role of universities as community social assets - vital components of the knowledge commons and carriers of open processes of knowledge creation. Universities could become "trust universities", modelled on the John Lewis Partnership.

John Lewis' shares are settled in a non-revocable trust. The beneficiaries of the trust are the employees ("partners"). The trust deed sets out the ultimate purpose of the organisation: "the happiness of all its members, through their worthwhile and satisfying employment in a successful business". Via a substantial and formalised system of representative democracy, the employees are directly responsible for the success of the firm. The organisation is kept flat and equitable via a restraint on pay differentials, preventing expropriation of business wealth by managers.

Trust universities could follow suit. Universities would be placed in non-revocable trusts: as institutions of the knowledge commons, ownership should be irrelevant, but purpose all-important. The raison d'etre of trust universities would be to support the teaching, learning and research work of their staff and students, all of whom would be "partners".

Democratic structures enshrined in the trust deed would ensure that partners were responsible for, and empowered to effect, the efficient operation of their workplace towards socially, economically and culturally beneficial outcomes. Like John Lewis, their failure to do so could lead to organisational demise.

Constrained pay differentials would ensure that no managerial super-elite emerged. Limitations on the resource to be devoted to indirect costs such as management overheads would be stipulated. Universities could be encouraged to convert to this trust structure by steadily increasing funding differentials between the old and new organisational forms.

The effectiveness of universities in meeting society's needs could be assessed and rewarded via mechanisms akin to corporate social reporting to local, regional and national stakeholders. State funding would be contingent on institutions being able to satisfactorily demonstrate their contribution, but the government would have to resist micro-management. Government would have to trust the trusts.

We have a government self-avowedly committed to the Big Society and to less government intervention, and one that is in love with the John Lewis Partnership. Here is its opportunity.