Richard Harbord: Commercialisation ushers in significant governance challenges
0Governance is about the way in which various parts of government organisations work together in a seamless way. Good governance ensures they work together to ensure that the best possible outcome is achieved for those being governed.
Governance goes very closely with accountability. Accountability ensures that those responsible for any particular action are transparently known and held to account for their actions.
In local government today this seems to have become very complicated. At one time governance and accountability were the corner stones of local democracy.
However as life has become more complicated the corner stones are in danger of being eroded.
There is no reason to suppose as has been said that the pursuit of commercialisation should threaten these concepts but local authorities need to be careful that they work things through and ensure the outcome is the one they desire. Perhaps it is not the concept of commercialisation that has muddied the waters, but the relentless pressure to make savings, downsize and to recognise the aspirations of elected members, which can mean tha expediency will triumph.
Room151’s Annual Conference: 10th LATIF & FD’s Summit
September 20th, 2018, London Stock Exchange
In the first part of the 20th century local authorities were very commercial indeed. They ran electricity, gas and water and hospitals and these endeavours were achieved within the overall statutory framework without any great difficulty. Standing orders (a council’s constitution) and financial regulations were documents much referred to.
Financial regulations today in particularly seem to be often forgotten. I have carried out several investigations recently where documentation of current financial regulations could not readily be found or were a decade out of date.
Side by side with commercialisation has been the drive to find a structure that allows authorities to properly operate commercially but still remain within the law and without challenge. Thus many authorities operate a number of services through arms length companies. This allows some freedom of service provision, alternative approaches to private partnerships and varied sources of borrowing. However these companies must be wholly owned by local authorities if they are to receive the benefits. This means that they will form part of the group accounts of the authority. When these companies are set up it is vitally important to get right the reporting mechanisms and be clear where responsibilities are held.
The difficulty about arms length companies is they have their own governance structures including their own board whose legal responsibilities will be to act in the best interests of the company. The reporting mechanisms and the exact terms of delegation are extremely important.
There is no less need for attention in the case of outsourcing services. The Pensions Regulator has seen fit to write to local authorities to point out that outsourcing pensions administration does not mean that they lose the responsibility for ensuring the statutory deadlines for returns and issue of benefit statements etc are met. It is disappointing that the regulator felt it necessary to state this. The same goes for missing accounts deadlines. There have also been cases where outsourcing the services have led to the authority’s audit committee being unable to seek assurances from directors and others and forced to seek answers instead from contact managers.
The same goes for shared services where the necessity for making clear the governance arrangements is of paramount importance.
In all these areas the section 151 officer is key and they need to ensure the governance of companies, trusts , contracting out and shared services allows them to fulfil their statutory responsibility.
I mentioned accountability and I think that is a very interesting area indeed. Who decides whose fault it is when something goes wrong? Who decides who shall resign and when? In the past few years we have seen directors removed in effect by central government ministers. Our colleagues in directors of children’s services and adult care roles are particularly vulnerable to this but section 151 officers have had their moments as well. Although ancient history when I led the resolution of the interest rate swaps saga there were over 90 authorities who had dealt with swaps described by the judge as akin to gambling and although few actually lost their jobs there was considerable worry and concern. Similarly with BCCI and Barings.
Local authorities have a good reputation for the way they work. It is important that is never compromised.
Richard Harbord is a former chief executive of Boston Borough Council.
