Financial sustainability: A corporate way of being even in a crisis

Stephen Fitzgerald argues it is untenable to protect services, as budgets severely strained, at the cost of sustainable finances.

Of the entire public sector local government has experienced the greatest reduction in resource through the period of austerity.

In its report, The Financial Sustainability of Local Authorities 2018, the National Audit Office said that local government spending power was reduced by 28.6% in real terms between 2010-11 and 2017-18.

It is against this background that local authorities have then faced the new burden of providing services in the Covid-19 environment. This has compounded the financial stress for some authorities and we have recently seen a section 114 notice issued at the London Borough of Croydon. Chief financial officers never take this action lightly.

Financial sustainability is critical for the wellbeing of local authorities, and there are ways of embedding that ethos throughout an organisation.

Communication and understanding

A key element of achieving organisational ownership of financial outcomes is understanding the basis of an organisation’s financial position. For finance professionals an important part of their role is to communicate the essentials in a fashion that staff at all levels can understand.

Winning the logical case for achieving financial sustainability is essentially about moving distressed organisations forward and guiding each employee to an understanding of the financial position of a council and the journey it must take. The chief financial officer’s skill in leading that communication process is essential in achieving a positive outcome.

Ownership and Responsibility

Understanding is a first step and this must lead to sharing ownership of the financial agenda. Ultimately, staff across the whole organisation must see the achievement and maintenance of financial sustainability as central to their job role rather than something purely the domain of the financial professionals.

If there is a genuine desire to achieve financial sustainability this must extend to the political leadership. Time needs to be taken to ensure that council members are well briefed and aware of their role in supporting successful financial outcomes.

Recruitment

Recruitment strategies must be geared to sustainability objectives. If organisations want staff to have ownership of the financial agenda they need to recruit on that basis.

Selection criteria should include an understanding and ownership of the financial issues related to the role. This should be done through the role specification and tested through the selection process before the decision to appoint is made.

If organisations are eager to achieve sustainability there is little point in appointing key members of staff that play lip service to the financial agenda and fail to see it as core to their purpose.

Working with the finance team

A key part of the role of any finance team is to enable and drive the sustainability agenda. However, it is not for the finance team alone.

Service managers are entitled to the support and enablement from their finance managers in their business partnering role, but this does not mean they can abdicate their own responsibility for delivering on on financial sustainability.

It is essential that effective partnerships are formed between service staff and the finance team based on mutual respect and understanding. Service managers must own the sustainability agenda as much as the finance team and be equally accountable for it.

Commercial

One of the controversial areas of local authority activity has been investment in commercial property. In some cases, this has added to sustainability problems due to poor acquisition strategies and changing risk profiles. This may be a contributing factor in the precariousness of finances in some local authorities.

There is no doubt that commercial strategies have bought significant financial benefits. However, this must be in addition to, and not a replacement for, the basics of a sound financial strategy.

Embarking on a commercial endeavor needs to come from a position of knowledge and financial strength. An organisation trying to spend its way out of financial difficulty is unlikely to achieve a positive outcome and is more likely to add to its financial difficulties.

Shared vision

Despite local government’s success in continuing to deliver during the period of austerity we now have a perfect storm of financial challenges and there are a group of local authorities experiencing financial difficulty.

Does financially sustainability matter? That’s not an entirely facetious question. It could be argued that services should be protected and finances are secondary, financially challenged organisations should wait for government to rescue them from collapse.

For the finance professional this is not a tenable position regardless of scarce resources. Financial sustainability is an essential outcome for organisations and the communities that they serve.

But it is not an objective that can be the agenda of the finance professionals alone, the whole organisation needs to mobilise around a shared vision and understanding of financial sustainability. It can be a tough journey and requires a universal corporate mindset but, surely, the outcome is worth the effort.

Stephen Fitzgerald is an interim finance director.
@SHJFitzgerald

Photo (cropped): Markus Winkler on Unsplash.