The buzz around governance is growing louder. In recent months, local authority chief financial officers have issued a series of Section 114 notices, halting all non-essential spending due to a mismatch between income and expenditure. It’s similar to a private company publicly acknowledging its insolvency.
The well-known cases of Thurrock, Croydon, Woking, and Slough all point to persistent governance failures that allowed ill-advised decisions to not only be made but also carried out. Rob Whiteman CBE, Chief Executive of the Chartered Institute of Public Finance and Accountancy (CIPFA), has cautioned that the once-stigmatized Section 114 notice is becoming commonplace.
“I am in no doubt the Treasury and DLUHC will allow a council to go bust and default on its debts pour encourager les autres if there is any hint that serving a s114 notice becomes something of a fashion,” he wrote in the Municipal Journal.
The Gathering Storm
Unsurprisingly, many councils are now reevaluating the adequacy of their governance arrangements in light of these developments.
In this post, we delve into the dominant assumptions prevailing in the sector’s discourse on governance, which may harbour hidden risks.
Fragility of Positive Workplace Culture:
My previous blog, Navigating the Path to Effective Public Policy, argues that all sorts of good practices in local government need to be embedded in carefully managed governance systems to have reasonable prospects of success.
Positive workplace culture, in particular, proves to be fragile. A single individual who fosters division evades responsibility, shifts blame, and sows uncertainty and mistrust can undermine years of effort in building a trusting work environment in a matter of weeks.
One toxic person who likes to divide and rule, evade responsibility, spread blame and generate uncertainty and mistrust can undo years of effort put into building a trustful working environment – in just a few weeks.
Reframing the Definition
So, what is ‘good governance’? Traditional definitions often focus on organizational health and decision-making processes. They typically involve intricate organograms and process flows, showing how different components of the organizational landscape should interact.
The typical definitions of ‘good governance’ (not unreasonably) rely on an implicit assumption.
This is that the state of being well governed can be achieved. But I want to argue that ‘good governance’ doesn’t describe a state of affairs at all.
It describes a disposition – a degree of readiness.
An effort being made.
Being well-governed is akin to being prepared for adverse conditions; it improves your chances of surviving storms, but it’s not a guarantee.
Is the Worst Yet to Come?
Just like a government prepared for a flu pandemic suddenly facing a new virus, you can’t assess the quality of your protection against unidentified risks.
We must embrace the idea of over-insurance, with multiple layers of protection against cognitive biases, excessive central control, pressurizing leadership styles, and a culture that discourages dissent.
The Sputnik Metaphor
Consider the Sputnik lamp as a visual metaphor. Ideally, it should represent ongoing activity rather than a static image. Governance should distribute decision-making power across various settings and phases, incorporating fresh perspectives and debate at every stage.
‘Good governance’ involves multiple methodical efforts being made to make it difficult for things to go badly wrong for too long without alarm bells going off.
Councils that are really making an effort make sure that decisions involve perspectives from outside the direct chain of command, to reduce the risk that the only voices heard might be telling the emperor that he is indeed wearing clothes.
Multiple Health Checks
Organizations should be subject to scrutiny from various angles, and the methods of evaluation should vary to catch any vulnerabilities off guard. We seek multiple layers of protection against cognitive biases, centralized control, and a culture that stifles debate.
These devices shouldn’t always be deployed in the same way – because it’s inevitable that when people in organisations know how they are going to be tested, they prepare for the testing.
The cycles and rhythms of testing should be varied so that they can sometimes catch parts of the organisation off guard.
In essence, we’re looking for Taleb’s over-insurance: multiple layers of protection against cognitive biases, excessively dominant central control, pressurising leadership styles and a culture that inhibits disagreement and debate.
The Primacy of Culture
A positive organizational culture is essential but not sufficient for good governance. Even the best processes are irrelevant if carried out in a negative, fear-inducing environment. Examining recent local authority failures illustrates this point.
Well-governed councils practice good housekeeping, employ distributed and staged decision-making systems, establish high evidence thresholds for significant investments or risks, actively seek independent perspectives, and welcome independent scrutiny without excessive spin.
In these councils, both members and officers feel comfortable speaking out if they believe something has been overlooked or if a poor decision has been made.
This demanding prescription for local authorities necessitates a shift in focus.
So what is to be done?
The key points here are:
- ‘Good governance’ should be assessed by outcomes not by comparing organisational arrangements and published processes to recommended templates
- Good governance requires multiple checks and balances, based on varying and in some cases truly independent perspectives
- Good governance arrangements therefore change as the organisation proceeds through business cycles – an essential antidote to familiarity and the natural decaying of attention as time passes
- Culture trumps everything in governance
How can you reliably assess the health of your council’s governance arrangements without spending a fortune on consultancy that leaves you with a massive change agenda that will be seen by many colleagues as a long list of icing when the cake itself is shrinking?
Some ideas on this shortly…
Ben Ticehurst is a highly experienced interim executive and turnaround specialist with 40 years of work in and with local government organizations. He leads the development of Prospect’s new services for local authorities, including confidential governance and ESG Audit projects, and offers valuable insights into risk mitigation for local authority commercial ventures.
Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.
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