College principals’ pay shock!

Sorry. The figures don’t really justify the headline. Last year college sector principals had fairly modest pay rises - especially sixth form college principals. This would appear to contrast with chief executives in the universities sector.

With the data on college accounts published by the Learning and Skills Council, I calculated the median pay for principals in 2006/7 and 2007/8. I also separated general further education (GFE) and tertiary colleges (TC) from sixth form colleges (SFC). (I chose the median as it is less likely to be distorted by, for example, large severance packages or interim principals.)

In 2007/8 the median GFE/TC principal was paid £111k – up 5.7% the previous year. The median SFC principal was paid £87k – up 3.6% on 2006/7. (These figures omit the value of non-pay benefits.) Between August 2007 and July 2008 the RPI fluctuated between about 4% and 5%.

(If anyone would like more details, please get in touch via my website.)

With the public finances being increasingly squeezed, it looks like principals are leading by example.

UPDATE: The Universities and Colleges Union has also looked at the data. UCU have a different perspective. They also use the figure for pay rises given by colleges rather than calculating the rise in pay (which includes bonuses).

DIUS deceased

As was speculated this week the Department for Innovation, Universities and Skills is no more. It is now merged into Lord Mandelson's BERR business department.

When public finances (and hence public services) are under-pressure, the short-lived DIUS cost over £7 million to set-up - around £10,000 per day over its short and unhappy two years.

Re-shuffling bureaucracies

Today’s Financial Times indicates that Downing Street is thinking about “another Whitehall restructure” – i.e. re-shuffling departments as well as cabinet ministers. Earlier in the week there were suggestions at the Association of Colleges’ Finance Directors’ Conference that the Department for Industry, Universities and Skills might be merged into Department for Business, Enterprise and Regulatory Reform. (What would you call the offspring of such a union?)

It is a sad fact that the government periodically lapses into bureaucratic shuffling as if merging, de-merging or re-naming departments will fix problems. (Readers of this blog will know that I believe that genuine reform is more likely to involve creating customer choice and competing providers in he delivery of public services.)

Sometimes re-arranging bureaucracies is appropriate but it involves time, effort and resources which could be used for other purposes. How often is the cost-benefit analysis done?

DIUS has existed less than two years. It has major issues on its agenda – like the LSC capital funding debacle. Let’s hope the rumours are unfounded and DIUS can get on with its job.

What do you call a group of college finance directors?

Tomorrow I am off to the Association of Colleges’ Finance Directors' conference. The cynics might suggest that a meeting of a few hundred accountants would never be fun but this year there'll be extra despondency thrown in with LSC capital funding crisis and the imminent tightening of the screw in public finances.

This week’s Times Education Supplement quotes the chair of the College Finance Directors’ Group suggesting that half of England’s FE colleges could be categorised as economically vulnerable over the next two years. He also predicts swathes of redundancies across the country.

Governors Needed: effective governance in schools

Today Radio Four broadcast a documentary on the challenges facing school governing bodies. Hopefully Governors Needed will be made available on the BBC’s listen again.

The programme highlighted the obstacles that can hinder effective governance and result in rubber-stamping. Many of the themes will be familiar to those charged with governance in other parts of the public and third sectors.

The documentary featured comments (and concerns) from the National Governors' Association. If you are a school governor, it will probably worth looking at the resources available on the NGA website.

Tortoises and hares: public sector pay and pensions in the news

Yesterday several newspapers carried articles about a PricewaterhouseCoopers study of relative pay and pensions in the public and private sector. The good or bad news – depending where you sit – is that public sector pensions are shifting balance of advantages towards he public sector.

The PWC study assumed the private sector Hare and the public sector Tortoise both started work in 1981 at age 21. The Hare earned and spent more up to the stock market peak in 2007. Thereafter, a more broken employment history and a much less secure and generous private pension meant that the Hare ends up losing. The accumulated non-pension wealth of the Tortoise is higher from around age 55 and, by the time both die at age 80 in 2040, the Tortoise has accumulated non-pension wealth of around 30% more than the Hare to pass on to his descendants.

We can all query some of the assumptions but the delicate issue of public sector pay remains.

I would be interested in the relative positions of the Tortoise and Hare’s female equivalents. When the affordability of public sector pensions is queried, the unions (quite legitimately defending their members’ perks) point out that many public sector pensions are looking forward to “tinfoil” pensions rather than “gold-plated”. The reasons for the small size of pensions reflects the structure of public sector pensions – with their final salary basis which favours full-time career civil servants rather than those female members who are often part-time and passing through the public sector. It would be good to see the unions promoting the interests of their female works in the debate about the fairness and affordability of public sector pensions.

Charities harnessing the power of the internet?

The research consultancy nfpSynergy have issued the results of its Virtual Power survey on The power of the internet for charities. (The report can be downloaded if you register.) the report has some interesting figures although I hope some analysis is to follow as 345 pages is a lot to go through.

Some figures do stand out. It was perhaps surprising to read that 48% of charities are now using social networking sites. (I do wonder how many public sector organisations do likewise.) Less surprising is that only 28% bother to blog.

Strangely the latest survey shows fewer organisations look at the possibility of SMS and mobile telephony as a communication tool. Similarly fewer are using these tools. I do wonder if the mix of respondents may have changed in the recent surveys.

Only a quarter of respondents agree with the statement: “My charity is making the most of the internet".

Only 23% of charities agree with the statement: "Our trustees are involved with our internet strategy". (That may be due to a lack of such a strategy!) Meanwhile 32% of the respondents agree either strongly or slightly that "Our internet strategy is ratified and approved at Board level". That sounds like a rubber stamp being applied – uninvolved approval!

I’d recommend charities (and others) have a look at the survey. The questions – even more than the answers - should get you thinking.

Thought for the day: finance and strategy

Many members of the boards of not-for-profit organisations seem to turn off when finance is mentioned. I can remember doing governor training at a college when a governor arrived late and said: “Oh, it’s finance training? If I’d known I would not have turned up”.

I have come across some wise words from Emmanual Faber (CFO at Danone) who noted:

Finance without strategy is just numbers, and strategy without finance is just dreaming.

Church told to practice good risk management

Following a large financial shortfall left after last year’s Lambeth Conference of bishops, a review was commissioned into the financial management of the Conference. The report published last week found control was insufficiently robust given the risks involved in such a major event.

The report includes the commandment:

overall governance arrangements need to ensure that challenges can be identified, options offered for their resolution, and solutions agreed by the appropriate parties and then implemented in a timely manner.

The FT on the Hiddink Effect and “the lasting appeal of interims”

My enthusiasm for football is fairly limited but I was interested to read Stefan Stern’s article on the FT blog about Guus Hiddink, Chelsea’s interim manager. (My interest may have something to do with working as an interim Finance Director with several organisaions over the years – and I am available for hire very soon!).

According to Stefan Stern, Hiddink’s performance in turning around Chelsea is typical:

This is what the best interim managers can do. They go in to a difficult situation, inheriting problems that have been created or left unsolved by previous managers. They bring a fresh perspective. They rejuvenate tired and stale employees. And then they clear off.

The fact that so many organisations in all parts of the economy are being convulsed by the recession and need support suggests that demand for interim managers will continue its recent growth trend.

If swine flu can't be arrested, can colleges carry on regardless?

The World Health Organization’s latest upgrading of threat level for swine flu and the public information campaign run by the UK government as well as the media coverage means that many organizations will now really treat the issue seriously as one of risk management.

Colleges have for some time had guidance from central government. I suspect not many managers or governors have read it. It is useful about the basics about communication strategy, infection control, etc. It is less good at promoting imaginative thinking about continuing to deliver teaching and learning:

Consider whether resources and materials can be prepared for students to work independently from home. Consider what arrangements might be needed to support such working.

That's not much of a steer.

I hate the over-use of the word “innovation” but there really is a need for some innovation here. Colleges have to start thinking about how they can respond to disruption and even closures by carrying on with podcasts, blogs and other technological responses.

The housing market: gloom and green shots?

According to today’s Financial Times house prices fell at the lowest monthly rate for a year in April. The latest Hometrack survey found that house prices fell by 0.3% in the month taking prices down by 10.1 per cent over the last 12 months. Hometrack report that buyer interest and sales are up too. The website Housepricecash.co.uk have designated the Hometrack survey as Pointless survey of the week – although that might be premature at its only mid-morning on Monday.

The May issue of the excellent housing magazine ROOF includes the journal’s 2009 Affordability Index. It finds affordability has hot a five year high.

Of course, (more) affordable house prices are essentially theoretical until prospective buyers can access the mortgages which they need. Here there is gloom rather than green shoots. The BBC is reporting today that the number of mortgages approved for house purchases fell to 26,097 last month - down 6.8% from February and 25% lower than a year earlier.

It looks like more of the same for the moment. That means challenging times for housing associations as well as families, builders and developers.

Social enterpreneurship in the news

Those involved in the social enterprise movement - and those who may have been prompted by the recession to think of starting something up – may be interested in the set of articles about the movement on the Timesonline website.

The swine flu threat: how prepared are we?

There is a lot of uncertainty this weekend over the significance of the pandemic threat posed by swine flu from Mexico and now reported in the US, New Zealand, France, Israel, etc. (The spread is being mapped on Google Maps.) However, the World Health Organisation is concerned.

While parts of the UK public sector have been preparing for a pandemic for some time, other organizations in the public and third sectors are less advanced – or even asleep to the threat. (When I have raised the issue of pandemic preparedness, I have always sensed that these issues are seen as a bit of a joke.)

Hopefully the spread will be contained. If not, this poses a real test of organizational risk management. In the aftermath of the First World War over 100 million died in an pandemic flu outbreak.

Biting the bullet: campaigning against bullet points

Ever since I was a teenager I have been a bit of an activist for all sorts of causes. I have just learned of a new campaign which may lack the idealism of the elimination of nuclear weapons or the end of world poverty, but could transform our working lives. It’s the Campaign for WiT at Work.

The writer and trainer Jon Moon is a valiant fighter against the excessive use of bullet points. He argues that “bullets almost seem to encourage poor writing”:

Many bullet lists are incomplete, inconsistent, in the wrong order and grammatically jumbled

His Campaign for WiT at Work aims to replace many of these bullets with what he calls Words in Tables. I would recommend you have a look at Jon Moon’s website or even buy his book, How to make an impact, to find out more about WiT. He has even re-formatted the Cabinet papers that ministers carelessly display to photographers outside No 10.

Public spending growth: there are bad times are just around the corner

While there is some good immediate good news for further education and social housing, the FT is warning of "one of the longest and sustained squeezes on departmental spending since the second world war" with real terms reductions".

From April 2011, current spending will rise by only 0.7 per cent in real terms - a li ttle more than half the plans for 1.2% growth announced five months ago in the pre-Budget report.

KPMG are warning against false optimism:

The message for the public sector is stark. All public sector organisations need to take a cold, hard look at where they spend their money and make difficult choices about priorities; they need to implement radical new approaches in the delivery of public services.

Budget: Good news for colleges shock

As well as £250m in extra funding for Sixth Forms, the Budget Report has tucked away on page 120 some good news on helping to resolve the Building Colleges for the Future crisis:

The 2008 Pre-Budget Report brought forward £442 million in total from 2010-11 to 2008-09 and 2009-10 to accelerate the Learning and Skills Council’s (LSC) Building Colleges for the Future programme, to support Higher Education (HE) building projects and to bring forward the development of scientific research facilities and improvements to universityresearch infrastructure. In 2008-09, over 100 Further Education (FE) college building projects were completed as a result of nearly £550 million of investment, of which £110 million had been brought forward as part of the fiscal stimulus. Building on this, Budget 2009 announces an additional £300 million of capital funding for investment in Further Education colleges in the 2007 Comprehensive Spending Review (CSR) period. This will enable the Learning and Skills Council to fund a limited number of further projects through the Building Colleges for the Future programme starting in 2009-10, based on prioritisation criteria to be agreed with the LSC and the sector.

Balancing the books – efficiencies, no-frills and co-payment

According to the media today, Wednesday’s budget will include £15billion of efficiency gains in 2010/11 to assist in balancing the public sector’s books. While any impetus to get more out of public spending is welcome, we need to remember that there are allsorts of issues with how efficiencies are measured. Moreover, if it is not possible to get “more for less”, we will all get “less for less” – the kinds of cuts seen so often through the 1970s, 1980s and 1990s.

Perhaps “no-frills” public services are inevitable – even if they are no one will admit it this side of an election. One thing that I am fairly sure about is that we will see more “co-payment” – that’s the jargon for users paying something towards the cost of services. (There was discussion of this as part of the Blairist approach to public service reform but it largely faded away with the arrival of Brownism - apart from in the NHS where the issue developed its own momentum due to NICE decisions.) We’ve got co-payment in higher education already. Where next? Or rather, where after the next election?

Risk management “a must” – not least for social housing

Today’s Financial Times has a Special Report on Risk Management and how it is “a must for decision-makers during uncertainty”.

The lead article on Difficult decisions on how to stay safe surveys key business risks in this recession. It struck me how many of the risks have a particular salience for social housing providers: supply chain, fraud, remuneration, cashflow.

Last Sunday’s Observer had an article about housing associations being ripped off with “soaring losses” and “rocketing fraud”. The sensationalism aside, there is a need for social landlords to be awake to fraud risks, including those associated with development.

A bad week for building societies

It’s not been the best week for building societies. Mid-week the ratings agency Moody's downgraded several societies to near junk-bond status. Even Nationwide go downgraded from B to C-. There was also the news coverage of allegations about the robustness of the FSA’s regulation of building societies.

This is not entirely news. The building societies movement has for some time been rescuing its weaker members. While the Treasury stepped in with the Dunfermline Building Society, generally building societies have not needed huge bail-outs from the taxpayer.

Now is certainly a time for building societies to remember that they should not try to mimic banks.

This week does not disprove the argument made by the FT’s Financial Adviser in 2005:

Mutuals add value to the efficiency of the financial services market by giving more choice and a measure of integrity, value and transparency that is not often experienced by consumers. They are a reminder to plcs of corporate objectives over and above maximising returns for investors, including addressing the concerns of consumers.

A couple of weeks off

I'm in Central Asia so may not be blogging much.

Building colleges, keeping minutes and tabling papers

Andrew Foster’s report on the crisis in the LSC’s college re-building programme (and possible solutions) is due before Easter. It may be a good read.

Last week the Guardian quoted the FE minister Sion Simon saying:

"The minutes of LSC council meetings tend not, over the course of the last year, either to have referred to this at all or referred to it in any great detail"

The Guardian article also reported:

Sources close to the [LSC] council confirmed, however, that there was some delay in keeping members informed of the growing problem. Reports tended to be "tabled" at meetings and not made available for reading in advance, one said.

There are a range of opinions on whether minutes should be Hansard-like or something briefer outlining the nature of discussions leading to decisions. There is less debate on the potential for tabled papers to causes problems for governance.

Public sector pay in the news

We live in interesting times – and pay is always interesting. Public sector pay is news-worthy too. Last Thursday’s Times had a couple of articles about pay in public services.

In the first article, the Times reported that public sector pay rose by 3.7% in the year to January 2009 while private sector pay fell by 1.1%.

In the second, the paper surveyed the remuneration packages of university vice-chancellors. One earns more than £500,000 including benefits. Almost two thirds are on salaries of over £200,000. Their average pay in 2007/8 rose by 9% on the previous year.

If the public and private sectors respond differently to falling RPI inflation, the whole issue of public sector pay could become a political minefield in an election year. (And don’t forget the toxic issue of public sector pensions – with triennial valuations next Spring.) On the other hand a public sector pay freeze could raise the temperature of industrial relations.

I think we’ll be seeing some business risks appearing in this area before too long

Mutual interest: government may back mutual banks and building societies

It was interesting and welcome to read that the government is thinking about supporting mutual savings banks and building societies in next month’s white paper the UK financial system. This may involve creating (or re-creating) mutual organisations.

Hopefully backing for mutualism will be seen in public services too.

Back to the future? Public services after the next election

The pundits are thinking about the election due in or before next summer – the above advert was commissioned by the Independent for an article about what the 2010 election advertising might look like. Boards and managers should be looking forward too. They need to think through what the aftermath may be for them. Now is the time to start adding some policy risks to risk registers and maps.

It does look like a Conservative government is a real prospect. Since the New Year the opposition has opened up a big lead over the government. While opinion polls are very volatile and a lot can happen, spread betting odds point to a Conservative majority.

What does that mean? Of course, since 1997 Labour has continued with some pre-1997 reforms and innovations. For instance, City Technology Colleges as Academies; PFI as PFI; the NHS “internal market” as choice, competition and contestability in the health sector and beyond. Likewise some Conservative policies like Michael Gove’s on school choice are to some extent pursuing Tony Blair’s own plans.

If the Conservatives are elected, they are likely to indulge in institution re-arranging. However, there has been plenty of merging of quangoes and the demerging of ministries under Labour so we should be used to that. (It’s probably time to invest in the letterhead and nameplate industries.)

Arguably the biggest change and uncertainty would be around spending plans. Public services have had year on year real increases in resources. According to the Institute of Fiscal Studies’ Green Budget (pdf available) total public spending has risen from just over 36% of national income in 1999/2000 to almost 42% in and after 2006/7. (The Labour government maintained the Conservative spending plans for their first two years in office.)

What now with public spending? It’s going to be tough whoever wins the 2010 election. But it would appear that the Conservatives are turning up the rhetoric on this issue.

Not all that glitters is a Golden Peacock: Satyam’s prize for corporate governance

As a film fan I am wary of judging a film by the number of Oscars that it scoops (or not). My scepticism has been confirmed today when I learned that the scandal hit Indian out-sourcing giant Sayam won a Golden Peacock award from the World Council on Corporate Governance.

I think this may devalue Golden Peacocks – not that they had a very high profile before. It’s not the first embarrassed accolade – Enron scooped a prize and praise for its risk management.

(Very) lean years for public services: it’s official

There has been lots of media coverage of the Times article by the Audit Commission chief executive Steve Bundred about public debt Armageddon. This sentence effectively summarises his warning to the public and third sectors

Any managers of a public service who are not planning now on the basis that they will have substantially less money to spend in two years time are living in cloud-cuckoo-land.

Interestingly Bundred gets his history wrong when he says Mrs Thatcher secured an opt-out from the Maastricht Treaty on public debt levels. (She had retired to he House of Lords by 1992 and indeed attacked the Treaty.) However, he is right to ring the alarm on the implications of public debt levels for public services – whoever wins the election. The inevitability of the forthcoming lean years were clear to those who looked but the implications of the credit crunch and recession upon public borrowing have been less foreseeable twists.

College websites: in the eye of the beholder

I’m spending my morning collating information off college websites. Its interesting to see that some colleges are doing new things such as welcome videos. I know it’s not revolutionary but it’s a start.

What I find less hopeful is the way that so many colleges do not have a welcome from the principal. (Some even have a “Principal’s statement” without either a name or a face.) I am no fan of the cult of the individual but a college principal should be the human face of a college – so why not show her or him?

Even more perplexing is the fact that some colleges do not seem to bother with search engine optimisation. It’s not hard to promote yourself through google and other search engines. Yet some colleges do not appear to be seeking make their website top of google rankings – even letting pretty bad publicity sit at the top of the list. It’s as if these colleges are oblivious to the reputational damage which may be ongoing.

Less than zero: housing association business plans, rents and deflation

Earlier this month I mentioned that the new social housing regulator was urging housing associations to check that their business plans were robust in the face of a negative RPI measure of inflation impacting on the rent-setting formula. This week there has been the example of the train operators who have their regulated prices set in relation to RPI too.

I do wonder if housing associations (and, indeed, other social landlords) have realised that things are pretty serious. While CPI inflation is now around 3%, the RPI measure is close to zero – tugged down by falling housing costs. IDS have calculated that the average expectation of seven leading forecasters is RPI inflation reaching as low as minus 2.7% in September 2009 – the month when rents for 2010/11 will be set.

(Of course this will be good news for the tenants who have just been told that their rents in 2009/10 will be rising at an inflation-busting rate as a consequence of the RPI peaking in September 2008.)

How will housing associations cope with that squeeze on their rental revenues? They had better start thinking about it now.

Housing market: crash, bang, wallop, and more decline?

With a rush of house price statistics due over the next couple of days, its worth having a look at the latest issue of Roof with its depressing Housing market healthcheck. The article by Julian Birch includes a depressing graph from Nationwide which features on the housepricecrash.co.uk website. The graph shows the four cycles of boom and bust in the UK housing market since 1970. Basically the graph shows that house prices remain above their trend – for now…

House price falls are likely to be given a shove by the on-going credit drought. I was cheered up to hear one commentator refer to the end of the banking crisis. But then we had last weekend’s twitchiness in the USA about Bank of America and Citigroup.

Earlier this month The Economist made reference to Alt-A mortgages in the USA. After sub-prime this may trigger a sense of déjà vu. These mortgages have what might have once been called “innovative” features such as payments that are less than interest – so the debt grows for several years. Financial institutions have been digesting these rather toxic assets. As American borrowers come to the end of their not-even-interest-only periods, I suspect that even more misery will result. (House prices in the USA have fallen 25% already.)

Back to the latest issue of Roof … I would recommend you buy it if you want to read several articles on how the credit crunch is affecting the housing market and policy. However, it’s not an uplifting read when it looks like in 2009 the number of repossessions may be greater than the number of house-building starts.

Learning from the credit crunch: a series of unfortunate incidents (and examples of bad governance)

There’s lots of food for thought around risk, governance and regulation in the revelations from the former chief risk manager at HBOS, Paul Moore.

For people looking for some analysis about the lessons for governance arising from the credit crunch, I would particularly recommend a couple of documents.

There was an interesting article about Flaws at the top in the December issue of the Institute of Directors’ magazine The Director. The article quotes one observer as noting:

Corporate governance itself hasn't failed—the banks have failed corporate governance by not complying with it.

There certainly appears to have been a lack of challenge (and maybe understanding) of the risks that some of the banks were running.

A fuller survey of governance, regulation and the credit crunch was published by the Association of Chartered Certified Accountants (ACCA) in November. While a lot of the analysis was of an accounting technical nature and sometimes banking-specific, Corporate Governance and the Credit Crunch (pdf available) made points of wider relevance to boards in all sectors.

The ACCA made the general observation:

Many of the causal factors seem to be inextricably linked to a failure in corporate governance. Regulatory boxes may have been ticked but fundamental principles of good governance were breached. There should be more emphasis in the performance of corporate governance than with its regulatory compliance.

My personal view is there can be a sense that governance can become ritualistic as an unforeseen effect of rigid and poor regulation.

On the issue of risk management, the report noted:

Risk should have been more fully taken into account when making decisions about strategy or operations. Risk management tools have not always been fit for purpose.... More use should have been made of scenario planning as a risk tool. The risk management function needs to earn, and be accorded, higher status.

I would concur although it is worth remembering that the best sensitivity analysis and scenario modelling would not have necessarily factored in some of the arguably unforeseeable events that have come to pass.

The report links matters of risk to the ever-present fact of life whether we are talking about multi-national banks or community groups: the information imbalance between executives and non-executives. It usefully re-states the obvious:

There is a temptation for managers to make sure that information prepared for non-executive directors does not raise too many difficult questions. A partial explanation for boards not understanding their organisations’ risks is that information is sanitised by the time it reaches them.

It may not be much of a silver lining but hopefully board members will learn some lessons from what lay behind the current financial crisis.

Challenging boards: responding to the credit crisis with fresh thinking

I’ve spent most of my weekend at the National Housing Federation Board Members’ Conference hearing about the credit crunch and change (in the case of social housing, there is a transformed regulatory and investment landscape). Therefore, it was particularly timely to read in the McKinsey Quarterly an article by Andrew Campbell and Stuart Sinclair on Mobilising boards for change. (The article can be read and/or downloaded after registering.)

The article made the case for shaking up the natural rhythms of boards and challenging directors to re-examine their thinking. More than that it gave chairs some ideas about how to do it. For example, it argues:

Mobilizing the board to tackle the economic crisis requires a fundamental overhaul of how its members interact. The only solution is to force change. The chairman needs to underline the gravity and urgency of the situation by summoning the board to extraordinary “credit crunch” meetings, “survival” meetings, “does our plan still make sense” meetings, and “how can we turn this pain into an opportunity” meetings. Without disrupting the rhythm, anchored thinking will continue to dominate.

The housing association board that I sit on as vice chair had a credit crunch breakfast which was useful in terms of thinking afresh at the implications of events.

The article suggests the use of outsiders in challenging assumptions and facilitating a change in style. (I think this is a good idea and I charge very reasonable rates!) The authors refer to how one board was assisted by an outsider:

In one board, the work involved identifying the six to ten premises of the company’s plan for 2009. The outsider then interviewed each director and asked them to offer their opinions on each premise confidentially. When shown to the group, the results demonstrated that most of the board no longer believed the premises were valid.

Groupthink is unhelpful at any time. At exceptional and fast-changing times like this it is particularly dangerous.

Words of warning and wisdom from the TSA for housing association boards

I am attending the National Housing Federation's Board Members' Conference. Yesterday's opening speaker was Anthony Mayer, the Chair of the new housing regulator, the Tenant Services Authority (TSA).

Anthony Mayer repeated TSA themes about the importance of boards. He stated that the TSA would be relating to both execs and non-execs. The TSA see boards as directing strategy and scrutinising executives. (Of course this is the theory of good governance – but sometimes the practice of being a rubber-stamp is far too common.)

Mayer warned of up-coming issues arising from the recession and credit crunch:

1) Re-financing: housing associations need to check on how much finance they have as banks are expecting significant re-pricing of interest when re-financing is necessary.

2) Impairment: with declining asset values there may be some collateral damage (my pun – not his) on association balance sheets.

3) Negative inflation: as rents are set in relation to RPI, budgeting and financial forecasting could be complicated if/when inflation turns negative.

Mayer told board members to ask about these issues. They are potentially ticking bombs in need of defusing – or, as part of robust risk management, at least contingency arrangements if they explode.

Size doesn’t matter: evidence on college size and organisation performance

As someone interested in how size and mergers affect organisational performance in the public sector – particularly FE and housing – I was pleased to stumble across a study published by the Department for Innovation, Universities and Skills last year.

The study entitled The Evidence Base on College Size and Mergers in the Further Education Sector reviews the subject of college mergers including some economic theory. Laura Payne of DIUS observes:

Economic theory suggests that there may be potential for larger colleges to be more efficient.

The review certainly sets out the potential benefits of merger and the economies of scale. There is also some reference to diseconomies.

The most interesting aspect of the report is a statistical analysis of the performance of General FE colleges. It finds:

There is no evidence of a relationship between college size and success rates. There is some correlation between size and average OfSTED inspection grade, but the correlation coefficient is small and does not suggest a strong relationship.
...There is no relationship between college size and financial health.

The good news is that mergers do not on average do any harm:

There is no evidence to suggest that merged institutions perform any better or worse than institutions that have not been involved in a merger.

Ten (or eleven) things for audit committees to do in 2009

The KPMG-sponsored Audit Committee Institute has re-issued and up-dated its Ten To-Do’s for Audit Committees. Compared with the 2008 version, the 2009 edition reflects the issues of the credit crunch and recession weighing on corporates (and assumes the absence of the kind of finance committee seen in several sectors like FE and HE) so some of the content is less salient to not-for-profits. Nevertheless, the document is very useful in giving audit committee’s things to think and talk about.

I would recommend that all audit committee members download the document and regularly look at the Audit Committee Institute website.

Some issues raised in the document are worth reiterating here. The Ten Do’s urges audit committees to thoroughly review risk management processes:

With the benefit of hindsight and possible “lessons” from the financial crisis, consider the adequacy and effectiveness of the company’s processes for managing risk (management’s processes and the board’s.)

The document also reminds audit committees to do things that they often forget such a rigorously appraising their own performance and monitoring organisational culture and “tone from leadership”.

One thing that I would add as an eleventh thing to do is for audit committees to meet their auditors at least once a year without executive management being present. This may only take five minutes of a meeting but it is a vital way to get assurance.

Not-for-profits, strategy and finance: what they do teach you in Harvard Business Review

Almost anyone who has done a course related to business will have come across some fancy matrix for distinguishing different products in terms of market share, growth and/or profitability. Sadly many of those boxes don’t appear that helpful for the chief execs and boards of charities and others whose business is not-for-profit.

Last month’s Harvard Business Review had an article on Delivering on the Promise of Nonprofits by Jeffrey L Bradach, Thomas J Tierney and Nan Stone. It included the matrix above for developing financial and strategic clarity. It’s not rocket science but it does conceptualise the issues for organisations thinking about new developments as well as existing portfolios.

Three million homes – or not?

On this blog I encouraged people to sign up to the epetition on the Downing Street website urging a re-statement of the three million homes by 2020 target. Does the response do this? I don’t think so. Look at it here.

It’s a pity that the epetition only clocked up just over 2000 signatures. Building affordable homes in sustainable communities and sustaining the flagging construction industry (with new home starts halving last year) are now more important than ever.

Welcome to short notice inspection?

This year lots of providers of social housing (as we will soon be calling housing associations, ALMOs and council housing departments) will be getting a call from the inspectors. With the completion of the Short Notice Inspection pilots, its time for the real thing.

As SNI involve only a couple of inspectors on site for about three days, inspectors go a lot further. However, the good news from those that have been inspected is that SNI appear to be a step forward. For a start, there isn’t the months of inspection preparation (and distraction). The short, sharp shock of SNI would certainly appear to reduce compliance costs.

Perhaps there might be some more good examples of regulatory reform in 2009. I certainly hope so.

Decisions, risks and Chief Executives

McKinsey have just published the results of a survey of over 2000 executives into decision-making - and what practices are associated with good results.

The survey conformed the value of:

1) Performing sensitivity analysis and creating financial-risk models
2) Including comparable situations from one’s own or the firm’s experience
3) Examining the risks of a project combined with the risks of other projects in the firm’s portfolio
4) Creating a detailed financial model of the decision

This accords with my experience. Far too often I have seen risk analyses that look at each risk in isolation or are hurriedly undertaken as little more than a ritual. (I also think that exit strategies and other contingency planning is even more neglected.)

Interestingly it appears that Chief Executives play a large role in instigating both the most and the least successful decisions. The report suggests that Chief Execs may be more likely than others to gamble on bets with big upsides and downsides - or may be better able to secure approval for such bets. It certainly demonstrates the need for boards to act as an effective challenge to Chief Execs.

Public libraries as “recession sanctuaries”

As someone with pessimistic tendencies, I do try to look for a bright side. In the case of the credit crunch and recession, it is more challenging. One interesting possibility may be public libraries.

I read on the Freakonomics website that there are signs of a startling revival in the fortunes of libraries in America. Libraries are becoming “recession sanctuaries”. Will we see the same here?

My understanding is that libraries in the UK have been showing a declining trend (in books at least) in recent times. (And tightening public finances will pose a threat to their survival in the near future.)

As public space promoting knowledge and understanding as well as building civil society, any revival of public libraries would be welcome good news.

Roof on the financial health of on housing associations

It seems only yesterday there was all the Housing Corporation talk of housing associations "sweating their assets". Now the Tenant Services Authority has a watch list of half dozen or so housing associations in worryingly poor financial health.

The latest issue of the re-vamped Roof magazine brings more festive cheer (not). In its article on housing associations “On the edge” it sets out how 24 of the largest associations fared in 2007/8: 13 of them had interest payable greater than their operating surplus.

In the financial year 2008/9, things will be even harder. If associations breach loan covenants, lenders will play hard ball in negotiating new terms that reflect the new post-crunch world.

Merry Christmas.

How to survive the credit crunch

While the newspapers are full of advice on cutting household bills and more generally responding to the recession. There have been fewer handy hints for managers delivering public services. However, Public Finance recently carried a useful article by Roger Latham on How to survive the credit crunch. Here are some extracts:

1) prepare for the long haul.

2) watch out for the secondary effects … Existing contractual arrangements around the Private Finance Initiative are already showing signs of pressure. In the long term, the implications on the pension fund will show up in increased employer contributions. Will these still stand, or would there be further changes?

3) efficiency is more than a priority, it’s a necessity.

4) look out for displacement of policy objectives. Existing policy priorities at central and local level are going to change and with them the existing funding arrangements…

5) place shaping on hold? Some of the proposals currently being considered by planners and proposed by developers are going to come to a grinding halt. The value of assets and the cost of borrowing might suspend some long treasured plans. The community facilities promised through Section 106 agreements and the like might not come to fruition…

6) a collapsing capital programme? Valuable parts of your capital programme might be underpinned by capital receipts based on assumptions of land and property values that are now unachievable…

7) check the pattern and flexibility of service demand … You need to think now where your budget flexibility lies.

8) tax base losses.

9) propping up the local economy … Establish immediately what you will and won’t do in discussion with the business community to avoid raising unrealistic expectations.

10) don’t forget the people. The morale of your organisation might take a real hammering…

While some of these are issues specific to local government, other parts of the public and third sectors will often have similar issues – or be affected by how local government responds to the credit crunch and recession.

It’s definitely a good time for revisiting risk registers.

House prices bears, bulls and the National Housing Federation

A good place to read about the property crash is the website Housepricecrash.co.uk. An addition to that site is the inclusion of house price predictions. They vary from housing market bears suggesting falls of 50% from the market peak to bulls like the National Housing Federation who predict a 25% rise over the next five years.

I must say that I lean towards the bears. Capital Economics – who now forecast a fall of up to 35% over the next three years – had long warned that a house price crash was on the way. (Their voices should not have been so lonely. Ultimately house prices and incomes had to be brought back into line. Buy-to-let investors and permissive lending could only stretch the elastic so long.)

It is good to see that the NHF have moderated their predictions – last year the NHF was suggesting that house prices would continue to spiral with a 40% rise from 2007 to 2012. While the NHF was right to draw attention to the need for new homes and the problem of affordability, I still feel a bit uncomfortable. I have seen the suggestion on the blogosphere that the NHF was inadvertently helping to ramp up house prices.

It is worth noting some of the NHF’s members are painfully learning the reality of a market correction hitting property sales and land values.

Change and strategy – the perils of success

For some thought provoking blog posts on strategy and change I would recommend the Random Rantings of Freek Vermeulen of the London Business School. This week he flags up some research coming out of the States that indicates that Chief Executives from high-performing firms were significantly more likely to interpret changes in their business environment as a threat than the their peers at poor-performers, who tend to interpret change as a positive thing.

Vermeulen suggests that this may be the cause of the “success trap” about which he writes:

ample research and statistics show, for a variety of industries, that especially very successful firms have trouble staying successful, and adapt to fundamental changes in their business environments (such as new competitors, different customer demand, radical new technologies or business models, etc.). Over the years, they focused on the thing that made them successful (a particular product, service, production method, etc.) and as a result became even better at it.

The times are certainly a-changing. We live in manic macro-economic environment. For the public and thirds sectors a bracing funding regime looks set to be even tighter. On top of that there is major institutional change in many areas such as the end of the LSC in further education and the de-merger of the Housing Corporation in social housing. It all makes an interesting laboratory for success, change and strategy.

The third sector – the new rulers?

Yesterday I attended the National Council for Voluntary Organisation’s 10th Hinton Lecture. This year’s lecturer was the Guardian columnist Simon Jenkins. The central argument made was that a vibrant, self-governing democracy needs strong local government.

In order to avoid (almost) everyone in the room agreeing with him, Simon Jenkins threw in a grenade when he suggested that the organisations of the Third Sector were “the new rulers of Britain”. I think this was a little distracting. However, when he said that the “new localism” seemed to be all about “consulting stakeholders” he had a point. How many people know what local strategic partnerships are? What they do? Do they contribute to accountability and transparency?

Diversity, boards and the financial crisis

While the public and third sectors are (rightly) keen to become businesslike, it is worth noting that they can sometimes be ahead of the private sector. Diversity on boards is one area. For example, a third of FE college governors are women. Colleges and housing associations have been addressing the issue of having boards that have people from a mix of backgrounds. (Of course, they can do better.)

This week a report from Cranfield University School of Management found progress – albeit slow - in women getting onto corporate boards.

One of the authors made an interesting argument for more diverse boards: "We might not be in quite such a dire situation if there had been more females on the boards of banks. The evidence is that women are not more risk averse, but they are more risk aware."

More diverse boards were "less likely to fall into group-think or to accept the status quo," Ruth Sealy commented. "Decisions can take longer to reach, but they will be better."

Light touch or better regulation in social housing and beyond

This week in Inside Housing the new Chief Executive of the Tenant Services Authority tells us that he does not talk about “light touch regulation”.

It’s an excellent sound bite but I was wondering what the opposite of that is: heavy handed regulation? (To be fair, the TSA does not appear to plan to bring a big, clunking fist to social housing.)

It’s a pity that the term “better regulation” has gone out of fashion.

I had a certain fondness for the five principles of better regulation:

1) Proportionality
2) Accountability
3) Consistency
4) Transparency
5) Targeting

There is a real risk that the lack of regulation in the financial sector (or perhaps more accurately problems with what regulation there was) will lead to the rehabilitation of red tape.

Craig Dearden-Phillips wrote in the Guardian recently of his big worry that:

the main message of the credit crunch - that "markets don't work, we need more regulation" - is read across into other arenas like health, welfare reform, education. All areas where, pre-crunch, we were witnessing a rapid shift from 1970s statism to a more nuanced approach in which markets, competition and a diversity of providers are used to drive up standards

On the continent some thinkers used to talk about the “social market” as: the market where possible, the state where necessary. It would be good if in social housing (and public services generally) the regulators used the slogan: competition where possible, regulation where necessary.

I know it’s not snappy. But it is what is needed.

Read this before you sack anyone

It may not be Christmas present and it’s not out yet, but if you have some tricky HR issues you may be interested in The Employers' Guide to Grievance and Discipline Procedures. It was written by freelance consultant Mike Parkin. I used to work with Mike so I can vouch that he knows his stuff. (I also proof-read some chapters of the book so know that it is a clear and useful guide for managers.)

Arguments at CityWest: finding a silver lining

It is disappointing to read about the boardroom problems at CityWest Homes (the arm’s length management organisation that manages council housing for Westminster Council). While I do not know enough to take sides (even if I wanted to), events there do demonstrate that ALMOs are not an example of “privatisation”. For good or ill, ALMOs have close links with and accountability to their parent local authorities.

Resuming posts soon

I'll be resuming posts when I am back in the UK.

Lloyds of London, emerging risks and pandemics: be prepared

Lloyds of London have launched a website to "drive the debate on emerging risk". One of the emerging risks is that of pandemic flu.

Lloyds have just published a report on the pandemic scenarios. The report suggests that society should not over-focus on any particular scenario. The report's author notes that much has been said of the 1918 Spanish Flu epidemic, which killed over 100 million people worldwide. While Avian Flu is seen as the most likely next pandemic, they suggest that other types of pandemics may require different responses. The writer notes that some of these may have higher rates of mortality than flu.

Football charity’s £440k own goal

This month the Charity Commission have published the results of their inquiry report into the Footballers’ Further Education and Vocational Training Society. An office manager at the training charity made unauthorised cash withdrawals of £444,400 over more than a decade.

The inquiry report should perhaps be required reading for all trustees (and certainly for audit committee members). It concluded:

It is important that trustees should work closely with their senior employees to ensure that their charities’ governance frameworks and internal control systems remain fit for purpose, especially during periods of rapid growth.

The report went on:

The Commission does not expect trustees personally to check every management decision taken, or every financial transaction, but trustees should ensure that there are procedures in place which allow them to monitor performance effectively and, especially, to identify discrepancies and system failures as soon as possible after they occur. It should not be assumed that every lapse will be spotted and put right by the annual audit.

Its worth noting that a civil action was brought by the charity against its external auditor although this was eventually settled out of court.

The economic crisis and affordable housing: Three million new homes please

Shelter has a petition on the No 10 website asking Gordon Brown to publicly restate his commitment to three million new homes by 2020 and to prioritise social rented housing. I would urge everyone to sign up. It takes less than a couple of minutes.

Boards – what are they good for? (Can they avoid the embrace of managers?)

Across the public sector, the need for effective boards remains on the agenda (and is arguably rising up that agenda). But can boards ever meet the expectations heaped upon them?

The Harvard Law School Corporate Governance blog makes depressing reading this month. Jonathan R. Macey summarises some arguments from his forthcoming book on Corporate Governance, Promises Made, Promises Broken.

It seems that Macey thinks that promises are not very likely to be kept due to board capture:

Public choice, social psychology, and historical observation all suggest that boards can be counted on to be only as honest and effective as the managers they are supposed to supervise. The problem with boards is their unique susceptibility to capture by the managers they are supposed to monitor. The problem of capture is so pervasive and acute that almost no board, not even those that appear highly qualified, independent, and professional, can be relied upon entirely.

He points to boards being sucked in and committing themselves to the strategies, plans and managers that they have chosen.

Is there any way out? Perhaps.Macey notes:

as board tenure lengthens, it becomes increasingly less likely that boards will remain independent of the managers they are charged with monitoring.

Arguably the opposite is true. Board renewal is not only about new blood – it’s about new brooms too. (Of course there remains the imbalance of information between executives and non-executives. That assymetry is trickier to fix.)

I hope the National Housing Federation reflects that in strengthening the commitment to a nine year cap on board membership across the housing association sector.

Beware successful Chief Executives?

I often have a look at the Random Rantings of Freek Vermeulen - an Associate Professor of Strategic & International Management at the London Business School. This month he has warned that some of top performing chief execs should be avoided like the plague.

The logic is:

Bad managers are those people who just don’t get it. They accept worse average returns for higher risks. And this is where it gets tricky. Because if they accept very high risks, in spite of lower average returns, every once in a while one of these morons will actually hit the jack-pot…

That is, if we take the top 1 percent – and only this 1 percent – of top performers, they’re likely to be those people who don’t get it at all… but just got incredibly lucky!

He goes on:

The same is true – as Stanford’s Professor Jim March asserted – for CEOs. The ones that are the eye-catching top-performers are likely the ones who just don’t get it. The dangerous thing is that they are also the ones with the absolute highest return in their business. Therefore we naively believe that they “do get it” and, in fact, are quite brilliant. Moreover, that’s what they start to believe as well… (“I win again; I must be brilliant…!”). Yet, they got lucky once, the might get lucky twice, or three times (at which point we start to notice them) but eventually their luck will turn (the names of Bernard Tapie, Jeff Skilling, Cees van der Hoeven and Conrad Black come to mind).

He concludes warning against “top performers” in any business or situation which involves risk:
The one coming out on top is likely to be a moron, who just got lucky.

I suspects the theory has the ring of truth for many people. (I also think that there are all sorts of interesting issues around management, leadership and success. How often do successful managers demonstrate themselves to be poor leaders when they are asked to lead people rather than manage things? How often is the asset of charisma associated with a dangerous risk-loving attitude?)

Nevertheless even if the theory makes sense, I think care should be taken in applying it to assessing, appraising and rewarding performance!

Universities and mergers – is less more?

This week the new Higher Education minister (and the man tipped to be Britain's first black Prime Minister) David Lammy asked universities: "Do you have the right number of institutions? In the commercial sector there would have to be many mergers over the next few decades – far more than we have seen in higher education. Could more be done to encourage that among universities?"

I am a merger skeptic - too often mergers are driven by efforts to build empires or enhance salaries - or even worse, driven by bureaucratic convenience. Whatever the motives, too often the benefits are exaggerated and the costs overlooked (ask the bosses at RBS who out-bid Barclays for ABN-AMRO).

Nevertheless, some mergers can make sense as a response to changing times and challenging economics. While consolidation of existing institutions may take place, is there a case for increasing the supply-side? That actual or threatened competition from potential entrants can surely raise quality is increasingly recognised in the pre-18 education marketplace.

Audit Commission, value-for-money and Iceland

There will be red faces at the Audit Commission with the revelation in today’s Financial Times that it has £10million invested in Icelandic banks. Apparently they were investing in April 2008 – staff at the Commission obviously don't read the Observer which was making noises about Icelandic banks “feeling the chill” the previous month!

As the Commission joins councils, charities and universities with accounts frozen in the Icelandic meltdown, the rest of us in the public and third sectors have had a big reminder of the importance of good risk management and treasury management.

Non-customers having a role in governance: is that news?

Midland Heart have issued an intriguing press release: "For the first time, a housing association will include non-residents alongside existing customers on a unique decision-making body, giving them powers to shape the delivery of services."

For some time (to be precise, forever) almost all housing association boards have had a non-resident majority. Board members, like myself, have never had the social housing resident experience – and that can be a problem. Having accountants, bankers, lawyers, etc on boards is great in terms of professional experience, skills and “competences” but do some of us bring other baggage and lack some of the most relevant experience?

I don't think that Midland Heart’s press release is actually talking about boards. As always the devil is in the detail. I presume that Midland Heart are creating arrangements for accountability and scrutiny of service delivery - perhaps based on the Chartered Institute of Housing's model. If so, it all makes sense and should be welcomed.

The challenge of meaningful customer involvement remains for all public services.

A history of the housing market collapse

With the credit crunch and the related problems in the housing market, financial services and the rest of the economy causing pain for families and difficulties across the private, public and third sectors, there is interesting historical background on the Housepricefacts website.

There are some cringe-worthy quotes such as Gordon Brown’s from 1997:

I will not allow house prices to get out of control and put at risk the sustainability of the future.

Thought for the day (and a postscript to yesterday’s posting on good governance)

This morning I stumbled on fairly profound quote that has relevance to the question of what is effective governance and leadership:

Managers are concerned with doing thing rights.
Leaders are concerned with doing the right things.
Anonymous

Good governance – more than just getting the process right

I’ve been reading the National Housing Federation’s Code of Governance. (I do know how to enjoy myself. Moreover, I am attending a consultation event on changes to the Code so I thought I should do some prep.)

The Code may be four years old but it is hard to fault what it says – its content sets out best practice in governance. (It is probably easier to fault the application of the Code by many housing associations. Several have half-heartedly implemented time limits on board membership in order to avoid applying the spirit of the board renewal requirements. I suspect many others fail on other provisions such as publicising the membership of sub-committees – probably without even knowing.)

I might fault the Code on what it does not say. I would suggest that what is missing from the Code is a full recognition of the importance of board dynamics and organisational leadership.

Moreover, the Code is weak in its overall tone. Good governance is about delivering excellent outcomes as well as getting the process right.

The Code notes:

Good governance is more than good practice – it is good business too … As such good governance enhances organisational reputation, and ensures better results are achieved.

That’s true in so far as the evidence demonstrates an association between governance and performance. But good governance is about focusing on results, outcomes and impact – you can’t just assume that procedural ticks will yield deliver the goods.

Poor governance again: under-achieving governors to blame for poorly performing colleges

The new Ofsted review of colleges' improvement has noted: "Ineffective governance and management lay at the root of many weaknesses seen in underperforming colleges."

It is sad that some governors do not get it. Ofsted found governors who were so absorbed by the financial position of their college that they didn’t pay enough attention to the success of students. As a Chartered Accountant (and someone who has seen the mess left by colleges lacking financial viability), I see the importance of finance - but it is only a means to an end.

The report also found that some governors and managers also avoided making difficult decisions.

The report also noted: "There was no culture, understanding or acceptance of accountability - these managers were not constructively self-critical and frequently looked for something or someone to blame when things went wrong or improvements were not forthcoming.

Some quotations on forecasting the future

As a postscript to my thoughts on the ability of university finance directors to foretell inflation, I thought it might be worth including some quotes on forecasting.

I always avoid prophesying beforehand because it is much better to prophesy after the event has already taken place.
Winston Churchill

Never make forecasts, especially about the future.
Sam Goldwyn

A pessimist is an optimist with more information.
Anonymous

To expect the unexpected shows a thoroughly modern intellect.
Oscar Wilde

Inflation, risks and the “financial acumen” of university FDs

It’s an ill-wind of high retail price inflation that brings university staff pay rises of more than twice the government's public sector pay norm. The three-year pay deal for universities provided for a rise this year of 2.5% or the September retail prices index - whichever is higher.

Some universities will struggle to pay 5% and may defer its introduction. In response, the University and College Union has argued that the employers have had two years to budget for the settlement. The UCU general secretary has said that she would be “concerned about the financial acumen” of any institution that had failed to budget for the 5%.

As I often work as an interim finance director, I will resist the temptation to leap to the defence of higher education FDs although did anyone foresee that inflation was going to double? (Who wants to bet on inflation in two years time? The Bank of England’s central estimate for consumer price inflation is less than 2% although its range of forecasts ranges from under 1% to well over 3%.)

While no one (or almost no one) really expects FD and university governing bodies to foretell the future and provide for each and every contingency, this situation shows the importance of treating seriously sensitivity analysis – thinking through the “what ifs” of financial planning. Too often risk management is seen as a load of old risk registers – whereas good risk management requires a lot more of management and governance.

Effective boards: 12 principles

The excellent Healthcare Governance Review blog notes that the recent publication by the Department of Health of a review of healthcare regulators includes an endorsement of the Carver policy governance model for boards.

As an appendix to the DH report, the Council for Healthcare Regulatory Excellence working group sets out the 12 principles for an effective board:

1. The board should determine the purpose and values of the organisation, and review these regularly
2. The board should be forward and outward looking, focussing on the future, assessing the environment, engaging with the outside world, and setting strategy
3. The board should determine the desired outcomes and outputs of the organisation in support of its purpose and values
4. For each of its desired outcomes and outputs, the board should decide the level of detail to which it wishes to set the organisation’s policy
5. Any greater level of detail of policy formulation should then be a matter for the determination of the chief executive and staff
6. The means by which the outcomes and outputs of the organisation are achieved should be a matter for the chief executive and staff; the board should not distract itself with the operational matters
7. The chief executive should be accountable to the board for the achievement of the organisation’s outcomes and outputs
8. In assessing the extent to which the outcomes and outputs have been achieved, the board must have pre-determined criteria which are known to the chief executive and staff
9. The board should engage with its ownership regularly and be confident that it understands its ownership’s views and priorities
10. The membership of the board should be capable and skilled to represent the interests of the ownership; this should not be done in a tokenistic way
11. Information received and considered by the board should support one of two goals - to enable decision making, or to fulfil control and monitoring processes
12. The board must govern itself well, with clear role descriptions for itself, its chair, and its members, with agreed methods of working and self-discipline to ensure that time is used efficiently

Perhaps the report might be read by the boards at Newcastle United and West Ham where there have been some issues around the involvement of boards in operational decision-making.

Glittering prizes? £20k to unleash the power of public information

On this blog I've occasionally moaned about Directgov. (I've moaned even more about the lack of imagination in parts of the third sector.) I was therefore pleased to read that the government is saying: Tell us what you'd build with public information and we could help fund your idea!

The Power of Information Task Force is offering a £20,000 prize. The government is even offering gigabytes of new or previously invisible public information. (You normally only get that much information on a pen drive or a couriered cd). The website reassures us: "Rest assured, this competition does not include personal information about people."

This approach is to be welcomed.

Better management reporting: How to make an Impact

I was disappointed yesterday. I saw that the Institute of Chartered Accountants is hosting a lecture by Jon Moon in Birmingham in November but then realised that I had a prior commitment.

Who is Jon Moon? He has written an excellent book on How to make an Impact – basically writing reports that are uncluttered so the message is clear. The report has certainly changed the way that I present information when I am working as an interim Finance Director.

I believe that so much management reporting in the public and third sectors is weak that I am sure that others could learn something.

People can attend the lecture even if they are not members of the ICAEW Finance and Management Faculty. I would also recommend the templates that Jon Moon gives away on his website.

A brief break in postings

Shared ownership - A problem shared?

This month’s Roof special on Affordability makes rather depressing reading – with perhaps the exception of the new Homes and Communities Agency chair promising things will only get better (after they get initially worse).

I’ve always been a bit of a sceptic with shared ownership. It is of course a cheap form of affordable housing for the public purse and a cheap form of asset ownership for families. But there have been problems with viewing it as a panacea – as well as issues such as with key worker schemes and Social HomeBuy.

Now Roof depressingly reports that shared ownership accounts for between a fifth and a quarter of the workload of some debt advisers. If they haven’t done so already, housing associations need to critically review the way that they assess the ability of applicants to sustain shared ownership. There is some bad practice out there – and it could lead to more people losing their homes.

The Housing Corporation's traffic lights set to be turned off – but what about other tick box exercises?

Everyone loves traffic lights when it comes to regulation, governance and management. So many reports are brightened up by red, amber and green. So it was with mixed feelings that I read that the new social housing regulator is likely to turn the lights off.

According to Public Finance magazine, Peter Marsh, the chief executive designate of the new regulator, believes that the traffic lights seen in Housing Corporation Assessments encourage a 'tick-box' culture without fully revealing to tenants how well their landlord is performing. There is also a belief that most associations gain green lights but do not have any further incentive to improve.

Perhaps there is too much complacency with the reality of continuous improvement not matching the rhetoric. Yet turning the lights off might not transform things.

Hopefully the new regulatory regime will see radical changes in the annual ritual involving housing association boards agreeing and submitting a self-assessment compliance statement against the Housing Corporation’s Regulatory Code. This exercise involves presenting evidence to justify a tick against a range of criteria. It is the epitome of box ticking even though the Housing Corporation allows a degree of flexibility and stresses that it should report on improvement. I fear that it does not.

Perhaps we might have a more robust assessment of organisational health and performance. There should be an expectation that strengths and weaknesses should be highlighted and honesty encouraged with the exercise driving improvement. Such an assessment should be directed more towards the customers rather than the regulators.

Tough times and the third sector

The impact of the current economic downturn on the third sector has been in the news. This week Oxfam announced plans for job loses and cost savings. While charities face falling income and rising costs – the people who need them most, need them even more. Earlier in the summer an NCVO study found that the third sector was expecting “tough times”.

The think tank nfpSynergy has published an interesting mini-report on what happens to charities in a recession. They believe that this is a 10-month delay between an economic downturn and its subsequent effect on charities income although the falling disposable income is almost immediate.

I think the nfpSynergy research is useful but we need to be wary. Looking at the last two and a half decades tells us only so much as we have not had a recession for over a decade – and we might still escape one now. The combination of inflationary pressures and credit crunch is both toxic and unusual.

nfpSynergy link the economic downturn to risk management. I wonder how many charities and other third sector organisations included an economic downtown in their risk reviews and prepared contingency plans?

Going green in HE, FE and elsewhere in the public and third sectors: revolving funds and useful advice

It was good to read last week that the Higher Education Funding Council is launching with Salix Finance a £30m Revolving Green Fund to support the introduction of carbon-saving projects. Earlier in the year the Learning and Skills Council launched similar funding (and I believe that there will be more finance in the future.)

Even when funding bodies are not providing financial support, the public and third sectors can do something. I have come across a useful source of information on Canny Buying. This site is aimed at organisations in Scotland but sustainability has relevance south of the border too.

No exit (interview) from governance: saying thanks and learning from ex-board members

The recent review of the third sector’s Code of Good Governance recommended that the Code be updated with a second edition. One thing that the update might consider would be encouraging exit interviews when board members, trustees, governors or whatever leave a boards.

I must confess that this is not my brilliant idea. It was suggested in one of the podcasts on the On Being Board website from BoardStar. (I suspect that this practice may be commoner in the USA than the UK as I have seen reference to it on another American website.)

The case for exit interviews for departing board members is perhaps obvious. They allow the organisation to say thanks for the contribution of the individual. They give the organisation the opportunity to learn as the individual is able to highlight issues and weaknesses with greater candour than perhaps previously.

No doubt many organisations who think exit interviews are useful for staff leavers forget to have them for board members who have the task of giving the organisation its strategic direction and monitoring its performance.

Disappearing universities: financial viability and demographic factors

Last weekend the Financial Times reported that the credit ratings agency Standard & Poor’s had warned of “certain universities ceasing to exist”.

The S&P identified the issue of changing demographics. They noted official forecasts that by 2020 there will be 16 per cent fewer 18-year-olds in the UK. (The implications of which will be felt by FE and sixth form colleges even sooner unless the government is successful in raising participation rates at 16-18.)

S&P distinguishes between “the newer, less research-oriented universities” and “leading universities”, which will continue enjoy strong demand from UK pupils.

The report expects the disappearing universities to go by merger rather than going bust. However, it is a little depressing if institutions cease to be financially viable largely through external factors no fault of their own. (Of course, badly managed institutions will go that bit sooner and with more mess!)

Governance: what is it?

On the Health Service Journal website there is an article on the role of NHS boards and their duty to the public. Paul Stanton argues:

There is significant confusion and muddle in the DH and the NHS about the nature of governance. It is not uncommon to hear senior figures talking about boards managing or leading their organisations. This implies a fundamental lack of clarity about the explicit separation that should exist between the task of a board, which is primarily legislative (making policy, setting strategic goals and holding the executive, and through them the organisation, to account) and the task of the executive (albeit some executives are also corporate directors within the legislative board), which is to lead and manage the organisation so that policies are implemented, strategic goals are achieved and the local community is served.

He credits the American non-profit governance guru John Carver whose model distinguishes governance and management. The board's role is primarily to set policies - essentially, the ends.

While Carver was influential in thinking about the governance of FE colleges soon after they were incorporated as autonomous bodies, his thinking does not get enough attention in the public and third sectors where many bodies drift and range far and wide rather than focusing on their core tasks.

An alternative take on governance was the recent comment that "[Good] governance is a little bit like porn" from Robert Daines, the co-director of Stanford University's Rock Center for Corporate Governance. (This was apparently referring to a Supreme Court judge's comment about recognizing obscenity. "I can spot it when I see it, but it is hard to say what it is.") Who ever said governance was boring.

Governor workload and remuneration in FE Colleges: an Irish problem

While I am generally sceptical about board remuneration – particularly for smaller organisations – I can see a case for chairs of boards in the public and third sectors being paid. There was an article in the Irish press this weekend reporting that four of the six chairs of Northern Ireland's newly merged further education colleges have now resigned due to an escalating workload in the absence of payment for their services.

When the positions were created, the commitment was estimated at eight to 10 meetings per year, but the appointees said they attended up to 70 meetings a year.

More on pay, incentives and motivation: donating unpaid overtime in the for-profit and not-for-profit sectors

There is an interesting article in the Spring issue of Research in Public Policy from Bristol University’s Centre for Market and Public Organisation.

The article summarises some CMPO research In search of the public service ethos. While people talk of a public service ethos, do they actually demonstrate it in behaviour through donating labour in the form of unpaid overtime. It crunched raw data that showed 46% of employees in education, health and social care in the non-profit sector do some unpaid overtime compared with 29% of their counterparts in the for-profit sector.

After adjusting for demographic variables and for the possibility that unpaid overtime may be motivated by the prospect of promotion or bonuses, it concluded that people working in welfare services in the non-profit sector are 12% more likely to do unpaid overtime than those in the for-profit sector.

The authors point out that:

[The] estimate of the premium suggests that an additional 120 million hours are donated in the public sector compared with similar people working in similar jobs in the private sector. This is equivalent to an extra 60,000 people.

But before we get to the unlikely scenario of advocates of keeping the NHS (and other public services) public using the argument that the private sector is bad because it fails to extract unpaid labour from its employees, its worth noting that the researchers did not find that people changed behaviour when they moved between the for-profit and non-profit sectors.

Where does that leave us? Perhaps the research strengthens the case for a mixed economy in public services. The existence of non-profits and for-profits may allow better matching of people to the sector and the motivational structure that works for them. Of course, non-profits cover a range of models and the research did not explore the interesting question of how public sector or third sector employees may work differently.

Thoughts on pay: declining pay rises

Pay is in the news a lot. If its not local government workers striking over pay rises below inflation, its Carol Vorderman saying that a 90% pay cut doesn’t add up for her.

On her FT.com podcast, the management columnist Lucy Kellaway condemned Mervin King for not taking part of his remuneration package as Governor of the Bank of England. She suggested that if a chief executive declines a pay rise, he (or she) should be dismissed for presiding over a dysfunctional pay system. She advocated sacking remuneration committees as a solution to excessive pay.

Before public and third sector organisations sack anyone, they should check that their remuneration committees demonstrate best practice in terms of rigorous scrutiny of pay and performance.