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.