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?