Leadership in the public sector: lessons from private companies?

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By The CA magazine

20 March 2018

ICAS and CIPFA brought together a panel of experts to consider the issues facing public sector boards and how they could learn from the private sector.

At a recent roundtable discussion, hosted jointly by ICAS with the Chartered Institute of Public Finance and Accountancy (CIPFA), a panel of senior figures considered how public sector boards could be more effective, the risks at the top of their agenda and what the public sector could learn from the private sector – and vice versa.

Chairing the discussion was John Baillie, former Chair of public sector audit body the Accounts Commission. He led by asking: “What keeps you awake at night?”

Answers ranged from accounting scandals and cybercrime to patient safety, which, as Karen Kelly, a board member at the Golden Jubilee Foundation Hospital, pointed out, can be a matter of life and death.

Complexity was also an issue. Gordon Smail, Associate Director, Audit Scotland, noted that an already intricate structure had been made more so with the introduction of bodies such as the Integration Joint Boards, which were set up to integrate NHS healthcare and social care. He said: “The key is ensuring that people are clear about their roles and responsibilities.”

[The board] were concerned that there is a chance an important risk could be overlooked because of a failure in the governance process.

Nick Bennett, Audit Partner with Scott-Moncrieff, said complexity in financial reporting is also increasingly a problem, and added: “There is so much disclosure that quite a lot of the critical financial areas and messages relating to an organisation are often getting blurred or lost.”

David Hume, board member at the Scottish Police Authority (SPA), said that as a newly created organisation with a legacy from nine former authorities and “new staff, no coherent culture, no received wisdom and a great deal of uncertainty”, the SPA, given the nature of the service it oversees, faces particular challenges.

Alistair Gordon, former Finance Director, Ayrshire College, queried whether day-to-day operational issues – rather than strategic issues – are the board’s prime concern or whether these are matters for the executive team.

From the board’s perspective, however, they were concerned that there is a chance an important risk could be overlooked because of a failure in the governance process.

Norman Murray, Chair of the ICAS Ethics Board and Scottish Ballet, said: “I can’t possibly know everything, but I need… a system that’s going to give me some early warnings.”

Ethics in the boardroom

John suggested that ethics may be at the heart of how boards need to approach their task and referred to the ICAS The Power of One initiative, which emphasises the role of the individual and “moral courage” in corporate ethics.

Norman agreed, adding that board members should not underestimate their personal commitment. He said: “Your responsibility is all the time. If there are ethical issues out there, the board should know… so when they get up in the morning and read the papers, and there’s some scandal somewhere, they’re not caught completely unawares.”

The degree of transparency tells you a lot about the values of the organisation. - John Matheson, Past President CIPFA

People serving on five or six boards at a time could, therefore, be over-stretching themselves, he warned.

John Matheson, Past President of CIPFA and former Director of Finance of the Scottish NHS agreed that moral courage is important, but added: “When people review governance, the starting point is always ‘We need more governance’, but what we need is appropriate governance. Governance can be a cover that people can hide behind.”

He added that “moral courage” can include constructively challenging received wisdom. As he put it: “Sometimes it’s healthier not to be all aligned… you do all need to be signed up to the overall strategic direction and the values of the organisation, though.”

Diversity on panels

The panel agreed that diversity on boards is important, but there are a number of ways to measure it – for example, increasing the number of female, ethnic minority or young board members could all be targets.

Care Inspectorate Chair Paul Edie noted the very low representation of minority ethnic communities across boards and in local government. “We are not capturing a lot of people’s perspectives and experiences,” he said.

Janet Hamblin, Chair of the Scottish Government’s Audit Committee and an Audit Partner with RSM, warned, however, that positive discrimination is not the answer. “You want women to get there because of their skills, rather than because they are women,” she said.

Norman also warned that expanding boards – above 12, say – in the name of diversity could make them unwieldy and ineffective.

Public transparency

The panel also discussed the issue of transparency. How far should a board go to make its meetings, or minutes, accessible to the public?

Gordon said: “There are increasing public expectations regarding openness and transparency… but there also needs to be a space for private discussions.” He pointed out that a preliminary discussion about the range of options available could easily be misinterpreted.

John Matheson commented: “The degree of transparency tells you a lot about the values of the organisation.”

John Baillie noted: “If stakeholders do not trust an organisation or an industry, it will struggle.

Trust within a board is also critical. Murray said that as a board chairman in the private sector he would set out three clear rules: “No politics round the table; strong challenge, and then support: decisions can be challenged, but once we have agreed a course of action, it should be supported; and, the most important, mutual trust and respect.”

David highlighted the role of the international standard of good governance developed by CIPFA and Solace, now taken up by the International Federation of Accountants. “Going through that exercise... is of huge value because it allows us to hold a mirror up to how we’re operating,” he said.

Professional values make it easier to speak truth to power. - Alison Cumming, CIPFA Scotland

Alan Gray, Director of Finance, NHS Grampian, said: “Common values such as those laid down by ICAS and CIPFA are really important. Of course, many of our colleagues are not members of professional bodies, but the question is what can we bring to the table as members?”

As Alison Cumming, Chair of CIPFA Scotland, put it: “Professional values make it easier to speak truth to power.”

The panel also expressed their interest in exploring how ICAS and CIPFA could create networking opportunities to help board members share best practice.

After the discussion, Alice Telfer Head of Business Policy and Public Sector, ICAS, commented: “The ICAS Public Sector Panel are delighted to engage with CIPFA and the ICAS Ethics Board to share insights on both the challenges and good practice in public sector boards. We look forward to building on this.”

ICAS has published guidance on A professional judgement framework for financial reporting and directors’ duties:

• Guidance for directors of private companies
• International framework: good governance in the public sector.