RSA report on corporate governance
RSA report on corporate governance
The findings of a two-year study by The Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) show that the present system of corporate governance in the UK is unlikely to fulfil government ambitions in relation to public service provision, particularly in improving pace and energy. The full results and recommendations are set out in an RSA report entitled Corporate Governance in the Public and Voluntary Sectors, published in February.
This independent study, headed by Paddy FitzGerald, author of the report and chair of the RSA's Corporate Governance project, considered corporate governance in the National Health Service, Non-Departmental Government Organisations and the Voluntary Sector. The study involved meetings with senior decision-makers, a research programme by the University of the West of England, a survey of 143 chairmen, chief executives, non-executive directors and trustees commissioned from The Opinion Research Business and two conferences.
Its key findings include the following:
Governmental centralisation, bureaucracy and short-term initiatives within the public service sector over the last five years have become excessive and militate against the independence of boards and their ability to develop their own vision. Responses from the NHS showed that almost 75 per cent of board members believe that they have lost autonomy over the last three years and the same number again felt that Government short-term initiatives had a major impact on their performance. Over half of executives in the NHS felt the adverse effects of bureaucracy, with nearly a quarter of NHS respondents saying that they do not have sufficient resources to deliver on short-term requirements for change.
There are a lack of clarity and confusion amongst many board members about the roles, responsibilities, managerial hierarchy and levels of authority as well as the legislative framework which defines and sets the limits for their activities.
Much more emphasis needs to be given to the skills needed to improve performance significantly and to increase the pace and energy within boards. This is difficult when some respondents and interviews reported that, in the public sector, the appointment of non-executives was sometimes conducted on a random basis, akin to choosing juries. Impediments to recruitment of high-calibre people to public sector boards include the fact that they are working at least three times as many hours as commercial sector board members. This is also true in the voluntary sector, which is increasingly in competition with the public sector, particularly in larger charities, for skills in short supply. The study determined that the time required of non-executive appointments (including trustees) was the biggest deterrent in recruitment.
Board chemistry is a decisive factor in the effectiveness of the board. Such chemistry is often adversely affected, because public appointments are usually made outside the board without reference to this factor. At the same time,however, the survey found little evidence of political favours in board appointments.
Many problems are seen to centre on the quality and comparability of information available to board members. Respondents noted that their ability to make good decisions was limited, when raw information was suspect and based on differing definitions.
The most important issue for public service organisations is about the balance between performance and the need to respond to those who use the service. At the present time, boards' tendency towards inclusiveness and representation frequently detract from the skills base available to increase performance, while representation is frequently reduced to tokenism. Analysis from the study suggests that the two issues of representation and performance with their different agendas should be separated and dealt with through different processes.
The report makes a number of recommendations including:
The boards of public service providers should be structured and the work rationalised to concentrate on performance rather than representation, calling on non-executives capable of injecting pace and expertise relating to skills in short supply. The issue of representation should be addressed with a separate body, but work on the structure and hierarchy of boards needs to take place, so that the two interests of performance and representation are linked together.
The fragmentation and proliferation of consumer bodies, particularly in the public sector, need to be addressed, so that an effective over-arching consumer body is set up with the ability to handle "joined-up government" issues at a regional level.
Chairs of public services continue to be appointed by ministers, but the board concerned should appoint other directors. Boards then are to establish nominating committees for board appointments, as happens increasingly in the private sector.
The voluntary sector should pay trustees comparably with chairs and non-executives in the public sector. This should take into account the size of the organisation concerned, so that small charities are not required to make payments that might affect their viability.
Clear responsibility should be assigned for the quality of all forms of performance information, for instance, by increasing the role of the internal audit function.
Author of the report, Paddy FitzGerald, said: "To achieve meaningful change at the national level requires a huge effort. This project is about the delivery of change without a vast financial expenditure or unreasonably long time-scales. It is not just a question of service levels; real accountabilities rest on more reliable information, new ways of measuring performance, and the right amalgam of people, if effectiveness is to be linked with efficiency."
Corporate Governance in the Public and Voluntary Sectors costs £20 including p&p and is available from Julia Heeley. Tel: 01275 371 145;E-mail: julia.heeley@rsa.org.uk
