“Smart people learn from their mistakes, but the real sharp ones learn from the mistakes of others”
(Brandon Mull on www.blissquote.com)
We’re dedicating this blog to some of the best learning we’ve seen from governance failures across governance in relation to the public sector and public sector relationship of RQIA with the Department of Health (Northern Ireland), charity sector and public sector relationships of Kids Company and the UK government, and private sector reform led by the public sector.
Public Sector and Public Sector
The recent Independent Review into the Circumstances of Board Member Resignations in the RQIA provides a wealth of learning on the importance of clarity regarding roles, responsibilities and relationships in the boardroom and beyond. In June 2020, the Acting Chair and 6 Non-Executive Board Members resigned with immediate effect from their roles with the Regulation and Quality Improvement Authority (RQIA), leaving the organisation without a Board. Their resignation letters included the following concerns:
- Lack of effort made by the Department (Department of Health in Northern Ireland) to consult or engage with the Board before making key decisions affecting the core purpose and statutory remit of the RQIA
- The decision by the Department to redeploy the Chief Executive of RQIA to the Public Health Agency and appoint an Interim Chief Executive to RQIA without any communication with the Board
- Belief that the role of the Board had been diluted and compromised
While the pandemic, and the need for quick decisions were seen to have been major contributors to the problems, the review team found that ‘this crisis could not have happened if the Department and the RQIA had had the basics of good governance in place – clear roles, well established and functioning relationships, clearly understood lines of communication, reporting and accountability etc’.
The UK Cabinet Office publication ‘Partnerships between departments and arm’s-length bodies: Code of Good Practice’ provides clear guidance for others in similar situations. Please ensure that, whatever the key relationships are in your context, they are well defined in written Role Descriptions. The stakeholder mapping exercise can help Boards to consider how they communicate with all of the key stakeholders of their organisation.
Charity Sector and Public Sector
The document ‘The collapse of Kids Company: lessons for charity trustees, professional firms, the Charity Commission, and Whitehall’, published in 2016 for the House of Commons Public Administration and Constitutional Affairs Committee, sets out clear lessons for Board Members of charities.
The charity had been founded in 1996 to provide support to vulnerable children and young people. It had received government grants of at least £42m, but closed in 2015, after repeated warnings from its auditor about its precarious financial position. It was found that the Kids Company Board of Trustees lacked experience of youth services or psychotherapy, which had meant it was unable to interrogate the decisions of its founder Chief Executive.
The Public Accounts Committee also examined government processes for awarding and monitoring grants to the charity. Its report, ‘The Government’s Funding of Kids Company’, published in 2015, concluded that the Government’s historic funding of Kids Company was a “failed and expensive experiment”.
While the motivations of all involved may have been worthy, those responsible for committing public money had a responsibility to carry out due diligence, and to monitor how the charity was led and governed. Perhaps they should have asked more questions about trustee recruitment, Board Effectiveness reviews, and Board Team Development processes.
Private Sector reform led by Public Sector
The document ‘Restoring trust in audit and corporate governance – Consultation on the government’s proposals’ was issued in March 2021. It stresses the importance of building trust, where investors and other key stakeholders can rely on the information published by large private companies. The government’s reform process has been prompted by several large corporate failures that resulted in job losses and uncertainty among small businesses and local communities. The sudden insolvencies of BHS in 2016 and of Carillion in 2018 caused serious economic and social damage.
Proposals for reform include requirements for:
- Company directors to carry out a review of the effectiveness of their company’s internal controls each year, and provide assurance that they are effective.
- The auditor to provide a formal opinion on the directors’ annual evidence of the effectiveness of internal controls.
- An annual Resilience Statement, setting out how directors are assessing the company’s prospects and addressing challenges to its business model over the short, medium and long-term, including risks posed by climate change.
- An Audit and Assurance Policy, describing directors’ approach (over a rolling three year forward look) to seeking internal and external assurance of the information they report to shareholders, including any external assurance planned beyond the scope of the annual statutory audit.
The government’s proposed reform package is part of wider work to strengthen the legal and corporate governance framework within which UK companies operate, and so to underpin fairness and transparency in UK markets. It forms part of the government’s overall strategy to drive economic growth.
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