Friday, 26 February 2010

Mid-Staffs NHS Trust: How can we make governance more effective

The recently published report into the appalling failings of the Mid Staffordshire NHS Foundation Trust bring the issue of organisational governance once more back into the spotlight of public concern.

Anyone who reads the report will see, clearly, that it is not possible to blame these terrible events solely on “ NHS administrators” or “budget cuts” but, in all probability, the mass of people (who will read the newspapers rather than the report itself) will come to just that conclusion. Clearly health professionals and their professional cultures had a large part to play in these serious events but, by and large, the media doesn’t like to criticise doctors and nurses when managers and directors are an easier target.

Nevertheless, it is obviously the case that ultimate responsibility for these events must rest with the Board of the Trust and this once again raise the question of what is wrong with governance arrangements in the NHS that permits these failings to take place. However, it would be a mistake to assume that governance is just a problem in the NHS since failures in governance can be identified in other parts of the public sector such as education, Quango’s etc. We can go further and recognise that there must also have been severe governance failings in the private sector. I have often asked myself the question “What were the non-executive directors of Lehman Brothers doing at the time of its collapse?” Either they were unaware of what was happening or they were aware but did nothing? Either way it seems a failure of governance. Also I did wonder at the time the Lloyds HBOS merger was announced some years ago after brisk and emergency negotiations whether the non-executive directors of either organisation had been consulted or had any idea what was happening.

Thirty five years ago, in a devastating criticism of the ineffectiveness of non-executive directors of companies, the late Robert Townsend (the then boss of Avis) wrote a book entitled “Up the Organisation”. In relation to non-executive directors he made a number of irreverent comments such as:-

• In all the years I spent on company boards I never heard a suggestion from a non-executive director that resulted in action.
• Non- executive directors meet once a month to gaze at window dressing, listen to the chief executive and his team talk superficially, ask a couple of dutiful questions, make token suggestions (courteously recorded but subsequently ignored) and adjourn until next month.
• Non-executives are usually friends of the chief executive (or executive chairman) put there to keep him safely in office.
• Be sure to serve a heavy lunch and cocktails before the meeting so that some of the older directors will fall asleep.

While Townsend’s comments may be seen as extreme and designed to shock they may contain germs of truth which have applicability in the public sector. Clearly the bulk of non-executive directors in the public sector are both committed and conscientious but the key question is whether they are effective in terms of governance. After thirty years experience of the public sector as a manager, an academic a consultant, an auditor and a non-executive I have observed a number of governance failures (of varying severity) and in many different sectors. In the light of this I have come to one simple conclusion about organisational governance

All of the: guidance manuals, training courses, codes of practice, auditors ,inquiries, regulatory bodies etc will not compensate for the lack of non-executive directors with sufficient “nouse”and courage to ask difficult question and not be fobbed off by unsatisfactory replies or professional mystique.

The boards of public sector organisations (including NHS Trusts) actually require a sufficient number of people who are prepared to “make waves”, “rock the boat” etc. It is not sufficient to just say “we weren’t told”. This is not just my opinion. If you look at some catastrophic events that have taken place in the past (e.g. the Challenger Space Shuttle disaster) it is clear from investigations that the absence of people prepared to stand up and ask difficult questions was a major contributory factor to the incidents. However, in the public sector we often find phenomena where the same people seem to pop up as non-executive directors in a number of public sector organisations (a similar situation also happens in the private sector where non-executive directors of companies seem to be drawn from a narrow pool). Such people are often referred to as being “sound” which seems to imply that they won’t be controversial, ask difficult questions, upset people or embarrass the Government. However, we must also recognise that non-executive directors have a tough job. They are often squeezed between an appointed chair and executive directors who wants to keep their jobs and a Government which wants no bad publicity. Not surprisingly they don’t ask tough questions.

Is this what happened in Mid-Staffs NHS Foundation Trust? If it is, we must question the methods by which non-executive directors and chairs are appointed and whether it is need of review.

Monday, 15 February 2010

Is climate change really the right message?

Climate change is clearly one of the most topical and controversial aspects of public policy worldwide but while we are now constantly told of the necessity of reducing carbon emissions in order to save the planet not everybody is listening. A recent survey in the USA showed that compared to a previous survey in 2008:

• Only 50 percent of Americans now say they are “somewhat” or “very worried” about global warming, a 13-point decrease.

• The percentage of Americans who think global warming is happening has declined 14 points, to 57 percent.

• The percentage of Americans who think global warming is caused mostly by human activities dropped 10 points, to 47 percent.

No doubt similar trends might be found in other countries as well.

There is clearly considerable frustration among policymakers that the “message” on climate change is just not getting through. In October 2009, the UK Foreign Secretary David Milliband accused the general public of “of lacking a sense of urgency in the face of the potentially devastating consequences of climate change”. No doubt events like the leaked e-mails from the University of East Anglia and the problems of economic recession have further increased public skepticism about the need for action in relation to climate change (and the human effects on climate) such that policymakers now have a big job in convincing an increasingly skeptical public.

Looking back we may ask whether rather than focusing on climate change and carbon emissions, governments might have focused more on another issue where there is no real doubt about what is happening and where the required solutions, if implemented, would have broadly the same effect in relation to carbon emissions. This issue is the fact that energy resources and various other raw materials used in everyday life are finite and will run out. Just a few facts can be quoted here:-

• In 2007, BP's Statistical Review of World Energy appeared to show that the world had enough "proven" oil reserves to provide 40 years of consumption at current rates. However, scientists led by the London-based Oil Depletion Analysis Centre, suggested that global production would peak before entering a steepening decline which will have massive consequences for the world economy and the way that we live our lives. According to "peak oil" theory our consumption of oil will catch, then outstrip our discovery of new reserves and we will begin to deplete known reserves. In 2009, the chief economist of the International Energy Agency suggested that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.

• If we see nuclear energy as an alternative to oil it must be noted that deposits of uranium will also probably be exhausted this century depending on the growth in the use of nuclear power. Furthermore, it seems that controlled nuclear fusion is a far away as ever.

• Since the Industrial Revolution there have been concerns about the exhaustion of non-renewable mineral resources. The concerns are serious because modern society and technology depends on a variety of metals, including ones like copper, lead, zinc, platinum, silver and gold which are widely used but geochemically scarce. Such concerns are growing stronger today because some of these minerals which are being depleted are core to certain “green” technologies (e.g. the use of palladium in catalytic converters of cars).

Some will argue that new reserves of oil, minerals etc will be found but these reserves are likely to prove much more expensive to access and therefore the costs will be high. Also there is no guarantee that we will be able to develop the technologies to access them.

Is this certain depletion of natural resources not a stronger basis than the uncertain climate change argument for trying to change the structure of our economies and altering the way we live? Whichever way you look at it, eventually we are going to run out of these raw materials upon which our current lifestyles are based. Oil, gas, coal, copper, platinum etc just do not replenish themselves and once they are gone, they are gone. Let us not talk about mining the moon and the planets – we can’t even afford another manned mission to the moon.

However, could it be that the burden of reducing the use of these non-renewable resources would fall largely on developed countries (given their high levels of consumption) such that we couldn’t try and pass the buck to developing countries as we seem to be doing with regard to carbon emissions and climate change.

Friday, 12 February 2010

Will Quangos be decimated: Probably not

Quasi-autonomous non-Governmental Organisations (Quangos) have been part of the UK landscape for many decades and there have often been robust political and managaerial debates about the usefulness (or otherwise) of these public bodies. This debate has been brought into focus by the atrocious state of Government finances in the UK and the need for the next Government (whoever it may be) to make huge real terms reductions in public spending. The impending drive to rebalance the public finances will place intense pressure on the UK’s Quangos. Not surprisingly when there are threats to front line public services such as schools and hospitals many will question whether we really need the large range of Quangos which currently exist and also whether we can afford them in the current economic and fiscal climate.

Politicians of all colours have jumped on this bandwagon. Last July David Cameron made a speech stating the Conservatives would reduce the numbers of Quangos and increase democratic accountability. In December Gordon Brown announced plans to cut 120 quangos which is rather unfortunate given that a recent survey from the Cabinet Office revealed that spending on Quangos has surged by nearly £10bn in the past two years. Now it appears that to give credibility to his pledge to provide Saturday morning classes for one million children on free school meals (by allocating an additional £2,500 in funding for every child), Nick Clegg will aim to fund the £2.5bn cost through cutting back on Quangos.

However, it is not always clear how many Quangos actually exist because of variations in the definition of a Quango. A document produced by the Taxpayers Alliance claimed that in the UK there were a total of 1162 Quangos (and other Agencies) which cost the taxpayer a total of £63.5 billion. These figures seem to chime with similar figures used by David Cameron in his July speech but differ markedly from other claims which put total Quango expenditure at £124 billion. Thus when considering cuts in Quangos we really need to be clear about what we are counting as Quangos. For example, the £124bn figure quoted above included in its list of Quangos all of the NHS Trusts in the UK which deliver hospital and community services. It seems unlikely that many people would regard NHS Trusts as being Quangos in the usual meaning of the world. Furthermore, the TPA report includes in its list of Quangos the following organisations:-

• The British Museum
• The BBC
• Kew Gardens
• The National Library for Wales

I am not sure many people would regard these high profile, popular and well known organisations as Quangos in the pejorative sense of the word.

Firstly let’s clarify what Quangos actually do. Perhaps Quangos can be considered in four main groups:-

• Service providers – some Quangos such as the British Museum provide services directly to the general public.
• Funders – some Quangos distribute public funds to relevant external organisations. Thus the Arts Councils distribute funds to arts projects and the Higher Education Funding Council for England (HEFCE) distributes funds to universities for teaching and research. Thus it is misleading (as the TPA report does) to claim that HEFCE spends £7billion per annum. The vast bulk of that money, with the exception of £20million for internal administrative costs, is distributed to universities for teaching and research. Also in this category might be included Regional Develop Agencies which spend the bulk of their funds on local projects to improve the economy of the region.
• Regulators and Inspectors – some Quangos are charged with inspecting and regulating public sector service providers. Thus OFSTED inspects schools and the Healthcare Commission inspects hospitals. The Audit Commission audits and inspects a range of public bodies. Also in this category might be included Quangos such as the Equalities Commission.
• Advisors – there are a myriad of bodies of varying size which provide advisory services to various parts of Government.

In addressing the question of Quangos I suggest there are some key questions which need to be asked including:-

• What benefit do Quangos actually generate? For example, have schools really improved as a result of OFSTED? Have inequalities really reduced as a consequence of the Equalities Commission. Some Quangos make great claims about their own role and effectiveness in improving public services but the real evidence is very thin.
• What is the real total cost associated with Quango activity? People often talk about the costs of running the Quangos themselves but forget about the impact on, and costs to, those organisations being inspected by Quangos.
• Could the work of Quangos be done by other existing organisations? For example, many of the roles of the Learning and Skills Council (LSC) in funding post-16 education used to be done by local authorities. Also, much economic development work is done by local authorities. Do we therefore need these Quangos when local authorities might do the same work for less?
• What public accountability is there for the work of Quangos? The Boards of Quangos are not elected but appointed by Ministers who seem to closely control what they do in great detail. For example, it is easy to see that Regional Development Agencies have the potential to help their local economies but how can they do an effective job when they are micro-managed from London by people who probably never set foot in the regions themselves.
• Why are so many Quangos based in London when their work could be just as easily done in other parts of the UK with consequent benefits for local economies? Is it so they can be near to Ministers who wish to control closely what they do and say?
• Are there too many Quangos doing similar things? For example do we need a Quango to fund higher education (HEFCE) and a Quango to fund post 16 education (LSC)?
• Are Quangos just devices for Ministers to reduce civil service head count and to avoid direct responsibility for public services?

At first glance the picture looks gloomy for Quangos. Even if one thought that Quangos were really effective in what they do, the question still has to be asked whether we can afford them in the current fiscal climate. Are Quangos doomed then – probably not. The future of Quangos probably depends on how much time and energy Ministers can devote to the issue given the vast financial and economic problems which will face the next Government. Some savings can and probably will be squeezed out of the QUANGO system through cosmetic changes but it is probably much less than currently imagined. Furthermore, in a crisis most Ministers resort to centralisation and it is difficult to see the new Government doing anything different in spite of what they say at the moment. Many Quangos will probably be seen as too useful to Ministers to be abolished.

Thursday, 11 February 2010

Where now for public services in the UK

The debate continues about the current worrying state of public finances in the UK. For many years to come, the UK will face a period of financial austerity involving significant real terms cuts in public spending in addition to tax increases. Furthermore, although these fairly recent concerns, resulting from economic recession and the credit crunch, are significant, they will be dwarfed, internationally, by the longer term impact on public finances of an aging population and other factors.

The danger is that we regard the current crisis as one which will simply “go away” in a few years, and that we will then return to “business as normal” involving ongoing real terms increases in public expenditure each year. The current crisis might instead be seen as a watershed in our social and economic history and one which requires considerable thought about, among other things:-

• the role of the state in public service provision,
• the balance between individual and collective responsibility,
• the structure of public services,
• how public services should be paid for.
• the mechanisms by which public services are planned and managed.

In his inaugural professorial lecture, Professor Malcolm Prowle provides a wide ranging analysis of the nature of the current problems and possible solutions.

The lecture can be downloaded at:

The working paper which underpins the lecture can also be downloaded at:

Wednesday, 10 February 2010

Business or the general public: Who should bear the burdens?

I noted with interest the recent comments of the Environment, Food and Rural Affairs Select Committee on the Governments failure, in its waste strategy, to address the issue of business waste which represents 90% of total waste and focus instead on domestic waste which accounts for just 10% of total waste. Is this not another example of the Governments failure to address business related issues and, instead focus on the general public.

For example, what is being done to encourage or require business to reduce the amount of packaging of goods. Around five million tonnes of annual household rubbish is packaging and it makes up almost one fifth of all household waste. It will cost householders in England £4.8bn to bin over the next six years, that's £236 a household, unless excess packaging is cut. Local authorities are able to prosecute companies that over-package their goods under an EU packaging directive that entered UK law in 1999. However the rules banning wasteful packaging have too many loopholes to be effective and the maximum fine of only £5,000 does not pose any real deterrent for large companies. The last prosecution for excess packaging was in May 2006 when a Cambridgeshire biscuit firm was fined for filling its bins only two-thirds full. Tougher laws and serious fines to crackdown on excessive packaging are needed to protect consumers from packaging which they don’t want and which is costing them money to dispose of..

Another issue concerns road congestion. We are constantly told that we have to reduce the numbers of cars on our roads particularly in peak periods. My personal observation (and there is some evidence to support this) is that the bulk of road congestion, road damage, road noise etc is caused, not by cars, but by the large numbers of heavy goods vehicles on our roads particularly in urban areas and particularly at peak periods. A HGV was estimated in 2004 to have 2.3 times the impact on highways compared to a private car and HGVs have grown larger since that time. Why then doesn’t Government address the issues of HGVs on our roads. Obviously there is only limited scope for transferring freight to rail but other solutions are available such as road pricing to discourage HGVs from using urban roads in peak periods.

Fundamentally it probably comes down to the fact that Governments would rather impinge burdens on the general public than take on business lobbies. has a value of 2.3 (an HGV has the potential to cause an impact 2.3 times greater than a private car) (NECESI/The Environment Practice, 2004 HGV has a value of 2.3 (an HGV has the potential to cause an impact 2.3 times greater than a private car) (NECESI/The Environment Practice, 2004). HGV has a value of 2.3 (an HGV has the potential to cause an impact 2.3 times greater than a private car) (NECESI/The Environment Practice, 2004).

Tuesday, 9 February 2010

Banks, bonuses and bail-outs

Our leading bankers recently told the Treasury Select committee the usual story that unless large bonuses are paid, they will fail to attract or retain talented staff. This raises a number of questions.

Firstly, what sort of talent do the banks wish to recruit or retain? This, in turn, raises the issue of what is the fundamental purpose of banks? Are they:

• Normal business organisations that aim to maximise (or, at least, generate an acceptable level of profits) and thus may consequently suffer business failure in the competitive market? If this is the case then, by all means, pay bonuses that recruit or retain staff talent able to contribute towards profitability, but such individuals must also be in a position where erroneous decisions may lead to business failure and loss of employment. The banking sector would need to be restructured in such a way that bank failures will not lead to serious repercussions in the real economy. In other words, if banks are too big to fail, aren’t they just too big and should be broken up and forced to compete more fiercely with one another?

• Organisations whose primary role is to support the ‘real’ economy through the provision of credit to business? In such a situation the banking sector might be structured differently and banks may well become too big to be allowed to fail. Again staff bonuses would be acceptable to retain/recruit, but in this case bonuses should not reflect short-term bank profitability but the contribution the bank has made to business creation and sustainability.

Basically the banks can’t have it both ways. They can’t have a bonus culture that is based on corporate profitability, but then expect the banking system to be kept in such a way that they need government to bail them out when they make calamitous business errors. It has been said that the seeds of the next banking crisis are already being sown in the back offices of banks by people trying to earn large bonuses developing new products that may be profitable but also have high degrees of risk. The question is how to we stop this happening.

Moreover, why have we allowed banking and associated financial services to become such a hugely important part of our economy such that we effectively leave ourselves open to blackmail? The UK has a doubly asymmetric economy. Firstly, the over-emphasis on the financial services sector of the economy results in policies that inhibit other sectors of the economy. We are constantly told that the manufacturing sector in the UK now comprises just 12% of GDP but what it should also be pointed out that:

• the UK is the world’s sixth largest manufacturer measured by output

• manufacturing represents half of UK exports

• manufacturing has achieved 50% productivity growth since 1997

• manufacturing represents 75% of business research and development

• the UK is consistently in the top rankings of high-tech exports

• the UK has more foreign direct investment in manufacturing than any country apart from the USA.

Secondly, the UK economy suffers from a huge over-dominance of London and the Southeast (partly as a consequence of the scale of the financial sector) to an extent not seen in most other countries. This results in a two-speed economy, with the consequence that government sometimes introduces economic policies designed to damp down overheating in the Southeast but which have a negative impact on the rest of the UK economy.

It also generates huge distortions relating to other issues such as housing and transport. A more balanced economy, both in terms of sectors and regions, is essential to an effective recovery that is sustainable in the long term. Senior industrialists like Sir John Rose of Rolls Royce have consistently argued for the UK to develop further its manufacturing sector, but these messages seem to fall on the deaf ears of our London-based politicians and civil servants.

Monday, 8 February 2010

Economic Recovery: What Recovery

Official statistics released last week indicated that the deepest economic recession in the UK since the 1930s has formally ended with the economy showing some positive growth in the last quarter. While this is a sign for rejoicing and something which the Government, with an election looming, will boast about, the reality behind the figures may be different.

The economic growth achieved is miniscule (0.1%) and suggests the UK economy is still in the doldrums and that economic recovery is very fragile. This growth may be largely due to the Government’s car scrappage scheme and companies re-building stocks of goods depleted during the depths of recession. If this is the case, don’t be surprised if the economy dips, once again, into recession later in the year. Furthermore, the figures released are, of course, UK wide and there is no data available about the state of regional economies.

The end of recession is officially defined as being when the economy stops contracting and starts to grow again. Over the last two years the UK economy has contracted by around 6% and even if it achieved the strongly forecast growth rate of 1.5% per annum it would take four years just to get back to where we were at the start of the recession in 2008. In any rate the growth of 1.5% may seem optimistic in the light of the latest results.

Finally what do these figures tell us about the real world? Not a lot really. The growth is so weak that it is likely to have little impact on, for example, unemployment levels. Couple this with the need for the public sector to make huge savings and I would still expect the real trend in unemployment to be upwards. Furthermore, the awful state of the UK’s public finances means that there is little the Government can do in the way of a further fiscal stimulus since it just cannot be afforded.

The UK economic problems are said to derive from a lack of confidence by companies and customers. Although the recession is officially over it seems unlikely that the results will instil confidence.

Recession and public expenditure cuts: What to do for the best

There is virtually a consensus among all political parties that the size of the UK Governments budget deficit (and the associated borrowing requirement of £176bn) is unsustainable and needs to be substantially reduced. While some of the deficit will be reduced through tax increases the vast bulk will require substantial reductions in public spending.

However, the big political debate, and the difference between the two main parties, concerns how quickly the budget deficit should be reduced and in what areas of public spending the cuts should fall. The Government argues that cutting the budget deficit too quickly will endanger any economic recovery that might be taking place. This seems to be a serious point especially since last weeks economic statistics, which indicated miniscule economic growth, suggests that the UK economy is still very fragile and cutting public expenditure too quickly may tip the economy back into recession. On the other hand there are strong pressures to cut public expenditure quickly and drastically. There are concerns that if firm plans to cut the budget deficit are not published soon (by whichever party wins the election) then the UK may lose its prestigious triple A credit rating meaning that either the UK would have trouble raising additional borrowing or the cost of that borrowing would rise sharply.

Thus the dilemma is how best to cut public spending in a manner which satisfies the credit agencies and lenders while at the same time minimising further damage to the real economy of the country. This is not easy to do but some particular themes might be considered:-

• Infrastructure Focus – there might be merit in making substantial cuts in expenditure on direct service delivery and re-directing, at least, some of the money saved into major infrastructure projects (e.g. roads, buildings, transport etc). As well as improving the basic infrastructure of the country this would provide a strong stimulus to the construction industry which is a key driver of the whole economy.

• Internal focus - public expenditure which increases the demand for UK produced goods and services will have a positive effect on UK economic activity while expenditure on imported goods will not have such a positive effect and will also contribute towards the UK’s large balance of payments deficit. Thus the aim is to try and ensure that when decisions about public expenditure are being made there is an ongoing focus on cutting imported items rather than UK produced goods and services even if the cost of the UK goods is higher and value for money is lower. The trick is how this should be done since any from of regulation or proscription would probably be declared illegal by one of the many supra-national bodies such as the EU, GATT etc. However, it could also be the case that the UK is a “soft touch” in relation to these matters. Hence it is possibly a case of public service managers being encouraged to focus on UK goods and services and being provided with assurances that they will not be penalised for avoiding cheaper imports in preference for UK produced items.

• Labour focus – it is generally the case that the lower a person’s salary the larger is the proportion of income that it is spent as opposed to being saved (marginal propensity to consume). Thus reducing public expenditure through large scale job losses among low paid workers could have a serious impact on the economy as a consequence of there being a huge reduction in the purchasing power available for goods and services. On the other hand, achieving the same reductions in public expenditure through job losses of more highly paid workers would probably have a much smaller impact on the consumption of goods and services albeit with a significant reduction in savings

• Business Support Focus – research undertaken by the author shows that many otherwise sound businesses will struggle to survive even after the recession truly ends. This may be because of liquidity problems caused by post-recession over-trading or an inability to access investment funds needed to keep apace with international competitors. Thus again there might be merit in making substantial cuts in expenditure on direct service delivery and re-directing some of the money towards business support. The question is rightly asked as to why we were able to support the banks that caused their own downfall but we are reluctant to support key middle and small manufacturing companies who are key to economic recovery. It must be emphasised that this is not a return to the 1970s with government “picking winners” and investing in those winners. This just involves limited, targeted and time bound support for key companies who may struggle.

The four suggestions mentioned above (and there may be others) would, of course, also have significant political implications in their own right and would cause problems for politicians of any colour. However, it is probably also the case that the UK just does not have the sophisticated governmental mechanisms to put such policies into effect. In which case the next Government had better get on with developing them quickly.

Malcolm J Prowle