Okay good morning everyone thank you very much for joining us uh I’m John o’halleran uh I am responsible for sit for’s consultancy which is sitp for Solutions I will be your chair for this morning um just a little bit of housekeeping to start with firstly this
Um meeting is being recorded uh it will be available to be viewed on the sit for YouTube channel in due course and as we go through if you have any questions uh that you want to put to the panel uh if you would put them in the Q&A box which
Is at the bottom of your screen then we will take them uh at the end and we may take some as we go so good morning again um is commercial activity ever justified in local authorities is the question that we’ve set got the panel here to to
Discuss and to take your questions um it’s an area that sit has been doing a lot of work in over the last 18 months two years um we’re not going to give you a definitive answer there is no yes or no um many local authorities have been very successful in some commercial
Activities some as as you may hear today have been less successful um particularly around companies as well as just General commercial activities I think the key that hopefully you will get out of this morning is there are some practical examples and practical experience from the panelists and also
The The View that if you’re going to go into commercial activity go into it with your eyes open and make sure you plan and take account of all the risks that that will come with it and also look at how you’re going to get out of it if
Things do go wrong because not everything that you do will always go well so we’re going to look at it from a practical perspective and I just introduce the the panel briefly so we have Rob Whitman um probably doesn’t need any introduction to most of you on
Here just to say as you would would expect he’s been very involved in our work around commercial and around uh companies in local authorities and the work that we’ve done for D looking at companies and and Commercial arrangements as well um Clive hey is very pleased to see that he’s joined us
This morning as well he’s currently CEO of Middlesboro prior to that he was uh section1 acting chief executive in places like Birmingham and Nottingham and he’s going to talk about the many diverse com commercial structures and companies that uh he’s found uh in these different places also very pleased
Indeed to welcome Adele Taylor uh Adele is section1 at slau and as prior to that was at Windsor and Maiden head and Adele is going to talk about her experience of companies but also bring that perspective of what happens when it when it goes wrong and what’s the impact on a
Council and its residents so we’re going to take 30 40 minutes just to talk through some of the issues for you um as we go through please please because of uh Zoom there’s no interaction other than through the Q&A box so please put questions in the Q&A box I will pick the
Questions out um as as we go and uh and at the end um and ask the the panel and see where we we get to so we are riant on your questions please we aim to be finished in around an hourish we’ve got no time constraints from our part um and
We’ll let it run as long as it needs to so um I hope you’ve all got lots of questions I hope you find it informative and I’ll hand over to Rob to start us off please uh thanks very much indeed good afternoon everyone I hope you are
Well so tomorrow we have the Autumn statement and we will see what the chancellor has in store um just by means of half a minute on General introduction and context um government like to have giveaways in the runup to the election either in terms of uh tax concessions or
Spending more money on on uh service priorities and I think there’ll be some of that in the autum statement and perhap and in the budget too uh in the spring I think the government has less room for maneuver than usual although obr’s projections have widened a little
Bit on how much money may be available to the government the Quang trust budget a year ago that spook to the markets because the sums didn’t didn’t add up and the government seemed to lose the UK’s long-term commitment to uh Consulting institutions such as OB and the bank of England um that completely
Spooked the markets and and the go that government fell they can’t afford for that to happen again and so I do think that whilst there’ll be a bit of help I don’t think there’ll be as as many goodies or sweet is as usual however they’re dressed up uh because the
Government simply has less room for maneuver that does mean a difficult time for public services and it means a difficult time for local government in particular we are getting close to the point where uh all authorities are finding it hard to to balance the books the authorities that have fallen over so far
And had a 114 notice have probably been at the the less well managed end of the normal distrib distribution curve of the sector um and some have been spectacularly badly managed and made some very rash decisions which we’ll we’ll probably talk about in this seminar but we are getting to the point
Where well man some well-managed authorities are speculating that they may be in a have proxim to 114 and although I think duu will help those authorities with a capitalization order um uh ideally backed by capital resources or borrowing um it’s not it’s a sticking plaster isn’t it and not a medium-term
Solution so it staves off the 114 notice and avoids the need for Commissioners let’s say but but it doesn’t actually give an underlying um solution to an Authority’s budget and the other side of a general election we need to know what the future will be of local government Finance how will the
Sector be resourced and have some form of fair funding review or redistribution because there are some authorities that have a particularly bad deal and their uh and their resource situation is so hollowed out that they’re heading for 114 so of course in the mix of all of that authorities look at their
Commercial strategy to answer the question that John set at the beginning yes it is reasonable for local authorities to get involved in commercial activity um but I think it’s important from the seminar today by the end of it that we understand that people have a really clear idea of what they’re trying
To achieve it’s for strategic reasons it’s legal people go into it with their eyes open and also make sure that they strong governance Now setting up companies is probably a uh a broader agenda than a commercial strategy people up people set up companies for development purposes for housing
Vehicles uh when they are sharing services or approaches with others um as well as um commercial commercial activity uh where people want uh a form of return on it commercialism um has been used a lot by some authorities thinking it’s a Magic Bullet and there’s no magic bullet some
Commercial activity might help on the mo margins but it isn’t a solution to avoiding the grind of Good Financial Management of making Savings of managing Investments well of persuading members to maximize their tax base um the the good thing about setting up a company structure uh or ined if you manage
Commercial activity well through a company structure is that public bodies are juggling a hundred things at the same time and the strength of the co commercial sector is that they tend to be juggling one or two things and therefore give it significant focus and so through a team of people operating through a
Company with the right skills the right investment and the right strategy they may bring some Focus to commercial activity that is not easily um uh brought to bear by public servants who are who are juggling uh a number of things there are some fundamental differences though we are public bodies
And on the whole we do things because they are worthy and we’re interested in them and we think they’re a good idea or they have got a political mandate that’s very different to being commercial commercial companies do have a social responsibility um good companies do care about social
Responsibility but on the whole being commercial is not asking the question is this worthy and is it a good idea being commercial is is asking the question does it make money and do we make a return on it and the rigor of that is borne out by the way that you receive
Funding so if you’re going to have a commercial Venture in the private sector you will have to persuade investors it’s a good idea they’re your shareholders and you regularly have to talk to them and you have to keep financial institutions and the banks happy and every time you’re thinking of changing
Your model and what you’re doing or you’re thinking of launching a new product you have to convince your investors that it’s a good idea or you lose Share value or your capital is more expensive we operate in a very non-commercial environment where we don’t have that rigor and actually the
Section 151 officer can call down pwb almost at will so long as it meets the test of the credential code and in the cases that have gone spectacularly wrong where people have acted unprofessionally or illegally it’s where they’ve decided to massage the rules of the credential code and to make business
Cases stack up that don’t Stack Up um what if we use internal borrowing or or or inter Authority lending uh as a means of our cost of capital rather than pwlp which is remarkably cheap as it is by the way compared to the commercial sector but
What if we stack a business case up by in effect not having it on Commercial terms but having interest rates which are which just make sure that we get the deal over the line that is an incredibly uncommercial thing to do and no commercial organization will do it they
Will go through commercial governance after commercial governance after commercial governance through an investment committee through an audit Committee of high powerered business people which will usually qualify out most of the ideas because it make enough money or the presumptions of it don’t won’t stand the test of time in terms of mitigating
Risk so I’ll finish John with just the thought that I think from the other speakers we will hear about the importance of commercial governance uh what’s worked well what hasn’t worked well and I think I I’m looking forward to hearing that because we’re good public servants it doesn’t make us good commercially and
Being commercial in the public sector is being is different to being commercial in the private sector and I do fear that people think at times they’ve got commercial skills that they haven’t or business cases or worthy ideas or cunning plans are dressed up in a way to
Say that there’s a return on investment in a way that the commercial sector just wouldn’t countenance and so we have to be much more rigorous as accountants about the way that we drive those business cases but we also as accountants have to make sure that we have commercial governance which is
Stronger or more robust than the governance that we’re used to on business cases for public sector cases where we tend to rely on do members want it to happen and is it a political priority and our job is to get it over the line in the private sector there is
No impetus to get something over the line and if you can’t get it over the line you happily go away and look to invest your money somewhere else you only want to invest because it is a absolutely golden opportunity to make some money these are very different
Cultures and if we’re going to act commercially we need to have a commercial mindset and have people with a commercial mindset that guide the way we make those decisions thank you John you’re on mute John yeah that’s a basic era for a chairman isn’t it um so Rob thank you very much
Uh for for those those comments I think one of the key things for me after of that is the different skills and the other thing that comes out uh of that is that in local authorities of course we’re governed by different acts to ones that are in the private sector for
Companies and again that needs to be taken into into account and I think we’ll come out a little bit in the stuff that um that Clive is going to talk about now with some of his experience particularly around Nottingham Clive do you want to take it away as they say thank you John
And good afternoon everybody good to be here talking today uh it’s an interesting topic isn’t it this one and Rob very much set the scene in terms of the overall financial position for local government and the rationale behind doing commercial deals and like Rob I’m a fan of the commercial organization
As being a toolkit which a good authority a good section 151 will have available to them in order to manage the budgets but also to deliver Services I think having worked with uh a number of authorities big ones the birminghams the notams now the middles BR Etc and others which all have
Commercial entities attached to them and I also have a couple of non-executive director roles as well at the moment um just a few lessons I’ve learned over my life really to share with you and then I’ll go into a couple of of examples of of failure and a couple of examples
Perhaps of more successful ones so commercial activity I think is Justified it needs to be supported though by a strategic reason to do it it’s not just a reason to do it to in local government just to earn money to get a return it’s got to be there for a
Strategic reason as well and what I found has been helpful in the past has been developing a commercial strategy been happy to share a template with colleagues if you’re interested but a commercial strategy which is a test for why we’re doing any commercial activity before we start that Venture what are
The alternative ways of delivering what are the outcomes that we’re seeking to get from that Venture what are the business risks associated with that what’s the business case and ultimately what are the criteria that need to be met before we go into a go live
Situation or a go no go decision so that commercial strategy I found very useful and all too often I see authorities without a particular commercial strategy and then they get blown in the Wind by each commercial opportunity not being tested against predetermined criteria or anything that’s consistent second one I’d highlight is
That members need to be well informed as well as officers but members need to be well informed on Commercial principles the concept of being arms length and the opportunities and risks that go with these Ventures and being clear given clear and unequivocal advice one of the
Examples I’ll give in a moment is where officers have had to speak truth to power to the members around whether they can do things or not and sometimes the members will want to do things and I’ve seen officers be dragged into that not giving the advice that they want to but
I think officers here have to be really clear about that truth to power and make sure that the members are aware of the risk that they enter in going into commercial Ventures third one I’d highlight is and I’ve sort of touched on it already is robust risk management Comm commercial
Activities if nothing else carry with them a heightened degree of risk management operating in a Marketplace and operating in a governance structure which is often unfamiliar to officers and to members and the importance of understanding the the risks associated with it the clear management of the
Risks and also at the outset setting out what would be the exit criteria if we had to pull out of this one is all too often missing and I think that’s really important we do that number four would be if we have officers and or members sitting as me as
Directors of the company they must be given the right training and again I found it really valuable in setting up organizations like the Northampton share children’s trust which is a a limited company investing time to understand the legal framework in which the directors operate so everyone’s absolutely crystal
Clear about that and particularly that directors have a duty under company law to the company itself and to promote the success of the company uh and that’s over overriding any other role which often conflicts them with particular the member role and fifthly having robust shareholder Arrangements when councils
Put companies in place Latos in place it’s important they separate out the role of the shareholder I.E to maximize the value of that company and ensure a success with often the clien in role because I’ve seen too often uh the the councils work with the company to deliver Services as well when their
Objective is to push down price and often those objectives can run counter and it’s really important that the shareholder role is expressed uh and run through a shareholder committee and some kind of governance Arrangements that gives that oversight so there sort of five thoughts I have in terms of things that represent good
Practice I want to focus a little bit um on not in any great detail but on on on Nottingham City Council um Nottingham had a number of companies about nine of them uh and the total turnover of the companies actually was in excess of Nottingham’s net revenue budget they were a big
Thing just thinking of a couple of them Robin Hood energy is one that hit the press for a public interest report uh and governance failures and where Nottingham needed to write off about 41 million pounds worth of funds uh why did that go wrong it was a perfectly good
Venture from a member’s perspective in terms of wanting to do something to bring down Energy prices but then it was understaffed and under resourced and flooded with directors in the form mainly of counselors who had no background in energy energy Supply the energy market and who did not understand
The volatility of that market and what to do and as things went wrong the council’s propensity to want to say it’s not going wrong it just needs a bit more money they continued to put more and more money into it when actually the right thing to do and the right advice
From officers at the time would have been to just enough is enough we need to walk away from this and by the time nottingam took that decision it was too late so early intervention when things are going wrong but have directors with the right experience Nottingham had Thomas Bo
Construction which was a a construction company where they wanted to use the procurement rules in order to allow some tech work to be given directly on highways construction and and get a dividend for it in the end Nottingham never got a dividend for it it never paid out uh the company The Tackle
Arrangement never came to fruition and it just lacked the drive and the energy and the vision and the clear rationale from the council side and we end ended up having to sell that company we got back what we paid for it fortunately but it was a wasted Venture and a lot of
Management time and effort Nottingham City Homes is the one time in my career when I’ve had to issue a section 114 report for unlawful spending when perhaps the lesson learned in that case was the lack of a client because although notam had got rid of their
Housing stock to an Elmo um it didn’t mean they got rid of the statutary housing duties nor the oversight function with that Elmo and the fact that didn’t followed that meant ultimately the Almo did its own thing started treating HRA monies as general fund monies which the council then took
Back in in the form of ever increasing dividends and of course that broke the HRA ring fence which was wrong and uh that was a painful lesson which again has cost the council probably in excess of 50 million 5 million so between it and Robin Hood energy Nottingham’s
Probably down 100 million on resources which had it not been down on uh would uh have left it in a stronger position and and Nottingham Castle trust perhaps a smaller one but just a good example where the independent trust have been taken on to run uh Nottingham Castle
Without a lot of council oversight again but also with massive optimism bias on the part of the trustees which never came to fruition and the minute they got into trouble wanted to come back to the council for immediate support it’s a good example of where we had as officers
To take a view with the counselors that you just have to let this company fold what you don’t don’t want to do is to take on board all the liabilities many of them unknown back into the council without any oversight we have to let it
Fold and we have to think about how we rocourt of things that went wrong and Nottingham’s work on on changing its company portfolio and governance uh is excellent now and and that’s getting into a stronger position but you know I worked on these things for nearly three
Years and and my successor Ross still be working on them as they’re not sorted just a couple of good ones though to end on um in Birmingham we we had a company called a civico which was an FM company got into some trouble initially but working with the council working with
The directors working with a new vision for that company we nursed it back to Good Health with a proper purpose proper governance proper financial arrangements and that’s is going strong today so really pleased to see the work there that it can be done and one other example again from Birmingham Frontier
Development Capital using for former money from Grant funds like grow growth fund from government Etc uh we’re able to set up a a company which uh supported SM businesses locally um and ultimately across the UK as an alternative to bank lending and that’s been managed in a really successful way and Frontier
Continues to support young businesses in Burmingham coming into fruition in through incubation uh and and then back to full strength and health so you know some good examples there some bad examples but yes companies that are run properly I think have got an awful lot
To offer so uh uh John uh before I hand over to Adele are any questions that yeah to take yeah Clive one of the things I think just building on what you’ve said there with the your experience of a number of companies and the point that uh Rob was talking about
Making sure you’ve got the skills how easy did you find it in both berium and nsum to attract commercial skills or people with commercial skills to run the companies or did you move local Authority offices out into them you know how did you go about that because idiot
Is a different skill yeah Mi mixture of both um we we moved out we we tried to minimize the number in both cases of members who were sitting as directors particularly members who were obviously conflicted chairs of audit committee members of the executive leaders Etc um
And those that we did and officers we put through uh instituted director training for what director responsibilities looked and felt like you know and just to make sure that everyone understood those but actually using the networks in a local Authority you can often reach out through the Chamber of Commerce and through other
Connections into into the business Community to find people who’ve got the community at heart and want to deliver things but can also bring those natural business skills to a model as well so I think I’ve never found it particularly difficult once we start using those networks but I think the key thing and
The Robin Hood energy was perhaps the big one for me don’t flood it with with members just do not flood it with members because the best will in the world a they’re conflicted and B they don’t have the natural skill set nor the separation nor the commercial skills to
Be able to deliver that and can I just can I just add to that John if it’s all right I completely agree with what Clive has said that in terms of the governance you want you want people with experience of that sector who act as non-executives
In a in a very robust way I think your question though is a broader one about the people working in the commercial entity too and I think what bad looks like is where the same people somehow paid themselves more money because now they’re being commercial and that’s just
Not on I think what good looks like is the authority sets up the the commercial activity in a way that it recognizes people may earn more than the people that are commissioning the company I mean the the the point is that uh pay in the private sector tends to be higher
Than in the public sector for particular skills and so if you do set up a company and you get people with the right skills in the commercial world you would incentivize them by having some ownership of the company and perhaps being on a share incentive scheme that’s
Harder to do when we own the whole company and we don’t want to we don’t want to give some of that um to staff but it’s perfectly reasonable to incentivize people and bonus people on performance so long as they’ve got they’ve got the skills to do it and
They’re the right people that you want to attract I think where you and I see it go wrong at times John is where it sort of has become a proxy for paying the same people a bit more money because they’re now involved in the company as
Well and and that’s just not right yeah I think the the you know just before we we had to Adele and we ‘ got other questions in in the the um Q&A which we’ll come to uh straight after a doubt but I think there is an issue uh about
When new companies are set up by local authorities certainly in what we’ve seen there’s been an awful lot of them where they are that people are just if you like rebadged and go into rather than actually uh grasping the nettle and going to the private sector and buying
The right skills ex that’s the point I’m making yeah they are different skills by okay thanks Rob thank thanks Clive Adele over to you please uh thank you and good afternoon everybody and it’s um always nice going lost because some of the things that you might have said have now been said um
But I suppose um what you’re really looking for is a bit of a kind of personal reflection from the last um eight months I can’t believe I’ve been at slow for eight months um and I think it’s really um for me around thinking about the things that if things have
Gone wrong um what does that actually mean for staff and residents and actually what can you do to kind of turn some of those things around um we often talk about um The Golden Triangle now there’s two of those um and I think both of these are really really important in
Those situations the Golden Triangle of your statutary offices um so your section 151 your monitoring officer and your Chief exec and head of paid service um becomes incredibly important um in terms of their understanding about their links with um companies and Commercial activity and ensuring that they really understand um what has gone
Wrong and therefore the impact of that but also the other Golden Triangle that we talk about often is around performance finance and risk um Captain hindsight is a wonderful thing that um if only we all could have the hindsight at the beginning rather than at the end
Um that would be um really helpful um but you can clearly see in a place like um slow where actually um you know companies were set up for potentially very Noble reasons for um quite you know for quite good reasons but actually what was never done was all the things that
Um Clive and Rob have been talking about in terms of that um that piece around really understanding what’s going on in the company I think the other thing that’s really important we talked a lot about the commercial skills and I agree um where I’ve worked um with companies elsewhere before putting people through
The Institute of directors I think is a really useful um and I would say almost imperative tool to do and because people do need to understand the different hats that they’re wearing when they’re in a company situation vers um versus the council but just as we think about the
Commercial skills that you need for that company there’s also a commercial awareness and understanding of that interface between the companies and the council and what that means which is sometimes actually where I think there is also weaknesses that isn’t always recognized so people don’t always understand the questions they should be
Asking in terms of and what does that mean um in terms of the link between the council and what will happen if it goes wrong um commercial isn’t a bad word commercial I would argue isn’t bad and I think both CL and Robert acknowledged that um but only if we understand in the
First place why we are doing things and and and the reason for it um so if you look at um slow and the situation in slow um actually some of the commercial deals some of the things that have been done were not actually um a complete disaster um actually they were done for
The right reason the trouble is um that we sometimes then as as Rob has said we see it as a silver bullet and fundamentally actually why are we doing these things in the first place um for me a personal reflection on the slou situation is actually in many ways it
Was because tough decisions weren’t necessarily being taken elsewhere in the council uh to say actually these are not going to be the thing that rescues us but actually they could support us um in our journey so actually if you’ve already got a weakness in terms of your internal controls your um ability to
Kind of cap your spending and think about how you manage your resources in a right way within the council actually having a commercial entity that’s also sitting alongside it probably with similar people looking at it as well that’s not going to solve any of your problems um because actually now what
You’ve got is double the weakness um and and double the size of risk so there’s something for me which is actually before you even think about anything whether it’s new commercial or or kind of monitoring what you’re doing is really thinking about actually how good are you at governance and rest of the
Organization um and therefore what’s that going to do if you hold a mirror up to yourself and in terms of that commercial and those commercial entities as local authorities we we’ve always had to be commercial in some respects um but again it’s it’s having the understanding
Of what you’re trying to do and what you’re trying to achieve just as a commercial organization Rob has already mentioned you know they’ll make decisions based on the return now it may well be that it’s not a financial return and we’ve already um you know talked about some of the
Companies um so housing companies so Almos and children’s trusts um where actually your return is actually the delivery of services for your your individuals however I think the biggest thing that we sometimes lose sight of is that if it’s in a company situation you are not losing the fact that you still
Have statutory responsibility for statutory services and too much have we seen in the past that actually people almost think they’ve handed over the rest to somebody else well actually if our children services are struggling and we all know that that’s a situation across nationally just because it’s an a
Company is not going to make it any easier um to manage those situations and in fact makes it harder in some respects to think about the fact because we’re asking a company to to manage things on our behalf that actually the rest of us are struggling with too ultimately and it’s something I’ve
Been talking about ever since I’ve been at slow um and not just at slow but before this but particularly focused at slow is in all of this when things go wrong the people it hurts is Staff but actually is our residents because who picks up the pieces um when um a company
Folds or the council has to find a way to fund um that um the the mistakes the errors whatever you want to call them the misjudgments um is ultimately our residents um and the biggest thing for us is also around building trust with our residents so
Um I’m not going to repeat what other people have said because Clive and Rober much more eloquent than I am in terms of um you know the the Govern and making sure we’ve got it right but actually that governance is really important um to understand that if things are going
To go wrong nothing ever goes right 100% of the time we all know that so therefore when budgets are tight when financing is tight um we have to think about what is it that we need to do in terms of cushioning what and mitigating those risks that could happen and that
You can see in places like slau is where people lost their head I would almost argue and went too big too fast and didn’t think about necessarily the consequences however I suppose I’m going to put a little bit of an optimistic spin on some of this um because actually
Part of this is some of the commercial developments at slaa some of the property deals some of the things that were done were done for the right reasons but actually did it need to be us that delivered it or could a partnership a relationship you know any kind of diff
Perhaps a different um Venture um could we still have delivered the things that we wanted to we just needed to work on relationships with perhaps a private sector who are in a better place to deliver this than actually wanting to control ourselves and I think there’s
Something for me in all of this which is really those test questions which is are we the people who know the most know the the most about this that can deliver the thing that we’re trying to do or is it that we need to work with somebody impart the knowledge that we’ve got
About our local area um and actually use their skills in a different way and we can still deliver the same things so we’re in a situation where we’re having to sell for example some of our commercial property um because of the capitalization directive but actually if
You look at some of the deals that we’ve done recently where we’ve sold um property actually by building the relationships um with people who may want to buy that we’re actually still delivering the thing that we wanted to do so we are going to be able to deliver
The affordable housing we are going to Del be able to deliver the place based changes that we need and our residents deserve so actually is there something about um the energy and Capac pass to the organization to work those relationships and would it be better to
Do that than perhaps trying to step into a position where we are trying to act in a commercial way which actually somebody’s already got those skills and isn’t that something that we do on an everyday basis as local authorities which is identify the skills gaps we
Fill those skills gaps um and we work with people to um deliver hundreds of services but we take the best from other people so I suppose from my point of view there’s something at the very start of any of this is really questioning whether we need the
Control do we actually have the skills but actually are there people that if we just worked a bit harder on some relationships that we could still get the outcome that we wanted and actually do it in a way that doesn’t risk our residents in the case of slow last year
Having to pay additional council tax um as part of an exceptional support package so I suppose that’s my pitch okay thanks very much Adell and it’s really interesting particularly the impact that it has on the on the residents of slau in that case and the residents elsewhere because other local
Authorities it is having an impact um and we’ve got a number of questions um first one I’m going to pick is is it possible to completely remove Ops and buyers from an organization and if so how interestingly the the if I put that to the panel but say um I come from both
The private and the public sector background in the private sector Optimum bias optimism bias isn’t so so explicit because of the the amount of um Hoops you have to jump through before you create a company if you’re another company but interested to to see what um what the panels say
Um um I thought go for this one I thinking out loud about this um there is something commercial about having some entrepreneurial Zeal to believe that you can make something a success by investing in it and getting the right group of people and making a return and so in a way some
Optimism that we can problem solve and get things done is good and very often commercial people that you that one comes across are are entrepreneurial in having a a belief that they can problem solve and get things done rather than put barriers up however when things if things start to go wrong optimism
Bias is really dangerous isn’t it because you know when you’re in a hole stop digging and if things aren’t going wrong and the model and the market uh and the entity are not performing as one expected I think in a lot of the cases we’ve seen people could have probably
Limited their loss by stopping earlier but it’s almost as if oh God this hasn’t gone as well as we planned we better put a bit more money in it because it will look terrible if it fails and then it fails by a bigger number and so I think
A bit of optimism bias up front is a good thing but as John said remember that the commercial sector has considerable Hoops to go through in order to test that because essentially I’m sorry to repeat myself investors don’t mind whether something goes ahead or not they’re not desperate to get it
Over the line they’ll go and invest in something else and get that over the line instead said what most interests them is the return I and and I think commercial governance linked to a bit of entrepreneurialism is a good thing up front but the governance can’t have an
Optimism bias if it starts to go wrong and I I think how the public servants have the skill of cutting their losses and saying the difficult message to the public we actually decided to cut our losses on this because it wasn’t going as we thought it would which is a brave
Thing to do and ultimately avoids a lot more risk if it’s not going to correct itself um you would have seen in the media uh the trade press this week that woking is being given aund another 78 million in order to finish some of the schemes in order to then make a return
On them these are quite Brave decisions aren’t they and these are decisions being made by government and the commissioners because it’s felt that so much has been lost we better just finish it and we’ll make a bigger return they’re probably doing the right thing but in a way it’s not necessarily how
The commercial sector Works which is let it fail pick up the pieces and start again and and these are very interesting sort of different different outlooks on what you do when things go wrong I’m going to bring cly Clive in there but I think it’s very interesting
In the sense these are different skills different ways of looking at things than traditional local authorities would have looked at it if they were just looking at delivering Services you know and it is it is a more complex way of doing it Clive sorry and and Rob said an awful lot of
What I would say and um I concur entirely what I would say is there’s an optimism bi a cycle in my mind so when a council is setting up a commercial Venture it needs to at the outset be doing plenty of scenario planning and looking at all the variables that can
Work or can work against it and working out if if x were to happen we would do y if Zed were to happen we would do a etc we’d work the way through and that scenario planning at the outset before you even set that Venture will tell us
Whether we can we can actually afford to do that or if it went wrong actually we’ be in serious trouble so there’s that element of it there’s an in operation from the council perspective and the examples I gave of Robin Hood energy and perhaps Nottingham’s Castle as well were
Examples of where the members just so wanted it to believe to work they just believe that could either work by itself or if we pumped just a bit more money in and just a bit more money and there I think the the management of optimism bias is about setting parameters Beyond
Which we won’t go and as soon as we we breach those parameters we’re clear on those and that’s clear with members as well but look I get as much as anybody else the passion at a local level for wanting something to work for the community and how me members get
Involved in this and then the third layer is the one that that that Rob touched on really which was about the company itself in operation we’ll be doing constant checking and reviewing against its its key metrics to see whether things are going wrong and particularly that comes to light when
You talk about matters of going concern or the like where where the company has to be alert um and uh make some difficult choices so that one I won’t cover because Rob’s covered that one but all three levels are areas where we can manage optimism bias but know you’ll
Never manage it out of an organization completely I don’t think than thanks fine ad did you want to to say something on that yeah I was gonna say I think the the difficulty is that what’s the opp you know what’s the opposite of risk is opportunity so the
Trouble is if we if we become so negative and and strip out all optimism bias actually we almost paralyze oursel and and create larger risks so um just to add an e extra kind of element to this so um but I agree it’s got to be
Around it’s the tests you know we have you know we already have tests in the rest of our kind of financial world and and our lives you know potential code for example you know we have tests and we have um levels and barriers um so it is really at the beginning thinking
Through um what those levels and barriers do but we are in danger that if we completely stripped out optimism bias that we’d actually paralyze oursel and just end up doing nothing which in itself is possibly a bigger risk and a bigger issue okay thanks though interestingly
In in in the questions there’s an awful lot of questions uh around the the issue of of of failure but also the the point is made that failure happens in the the private sector as well which obviously we know um I think one of the the the um
The key things that that’s been asked as well in this is um how how do you do you uh what do you consider the key issues when deciding to uh whether to turn around or exit a commercial Venture and that’s linked I think also to how do you
Tell the members and uh on that because obviously members you know don’t and and Clive you referred to that on um Nottingham and the and the castle uh but there’s there’s a lot of other companies so in terms of is there any any key insights of about how you you know what
What would make you exit a company other than I guess the the fact it’s losing money because that’s the acid test it’s it’s one of the test John but if if we have a clear commercial strategy at the outset whether it’s a commercial deal or whether it’s a company if we have that
At the outset we’ve got clear parameters then about what that commercial deal should be doing for us both in terms of service outcomes uh and in terms of its finances and it’s being realistic with ourselves that once they start to go wrong we have to then get the red lights
Flashing and put some attention into that company and the earlier we can take remedial measures the more opportunity there is to pull it back I refer to one of the positive cases I noticed one of the uh one of the attendees think might have been Richard talked about positive
News stories and civico in in Birmingham was was a great example of one where we recognized those metrics were going wrong and the company was at risk of of collapse I happened to be a company but was delivering commercial things for the council um was going wrong and we put
Right those issues we sat down and worked out how we could put them right how we could get the outcomes back on track what the council could do both as a shareholder and as the client of that company uh and what the financials and the reporting and the Met metrics needed
To look like and by doing all of that we got that company back on track and nurse back to health again so that early intervention gave us the opportunity then to do it whereas perhaps in the case of something like a Robin Hood energy in Nottingham that just wasn’t
Realized at an early enough stage and gave no chance to recover that situation both in terms of the scale and the outcomes and uh and and um and the necessary actions to bring it back to health yeah I was gonna say I think one of the other things is we also have to
You know you have to go back to what was the original purpose of the company and at times the failure might not actually be Financial but actually it might be are you stepping away and you’re moving away from your original purpose um to much too far is that so that’s one of
The questions and the kind of acid test I suppose that you’d expect as well so sometimes it isn’t financial failure it’s just actually that you stepped away or circumstances have changed and therefore thinking through whether it is something that you want to continue with
Or not so um one of the companies um for example I was at cherwell and they had a um if anybody’s a a fan of grand designs um the street that was the company that was owned by cherwell that was was a originally set up as a custom and
Self-build site um but more as a self-build site for people to kind of purchase and and and buy property and things um and actually it became really apparent that not as many people wanted to self build so it became stronger on the custom but it was still a question
That the company asked itself was actually are we still fulfilling the purpose that we wanted to now in that circumstance it was it was fairly easy to kind of go actually we just expand the purpose of the company but it was still right to ask the questions which
Is is this delivering what we expected it to deliver at that particular time so I suppose that’s something else that I would say that it’s that check back and check balance and checks and balances on what was our original purpose and should we be continuing yeah um Ju Just to I
Really agree with everything Adele and Clive have said I I just going back a little bit I think adell’s point about the risk of doing nothing is a risk and that’s always worth thinking about about isn’t it um however the other point to make here is the public probably do expect a more
Risk averse approach with the money that they’ve paid in tax than an investor is willing to make with their capital and so I do think there are extra bars to go through with public money and we should always ask ourselves would we use our own money in this way would we would we
If this were my savings If This Were my pension pot and I relied on it would I do this with my own money or am I only willing to do it with the council’s money and I think it’s a worthwhile risk but my God I wouldn’t go near it with my
With my own money the there’s a couple of times when to exit a venture I mean number one if it was set up for the wrong reasons and in hindsight you’re not sure it’s working I think John you and I have and Clive and Adell we we’ve seen some
Local Authority companies set up maybe where it wasn’t clear what can we do next we don’t know Outsource it we don’t want to keep it in the house we’ll put it in a company H and actually if something’s going to flourish as a company it’s because it’s got skills
That other people would want to buy and if it just becomes a a sort of how much guarantee and how much loss is there between the shareholder and what is in effect of council service there can come a point when it’s um time to then it’s time to wind it up
That said look at the incredible uh success of some trading companies that local authorities have set up and have traded for other local authorities and have made considerable returns and some and sums of money and have helped those staff have better terms and conditions than they may have employed with the
Council so these things can work but I think number one if it maybe shouldn’t have happened in the first place number two if you’re going in above your neck and the parameters and the scenarios that Clive set out at the beginning um don’t look like they’re happening then it’s worth it’s worth
Cutting a loss isn’t it and thirdly of course over a period of time Council strategy may change and and what if suddenly you want to prioritize I don’t know Housing Development a lot more where a few years ago you wanted to prioritize energy and now the council
Wants to focus its limited bandwidth on doing something different so successful businesses are built because of long-term commitment long-term success the right people making a return through robust numbers if you think that isn’t going to happen it is a good time you know to to review things the main thing all of us
Would say but for God’s sake just don’t put more money into it because you’re worried that it’ll look bad that you’ve made a loss because it will just get worse won’t it it will just get worse if you think you’re you’re putting more money into a failing Venture because
You’re one is embarrassed that it hasn’t gone well it is always better to cut your losses earlier in a commercial sense thanks robt I think um I’m conscious of time we said we’ do an hour but we’ve we’ve got we’ve got a number of questions um which I think is uh on a
Topic that I think is worth looking at in in the sense of the the three of you here and that’s your views on the role of audit external and internal audit here um Rob do you want to go first as the as the sit for person so both play a very important
Role uh internal audit is a management function and and ideally you don’t treat it as an external function you give internal audit the things that you are most worried about and the risks that you are most worried about good internal audit plays a really important role in
Helping to scrub things up and make them and to Mi mitigate and control the risks bad internal audit becomes a tick boox exercise on on processes rather than actually looking at risk um I’ll surprise some of you by saying there’s some really I I I think for example you
Know sit for sits across local government and Health internal udit is better in local government than it is in health probably on the whole not as good as it is in central government where where AIT internal audit has developed a more strategic approach to looking at organizational risks with with the board
So the the the on average the quality of local government internal audit probably sits somewhere between health and and central government it’s a shame what’s happened to external audit isn’t it I I can’t I can’t think of an administrative reform that has had such a devastating effect on the public purse as the
Pickles destruction of of the audit commission and local public audit for a hundred years local public officials helped us to improve value for money and it’s a tragedy that that’s gone and I do genuinely believe that when people started to do some things against the rules on borrowing and in advance of
Need or or using capital resources for minimum Revenue provision in the old days the district auditor would have stopped that and said um you can’t do it and I’ve seen other people do it and you know they acted in a standardized way on treatment which we lost um I I think
We’re a bit of a way yet from having the external audit that you need and deserve uh there are 900 unaudited sets of accounts across 300 odd local authorities only five sets of accounts have been signed off this year it it’s a tragedy which we could
Talk about all day my one piece of advice is when we do get through the backlog and some more fees have gone back into the system and we have a better market for Auditors I know all of those are big ifs and so s Tony Redmond’s review has been implemented by the
Government it’s really important to treat the external auditor as your friend I I I worry um Clive and I we can look our AG here can’t we Clive when we were I was first a CFO in the 90s the auditor was my best friend and I used them and I
Shared with them and what I was worried about and what might go wrong I didn’t treat them as an external party that I just wanted to tick and sign off my accounts in a commoditized way so when we do get better District audit treat them as a local public official and
Share your risks and concerns with them rather than manage them as an external party because that’s when it works best thanks Rob doubt any Reflections yeah I mean I could not agree more with that um final comment I wasn’t a CFO in the 9s too young before anybody says but but so it
Wasn’t that point but it was around but it was the external auditor point I mean I have to say I was very fortunate and actually I will name and not shame him um Neil Harris I was very fortunate he was my external a and I was at cherwell
And I first arrived there and was talking through some company issues and the fact that we could have each other on speed dial sometimes just to talk through issues I think was incredibly helpful when I was trying to and at that stage this was the stage when you know I
Had a couple of sets of accounts outstanding and was um and at that stage it was a a real felt like a real issue whereas now I’ve got several sets of accounts outstanding at SL still a real issue please don’t get me wrong when I say that but it doesn’t feel the
Pressure that I had at that point in time but absolutely do remember having conversations with um with Neil Harris at the time which were so helpful because it was almost um a case of I’m thinking of is there any reason why I I shouldn’t and and again this was where
Things what hadn’t been hadn’t gone quite so well because it appears that my career has been a bit more on trying to fix people over the last few years um but um so for me I think it is a real shame that kind of external and I should
Say that the external Auditors I have now working with me at slow are I am lucky again um because I’ve got some really good people um but that’s because I’m in intervention um and isn’t the case for everybody else and it shouldn’t be that
We get to the stage where um you have to be an intervention to get that kind of level of support um for me the other thing that we’ve done at slow is we’ve bought our internal audit function back in house we had an external provider and I think that’s one of the biggest
Strengths um and I think and it’s not just on the commercial but on the internal order if you look at it is our responsibilities of section 151s you know I have significant number of outstanding internal audit actions whether the company or or everything everything else over several years and I
Think that the internal audit function weren’t used properly and and and viably and and actually I’m really pleased you know we’ve bought them back in house this year and they to me are such a an important tool and an important part I talked about that kind of Golden
Triangle of the staty officers but actually one of the best biggest and most important relationships in the ois is also with my chief internal auditor and their independence and their opportunity to go actually you’re not doing things right and so so for me I think internal and external audit are um
Tools that we should use better okay um um conscious that we’re just going slightly over I think we’ve in terms of the questions uh in the chat I think we’ve covered most of the the key topics if not every question and and so I think
What I’d like to do is to is to thank on your behalf the the panelists who I think have have not shooked away from making some controversial comments uh uh but very honest comments which I hope you all appreciate I think in terms of the question um which was is commercial
Activity ever Justified I think what we’re hearing from the panelist and and they can shout at me afterwards uh is yes but um it’s not an excuse for not taking tough decisions elsewhere it’s not instead of uh running the council in a in an an adequate proper way um but in
Terms of when you do go down a commercial route be very clear why you want to go down that route um and also put the the necessary controls and governance around it and I think one of the other points that I think came across uh which was interesting is
Review them um the world changes so make sure that they you you need to ensure that they’re still delivering to the the um original cases and reasons you set them up but also that you still need them because the world does change you know there is a time when you would want
To bring stuff back in house or do a different thing with it so it’s not a thing that once you set it up it shouldn’t be there forever um but if I can thank everyone uh thank our panelists and thank everyone for attending we will um respond to the
Request for information in the um in the question and answers and I hope you’ve all found it interesting it the if you want to see it back it is on the sit for YouTube channel so thank you all very much indeed have a good day thank you all