2 What is good governance?
7. All organisations need some form of governance,
and there are many different models by which it may be provided.
Corporate governance is defined by the Treasury as:
the way in which organisations are directed,
controlled and led. It defines relationships and the distribution
of rights and responsibilities among those who work with and in
the organisation, determines the rules and procedures through
which the organisation's objectives are set, and provides the
means of attaining those objectives and monitoring performance.
Importantly, it defines where accountability lies throughout the
organisation.[5]
8. Rt Hon John Thurso MP, Chair of the Finance and
Services Committee, who ran hotels and companies at CEO level
before he entered the House in 2001 and has also served as a non-executive
director, stated in written evidence: 'The main points of good
governance are common to all organisations'. They are: 'a clear
understanding of roles and how checks and balances work' and 'external
(or non-executive) balance'. He added: 'The division of responsibilities
between executives and non-executives and the role and powers
of the Chair are critical;' and stated: 'Structures should be
based on first principles.'[6]
Lord Browne of Madingley, who is currently the Government's 'Lead
Non-Executive', told us:
Governance must start with clarity, which is
difficult to achieve, and with a clear understanding of accountability,
which includes decision rights. Who gets to decide what and to
whom do you report when you have done it?[7]
Sir David Higgins told us: 'clarity of accountability
is essential in any sensible organisation.'[8]
9. Governance arrangements, then, must enable an
organisation to meet its primary purposes: they must always be
a means to an end, and not an end in themselves. They must deliver
clear decision-making, with a high degree of transparency and
clarity, whilst incorporating appropriate levels of oversight,
challenge and effective personal accountability. They must be
practicable and resilient under pressure, taking account of how
people behave. They must also have the support and confidence
of those who operate within them. Good governance distinguishes
between strategic and operational decision-making, and has mechanisms
in place to ensure that those decisions are then delivered and
the objectives met. Central to all governance arrangements is
a focus on the achievement of the main objectives of the organisation.
10. In principle, any reform of governance arrangements
should be incremental rather than sudden or disruptive, so that
organisational memory is not lost and what works well is retained.[9]
On the other hand, as Dame Janet Gaymer, one of the external members
of the Management Board, reminded us, 'it is very important to
look at the governance structure as a whole'[10],
and there is a danger in addressing a part of the arrangements
without thinking through the consequences for the whole.
11. Furthermore, while some principles of good governance
are universal, governance structures will differ according to
the needs of the body in question. John Thurso commented in written
evidence:
it is…crucial to understand that there is
not a complete read across between private and public sector,
or between profit and not for profit organisations, and that the
different focus of an organisation needs to be reflected in the
governance structures. This is particularly true of the House
of Commons.[11]
12. There is much to be learned from best practice
elsewhere in the public and private sector, but we are aware of
what Sir Kevin Tebbit told us:
I would beware of simply trying to import management
models from business and trying to install them here, because
of the self-governing nature of the House.[12]
This point is crucial and has informed all our deliberations.
The House of Commons is a unique institution, because it is the
national legislature. This singular character of the House is
compounded by the fact of the United Kingdom's 'unwritten constitution',
which means that Parliament's sovereignty, including how it is
run, is constrained only by its own legislation which it may reverse.
13. There is another characteristic of the House
of Commons which makes parallels with other organisations hazardous:
the Commons is run by its 650 Members, who have all been through
the hard test of election and who are skilled at articulating
concerns and making an argument. This places it in a different
position not only from PLCs in the private sector, but from every
other public institution. At the same time, no one within Parliament,
including no one who gave evidence to us, suggests that Parliament
should not be as efficient as possible, nor that it should not
learn from the experiences of other institutions.
Structures
14. Rt Hon Lord Laming suggested :
The important thing from my point of view is
not so much the structure—I am sure that either can be made
to work—but the role definition and accountability…you
can do it either way, but you must ensure that the accountability
is well and truly defined and that there is no ambiguity and no
shifting the buck here, there and everywhere.[13]
Conventionally a clear governance structure would
have at its apex a single governing body, containing both executive
and non-executive roles, with a remit which defines what it is
responsible for, and what it has delegated and to whom. This delegation
of powers and responsibilities (essentially of 'decision rights')
can be to formal sub-committees of that board, or to named individuals
in executive positions. There is normally a single senior executive—a
single head—who then delegates specific responsibilities
further down the organisation. In identifying that role, an organisation
should look to its 'real purpose'. Witnesses confirmed this in
their evidence.[14]
15. Properly constructed boards encourage collective
decision-making and provide a valuable series of checks and balances
on the executive function. However, it is also important that
they balance this oversight with delegating their decision rights
to where they are most effectively held.
16. Whilst much of the focus of good governance practice
in recent years has been on the development of boards, personal
accountability remains a fundamental principle in public institutions.
In turn, those who are accountable must have the ability to manage
that for which they are accountable, and therefore a single line
of command, at executive level, is critically important. Andrew
McDonald told us: 'the basic notion underlying the accounting
officer is that one has clarity about who ultimately is responsible
for the proper discharge of public money.'[15]
He also made clear that a perfect solution was seldom achievable:
Elegance and precision in job design and organisational
design is something that one should aim at, but it is rarely obtainable
in practice. In absolute terms, one might be able to sort out
90% of the responsibilities going to one role or another.[16]
Mark Addison, the former Chief Executive of the Crown
Prosecution Service, described in written evidence an alternative
governance structure, which was introduced at the Crown Prosecution
Service following a major review in 1998:
A key recommendation was to create two separate
roles at the head of the organisation (and to replicate this at
local, operational level). One, the Director of Public Prosecutions,
was to focus on casework and legal policy, and the other, the
Chief Executive, was to focus on managing the organisation.[17]
Sir David Higgins told us about the close working
relationship he had with Paul Deighton, then Chief Executive of
the London Organising Committee of the Olympic and Paralympic
Games:
We said, "We have to make the relationship
work; we have to trust each other and we can't let anyone divide
the relationship. We will have an entirely open and honest relationship.
It is not a case of who is on top of each other or who reports
to whom." The reality was that neither of us reported to
each other, but it was pretty clear that in the end we both had
to work together and solve our own disputes.[18]
People
17. Effective governance relies on the quality of
people, from the top to the bottom of the organisation: the right
people with the right skills in the right places. This applies
to board members and senior managers as much as anyone else. It
is essential that the right skills and experience are represented
in the senior governing bodies. The Cass Business School suggested
that: 'boards which are diverse, experienced with the issues they
are governing, and independent tend to provide oversight.'[19]
18. In creating an organisation of effective people
a balance needs to be struck between developing internally and
recruiting externally, providing staff with stability and career
progression but also bringing from outside the skills and expertise
that are needed to fill gaps. This must be supported by, and can
also contribute to, a wider commitment to the encouragement and
promotion of diversity.
Culture
19. Barbara Scott, one of the external members of
the Management Board, told us: 'Culture, at the end of the day,
is how we do things and how we behave, and it has to come from
the leadership.'[20]
The Public Administration Select Committee (PASC) in its written
evidence told us:
Any structural or organisational change should
only be considered as a consequence of a full understanding of
the underlying causes of difficulty or failure. If this is not
done, structural change, with all the disruption which that involves,
will become no more than distraction. This may be welcomed by
those who want to avoid the more difficult, personal causes of
problems in the organisation, which are likely to be in the culture.
By culture, we mean what is embedded in the attitudes and behaviour
of the people in the organisation, and PASC has found this is
by far the most important determinant of organisational effectiveness.[21]
20. A culture which encourages and promotes constructive
challenge, both within a management team and by bringing in external
expertise and experience, is now generally accepted to be a critical
element in effective decision-making. This culture then needs
to permeate down through an organisation so that all its members
understand the value of oversight and are ready to explain their
actions, decisions and outcomes.
21. An effective organisation should embrace the
diversity of the society of which it is part. Only by doing so
can it draw on the full spectrum of strengths and skills available
to it. In the case of a public sector organisation there is an
additional imperative to reflect the diversity of those whom it
is there to serve and from whom its resources are drawn.
22. Effective organisations have a clear focus on
the delivery of objectives, outcomes and outputs, rather than
inputs. This needs to be tied in with clarity of responsibility
and accountability. Myfanwy Barrett, Director of Finance, explained:
'it is more about a culture in the organisation that follows up
on a decision and accepts that that is a decision and it is going
to happen.'[22]
23. Openness and transparency are common features
of effective organisations, creating an atmosphere which encourages
innovation and promotes the benefits of change. Staff need to
feel empowered to take initiatives in areas for which they have
delegated responsibility, confident that they will be supported
by their managers. Responsibility and accountability should not
tip over into blame and recrimination.
5 HM Treasury, Corporate governance in central government departments: Code of good practice 2011,
July 2011 Back
6
John Thurso MP (GOV011) para 3 Back
7
Q1 [Lord Browne] Back
8
Q579 Back
9
For Sir Kevin Tebbit's approach to this issue see Qq794-96 Back
10
Q100 Back
11
John Thurso MP (GOV011) para 3 Back
12
Q805 [Sir Kevin Tebbit] Back
13
Q488 [Lord Laming]. See also Gavin Wright, Forbes Solicitors (GOV083),
Leader and Shadow Leader of the House of Lords (GOV093) Back
14
Q16, Q356 Back
15
Q586 Back
16
Q582 Back
17
Mark Addison (GOV 047) Back
18
Q578 Back
19
Cass Business School (GOV071) para 8 Back
20
Q147 [Barbara Scott] Back
21
Public Administration Select Committee (GOV024) para 6 Back
22
Q184 Back
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