Management: Principles in the public sector - The Cadbury ideas of good corporate governance cannot be applied easily to public administration. Roger Trapp reports

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The Independent Online
RECENT YEARS have seen such widespread acceptance within the public sector of commercial attitudes and methods that it comes as something of a surprise to learn that there might soon be a flow in the opposite direction. Nevertheless, that might be the effect of an initiative by the Chartered Institute of Public Finance and Accountancy.

The body - which has seen its profile rise on the back of the recent businesslike trends within public administration - is seeking to establish how the Cadbury principles of corporate governance, to which quoted companies have been subject for the past year, can be applied to the field.

On the face of it, the documents produced bear a striking resemblance to those published by the accountancy profession and other interested bodies in the wake of the Cadbury Report's publication in 1992. But however the discussion paper, Corporate Governance in the Public Services, and its accompanying document, Effective Internal Control, may look, they are not meant to imply a slavish following of the approach adopted in the private sector.

At last week's CIPFA annual conference in Birmingham, Ian Percy, chairman of the Accounts Commission in Scotland, warned that such a course would be 'inappropriate and indeed in some cases dangerous'.

Professor Percy, who is vice- chairman of the Auditing Practices Board and a former president of the Institute of Chartered Accountants of Scotland, added: 'The public sector is now moving from an administration environment to a management environment and has to be careful not to transfer the frailties of the private sector management model.'

A couple of weeks earlier, at a seminar on corporate governance and public services, CIPFA's director, Noel Hepworth, made it clear that he recognised the potential problems. He called for intelligent application of the principles underlying private sector practices that took into account the circumstances in which they were to be applied.

Consequently, he commended the efforts of the National Health Service Executive to produce codes of conduct and accountability for NHS boards and noted the debate within the housing association movement about corporate governance issues. Several other parts of the public sector are also understood to be looking at the matter, but more could be done in such fields as higher and further education and local government.

In his speech last week, Professor Percy said that in the public sector, ensuring that the elected councillor was separated from the officer appointed to implement policy and manage the authority effectively dealt with Cadbury's concerns about the balance of power. But with the growth of non-elected public sector bodies this would need to be kept under review.

Mr Hepworth was more forthright. 'We need to beware of the siren voice arguing that political accountability is the equivalent of good corporate governance within the private sector,' he said.

'Not only does that misunderstand the quite distinctive processes that are involved, but no one can effectively sustain an argument that the relatively small window of opportunity that is called ministerial accountability provides anything like an adequate process for securing good governance. Far from it. Neither do other processes of political accountability.'

Mr Hepworth accepts that the reforms in public management have produced some benefits, but sees the greater emphasis on performance and market testing as making the application of the Cadbury principles more difficult. He is seeing a shift towards greater secrecy and less sharing of information under the new public management style. As a result, the Cadbury principles need to ensure that the interests of managers do not overwhelm the wider public interests.

With the focus on performance measurement comes the predictable temptation to concentrate on the easier targets - witness the controversy over claims that the Child Support Agency is putting added pressure on fathers who are already paying something rather than tracking down those who have slipped the net.

Similarly, a focus on improving teaching methods can lead to schools changing enrolment policies, since this is likely to produce better examination results more quickly than tackling the teaching. Mr Hepworth accepts that the issue of accountability is difficult. He suggest that benefits might flow from a link with the Citizen's Charter.

Of more immediate importance is the role of the auditor in the two sectors. In the private sector, auditors are under increasing pressure because of their apparent inability to prevent corporate collapses. In the public sector, though, cases such as the Westminster housing affair appear to demonstrate that the auditor can have a significant role as a whistle-blower.

The key differences are that public sector auditors have greater independence than the organisations they audit, have a wider role within the organisation, and can report to outside stakeholders such as the local community.

With the Auditing Practices Board currently deliberating on the future development of auditing in the private sector, CIPFA has prepared a paper on the applicability of the public sector model to the private sector. As predicted in last week's speech, Professor Percy, who has in the past demonstrated a willingness to consider novel approaches to the profession's problems, could in his role as vice-chairman of the APB soon be learning something from Mr Hepworth and his colleagues.

(Photograph omitted)

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