Contemporary Governance and Local Public Spending Bodies

CONTEMPORARY GOVERNANCE AND LOCALPUBLIC SPENDING BODIES

ALAN GREER AND PAUL HOGGETT

This paper draws on recent research conducted by the authors to examine the nat-ure of board/executive relations in three different kinds of Local Public SpendingBody (LPSB). Big variations are noted, between and within sectors, in the way inwhich boards organize themselves and the degree of power they have in relationto executives. In all organizations studied the executive played a crucial role bothin managing day-to-day operations and in setting the organization’s strategic direc-tion. Chief executives exercised considerable influence over the recruitment of boardmembers and the maintenance of consensual relations between board and executive.The dilemma of the voluntary board member with limited time and a lack of insideknowledge of the organization he/she is accountable for is examined. It is arguedthat the most effective boards contain members with a strong sense of their ownlegitimacy and enjoy a membership with a diverse range of interests and experi-ences. It is suggested that such models might combine the merits of greater demo-cratic responsiveness and enhanced organizational effectiveness.

THE EMERGENCE OF ‘QUASI-GOVERNMENT’

In the UK, for more than a decade now, elected government has been with-drawing from the delivery of public programmes and services. There areno signs of reversal of this process. While, as we shall see later, the newLabour government is introducing some minor reforms in this area, therewill be no renaissance in the delivery responsibilities of elected authoritiesof the traditional type. In the UK we are therefore witnessing a relativelystable paradigm shift in terms of the organization of the state. As a conse-quence a contrast is now often drawn between old-style government – ‘theconventional institutions of the public sector’ – and governance, which isa ‘more general term for providing direction to society’ (Peters 1997, pp. 51–2). Much of this direction is provided by an increasingly large tier of ‘quasi-governmental organisations’ (Skelcher 1998) made up of a variety of public,private and voluntary agencies which have been entrusted with thedelivery of the policies of a strong but lean state. In fact, conventional dis-tinctions such as public, voluntary and private are breaking down, ‘mar-ginal cases, intermediate types and hybrid organisations variously labelledas quangos or para-state organisations, proliferate haphazardly’ (Metcalfe1993, pp. 176–7).

There is now a growing literature on the nature and operation of such

Paul Hoggett is Professor and Director of the Centre for Social and Economic Research at theUniversity of the West of England, Bristol. Alan Greer is Senior Lecturer in Politics at UWE.

Public Administration Vol. 78 No. 3, 2000 (513–529) Blackwell Publishers Ltd. 2000, 108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street,Malden, MA 02148, USA.

514 PAUL HOGGETT AND ALAN GREER

non-elected organizations in the health, education, employment training,urban development and housing sectors (see for example, Greer andHoggett 1997a; Ferlie et al. 1995; Painter, Isaac-Henry and Rouse 1997; Pollittet al. 1997; Rouse 1997). Referred to as ‘local public spending bodies’(LPSBs) by the Nolan Committee, these are public service providers – oftenin the private or voluntary sectors and usually at the local level – ‘whichare wholly or largely publicly funded . . . their decisions are in manyrespects part of public policy. Their actions may have a significant impactupon their local communities, going beyond those who are directlyinvolved in the organisations themselves’ (Committee on Standards in Pub-lic Life 1995b, p. 5). A key feature of LPSBs and other non-elected organiza-tions which have become drawn into the delivery of public services bysuccessive waves of public sector reform is that, at least in theory, they aregoverned by boards of largely lay members to which the organization’smanagement is accountable. As Ferlie et al. (1995) note, ‘often such reformshave involved incorporating a “board of directors” model into the publicsector whereby traditional “member” roles evolve into those of “non-execu-tive directors”’ (p. 377).

Rhodes (1997, p. 47) identifies several uses of the term ‘governance’including governance as the minimal state, as corporate governance, as thenew public management and as a socio-cybernetic system. This paperfocuses primarily on the (internal) corporate governance of LPSBs, drawingupon research into board-management relations and the processes oforganizational decision making in housing associations (HAs), further edu-cation corporations (FECs) and training and enterprise councils (TECs).

CORPORATE GOVERNANCE AND LPSBs

Perhaps unsurprisingly, the 1990s have witnessed a marked increase in con-cern with such forms of corporate governance, prompted by controversiesabout probity and performance in both the public and private sectors(Cadbury Committee 1992; Committee on Standards in Public Life 1995a;Ferlie et al. 1995; Hodges et al. 1996; NFHA 1995; Parkinson and Kelly 1999).These concerns focus primarily upon the hegemony of the executive – typi-cally the chief executive or managing director and senior management –over the ‘non-executive directors’ (Lorsch and McIver 1989). At first sightthis may seem odd given that these smaller, new-style boards, whose mem-bers’ freedom to act was largely unhampered by questions of their owndemocratic accountability to wider groups of stakeholders, were expectedto behave in a strategic and business-like way and be more challenging ofexecutive domination than had been the case in either local government orthe health authorities of the past (Ferlie et al. 1995, p. 378).

Corporate governance focuses on the way in which organizations –whether public, private, voluntary or hybrid – are directed and controlled,albeit within a wider environment of external relationships. For Ferlie et al.corporate governance ‘directs our attention to the study of behaviour at the

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LOCAL PUBLIC SPENDING BODIES 515

strategic apex of organizations, in particular the roles, pattern of relation-ships and distribution of power at board level’ (1995, p. 375). The corporategovernance of organizations is strongly influenced by the patterns ofrelationships which develop between key personnel, the functions assignedto them, and by the types of issues with which they deal. For example,the centralization of policy making associated with both Conservative andLabour governments means that LPSBs are more concerned with strategy –here taken as the way in which organizations position themselves in theirexternal environment – than policy direction (see Greer and Hoggett 1999,1997 a and b). This in turn has important implications for the distributionof functions within the organizations themselves, expressed in a renewedattempt to draw a distinction between strategy and implementation. Thepicture painted by the Nolan Committee, for example, is one in which:

the board as a whole is responsible for the strategic overview and direc-tion of the organisation and for the efficient and proper use of publicfunding. Day-to-day management is generally the responsibility of thechief executive (or head, principal or vice-chancellor) acting within thestrategic framework set by the board (Committee on Standards in PublicLife 1995b, p. 10).

Even if desirable, such a clear separation of roles is extremely difficult tooperationalize. Nonetheless, the distinction usefully draws attention to thefact that boards and executives are meant to have substantially differentfunctional roles, even if these overlap in practice.

METHODOLOGY

The empirical material on which this article is based was obtained from aresearch project funded by the Joseph Rowntree Foundation during 1996(see also Greer and Hoggett 1997a, 1997b). Choice of sectors took accountof the existing work on health bodies and schools (see Ferlie et al. 1996,1995; Rouse 1997; Levacic 1995; Peck 1995; Power et al. 1994; Bush et al.1993; Coleman et al. 1993; Halpin et al. 1993). However organizations, evenwithin sectors, differ in terms of scope, size, origins, legal status and theirrelationship to elected local authorities. For example, TECs are private sec-tor companies which contract directly with central government and serviceproviders; the vast majority of TECs are independent corporations estab-lished under the Further and Higher Education Act 1992 which removedthem from local authority control; whilst registered housing associationsare voluntary not-for-profit bodies, some of which have charitable status,some are registered under the Companies Acts, and some are Industrialand Provident Societies (see also Stewart, Greer and Hoggett 1995; Weirand Hall 1994). The eleven organizations studied were situated geographi-cally in greater London and the southern and western counties of England.As far as possible, organizations of roughly similar size were chosen withineach sector. The housing associations, for example, were all small to



medium-sized organizations of somewhere between 3–7,000 propertieswith regional rather than national scope. The main part of the researchproject comprised eight in-depth comparative case studies of patterns ofcorporate governance – four colleges, three housing associations, and oneTEC. This was supplemented by less detailed investigation of two TECsand one housing association.

Information was gathered from three sources of research data: actorsaccounts, documentary analysis, and observation of meetings (see Peck1995). Semi-structured interviews were conducted with between seven andten key actors in each organization, both board members and senior man-agers, including the chair and chief executive. The observational study ofthe boards and their committees, undertaken through attendance at meet-ings, allowed some longitudinal tracking of issues. Relevant documents andstatements were also analysed, including annual reports, minutes of meet-ings, mission statements, agendas, and strategic and operational plans.

This approach allows conclusions to be supported by an element of tri-angulation and although the task of drawing meaningful comparisons iscomplicated by the diversity and complexity of the organizations studied,it is still possible to identify common themes and characteristics. However,there are two important caveats. Clearly there are dangers involved indrawing generalizations from a small sample relative to the number oforganizations; the total of eleven case study organizations matches thenumber involved in the study conducted by Ferlie et al. (1995) but theresearch was conducted over a shorter time-span and involved fewer inter-views. Perhaps more importantly, there is a risk that the samples are ‘self-selecting’. The organizations involved showed a commendable willingnessto open up their operations, including private meetings, to academic scru-tiny. Nevertheless those organizations which agreed to participate mightwell have a good story to tell and were thus well disposed towards an in-depth investigation of their structures and operations. It is significant thatseveral organizations explained their reluctance to become involved interms of ‘over-audit’ and ‘inspection-fatigue’, attributed to the activitiesboth of regulatory agencies and inquisitive academics. Our concern tounderstand the internal governance of such organizations led us to focusupon three main areas of interaction inside organizations: within boards,within management or the executive, and relationships between the two.

THE BOARDS OF LPSBs

Apart from the principals of FE colleges, board members in housing associ-ations, TECs and FE Colleges serve in a non-executive, voluntary and part-time capacity. Whilst some senior managers see payment as appropriategiven the ever greater demands made on members, the voluntary serviceethic is still influential in British public life and remains a key value formany board members, particularly in housing associations (see Committeeon Standards in Public Life 1996; NFHA 1995). However the increasing time



commitment required of members has implications for recruitment. Thechair of a housing association, for example, commented that ‘too many ofus are getting past our sell-by date but the problem is finding people withtime and motivation’. Although this was less of a problem in the TEC sectorwhere business members were often given some company support for theiractivities, both the Commissioner for Public Appointments and the Houseof Commons Select Committee on Public Administration have argued thatspecial measures might be needed such as recompense for lost earnings,expenses to cover caring responsibilities, and the more sympathetic timingof meetings.

The voluntary principle crucially influences the contribution which boardmembers can make to the organization, including shaping its direction andholding the management to account. Many LPSBs have tried to improveparticipation and the quality of debate by limiting the length of meetingsand by managing agendas to avoid time being wasted on reporting items.As a TEC chief executive remarked:

I never abuse people’s time. You’ve got to have a reasonable agenda,you’ve got to stick to your fixed time of two hours for the board meeting,the executive never table items that aren’t on the agenda, everything’sgot to be as succinct and sharp as possible, one side of A4 minimumand two sides maximum, avoid acronyms, use normal language.

The majority of board members interviewed accepted that their role wasstrategic, albeit discharged in partnership with management. Highlightingthe variety of strategic roles that board members can play, responsesincluded: ‘to encourage management to think more broadly and globally,to question some of their decisions, to strike an air of caution’ (TECmember); ‘our’s is a steering role, we’re not just a promoter but also areceiver of ideas and creativity and we then put these ideas in context’(college governor); and ‘our’s is a guiding role, we’re not rubber stampersthis would be a total waste of time though 95 per cent of the time this iswhat we do after due consideration’ (HA member). However, the effectivedischarge of these roles depends on quality information about the organiza-tion’s activities.

Although often experts in their own fields, some members feel disadvan-taged by a lack of specialist knowledge of the relevant policy sectors andare critical of the information they receive. Comments such as ‘board mem-bers can’t afford to believe that we will be told what we need to know’and ‘I couldn’t just rely on reports coming to me, that doesn’t give meenough opportunity to question how the whole thing is moving’, reflect afeeling that members need to have some alternative sources of information.Most of the organizations studied had tried to improve the quality of infor-mation provided for board members but the problem was exacerbated bythe detailed specifications for the type and presentation of informationimposed by external auditors and monitoring agencies. As Rouse com-



ments, the emphasis is ‘towards a definition of performance heavily biasedtowards economy, efficiency and resource saving rather than effectiveness,with the attendant danger of the quantitative driving out the qualitative.The resource-driven agenda of central government merely reinforces thistendency’ (1997, p. 69). The information gap also makes it difficult for boardmembers to avoid concerning themselves with the day-to-day operationsof their organizations. Many question, for example, how it is possible ‘tohave a strategic overview if you don’t get involved in the detail’ and arguethat a ‘monitoring role does mean that board members occasionally aredigging in at a fairly low level to find out what is going on’.

Board members also have a vital stewardship role. Ensuring that moneyis properly spent and accounted for requires that, in the words of one TECmember, the board ‘strike an air of caution’ and see that effective reportingmechanisms and early warning signals are put in place. Referring to a majordecision to develop a new campus, the vice principal of an FE collegedescribed the board’s role, drawing on the expertise of two members inmulti-million pound operations in the areas of land and finance, as ‘a brake,holding us from charging ahead’. For the principal, however, the board’sexperience had been equally crucial in giving the executive the confidenceto go ahead. Boards also add to the strategic intelligence and tactical dex-terity of the executive by being able to contextualize, add new perspectivesand bring new skills and knowledges. For example, a meeting of the Fin-ance and General Purposes committee of an FE college accepted the argu-ment of one governor, who had insight into FEFC thinking, that the budgetforecast should not show a deficit because the funding council was likelyto respond most benignly to colleges estimating a small surplus.

There are also important internal dynamics within boards. Most signifi-cant is the role of the chair, often working alongside one or two other seniorboard members. Historically chairs have played the pivotal role in boardmember recruitment, drawing on a variety of local contacts and pro-fessional and other networks. Thus the ex-chair of a housing associationadmitted that in the old days recruitment was ‘done really on the old boynetwork to be perfectly honest, but it worked.’ As Skelcher and Davis com-ment, appointment to LPSBs has ‘normally been a “word-of-mouth” affairwith a consequent lack of transparency about the criteria for selection. Themain appointment route is the recommendation of existing board membersand senior managers’ (1996, p. 14).

With increased criticism about their age, gender, race and socio-economicprofiles, most boards have tried to recruit a greater diversity of membersthrough more open appointment procedures. Many now have a member-ship, search or personnel committee to co-ordinate the recruitment process,plus procedures such as skills audits to identify the expertise which theboard needs to acquire. Some now advertise for board members; othershave introduced age limits in an effort to remove elderly members andfacilitate the composition of a more diverse board. However, there are



constraints on the extent to which measures taken by boards themselvescan mitigate structural weaknesses. For example, giving business interestsa statutory majority on the boards of TECs and FE Colleges made it difficultto make them more representative (Commissioner for Public Appointments1997; House of Commons Select Committee on Public Administration 1998;Ferlie et al. 1995; Skelcher and Davis 1996; Horton and Jones 1996). Thereare also problems of supply outside London and the larger cities. As thechair of a housing association with a commendably diverse boardremarked, ‘people emerge . . . its a small town, a small area. You get toknow people and their backgrounds.’

The composition of boards is crucial. Here our research echoes researchon the health sector (Ferlie et al. 1995, 1996) which suggests that diversitycontributes to effective corporate governance. It can be argued that effectiveboards need to transcend a narrow business perspective to incorporate indi-viduals with a range of experience, skills and backgrounds – some whoexcel in subjecting proposals to detailed scrutiny, others who are preparedto be confrontational, and others with a keen strategic sense. Homogenousboards, particularly where they are clones of the chief executive, make fordesultory, energyless board meetings. In contrast, boards which contain awide variety of members can initiate, they are not always reactive. In twohousing associations, for example, members were highly influential (in onecase, against the wishes of the chief executive) in developing a strategyfor the relatively new area of supported housing; similarly TEC memberspromoted a strategy to develop local chambers of commerce. Scrutiny isachieved in a number of ways. In one board meeting, for example, twomembers constantly raised questions, concerns, and requests for clarifi-cation.

In this context, the role of the chair is crucial to effective corporategovernance, particularly the ability to orchestrate, co-ordinate and controlthe disparate activities of the board. Conflict management is a key skill,both within the board itself and in its relations with senior executives. Achair-designate of an FE college described his role as ‘pulling together awhole lot of things . . . a coordinator . . . a direct brake on the principal . . .to make sure the principal is operating on lines which as a Corporation ithas been agreed he should do’. Effective management of board meetingsis also seen as crucially important, for example soothing potential conflictsbetween members. Nonetheless, the consensual approach is still clearly evi-dent; indeed conflict avoidance is often viewed as a positive feature oforganizational life and may also be interpreted as the sign of an effectivechair. Referring to the homogenous culture of health boards, Ferlie et al.remark that ‘deviants, heretics and rockers of boats were not welcomed’(1995, p. 382). In all three sectors considered here, boards rarely rejectedproposals outright and issues were seldom put to a formal vote. Onemember argued that the culture of housing associations:



is not to have votes, for board members not to get too critical, not to putofficers on the spot . . . it’s not just chief executives who feel there’s afailure if there’s dissent on the board. You feel very exposed if you arethe one that’s rocking the boat. When you push policies you almost feelas if you’re out of your territory and infringing on theirs.

Chairs also play an important role in maximizing the contributions ofboard members, for example by helping them to develop the confidence,knowledge and skills needed for effective corporate governance. Such‘empowerment’ can involve the provision of better information, improvedconduct of boards and committees, and training programmes. One collegeintroduced an on-line electronic information system for governors to helpthem keep in touch with developments, another appointed a high-poweredClerk to the Governors. Other organizations had introduced training tech-niques including site or project visits, and joint board-executive ‘strategyaway weekends’.

THE EXECUTIVES OF LPSBsChief executives and senior management teams are typically seen asresponsible for the efficient and effective running of the organization inline with the parameters laid down by boards. However, the role of seniormanagement encompasses much more than the operationalization of boarddecisions, although there are some important sectoral differences. FE col-lege principals are members of governing bodies but chief executives inTECs and housing associations are not, although they normally attendboard meetings. In practice, the role of the chief executive, for example asdelineated by the National Housing Federation (NHF), is to manage ‘theaffairs of the association in accordance with the general policies and specificdecisions of the board’ but also to help the board ‘determine the associ-ation’s strategy’ (NFHA 1995, pp. 16, 30).

Executives and managers, therefore, play a crucial role in formulatingpolicy and setting the strategic direction of organizations. Such issues areusually first raised at meetings of management teams and subsequentlypresented to boards for discussion, often at away-days. For one collegeprincipal the key ‘is to have vision, to try to see where we are going, wherewe will be in five years’. Similarly the director of a housing associationsaw his role as ‘trying to translate current operational pressures into policyguidance . . . not only reactive but proactive’. Overall, senior managers wereconsistent in their view that an effective board was one which could keepclear of detail. Indeed some believed that an effective working partnershiprequires board members who can make things more difficult for the execu-tive in terms of hard discussion about important issues.

Another important role of chief executives and their senior colleaguesis the management of consensual relations between board and executive(Graystone 1996). Here the crucial relationship is that between chief execu-tives and chairs, perhaps the pivotal axis on which the effective corporate



governance of the organization depends. Chairs and chief executives oftenhave pre-agenda sessions before board meetings. Ferlie et al. (1995) foundthis axis to be a dominant pattern of governance in the health sector andit also characterized two of the FE colleges studied here, although perhapsmore because of the chair’s style rather than the tactics of the chief execu-tive. One college chair was protrayed as someone who ‘tends to get on withthings, he’s not a great delegator himself and he works very closely withthe Principal’. An effective axis can enhance the position of each partner.For example, one chief executive relied on his chair to say things like ‘Iwouldn’t say that at governors or I wouldn’t put your argument like that’.

Chief executives generally try to avoid open disagreement between boardand management – regarded by some as an indicator of professional failure.Most put a premium on preparing the ground for their proposals inadvance, often in conjunction with the chair. As one TEC chief executivesaid, ‘we rehearse, there must be no surprises, no bouncing them, if thereis a contentious issue we’ll pick off one or two more influential members. . . we’ve never had a vote and we couldn’t afford to have divisions amongthe board when they meet for just two hours once a month’. Senior execu-tives also sound out board members on controversial proposals, usuallyvia the chair, and develop informal coalitions with other members. Thusone housing association member spoke of ‘tipping the wink’ to the seniormanagement team after discovering that two other senior board memberswere planning to oppose a major strategic decision.

Some chief executives are reluctant to accept the rejection of proposalsby the board. One remarked that ‘if the committee make a bad decisionand overturn a recommendation of mine I will say to them “you’re wrong,you’ve made a bad decision”, then I’ll bring back the recommendation andget it reconsidered’. However this is more likely to happen with an effectiveand participatory board. As the same chief executive remarked: ‘I’ve got apowerful and talented board who can give you a tough time. I’ve got tobe a good conductor . . . I respect the board . . . they aren’t my clones orthe officer’s clones’. Most senior management teams operate corporatelyand open disagreement in front of the board is very rare. As one executiveput it, ‘there are deep divisions within our management team and havinglost the battle at management team you have a sneaking suspicion youcould go to the board, but you don’t’.

PATTERNS OF GOVERNANCE

Patterns of corporate governance in LPSBs in the housing, further educationand training sectors vary significantly, even between organizations in thesame sector. Nonetheless, at least three typical patterns of governance wereevident from our research. In the functional committee model a main boardusually meets quarterly to consider reports from several committees suchas finance and development (which often have decision-making powers intheir own right). The full board approves major items and considers



important issues which cannot be easily picked up by the committee sys-tem. This model maximizes participation of board members but can be arecipe for the duplication of effort between full board meetings and com-mittee meetings. It can also fragment board activity and encourage mem-bers to get immersed in detail.

In the inner core approach a core committee of the most influential mem-bers (often chairs of functional committees) meets regularly with the execu-tive. In two colleges the core was clustered around the Finance and GeneralPurposes Committee; in one it centred on a group of long-standing boardmembers whereas in the other it comprised the newer breed of ‘business-like’ public and private entrepreneurs. This approach allows quickerdecision-making, a more equal relationship between some members andthe executive, and an informal atmosphere may permit more effective formsof member-officer dialogue. A disadvantage is that members outside thecore can become marginalized and disillusioned; indeed one of the housingassociations returned to the functional model for this reason. The inner coremodel has similarities with the small joint board of executive and non-executive directors common in NHS trusts (Ferlie et al. 1995). Althoughrejected by the National Housing Federation and most board members, sev-eral housing association executives argued that as board members theywould be responsible for decisions which they already took in practice andthat a joint board could ‘deal with business more quickly and efficientlyand perhaps have a better quality of debate’.

In the corporate board model decisions are taken by a relatively small fullboard, with no inner core or functional committees other than that for audit.This approach is difficult for further education colleges which are requiredby statute to have a finance committee or equivalent and a remunerationcommittee. Panels and sub-groups may exist but have no decision-makingpowers and tend to be more ad hoc and task-oriented. The full board, meet-ing monthly or every six weeks, is the primary forum for members andconsiders all issues of importance to the organization. The advantage ofthis model is that it gives all board members a sense of ownership in theorganization and promotes inclusivity. Advocates also argue that it is themost effective means of involving busy people in voluntary organizations.

In practice, patterns of governance combine elements of several, if notall, of these approaches. No one model characterizes specific sectors andany of them can be adopted by organizations in all three sectors. Varietyis the norm and it is quite possible for the internal governance of twoorganizations in different sectors to be more alike than two organizationsin the same sector. Other relationships, such as a chair/chief executive axisand fluctuating coalitions (Wilson and Game 1994), may be superimposedupon these patterns.



THE BOARD AND THE EXECUTIVEWhilst important for corporate governance, none of these patterns isnotably more effective than the others. Effective boards in all sectors tendto be proactive rather than reactive to a management agenda, and are pre-pared to criticize and to reject management proposals. In both the ‘old pub-lic management’ and in traditional private sector corporate governance,governing bodies have been characterized by their relative weakness vis-a-vis chief executives and senior managers (Ferlie et al. 1995; Lorsch andMcIver 1989; Horton and Jones 1996, pp. 29–32). This may be attributedpartly to structural factors such as the full-time status of executives, theirtechnical expertise and control of information, the availability of time toresearch and formulate proposals, and their access to professional and othernetworks, (see also Levacic 1995, p. 39). ‘Rubber-stamp’ patterns of board-management relations are still evident in the world of LPSBs. Jephcote etal., for example, note that a FE principal is able ‘to put his or her own ideasinto action. It might be . . . that principals and senior colleagues provideimportant role models which help to determine the college culture anddefine its values’ (1996, p. 34).

Drawing on their study of the health sector, Ferlie et al. (1995) havedeveloped a continuum to assess the performance of boards. Level Arepresents the ‘rubber stamp’, level B boards are more probing andquestioning, and at level C there is substantial non-executive involvementin deciding between strategic options at an early stage in the process. Mostof the boards observed for this study were undoubtedly developing a morestrategic level B role whilst many of their operations continued to have thecharacter of level A. For example, the chair of a college board drew anunfavourable comparison with his experience as the managing director ofa large local firm:

we’re almost rubber stamping their vision of the way forward. Most ofwhat the principalship proposes we go along with perhaps tweaking ithere and there. Directors of a private company would be more influen-tial. Lots of governors feel that until they know more they can’t contrib-ute as much as they’d like; with my company the directors really knowthe business.

One housing association member referred to the board flying ‘at about15,000 feet; a few years ago it flew at about 3,000 feet and often walked onthe ground . . . we are somewhere between where we have been and wherewe ought to be’. The transition to level C requires cultural as well as struc-tural change – board members need to genuinely want to make the tran-sition. Conceptually, ranking organizations along a simple continuum istoo mechanistic and obscures important differences between and withinboards. It is, for example, not unusual for the same board to operate as arubber stamp on some issues yet take a much more strategic approach onothers. At any point in time a board may not be at the same level on all



issues and they may adopt different styles for different issues. The notionof levels therefore needs to be able to accommodate greater complexity andvariation if meaningful conclusions are to be drawn about the balance ofpower between boards and executives in different organizations.

In most LPSBs chief executives are pivotal and with senior executivesshape the agenda and the mobilization of bias. In the so-called ‘Carverapproach’ – an influential model of governance in the not-for-profit sectorand adopted by several LPSBs – boards should set the parameters of wherethe organization is going and as ‘long as we know we are not being cheated,it is usually best to let the taxi driver decide the route and the lanes inwhich to drive’ (Carver 1990, p. 80). A picture common to the rhetoric ofcorporate governance in LPSBs, therefore, is one where boards set the stra-tegic parameters within which the executive team operates. The problemis that even at this rhetorical level such a rigid separation of roles is difficultto sustain in practice. Terms such as policy, strategy, administration andoperations are often interpreted in different ways by different individualswithin the same organization. The boundaries between them are fuzzy andthe terms themselves are habitually contested in a process of role clarifi-cation (Greer and Hoggett 1999). In the words of one governor of a collegewhich has adopted an anglicized version of the Carver model: ‘we keeplooking at the Carver model. I keep pushing the boundaries. The principalkeeps pushing them back and that is how it should be’. The sphere of strat-egy is frequently encroached upon by the executive and board membersstray into the sphere of operations; the latter may try to define issues asstrategic to justify meddling in operational matters, and managers may tryto define some issues as operational in order to keep them out of the reachof members. Operational issues may also acquire strategic significance;indeed for Mintzberg strategy is constitutive of or constituted by oper-ational decisions, what is termed fundamentally ‘emergent’ (Mintzberg andWaters 1985). Crisis and personnel management, indeed stewardship gener-ally, also sits uneasily with the strategy-operations distinction.

CONCLUSION: MANAGERIALISM AND STAKEHOLDERDEMOCRACY

One important aspect of the influence of new public management on theLPSB sector has been the concern with making boards more ‘businesslike’,both in respect of the expertise of members and in terms of the conduct ofboards. Rouse argues that LPSB boards have tended to reflect ‘more special-ized constituencies and adopt a narrower “stakeholder base” than theirelected counterparts’ and have historically been less concerned with thebroader community and citizens (1997, p. 69). But, as we have seen, despitethis narrower focus the new boards have not been particularly effective inchallenging managerial hegemony; they may not be ‘rubber stamps’ butneither do they have much influence over the strategic framework withinwhich management then operates.



Our research adds to other findings which indicate that homogenousboards tend to be reactive boards. Moreover the new boards also display‘an achievement orientation rather than a representative orientation’ andfail to look after the interests of the users of the services (Ferlie et al. 1995,p. 384; see also Rouse 1997, pp. 71–2). Indeed one survey has found thatonly 36 per cent of board members in FE colleges felt that greater publicinvolvement in board work would be beneficial, compared to 57 per centin TECs (Skelcher and Davis 1996, p. 18). As Skelcher and Davis argue,however, the point

is not that individuals on boards should necessarily ‘represent’ – that isact to advance the interests of a group to whom they belong – but thata breadth of experience supports appropriate and responsive decisionmaking. . . . The emphasis on business skills, for example, overlooksother skills that are important in the public service. These might includethe capacity to understand the needs of diverse groups and to developpolicies that reflect a wider public interest (1996, pp. 3–14).

This reflects important aspects of the debate about the relationshipbetween the composition of boards and effective corporate governance.During the last years of the long period of Conservative government, the‘stakeholder principle’ was advocated as an alternative to business modelsas the organizing principle of governance (Hutton 1995). This notion res-onates with communitarian concepts of society, models of corporategovernance which see the board as accountable to something more than itsimmediate shareholders, and with new models of democratic participation.The Nolan Committee advocated a form of stakeholding in which boardsincorporate a balance of skills, interests and backgrounds in order topromote healthy debate and effective decision making (Committee onStandards in Public Life 1995a); this contrasts with the priority given toconsiderations of merit and efficiency by the House of Commons SelectCommittee on Public Administration (1998, para. 32).

The Labour government has made some significant changes to the waythe non-elected sector in general operates which, although not as extensiveas some critics might wish, can be interpreted as a move away from mana-gerialism towards stakeholding. In addition to proposals to make a rangeof non-departmental public bodies more accountable and open to publicscrutiny, the government has emphasized the need to attract a more diverserange of people onto quangos. NHS trust boards, for example, are requiredto include more representatives of local communities, users, patients, carers,health visitors and volunteers. With over 1,000 vacancies in NHS bodiesfalling vacant shortly after the 1997 election, the government has used theopportunity to change the composition and ethos of many boards. Theresult has been a notable increase in the proportion of women and peoplefrom ethnic minorities on health boards (Guardian, 30 December 1997).

In the consultation document on Accountability in Further Education, the



government argues that colleges’ freedom to manage themselves indepen-dently should ‘be balanced by responsiveness and accountability to theircommunity’ (DfEE 1998, p. 1). A stakeholder model is advocated as thebasis for reforming the constitution of FE corporations, involving areduction in the representation of business members (including TECrepresentatives) from at least one-half to one-third of the total board mem-bership. Two other primary groups of stakeholders should also be involvedin college governance – ‘the internal college interest – staff and students’,and ‘external college interests – local authorities, local community groups,parents and others’. Each of these groups could comprise up to one-thirdof the membership of the college board.

In anticipation of the arrival of a new Labour government, the housingassociation movement took a number of steps in the mid-1990s to re-estab-lish their legitimacy vis a vis elected housing authorities. The Guide toAccountability for Independent Social Housing Organisations (NHF 1997) advo-cated an innovative stakeholder model. As part of a strategy for reinventingsocial housing, the Guide identifies five main groups of stakeholders – ten-ants, local authorities, local communities, other partners and shareholders –and considers a variety of ways of maximizing their involvement, includingchanges to the way in which the boards of housing associations arecomposed.

Potentially, the stakeholder approach is an advance on both traditionalforms of public sector government and the new public management. Itincorporates newer forms of democratic participation such as user involve-ment, the co-option of special interests and excluded groups, and the directrepresentation of small spatial communities. Stakeholder models of govern-ance, therefore, promise greater democratic responsiveness and enhancedorganizational effectiveness. However, changing the composition of boardsis not itself sufficient; much also depends upon the willingness of membersand executives within organizations to abandon the culture of conflictavoidance and embrace the ‘constructive conflict’ which a strong stake-holder model might bring through the inclusion of contrasting perspectives,experiences and expertise.

If a diverse board, representing a range of stakeholders, is essential foreffective corporate governance, then it is arguable that some of the centraltenets of ‘new public management’ make this more difficult, particularlyin relation to how organizations are made accountable to external interests.Hodges et al. argue (1996, p. 12), that systems of corporate governance needto be devised to ‘provide assurance to stakeholders that the sector is incapable and honest hands, while, at the same time, avoiding the negativeeffects of tight control and bureaucracy, to enable performance objectivesto be achieved and improved’ – precisely what many identify as featuresinherent in the new public management.

For Rouse, the ‘fact that missions and objectives are largely centrallydetermined explains why there are remarkable similarities in sample agen-



cies’ (1997, p. 64). We agree and disagree with this statement. First, in termsof convergence, most LPSBs, irrespective of sector, are under strong press-ure to behave strategically whilst simultaneously severely constrained fromdoing so (Greer and Hoggett 1999). Most also have an essentially ‘con-sumerist’ orientation to their ‘publics’ rather than one based upon conceptsof rights, citizenship and social justice. Finally, most are strongly mana-gerialist and, despite efforts to open up board recruitment, are still gov-erned primarily by what might be thought of as ‘elite volunteers’ (Greerand Hoggett 1995).

But despite these similarities our research also revealed considerablediversity. This is partly derived from actual differences in the policyenvironments of the three sectors. For example, even in the context of astrongly centralist government the range and depth of controls over theTEC sector was much greater than for housing associations (Greer and Hog-gett 1999). But our research revealed as much variance within sectors asbetween. This meant, for example, that within our sample of eleven organi-zations a further education college in South London and a housing associ-ation in Cornwall had more in common with each other than with otherorganizations within their respective sectors. For example, the membershipof these two organizations was quite diverse (a result of conscious actionin both cases), both were driven by powerful chief executives, each organi-zation gave considerable emphasis to questions of social justice and com-munity empowerment and each, at different times, had adopted an ‘innercore’ governance model. Our sample was too small to develop reliablehypotheses about the kinds of dimensions along which LPSBs vary. Sufficeto say that much of this variance seems to relate to cultural and behaviouralrather than structural aspects of the organization. The kinds of criteria wehave in mind would include a question such as the strength of the commit-ment to social values alongside business values, the ‘outward-lookingness’of the organization and the degree of compliance towards central govern-ment and its arm’s-length funding and regulatory agencies.

It now seems unlikely that LPSBs will be brought back under the directdemocratic control of local government and that such quasi-governmentalorganizations are here to stay (Skelcher 1998). The consultation paperAccountability in Further Education, for example, expressed the convictionthat ‘independence has helped colleges to become more flexible and respon-sive to changing demands’ and makes clear the belief that colleges ‘shouldretain self-governing status’ (DFEE 1998, p. 1). If this is the case then demo-cratic renewal within the public sector will partly depend upon whethersuch quasi-governmental organizations can become a site for experimen-tation with new democratic forms and specifically, perhaps, stakeholdermodels of democratic accountability. Clearly this partly depends upon theconstitutional radicalism of the new Labour government. But it alsodepends upon the extent to which the boards of these organizations canbecome a strong and effective mouthpiece for local communities and ser-



vice users, both in relation to their own executives and in relation toelected government.

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Date received 30 June 1998. Date accepted 28 May 1999.


Documents

Contemporary Governance and Local Public Spending Bodies