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ITEM CG13

EXECUTIVE – 16 JUNE 2004

CORPORATE GOVERNANCE

Report by the Assistant Chief Executive & Monitoring Officer and Solicitor to the Council & Head of Legal Services

1. Corporate Governance as an issue came to prominence following the Cadbury Report in 1992 which was commissioned as a result of the Maxwell Pension and BCCI scandals. The Cadbury Report identified the principles of good governance as integrity, openness and accountability. The report was the first of several on corporate governance in the private sector.
2. A series of reports from the Committee on Standards in Public Life (the Nolan Committee) addressed the issue of corporate governance in the public sector and the third report of the Committee in 1997 – which looked at local government identified seven principles of public life ie selflessness, integrity, objectivity, accountability, openness, honesty and leadership.
3. The Local Government Act 2000 took the position in local government a stage further by introducing new frameworks for community leadership, accountability and ethics and identifying ten principles of conduct to underpin the Member Code of Conduct.

What is Corporate Governance

4. The Cadbury Report defined corporate governance for the private sector as ‘the system by which organisations are directed and controlled’. Subsequently work by CIPFA/SOLACE (Chartered Institute of Public Finance and Accountancy/Society of Local Authority Chief Executives and Senior Managers) defined corporate governance for local authorities as ‘the system by which local authorities direct and control their functions and relate to their communities’.
5. The Audit Commission have defined corporate governance in a recent report on corporate governance in the public services as ‘the framework of accountability to users, stakeholders and the wider community, within which organisations take decisions, and lead and control their functions, to achieve their objectives’.
6. The Audit Commission identified the elements of good corporate governance as including robust systems and processes, effective leadership and high standards of behaviour, a culture based on openness and honesty and an external focus on the needs of service users and the public.

The CIPFA/SOLACE Guidance and Framework

7. In 2001 CIPFA and SOLACE, jointly with the Local Government Association and the Audit Commission, set up a Corporate Governance Working Party to draw together the principles identified by Cadbury, Nolan and other work into a single framework of corporate governance for use in local authorities. They subsequently published a document providing guidance on corporate governance in local government and a framework to be followed as best practice for implementing corporate governance in individual authorities.
8. The Guidance and Framework identified three key principles that underpin good governance, ie:

• openness and inclusivity
• accountability
• integrity

9. The Guidance and Framework then identified five dimensions of local authorities’ work to which these principles should be applied, ie:

• community focus
• service delivery arrangements
• structures and processes
• risk management and internal control
• standards of conduct

10. CIPFA/SOLACE then urged each local authority to:

• review existing corporate governance arrangements against the Framework;
• prepare, adopt and maintain an up-to-date local code of corporate governance, including arrangements for ensuring its implementation and ongoing application;
• make a statement annually in its financial statements on how the authority is complying with its local code, including how it has monitored the effectiveness of its corporate governance arrangements in the year and any planned changes in the coming period.

11. The principles and advice in the CIPFA/SOLACE Guidance and Framework have been adopted widely by individual local authorities and incorporated into District Auditors’ judgements and Comprehensive Performance Assessments.

Position in Oxfordshire

12. A working party has been set up under the direction of the Solicitor to the Council and Head of Legal Services to follow through the CIPFA/SOLACE Guidance and Framework. The working party undertook an initial audit of current systems and processes which identified a number of gaps and weaknesses. These included the fact that:

• a number of key policies and procedures needed reviewing and updating;
• access and awareness of key policies and procedures was uneven; and
• the understanding of some of the key policies and procedures was imperfect.

13. So far as these are concerned it is recommended that the Monitoring Officer and Solicitor to the Council be authorised, following consultation with the Leader and Deputy Leader of the Council, to approve new or amended operational policies and procedures except where they would either:

• have material budget implications;
• have substantive policy implications; or
• where material concerns about them have been expressed by the employees’ representatives;

14. The working party has, in the context of the audit and on the basis of the CIPFA/SOLACE Framework, produced a draft Code of Corporate Governance, which is attached at Annex 1 (download as .doc file). The draft Code follows the layout of the Framework and identifies, for each dimension:

• how the principles of corporate governance should be reflected for each of those dimensions;
• what the County Council commits itself to do; and
• how it will do it.

15. The draft Code is now presented to the Executive for formal adoption, subject to consultation with the Corporate Governance Scrutiny Committee. (The Committee on 20 May expressly requested the opportunity at its 15 July meeting to review and comment on this topic.) The Code will need to be reviewed annually, which the Guidance suggests should be the subject of report to "an appropriate Committee", the aim being to provide a separate, independent, check on compliance with the Code. It is suggested that the Corporate Governance Scrutiny Committee should be requested to undertake this annual review and advise the Executive of the outcome.

Statement of Assurance

16. The CIPFA/SOLACE Guidance recommends that each local authority should provide an annual assurance that its corporate governance arrangements are adequate and operating effectively in practice and that such a statement should be signed by the Leader and Chief Executive. This will be a matter for attention in the light of the annual review referred to in paragraph 15.

RECOMMENDATIONS

17. The Executive is RECOMMENDED:

1. subject to (b)(1) and (c)(1) below, to adopt the draft Code of Corporate Governance set out at Annex 1 (download as .doc file);
2. to invite the Corporate Governance Scrutiny Committee to:

1. consider the Code and make any observations to be taken into account as mentioned in (c)(1) below; and
2. carry out an annual review of the Code to ensure that the Code is being complied with and is updated to recognise ongoing developments, and report the outcome back to the Executive with proposals for any changes to the Code or other action to be taken;

3. to authorise the Monitoring Officer, following consultation with the Solicitor to the Council and the Section 151 Officer and with the Leader and Deputy Leader of the Council, to:

1. make any final adjustments to the Code in the light of the observations of the Corporate Governance Scrutiny Committee, subject to any material concerns on the part of the Committee being referred back to the Executive for consideration; and
2. to approve new or amended operational policies and procedures as set out in paragraph 13 of the report.

CHRIS IMPEY
Assistant Chief Executive & Monitoring Officer

PETER CLARK
Solicitor to the Council & Head of Legal Services

Background papers: CIPFA/SOLACE Corporate Governance Framework and Guidance

Contact Officer:
Chris Impey (01865 815307)
Peter Clark (01865 815363)

May 2004

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