02 February 2007
Should the chief financial officer always be on a council's top management team? CIPFA's vice-president gives his views on the subject that has been exercising PF readers in recent weeks
Readers will have noticed that the Public Finance letters page has been buzzing recently with heated exchanges about the role and status of the chief financial officer in local government.
A number of correspondents have expressed fears about authorities adopting management structures in which the CFO sits below the top team, reporting to a corporate director rather than directly to the chief executive. For many, there are real fears about whether the role —including its important personal statutory and fiduciary responsibilities — can be carried out effectively and successfully from this second-tier vantage point.
CIPFA, of course, has a special interest in the role of local authority CFOs, not least because the institute's own members occupy these posts in the vast majority of councils. In preparing this article and refreshing my own thoughts on this subject, I have therefore drawn extensively on CIPFA sources including the comprehensive Statement on the role of the finance director in local government, issued in 2003, and the Survey of CFOs, carried out in 2005.
The statement runs to more than 50 pages and gives clear, authoritative advice on all the issues that are currently being debated. For example, on the controversial question of membership of the top team, it argues: 'Because of the central role of finance to an authority and the finance director's wider responsibilities to the public, he or she should be a member of the corporate management team, however that team is structured.'
As several correspondents have pointed out, this also mirrors widely accepted best practice in the private sector and other parts of the public services.
While the statement describes and explains the theory, the survey offers a window on practice. It makes for fascinating reading, providing hard evidence of the arrangements actually in operation across the country. For example, it shows that 87% of CFOs are currently a member of the top team and that almost 80% report, in the textbook way, directly to the chief executive.
Importantly, the institute plans to rerun the survey in a few months' time. It will be particularly interesting to see to what extent the position has changed in the intervening two years and to try to detect any emerging trends.
For me it has been interesting to follow and play a part in the debates about the CFO role over the past 26 years. Since taking up the city treasurer post in Swansea in 1979, until relinquishing the finance director reins in East Riding in 2005, the backcloth against which CFOs perform their role has certainly changed dramatically.
The 1980s were, of course, a famously difficult era. A small number of CFOs really were made to feel the full weight of their statutory and fiduciary responsibilities as councils became the front line of opposition to the Thatcher government. These were the days of creative accounting, wilful failure to set budgets and, in a few extreme cases, surcharge. Inevitably these confrontations eventually gave rise to a range of tough controls and measures — most obviously rate-capping.
It is not surprising that finance directors who lived through these difficult times should pall at the thought of current CFOs trying to perform the role from a second-tier locus, reporting to a corporate director. They know from first-hand experience how important every ounce of stature and status is when unpalatable advice must be given to councils.
But, of course, the situation today is rather different. Many of the rules, controls and restrictions that were introduced in the 1980s are still with us, albeit their form and detail has evolved.
Audit and inspection regimes, for example, are now so much more demanding and comprehensive. Encouragingly, councils' management and decision-making have a robustness and stability that is increasingly acknowledged in inspectors' reports and assessments.
Some would say that such strong progress has been achieved in part because councils have developed slimmed-down management structures and teams. Instead of ten or more chief officers reporting to the chief executive and forming a large and unwieldy top team, many councils have adopted the model of a much smaller number of corporate directors, each one taking responsibility for a broader portfolio of functions.
Many experienced practitioners believe that this creates a more corporate, cohesive leadership team better equipped to tackle the challenges that cut across structural demarcation lines and demand a whole-organisation response.
At the centre of authorities, this model usually leads to the creation of a director of resources or support services, with wide-ranging responsibilities that might include finance, information technology, property, human resources and more.
In many cases — as attested by the CIPFA survey — qualified accountants have been appointed to take on these new corporate director roles. In part, this is a reflection of CIPFA's policy, over many years, of seeking to develop and train well-rounded members who are well equipped to take on broader managerial roles beyond, or in this case alongside, the finance function.
Where the corporate director post is filled by a non-accountant, the CFO role inevitably sits below the corporate director. However, it should be acknowledged that many councils have sought to introduce access and reporting safeguards to ensure that this does not prevent the CFO from performing his or her responsibilities effectively.
Interestingly, some of the most difficult scenarios for the CFO arise when an accountant is appointed to the corporate director post. In these circumstances, should he or she take on the statutory section 151 role? My answer to this question is an emphatic yes. For me, taking on this mantle makes a clear statement about where the buck stops. The corporate director might have other responsibilities, but in taking on the statutory and fiduciary responsibilities, he or she is underlining the fundamental importance of the finance role.
If accountant corporate directors answer this question in the negative, the potential for mixed messages and a degree of confusion is obvious. The statutory responsibilities will now in theory be discharged by the second most senior accountant in the organisation. But in the event of a major difficulty arising, who would the organisation look to for professional leadership?
The CIPFA statement tackles this issue and provides a demanding list of safeguards that must be in place to ensure that the officer carrying out the section 151 role has all of the necessary powers of access and influence.
I know that many colleagues who have worked within such arrangements will argue that they can operate very successfully. But for me this is the area that we must continue to monitor very carefully. As we know from the 1980s, the real test of these arrangements comes when major difficulties arise within a council. This is when it becomes critical that leadership responsibility is absolutely clear and that the CFO is ready to step up to the plate.
John Butler will become CIPFA president in June 2007
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