Director for our times, by Joseph McHugh

12 Jun 08
The constant changes in the public sector, combined with the government's sudden brake on funding, continue to challenge finance directors. So what does the future hold for the role? Public Finance convened a round table of experts to find out. Joseph McHugh reports

13 June 2008

The constant changes in the public sector, combined with the government's sudden brake on funding, continue to challenge finance directors. So what does the future hold for the role? Public Finance convened a round table of experts to find out. Joseph McHugh reports

We live in financial times, according to the advertising slogan. Anyone working in the public sector will certainly vouch for that.

As the years of generous public spending have come to an end, the pressure has mounted on frontline service providers to do ever more with less. Efficiency and value for money are the order of the day; shared services and partnerships with other organisations the means of achieving them.

Things are changing fast, and finance directors in local government, the health service and Whitehall are at the forefront of implementing these reforms.

Against this changing backdrop, Public Finance, in association with Oracle, convened its latest high-profile round table debate on June 2 to consider the future role of the finance director. The job is no longer confined to traditional areas of expertise such as preparing and controlling budgets and closing the accounts. Nowadays it can be part of a broader remit as director of resources, and combined with other corporate functions such as property management, IT and human resources.

At the same time, FDs are increasingly expected to perform a business advisory function, helping their organisations raise performance, formulate strategy and meet broad corporate objectives.

While some fear that these changes will marginalise the FD's traditional functions in public bodies, others see them as an opportunity to raise the professional standing of the role and develop it in new and interesting ways.

So who is right? PF's round table brought together finance directors from across the public sector, their financial regulators and policy experts to assess what lies ahead for the profession.

Tony Travers, director of the Greater London Group at the London School of Economics, chaired the event. Participants included the Audit Commission's chief executive, Steve Bundred; Caroline Mawhood, the National Audit Office's assistant auditor general; and Stephen Hay, chief operating officer of the NHS foundation trust regulator, Monitor.

Other speakers and contributors included John Thornton, director of e-ssential Resources; Ian Carruthers, CIPFA's policy and technical director; Helen Kilpatrick, director general of the finance and commercial directorate at the Home Office; Tony Redmond, local government ombudsman, Commission for Local Administration in England; and Sarah Selvanathan, strategic director of resources, Elmbridge Borough Council.

Thornton kicked off the debate by revealing the results of research he has been conducting for Oracle on the challenges that finance directors across the public sector are having to get to grips with.

'FDs are coming under strong pressure to reduce costs and deliver greater efficiencies, which has led to a greater emphasis on initiatives such as shared services,' he said. As a result, smaller organisations such as district councils were struggling to make the necessary investment in the new technology needed to set up shared services.

Thornton told participants these challenges are also leading to substantial changes to the finance function in the typical public body. FDs are frequently being rebranded as directors of resources and their empires are growing to include other, traditionally separate, services such as information and communications technology, HR and the legal department. People with a range of professional backgrounds are now filling the expanded portfolio.

'Lots of non-accountants are taking the role of resources director, and so sometimes the Section 151 officer [in local government] has moved to the second or third tier of management within the organisation,' Thornton said.

That was taken up by Carruthers, who said that against a shifting backdrop it was important for CIPFA to make a 'strong statement' on the FD's role. 'It should take us not only into the role of the FD but also the individuals and the skills needed by the FDs of tomorrow,' he added.

Carruthers then gave a sneak preview of the results of CIPFA's survey of public sector finance directors, which will be discussed further at the institute's annual conference in Brighton on June 19.

The survey, which was completed by almost 500 FDs, found that 50% now have additional functions besides overseeing the corporate finances.

But in a sign that the role is still seen as crucial within organisations, 90% of respondents said they reported directly to their chief executive, against 8% who said they answered to another member of the board and 2% the chief executive and board. In addition, 97% said they regularly attended board meetings.

Carruthers said these results were encouraging. 'I think it's a good news story for the public sector,' he said. 'We're trying to get a picture of what's going on to help develop a statement of high-level principles about the role and how it should be positioned in the organisation.'

Mark Pickett, Oracle's UK vice president (finance), said finance professionals in the private sector were not immune from the pressure to change. The old certainties about where the finance director sat in the company's hierarchy no longer applied, he said.

'As FD, I have no right to attend any meeting, I go to them by influence. We're still in a transition phase for FDs and one shouldn't underestimate the move required and the skills needed to do it.'

CIPFA's chief executive, Steve Freer, highlighted the expanding job description for directors and the broad spectrum of activities that they were now expected to cover. He described a continuum.

'At one end, there are the stewardship responsibilities; in the middle it's about supporting the business and helping to improve performance and results; and at the top of the scale we see business transformation. The challenge for FDs is to get the basics right and to be an influential player in the “higher” categories.'

But it soon became apparent that size does matter as organisations try to meet that more ambitious agenda.

Mary Hawkins, community resources director at Warwick District Council, pointed out that staffing was a real issue for smaller public bodies such as district authorities. She said directors took on wider responsibilities in some instances because the organisation did not have the resources to have a number of senior members of staff, each dedicated to a particular function or service.

'The extended role is partly a function of the size of organisations. In a district, you are quite often only talking about a chief executive and two or three directors comprising the board,' Hawkins said.

David Wood, strategic director at Malvern Hills District Council in Worcestershire, agreed. He is also secretary of the Society of District Council Treasurers, and said members often adopted the integrated approach for the reasons Hawkins outlined.

'Many districts aspire to having a [dedicated] FD but they can't afford it. In a sense they've been priced out of the market. There are very few actual finance directors in district councils these days, they are also director of this, that and the other.'

David Horspool, director of finance at Cambridge City District Council, concurred that it could be difficult to juggle the competing demands. He also highlighted the delicate balancing act needed to combine traditional financial stewardship with the growing business advisory role.

'Our size in relation to the pressures we're facing is a significant issue. We're now working within flatter structures and trying to do all these things with less and less staff. You've got to do the basics, the backward-looking stuff has to be there, but the forward-looking activities are very important too,' he said.

Introducing the second phase of the debate, focusing on finance professionals' own experiences, Mike O'Donnell, director of finance at the London Borough of Camden, nailed his colours to the mast on the issue of where the FD should sit in the corporate hierarchy.

'The world is becoming a more complex and risky place and its interconnectedness, from credit markets to climate change, and how that affects our business does make the job more difficult.

'FDs have not only a right, but a responsibility, to sit at the top table to deal with these increasingly complex issues.

'I think it's right that CIPFA isn't prescriptive, but I simply wouldn't work for an organisation where the FD wasn't at the top table.'

Turning to the day-to-day realities of the job, O'Donnell claimed that the typical finance department still put more resources and effort into backward-looking assessment than on forward planning, and said that needed to change.

'The shift from bean-counter to business advisor, or however you want to describe it, is definitely where it's going,' he said.

The Home Office's Kilpatrick made the case for having an overarching director of resources. She claimed it could allow the synergies between a number of different functions to be brought out, and sharpen the relationship between inputs and outcomes.

'You can get a better understanding of the relationship between resource consumption and performance.'

Kilpatrick pointed out the difficulties that can exist between finance staff and other managers in their organisations. 'Financial decision-making is still not as strong as it could be. Finance skills for general managers are still not high enough.'

She also alluded to the tensions that can result when political timescales are shorter than those demanded by sound business planning.

'The role of the FD in Whitehall is all about changing the culture so we can help change the business,' Kilpatrick added. 'Quite a lot of reinventing the wheel goes on [in the public services] in terms of systems and processes. We could save a lot of time by sharing more.'

But Bill Shields, director of finance and performance at the South West Strategic Health Authority, said that in his sector, finance directors would need to develop a wide range of new skills to cope with reforms such as the introduction of internal markets in the NHS.

'The key thing in the NHS is how we develop commissioning skills. The advent of world-class commissioning will be absolutely immense for primary care trusts, and they will need to get to grips with that.'

He also emphasised that there would be an expectation from the government and the public that the health service would strive for greater efficiency and 'do more and more with its resources', particularly in view of its comparatively generous funding settlement in the 2007 Comprehensive Spending Review.

'We've had a very good CSR settlement to the envy of all other government departments. But that is the time when things can start to fall back.' Consequently, he cautioned, there is a need for FDs to guard against complacency creeping into their organisations.

Mike Weaver, director of financial services at Worcestershire County Council, developed this point, asking whether the use of the available resources had been sufficiently allied to service performance to meet the public's expectations.

'Over the past ten years have the outcomes improved? Has the finance function led to better outcomes for the taxpayer? I think people are expecting some payback. How has the finance function changed and helped organisations to raise their game?

He said that was more important than worrying about whether the 'profession has been offended' by changes to the job description.

Redmond, the local government ombudsman, agreed. Concerns had been raised, he said, that as the broader director of resources role becomes more commonplace, people from a range of professional backgrounds were being appointed to the post.

'Organisations are going to look at the person most suited to the role, and that may not be someone with an accountancy background. We need to recognise that,' Redmond counselled.

He did sound a note of caution, however, that it was important to ensure in a beefed-up resources role that the clear-sighted concentration on the bottom line is not lost. 'It's important to…not try to do everything, and make sure the fundamentals are preserved and can be articulated in a clear way.'

Andrew Bedford, strategic director of finance at Rotherham Metropolitan District Council, expressed his concern it was not already happening in every case. 'I'm horrified at some of what I'm hearing, that the financial implications of decisions are not being brought into the equation as much as they should be,' he said. 'To my mind, the FD's role has always been about [improving] performance and helping other people do that.'

The issue was explored further in the final phase of the discussion, where the NAO's Mawhood shared the insights she had gained as a regulator. She told participants she had observed the breadth of change in the FD role, driven in part by the introduction of resource accounting. Consequently, she 'welcomed' the Treasury-led drive to promote the appointment of qualified finance directors to all Whitehall departments.

Mawhood also praised the efforts that ministries' non-executive directors had made in scrutinising financial issues, saying they had had 'quite an influence over how departments are managing their resources'.

And she backed moves towards greater transparency and accountability. 'As an auditor, I think showing how you spend the money and spending it properly is terribly important,' Mawhood said. 'If you don't know how you're spending your money, you can't produce forecasts for the future.'

Monitor's Stephen Hay agreed with that sentiment. He said his organisation now oversees 99 foundation trusts, with total annual revenues of £20bn. But 'too often', Monitor's inspectors found weak financial and management information systems, he said.

There was also a lack of transparency in relation to trusts' finances. These deficiencies have knock-on effects on organisations' ability to plan for the future, he added.

'Too often I would say we have seen very weak forecasting and projecting of financial information, often seriously weak, where the forecasts have borne no reality to what has happened,' Hay said.

Encouraging more financial professionals from outside the health service to come and work within it would help, he suggested.

'Your average FD has spent his entire career in the NHS and so we're not getting the crossover of ideas and skills that you see in other sectors of the economy.'

The Audit Commission's Bundred endorsed Hay's comments, and warned that the more ambitious 'business advisory' role for FDs was not always realistic when, in some instances, the basics of good financial management were still not in place.

'Let's not kid ourselves that the day job is being done as well as it could be in all cases,' he said. 'Undoubtedly there has been improvement across all sectors, but we still get examples where it could be very much better.'

He added: 'Our observation is that that wider role, the business advisory role, is often not working well.'

New risks that would need to be negotiated by local authority FDs were opening up, as partnerships and joint working with other organisations became the norm, Bundred said. His inspectors had found examples of arrangements where fundamental issues, such as how partnerships would be dissolved, had 'not been thought through'.

Jon Pittam, treasurer at Hampshire County Council, developed that point, highlighting the need to untangle the web of interconnected responsibilities and to assert the importance of good governance and accountability.

In particular, the division of responsibility between politicians and members needed to be clarified, he said. 'Where does the buck stop for performance in a locality? The politicians would say it lies with them. It's one of the dilemmas [to be resolved] and goes back to some of these issues we've got to deal with.'

Meanwhile, Sarah Selvanathan, strategic director of resources at Elmbridge Borough Council, threw the spotlight back on the regulators. She challenged them to help finance directors embrace the more strategic, business advisory role by encouraging innovation and calculated risk-taking.

'At the moment a lot depends on the individual, in terms of how far they are prepared to push the boundaries,' she said. 'Can the regulatory function help us to be more forward-looking?'

Bundred said that in turn depended on the degree and type of risk being undertaken. '[Regulators are] prepared to tolerate risk as long as it's well understood and managed by organisations.'

This might not have been the reassuring answer that some would have wanted. But, as finance directors are getting to know only too well, there are no easy solutions when it comes to meeting the increasing demands they face.

It seems the challenge for FDs across the public sector is to drive their organisations' corporate strategy, raising performance and contributing across the business, without losing the focus on their core task of balancing the books. This is certainly not a task for the faint-hearted.

But while the demands are immense, so too are the rewards. As Helen Kilpatrick observed to general agreement: 'Being a finance director is a superbly interesting and challenging job, and it is worth saying that.'

'The role of the finance director' will be discussed in one of the choice streams at the CIPFA conference on Thursday, June 19

Participants

Andrew Bedford
Strategic director of finance, Rotherham Metropolitan District Council

Steve Bundred
Chief executive, Audit Commission

Ian Carruthers
Policy & technical director, CIPFA

Steve Freer
Chief executive, CIPFA

Mary Hawkins
Community resources director,Warwick District Council

Stephen Hay
Chief operating officer, Monitor

David Horspool
Director of finance, Cambridge City District Council

Helen Kilpatrick
Director general, finance and commercial directorate, Home Office

Caroline Mawhood
Assistant auditor general, National Audit Office

Mike O'Donnell
Director of finance, London Borough of Camden

Mark Pickett
Vice president (finance),Oracle

Jon Pittam
Treasurer, Hampshire County Council

Tony Redmond
Local government ombudsman, Commission for Local Administration in England

Sarah Selvanathan
Strategic director of resources, Elmbridge Borough Council

Bill Shields
Director of finance and performance, South West Strategic Health Authority

John Thornton
Director, e-ssential Resources

Tony Travers (chair)
Director, Greater London Group, London School of Economics

Mike Weaver
Director of financial services, Worcestershire County Council

Ian White
Business development director, Oracle

David Wood
Strategic director, Malvern Hills District Council

PFjun2008

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