Caught between conflicting cultures

20 Jul 18

The role of local government is changing. Commercialisation is now a necessary response to funding cuts and a new freedom to take risks, says Zurich’s Andrew Jepp

As local authorities navigate this time of significant change, we look at some of the immediate challenges facing leaders.

Resistance to commercialisation is entirely understandable. Public and private sector motivations are often seen as being at opposite ends of a spectrum.

Nevertheless, as austerity, devolution and the deregulation of investment activities continues at pace, local authorities have needed to embrace the concept and forge a new path.

However, the extent to which organisations are comfortable with embracing commercial opportunities is still very subjective.

Moral dilemma

Many local government leaders now feel that their organisation is facing an identity crisis, marooned between two conflicting cultures.

Organisations are having to figure out how to become more business-minded, while still ultimately putting people before profit. Many are finding it challenging to draw a clear line between securing a sustainable income and doing what’s best for the communities they serve.

Zurich Municipal’s 2017 Senior Managers’ Risk Report highlights this challenge and the need for local authorities to determine early on the type of organisation they wish to be, lead with a clear identity and confront differences of opinion when they arise.

New skillsets

The stakes are high, as many councils move into unfamiliar areas in pursuit of new, self-sustaining income streams. Some, however, admit that there is not always the knowledge, experience and resources internally to properly support these new ventures.

Four in 10 council bosses want to increase commercial revenue, but just 4% say they have significant expertise.

Early warnings were issued about the risks of getting things wrong, and that it would be public service users who would ultimately suffer if uninformed investment decisions were made.

Steve Dignon, market underwriter at Zurich Municipal, shares the concern that some organisations may not fully understand the true range of exposures and liabilities that commercial ventures can bring.

Dignon says: “Generating income has never been more at the forefront of any service delivery strategy. There now needs to be a level of business acumen that has never existed before.

“However, some of the people being hired to lead these ventures have very little experience in running a company. If these entities fail, local authorities will no longer have the financial buffer that used to protect them as a public body.”

With some local authorities now managing turnovers equivalent to a FTSE 250 company, it is important that the skills within are continually reviewed and adapted – whether that be through upskilling existing workers or hiring new talent.

Just as important is partnering with the right third parties to offer the right advice and support to capitalise on opportunities, while managing their associated risks.

Dignon explains how Zurich Municipal is also having to adapt: “These are exciting times for the public sector, but they are also challenging times.

“We have partnered with our public sector customers for over 25 years, but in the last few years the risk landscape has started to change significantly.

“We, too, are being proactive to find solutions to the problems and queries our customers have. For example, we now have more underwriters with commercial acumen, have changed our rating tools, and developed new policies, such as directors’, trustees’ and officers’ liability.

“As our expertise grows, there will be more development in terms of policies and risk management services.”

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