Tuesday, 31 March 201510.30am – 11.30am
Webinar Chair: Mike Cox, Operations Manager, AELPFacilitator: Graham Rivers, Associate Consultant,
Mentor Group Limited
Commissioned and Funded by
AELP WebinarAligning Financial Planning and Risk Management
with the Principles of Good Governance
Overview
Background and basics of good governance
Financial planning and control framework
Identifying and monitoring risk
Q and A
Government Agenda
• The objective is to improve the quality, capability and capacity
of governors, leaders and managers, taking on board best
practice in corporate governance, so that there is a
consistently high standard of leadership, management and
governance across the sector
• The recent open letters from the FE Commissioner emphasise
the importance of governing bodies and boards being skilled
at holding their executive teams to account
Strategy to Support Workforce Excellence in Further Education
July 2014
‘What excellence looks like’
• Consistently high standards of governance and
leadership, ensuring that the offer is right for the people
served, through partnerships with learners, employers
and the local community
• Effective challenge is a cornerstone of good governance.
Boards have access to comprehensive information on
performance and are well-informed about the wider
policy environment to fulfil their responsibilities
• Governance as a driver of excellence and Intervention
if not!
Poll 1
How do the words ‘governance’ and ‘intervention’
make you feel?
Select one of the following:
• Comfortable
• Uncomfortable
• Apprehensive
• Positive
Why more governance?
• I am already subject to:
– Quality Assessments
– Ofsted inspection
– Government
PLUS….
• One of the biggest Acts ever passed by
Parliament
UK Corporate Governance Code
• 1991/2 : Polly Peck, BCCI, Maxwell
– Abuse of power and fraudulent practice
• 1992 : Cadbury Report
– Split role of CEO and Chairman
– 3 Non-exec directors (NEDs)
– Audit and remuneration committee ( majority NEDs)
– Added to Stock Exchange listing rules in 1994
• 1995 : Greenbury
– Aligning Director remuneration
– Long term incentives (LTIP)
• 1998 : Hampel
– Harmonised Cadbury and Greenbury (Combined Code)
– All remuneration to be reported (pensions!)
UK Corporate Governance Code
• 1999 : Turnbull
– Internal financial and audit controls
• 2001, 2004 : Myners
– Funds clearer over investments in non-quoted companies
– Pension fund investments
• 2003 : Higgs
– Responsibility of NEDs tightened (ENRON)
• 2009 : Walker
– Northern Rock - risk assessment board function
• 2010 : Revised UK Corporate Governance Code
– Mandatory for public companies, recommended for private companies
– PRINCIPLES BASED not RULES!
UK Corporate Governance Code
• Five tasks of governance:
– Leadership
– Effectiveness
– Accountability
– Remuneration
– Relations with Shareholders
UK Corporate Governance Code
• Leadership
– Effective Board collectively responsible
– No one individual should have ‘unfettered’ powers
– NEDs should constructively challenge and help develop strategy
• Effectiveness
– Appropriate balance of skills on Board
– Formal and rigorous process to appoint new directors
– Timely supply of accurate and quality information
• Accountability
– Board must present realistic view of company position and prospects
– Risk management process and internal control systems
– Maintain ‘appropriate’ relationship with auditors
UK Corporate Governance Code
• Remuneration
– Sufficient to attract, retain and motivate Directors/Execs
– Significant proportion linked to corporate performance
– Formal and transparent process
– No Director to be involved in deciding their remuneration
• Relations with Shareholders
– Board must ensure satisfactory and timely dialogue with shareholders
– AGM as formal event
– Encourage shareholder participation
• At the end of the day – COMMON SENSE!
• An element of overall Corporate ‘Citizenship’
Where does governance fit?
Strategy Resources Budget Skills
VisionGovernment
policy
MissionLocal
authorities
ValuesTrade
associations
Markets Communities Stakeholders Legislation
12
Typical governance arrangements
13
Large investor – backed ITP
•Non-executive chair
•Managing director
•Financial director & company secretary
•Non-executive shareholder
•Non-executive specialist
Owner –manager ITP
•Owner-manager shareholder
•Finance director & company director
•Non-executive specialist
Social enterprise ITP
•Chair (elect) trustee
•Trustees
•Chief executive
•Company secretary
Poll 2
• How closely do you believe your own business
follows the UK Corporate Governance Code?
Select one of the following:
• Fully
• Substantially
• Some way to go
Financial Planning and Control
‘No plan of operations extends with any certainty beyond
the first contact with the main hostile force’ (von Moltke)
• Financial Reporting is historic
– Records what happened
– Compared with plan/budget/forecast
• Financial Planning is looking ahead
– Forecasting revenues, costs, cash, resources
– Compared with plan/budget
• BOTH are intertwined
Financial information
• Reliable?
– Accurate?
– Consistent format?
• Available?
– MI systems good enough?
– How soon after accounting period end?
• Appropriate?
– Versus plan/budget/forecast?
– Management Accounts v Statutory?
• Auditable?
– Appropriate checks and balances in place?
– Approval processes?
Financial Planning Quality
• Sum of the parts
– Cohesive? (e.g. sales quotas?)
– KPIs aligned?
– Supports Vision/Mission/Values?
• Funding requirements identified
– Working capital?
– Grants/subsidies?
– Capex requirements appropriate?
– Make/build/buy/partner?
• Sufficient contingency if
– Shortfall?
– Overachieve?
– Timing delays?
Poll 3
• Which do you pay the most regular attention
to in your business?
Choose one of the following:
• Balance Sheet
• Profit and Loss Account
• Cashflow Forecast
Assessing risk
• CEO Centrica– Annual results
– February 2015
– BBC Radio 4 Today programme
“We failed to deliver our plan…… Many factors
influenced us this year, not least the weather
was not as we had predicted. The collapse of
worldwide energy prices was not foreseen, …..
Leadership and Governance
• In tune with change…
– Government policy
– Economy
– Market
– Technology
– Society views
– The weather forecast!
• Change creates opportunities
– View from the balcony!
• Understand financial impact
Assessing risk
21
Medium High Critical
Low Medium High
Insignificant Low Medium
High
High
Low
Low Impact
Probability
Risk assessment framework
22
Leadership
Risks arising from weak
governance and
leadership (board and
chief executive),
including poor strategy
and planning. This
category of risk includes
missed opportunities
and failures to anticipate
changes in the FE
environment – external
risks.
Operational
Risks of systems, policies, or
projects failing, or events,
publications, campaigns being
judged as being of poor quality.
Individually these are less
significant and would be dealt
with through the management of
staff and teams, but on a larger
scale these may impact on an
organisation as a whole.
Includes the sub-category
‘business continuity’.
MI
A common risk is the
production of poor or too
detailed MI
(management
information) that is not
fit for function in that it
fails to inform accurately
board discussions and
decisions.
Support
Risks arising from
declining support from
key constituencies such
as employers, learners,
business communities,
media, partners,
decision-makers etc.
Financial
Unsuccessful fundraising or
poor returns/losses on
reserves and invested money;
also budgetary failures.
Regulatory
Failure to meet regulatory
requirements.
People
Failure to maximise staff
performance or minimise poor
performance. Loss of capacity
or organisational memory due
to high turnover of staff etc.
Good Governance
• Leadership
• Effectiveness
• Accountability
• Remuneration
• Relations with shareholders
• Accurate and timely financial planning and control is
critical
• Regular review and monitoring of business risk is critical
23
Guardianship
24
Strategic Drift
Organisation goals
Time
Activity
Intended
Emergent
Future
Vision
Source: Johnson & Scholes –
Strategic Drift
Leadership and Governance
• Leaders must respond to changes
– Society / government
– Economy /market
– Technology
– Set direction
– Establish accountability
– Plan resources
– Measure delivery and quality
• Understand financial impact
• Review and improve
Resources
Effective Governance and Strategic Leadership
– A guide for independent training providers
Future AELP Webinars
13 April Pilot Learner-Led Technology Challenge
Paul Bailey, Jisc. Chris Swingler, AELP
21 April Reforms on SEND arrangements,
Dr. Christine Rose, Paul Warner, AELP
30 April CEO Member Update
Stewart Segal, AELP
6 May Traineeship Staff Support Programme
Jo Gourley Froome, Mentor Group
Visit www.aelp.org.uk/events for more Information