The role of boards

Prepared for the Auditor General for Scotland September 2010 Auditor General for Scotland

The Auditor General for Scotland is the Parliament’s watchdog for ensuring propriety and value for money in the spending of public funds.

He is responsible for investigating whether public spending bodies achieve the best possible value for money and adhere to the highest standards of financial management.

He is independent and not subject to the control of any member of the Scottish Government or the Parliament.

The Auditor General is responsible for securing the audit of the Scottish Government and most other public sector bodies except local authorities and fire and police boards.

The following bodies fall within the remit of the Auditor General:

• directorates of the Scottish Government • government agencies, eg the Scottish Prison Service, Historic Scotland • NHS bodies • further education colleges • Scottish Water • NDPBs and others, eg Scottish Enterprise.

Audit Scotland is a statutory body set up in April 2000 under the Public Finance and Accountability (Scotland) Act 2000. It provides services to the Auditor General for Scotland and the Accounts Commission. Together they ensure that the Scottish Government and public sector bodies in Scotland are held to account for the proper, efficient and effective use of public funds. The role of boards 1 Contents

Summary Part 3. The skills and expertise of Boards’ ability to set the strategic Page 2 board members direction for their organisation is Page 17 changing About this report Page 3 Key messages Boards’ scrutiny of risk, financial management and performance Summary of key messages The skills and expertise of board needs to improve members and how they work Page 29 Recommendations together is key to the success of Page 5 boards Boards are using committees to Page 18 manage their workload but there Part 1. Introduction are risks attached to this Page 7 Scottish ministers appoint most Page 30 non-executives except to college Key messages boards Some boards need to improve Page 19 the way they operate The public sector is facing Page 31 significant challenges Fewer people are applying to Page 8 become non-executives The make-up of boards varies Page 21 across and within sectors Boards have an important role in Page 32 steering public bodies through The time commitment expected these difficult times from non-executives varies Collective responsibility among Page 9 Page 23 board members is critical

Part 2. The role and accountability Not all chairs and non-executives Recommendations of boards have received induction, training Page 34 Page 12 or assessment of their performance Page 25 Appendix 1. Public bodies and Key messages colleges included in this audit Recommendations Page 36 Accountability for the performance Page 26 of public bodies is complex and Appendix 2. Audit approach lacks clarity Part 4. How boards operate Page 38 Page 13 Page 27 Appendix 3. Questions for board Boards have different roles Key messages members depending on the type of body Page 39 Page 15 To operate effectively boards need to meet certain criteria Appendix 4. Membership of the Relationships between the Scottish project advisory group Government and public bodies vary Guidance on leadership needs to Page 40 be clearer Recommendations Page 28 Page 16 2 Summary

Public bodies are entering a changing environment and boards will play a central role in how they respond to challenges ahead. Summary 3

1. The public sector in Scotland is 4. Most public bodies are governed announced by the Chancellor of the made up of over 200 organisations by a board which provides oversight Exchequer in June 2010 outlining serving five million people. There of how they are performing, how the need for substantial spending are a number of different types of they spend their money and a link reductions, in advance of the UK public body in Scotland, including through the Scottish Parliament spending review in October 2010.4, 5 NHS bodies, non-departmental public to the electorate. Boards are in The Scottish Government’s Chief bodies (NDPBs), executive agencies, place to ensure the good corporate Economic Adviser has analysed the non-ministerial departments, colleges governance of public bodies, defined likely impact on public expenditure in and Scottish Water. In addition to by the Scottish Government as Scotland.6 The Independent Budget these organisations, there are local ‘the structures and processes for Review, which was published in July government bodies, including councils decision-making and accountability, 2010, projects a real terms reduction and joint police and fire boards, which controls and behaviour at the top of in funding of £4.3 billion between have different accountabilities. organisations’.1 Scottish Government 2009/10 and 2014/15, of which £1.7 guidance for board members defines billion will be in 2011/12.7 2. This landscape was mostly in the role of the board as: existence before devolution in 1999, 7. The Independent Budget Review when these public bodies operated at • giving leadership and strategic also recommended the continuation arm’s length from central government direction of the reduction in the number of in Westminster. Since devolution there public bodies set out in the Public have been some changes in public • defining control mechanisms to Service Reform (Scotland) Act 2010 bodies, such as the establishment safeguard public resources and suggested that a strategic review of NHS boards in 2003/04 after of the structures that deliver public trusts were abolished. Public bodies • supervising the overall services in Scotland was necessary. are now more closely linked into management of the body’s The role played by the boards of the purpose and objectives of the activities public bodies and the system of public Scottish Government. The Scottish accountability more generally should Government’s public sector reform • reporting on stewardship and be part of that review to ensure that agenda has reduced the number of performance.2 they remain appropriate for a smaller, public bodies in Scotland but there has devolved public sector. been no systematic review of whether 5. Despite this and other guidance these structures remain fit for purpose such as the Scottish Public Finance 8. We acknowledge that many public post-devolution. Manual, there remains a lack of clarity bodies and their boards are unique about the roles of the boards of public but this report draws out common 3. In 2009/10, the Scottish public bodies, particularly the extent to which themes across the public sector. sector spent around £36 billion, they provide leadership and strategic following a decade of higher than direction. This report examines this About this report inflation growth in funding. Their issue, along with other questions activities include delivering health about the work of boards. 9. This report examines the role and and social care services, providing work of boards in 67 public sector justice services and protecting the 6. Public bodies are entering a bodies and 39 colleges which are environment. Although public bodies changing environment and boards audited by the Auditor General for receive most of their funding from will play a central role in how they Scotland and that existed on the Scottish Government they respond to challenges ahead. 31 March 2009 (Exhibit 1, overleaf). operate autonomously, allowing The recession has resulted in These 106 organisations spent almost services to be delivered without fiscal tightening and the Auditor £17 billion and employed 175,000 direct day-to-day control by Scottish General commented on the likely staff in 2008/09. This report does not ministers. Increasingly, public impact on the public sector in his consider the role of councils, advisory sector organisations are working in report, Scotland’s public finances, NDPBs, tribunals, commissioners and partnership to try to provide services in November 2009.3 Since then ombudsmen.8 more effectively and efficiently. an emergency UK budget was

1 On board: A guide for board members of public bodies in Scotland, Scottish Executive, April 2006. 2 Ibid. 3 Scotland’s public finances: Preparing for the future, Audit Scotland, November 2009. 4 Budget 2010, HM Treasury, June 2010. 5 The next spending review will cover the period 2011/12 to 2014/15. 6 Outlook for Scottish Government Expenditure, Scottish Government, July 2010. 7 Independent Budget Review, Crawford Beveridge, July 2010. 8 An Audit Scotland report on how councillors and officers work together in local government, Roles and working relationships: are you getting it right?, was published in August 2010. 4

Exhibit 1 Public bodies covered by this report The six different types of public body covered by this report spent £17 billion and employed 175,000 staff in 2008/09.

Organisation type Description Number Expenditure Staff (wte) (£ billion)

Colleges Independent institutions that provide 39 0.71 13,032 further and higher education

NDPBs Arms-length organisations that deliver 29 3.17 11,705 public services on behalf of the Scottish Government

NHS bodies Arms-length organisations that deliver 23 9.35 137,245 health services or provide support services to the NHS

Executive agencies Organisations that are part of the 11 2.56 7,954 Scottish Government but which operate independently of Scottish Government directorates

Non-ministerial departments Independent departments, operating under 3 0.08 1,707 named office holders. They are part of the Scottish Administration but not the Scottish Government

Scottish Water Commercial enterprise under direct control 1 0.95 3,737 of Scottish ministers

Note: See also Appendix 1 for the bodies in each category. The figures for expenditure and staff are for 2008/09. Seventy-three per cent of expenditure by colleges (£0.520 billion) is provided by the Scottish Further and Higher Education Funding Council which is an executive NDPB. wte is whole time equivalent. Source: Audit Scotland

10. There are a number of different the day-to-day management and • We carried out in-depth fieldwork terms and definitions for aspects of running of the organisation. at 17 public bodies of varying sizes, the public sector. For the purposes of covering all six types of public this report we use the following: • Non-executives work part-time body, from across the country for the organisation but are and providing a range of public • Public bodies include colleges, not involved in the day-to-day services (see Appendix 1). As part NDPBs, NHS bodies, executive management.9 of this fieldwork we interviewed agencies, non-ministerial over 70 chairs and non-executives, departments and Scottish Water, 11. The report draws on a range observed board meetings and ie all types of body included in of evidence which we gathered reviewed board papers and other Exhibit 1. using qualitative and quantitative documentation. techniques. More details of our audit • Board members refer to both approach are set out in Appendix 2. • Reviewed and identified good executive and non-executives. In summary: practice from a range of publications The chair is the person who leads and guidance on the role of boards the board. • We surveyed all 1,500 board from the public and private sector. members of the 106 public bodies • Executives are senior employees and received responses from • Interviewed other key national of public bodies who are also 777 (around 50 per cent). We stakeholders including the Scottish members of the board, for also surveyed chief executives Government and the Commissioner example, the chief executive or of NDPBs who are not board for Public Appointments in Scotland. directors who are responsible for members.

9 This report also defines staff and other representatives on the boards of NHS bodies and colleges as non-executives. Summary 5

12. Appendix 3 provides a series of leads the organisation unless Recommendations questions for boards and individual the separate roles are well board members to ask themselves defined and understood. Public The Scottish Government should: about how well they are working. An bodies need strong leadership advisory group provided advice and to make important decisions • as part of its public sector comment during the course of our on spending priorities in the simplification agenda, clarify the work (Appendix 4). coming years. It is essential lines of accountability between that the roles of chairs and public bodies, the Scottish 13. This report examines: chief executives are clear and Government and the Scottish their relationships work well to Parliament • the role of boards and how they ensure effective leadership. are accountable to the Scottish • clarify the role of the non- Government (Part 2) • Relationships between the executives of executive agencies Scottish Government and • board members’ skills and public bodies vary and need • strengthen the role of sponsors expertise (Part 3) to improve to ensure that of NDPBs to reflect their critical public bodies effectively meet role in ensuring that Scottish • how boards operate (Part 4). future priorities and financial ministers’ priorities are delivered challenges. Summary of key messages • investigate why the number • The appointments process for of applications for public • Following a decade of growth, non-executives is improving appointments is falling and take public sector budgets will be but there are still weaknesses. action to reverse this trend reduced significantly over the The length of time it can take to next few years which will have make an appointment remains • reduce the time it takes to a major impact on the finances too long and there has been make public appointments of public bodies. Boards will mixed progress in widening the need to demonstrate strong diversity of applicants to become • ensure that work to expand the leadership and make difficult non-executives. The overall range of people applying to be decisions about their funding number of people applying to be non-executives is completed priorities. non-executives is falling. and procedures are in place to assess its effectiveness • The Scottish Government has • One of boards’ key roles is made progress with its public to scrutinise risk, financial • encourage the chairs and sector reform agenda but the management and performance, non-executives of different public sector landscape is still and this will become increasingly public bodies to meet on a complex with a number of important as budgets are regular basis different types of body. The reduced. Boards are not make-up of boards and their consistently good at providing • review the time commitment of role has evolved over time scrutiny. Responsibility for risk non-executives and chairs and rather than as a result of any management is largely delegated ensure that it is more realistic objective evaluation of the best to audit committees, rather than and made clear as part of the model for public accountability. being led by the board. recruitment process

• Chief executives and their • review the pay of non- boards have parallel lines of executives and chairs to ensure accountability and this can greater consistency and clarity cause confusion over who about remuneration levels

• review and update its On board guidance

• review the rationale for why some chief executives are not board members. 6

Public bodies should:

• ensure that all non-executives receive formal induction training that explains their roles, the key issues facing the board and the organisation and how it operates

• review the skills and expertise they need for the future and actively seek to attract people with skills to address any gaps identified

• ensure that the performance of all non-executives is formally and regularly assessed

• ensure that the board’s scrutiny efforts are focused on organisational performance, financial management and risk management

• improve the performance information provided to their boards and its link to financial information

• maximise the openness and accessibility of their board meetings and papers

• regularly review how they are operating and performing with support and advice from an external peer

• review the use of committees and ensure that major decisions that should be made by boards are not delegated

• ensure that board members are asked to declare any interests they have at all board meetings and where a conflict exists they do not participate in discussion and this is formally recorded. 7 Part 1. Introduction

Boards need to make decisions based on clear evidence about the priorities for the public body and where money should be spent. 8

Key messages Government, allowing functions to Public sector budgets will be reduced be carried out without direct day-to- significantly over the next four years • Following a decade of growth, day control by Scottish ministers. 18. In mid-2008, the UK and Scottish public sector budgets are now As a result most public bodies’ economies went into recession along being reduced significantly. budgets increased significantly over with many other countries across Current forecasts predict that this period.10 the world. The Auditor General Scottish Government spending highlighted the seriousness of this will be reduced by £4.3 billion 15. Despite year-on-year funding for the public sector in his report, in real terms between 2009/10 increases over this ten-year period Scotland’s public finances.14 The to 2014/15, of which £1.7 billion some public bodies experienced report highlighted the serious financial will be in 2011/12. financial management problems. The challenges facing the Scottish Auditor General has repeatedly drawn public sector and outlined some • Even when funding was attention to the financial position and key questions that decision-makers relatively abundant some parts of costs pressures facing NHS bodies should be asking to help plan for the public sector and individual and colleges in his overview reports. the future. In that report, we stated public bodies faced financial that the 2009/10 Scottish budget problems. Reduced funding over 16. In particular, in the early years of £34.7 billion was likely to be the the next few years will have a after devolution Scotland’s colleges peak year for some time to come. major impact on the finances of were facing significant financial We identified the challenges and cost public bodies. management problems with 18 pressures facing the public sector colleges reporting operating deficits through increased demand for some • Boards will be central to the in 2001/02.11 By 2006/07, overall public services as a result of more way public bodies meet the colleges’ financial performance older people, more personalised challenges posed in the coming had improved with fewer colleges public services and the effects of years. They will need to make reporting operating deficits and the the recession; the cost and long-term difficult decisions about funding cumulative financial position for the affordability of universal services priorities and demonstrate college sector moving from deficit such as free personal nursing care; strong leadership. of £6 million to surplus of almost and the cost profile of delivering £17 million.12 The college sector public services with over half of The public sector is facing received a 20 per cent increase costs being spent on staff. We also significant challenges in funding in real terms between highlighted a potential gap in public 2000/01 and 2008/09. finances of between £2.1 billion and Scotland’s public sector £3.8 billion based on projected public experienced significant growth in 17. The NHS also experienced spending levels in 2009/10 and the the first decade after devolution significant financial performance Centre for Public Policy for Regions 14. The Scottish Government’s challenges over this period. In (CPPR) published projections for the budget increased from £17 billion in 2003/04, four NHS boards (Argyll and Scottish budget.15 2000/01 to £34.7 billion in 2009/10, Clyde, Grampian, Lanarkshire and an average real terms increase of Western Isles) overspent by a total 19. Since then, the UK and Scottish just over five per cent a year since of £61.7 million.13 However, between economies have officially come out devolution. The Scottish Government 2001/02 and 2008/09, the NHS of recession and a new UK coalition allocates around 85 per cent of its received a 38 per cent increase in Government has been elected. The budget to public sector bodies. Public funding in real terms, and by 2008/09 UK Chancellor of the Exchequer bodies receive most (usually more all health boards were meeting their announced his emergency budget than half) of their funding from the financial targets. in June 2010 in advance of the UK Scottish Government and operate spending review in October.16, 17 The at arm’s length from the Scottish emergency budget sets out the UK

10 Scotland’s public finances: Preparing for the future, Audit Scotland, November 2009. 11 Financial performance of the further education sector in Scotland – an update report, Audit Scotland, December 2003. 12 Financial overview of Scotland’s colleges 2006/07, Audit Scotland, April 2008. 13 Overview of the financial performance of the NHS in Scotland 2003/04, Audit Scotland, December 2004. 14 Scotland’s public finances: Preparing for the future, Audit Scotland, November 2009. 15 Briefing Note, Centre for Public Policy for Regions, April 2009. 16 Budget 2010, HM Treasury, June 2010. 17 The next spending review will cover the period 2011/12 to 2014/15. Introduction 9

Government’s plans to reduce public sector borrowing and the budget Exhibit 2 deficit through a mix of increased Projections of Scottish Government spending and budgets to 2014/15 taxation and reduced public spending. (real terms) The budget plans for public spending Projected budget reductions will result in a significant gap emerging should to be reduced by around £32 billion a public sector spending continue on the same basis as 2009/10, even if a year over the next four years. public sector pay freeze for 2011/12 and 2012/13 is implemented.

20. It is not yet clear what the exact 31 2008/09 spending implications of the UK Government’s patterns 30 actions and budget will mean for the Proposed pay Scottish budget. However, the Scottish 29 freeze for 2 years Government’s Chief Economic Adviser 28 DEL published his Outlook for Scottish Government Expenditure as a result 27 £ billion £ of the UK emergency budget in 26 July 2010.18 This forecasts that the 25 Scottish DEL budget will be reduced by £4.3 billion by 2014/15 from the 24 19 peak in 2009/10. This is equivalent 23 to around 3.7 per cent each year. 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 However, the next financial year – 2011/12 – will have a proportionately Note: The DEL expenditure data are taken from the Independent Budget Review, July 2010. The line showing spending based on 2008/09 patterns assumes 1.5 per cent annual growth in public higher cut of £1.7 billion (5.9 per sector pay and an 11 per cent annual increase in capital charges due to increases in capital cent) as a result of the pattern of the expenditure over the past few years. The pay freeze line assumes that there will be no increase in public sector pay in 2011/12 or 2012/13. UK Government’s deficit reduction Sources: Audit Scotland, Centre for Public Policy for Regions, and Scottish Government Chief plan and the Scottish Government’s Economic Adviser decision to defer for a year its share of the UK Government’s £6.2 billion spending cuts implemented in 2010/11. These forecasts are close Boards have an important role in good public engagement and, to the worst case scenario previously steering public bodies through ultimately, good outcomes.21 The forecast by the CPPR. If public sector these difficult times main purpose of boards is to provide spending remained at the same level effective leadership, direction, support as in 2009/10 then a significant gap Boards should ensure corporate and guidance to organisations and would emerge over the next four governance arrangements are in ensure that the policies and priorities years, and even if a two-year public place of Scottish ministers (and the Scottish sector pay freeze was introduced it 22. All but one of the public bodies Government) are implemented. In would not be enough to bridge this have a board whose key role is to most cases, the board is the most gap (Exhibit 2). ensure that corporate governance senior group in the organisation and arrangements are in place. provides important oversight of how 21. In addition, Scotland’s capital public money is spent. DEL budget is likely to be cut more 23. It is widely recognised that significantly and could be reduced by good governance leads to good 24. Over the last decade the Auditor £1.6 billion compared to 2009/10 – management, good performance, General for Scotland has reported to a 40.1 per cent real terms reduction.20 good stewardship of public money, the Scottish Parliament on a small This could have major implications for the future capital investment programme.

18 Outlook for Scottish Government Expenditure June 2010 emergency budget update, Office of the Chief Economic Adviser, Scottish Government, July 2010. 19 Departmental Expenditure Limit. 20 The Scottish Government previously brought forward £347 million of capital budget into 2008/09 and 2009/10 as part of its economic recovery plan. 21 Good Governance Standard for Public Services, CIPFA, 2004. 10

number of public bodies where there has been evidence of weak board Exhibit 3 performance (Exhibit 3). Reports by the Auditor General for Scotland reflecting weak board performance Boards will need to make difficult There have been examples of poor board performance that have affected decisions and demonstrate public services. leadership 25. Audit Scotland has published a NHS Western Isles number of reports over the last year Between 2002/03 and 2007/08, NHS Western Isles accumulated a total that have highlighted the challenges deficit of £3.1 million. In 2008/09, the Scottish Government provided ahead and recommended action for funding to clear the deficit following assurances from the board about its the future. In particular, our reports plans for financial recovery. The Scottish Parliament’s Audit Committee Scotland’s public finances and was critical of the board of NHS Western Isles for its poor scrutiny of the Improving public sector efficiency financial management of the organisation. The Committee concluded that set out the following messages for 22 there were serious weaknesses in the organisation’s financial management boards to consider: and a lack of financial management expertise and financial focus among board members. During Committee evidence sessions there was confusion • Public bodies should ensure they over the extent to which the board and the Scottish Government were are budgeting for and spending on accountable for these problems. their priorities. Inverness College • Difficult decisions and new approaches will be needed. Inverness College’s accounts for 2004/05 reported a deficit of nearly £1 million. The Scottish Parliament’s Audit Committee noted that the college • Strong leadership and engagement had failed to deliver its financial recovery plans. The Committee concluded is needed to challenge, monitor that the board had been too detached from key management and decision- and support public bodies. making processes; and had failed to perform adequate scrutiny of the college’s finances or set an effective strategic direction for the college. 26. Given the scale of potential budget cuts, public bodies need Scottish Qualifications Authority to fundamentally review what and In 2000, 17,000 students did not receive accurate results from the Scottish how they deliver services and set Qualifications Authority. Subsequent inquiries by two Scottish parliamentary budgets. With less money available committees noted many operational failings, but also a lack of clarity about public bodies need to adopt a priority- the role of the board of the Scottish Qualifications Authority in responding to based approach to budgeting, which the concerns presented to it. considers the competing priorities and targets the limited funds accordingly. Sources: Report on the 2006/07 audit of the Western Isles Health Board, Scottish Parliament Audit Committee, May 2008; The 2004/05 audit of Inverness College, Scottish Parliament Audit Adopting such an approach means Committee, July 2006; Performance management in the Scottish Qualifications Authority, Audit that boards need to be clear about: Scotland, November 2006

• the money available

• how services contribute to national on the costs, activity, productivity and 28. Boards therefore need to objectives and outcomes quality of services that demonstrate increase their scrutiny of public how they are linked. Audit Scotland bodies’ performance and challenge • the value for money of services. has previously highlighted that management to provide sufficient sufficient financial and performance information to allow them to make 27. Boards need to make decisions information is not available to manage informed decisions about priorities based on clear evidence about the services effectively, for example in and budgets. priorities for the public body and the NHS.23 where money should be spent. However, to do this, boards need to be presented with good information

22 Improving public sector efficiency, Audit Scotland, February 2010. 23 Overview of the NHS in Scotland’s performance 2008/09, Audit Scotland, December 2009 and Improving public sector efficiency, Audit Scotland, February 2010. Introduction 11

29. Boards will need to make difficult decisions about what and how future services should be delivered. This may mean stopping or reducing the delivery of some services and fundamentally reviewing the way other services are delivered. The best way of delivering services in the future may be outsourcing or partnering with another public, private or third sector provider. This needs creative and innovative thinking and a strong desire and determination to break down any potential barriers.

30. Delivering this scale of change requires strong leadership and engagement from the very top of organisations, including boards. Leaders need to ensure that:

• the priorities are clear, well communicated and understood by stakeholders, staff, users and the general public

• decision-making is open and transparent

• constructive challenge is encouraged

• high standards of conduct and performance are expected and delivered.

31. A number of Audit Scotland reports include checklists for board members which set out questions for key decision-makers to check, challenge, monitor and support their organisations. In particular, Audit Scotland published a good practice checklist for public bodies to support our report Improving public sector efficiency. The checklist outlines key questions for boards.24 We also include a list of questions for non- executives to ask themselves about the role of their board at Appendix 3.

24 Improving public sector efficiency – good practice checklist for public bodies, Audit Scotland, February 2010 can be found on Audit Scotland’s website at www.audit-scotland.gov.uk 12 Part 2. The role and accountability of boards

There remains a large number and range of different types of public sector bodies and the reasons for this are not always clear. Part 2. The role and accountability of boards 13

Key messages • clarity and transparency about the Colleges are independent roles and responsibilities of boards institutions and have different • The Scottish Government has and chief executives. accountability arrangements made progress with its public 36. The college sector, as a whole, sector reform agenda but the The public sector landscape receives the majority of its funding public sector landscape is still remains unclear (73 per cent in 2008/09) from the complex with a number of 33. The Scottish Government’s Scottish Further and Higher Education different types of bodies. The public sector reform agenda and Funding Council (SFC) which is an make-up of boards and their the Independent Budget Review NDPB. College boards are not directly role has evolved over time have highlighted the need to make accountable to Scottish ministers or rather than as a result of any the public sector landscape clearer. to the SFC. College principals – their objective evaluation of the best The Scottish Government has taken chief executives – are responsible to model for public accountability. steps to reform the landscape, for the chief executive of the SFC for the example by seeking to remove money that they receive from it.25 • Accountability for the 25 per cent of public bodies by 2011. performance of public bodies However, despite this simplification The boards of executive agencies is complex, lacks clarity and agenda there remains a large number are not accountable to Scottish has been further complicated and range of different types of public ministers or Parliament for the by the introduction of new sector bodies and the reasons for this exercise of their duties non-ministerial departments, are not always clear. 37. Executive agencies are part of all of which have different the Scottish Government but operate accountability arrangements. Accountability arrangements are as separate organisations. Their chief not easy to understand executives are statutory accountable • Chief executives and their 34. Of the 106 public bodies that officers and are directly accountable to boards have parallel lines of we have examined, there are six Scottish ministers and through them accountability and this may different categories and each has to Parliament for the performance of cause confusion over who leads different accountability arrangements their organisations. Their boards have the organisation unless the (Exhibit 4, overleaf). Even within these no legal status but may be potentially separate roles are well defined categories, there are differences called to account by Scottish ministers and understood. between public bodies in the way and the Scottish Parliament. they account for their expenditure • Relationships between the and performance and to whom they 38. Some non-executives on agency Scottish Government and do so. These arrangements appear to boards we spoke to said they were public bodies vary and need have evolved over time, are difficult unclear about their own role. Their to improve to ensure that to understand, and run the risk that role is a governance oversight one public bodies effectively meet in some circumstances it may not be with a non-executive chairing the audit future priorities and financial clear who is ultimately accountable committee and an advisory function challenges. for the performance of a public body. to support the chief executive in his It is not clear why accountability or her role as accountable officer. This Accountability for the performance arrangements differ. means that in some cases significant of public bodies is complex and strategic decisions are not discussed lacks clarity Half of boards are directly by the board. For example, non- accountable to Scottish ministers executives on the board of Transport 32. The public needs assurance about and Parliament Scotland first heard about the the way in which public bodies make 35. Half of boards (NDPBs, NHS extension of the rail franchise when it the best use of public money and bodies and Scottish Water) are was announced in the media.26 how they are held to account. This directly accountable to Scottish assurance is easier if there is: ministers and through them to the Scottish Parliament. On behalf • an easily understood public sector of Scottish ministers, they are landscape responsible for the performance of the organisation and for ensuring that • clear lines of accountability for the it delivers Scottish ministers’ policies performance of public bodies and priorities.

25 Governance and management matters, SFC/10/2007, Scottish Further and Higher Education Funding Council, February 2007. 26 The First ScotRail passenger rail franchise, Public Audit Committee, June 2009. 14

Exhibit 4 Accountability of public bodies to the Scottish Parliament There are complex and parallel lines of accountability between public bodies and the Scottish Parliament.

Scottish Parliament

Scottish ministers

Permanent secretary Scottish Government

Executive agencies

Non-ministerial departments (see paragraph 39)

NDPBs (including SFC), NHS bodies and Scottish Water

Colleges

Coloured solid line indicates the accountability of boards.

Dotted lines indicate delegated authority from the Permanent secretary to accountable officers under the Public Finance and Accountability (Scotland) Act 2000.

Dashed lines indicate the accountability of accountable officers to the Scottish Parliament. Chief executives of executive agencies are also accountable to Scottish ministers.

Dashed dark blue line indicates accountability of college principals to the chief executive of the Scottish Funding Council for public funds under their control.

Source: Audit Scotland Part 2. The role and accountability of boards 15

Non-ministerial departments of senior members of Scottish Boards have different roles have variable accountability judiciary, representatives of the depending on the type of body arrangements Scottish legal profession, the 39. Non-ministerial departments have chief executive and three other 42. All public bodies are expected varying lines of accountability and people. The board collectively is a to focus on supporting the delivery this does not appear to support the non-ministerial officeholder in the of the Scottish Government’s single public sector reform agenda which is Scottish Administration and it is purpose and national outcomes as aimed at simplifying the public sector directly accountable to the Scottish outlined in the National Performance landscape. Of the four current non- Parliament. Framework.28 In addition, the current ministerial departments: economic climate means that, for There are parallel lines of the first time since devolution, public • The General Register Office accountability for chief executives bodies will need to make difficult for Scotland has no board and and their boards decisions on how to provide services is run by the Registrar General 40. The Public Finance and with reduced budgets. Most boards for Scotland and his senior Accountability (Scotland) Act 2000 have a key role to play in this managers. The Registrar General created a system where responsibility decision-making. is accountable to the Scottish for the proper and effective use Parliament through Scottish of resources in public bodies is 43. Boards fall into two main ministers for the running of his delegated from the Permanent categories: those that have overall organisation. Secretary – the top civil servant in responsibility for performance; and the Scottish Government – to the those that are established in an • The Keeper of the Registers of chief executives of public bodies. As advisory capacity. Both types of board Scotland (the equivalent of a chief accountable officers, chief executives exercise a governance function and executive) is directly accountable are personally accountable to the have a duty to ensure that public to the Scottish Parliament for the Scottish Parliament for the proper money is spent wisely and according work of her organisation. The management of public funds and for to the rules. Registers of Scotland’s board ensuring that these resources are advises the Keeper. Uniquely used efficiently, economically and 44. The majority of boards (92 of the organisation is an executive effectively.27 This creates a separate the 106 organisations covered by agency as well as a non-ministerial line of accountability to the Scottish this report), including the boards of department. Parliament to that of the board. NDPBs, NHS bodies, colleges and Boards and chief executives should Scottish Water, are responsible for • The Office of the Scottish Charity therefore act as a check and balance the performance of their organisations Regulator has a board made on each other. through: up entirely of non-executives and operates like the board of 41. Further work is needed on • setting the organisation’s strategic a NDPB. The board collectively clarifying governance arrangements direction within the context of the is a non-ministerial officeholder and ensuring that there is clarity about National Performance Framework in the Scottish Administration. roles and responsibilities in all public and the policies and priorities of It is accountable to the Scottish bodies – particularly the respective Scottish ministers Parliament for its work. roles and responsibilities of chairs and chief executives. Current guidance • monitoring, scrutinising, • The Scottish Court Service for boards needs to be updated as challenging and supporting the changed from being an executive it does not adequately distinguish management in its running of the agency to a non-ministerial between their roles and can lead to organisation on a day-to-day basis department on 1 April 2010. Its the risk of internal conflict. new board (under the terms • ensuring the organisation meets of the Judiciary and Courts its objectives. (Scotland) Act 2008) is made up

27 Scottish Public Finance Manual, Scottish Government, 2007. Individual letters of appointment to accountable officers from the Permanent Secretary. 28 http://www.scotland.gov.uk/About/scotPerforms 16

45. Audit Scotland has identified attends all its board meetings as is therefore important that college these three main responsibilities from an observer. Other sponsors of boards, principals and the SFC have all of its work on governance and NDPBs attend occasionally, for a clear and shared understanding of accountability in the public sector. example, when they first become priorities to ensure that consistent They differ from the definition of the the organisation’s sponsor. and coherent spending decisions responsibilities of boards given in the are made across the college sector. Scottish Government guidance, On NHS bodies have a close In this sector too, there has been board: A guide for board members relationship with the Scottish confusion over the accountability of public bodies in Scotland. We also Government arrangements of the chief executive consulted other guidance such as the 49. The Scottish Government Health of the SFC and that of individual Scottish Public Finance Manual and Directorates have a well-established college principals when evidence was the Good Governance Standard for framework of support and monitoring given to the Audit Committee about Public Services.29 for NHS bodies. The Finance and Inverness College.33 Delivery Directorates provide ongoing Relationships between the Scottish support for health boards to help Recommendations Government and public bodies vary them meet their performance and financial targets and there is a The Scottish Government should: 46. Budget reductions mean that continuous dialogue between them. Scottish ministers will have to The chairs of NHS bodies meet the • as part of its public sector make difficult decisions about Cabinet Secretary for Health and simplification agenda, clarify the spending priorities. Where Scottish Wellbeing and the Director-General lines of accountability between ministers appoint boards to ensure for Health monthly. Every year there public bodies, the Scottish that their policies and priorities are is a public review of each NHS body Government and the Scottish implemented, there will need to be when board representatives meet the Parliament closer working between Scottish Cabinet Secretary. ministers and boards to ensure shared • clarify the role of the non- understanding of priorities. Chairs 50. Even with these clearer executives of executive are the key link between Scottish arrangements in place, it can still agencies ministers and boards. be difficult to understand who is responsible when problems • strengthen the role of sponsors The sponsorship of NDPBs is not arise. This is particularly so for the of NDPBs to reflect their carried out consistently respective accountabilities of the chief critical role in ensuring that 47. The relationship between the executive of the NHS in Scotland Scottish ministers’ priorities are Scottish Government and individual and the chief executives of individual delivered. NDPBs is managed on a day-to-day health boards. This was highlighted basis by civil servants known as in evidence given to the Scottish sponsors. Sponsors tend to interact Parliament Audit Committee during its with the senior management of the inquiries into NHS Western Isles and organisation rather than the board and NHS Argyll and Clyde.31, 32 are not senior civil servants. Senior civil servants at deputy director, The relationship between colleges director and director general level also and the Scottish Funding Council is have dealings with public bodies at less clear more senior levels. 51. Relationships between college boards and Scottish ministers 48. The way that the sponsorship are more complex and less clear. role is carried out varies according College boards are not directly to the nature of the organisation and accountable to Scottish ministers the individual civil servant in post. or to the SFC. College principals are For example, sponsors should not not statutory accountable officers normally attend board meetings.30 but they are accountable to the SFC However, the sponsor of the SFC for the public funding received. It

29 Good Governance Standard for Public Services, CIPFA, 2004. 30 On board: A guide for board members of public bodies in Scotland, Scottish Executive, April 2006. 31 Report on The 2006/07 Audit of the Western Isles Health Board, Scottish Parliament Audit Committee, May 2008. 32 Report on The 2003/04 Accounts of NHS Argyll and Clyde, Scottish Parliament Audit Committee, March 2005. 33 Report on The 2004/05 Audit at Inverness College, Scottish Parliament Audit Committee, July 2006. 17 Part 3. The skills and expertise of board members

Boards need to include people from different backgrounds who can bring a broad range of skills, expertise and perspectives to the role of a non-executive. 18

Key messages 53. The critical factors in determining discussion between the chair and the strength and success of any board members. • The appointments process for board are: non-executives is improving 55. In ten of the boards we visited, but there are still weaknesses. • the calibre and personalities of a written skills matrix was used to The length of time it can take to individual board members monitor and review non-executives’ make an appointment remains skills and expertise. Skills matrices too long and work still needs to • the blend of skills and expertise of are lists of skills and expertise be done to identify the range of the board that an organisation considers that skills and qualities needed for its board collectively should have an effective non-executive. • how they work together as a mapped against its current board group. membership. Case study 1 highlights • The overall number of people the skills matrix used by the Office applying to be non-executives Boards are seeking to plan and of the Scottish Charity Regulator. is falling. There has been manage their skills and expertise As a result of reviewing the skills mixed progress to improve the 54. Ensuring that people with the and expertise needed some boards diversity of applicants for public right skills and expertise apply to have recruited non-executives with appointments. become non-executives is important. specific expertise. For example, NHS All of the public bodies we visited Greater Glasgow and Clyde appointed • There is variation in the time were considering the mix of skills and a non-executive with experience of commitment expected of non- expertise on their board and seeking overseeing major capital projects to executives and the pay they to ensure that they had the right help the board scrutinise progress receive. Some non-executives balance for the future, either through with the new Southern General are committing significantly a formal review process or less formal Hospital project. more time to their role than was indicated at the time of their appointment. Case study 1 The Office of the Scottish Charity Regulator developed a skills matrix The skills and expertise of board for recruiting non-executives members and how they work The skills matrix identifies 13 specific skills that it requires among its non- together is key to the success of executives. boards • Knowledge of the Scottish charity sector 52. Making decisions about priorities, targeting resources and where to • Leadership reduce expenditure will make the • Understanding risk management role of boards harder. This increases the importance of ensuring that • Understanding finance board members have the necessary skills and expertise. Many boards • Understanding policy in the public sector are established by legislation that pre-dates devolution so there may • Practical experience of change management be historical reasons for the make-up • Track record of implementing regulation of some boards that are no longer valid. Scotland has a small population • Understanding public sector finance and it is therefore important that the skills and expertise available to public • Understanding of corporate governance in public, private and charity bodies are used as effectively as sectors possible. In particular, it is vital that • Legal knowledge there is clarity about the role of non- executives and that the right people • Good overview and knowledge of small charities are recruited. • Charity fundraising

• Overview of regulation and its effects

Source: Office of the Scottish Charity Regulator Part 3. The skills and expertise of board members 19

Scottish ministers appoint most ministers ultimately decide who 62. In July 2010, the Scottish non-executives except to college should be appointed. Parliament passed the Crofting boards Reform (Scotland) Act 2010 which 58. The process of appointing will require a majority of members 56. People can become non-executives non-executives varies among the of the Crofting Commission to be of public bodies in a number of ways, 11 executive agencies. The chief elected to its board. including being: executives of most executive agencies appoint non-executives to their boards. 63. In June 2010, voters in Dumfries • appointed by Scottish ministers However, Scottish ministers appoint and Galloway and Fife elected people (or on recommendation by the non-executives for the Scottish to be members of their NHS boards. the Queen) Public Pensions Agency. The elections in these two areas were part of a pilot for direct elections to • appointed or co-opted by the Colleges appoint their own non- all health boards. The Health Boards board itself or, in the case of executives (Membership and Elections) (Scotland) some executive agencies, by 59. Colleges are independent Act 2009 requires nominees from the chief executive organisations and their boards appoint local government and directly elected their own non-executives. Best board members to form the majority • appointed by Scottish ministers practice suggests that appointments on the boards of NHS bodies. The after nomination by other should be made through a committee boards of NHS bodies remain wholly organisations such as local that is entirely made up of non- accountable to Scottish ministers. authorities executives. College principals should not be members of these committees 64. The introduction of elections to • directly elected to the board. and should play no part in the the boards of NHS bodies will lead to appointment process.36 In the three a reduction in: 57. Excluding colleges, four-fifths colleges we visited, this best practice of non-executives are appointed was followed. • the number of non-executives by Scottish ministers through appointed by Scottish ministers the Scottish Government’s public 60. There is no requirement appointments process (Exhibit 5, for college boards to have any • the number of executive directors overleaf). The Public Appointments independent input into the on the boards of NHS bodies. and Public Bodies etc. (Scotland) Act appointments process but some 2003 requires public appointments do. For example, at John Wheatley 65. Elections to the boards of NHS to the boards of regulated bodies College, the process of appointing bodies aim to strengthen democracy to be made fairly and openly. non-executives was supported by an and local accountability. However, The Commissioner for Public independent adviser who provides they may also generate risks for the Appointments in Scotland oversees reports on the college’s appointment boards of NHS bodies by: the public appointments process process and has made suggestions and assesses it against the Code of about the skills and expertise that the • reducing boards’ ability to plan and Practice for Public Appointments.34 board should have. manage the board’s overall range The Commissioner oversees the of skills and expertise process of appointing non-executives The number of elected board to 55 public bodies covered by this members is increasing • creating tension between audit.35 The Commissioner’s work is 61. During 2008/09, the two national individual non-executives’ wish supported by a group of 13 OCPAS park authorities were the only to represent the interests of (Office of the Commissioner for public bodies to have elected board the people who elected them; Public Appointments in Scotland) members. Elected members made their accountability to Scottish assessors who scrutinise the public up just over a fifth of the boards of ministers; and the need for appointments process. The chair the Cairngorms and Loch Lomond collective responsibility for of the public body is not involved in and The Trossachs National Park board decisions. There is value the final decision on non-executive Authorities. The Scottish Parliament in having different perspectives appointments but is involved in the has passed legislation that will reduce on boards but all non-executives process and the recommendation the overall size of the boards of these are ultimately bound by board made to Scottish ministers, except for organisations but will maintain the decisions. chair appointments. Scottish number of elected members.

34 Code of Practice for Ministerial Appointments to Public Bodies in Scotland, Commissioner for Public Appointments in Scotland, 2006. The Commissioner for Public Appointments is currently consulting on a revised code of practice. 35 The exceptions are the advisory boards of the 11 executive agencies and the Registers of Scotland. 36 Review of Scotland’s Colleges: Accountability and Governance, Scottish Executive, February 2007. 20

Exhibit 5 The public appointments process There is a four-stage process for appointing non-executives to public bodies, which on average takes six months. 1 There is a vacancy for a non-executive Civil servants consult Scottish ministers and the chair of the public body about the needs of the board, the person specification and role description and the appointment process. An OCPAS assessor is consulted to ensure that the process meets the requirements of the Code of Practice.

The Scottish Government advertises the 2 vacancy The Scottish Government sets up a selection panel which will normally comprise: The Scottish Government advertises • a senior Scottish Government staff member the post on a central website and may advertise in the national and local press. • the chair of the public body In some cases, search consultants have been used to identify potential applicants. • the OCPAS assessor (always).

The panel decides the best way to advertise the vacancy. Six months Six

Applicants for public appointments The selection panel assesses the applications usually complete an anonymous application form. Applicants must 3 provide examples that demonstrate The Scottish Government receives applications. The that they have the skills and knowledge 1 selection panel shortlists candidates for interview. required for the role. Shortlisted candidates are invited for interview. The selection panel identifies those candidates it considers The Scottish Government has begun suitable for appointment. testing other methods of assessing skills and experience (see paragraph 72).

4 Scottish ministers make an appointment The minister considers a list of suitable candidates identified by the selection panel and he or she may choose to meet all candidates suitable for appointment.2 Finally, the minister decides who to appoint and records the reasons for his/her decision.

Notes: 1. If there are many applications, Scottish Government staff may carry out a preliminary sift of applications. 2. The OCPAS assessor may be involved in these meetings. Source: Office of the Commissioner for Public Appointments in Scotland Part 3. The skills and expertise of board members 21

66. The pilot elections to health boards will be independently Exhibit 6 assessed by the London School of The number of applications for public appointments (2004/05–2008/09) Economics within five years to review The number of applications for public appointments has halved since 2004/05. the cost, participation levels, and the effect that the elections have had on 50 15 engagement between the boards Number of times ministers were not provided with a choice of NHS bodies and patients and the 40 public. It is therefore too early to comment further on this approach. 10 30 Fewer people are applying to become non-executives 20 5

67. In 2008/09, the number of 10 applications across 55 public round per applications Average appointment rounds ranged from 0 0 six to 30 with an average of 19.37 2004/05 2005/06 2006/07 2007/08 2008/09 Between 2004/05 and 2008/09, the Average applications Number of times number of applications for each round per round ministers were not of public appointments more than provided with a choice halved (Exhibit 6). Source: Office of the Commissioner for Public Appointments in Scotland (OCPAS) 68. During 2008/09, the appointment process failed to provide Scottish ministers with a choice of candidate to appoint in over a fifth of all cases. This requires an exception • the time taken to make Progress to increase the range to the Commissioner for Public appointments – in 2008/09, of people who apply to be non- Appointments in Scotland’s code of each appointment round took an executives has been mixed practice. The number of times when average of six months 71. Boards need to include people the Commissioner has granted an from different backgrounds who can exception because there has been no • public perceptions of public bodies bring a broad range of skills, expertise choice of candidate available has risen and perspectives to the role of a non- from two in 2005/06 to 12 in 2008/09 • a perceived risk of potential executive. This includes ensuring (Exhibit 6). damage to individuals’ personal that users of public services are as reputations involved as possible. In September 69. It is not clear why the number 2008, the Commissioner for Public of applications has decreased or • the level of pay. Appointments in Scotland produced whether the quality of applications a strategy to encourage a wider has increased. Attracting applicants to 70. Some of the non-executives range of people to become non- become non-executives may become we interviewed during our board executives.38 An action plan including even more difficult in the future visits were not clear on their roles. recommendations and targets for the given the major challenges that the This was particularly the case for Scottish Government was developed boards of public bodies face. Chairs, executive agencies where their role to implement the strategy but chief executives, non-executives and is solely advisory. However, some progress against it has been mixed others have suggested that potential non-executives in other types of (Exhibit 7, overleaf). applicants may be put off by: board were also unclear about their roles in leading their organisation and • the nature of the appointments ensuring that corporate governance process which is competency structures were in place and based operating effectively.

37 An appointment round may be undertaken to fill a single vacancy on a board or several vacancies. 38 Diversity Delivers, Office of the Commissioner for Public Appointments in Scotland, September 2008. 22

Exhibit 7 Progress in implementing actions the strategy to encourage a wider range of people to become non-executives There has been mixed progress in implementing the actions contained in Diversity Delivers.

Key Not started In progress Completed

Awareness and attraction Confidence and capacity

Communication campaign Centre of Expertise

Establish a centre of expertise to advise on and Recruit board role models administer the public appointments process

Board member profiles Pilot different application methods

Identify the core skills, knowledge and personal Short written guide to the work of boards qualities needed for a board member to be effective Explore distribution of written guide with other Pilot a variety of new application methods mailed documents

Produce and distribute public appointments DVD Appointment-focused diversity training

Run meetings and events for interested groups; Provide training for selection panels utilise board role models Provide regular updates on developments in Run workplace events equality and diversity Incorporate diversity training for board effectiveness Explore use of social networking sites into induction process for board members Measure diversity awareness as part of board Hub website members’ performance assessment

Develop hub website Education and Experience

Publicity material Education programme

Produce publicity and application documents in a Develop and run an education programme on more encouraging, less formal style becoming a board member

Monitoring Workshops for applicants

Analysis of monitoring information recommended Run regular workshops on how to apply and in Diversity Delivers prepare for interview

Pilot of board training positions Information bank of different methods of publicising appointments Provide routes for potential board members to 1 develop their skills in a training position

Note: 1. This action has been replaced by a mentoring programme which is in progress. Source: Office of the Commissioner for Public Appointments in Scotland Part 3. The skills and expertise of board members 23

72. A number of the actions have • two-thirds are men compared are not appointed through the public been successfully implemented. to 48 per cent of the Scottish appointments process, which may For example: population skew our findings to a certain extent.

• The Scottish Government has set • three per cent have a disability in The time commitment expected up a central administrative group comparison with 20 per cent of from non-executives varies to handle all applications for public the population appointments and provide advice 77. The Scottish Government is on the process.39 • the majority are over 50 years responsible for setting the time old. The majority of the Scottish commitment expected of non- • A single website for all public population are under 50 years old executives for most public bodies. appointments has been However, the time commitment established.40 • 97 per cent identified themselves varies by type of body, with non- as white, which is similar to the executives being expected to commit • Testing methods other than the Scottish population (96.5 per cent) between four and 60 days to the standard application form. For work of the organisation each year. example, gathering expressions • two-thirds are either in full-time For chairs, the time commitment of interest; using case study employment or are self-employed. ranges between ten and 156 days a assessment where applicants are A fifth are retired. year. On average, non-executives of presented with a real example NHS bodies and Scottish Water are and asked to demonstrate how 76. These data refer to all board expected to commit the most time they would respond; or using a members, both non-executives and (around one day each week) to board standardised curriculum vitae. executives. Around 18 per cent of work (Exhibit 8). It is not clear why respondents were executives who there is such variation. 73. Feedback from chairs and non- executives in our fieldwork indicated that they believed the appointments process has improved but it is Exhibit 8 bureaucratic and slow. Time commitment expected of chairs and non-executives The chairs and non-executives of NHS bodies are expected to commit the 74. However, at the time of our most time to board work. review, a number of important actions had not been started and others Number of days each year remained in progress. In particular, no Organisation type progress has been made on: Chairs Non-executive Average Max Min Average Max Min • three actions aimed at increasing awareness and understanding of Colleges 34 100 10 14 36 5 the importance of diversity in the NDPBs 86 144 24 29 60 6 appointments process NHS bodies 151 156 45 51 52 25 • identifying the core skills, Executive agencies n/a 13 30 4 knowledge and personal qualities needed for a non-executive to be Non-ministerial 30 –– 14 18 9 effective. departments Scottish Water 130 –– 48 –– 75. The composition of boards may not be expected to be perfectly representative of the Scottish Note: The chief executives of executive agencies chair their boards and are excluded from this table. Source: Audit Scotland population but based on our survey of all board members:

39 A Scottish Executive survey of its sponsor teams in 2006 suggested that the appointments process was the most difficult and challenging aspect of the sponsorship role. 40 http://www.appointed-for-scotland.org/ 24

78. Non-executives and chairs estimate that they actually spend Exhibit 9 around a third more time on board The pay of chairs and non-executives work than was indicated at the time There is wide variation in the pay of non-executives. of their appointment.

Most non-executives are paid 800 Average except for colleges and NDPBs with charitable status 79. The Scottish Government is also 600 responsible for setting the pay for Max those non-executives who are paid. 400 In 2008/09, non-executives in NHS Max bodies; executive agencies; two non- ministerial departments; and three-

Daily rate for chairs (£) chairs for rate Daily 200 Min quarters of NDPBs were paid. In total, Min these non-executives were paid £5.5 million – equivalent to 0.03 per 0 cent of the expenditure they were responsible for overseeing. NDPBs

NHS bodies

departments Scottish Water 80. Colleges and four NDPBs are Non-ministerial charities which means that, in accordance with the Charities and Trustee Investment (Scotland) Act 800 2005, their non-executives are not Average paid.41 In addition, the non-executives of Learning and Teaching Scotland, 600 with the exception of the chair, and

the joint Scottish Arts Council/Scottish Max Screen board were not paid.42 400 Max Max Non-executives’ pay depends Max 200 on the type of board and varies Min Min Min Min

considerably (£) non-executives for rate Daily 81. The levels of pay vary both among 0 public bodies and within each sector (Exhibit 9).43 Chairs and other non- NDPBs executives of NDPBs are paid over NHS bodies

50 per cent more each day than those departments Scottish Water on the boards of NHS bodies. This Non-ministerial Executive agencies difference is not explained by relative size of budget or workforce or by Note: The squares represent the average daily pay and the T-bars represent the minimum and any explicit statement of the relative maximum daily pay for each type of public body. Executive agencies are excluded from the chairs’ importance of these different bodies. diagram as chief executives chair the boards. Source: Audit Scotland 82. The chairs of public bodies who are paid receive an average daily rate of £258 for an average annual commitment of 120 days – just over £31,000 a year. But the daily rate for a chair ranges from £158 to

41 The four NDPBs with charitable status are National Galleries of Scotland, National Library of Scotland, National Museums of Scotland and Royal Botanic Garden Edinburgh. 42 The board members of Creative Scotland which replaced the Scottish Arts Council and Scottish Screen on 1 July 2010 are not paid. The chair is entitled to be paid but has waived that entitlement. 43 Some non-executives are paid a daily rate, others are paid an annual amount. In a few cases, they receive additional pay for additional responsibilities, such as acting as deputy chair or chairing a committee. To take account of these differences, we have calculated pay to a daily rate. Part 3. The skills and expertise of board members 25

£682. Other non-executives receive an average daily rate of £207 for an Case study 2 annual commitment of 36 days – Induction for new non-executives of Scottish Water around £7,500 a year. This ranges between £135 and £413 a day. Scottish Water provides its new non-executives with a detailed pack of information, which sets out the legal framework that the board operates Not all chairs and non-executives within; how the board works; details about managing conflicts of interest; have received induction, training or and information on the role of the chief executive. In addition, new non- assessment of their performance executives receive recent board papers and minutes. They meet the chair, the chair of the audit committee and all of the executive directors 83. When new non-executives individually. They also spend three days with operational managers to get an are appointed, they should receive understanding of what the organisation does in terms of customer service, training to explain: water and wastewater treatment.

• their roles as non-executives Source: Audit Scotland

• the key issues facing the organisation

• how their organisation operates. Case study 3 Peer review of non-executives at Scottish Natural Heritage 84. Eighty-four per cent of non- Scottish Natural Heritage tested a new approach to assessing non- executives said that they had received executives’ performance during 2008/09. Non-executives could nominate some form of induction after their up to four other people from the board and/or the senior management team appointment. Non-executives of to provide them with feedback on their performance. This was used as the NDPBs (86 per cent) were most basis for a discussion about their performance with the chair. In addition, all likely to have had some form of non-executives and the senior management team are invited to comment induction. Seventy-four per cent of on the performance of the chair directly to Scottish Government officials non-executives of NHS bodies and in confidence, and this provides a basis for the chair’s annual performance colleges reported having some form appraisal with senior Scottish Government officials. of induction.

85. Around half of non-executives Source: Audit Scotland and just over a quarter of chairs described their induction as formal. Some of the induction processes in the 17 organisations we visited were opportunities to consider and address Half of college non-executives do not highly structured and comprehensive any training and development needs. have their performance assessed (see Case Study 2). Others were This was a consistent pattern across 88. Non-executives’ performance less formal, for example an informal all types of public body. should be formally and regularly conversation with the chair. In assessed. This provides a means of several organisations, non-executives 87. In addition to training, there are providing feedback, identifying any described how induction had other support mechanisms in place for training needs and for informing the improved over time and was now some chairs. For example, the chairs reappointment process. However, very useful. of all NHS bodies meet monthly and over a quarter of all non-executives the chairs of colleges meet regularly do not receive an assessment of 86. The role of a chair is highly as a group. These groups provide an their performance with college non- challenging. Almost all (96 per opportunity for sharing and discussing executives being least likely to have cent) chairs said that they had the common issues and experiences their performance assessed (Exhibit 10, opportunity to consider their training among peers. However, there is no overleaf). Case study 3 sets out how needs. Just over a quarter of chairs regular forum for the chairs of NDPBs Scottish Natural Heritage uses peer had received specific training to to meet, nor anywhere for the chairs review to inform assessment of its support them in their role. The of different types of public body to non-executives’ performance. chairs of NDPBs were most likely meet and discuss shared issues. (35 per cent) to have received Given that all boards will be facing such training. Most non-executives similar challenges over the next few (90 per cent) have also had years, this would be valuable. 26

89. Directors-general or directors within the Scottish Government Exhibit 10 assess the performance of the chairs Percentage of non-executives who did not receive a performance of NDPBs, NHS bodies and Scottish assessment Water through a formal appraisal College board members are least likely to have their performance assessed. system. It is not clear who should assess the performance of college Organisation type Percentage chairs but in two of the three colleges we visited, chairs sought informal Colleges 50 feedback from other board members. NDPBs and Scottish Water 8 Recommendations NHS bodies 2 Executive agencies/non-ministerial departments 21 The Scottish Government should: Total 24 • investigate why the number of applications for public Source: Audit Scotland appointments is falling and take action to reverse this trend

• reduce the time it takes to make public appointments Public bodies should:

• ensure that work to expand the • ensure that all non-executives range of people applying to be receive formal induction training non-executives is completed that explains their roles, the and procedures are in place to key issues facing the board assess its effectiveness and the organisation and how it operates • encourage the chairs and non- executives of different public • review the skills and expertise bodies and colleges to meet on they need for the future and a regular basis actively seek to attract people with skills to address any gaps • review the time commitment of identified non-executives and chairs and ensure that it is more realistic • ensure that the performance and made clear as part of the of all non-executives is formally recruitment process and regularly assessed.

• review the pay of non-executives and chairs to ensure greater consistency and clarity about remuneration levels. 27 Part 4. How boards operate

Boards must hold the management of the organisation to account by challenging and scrutinising their work to ensure that it meets organisational objectives. 28

Key messages To operate effectively boards need executive will normally be designated to meet certain criteria as (the body’s) Accountable Officer • Public bodies need strong (with responsibility for) representing leadership to make important 91. There is a large body of guidance the body before the Audit Committee decisions on spending available to boards about their role of the Scottish Parliament’. However, priorities in the coming years. and operation.44 We reviewed this the guidance also states that, ‘the It is essential that relationships material and formed the view that for chair (has a responsibility for) taking between chairs and chief boards of public bodies to operate lead responsibility in representing the executives work well to ensure well they must: body in links with ministers and the effective leadership. Scottish Parliament‘. • provide leadership to their • A key role for boards is organisations 94. The combined responsibility for to scrutinise risk, financial leadership and accountability (see management and performance, • set the organisation’s strategic Part 2) between the chair and the and this will become increasingly direction within the context of chief executive may cause confusion important as budgets are Scottish ministers’ policies and and tension unless roles are clear reduced. Boards are not priorities and relationships are well managed, consistently good at doing irrespective of whether the chief this. Responsibility for risk • scrutinise and monitor the executive is a member of the board. management is mainly delegated organisation’s performance While it is essential that they work to audit committees, rather than closely together, there must be a being led by the board. • display integrity in how they clear separation of their roles behave and how they make (Exhibit 11). This requires that they act • It is important that boards decisions professionally, trust and respect each demonstrate collective other.46 Neither the chair nor the chief responsibility and ownership • be open and transparent executive should be too dominant. In of decisions. This will be practice, this means that much of the particularly important when • regularly review how they operate success of the relationship between a bodies are deciding their chair and the chief executive relies on priorities which may include • not become involved in the daily their personalities. Eighty-six per cent reducing or stopping services. running and operation of the of board members who responded to organisation.45 our survey said that the chair and the • There is significant variation chief executive of their organisation in the size and make-up of Guidance on leadership needs to understood and respected each boards and whether or not the be clearer other’s distinct and separate roles. chief executive is a member of the board. 92. Strong leadership is essential for 95. In the 17 boards we visited, public bodies as difficult decisions relationships between chairs and 90. Public bodies face a challenging need to be made about how to chief executives appeared generally future. Budget reductions may operate with less money. Chairs and constructive and positive with a clear increase the risk of failure to deliver chief executives in particular have understanding of separation between public services and there will be important but different leadership their roles. It will be important that raised public scrutiny of the decisions roles to play. these relationships are maintained and made by their boards. It is therefore strengthened to ensure public bodies important that boards operate as 93. Scottish Government guidance are led effectively. In a few cases, effectively as possible. on the difference between the when a new chair or chief executive leadership roles of chairs and chief had been appointed, we were executives should make clear that informed that there was a period there is a dual responsibility. The On of adaptation to different individual board guidance states that ‘the chief work practices and expectations and

44 We examined the Good Governance Standard for Public Services, The Independent Commission on Good Governance in Public Services, 2004; On board: A guide for board members of public bodies in Scotland, Scottish Executive, April 2006; Review of the role and effectiveness of non-executive directors, Derek Higgs, January 2003. 45 As noted in Part 1, the role of boards in executive agencies is different. This description applies to the boards of NHS bodies, NDPBs, colleges and Scottish Water. 46 On board: A guide for board members of public bodies in Scotland, Scottish Executive, April 2006. How boards operate 29

that this had proved challenging. Case study 4 outlines the way the Exhibit 11 relationship between the chair and The roles of the chair and the chief executive chief executive of the Office of the The chair and the chief executive play different roles in leading a public body. Scottish Charity Regulator changed when the organisation became a non- Chair Chief executive ministerial department in 2005. • Leads the board • Leads the organisation and Boards’ ability to set the strategic its staff • Ensures the board sets direction for their organisation is the strategic direction and • Runs the organisation on a changing objectives for the organisation day-to-day basis 96. The boards of public bodies are • Ensures that the board • Implements the board’s the link between Scottish ministers holds the management to decisions account for the delivery of the and the organisations that deliver • Delivers the organisation’s organisation’s objectives public services. Scottish Government objectives guidance states that one of the key tasks for boards is to ‘establish the • Is personally accountable to corporate mission, aims and objectives the Scottish Parliament of the body’. However, boards are required to do this ‘within the policy Source: Audit Scotland framework set by the Scottish Executive’. Any strategic direction that boards provide to their organisations must have the approval of Scottish Case study 4 ministers and has to contribute to The working relationship between the chair and chief executive of the the Scottish Government’s purpose, Office of the Scottish Charity Regulator strategic objectives and targets as set out in the national performance In 2005, the Office of the Scottish Charity Regulator (OSCR) became a non- framework.47 ministerial department having previously been an executive agency. This change meant that the executive agency board, which was in place to advise 97. Despite this, two-thirds of the the chief executive, was replaced by a board of non-executives with an non-executives we surveyed thought independent chair. The chief executive is not a member of the board and this that the board should have the change in governance arrangements meant that both the chair and the chief primary role in leading and directing executive had to clarify and adapt to their new roles. This was achieved by the organisation and around half felt regular meetings to discuss the way their relationship should work and has that their boards actually did this. resulted in a relationship that non-executives described as very effective. However, their capacity to lead and direct their organisation needs to be Source: Audit Scotland in the context of devolved national priorities and represents a different relationship to the arms-length arrangements pre-devolution. It Boards’ scrutiny of risk, financial • the risks faced by the organisation would be helpful if revised guidance management and performance provided a clear articulation of the role needs to improve • performance against organisational of boards in this respect. targets 99. Boards must hold the 98. All the boards of public bodies management of the organisation • financial management. we visited were taking steps to to account by challenging and align their activities with the Scottish scrutinising their work to ensure that 100. In our survey almost three- Government’s purpose, strategic it meets organisational objectives. quarters of non-executives felt that objectives and targets set out in the To do this, boards should focus their they were scrutinising and challenging national performance framework. scrutiny on: the organisation’s management very well or quite well. However, almost

47 Letter from Cabinet Secretary for Finance and Sustainable Growth to the chairs of all public bodies, May 2009. 30

a fifth thought the level of challenge College and the lack of scrutiny Boards are using committees to and scrutiny was only adequate. of financial management by their manage their workload but there We saw examples of highly robust respective boards. It is vital that are risks attached to this questioning of senior managers by boards of public bodies have the non-executives on, for example, necessary skills and receive the 107. All boards use committees to reports on financial management but right level of financial information to manage their workloads. However, we also observed other examples effectively scrutinise the financial the number of committees varies where financial reports were accepted management of their organisations. significantly, ranging from one to without challenge or question. 24, with the average being between 104. In our visits to 17 boards we five and six committees.48 All public Risk management needs to be found that the quality of board papers bodies have an audit committee, improved on financial management was variable, which is chaired by a non-executive. 101. The scrutiny of risk, with not all receiving a clear summary NHS boards generally have higher organisational performance and of key issues. For example, at Adam numbers of committees and this is financial management is essential Smith College, the board only received partly because some committees, as the three issues are interlinked. the minutes of its finance committee, such as those for community Boards will have to focus increasingly which gave assurance that college health partnerships, are required by on the financial health of their finances were being managed legislation and others such as an organisations while ensuring that adequately but contained no figures. ethics committee are required by the core services are delivered and By contrast, at Historic Scotland Scottish Government. organisational targets are met. a full breakdown of the current There will be more risks that financial position was reported with 108. In some of the 17 boards organisations will fail to meet their commentary on key issues. we visited, detailed scrutiny of financial or performance targets organisational performance and and the likelihood of those risks 105. It is important that all boards financial reports was delegated to a materialising will become higher. are provided with up-to-date committee. While committees can It is therefore vital that boards are financial information which outlines do more detailed scrutiny work on fully sighted on all of the risks facing the forecast outturn position for particular areas and allow boards to their organisation. the financial year and provides maintain their focus on the major commentary and assessment of any issues facing the organisation they 102. Boards are not as focused on risks that may affect the position. also generate the risks of: risk management as they should Boards need to increase the profile be. In all of the boards we visited, of financial management in their • the full board not being aware of the main responsibility for risk governance role. significant issues or risks management was delegated to the audit committee and in some Scrutiny of organisational • drawing non-executives into too cases risk was not reported to the performance varies much operational detail board. Where responsibility for risk 106. In our visits to boards we management is delegated to the found that papers on organisational • reducing the speed at which audit committee, it is important that performance were generally good, decisions can be made. the whole board regularly considers giving a fairly comprehensive but risks and any preventative action that strategic assessment of performance 109. Our survey found that non- can be taken. in most cases. However, all 17 boards executives are aware of the were making efforts to improve importance of not interfering with Boards need better information the quality and effectiveness of the the day-to-day operation of the to scrutinise the financial performance information that they organisation. However, there is management of their organisations received. Where possible, boards a balance to be struck between 103. Sound financial management is should scrutinise their organisation’s ensuring that they receive sufficient crucial for public bodies at any time, performance alongside their information to be able to monitor but this is particularly important now monitoring of financial management and scrutinise the organisation’s as less money is available. In Case and risk to address how well money performance and not becoming study 1 (page 18) we referred to the is being used to deliver results. too involved in the details of the financial problems experienced by organisation’s operations. NHS Western Isles and Inverness

48 NHS Greater Glasgow and Clyde has 24 committees. How boards operate 31

Some boards need to improve the organisation (Exhibit 12). Across all Authority hold smaller, more focused way they operate 106 boards, on average: meetings for specific groups or on particular topics. This has increased 110. The way in which boards • two-fifths had board meetings that the participation of the public and other conduct their business varies. were open to the public stakeholders. Scottish Water used to Although none of the 17 board hold its board meetings in public but meetings we attended was • all made their board minutes attendance was very low. Instead, particularly long, most lasted around available – three-quarters on their it now holds stakeholder meetings two or three hours, in some cases website and a quarter on request around Scotland where members agendas were lengthy. At John of the public and other stakeholders Wheatley College, for example, the • four-fifths made board papers can meet non-executives and senior agenda had 22 main items within publicly available – three-tenths on members of staff. which there were 36 sub-items. It is their website and half on request. unlikely that boards would be able to However, a fifth did not make 113. Most of the boards that held give this many items an appropriate board papers available.49 open meetings had some form of level of attention. A number of board private session to consider confidential agendas were not explicit about 112. In the past, a number of public matters. In our view the agenda items which items were for decision, bodies have held annual public included in these sessions were discussion or information only. meetings to allow their boards to appropriate (eg, matters that related to engage with the public and other staffing or commercially confidential Some boards are more open than stakeholders. However, this approach material). For those boards that held others has not been wholly successful, as closed meetings it is not clear why the 111. The extent to which boards are attendance at these meetings has public were excluded as most agenda open and transparent to the public been low. John Wheatley College items did not appear to have a high and stakeholders varies by type of and the Cairngorms National Park degree of sensitivity.

Exhibit 12 Openness and transparency in public bodies There is wide variation in the openness and transparency of boards of public bodies.

Colleges NDPBs NHS Executive Non- Scottish Average bodies agencies ministerial Water departments % % % % % % %

Public 33 25 100 0 0 0 41 meetings

On web 49 82 96 100 0 100 75 Board On request 51 18 4 0 100 0 25 minutes Not available 0 0 0 0 0 0 0

On web 8 21 83 9 0 0 29 Board On request 56 61 17 55 100 100 49 papers Not available 36 18 0 36 0 0 22

Note: All board papers may be subject to requests under the Freedom of Information (Scotland) Act 2002. Source: Audit Scotland

49 Some board papers and minutes that were made public contained material that was not published as it was considered to be exempt under the Freedom of Information (Scotland) Act 2002. This may be appropriate but public bodies should seek to minimise this material and review it to decide whether it can be made public in the future. 32

Members are not always asked reviews (eg, Scottish Water) or is that boards should undertake a to declare any interests at board reviews every other year (eg, NHS formal and rigorous evaluation of their meetings Shetland) while others did not have own performance and that of their 114. The Ethical Standards in Public a systematic review process in place committees and individual directors. Life etc. (Scotland) Act 2000 requires (eg, Scottish Qualifications Authority). A recent change to the Code all public bodies to keep a public The NHS has introduced a Board recommended that any review of the list, or register, of individual board Development Programme, central to board’s performance should involve members’ interests which records which is a self-assessment tool which someone from outside the board their other interests and activities allows NHS boards to review their who could bring an independent that could influence their work as effectiveness. perspective. This peer review a board member. All of the public approach could also help to promote bodies covered by our review had a 117. Where reviews have taken place good practice among boards of public register of interest in place and 98 per they have resulted in some changes bodies and encourage sharing of best cent of all board members said they to board practices. For example, the practice across different parts of the knew how to register and declare board of Scottish Natural Heritage public sector. their interests. In most cases, board carried out a review to improve its members updated their register of own effectiveness as well as that The make-up of boards varies interests whenever there was a of its committees. As a result the across and within sectors change to their circumstances and this board and its committees are more was supported by an annual review. strategic in their operation, with The size of boards ranges from four shorter meetings and greater focus to 32 115. When board members have on performance and outcomes. 119. The number of board members a conflict of interest, this must be (executive and non-executive) declared and recorded. If the conflict 118. The UK Corporate Governance varies significantly across the public of interest is sufficiently significant, Code sets out best practice for the sector but two-thirds of boards the member should not be part of boards of private sector companies.52 have between ten and 17 members the discussion or should not remain One of the principles of the Code (Exhibit 13). The Scottish Public in the room. We saw examples of discussions at board meetings where board members left the meeting when a subject with which they Exhibit 13 had a conflict of interest was being The size of boards discussed, and careful recording of The size of boards ranges from four to 32 with two-thirds of boards having declarations of interest in the minutes between ten and 17 members. of meetings. However, in six out of 17 board meetings we attended 20 there was no formal request for board members to declare any interests.50 15 Without proper declarations of interest and clear recording of those declarations, public confidence in the 10 work of boards may be undermined.51 Organisations Not all boards regularly review how 5 they operate 116. Regular review of how boards 0 are working is important to ensure 3231302928272625242322212019181716151413121110987654321 they are operating as effectively as Number of board members possible. Reviews may look at issues such as the frequency of meetings Source: Audit Scotland or the committee structure below board-level. In the 17 public bodies we visited, there was a variety of practices: some conducted annual

50 Board members were not asked to declare an interest at the board meetings we attended at Historic Scotland, National Library of Scotland, NHS Ayrshire and Arran, NHS National Services Scotland, NHS Shetland and the Scottish Prison Service. 51 The First ScotRail passenger rail franchise, Public Audit Committee, Scottish Parliament, June 2009. 52 UK Corporate Governance Code, Financial Reporting Council, July 2010. Previously known as the Combined Code on Corporate Governance. How boards operate 33

Pensions Agency has the smallest board with four members, and the Exhibit 14 National Library of Scotland and NHS Comparison of public sector boards in Scotland Greater Glasgow and Clyde have the NHS Tayside has nearly double the number of executives and non-executives largest boards with 32 members.53 compared to Scottish Enterprise.

120. On average, boards that are NHS Tayside Scottish Enterprise responsible for the performance of their organisation (NHS bodies, Executives 7 (Chief executive, Director of 1 (Chief executive) colleges and NDPBs) have more Finance, Chief Operating Officer, members than advisory boards, with Director of Workforce, Director of NHS boards tending to be the largest. Public Health, Medical Director, Nurse Director) The size of boards varies by type of body ranging from: Non-executives 16 (includes three Local Authority 11 representatives, Employee • 11 to 32 in NHS bodies, with an Director, Chair of the Area Clinical average of 18 Forum, nomination from the CHP conference, representative of • 12 to 17 in colleges, with an Dundee University and nine non- executives) average of 15 Total 23 12 • 6 to 32 in NDPBs, with an average of 12 Source: Audit Scotland

• 4 to 14 in executive agencies, with an average of nine 122. In 2009, the average number 124. The make-up of most boards of board members in a FTSE 100 is usually prescribed in legislation. • 8 and 9 in the two non-ministerial company was 10.8.54 We reviewed College boards are subject to the departments which have boards. the make-up of the boards of a Further and Higher Education sample of six FTSE 100 companies. (Scotland) Act 1992 which states that 121. It is difficult to specify the Board members numbered between they must have between ten and 16 ideal number of board members. nine and 14, with non-executives members and include: There has to be a balance between being in the majority. In all cases the having sufficient skills and expertise chief executive and chief financial • the principal of the college (its and not having so many members officer were executive board chief executive and only executive that decision-making and collective members.55 board member) responsibility become difficult. Other than the historic context in which Non-executives make up the • a student from the college boards were established there is no majority of boards except in rationale for the difference in size of executive agencies • representatives of both the boards. Exhibit 14 shows the variation 123. Nearly all boards have a teaching and non-teaching staff of in the set-up of a health board and an majority of non-executives which is the college. NDPB board. It is understandable that important in enabling them to hold the representatives of different interests management of their organisations 125. All college boards meet this should be included on health boards. to account. The exceptions are the requirement, although one However, in addition to a larger boards of executive agencies and college (Barony) has 17 members on than average number of executive the Registers of Scotland, which its board. members it means that these boards have a higher proportion of executive are very big. board members reflecting the purely advisory nature of these boards.

53 The size and composition of the National Library of Scotland board is defined by law. The Scottish Government has consulted on proposals to restructure the board of the National Library of Scotland during 2010. 54 The Female FTSE Board Report 2009, Cranfield University, 2009. 55 The companies we examined were Shell, British Airways, Capita, Serco, BP and Schroders. 34

126. Some non-executives have a Collective responsibility among Recommendations representative role, such as local board members is critical authority, employee and patient The Scottish Government should: representatives for NHS bodies, and 130. All board members must take student representatives on college collective responsibility for decisions • review and update its On board boards. They serve an important made by the board. Collective guidance function in ensuring that the board responsibility is essential and will be is aware of the views of its key increasingly tested as boards have • review the rationale for why stakeholders. However, there is to make challenging decisions about some chief executives are not potential for conflict in the role how best to implement Government board members. as these non-executives seek to priorities, how to reduce costs and represent their stakeholders but are what services need to change or Public bodies should: also members of the board. stop being delivered. If boards do not take collective responsibility • ensure that the board’s Not all chief executives are board for their decisions, the risk of poor scrutiny efforts are focused on members performance and potential for board organisational performance, 127. The chief executives of all NHS decisions to be undermined increases. financial management and bodies and executive agencies, risk management and the principals of colleges all sit 131. Ninety-four per cent of all board on their boards in their own right. members agreed or strongly agreed • improve the performance However, the picture is mixed that their boards took collective information provided to their in NDPBs and non-ministerial responsibility for decisions. In the boards and its link to financial departments. Twenty of the 29 17 boards we visited, boards information NDPB chief executives are not board appeared to take collective members although they do attend responsibility for decisions even when • maximise the openness and board meetings to answer questions there were strong differences of accessibility of their board and provide advice and information opinion expressed during discussion. meetings and papers (Exhibit 15). The chief executive of one non-ministerial department 132. Irrespective of how non- • regularly review how they are (Office of the Scottish Charity executives come to be on the board, operating and performing with Regulator) does the same. what is best for the organisation support and advice from an must override any other interests. external peer 128. This inconsistency is a result Discussion and debate is essential of different legislation establishing within boards and it is important that • review the use of committees the role of individual NDPBs. stakeholder representatives are able and ensure that major decisions However, excluding the chief to put across the views and concerns which should be made by executive from board membership of the people they represent. boards are not delegated appears to be at odds with his or However, once a decision is made – her formal accountable officer role even by a vote – all board members • ensure that board members are and accountability to the Scottish must take collective responsibility for asked to declare any interests Parliament for the proper use of the decision and support it. they have at all board meetings public money. and where a conflict exists they do not participate in discussion 129. In addition to the chief executive, and this is formally recorded. some senior directors such as directors of finance are executive board members of NHS bodies, Scottish Water and executive agencies. This contrasts with NDPBs and colleges where directors are never board members. It is unclear what the reason is for this different practice across the public sector. How boards operate 35

Exhibit 15 Board membership among the chief executives of NDPBs Twenty out 29 chief executives of NDPBs are not members of their boards.

Chief executive IS NOT on the board Chief executive IS on the board

Bòrd na Gàidhlig Highlands and Islands Enterprise Cairngorms National Park Authority Learning and Teaching Scotland Loch Lomond and The Trossachs National Park Authority Scottish Children’s Reporter Administration National Galleries of Scotland1 Scottish Enterprise National Library of Scotland1 Scottish Environment Protection Agency National Museums of Scotland1 Scottish Further and Higher Education Funding Council Quality Meat Scotland Scottish Qualifications Authority Risk Management Authority Skills Development Scotland Royal Botanic Garden Edinburgh1 Water Industry Commission for Scotland Scottish Arts Council2 Scottish Commission for the Regulation of Care Scottish Criminal Cases Review Commission Scottish Legal Aid Board Scottish Legal Complaints Commission Scottish Natural Heritage Scottish Police Services Authority Scottish Screen2 Scottish Social Services Council Sportscotland VisitScotland

Notes: 1. The chief executives of the four organisations with charitable status cannot be board members by statute. 2. Creative Scotland has now been established and takes over the role of the Scottish Arts Council and Scottish Screen – its chief executive is not a board member. Source: Audit Scotland 36 Appendix 1. Public bodies and colleges included in this audit

Colleges Non-departmental public NHS bodies (23) Executive agencies (39) bodies (29) (11) Aberdeen College Bòrd na Gàidhlig NHS Ayrshire and Arran Accountant in Bankruptcy Adam Smith College1 Cairngorms National Park NHS Borders Historic Scotland Angus College Authority NHS Dumfries and Galloway HM Inspectorate of Education Anniesland College Highlands and Islands NHS Fife National Archives of Scotland Ayr College Enterprise NHS Forth Valley Scottish Court Service4 Banff and Buchan College of Learning and Teaching Scotland NHS Grampian Scottish Housing Regulator5 Further Education Loch Lomond and The NHS Greater Glasgow and Scottish Prison Service Barony College Trossachs National Park Clyde Scottish Public Pensions Borders College Authority NHS Highland Agency Cardonald College National Galleries of Scotland NHS Lanarkshire Social Work Inspection 3 Carnegie College National Library of Scotland NHS Lothian Agency Central College National Museums of Scotland Mental Welfare Commission Student Awards Agency for Clydebank College Quality Meat Scotland for Scotland Scotland Coatbridge College Risk Management Authority National Waiting Times Centre Transport Scotland Cumbernauld College Royal Botanic Garden Board Edinburgh Dumfries and Galloway College NHS 24 Scottish Arts Council2 Dundee College NHS Education for Scotland Scottish Children's Reporter Edinburgh’s Telford College NHS Health Scotland Administration Elmwood College NHS National Services Scottish Commission for the Scotland Forth Valley College 3 Regulation of Care NHS Quality Glasgow College of Nautical Scottish Criminal Cases Review Studies Improvement Scotland Commission NHS Orkney Glasgow Metropolitan College Scottish Enterprise Inverness College Scottish Ambulance Service Scottish Environment NHS Shetland James Watt College of Further Protection Agency and Higher Education State Hospitals Board for Scottish Further and Higher Scotland Jewel and Esk Valley College Education Funding Council NHS Tayside John Wheatley College Scottish Legal Aid Board NHS Western Isles Kilmarnock College Scottish Legal Complaints Langside College Commission Lews Castle College Scottish Natural Heritage Non-ministerial Public corporation Moray College Scottish Police Services departments (3) (1) Motherwell College Authority General Register Office for Scottish Water North Glasgow College Scottish Qualifications Scotland North Highland College Authority Office of the Scottish Charity 2 Oatridge Agricultural College Scottish Screen Regulator Perth College Scottish Social Services Registers of Scotland Reid Kerr College Council South Lanarkshire College Skills Development Scotland Stevenson College Sportscotland Stow College VisitScotland West Lothian College Water Industry Commission for Scotland

Notes: 1. We conducted fieldwork in the 17 organisations in bold. 2. The Scottish Arts Council and Scottish Screen had a joint board in readiness for their merger into Creative Scotland which took place on 1 July 2010. 3. These organisations will become part of the new Social Care and Social Work Improvement Scotland. 4. The Scottish Court Service became a non-ministerial department on 1 April 2010. 5. It is proposed that the Scottish Housing Regulator will become a non-ministerial department under the Housing (Scotland) Bill. Source: Audit Scotland Appendix 1. 37

The audit did not include councils, tribunals, commissioners or ombudsmen. In addition, although we included the NDPBs listed in the table, we did not include advisory NDPBs. These are bodies that do not normally employ staff or have budgets and they are not audited on behalf of the Auditor General. The bodies are:

• Fisheries (Electricity) Scotland

• General Teaching Council for Scotland

• Local Government Boundary Commission for Scotland

• Mobility and Access Committee for Scotland

• Public Transport Users’ Committee for Scotland

• Scottish Advisory Committee on Distinction Awards

• Scottish Law Commission

• Scottish Local Authorities Remuneration Committee 38 Appendix 2. Audit approach

Evidence for this report was gathered • document reviews and interviews from fieldwork using quantitative with board members and key and qualitative approaches. The key staff in 17 sample boards (see elements of this were: Appendix 1). We attended a board meeting and interviewed • a survey of all board members of chairs, chief executives, board public bodies and colleges.1 We members and staff who support surveyed all 1,500 board members the board. In total, we conducted in the 106 bodies and we achieved 68 interviews and spoke to over a response rate of over 50 per 70 chairs and non-executives. Our cent (777). The survey covered a interviews covered: range of topics including: –– board roles and responsibilities –– their time commitments and pay –– appointments

–– their experience of induction, –– induction, appraisal and training and performance training appraisal –– board working –– their experience of being appointed –– relationships

–– their understanding of the role • interviews with Scottish of the board Government staff, the Commissioner for Public –– the collective skills of the Appointments in Scotland and board other key stakeholders

–– how the board operates • review of guidance to public bodies including: –– relationships both within and external to the board –– On Board

–– demographic data –– Scottish Public Finance Manual

–– Good Governance Standard for Public Services

–– NHS Board Development Programme.

1 The survey was conducted on behalf of Audit Scotland by George Street Research. The report is available at www.audit-scotland.gov.uk 39 Appendix 3. Questions for board members

Checklist Assessment Required actions

• Am I confident that the board has the right information to assess the organisation’s and the management’s performance?

• Am I sure that the board has effectively assessed the risks facing the organisation and has plans in place to manage those risks?

• Am I confident that the board has the right skills, knowledge and expertise?

• Does the financial and performance information I receive as a board member tell me how the organisation is performing?

• Is the relationship between the chair and chief executive effective, balanced and appropriate?

• Do the chair and the chief executive understand and respect their respective roles?

• Does the board know when to stay out of the day-to-day running of the organisation?

• What more could the board do to be open and transparent?

• Are we learning and sharing enough from other boards?

• How could we improve and develop our system of induction, training and assessment of board members?

• Do I think our committee structure enhances our scrutiny work or does it slow us down or draw us into too much detail?

• Am I confident that the board makes the best decisions? 40 Appendix 4. Membership of the project advisory group

A project advisory group provided independent advice and feedback at various stages of the project. The membership of the group was:

Member Organisation

Ian Bruce Compliance Manager, Office of the Commissioner of Public Appointments Scotland

Frank Clark Convener, Scottish Commission for the Regulation of Care

Brian Keegan Chair, Scotland’s Colleges

Jennifer Mack Head of Strategic Development, NHS Grampian

Colin Miller Public Bodies Policy Division, Scottish Government

David Nicholl Head of Chartered Institute for Public Finance and Accountancy, Northern Ireland

Colin Spivey Head of Resourcing Centre of Expertise, Scottish Government

John Swift Public Appointments, Scottish Government Health Directorates

Note: Members of the project advisory group sat in an advisory capacity only. The content and conclusions of this report are the sole responsibility of Audit Scotland. The role of boards

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