What elements are needed for good governance over shared services?
All the eight asset pools mandated by the Government are now up and running, which is a tribute to the hard work of many people within and outside the LGPS. There is an accompanying drive to share other non-investment services in order to gain economies of scale. It is a sad fact of life that some of these ventures will succeed, while others will run into problems. This is where good governance structures are essential.
Delineation of the different bodies - where interests overlap, where they are aligned and where they are less so - is the first requirement. The Government is about to launch a consultation over whether to separate funds from administrating councils. This would be a move in the right direction but there also needs to be recognition that even services with shared interests are not always aligned.
For example, the pension fund may wish the emphasis to be on service quality, while the council’s focus is on saving money. In the case of the pools, which are in most cases separate entities, Board members may have their own agendas which diverge from their customers.
There should always be a service level agreement between the fund and service provider, both to set out expectations and a process for resolving conflicts and problems such as non-performance. Key Performance Indicators (KPIs) are an important monitoring mechanism but on their own insufficient.
In the private sector sanctions tend to be imposed or the relationship is terminated if the service-provider fails to meet the agreed targets. With shared services identifying effective ones is more difficult. Any financial penalty ends up penalising either the pension fund member or the local tax-payer. Termination is difficult, perhaps impossible, if the shared service has been agreed at council level or, as with the pools, is the result of a Government directive.
There are two other vital elements of good governance over these complex relationships. The first is a body with clear powers to effect change in the event of non-performance, whether that be to terminate the relationship or to replace senior management. The second is sufficient resources to achieve this in practice.
Most of the pools have put the elements described above in place, albeit they are so far untested, and the funds are in many cases short of governance resources. However, my big question is whether the shared service arrangements which MHCLG is encouraging are doing the same.
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