Councillors should not be on the boards of local authority trading companies (latcos) according to panellists at the latest Room151 Monthly Online Treasury Briefing (MOTB).
Chris West, the former executive director of resources at Coventry City Council, said that having members on latco boards was “fraught with danger”. Despite this, he said it was a regular occurrence.
“My personal advice would be, don’t put elected members on the board of these things because you conflict them horribly,” he said.
West, who is now an independent consultant and CCLA Investment Management board member, said that councillors struggled with the concept of acting in the best interests of the company and not the council. However, this is what company law requires.
“A lot of elected members find all of this incredibly challenging, because they can’t really get their head around that this is different to just a council department,” he added.
Latcos have grown in popularity in recent years in areas such as housing, waste disposal, social care and energy. But there have been several high-profile failures, most notably at Croydon and Nottingham.
My personal advice would be, don’t put elected members on the board of these things because you conflict them horribly.
Governance structures
Other panellists concurred with West and suggested that it was vital to establish appropriate governance structures.
Parmi Mudhar, financial director for Coventry Municipal Holdings – which oversees a number of companies including Tom White Waste and the Coombe Abbey Hotel – said that members are not on any of the boards of these bodies. However, there is a shareholder committee, which is a subcommittee of the cabinet.
“We were really clear with members in terms of what their role should be on the shareholder committee, and what the role of the various boards are for each of those companies, and also what the executive management team’s role is with regards to managing those individual entities,” she said.
Andrew Hardingham, a former local government finance director, also warned against having too many council officers on the boards.
“Delivering services through a trading company needs a different set of skills to those that are predominantly to be found in in local government. So populating a board, or populating a management team, with local government officers, I would suggest is not the right way to go,” he said.
Get the egos out of the way, get the brains in the room, and contemplate exactly what it is you want to achieve and why a company is the best solution in terms of achieving that.
Back to basics
Hardingham said it was important to start from the basics of what the trading company wants to achieve and what is the best way to attain that goal.
“A lot of people think that it would be great to be a director of a company, without thinking about what it really means. So get the egos out of the way, get the brains in the room, and contemplate exactly what it is you want to achieve and why a company is the best solution in terms of achieving that.”
West then pointed out that there was a role for certain council officers on the board, but not those where there could be a conflict of interest.
“It quite often ends up being the director of finance, or a senior finance professional, who is on the board, because they are less likely to be managing the client side of the operation.”
James Goudie KC, head of chambers at 11KBW, agreed that a sound structure and good governance were required for a successful latco to be established.
“[What is needed is ]a clear demarcation between the council and the company and their respective roles and responsibilities, a reliable funding regime from the PWLB or wherever, and an appropriate choice of directors – persons with relevant expertise in one way or another,” he said.
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