Tuesday, 31 March 201510.30am – 11.30am

Webinar Chair: Mike Cox, Operations Manager, AELPFacilitator: Graham Rivers, Associate Consultant,

Mentor Group Limited

Commissioned and Funded by

AELP WebinarAligning Financial Planning and Risk Management

with the Principles of Good Governance

Overview

Background and basics of good governance

Financial planning and control framework

Identifying and monitoring risk

Q and A

Government Agenda

• The objective is to improve the quality, capability and capacity

of governors, leaders and managers, taking on board best

practice in corporate governance, so that there is a

consistently high standard of leadership, management and

governance across the sector

• The recent open letters from the FE Commissioner emphasise

the importance of governing bodies and boards being skilled

at holding their executive teams to account

Strategy to Support Workforce Excellence in Further Education

July 2014

‘What excellence looks like’

• Consistently high standards of governance and

leadership, ensuring that the offer is right for the people

served, through partnerships with learners, employers

and the local community

• Effective challenge is a cornerstone of good governance.

Boards have access to comprehensive information on

performance and are well-informed about the wider

policy environment to fulfil their responsibilities

• Governance as a driver of excellence and Intervention

if not!

Poll 1

How do the words ‘governance’ and ‘intervention’

make you feel?

Select one of the following:

• Comfortable

• Uncomfortable

• Apprehensive

• Positive

Why more governance?

• I am already subject to:

– Quality Assessments

– Ofsted inspection

– Government

PLUS….

• One of the biggest Acts ever passed by

Parliament

UK Corporate Governance Code

• 1991/2 : Polly Peck, BCCI, Maxwell

– Abuse of power and fraudulent practice

• 1992 : Cadbury Report

– Split role of CEO and Chairman

– 3 Non-exec directors (NEDs)

– Audit and remuneration committee ( majority NEDs)

– Added to Stock Exchange listing rules in 1994

• 1995 : Greenbury

– Aligning Director remuneration

– Long term incentives (LTIP)

• 1998 : Hampel

– Harmonised Cadbury and Greenbury (Combined Code)

– All remuneration to be reported (pensions!)

UK Corporate Governance Code

• 1999 : Turnbull

– Internal financial and audit controls

• 2001, 2004 : Myners

– Funds clearer over investments in non-quoted companies

– Pension fund investments

• 2003 : Higgs

– Responsibility of NEDs tightened (ENRON)

• 2009 : Walker

– Northern Rock - risk assessment board function

• 2010 : Revised UK Corporate Governance Code

– Mandatory for public companies, recommended for private companies

– PRINCIPLES BASED not RULES!

UK Corporate Governance Code

• Five tasks of governance:

– Leadership

– Effectiveness

– Accountability

– Remuneration

– Relations with Shareholders

UK Corporate Governance Code

• Leadership

– Effective Board collectively responsible

– No one individual should have ‘unfettered’ powers

– NEDs should constructively challenge and help develop strategy

• Effectiveness

– Appropriate balance of skills on Board

– Formal and rigorous process to appoint new directors

– Timely supply of accurate and quality information

• Accountability

– Board must present realistic view of company position and prospects

– Risk management process and internal control systems

– Maintain ‘appropriate’ relationship with auditors

UK Corporate Governance Code

• Remuneration

– Sufficient to attract, retain and motivate Directors/Execs

– Significant proportion linked to corporate performance

– Formal and transparent process

– No Director to be involved in deciding their remuneration

• Relations with Shareholders

– Board must ensure satisfactory and timely dialogue with shareholders

– AGM as formal event

– Encourage shareholder participation

• At the end of the day – COMMON SENSE!

• An element of overall Corporate ‘Citizenship’

Where does governance fit?

Strategy Resources Budget Skills

VisionGovernment

policy

MissionLocal

authorities

ValuesTrade

associations

Markets Communities Stakeholders Legislation

12

Typical governance arrangements

13

Large investor – backed ITP

•Non-executive chair

•Managing director

•Financial director & company secretary

•Non-executive shareholder

•Non-executive specialist

Owner –manager ITP

•Owner-manager shareholder

•Finance director & company director

•Non-executive specialist

Social enterprise ITP

•Chair (elect) trustee

•Trustees

•Chief executive

•Company secretary

Poll 2

• How closely do you believe your own business

follows the UK Corporate Governance Code?

Select one of the following:

• Fully

• Substantially

• Some way to go

Financial Planning and Control

‘No plan of operations extends with any certainty beyond

the first contact with the main hostile force’ (von Moltke)

• Financial Reporting is historic

– Records what happened

– Compared with plan/budget/forecast

• Financial Planning is looking ahead

– Forecasting revenues, costs, cash, resources

– Compared with plan/budget

• BOTH are intertwined

Financial information

• Reliable?

– Accurate?

– Consistent format?

• Available?

– MI systems good enough?

– How soon after accounting period end?

• Appropriate?

– Versus plan/budget/forecast?

– Management Accounts v Statutory?

• Auditable?

– Appropriate checks and balances in place?

– Approval processes?

Financial Planning Quality

• Sum of the parts

– Cohesive? (e.g. sales quotas?)

– KPIs aligned?

– Supports Vision/Mission/Values?

• Funding requirements identified

– Working capital?

– Grants/subsidies?

– Capex requirements appropriate?

– Make/build/buy/partner?

• Sufficient contingency if

– Shortfall?

– Overachieve?

– Timing delays?

Poll 3

• Which do you pay the most regular attention

to in your business?

Choose one of the following:

• Balance Sheet

• Profit and Loss Account

• Cashflow Forecast

Assessing risk

• CEO Centrica– Annual results

– February 2015

– BBC Radio 4 Today programme

“We failed to deliver our plan…… Many factors

influenced us this year, not least the weather

was not as we had predicted. The collapse of

worldwide energy prices was not foreseen, …..

Leadership and Governance

• In tune with change…

– Government policy

– Economy

– Market

– Technology

– Society views

– The weather forecast!

• Change creates opportunities

– View from the balcony!

• Understand financial impact

Assessing risk

21

Medium High Critical

Low Medium High

Insignificant Low Medium

High

High

Low

Low Impact

Probability

Risk assessment framework

22

Leadership

Risks arising from weak

governance and

leadership (board and

chief executive),

including poor strategy

and planning. This

category of risk includes

missed opportunities

and failures to anticipate

changes in the FE

environment – external

risks.

Operational

Risks of systems, policies, or

projects failing, or events,

publications, campaigns being

judged as being of poor quality.

Individually these are less

significant and would be dealt

with through the management of

staff and teams, but on a larger

scale these may impact on an

organisation as a whole.

Includes the sub-category

‘business continuity’.

MI

A common risk is the

production of poor or too

detailed MI

(management

information) that is not

fit for function in that it

fails to inform accurately

board discussions and

decisions.

Support

Risks arising from

declining support from

key constituencies such

as employers, learners,

business communities,

media, partners,

decision-makers etc.

Financial

Unsuccessful fundraising or

poor returns/losses on

reserves and invested money;

also budgetary failures.

Regulatory

Failure to meet regulatory

requirements.

People

Failure to maximise staff

performance or minimise poor

performance. Loss of capacity

or organisational memory due

to high turnover of staff etc.

Good Governance

• Leadership

• Effectiveness

• Accountability

• Remuneration

• Relations with shareholders

• Accurate and timely financial planning and control is

critical

• Regular review and monitoring of business risk is critical

23

Guardianship

24

Strategic Drift

Organisation goals

Time

Activity

Intended

Emergent

Future

Vision

Source: Johnson & Scholes –

Strategic Drift

Leadership and Governance

• Leaders must respond to changes

– Society / government

– Economy /market

– Technology

– Set direction

– Establish accountability

– Plan resources

– Measure delivery and quality

• Understand financial impact

• Review and improve

Resources

Effective Governance and Strategic Leadership

– A guide for independent training providers

Future AELP Webinars

13 April Pilot Learner-Led Technology Challenge

Paul Bailey, Jisc. Chris Swingler, AELP

21 April Reforms on SEND arrangements,

Dr. Christine Rose, Paul Warner, AELP

30 April CEO Member Update

Stewart Segal, AELP

6 May Traineeship Staff Support Programme

Jo Gourley Froome, Mentor Group

Visit www.aelp.org.uk/events for more Information