Local authority trading companies – the new vision

Councils need to strike a balance between accountability and allowing companies freedom, writes Vivien Holland, Director at Local Partnerships.

Everyone is aware of the high-profile failures, but many local authority trading companies continue to thrive, taking advantage of the freedoms enjoyed by operating independently in the commercial world. However, the current economic and fiscal landscape is particularly challenging, so it is important for all councils to be aware of how this might impact their companies regardless of how successful they are.

We have just launched our updated Local Authority Company Review Guidance in light of those pressures. It gives additional questions for elected members to ask to ensure they make informed decisions. Our thanks go to Max Caller for the foreword and his continued support.

Drawing on our experience, three key matters should be the focus of attention if you have a local authority trading company.

The council’s governance as shareholder. It is not uncommon for councils to exert excessive control, preventing the company from having the necessary freedoms to operate commercially. Letting go of operational detail and focusing on strategic oversight is important. Having a shareholder committee for this can work well.

Periodic reviews for Local authority trading companies

At an operational level, contract management is sometimes not executed with the necessary formality. As a result, poor performance may go unchecked. Having operational boards to ensure targets and performance measures are being achieved is advisable and can avoid matters escalating and becoming a strategic level problem.

It is not uncommon for councils to exert excessive control, preventing the freedoms to operate

The entity’s governance structure is of strategic importance. The board is key to the company being successful, but often its composition and the way it operates prevents this from happening, for example a lack of suitably skilled non-executive directors, including chairs with sufficient experience and gravitas to enable the company to flourish on its own.

This guidance is aimed at every council that owns a company, whether successful or not. All will need to review their companies periodically. In some cases, councils seek assurance that the governance structures and risk processes are fit for purpose. This tool helps councils ensure they strike an appropriate balance between allowing a company the freedom to manage its activities and ensuring accountability.

At Local Partnerships, we work extensively with commercial teams. We provide hands-on capacity and capability services supporting local authority C-Suite teams to transform services.

Can we help?

Do you have a project you would like help with, or could we answer a question about our services? Please don’t hesitate to get in contact with us, via the form on the right or message Vivian with your enquiry.