BBDM 3294 SBL L5

CG: Public Sector Governance

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 BBDM 3294 SBL L5 STUDY
Public Sector Governance GUIDE

B) Governance
B6 Public sector governance
a) Compare and contrast public sector, private sector, charitable
status and non-governmental (NGO and quasi-NGOs) forms of
organisation, including agency relationships, stakeholders’ aims
and objectives and performance criteria.
b) Assess and evaluate the strategic objectives, leadership and
governance arrangements specific to public sector organizations
as contrasted with private sector
c) Explain democratic control, political influence and policy
implementation in public sector organizations
d) Discuss obligations of the public sector organisation to meet the
economy, effectiveness, efficiency (3Es) criteria and promote
public value.
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 Public Sector Governance
• A range of organisations exists in most
economies with three types predominant.
• • Private sector – exist to make a profit
• • Charities – which are charitable or
benevolent
• • Public sector – delivering goods or services
not provided by “for profit”entities

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 Video Session
• https://www.youtube.com/watch?v=oYAslo
OB6u4
• Deloitte in the Public Sector

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 Public Sector Governance (2)
• The latter are operated predominantly by the
state (self governing autonomous region), made
up of four aspects:
• • The government – an elected body
• • The legislature – e.g. in the UK Houses of
Parliament
• • The judiciary – independently appointed
• • The secretariat – separate administrative body
to carry out state functions e.g. Education
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 Public Sector governance
In addition government organisations can exist at different
levels. For example:
National government
• Usually based in the capital city and are subdivided into
central government departments e.g. in the UK the
Ministry of Defence and are lead by a Minister from the
elected governing political party.
• They are also supported by permanent government
employees (in the UK known as the Civil Service) who are
employed to provide advice to the Minister in charge and
assist in the implementation of government policy.
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 Public sector governance
Sub-national government
• At this level, countries can be organised into regional local
authorities e.g. in the UK local council authorities.
• They are, in many countries, managed by elected representatives
as with the national governments and supported by permanent
officials similar to the Civil Servants noted above.
• They take control of specific functions which are deemed to be
best controlled by local people who will have knowledge of
various demographic needs. As such the services they control e.g.
Town Planning will report to the local authority on selected
performance measures.

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 Public Sector governance
Supranational government
• In this case National governments come
together for a specific purpose e.g. the
European Union in Brussels.
• The purpose is to prevent disagreement
between member states and foster a
collective opinion on high level international
issues.

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 Stakeholders and the Public Sector
Stakeholders and the Public Sector
• The complexity of the stakeholder relationship and
the claims that stakeholders have is more
complicated in the public sector.
• Of particular sensitivity in this context is the use of
taxpayers’ funds which can be perceived to be used
for services which are of no benefit to the person
paying the tax. This gives rise to the question of
agent and principal within the Public sector.

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 The problem of agency in the Public sector

• Those that manage a business (the agents) do not

own that business but manage the business on
behalf of those who do own it (the principals),
hence the concept of agency. This is key concept
in the context of corporate governance.
• In the public sector, the principals are different
and rather than being for example shareholders
are often those that fund and/or use the activity.

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 The problem of agency in the Public sector

• Public sector organisations carry out their important roles on behalf of

those who fund the service, mainly taxpayers, and the users of the
services e.g. patients in a hospital. Funders and service users are therefore
sometimes the same people (i.e. taxpayers placing their children in state
school) but often they are not, giving rise to disagreements on how much is
spent and on what service provision – the fundamental nature of political
debate is about how much state funding should be allocated.

• Public sector organisations emphasise different types of objectives to the

private sector. Whereas private companies tend to seek to optimise their
competitive strategy and advantages, public sector organisations tend to
be concerned with social purposes and delivering their services
efficiently, effectively and with good value for money.

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 The problem of agency in the Public sector

• Their objectives can therefore be more complex to develop.

This is often depicted as the three E’s:
• • Economy – to deliver the service on time and within budget
therefore delivering value to the taxpayers, as well as those
working in them and those using the service.

• • Effectiveness – to deliver the service the organisation was

created to provide, an efficient organisation delivers more for a
given level of resource input than an inefficient one.

• • Efficiency – gaining an acceptable return on the money invested.

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 Other forms of organisations
• In addition to the private and public sector, there is also a “third sector”.
• This term is used to describe those organisations that are designed to
deliver services or benefits that cannot be delivered by the other two
categories.

Non-governmental organisations (NGO’S)

• These are task oriented and driven by people with a common interest
providing a variety of service and humanitarian functions, e.g. the Red
Cross.
• They are often privately funded, managed by executive and non-
executive boards. In addition, they often have to answer to a board of
trustees. This board are in place to ensure that the NGO operates in line
with its stated purpose.
• In this instance the agency relationship exists between the NGO and the
donors.
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 Other forms of organisations
Non-governmental organisations (NGO’S) (Contd)
• NGOs do not have shareholders but they may have members
– typically people who donate on a regular basis and receive
copies of the organisation’s annual reports and other
publications.
• Beneficiaries are also stakeholders, but probably possess low
influence
• Larger NGOs, in particular, take governance seriously and
may be managed by a board of directors, overseen by a
committee of trustees.
• In some cases, there may be a regulator

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 Other forms of organisations
Quasi-autonomous non-governmental organisations –
QuANGO’S
• They are organisations funded by taxpayers, but not controlled
directly by central government e.g. The Forestry Commission,
offering expertise and a degree of independence. QuANGO’s
are often criticised for not being accountable as their reporting
lines are blurred.
• They are predominantly funded by the taxpayer and hence
should account for its actions. The problem exists as they
report to many principals (part of the purpose of the QuANGO).
• The agency relationship in this instance is therefore unclear.

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 Video Session 2
• https://
www.youtube.com/watch?v=e96vrCJ6LC8
• Public Governance and Inclusive Growth –
Accountability***

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 Objectives and Leadership – Strategic objectives

• Strategic objectives of an organisation relate

to what that organisation wishes to achieve
over the longer term.
• Public sector bodies are not “stand alone”,
their objectives are determined by the overall
government policy objectives. Example: state-
funded schools

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Objectives and Leadership – Governance arrangements

• Unlike private sector, public sector do not have shareholders

or institutional investors to oversee the BoDs.
• Many public sector bodies have an additional committee that
overseas the work of the BoDs. The committee may be
referred to the “board of governance”. The objectives of this
board are:
 To hold the directors to account on behalf of the funders
(usually the taxpayers); and to ensure that the organisation is
well run and meets the performance targets set by higher
levels of government.
 The board may also involve in negotiating the budget on
behalf of the organisation and monitor actual performance
compared to budget, and responsible for senior appointments.
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 Objectives and Leadership – Democratic Control
• In democratic countries, the role of public sector bodies is
determined by public debate – influenced by political parties.
• Changes in governments and changing policies of existing
governments may affect the role and number of public sector
bodies.
• In many cases, complicated issues can lead to a large public
debate. Examples:
• - what services should be provided free at the point of use
– health care and university education?
• - whether services should be privatised or remain in public
hands?

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 Objectives and Leadership – Democratic Control (2)

Transparency
Essential aspect of democratic control. May be achieved by:
• Holding debates in public. Members of the public may
attend debates (eg most of the parliaments have public
galleries)
• Informing citizens of key decisions – through briefings to
the media or government websites.
• Consulting citizens when big decisions are being made so
that their views are considered.
• Providing public access to information held by public
authorities

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 Objectives and Leadership – Democratic Control (3)

Privitisation
• Transferring assets owned by the state to the private sector.
• Can be privatised by:
• -convert to a listed company and shares offered to members of
the public and financial institutions
• -sale of the assets and undertaking, in its entirety, to another
entity
• Targets usually are utility providers (telecommunication, gas,
electricity and water)
• Usually subject to a great deal of change (cultural, structural and
governance). Some privatised companies may lead to the creation
of private monopoly, a regulator may be appointed to oversee it.

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 Privatisation
Advantages Disadvantages
• Better services – due to • Some strategic services should be kept
competition and profit incentive to in state hands (eg defence, nuclear
cut cost power)
• If profitable, dividends are channelled
• State-owned entities are starved of
to wealthy shareholders not
funds for investment in government
infrastructure because government • Price raise can lead to consumers being
do not want to raise taxes “ripped off”
• Reduction in political interference • The industry may become
• Selling state-owned assets can defragmented. Eg national rail network
– who is responsible for safety?
raise significant sums for the
• Lack of investment in new technologies
government
due to pressure to maximise profits in
the short term.

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 Public value – public sector differences
• Unlike private sector, performance evaluation in public
sector bodies do not usually exist to make profits, so
using ROCE are meaningless.
• In private organizations, goods and services produced
need to meet customers want.
• Public sector do not have the same market
mechanism. Income is determined by political
objectives, and the amount they receive may not
depend on level of activity – may spend all with little
incentive to control costs or increase level of service
provided.
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 Public value- value for money
• Governments should ensure that :
– Scarce taxpayer money is allocated to the areas that need it
most,
– Once allocated, the funds are used appropriately – no waste
Public sector performance is often measured under “3Es”
-Economy- deliver the required service on budget, on time
and within other resource constraints
-Efficiency – concerns the return on resources invested in a
service and how much output is delivered
- Effectiveness – describes the extent to which the objectives
of the services are achieved

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 Illustration: The 3Es
• A city council implemented a programme for reducing the
amount of litter on the streets of the city. This involved
employing dedicated staff to remove the litter. At the end of
the year, the streets were cleaner and it was agreed that the
programme had met its objectives (effectiveness). However,
it has overspent by 15%, so had not been cost-effective.

• Reasons:
• - wages paid to the staff were higher than wages paid to
similar staff in other areas and higher than budget
(economy)
• - the area cleaned by each member of the staff each week
was less than expected and budgeted, ie more staff had to
be employed than expected (efficiency)
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 Video Session 3
• https://
www.youtube.com/watch?v=A8_xn5JerXY
• Making Public Services Better | Caroline
Makepeace
• https://
www.youtube.com/watch?v=NJY6P7t-yD0
• Private Sector vs. Public Sector

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 Video Session 3
• https://
www.youtube.com/watch?v=5RVPQZwQR64
• UK Public Sector Workers Strike for Fair Pay
• https://
www.youtube.com/watch?v=UfpuC0tOh-A
• The State of the State 2017-18 – Citizens,
government and business***

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 Recap!
• Professional skills

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 29

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 (1) Professional Skills - Communication

• A strategic leader must be able to communicate to a range

of audiences (e.g. a colleague, an external stakeholder or
a client) using a tone and style of communication tailored
to that audience, ensuring that the leader can effectively
inform, persuade or clarify. The leader should also be
sensitive to the needs of the intended audience.

• (1) Inform—to convey knowledge of a fact or

circumstance.
• Inform Exam context: Inform concisely, objectively and
unambiguously, while being sensitive to cultural
differences, using appropriate media and technology.
• The candidate may be required to convey relevant
information, and to use an appropriate tone (e.g. for an
organisation's board of directors).
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 (1) Professional Skills - Communication

• (2) Persuade
• To cause somebody to do or believe something through sound
reasoning
• Exam context: The candidate may be required to persuade using
compelling and logical arguments demonstrating the ability to
counterargue when appropriate (e.g. persuade the chairman of
the board to appoint more non-executive directors).
• (3)Clarify
• To make a statement or situation less confusing and more
comprehensive
• Exam context: The candidate may be asked to clarify and simplify
complex issues to convey relevant information in a way that
adopts an appropriate tone and is easily understood by the
intended audience (e.g. clarifying the agency relationships
affecting the organisation).
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 (2) Professional Skill – Commercial Acumen
• A strategic leader must show awareness of
wider business and external factors affecting an
organisation and use commercially sound
judgement and insight to resolve issues.
(1)Demonstrate Awareness
To clearly show knowledge or perception of a
situation or fact
• Exam context: The candidate may be required
to demonstrate awareness of organisational or
wider external factors affecting an organisation
(e.g. the key risks affecting it).
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 (2) Professional Skill – Commercial Acumen
(2) Use Judgement
• To demonstrate a deep and accurate understanding of a situation.
• Exam context: To identify key issues when determining how to
address or resolve problems and in proposing and recommending
the solutions to be implemented (e.g. the candidate should use
judgement when evaluating the relative merits of applicants for
the position of chief executive).

(3) Show insight

• To demonstrate a deep and accurate understanding of a situation.
• Exam context: The candidate may be required to show insight and
perception to identify problems and demonstrate acumen in
suggesting appropriate solutions (e.g. to resolve).

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 (3) Professional Skill : ANALYSIS

A strategic leader must be able to select relevant information from a variety of sources,
deeply analyse that information and then reflect on what is discerned.
• (1) Investigate
• To carry out a systematic inquiry to discover the facts of a situation.
• Investigate Exam context: The candidate may be required to review information from a
wide range of sources and use a variety of analytical techniques to establish the causes
of problems, or to identify opportunities. The examiner may also award professional
skills marks for using the most appropriate framework for analysing the situation.
• (2) Scrutinise
• To inspect closely, thoroughly and critically.
• Exam context: The candidate may be required to look at something in detail and judge it
(e.g. to scrutinise the performance of an organisation's senior management).
• (3) Consider
• To reflect deeply before coming to a conclusion, making a decision or giving a
recommendation
• Exam context: The candidate may be required to consider information, evidence,
analysis and findings carefully, reflecting on their implications for the organisation (e.g.
to consider the outlook for an organisation).

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 (4) Professional Skill - Scepticism
• Scepticism
• An attitude that includes a questioning mind, being alert to
conditions which may indicate possible misstatement due to
error or fraud, and a critical assessment of evidence.
• The concept of professional scepticism is assumed
knowledge from earlier studies of Audit and Assurance:
• This professional skill is closely inter-related to the
fundamental principle of objectivity, which applies to all
professional accountants. A strategic leader must exercise a
healthy degree of scepticism and not just accept
information at its face value. A leader should probe issues,
question assumptions and challenge the status quo. He
should express any scepticism in a courteous manner,
explaining any concerns clearly.
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 Professional Skill - Scepticism
• (1) Probe - to search into or examine something thoroughly
• Probe Exam context: The candidate may be required to probe
deeply into the underlying reasons for issues and problems, beyond
what is immediately apparent

• (2) Question - to express doubt about something or somebody.

• Exam context: The candidate may be required to question facts,
opinions and assertions, by seeking justifications and obtaining
sufficient evidence for their support and acceptance (e.g. to question
assertions made by the chief executive during a company's board
meeting).

• (3) Challenge - To dispute the truth or validity of something

• Exam context: The candidate may be required to challenge
information presented or decisions made, where this is clearly
justified, in a professional and courteous manner.
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 (5) Professional Skill - Evaluation

• Evaluation
• A strategic leader needs to make valid assessments of
available information and to forecast future trends.
Evaluation also involves being able to appraise
proposals, leading to appropriate conclusions and
recommendations.
• (1)Assess-to judge the amount, value, quality or
importance of something.
• Assess Exam context: The candidate may be required
to assess organisational issues or the implications of
decisions made (e.g. assess the role and value of non-
executive directors). An assessment often requires a
discussion of the advantages and disadvantages of
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 Professional Skill - Evaluation

• (2) Estimate
• To roughly calculate the amount or value of something
• Exam context: The candidate may be required to estimate
trends or make reasoned forecasts of the effects of external
and internal factors on the organisation or about the
outcomes of decisions available to the organisation (e.g. to
estimate the effect of fraud).
• (3) Appraise
• To place a monetary value on something
• Exam context: The candidate may have to consider facts,
opinions and findings objectively with a view to balancing
the costs, risks, benefits and opportunities before making or
recommending solutions or decisions (e.g. to appraise a
project's benefits, costs and risks).
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• END OF LECTURE 5

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