by Ian Kirby
Here at C.Co, we have worked collaboratively with a number of local councils nationwide when they have been considering setting up a trading company as part of their commercialisation strategy.
Sometimes, we work with an organisation that has already established a trading company when the journey towards commercialisation has proved bumpier than expected. We can look at ways to resolve any issues that have arisen by revisiting the original business caseseeing what, if anything has changed, making recommendations for improvements and re-setting goals where needed. Importantly, we can take an honest look to see whether the original assumptions and benefits have actually been delivered or look like they are going to be achieved. Local authorities sometimes find it difficult to know when to say ‘stop’.
Don’t rush into setting up a trading company
Setting up a trading company should never be rushed into and should not be considered as a standalone ‘fix’ to solve ever-increasing cash flow challenges but as one part of an overall commercial strategy. There are four key areas to prepare as a first step to setting up a trading company:
- A fully costed and risk assessed business case
- The business plan, which demonstrates in-depth market knowledge
- The capacity to carry out the plan, as in people, resources, capability and overall culture to make it work
- A transparent governance framework.
Governance tends to come under the ‘boring but important’ heading. It’s something very few people get excited about, but it is a critical success factor for whether a trading company stands or falls. Good governance should create a competitive advantage. Poor governance can spell disaster.
What should a governance framework for Local Authorities Trading Companies do?
A governance framework for Local Authority Trading Companies should:
- Reflect the principles of good governance set out in the CIPFA Delivering Good Governance in Local Government Framework.
- Be transparent and understood.
- Specify the distribution of rights and responsibilities between shareholders, the board and managers/employees, commissioners and contract management.
- Balance the need for control and flexibility appropriately at each level.
- Provide the structure by which company objectives are set.
- Ensure company boards can be held to account and that an administration’s priorities be fulfilled.
- Enable each company board to have the operational flexibility to be innovative and run the company within the agreed parameters.
- Enable investment conversations to play out.
- Spell out rules and procedures for making decisions
- Separate the role of contract management, the shareholder, and the board
Talk to us if you would like to explore how the C.Co team can help you set up or review the performance of your trading company. We can review existing governance against the framework, identify gaps and make recommendations for improvements.