Scottish Government relationships with public bodies: progress review

6 Risk and Escalation

6.1 Risk management was explored in detail at interviews given the criticism in the Public Audit and Post-Legislative Scrutiny Committee legacy paper in March 2021 'it is simply unacceptable that there continue to be examples of weak and inconsistent challenge being provided by Scottish Government officials and of problems not being identified or acted upon until it is too late.' A key message from interviews was that SG having confidence and trust in the public body and having a good assurance framework in place was not the same thing as there being zero risk. Both public body and sponsor team interviewees were very clear on the importance of risk management. Public bodies are required to have their own risk management arrangements and many interviewees from public bodies reported regular sharing of the corporate risk register with the sponsor team, either through sharing Board papers or separately. Most interviewees reported that risks are regularly discussed at meetings with sponsors.

6.2 Clarity on ownership of risk is a key issue. Some interviewees suggested that SG always retains the reputational risk, yet public body interviewees clearly felt that they were themselves managing significant reputational risk. The logic of the lines of accountability discussed in section 2.5 would be that where there is a significant problem in a public body, the Board and/or Chief Executive would be held accountable for the problem itself and the Portfolio Accountable Officer in SG would be subject to scrutiny on how far the assurance framework in place had allowed SG to identify and attempt to mitigate the problem. In practice, that distinction may be difficult for those not directly involved. Setting out clearly for the Public Audit Committee and other external commentators the different aspects of accountability and roles and responsibilities for the different types of public body may be helpful.

6.3 Interviewees reported mixed experience of escalating individual risks and issues to SG sponsors. Most reported regular discussion of risk during sponsorship meetings. Some interviewees from public bodies perceived that formally escalating a risk or issue would be seen as negative and might undermine SG confidence in the body, while others reported occasions on which they had escalated a risk and this had been seen as appropriate. One interviewee pointed out that it is very important to be clear that escalation of a risk is not the same as transferring ownership of the risk, which is an important point. When a public body escalates a risk to SG, the public body still remains responsible for the management of that risk and should be setting out for SG what steps are being taken to mitigate the likelihood and/or impact. SG has a responsibility to consider the overall risk, the mitigating actions and whether any further action is required, either by the body or by SG itself. Where any risk or issue is escalated, it is not clear whether there is always good communication about how this has been considered within SG, what has been decided and by whom. Risks and issues escalated by public bodies or sponsor teams should follow the risk management arrangements in place within SG.

6.4 Sponsors should be aware of the degree of urgency of the risk or issue, and ensure as far as possible that Portfolio Accountable Officers are made aware of significant new risks or issues or significantly increasing risks as early as possible. There can be real value in direct discussion between the Chair or Chief Executive of a public body and the Portfolio Accountable Officer at an early stage, to ensure a good understanding of the position, any planned mitigating actions and any likely asks of SG. Sponsors need not wait for formal escalation of a risk or issue to make the Portfolio Accountable Officer aware. If sponsors are unsure whether a risk or issues is sufficiently significant to need the attention of the Portfolio Accountable Officer, they can seek advice from the Public Bodies Unit.

Recommendation 10: Portfolio Accountable Officers should ensure that all public bodies within their area of responsibility are aware that formal escalation of a risk or issue is an accepted part of good governance, and that they are clear on the process for escalation when this is required.

Recommendation 11: When public bodies or their sponsors escalate a risk or issue, this should be done through established DG assurance and risk management arrangements taking account of the urgency of the risk or issue. Where time pressure means that decisions relating to a risk or issue cannot wait an appropriate meeting, DG business management teams should ensure that any decision made is documented for the corporate record. In either case, the decision and the reasons for it, plus any further follow up action proposed, should be communicated in writing to the public body and/or the sponsor team.

6.5 Looking beyond the escalation of an individual risk or issue, many interviews discussed SG's overall handling of more challenging situations, some of which had been covered in section 22 reports. Interviewees in NDPBs and agencies most cases suggested that in practice SG was unable to distance itself from public bodies that were facing significant problems, which fits with the point made about SG retaining some or all of the reputational risk. In working closely with the senior management team of a public body to resolve problems, SG sponsors may in some cases be crossing the normal lines of accountability for the Board and/or the Chief Executive of the public body.

6.6 There are many models for deciding when greater intervention by a parent body or regulator in the operation of a body is necessary. Two that were highlighted during this review were the NHS Board Performance Escalation Framework and the Regulatory Framework established and operated by the Scottish Housing Regulator. Each of these frameworks has been put in place in a specific legal and operational context, and applies to a group of bodies (Health Boards and Registered Social Landlords) engaged in a shared activity. Devising an equivalent framework which would work effectively across public bodies with very different activities and governance arrangements would be enormously helpful but is beyond the scope of this review. This is something which the Public Bodies Unit might want to consider developing itself or commissioning, based on experience of operating the arrangements described in the next paragraph.

6.7 In the meantime, one key feature of both the NHS and the SHR frameworks is that there is clear decision-taking and that the bodies concerned are aware of the decision. This is a step that SG can take in managing relationships with its public bodies within the current accountabilities: when a situation arises where sponsor teams and senior sponsors think SG needs to work more closely with a public body than usual over an extended period, they should consider whether SG is or may be cutting across the established lines of accountability and, if so, should recommend to the Portfolio Accountable Officer that they take a formal decision that SG is intervening in the running of the body. They should in all cases consult Public Bodies Unit before providing advice to the Portfolio Accountable Officer, and should also consider any legislation relating to the public body before providing such advice. This will be particularly important for NMOs, which are directly accountable to Parliament - any intervention from SG in the operation or governance of an NMO should not be made without legal advice.

6.8 If the Portfolio Accountable Officer agrees that this intervention is appropriate under the circumstances, the decision should be communicated to the public body in writing, along with the reasons for the decision and an indication of what SG will look for to decide that it is time to revert to the normal relationship with the public body. The Public Bodies Unit should be notified of the decision.

Recommendation 12: Portfolio Accountable Officers should take a formal decision, based on advice from sponsor teams and/or senior sponsors in consultation with the Public Bodies Unit, if a situation has arisen in which SG needs to intervene in the operation of a public body in a way that cuts across established lines of accountability. Any such decision should be communicated in writing to the public body. Interventions in the governance or operation of NMOs should not be made without legal advice.

6.9 One more important issue in dealing with challenging situations is the personal impact on those involved. Interviews highlighted the reputational impact of a failure or critical report on the public body and the senior leaders involved, but some interviewees reported that the scrutiny process had a serious impact on their own mental health. The aftermath of a section 22 report was seen in several cases as prolonged, with one interviewee referring to it as an 'open wound' and another talking of the body being 'on the naughty step'. One area where SG's relationship with its public bodies could bring additional benefit is in ensuring that senior leaders in public bodies going through intense scrutiny have appropriate personal support in place.

6.10 The Public Bodies Unit has in the past helped arrange coaches or mentors for public body chief executives, particularly when they are new in post or have been looking for additional help. This should continue and, if possible, be extended to ensure that there is support for any chief executive who is keen to benefit from it. Independent support should be proactively offered to chief executives facing challenging situations or intense periods of public scrutiny.

Recommendation 13: Public Bodies Unit should ensure that coaching and/or mentoring support is offered to the chief executive of every public body, particularly newly-appointed chief executives and those facing challenging situations or intense scrutiny.