The role of governors in strategic planning and risk management

Ian Gross Head of Internal Audit & Projects The role of governors in strategic planning and risk management Higher Education Funding Council for England

Essential background - 1
The University’s objects:
To advance education . . . . for the benefit of the community in NI and elsewhere
To preserve, enhance and disseminate knowledge through teaching, research etc
To promote wisdom and understanding by the example and influence of corporate life

Council’s powers and functions are laid down in the Charter and Statutes
“ to do all things . . necessary . . for the efficient management and administration of the . . University . . “
“ in particular, to govern, manage and regulate the finances, . . business and all affairs whatsoever of the University . . “

Essential background - 3 G o v e r n o r s R e s p o n s i b i l i t i e s D u t i e s M a n a g e m e n t Retained duties GP&FC AC NC RC Other

“ All animals are equal, but some animals are more equal than others.”
(George Orwell, Animal Farm, 1945)

A key task is to challenge management, i.e. to be a critical friend
How you do this depends on your view
of the strategic priorities and risk
These determine your information needs

The risk-oversight continuum
High-level More detailed Lower risk Higher risk

Strategic planning role - 1
The Charter and Statutes don’t specify Council’s role in strategic planning, therefore you have discretion
Recognised good practice is to take ownership of the mission and plan, to ensure they meet your obligations (mainly to fulfil the objects and maintain solvency)

When determining Council’s role, consider:
Management strengths, weaknesses, culture
Level of assurance derived from quality of information provided by management
Assurances derived from independent sources on planning process and outputs (e.g. audit processes [IA, EA, QAA], 7-year review, benchmarking activity)
Extent of resource prioritisation necessary

Further considerations:
Time availability of governors
Balance of involvement compared with management input
Balance of time spent on planning compared with monitoring

Further considerations; do you:
concentrate only on key areas or not (issues can sometimes become temporarily ‘key’)
limit participation to a sub-group of governors
use the results of own effectiveness review

The links between the plan and the use of resources should be made clear to governors. The extent of your interest depends on:
identified risks + risk portfolio and appetite
financial strategy
other subsidiary strategies

Strategic planning role - 6 - monitoring
Monitoring is a key activity for governors:
There is a need for ongoing assurance
Some work is delegated to committees
Balance with monitoring undertaken by management
Decide on own information needs (KPI’s etc)

Use of detailed reports from management:
Most common method in the HE sector
Major strengths - advice in depth, allows for challenge, highlights risks
Potential weaknesses - may not be geared towards governors needs (e.g. may be unnecessary, inappropriate, provides low quality assurance over progress or fails to consider progress against agreed criteria)

Overview assurance:
Completeness requirement
Openness requirement - acknowledge areas of slow or no progress
No surprises requirement (reliance on management to advise governors)
Periodic report on progress against all actions in the operating statement (at least annually)

Subsidiary strategies can be key to success:
Identify the important sub-strategies (e.g. L&T, R, WP, IT/IS, HR, Estates)
Consider how they are integrated with strategic plan and how they are resourced
Consider governor involvement in them (consultation; help develop; receive for information; approve; monitor implementation formally or not; define information needs)

Risk management role - 1
Background:
Recent development in corporate governance
Now established as good business practice
HEFCE has made it a requirement for HEIs and issued supporting guidance
Good risk management cannot eliminate risk but can significantly enhance the chance of success in meeting objectives

Risk management is defined as:
“ the systematic application of management policies, practices and procedures to the task of analysing, assessing, treating, monitoring and reporting on risks”
i.e. it is primarily a ‘management’ activity

Relationship between strategic objectives and their risks:
A risk is the threat or possibility that an action or event will adversely or beneficially affect an organisation’s ability to achieve its objectives
There will always be a residual risk that a strategic objective will not be achieved

Risk v control
The nature and effectiveness of the controls in place to manage a risk will determine the extent of residual risk
The strategic risks will be subject to many management controls; some of these will be ‘key’ controls

Set tone & culture:
Determine the risk policy
Risk-taking/risk-averse (at University or project level)
Balance of high-level risk portfolio
Expectations of management and staff e.g. accept that taking risks might result in failure, but not managing key risks is unacceptable

Determine risk appetite:
At University or project level, consider how much residual risk you will accept or tolerate
Alternatives if risks are unacceptable:
More or less control
Sharing risk e.g. partnerships, joint ventures
Transferring risk e.g. PFI, insurance
Not accepting some risks at all
Monitoring more closely e.g. establish EWI’s

Ensure key risks are drawn to your attention:
Review and agree the key strategic risks
In agenda papers on projects and progress against strategic objectives
Receive periodic report on all key risks
Actively consider Audit Committee reports

Understand the role of the Audit Committee:
It needs to be well-informed about and influence the approach to risk management
It needs to test the effectiveness of the risk management arrangements in place
It needs to consider the various assurances it receives on risk management and key risks
It needs to formally report to Council annually

All governors should therefore:
Understand the policy and how risk management works at the University
Ensure they focus on key risks at Council and Committee level
Challenge management about risks
Seek and receive assurances about risks and risk management

And finally, in summary . . . .
Determine your own involvement in strategic planning and risk management;
Seek assurance about risks & objectives;
Focus on what is important; and
Allow management to manage, but challenge them and hold them to account for their actions.

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The role of governors in strategic planning and risk management

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