Lessons from the Dundee report: an essential checklist for Senior Leadership Teams and Board members

Rarely are there reports in the sector that are worthy of the accolade of a “must read”, but this one commissioned by the Scottish Funding Council (SFC) ‘Investigation into financial oversight and decision making at the University of Dundee’ comes at least close to that. It has already been labelled as essential reading for those involved in governance or senior leadership within the sector.

This is despite attempts by Scottish ministers to say that Dundee is a “special case” and that there are “unique circumstances” around its situation. Efforts like those look more like news management or attempts to mitigate the £60m bailout being seen as a precedent. Impacts from Dundee’s financial crisis can already be seen in the beefing up of the oversight powers of the Scottish Funding Council, though further impacts are likely to be felt across the UK sector as a whole.

When you read the report there is little to lead you to conclude that this is a uniquely Scottish issue. Instead, alarm bells may ring warning that the underlying sequence of events could be applicable to any institution in the four nations if similar failures occur.

Lessons from Dundee

As the report title and terms of reference suggest, this is much wider than a report about financial failings. There is much in the report that is about the senior leadership culture within an institution, which in turn has wounded the efficacy of its governance. It also reveals critical gaps in governance knowledge and skills.

We’ve drawn up a checklist for Senior Leadership (SLT) and Board members to critically audit where they are in terms of culture, skills and knowledge, and practice. It provides some guidance on assessing how prepared institutions are to tackle any of the risks which contributed to the financial crash at the University of Dundee.

Checklist: culture

There are a range of questions Senior Leadership Teams and Board members should be asking themselves:

• Is there a culture of transparency between SLT members themselves, and between the SLT and the Board?
• Is there evidence of filtering difficult news so that the messaging is only one of assurance?
• Does the institution actively try to foster a culture where no question is a stupid question? And a culture that encourages curiosity and challenge?

There are some mechanisms that might need to be tested such as whether the Director of Finance has enough independence and authority to be able to challenge the Vice-Chancellor/Principal, and the ability to present financial appraisals in a factual and honest way. Board members need to be alert to sniff out where they suspect platitudes, or false assurances in messaging.

If SLT meetings and Board meetings are characterised by rapid ascent to recommendations, with little discussion or challenge, these would be danger signals. Furthermore, if the culture discourages dissent or is less tolerable of those colleagues who challenge common views, these may also be warning signals.

Checklist: skills and knowledge

There are further questions that should be asked about the capabilities and understanding of current executive leaders and Board members:

• Are Board members (and Senior Leadership) fully aware of the OfS conditions of registration (England)?
• Are they aware of what constitutes breaches of those conditions or what might trigger a reportable event?
• What onboarding and ongoing training processes are in place to ensure Board members understand their responsibilities and roles as Board members?
• Do Board members (and SLT) understand the format of the accounts presented to them? In particular, are they able to clearly track the operational position as opposed to the accounting position?

Checklist: financial challenge

Finally, nothing could be more important than ensuring all institutional leaders responsible for governing their institutions have a deep and broad understanding of the financial environment in which their institutions operate, as well as the individual financial pressures of their specific institution related to income streams, cash flow, and expenditure. Where savings (or as Dundee called it, “betterment”) are part of the plan, institutions need to be very specific as to what they are and set up regular monitoring. Assurance should be sought on:

• Timelines
• Reporting mechanisms
• Lines of responsibility
• Measurements of success
• Any changing risk assessments in terms of impact and deliverability

Where there are bank covenants, these should be tested in-year and in all forecasts rather than only prior to signing off the financial statements after the year end. Board members and SLT should be aware of all covenant tests, understand them, and the material risks around failing these. 

Board and SLT members should be very clear about how current and proposed capital programmes are being funded (grants/loans/reserves), and the impact on cashflows. 

Management accounts should always show cash flow projections and test these on a sensitivity basis for increased costs, and/or reduced income.

SLT and the Board should have clear red lines around in-year financial reporting; that it is a standing item, and a mandatory requirement in terms of papers and deadlines.

The Board should always be testing conflicts of interest and – where these are unavoidable – to have these noted in minutes. In Dundee’s case it was clear that the independence of the Chair of the Audit and Risk Committee was potentially compromised by the wider involvement of that member in other committees.

Conclusion

Institutions are likely to be at different places on these points, but some may feel that they have embedded good practice at all levels of governance and leadership. The challenge is always that circumstances change, just as the people in the roles change. Good practice would be to regularly revisit these issues to ensure that the institution is in the best possible position to know its current financial situation, and to make sound decisions based on well-informed option appraisals.