'Command and control' is an inefficient approach for FTs

“NHS foundation trusts are created as legal entities in the form of public benefit corporations by the National Health Service Act 2006…The boards of directors of NHS foundation trusts have more autonomy to make financial and strategic decisions than NHS trusts; these are to be taken with the goal of maximising the benefit to patients.”

The NHS Foundation Trust Code of Governance

As finances within the NHS rapidly deteriorate, particularly within the acute sector, there has been a clear move within the NHS system to establish grip and move to a more centralised model of “command and control” in order to ensure that the cash burn is minimised.

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The trend has swept across the historic boundaries between foundation trusts and NHS trusts, and is evidenced in the following actions:

• the recent announcement that agency staff usage at trusts will be assessed for appropriateness by central health bodies;
• a directive that discretionary spending for FTs in financial difficulty must be approved centrally in advance; and
• the introduction of more formalised “loan” agreements, with numerous conditions, from the distressed financing facility as money is advanced to loss making FTs to keep them trading.

While no one can argue with the concept of delivering services more efficiently and superficially, the idea of having tough minded objective people taking hard decisions away from the front line may seem as a way to achieve this, in practice it is unlikely to work out that way.

‘Removing decision making rights from individual FT boards will raise questions of decisions they’re entitled to make’

In addition to being highly demotivating for frontline management teams, removing core decision making rights from individual FT boards is likely to raise real issues for those boards as they grapple with what decisions they are entitled to make and where the risk of failure lies if decisions go wrong or are simply not made in time.

At a time when boards need to be driving significant change at pace, the move to “command and control” places a heavy handbrake on the ability of distressed organisations to adapt to their circumstances, and creates significant governance issues for the boards in these organisations. Specifically:

• What is the remit of the board of an FT trading at a deficit?
• Can staff at central regulators and bodies (for example, Monitor and the Department of Health) be shadow directors?

These questions are dealt with in turn below.

What is the remit of the board of a FT trading at a deficit?

While all FTs are dependent on state funding routed through local and specialist commissioners, an FT trading at a loss (and without accumulated capital) is dependent on “top-up” funding directly from the DH through the distressed financing facility. There are numerous conditions now attached to this funding in an attempt to mimic commercial arrangements in the private sector. There are also further significant constraints placed on the boards of distressed FTs with regard to their decision making.

This places the board in an extremely difficult position as it seeks to effect change, but is subject to the heavy hand of central oversight or approval for many of its decisions. Specifically:

• What is discretionary spend? Every day hundreds, if not thousands, of decisions are taken to spend money in an FT. Most of these decisions cannot wait any significant period of time. In retrospect, many of these decisions could be seen as discretionary. Without a very clear, workable definition of what spend is deemed discretionary, it would seem that boards could be running significant risk in simply trading on an ongoing basis.
• Are the existing schemes of delegation within distressed FTs still applicable? If the board is no longer able to take decisions in line with its scheme of delegation, what is the purpose of the scheme of delegation in these organisations and what has replaced it?
• What happens if authority is sought to spend money and not obtained? Even if a board is extremely cautious and seeks approval of all expenditure in advance, what happens if the expenditure is refused or no decision is obtained on a timely basis. Once again, it would seem that the board is placed in an extremely difficult position if expenditure it deems necessary is refused or simply ignored. Is the only remedy to resign?
• What happens if expenditure is refused and patient safety is compromised as a result? Perhaps the most difficult issue arises if expenditure is not approved centrally and, as a result, service quality and patient safety is compromised. Who will be held to account? The board or the central decision maker?

It would seem that there is a real lack of clarity as to how the new “command and control” arrangements impact on existing governance arrangements within distressed FTs. Without this clarity, it is difficult to see how the arrangements can be implemented effectively within the sector.

Can staff at central NHS bodies be deemed shadow directors?

If decisions are effectively being taken by staff or committees in central NHS bodies, do these individuals effectively become shadow directors of the FTs they are overseeing.

In the private sector, lenders and shareholders are extremely careful to avoid being deemed “shadow directors” in distressed situations for fear of the risk of being sued.

‘Lacking clarity around governance arrangements is likely to result in far less efficient decision making’

Given the directives recently issued within the NHS, however, it would seem that there are many individuals who could be deemed shadow directors. It does not appear that this is a risk that has been properly considered.

The conclusion from all this is that while command and control has superficial attraction, the centralised bureaucracy it will grow and the slow down in decision making it will create, are likely to far outweigh the money saved over any reasonable period of time.

Further, the lack of clarity around governance arrangements is likely to result in far less efficient decision making and an inability of organisations to adapt to a rapidly changing environment.

Tim Bolot is managing partner of Bolt Partners