Nottingham City Council has accepted the findings of a new report on its governance of Robin Hood Energy, the not-for-profit company set up by the authority to tackle fuel poverty in the city.
The Report in the Public Interest is published by the External Auditor.
It outlines a number of recommendations for action by the Council including to urgently determine the future of Robin Hood Energy (RHE), with options properly evaluated and risks assessed; review the approach to how councillors are best used and supported on the boards of subsidiary companies and ensure all board members have the required knowledge and experience to challenge the management of the companies.
Councillor David Mellen, the Leader of Nottingham City Council, said: “We accept the findings of this report which, despite our best intentions, reveal failures in the Council’s governance of Robin Hood Energy over the several years following the formation of the company.
“The report makes a number of recommendations to review our current practice of company governance which we are fully committed to carrying out. Some of the recommendations have already started to be put into place while a review of future options for RHE will be completed shortly.
“There is much more to do however and the Council is working hard to try to protect as much of its investment in the company as possible.
“We very much regret the past failings in the Council’s governance of Robin Hood Energy. The change in leadership at both Nottingham City Council and Robin Hood Energy over the last year has seen changes in governance procedures and financial rigour. We now need to look forward and continue to make the necessary improvements including those recommended by the external auditor. We will continue to build on the work done so far but we fully accept there is much more to do over the coming months to address the findings of this report.”
The report recognises the improvements in governance embedded over the last year with a critical moment arising in October 2019 when RHE unexpectedly requested support from the Council for the payment of its Renewables Obligation Certificates (ROCs) amounting to £9.5 million. In the period following this request and in response to examples of inadequate financial reporting from the company, Councillor Mellen, in conjunction with the new Chair of the Board, took action resulting in:
Establishment of a fortnightly Robin Hood Energy Steering Group
The replacement of the Council’s Shareholder Representative
Alongside the new Chair of the Robin Hood Energy Board, the strengthening of the Board with a councillor who is a qualified accountant and more legal and administrative support and expertise
The suspension of senior staff at Robin Hood Energy
The appointment of industry experts and a new management team to lead the company to bring a fresh approach to governance
The establishment of an Companies Governance Executive Sub-Committee to strengthen the Council’s approach to governance across the authority
The commencement of a wide-ranging Strategic Review to consider all options for the future of the company.
Councillor Mellen continued: “It’s important to remember that in 2015, when Robin Hood Energy was set up, there was wide concern that the energy supply industry was not acting in the best interests of consumers.
“Our motives in setting up the company were to try to tackle fuel poverty given the prevailing energy supply situation at the time and the level of fuel poverty in the city, including a reliance on pre-payment meters. There was a lot of support for the move at the time both locally and nationally. We wanted Robin Hood Energy to reduce energy prices in Nottingham and initially we achieved that.”
Councillor Mellen has established Companies Governance Executive Sub-Committee to strengthen the governance arrangements across the rest of the Council’s companies and remains eager to keep improving governance in the light of this report’s findings and recommendations. However, he said the Council does not underestimate the findings in the report.
“We have already embarked on a range of improvements, we will go further to make the necessary changes in our governance. This will include working closely with the external auditor to ensure all of the recommendations in the report are fully implemented and learning from best practice elsewhere, including partnership working with the Local Government Association.
“We will also continue to work with the new management team we brought into the company at the end of last year to conclude and implement the wide-reaching strategic review of the business which is due to be completed shortly.
“We need to be clear that a number of other companies within the Council’s Commercial Group including Nottingham City Transport and Nottingham City Homes have operated on a successful basis with good governance and do not form part of the external auditor’s report.”
This report makes a number of recommendations for the Council to address. A Strategic Review is already underway to determine the future of RHE, and the most important steps for the Council to take now involve applying the lessons from RHE across the wider group. In this regard, we would particularly highlight recommendations 2 and 3 in relation to the composition of company boards, recommendation 8 in relation to further strengthening monitoring arrangements and recommendation 12 in relation to applying the lessons to the Council’s overall governance.
© 2020 Grant Thornton UK LLP. All rights reserved.
R1. Using the current Strategic Review and other appropriate advice to assist with decision-making, the Council should urgently determine the future of RHE, with options properly evaluated and risks properly assessed. This assessment should also take into account the context of the Council’s current financial position.
R2. The Council should review its overall approach to using councillors on the boards of its subsidiary companies and other similar organisations. This should be informed by a full understanding of the role of and legal requirements for company Board members.
R3. Where it continues to use councillors in such roles, it should ensure that the non-executives (including councillors) on the relevant board have, in aggregate, the required knowledge and experience to challenge management. This is of particular importance where the company is operating in a specialised sector which is outside the normal experience of councillors.
R4. Where councillors are used in such roles, the Council should ensure that the councillors are provided with sufficient and appropriate training which is updated periodically.
R5 The Council should ensure that all elements of its governance structure, including the shareholder role, are properly defined and that those definitions are effectively communicated to the necessary individuals.
R6. When allocating roles on Council-owned organisations to individual councillors, the Council should ensure that the scope for conflicts of interest is minimised, with a clear divide between those in such roles and those responsible for holding them to account or overseeing them.
R7. The Council should ensure that risks relating to its companies are considered for inclusion in its overall risk management processes, with appropriate escalation and reporting, rather than being seen in isolation.
R8. As the new arrangements for monitoring companies are rolled out alongside the Companies Governance Sub- Committee, the Council should ensure that financial information is provided in accordance with its requirements and is fully understood by the Sub-Committee and others involved in holding the companies to account, and that robust action, with the oversight of the s151 officer, is taken if suitable information is not provided.
R9 Within the new arrangements involving the Companies Governance Sub-committee, the Council needs to ensure that responsibilities for scrutiny and risk management are given sufficient prominence, including giving the Audit Committee explicit responsibility for scrutiny of governance and risk management across the group.
R10. In addition to those referred to in recommendations above, the Council should apply the lessons from RHE in a further review of its company governance arrangements, in particular to ensure that risks are appropriately flagged and managed, as well as successfully implementing the more robust monitoring agreed by the Companies Governance Executive Sub- Committee.
R11. As part of this review, the Council should consider the appropriateness of the definition of the shareholder role adopted in the 2019 report and give it an emphasis on protection of the Council’s financial interests alongside other elements.
R12. The Council should use the experience of owning RHE to consider whether there are any lessons for its wider governance, particularly in relation to the ‘checks and balances’ which need to be in place, including the need for a stronger monitoring and scrutiny function and moving to a culture in which challenge of political priorities and how they are being implemented is seen as a positive.
R13. The Council should ensure that it reflects the financial pressures arising from RHE alongside those from covid-19, demand-led services and other areas to produce balanced and achievable financial plans for the current year and for the medium-term, without disproportionate, unsustainable reliance on one-off measures.