Low capacity of legal department at Birmingham putting improvement at risk: report

December 7, 2023

Low capacity across legal services at Birmingham City Council is a “significant risk” factor for organisational stability and improvement, a report from the Centre for Governance and Scrutiny (CfGS) has warned.

This was particularly in the face of the council’s substantial and complex work around equal pay, it said.

In September Birmingham issued a section 114 notice after finding that it could not meet its financial liabilities resulting from equal pay claims of around £760m. The Levelling Up Secretary subsequently sent in six commissioners to the city council as part of a proposed five-year intervention.

The CfGS’ comment came in its independent review of governance at the local authority, which suggested that the council’s current governance and financial challenges had not been caused by any single issue.

“The impact of more than a decade of funding cuts has had substantial effects on the Council’s ability to adapt to new needs and realities. On its own, however, austerity cannot explain how and why Birmingham is in this critical position. Similarly, other factors, highlighted to us in interviews as key causes of the Council’s current situation, do not tell the whole story,” the report said.

“The Council’s size, the failure to effectively implement Oracle [an IT system], its lack of awareness of its equal pay liabilities, and its hosting of the Commonwealth Games are all relevant considerations – but no specific one of these present a root cause of failure.”

Problems could not, either, be put down solely to difficult relationships between the council and trades unions, or tensions in member-officer relationships, CfGS said.

“All those issues, significant though each of them is, combine with others to create the very serious conditions facing the Council today. The multifaceted nature of the causes, and symptoms, of Birmingham’s corporate governance failures make the Council’s situation unique – this distinctiveness will demand a unique solution on governance stabilisation and improvement.”

These issues were symptomatic of a wider problem relating to governance and accountability – “which, to date, remains largely unaddressed even though the Council, and others, have been aware of it for some time”.

At its core was a problem of culture and behaviours – a failure of individual and collective accountability and responsibility, the report added. “The result is that the Council does not function as one organisation.”

The CfGS highlighted some positive changes since the council issued its section 114 notice in September. These included more effective ways of working among the corporate leadership team and improved ways of working for the Audit Committee and the council’s overview and scrutiny committees.

However, it said a “general weakness” in the council’s culture around improvement and its limited capacity “cast doubt on whether those plans can be delivered without further action to change, and change fundamentally, the way that the Council operates”.

According to CfGS, a low level of trust is one of the main cultural challenges the council must tackle.

The report said: “[There] remains a deep-seated blame culture at the council which limits frank, candid conversations about emerging risks, and which encourages an aversion to change. This blame culture is accentuated by poor behaviour across the board, and a lack of individual and collective commitment to basic principles of probity and good conduct.”

Cultural problems around speaking up and hearing bad news were also highlighted in the report, which said: “When bad news is escalated, its urgency is often diluted, and downplayed (by both members and officers), with the focus being to reassure the wider organisation (and external stakeholders) than to take clear actions to mitigate problems.”

Thirdly, the report found that a culture of “unproductive” member focus on operational activity had developed into actively negative behavioural trends around member-officer relationships.

“As things stand, members’ tendency to focus on operational detail means that they are absent from the strategic spaces that they ought to be occupying,” the report said.

It added: “It also creates an oppressive environment for many senior officers, who find that their freedom to carry out their operational duties is circumscribed by heavy member direction and oversight.”

The situation has seen both officers and some members circumvent the correct approach to decision-making and governance by discussing and agreeing operational actions “out of the view of senior officers and in a way that acts in direct defiance of the constitution”, the report said.

CfGS also identified “unwritten rules trumping corporate processes”, due to governance systems that are “inconsistent and/or only as reliable as the data provided and the people who operate them”.

Elsewhere, the report noted that the council suffers poor quality member-officer relationships, with a “large number of interviewees” saying top-table relationships were poor.

In some areas, member-officer relationships have functionally broken down, and “for some time” there has been a sense of mistrust “even at the highest levels”, CfGS said.

This finding mirrors a September 2023 report from Grant Thornton that amongst other things revealed the council’s then-monitoring officer, Janie Berry, was subject to an investigation despite there being no evidence she had given incorrect legal advice. Berry has been replaced by Marie Rosenthal as monitoring officer on an interim basis.

Commenting on assurance and compliance at the council, the report noted that Birmingham’s monitoring officer was the eighth in ten years, “reflecting a wider senior officer churn over that period, but still troubling from the perspective of the need for organisational memory on key legal and compliance issues”.

It added that across legal services, “there is little capacity, which presents a significant risk factor for organisational stability and improvement, particularly in the face of the Council’s substantial and complex work around equal pay”.

The CfGS went on to state that the proposed independent review of the process for receiving and considering legal advice - as recommended by the external auditor and accepted by full council - was "a pressing requirement, given the Council’s cultural challenges and capacity difficulties within legal services”.

In a ‘Governance Stabilisation Plan’, CfGS recommended the council:

Refocus corporate attention and priorities on ensuring safe, legally compliant, and fairly delivered services to local people
Begin work to reframe values and expected behaviours
Develop and publicise a set of baseline behavioural standards for members and officers
Review the Constitution
Reframe the scrutiny work programme to focus on the council’s improvement and recovery priorities
Strengthen working relationships between the Chairs of Scrutiny Committees and the Chair of the Audit Committee to lead and direct the function
Put in place new arrangements for the support of the internal audit function, the audit committee, and the links between audit and scrutiny
Design, and begin to put in place, new risk & information management arrangements – with an initial focus on member accountability
Put in place robust arrangements for members’ oversight of the development of the 2024/25 budget and MTFS
Integrate action on external auditors’ recommendations into wider practice
Continue to rebuild relationships with external partners
Put in place proportionate arrangements to manage governance and decision- making in the context of the role of Commissioners
Modernise systems and practices in Scrutiny and Committee Services.

The council has responded to the recommendations by setting out its plans to implement them and detailing the ‘key deliverables’ it should complete by June 2024.

In its plans for reviewing the constitution, Birmingham said its constitutional changes will focus on:

Member-officer relationships (with a particular focus on mutual roles and responsibilities, including delegation)
Role and functions of Council, Cabinet, scrutiny, and audit in respect of development and agreement of major decisions and strategies
Conduct, values, and behaviours
New financial governance arrangements

In a report summarising the CfGS’s findings, the council’s chief executive, Deborah Cadman, recommended the Cabinet adopt the recommendations. The Cabinet will consider the report on 12 December.

Responding to the report, the commissioners at Birmingham said: “The CfGS report is another useful piece of evidence in scoping the total range of activity required to be incorporated into the Improvement and Recovery Plan [IRP] required by the Direction regime. The response to its findings needs to be considered in that context.

“This report, together with the work that Colin Copus is undertaking, need to be taken into a comprehensive action plan which deals with the Council, its constitution, and the way in which both Members and Officers work within it. Whilst cultural change is always difficult and requires time to embed, it is clear that action needs to be taken immediately to bring to an end very poor practice.

“The Council does not have the luxury of time to address these matters so the proposed timescale in the report seems generous. A fully articulated proposal needs to be developed for inclusion in the IRP which demonstrates its links to other elements that need review.”

Adam Carey