Corporatisation in local government: Exploring subsidiary governance in local authorities – a critical review and multi- level case study.

Abstract

The pursuit of greater efficiency in a time of austerity has led local governments to deliver local services using subsidiary companies. Academics refer to this strategy as corporatisation. However, in recent times there has been high-profile local authority company failings attributed to poor corporate governance, highlighting the need for more empirical studies in the under researched field of subsidiary governance in local government. This integrated thesis is informed by three interrelated studies: an exploratory literature review on the impact of corporatisation in stewardship of public resources, subsidiaries’ perspectives on governance mechanisms, and the use of a holding company to increase political control and accountability. The latter two case studies use data drawn from semi-structured interviews involving councillors, council officers and directors in one council in England. The study concludes that subsidiary governance is flawed due to the tension between democratic control and affording subsidiaries flexibility to operate. Adopting the holding company model has benefits but this strategy is grossly undermined by the holding company’s lack of power and control over the subsidiaries. Tentatively, there are indications of ‘tunnelling’ in local corporatisation which also undermines the role of the holding company and has implications for transparency and accountability. The use of informal accountability mechanisms is not enough to guarantee effective stewardship of public resources and public values. In addition, politics, conflict of interests and multiple principal problems weaken governance and threaten effective stewardship of public resources. This is a multi-level case study of one organisation so no empirical generalisation can be made. However, the study adopts an explorative approach in contributing to the literature on local corporatisation, ‘tunnelling’ and subsidiary governance. It makes contribution to practice by exploring the complexity of subsidiary governance systems in local government and spotlights the practical challenges in finding the correct balance between democratic control and affording the subsidiaries the flexibility to operate. The study advocates for further research on policy formulation regarding ‘tunnelling’ in local government, role of politicians on subsidiary boards, safeguarding public values in the hybrid environment and further comparative studies on the use of holding companies across all levels of local government.