The Blog

Public Sector Outsourcing Must Only Involve Ethical Companies

This article is not arguing for more outsourcing but it is a call for the public sector to promote a public service ethos and for the business sector to develop and match it with comparable ethical business standards if and when services are outsourced.

Recent revelations about the popular and well known high street companies Sports Direct and BHS follow an increasing litany of business failures and failure of business ethics. The economy, communities and families are still paying the price for the collapse of companies in the banking and wider financial sector in 2008. The sad reality is that there are many reasons for people to question the ethics, effectiveness and financial robustness of businesses.

Of course, it would be as unfair as it would be inaccurate to extrapolate from high profile examples to assert that all companies are the same and share an absence of ethical values and responsible leadership.

Still, the business sector, and most particularly when contracting with the public sector, has to take more steps to demonstrate its value and its values.

Companies, whether large or small, are commonly engaged in working with the public sector to build infrastructure, to offer advice and consultancy, to invest, to supply goods and to manage contracted public services. I acknowledge that the drivers for business performance are not the same as those for public service (accountabilities are different, and public expectations are not the same for the business and public sectors). However, for those companies contracting with (or seeking to do so) the public sector, the need to demonstrate their understanding of the public service ethos and that their behaviours and values are at least consistent with (I am not arguing that they should be identical) this ethos, is essential.

In light of the above, it is disappointing to note that there have been some high profile examples of questionable behaviours and poor performance from major companies that contract with government to deliver public services through contracts. These instances have not done the cause of public service outsourcing any favours.

Of course, there are examples of questionable behaviours and poor performance in the public sector too - but for the advocates of more outsourcing, to continuously chant this fact does not reduce public concern and anxiety about increasing business sector involvement in public services.

There always has been and always will always be business involvement with the public sector: the latter does not build roads or schools; and it does not manufacture IT equipment and other goods which the public sector requires in order to fulfil its public duty. The fact is that some level of business-led public service delivery is going to continue, even though there is a sound argument for ensuring that it only happens when it can demonstrably prove that it will add public value. However, I do feel that the time is ripe for a serious debate about the standards, which should be expected of those companies that are going to play a significant role with the public sector.

It would be ideal if the wider business sector were to develop and adopt such standards themselves, but there is an especial urgency in respect of those companies with major public sector revenues, for surely if they chose to, these are the corporates who can lead the way.

Actually, I suggest that there is a strong case for the public sector itself to set out what it believes these standards should include, and then build them into mandatory requirements for all companies bidding for public sector contracts.

Nonetheless, business should not wait for the public sector to act. Rather, progressive companies should set out to define their own standards. Certainly, if these were to be subject to external verification/audit, then those companies choosing to take a lead on this could give themselves a clear market place advantage.

I believe suspect these standards should address issues including:

  • clear transparency on ownership and the location of the controlling companies where there is complex business ownership
  • transparency of financial performance and internal company payments where these could be material to a public sector contract
  • a commitment to pay fair and appropriate taxation in line with national fiscal policy; and clear transparency of tax policy and payments
  • high quality employment practices including fair pay (no zero based contracts) and the payment of at least the Living Wage; good continuous professional development (CPD) policy and practice, and effective talent management
  • trade union recognition and rights
  • staff involvement in decision making beyond the requirements of the current regulatory requirements
  • reasonable ratios between the highest and lowest pay of all staff including senior directors and chief executives
  • sustainable environmental policies and practices
  • ethical procurement, and supply chain policies and practices that reflect the above
  • sound corporate social responsibility policies and practices
  • exemplary governance
  • adoption of business models that match the requirements and expectations of the public sector and the public

Some businesses are already well placed to score well against an evaluation of their practices. And some businesses such as co-operatives, social enterprises and companies with employee ownership should be able convince the public sector to contract with them ahead of those companies driven only by short-term shareholder or perhaps worse, senior executive remuneration and/or with opaque

governance and ownership.

The public sector can already use its procurement schemes and expenditure to incentivise shift in the culture and behaviours of those businesses who wish to contract with the sector; and to encourage new forms of ownership, profit share and governance. It is time that this leverage be deployed more frequently and consistently.

Business faces major challenges in terms of public confidence. And any business in receipt of public money that does not have the public's confidence does not deserve to retain this funding and their contract(s). Both public sector leaders and business leaders should be bright enough to recognise this. It follows that they have a shared interest in rapid and deep reform.

This article is not arguing for more outsourcing but it is a call for the public sector to promote a public service ethos and for the business sector to develop and match it with comparable ethical business standards if and when services are outsourced.