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The Governance Dilemma


Few topics in local government spark as much debate as council-owned companies*. Hailed as a bold solution to the UK’s housing crisis just a decade ago, these companies have since become lightning rods for controversy. Headlines about failed ventures in places like Croydon and Woking have fuelled scepticism, with critics pointing to spiralling debts, opaque decision-making, and political overreach as evidence that councils should steer clear of direct development. Councils have no place dabbling in commerce!  


But is the problem inherent to the model—or is it, as many sector leaders argue, a question of governance? 


When Governance Goes Wrong: Lessons from Failure 

The cautionary tales are well known. In Woking, an ambitious vision to create a “Manhattan in Surrey” led to a financial black hole, with the council’s desire for visibility and rapid growth overtaking commercial reality. The root causes were not simply market forces or bad luck, but fundamental failures of governance. 


What went wrong? Inadequate scrutiny and blurred lines between political ambition and commercial discipline played a major role. Councils sometimes treated their companies as extensions of the local authority, rather than as independent entities requiring robust oversight. Mission creep set in—companies were expected to solve every problem, from housing shortages to economic regeneration, without a clear focus or realistic assessment of risk. Board appointments were sometimes made on the basis of political loyalty rather than relevant expertise, and reporting structures often failed to provide early warning of trouble ahead. 


As one sector leader put it to me recently: “the politics overtook the commercial.” Strong leaders pushed through grand plans, but without the checks and balances that any successful business needs. The result? Financial disaster, reputational damage, and a loss of trust in the very idea of council-led development. 


The Other Side of the Story: What Good Governance Delivers 

Yet for every negative headline, there are quieter stories of success. Well-governed council-owned companies have delivered thousands of new homes, regenerated neglected sites, and returned millions in dividends to their parent authorities. The difference lies in how they are run. 


Good governance starts with clarity of purpose. Successful companies are set up with a focused mission—usually to deliver housing that the market will not, or to generate long-term revenue for the council. Their boards are composed of individuals with the right mix of commercial, financial, and sector expertise, not just political appointees. There is a clear separation between the council’s role as shareholder and the company’s operational independence, with robust reporting and transparent decision-making. 

The best companies avoid “mission creep” by sticking to what they do well and resisting the temptation to become all things to all people. They build trust and credibility through open, collaborative relationships—both internally and with external partners. And crucially, they learn from failure, sharing best practice across the sector so that every new venture doesn’t have to reinvent the wheel. 


A Nuanced Reality: Culture, Compliance, and Collaboration 

While the governance debate often focuses on structures and processes, recent experience suggests that the underlying attitudes and organisational culture within councils can be just as decisive. Even with robust frameworks in place, council-owned companies can struggle if there isn’t a shared commitment to their commercial aims or a willingness to support their growth. In some cases, an overly risk-averse culture or a strict adherence to compliance—such as the ‘best consideration’ rule—can unintentionally undermine the very rationale for setting up these companies, making it difficult for them to compete for sites or scale up effectively. 


This tension between compliance and commercial ambition is a recurring theme. Strong governance is not just about avoiding failure, but about finding the right balance: too little oversight invites risk, but too much can stifle innovation and prevent companies from delivering on their potential. The most successful council-owned companies are those where officers, councillors, and company boards build trusting relationships and maintain a shared sense of purpose, ensuring that governance is a facilitator rather than a barrier. 


What Does Good Governance Look Like?  

• Clear, realistic objectives agreed between the council and the company  

• Independent, skilled boards with commercial and sector experience  

• Transparent reporting and scrutiny, with early warning systems for emerging risks  

• A culture that values challenge, learning, and continuous improvement  

• Strong separation between political ambition and commercial decision-making 


As another leading figure from the sector says: “If you can demonstrate the financial benefit you deliver to the authority, most other things fall into place behind it.” Good governance isn’t just about avoiding disaster—it’s about unlocking the potential of council-owned companies to deliver real, lasting value for communities. 


Join the Conversation 

The debate over council-owned development companies is far from settled. If you want to move beyond the headlines and understand what makes the difference between failure and success, join our upcoming H&DN Expert Briefing on Good Governance for Council-Owned Companies. Hear from: 

  • Ian Cox, Board Member, OX Place (Oxford City Council) 

  • Bob Deering, Councillor, East Herts District Council (previously Cabinet Member for Resource and Performance, Hertfordshire County Council). 

  • John Edwards CBE, Chair, WPDG (Warwickshire County Council) 

  • Colm Lacey, Managing Director, Soft Cities; Chair, London Community Land Trust; former Managing Director, Brick By Brick (LB Croydon) 

 


 *Here are just a few from our library: 

  

 
 
 

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