Bombshell report by Alison Levitt QC that led to resignation of four of the RICS’ senior team explained
A “power struggle” at the Royal Institution of Chartered Surveyors (RICS) resulted in the unfair dismissal of four members of the body’s governing council, a damning review into the scandal concluded yesterday.
Review chair Alison Levitt QC said in an explosive press conference that the four non-executive directors, who had raised concerns about the handling of a critical financial report, were ousted because the RICS’ executive team had developed a “deep-seated resistance to challenge”.
Chief executive Sean Tompkins, president Kathleen Fontana, governing council chair Chris Brookes and management board chair Paul Marcuse have all stepped down from their posts following the findings of the independent review.
“Unfettered” apologies have been issued to the four non-executive directors, Simon Hardwick, Bruce McAra, Steve Williams and Amjit Akhar, according to Nick Maclean, the RICS’ chair of the steering group for the review.
Maclean said the institution would now focus on “fundamentally” changing the culture of the RICS so that the events which led to the review would never happen again.
> Also read: RICS governance scandal: Coverage all in one place
Levitt outlined how, over the course of 11 months, the leadership of the RICS had become embroiled in a conflict with the four non-executive directors over the financial report which had “rapidly escalated into questions about trust and behaviour”.
Here Building highlights the key findings of the 467-page report, which revealed new details in the twists and turns of a scandal that stretches back to 2018.
1. The RICS’ extended its overdraft facility without informing the management board
In her report, Levitt said that the controversy over the BDO report had begun in a quarterly meeting of the management board in December 2018.
Within papers for that meeting, it was announced that it had been necessary to extend the RICS overdraft facility from £4m to £7m for a 45-day period because of inaccurate cash flow forecasting.
After members of the management board had expressed concern that they had not been made aware of this earlier, Violetta Parylo, RICS’ then chief operating officer who resigned in June this year, had promised that there would be no surprises of this kind in the future.
But she had not told the management board that BDO had recently conducted an internal audit of the treasury management function of RICS which included cash flow forecasting, and which Levitt said had made “extremely unhappy reading”.
2. Non-executives discovered the existence of the BDO report almost by accident
Levitt described how two months later, in February 2019, Hardwick and Akhar learned “almost by accident” from RICS director of risk, who reported to Parylo, about the BDO report and its contents.
The report had given the RICS the lowest possible “no assurance” rating for its treasury controls and warned that it was at risk of “unidentified fraud, misappropriation of funds and misreporting of financial performance”.
At the management board’s next quarterly meeting a month later, the four non-executives learned that the board had not been given a copy of the BDO report and that there was no explicit reference to it in board papers.
After raising the issue, Hardwick was told that a re-audit of the report had been commissioned and that both reports would be shared at the next quarterly meeting in June.
But this did not happen, leading to what Levitt described as “some robust discussion” at the meeting.
The management board was finally shown the original BDO report on 19 July 2019, seven months after it had been delivered, but its members were never shown the second BDO re-audit.
3. Management board made serious mistakes when it commissioned an internal governance review
After the objections of the four non-executives continued to build, a special meeting was then held on 29 August 2019 at which the chair of the board announced an internal governance review into the handling of the report.
It was to be chaired by the RICS’ general counsel, who the four non-execs argued would have difficulties in being fully objective because she reported to Parylo.
The non-executives had asked for an external review, but both this and their objections were rejected.
The review was produced on 20 September and concluded that there had been no failure of the governance framework and the governing council had been “properly informed and updated” by Tompkins.
A 2019 internal governance review “had not only reached the wrong conclusion but was not what it appeared to be”
But Levitt said that the report “had not only reached the wrong conclusion but was not what it appeared to be”.
She said that it had not in fact been carried out by the general counsel but had been outsourced to RICS’ legal advisors with its conclusions “already decided before it had been commissioned”.
The RICS’ general counsel had agreed with the external lawyers that there should be “no threat to, or criticism of” Tompkins, Parylo, Marcuse and audit committee chair Amit Shah.
4. Non-executives ‘walked into a trap’ when they continued to raise concerns, leading to their dismissal
The findings of the internal review were not accepted by the non-executives, who aired their concerns at the next meeting of the management board on 25 September.
Following the meeting, the draft minutes had recorded that the matter had been “concluded”.
The non-executives did not agree, feeling that the board members had not agreed the matter was closed and that examination of the real issues was being closed down.
Following the meeting, Hardwick and McAra both had meetings with then-president Chris Brooke, at which Brooke agreed to ensure that the governing council was fully informed.
“The letter was not the catalyst for dismissing them, but provided the excuse for doing so”
As a result, on 11 November McAra drafted a letter to Brookes on behalf of all four non-executives attached with a chronology of the events.
Ten days later, on the 21 November, Brookes wrote to each of the four non-executives informing them that their positions on the governing council were being terminated with immediate effect.
Levitt said that by October 2019, Tompkins and Parylo were already saying in internal documents that they “could not work” with the four non-executives.
A decision had been made that McAra and Hardwick had to go, and “considerable effort” was expended in finding a way to achieve this over the weeks that followed according to Levitt.
She said that when the non-executivess sent the letter to Brookes, they had effectively “walked into a trap”.
“The letter was not the catalyst for dismissing them, but provided the excuse for doing so”.
5. No cover-up but a flawed constitution led to a toxic ‘power struggle’
Levitt said that the underlying causes of the scandal lay in the governance structure of the RICS.
Her report concluded that the body’s constitution had led to a lack of clarity about the roles and responsibilities of boards, senior leadership and management which had in turn bred tension.
“In 2019 that stress led to an eruption over the handling of the BDO ’no assurance’ report, and the system imploded”, she said.
Far from being just a case of mishandling a delicate situation, Levitt said that the row was an “accident waiting to happen”.
Levitt said that the ousting of the non-executives had not been the result of a cover-up, but because of a power struggle between different components within the institution’s leadership.
She added that the RICS had effectively had two leading boards, and that in the cracks between them, chief executive Sean Tompkins had become “used to operating with little effective scrutiny”.
The RICS’ executive “hid behind the governance structure when it was convenient, but circumvented it for much of the rest of the time”
Levitt said that she had concluded that the RICS’ executive “hid behind the governance structure when it was convenient, but circumvented it for much of the rest of the time”.
She said that Tompkins and Parylo had “become accustomed to not sharing the fact that there was a problem until the solution had been identified and, ideally, implemented”.
The pair had “got used to making decisions on behalf of the organisation, but the corollary of that is a deep-seated resistance to challenge”, Levitt said.
“I found that both were over-sensitive to perceived criticism and very quick to take offence, and the result was that what started as a difference of opinion about areas of responsibility, rapidly escalated into questions about trust and behaviour.”
6. RICS accepts Levitt’s findings and says it will focus on fundamental change of culture
The RICS’ governing council has voted unanimously to endorse and accept Levitt’s conclusions and implement the report’s recommendations.
Nick Maclean, chair of the governing council’s steering group for Levitt’s review, said that the most important recommendation was to “fundamentally” change the culture of the RICS.
The question has been raised as to whether the RICS is fit for purpose
He said: “At the moment the culture that our staff, some of our members, the employers of our members and our clients have faced has meant that the question has been raised as to whether the RICS is fit for purpose”.
He added that it is the intention of the governing council that the RICS “does become fit for purpose and it can legitimately see itself as an industry leader.”