Select Committee on Trade and Industry Minutes of Evidence

Examination of Witness (Questions 1-19)




  1. Good morning, Secretary of State. Can we welcome you here. You have been before the committee in the last parliament before your promotion. Can we offer somewhat belated congratulations. We were actually going to delay having you until a wee bit later in the session; then the memorandum became available on the reviews that you had and we thought we would take the opportunity of exploring mainly that area this morning. Later on in the session I think we will probably wish you to return to talk about other policy matters, although, as you can imagine, they may well intrude this morning into our deliberations. Maybe we could start with perhaps the most innovative if not controversial part of the new proposals for the structure of the department. You are hoping to have success in bringing in the business community and making the department more business focused. I wonder if you could explain to us how you see this developing.

  (Ms Hewitt) Thank you very much indeed, Chairman. It is a pleasure to have the opportunity to say something about the review. The Department of Trade and Industry has a budget of over £4 billion. We employ within the department and our agencies over 10,000 staff. I take the view that an organisation as large as this ought to be run like a first rate business. But being run in a business-like way does not mean being run by businesses. I think there may have been some confusion around that point when the proposals were first announced. At the heart of that structural change is the proposal for a new strategy board but what is actually a real innovation about that strategy board is not the proposal for non-executives, it is the proposal to bring ministers and officials together in a departmental board. At the moment, the DTI, like all the other departments, has a management board, chaired by the Permanent Secretary and made up of senior officials, and, in the case of the DTI, one non-executive director. Many other departments, and indeed some of our own agencies, already have a much larger number of non-executives on those management boards. What we are proposing in the DTI is to create a strategy board that I will chair as the Secretary of State, and it will include another minister, it will obviously include the Permanent Secretary and another senior official, and it will include three non-executive directors. Underneath that there will be an executive board, chaired by the Permanent Secretary and including senior officials. By bringing together the senior ministers and senior officials with non-executive directors, I believe, and my Permanent Secretary Robin Young believes, we will significantly be able to strengthen the leadership and the management of the department. It is that combination of ministers and officials that is the real innovation in Whitehall terms.

  2. The strategy board then could be considered to be analogous maybe to a supervisory board, is that correct? Will it have executive powers or will it merely have the power to recommend?
  (Ms Hewitt) It is essentially an advisory body that will, as I say, help to strengthen the leadership and the management of the organisation. In the process of this review, we set up a small review strategy steering group which included our existing non-executive director and some other outside—

  3. Who is the existing non-executive director?
  (Ms Hewitt) Mair Barnes. We can send you her CV if that would help. She has a background in retailing. I found her contribution and that of other outsiders ( for instance, William Sargent, who is chairman of the Small Business Council) on this informal strategy review group enormously helpful because they were challenging us inside the department to be more precise about what we were seeking to achieve, to learn from best practices, other organisations and so on. They were really supporting us in leading and managing the organisation more effectively. That is what I shall be looking to the strategy board to help us to do. In terms of the people from whom we recruit the non-executives on the strategy board and on other boards in other parts of the department, we will seek individuals with appropriate expertise from a wide range of backgrounds. We will announce—I think, given the time, it will now be early in January rather than before Christmas—the number and the kind of people we are looking for and we will be writing to a range of organisations, including obviously the TUC as well as the CBI, to invite nominations for appropriate individuals. But nobody will be appointed to any of the advisory boards on the basis that they represent a particular interest group. They will be appointed for their individual expertise.

  4. Do I take it then that you are saying that the people who will be on the supervisory board and indeed on these other boards might well be from backgrounds other than specifically business?
  (Ms Hewitt) Yes. It will depend very much on what we are looking for. In the case of the strategy board I believe we need people who have been outstanding at leading organisations and leading change within large organisations, which is really the challenge that faces us within the DTI. They could come from the not-for-profit sector as well as the private sector. Within the new divisions which we have set up, which are summarised in the organisational chart that we sent to you, we will have a new group responsible for science technology and innovation. That will have its own mini board, its own advisory board. That will include the chief scientific adviser to the Prime Minister and of course the director general of the Research Councils. We have not defined yet the precise specification of the people we will want on that group, but we might well want somebody who has operated at the sort of interface between science and industry, who really has deep experience and knowledge of how you do knowledge and technology transfer and how you build interest within business in using science and technology. That will be the central function of that new group and we will want individuals who may well have scientific backgrounds as well as industrial backgrounds to help us in that task.

  5. One of the criticisms—perhaps because of the way in which it was initially presented—of the structure to which you refer, was that it was a rather narrow focus and the concept of stakeholding did not really apply here, that there was a kind of lacuna in the New Labour joined-up government weltanschauung, the grand design did not seem to involve anybody else but the bosses. Would I be right in saying that that was a mistake which came as a consequence of misinterpretation by the journalists at the outset?
  (Ms Hewitt) I think there were some misunderstandings there. In fact, I think there were two misunderstandings. One was that I think an impression was gained in some quarters that people would be on the strategy board to represent a particular interest group—and clearly if business was going to be represented as an interest group then other interest groups would want, and properly want, to be represented. As I have said, nobody is going to sit on the strategy board representing an interest group. They will be there as individuals with expertise that will help us to strengthen the way in which the department is run. The other misunderstanding was the idea that the strategy board would be setting policy, day-to-day policy making, and therefore there would be a conflict of interest, that you might have somebody on the board from a business background who would, for example, be getting engaged in competition policy decisions. That is not going to be the role of the strategy board, and day-to-day policy will remain, where it sits now, the responsibility of ministers. Particularly, of course, with competition policy, where I sit in a quasi-judicial capacity making decisions under the competition law, those would not be discussed in any case with non-executive directors.

  6. That, of course, is a role that you will be demoting anyway, come the new competition legislation, if the previous policy of your predecessor is still in place.
  (Ms Hewitt) That is still in place, so that with the new Enterprise Bill that we will introduce later in this session we will very significantly strengthen the independence of the competitive authorities. I did just want to make the point, because the competition issue was specifically raised in relation to the strategy board, that quite apart from the legislative changes that potential conflict of interest simply would not arise.

  7. But there is a confusion sometimes in people's minds between competition and competitiveness.
  (Ms Hewitt) Yes.

  8. Competitiveness, which you have said is one of your fundamental responsibilities, how easily do you see this sitting alongside the role of the department as the author of industrial relations legislation, for example? There is a feeling in some quarters that this was a responsibility that was foisted upon the Department of Trade and Industry as a consequences of the changes in machinery of government and that was seen as a bit of a burden by a department whose main role is to make business competitive rather than to deal with the beer and sandwiches side of things, as it were.
  (Ms Hewitt) I was not involved obviously in all those discussions which led to the original change.

  9. But you have to pick up the pieces now.
  (Ms Hewitt) I do not see a conflict between the department's role in employment relations and the department's role on productivity and competitiveness. I would define the purpose of the DTI as being to work with business and employees and consumers to help drive up the productivity and competitiveness of the UK economy. Not all the factors that determine productivity and competitiveness lie within the responsibility of the DTI, but there are several levers that we have that do directly impact upon productivity and competitiveness. One of them obviously is the whole framework of law and regulation within which business operates. It includes competition law, which we have referred to, but it also includes the framework of regulation and of best practice for employee relations. I think we have in a sense two jobs there. One is to ensure that there is a proper set of standards that guarantees a good level of minimum protection for all employees—and that is done as a matter of principle because people are entitled to be treated with proper dignity and respect at work—but there is also a job to do which is to ensure that that regulatory framework and, equally important, the promotion of best practice, helps to create more high performance workplaces within the United Kingdom because there is very good evidence that the most productive businesses are the ones that have an effective partnership with their employees in the workplace. That may involve trade union recognition, it may involve other forms of partnership. Either way, we have a proper role in the DTI in promoting effective partnership at work, but we see that as contributing towards, not detracting from, the emphasis on productivity and competitiveness.

  10. Really in some ways you are saying that you want to get away from, as it were, the nit-picking regulation of employment to maybe something akin to the European model of social partnership, where it is perhaps less prescriptive than it has been in the past.
  (Ms Hewitt) I think different people have very different ideas of what might be meant by that phrase "the European model of social partnership". This was being said, for instance, by Digby Jones at the manufacturing summit last week: we know, where there are good relations between management and the workforce and where there is investment in the workforce as well as involvement of them in what is going on in the company, that you get better business results. I think all of us would confirm that just from our own experience of visiting companies within our own constituencies and certainly I find it when I visit companies around the country. I think there is a very clear relationship there between business success and the relationships within the workplace. We want to encourage much closer partnership. That can be done, for instance, through the work of the Partnership Fund and through the spreading of best practice in employee relations. That is one of the things that we are seeking to strengthen as we work, as we move forward on the basis of the work that the CBI and the TUC have done together on how the productivity gap in this country can be closed.

  11. The initial presentation of the board structure and the membership of it suggested that the business personnel were going to be involved. There was a feeling at least that it was almost nominees of the CBI. You have told us today that no specific body will be given any specific right to nominate. A number of bodies, represented on employers' organisations and workers' organisations and consumer organisations—of which you have now created a plethora—will all be eligible, along with bits of academia where appropriate, to be considered for appointment. It is not, in the way it was flagged up initially, to be a businessman's or businessperson's prerogative to have membership of these committees and these boards.
  (Ms Hewitt) That is correct.

  12. We can clarify that issue. The record is now set straight in a different way from which it came out initially when it appeared in the press.
  (Ms Hewitt) That is correct.

  Chairman: I am grateful to have had the opportunity to have that clarified for us.

Linda Perham

  13. Just following on from that, the early press reports did focus on the reaction of the unions, which was quite hostile. Have you managed to reassure them? Because Digby Jones is quoted as saying, "It is going to give business more clout in government."
  (Ms Hewitt) I am not responsible for the comments that anybody makes on any aspect of the work that we do in the department or across government. Of course I spoke to John Monks on the day that the Financial Times report appeared and he was quoted as saying this meant handing over the department to business people and that would give rise to conflicts of interest and so on. I immediately phoned him. I had of course briefed him the day before on many of the changes that were coming, but this point had not arisen, because it arose really out of a headline and really a misunderstanding of what was actually being proposed. So I was able to explain what the position is in precisely the same terms as I have set it out to the committee. I know that John Monks would like to have a more detailed conversation about that and we will do that; we simply have not had time in the last week to go through that in more detail. I think he is now much more reassured and in particular accepts that the TUC and individual trade unions will be invited to nominate individuals who they think would make a useful contribution in the way I have described.

Mr Berry

  14. I appreciate what you say about selecting the non-executive members of the strategy board and the individual boards on the basis of their skills and not their sectional interest. Two things struck me. The first is that clearly the TUC and the Consumers' Association have misunderstood what is going on. When we read the TUC press release that is headed "Hewitt Accused of Favours not Fairness for Business" with these quotes from John Monks, etcetera, it suggests a major breakdown of communication, and similarly the Consumers' Association saying that there is no consumer voice at the heart of this process and so forth. Given that I would assume the DTI is very sensitive to the allegation, because the bulk of its work is business oriented, that the employee interest and the consumer interest might feel sidelined, I am concerned that both of these organisations appear to have not been part of the general understanding about what you were trying to do.
  (Ms Hewitt) I really do not think that we should get too hung up about one day's press coverage or immediate responses to that press coverage. In the early phase of the review, we consulted directly about 1500 people. We wrote to an enormous number of organisations, including obviously the TUC and various consumer bodies, all of whom gave immensely helpful input to the review. It is something that I have discussed with Deirdre Hutton and John Monks, with a whole range of people, as well as obviously Digby Jones and some other people on the business side. The review and particularly the possibility of further changes on the consumer side has been very warmly welcomed by several of the consumer bodies. I think there was an initial misunderstanding, which was unfortunate, but there we are, these things happen, there was an initial misunderstanding on the part of the TUC about what was being proposed in relation to the strategy board. I think that has now been clarified. I am sorry that it happened but I do not think it represents any breakdown in relations here or of trust between us.

  15. The second issue that occurs to me is this. I do accept totally that you can appoint people to the non-executive positions for their particular skills and so forth, but as individuals we have skills but we also come from a certain working environment—we can either come from business or unions or consumer groups or whatever. Notwithstanding the fact that you appoint people on the basis of their skills, what efforts are being made to ensure that the baggage that people bring with them as non-executive members includes not only their skills but also their broad section of understanding, not just of the business interests but also of the interests of employees and consumers?
  (Ms Hewitt) We will be drawing up a specification, a statement of what we are looking for in the individuals whom we want to appoint to the strategy board and to the other boards within the department, which I will be very happy obviously to show to the committee. But I said earlier that we know from very good evidence that the best run organisations are those which engage their workforce. There are various ways of doing that but I would want the individual to come on particularly to the strategy board whose purpose is to strengthen the leadership and management of the department to have demonstrated that they have done precisely that within the organisations that they have run; in other words, that they have been leaders in creating highly effective ways of working with the people whom they employ in order to deliver the best results to the people they serve. That sums up the sort of individual I am looking for. They certainly need to have led and worked in large organisations because the DTI is a very large organisation and we are looking for people to help us strengthen the leadership of it, but I can think—and I am sure you can—of a range of backgrounds from which those individuals can come. Because we will be inviting nominations, people will be free to nominate themselves for these posts. We want to get the widest range of talent, and I suspect the difficulty we have is that there will be so many good people available to us and interested in helping us that the difficulty will be narrowing it down because there will only be three non-executives on the strategy board.

Dr Kumar

  16. Secretary of State, what you have mentioned this morning is an innovation. Obviously it sounds like a very interesting experiment and we will be interested to watch the way we go. What worries me, listening to you this morning, is that you obviously have a lot of emphasis on the businessmen and for them to be involved in this restructuring, but what are the checks and balances which you have introduced to be sure that they do not actually run the whole organisation and become the driving force in what you are trying to do, that they do not become indirectly the sort of influential partners in a big way? Being close to them is one thing, trying to get advice. The previous model obviously did not work because you were getting advice and you were not so happy about it, you set up this structure. You obviously think it is going to help you run the department better. The fear I have is that they are going to take over your department. What are the checks and balances that you have introduced to stop that happening?
  (Ms Hewitt) I have not particularly this morning talked about business people, if I may say so. The committee have; I have not. I have talked about getting individuals who have shown outstanding ability at running large organisations and leading change. Those organisations, as I said earlier, may be not-for-profit as well as private sector organisations. I am looking for individuals who can help to strengthen the leadership and management of the department; I am not looking for people who are going to either represent particular interest groups or tell me what the government policy should be on competition or on a particular merger and takeover or on the minimum wage. One of the issues that John Monks raised with me was: "Oh, but you will have business people in there and they will have a view on minimum wage." Our current non-executive director comes from a retailing background and obviously the minimum wage is quite important in retailing. She has never once in her various conversations with me raised that as an issue. What she has contributed is a real knowledge of how you can manage large scale change, cultural change within large organisations. You will be aware from your own experience in industry of some of the challenges that that poses. That is the kind of expertise we are looking for. We are not setting up the strategy board to make decisions on day-to-day policy and therefore I do not see a problem that would require checks and balances as a solution. What I think is essential is that the department as a whole and ministers as a team have close and effective working relationships with all the various partners and stakeholders with whom the department has to deal, and that, when it comes to policy making, we have a proper system of consultation with all the people who have an interest in the outcome of the policy. That is precisely what we do on employment relations, competition law, everything else we do, but that policy making consultation function is a different one from the function of strengthening the leadership and management of a complex and large organisation that is responsible for a lot of public money, employs a lot of people, has a great deal of expertise within it, and could use that expertise in my view to better effect.

Mr Hoyle

  17. Secretary of State, you claim that it is us who is mentioning business leaders. I think, in fairness, if you look at the Financial Times on Thursday November 22 it says clearly, in what somebody must have put out as a press release or an interview with your good self, "The plan to put three prominent business figures on a new seven-strong strategy board ..." proves that business is going to be the heart of what your new vision is for the DTI. Then, if you look at The Independent for Friday November 23, it is pretty clear. It says: "By announcing plans to put business leaders at the heart of the DTI strategy ..." This is what they are claiming you have introduced, so it is not just us that is putting this message across. I think you will find, more interestingly, it is not only ourselves but here we have Mr Digby Jones, director general of the CBI, who "had nothing but praise for Ms Hewitt's plans `to give business more clout in government'." I think that sums up that everybody else sees it that way. I think it is wrong to think it is just us who is criticising; I think this is the vision of the country at the moment. My worry is, when we may have millions applying for these three prestigious jobs, how you will select, with all these people who will write in and say how wonderful it will be. I just wonder, have we been nudging people's shoulders to put their applications in? Have you earmarked people you would like to see in there already?
  (Ms Hewitt) No, I have defined the kind of person I want. I will wait until I see who is interested in serving in this way. I do not think we need get too worried about the huge prestige involved—you know, there are significant commitments of time and hard work involved and we are looking for people who are willing to make that commitment. What I said to the Financial Times was that we were going to create, were planning to create, a strategy board. That this is a huge innovation in the way Whitehall runs. As Linda Perham said earlier, I think it is something that will strengthen the relationship between ministers and officials to the benefit of the governance of the country, and not simply this particular government, and clearly business leaders will be amongst those from whom we select the various non-executives we will want in the department. We will publish early in January the description of the kind of people and the expertise that we are looking for and the process that we will go through.

  18. So they will actually come from business?
  (Ms Hewitt) They will include people from business. It would be astonishing if they did not, I think.

  19. Of course. Absolutely. So we might not be looking for a short list, "Well, it might be Sir Ken Jackson, John Monks and Bill Morris. We do not think it will be those three, we actually think it will be three business people."
  (Ms Hewitt) It will include business people, but the test is individuals who have led outstanding successful organisations and led large scale cultural change within large organisations, because that is what this review is designed to do within the department, that is the expertise and the help that we are looking for in relation to the strategy board. In relation to the other boards, it is a rather different kind of expertise, for instance, that we would need in relation to science, technology and innovation

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