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CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 405-i
House of COMMONS
TAKEN BEFORE the
Public Administration Select Committee
Government Lead Non-executive Annual Report 2011-12
Tuesday 10 July 2012
Lord BrownE of Madingley
Evidence heard in Public Questions 1 - 109
USE OF THE TRANSCRIPT
This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
The transcript is an approved formal record of these proceedings.
Taken before the Public Administration Select Committee
on Tuesday 10 July 2012
Mr Bernard Jenkin (Chair)
Examination of Witness
Witness: Lord Browne of Madingley, Government Lead NonExecutive, gave evidence.
Q1 Chair: Welcome to this inquiry into the role of non-executive directors and Government lead non-executive directors. May I ask our witness to identify himself for the record please?
Lord Browne: My name is John Browne, Lord Browne of Madingley. I am independent; I am a Cross-Bench peer, but I am appearing here as the Government’s lead independent director.
Q2 Chair: Thank you very much indeed, and indeed, thank you for your commitment to this public role. How satisfied are you with the contribution being made by lead non-executive directors to departmental boards? Perhaps you could put it on a scale of 1 to 10?
Lord Browne of Madingley: Sure. I think I would put it on the scale of 1 to 10 at about 2, because I think one has to be realistic about expectations in starting up something very different, with a cadre of people who have just come in to do a job. My expectations were low and that we would probably be 20% through the programme in the first year or so; that would be 2 on a scale of 10. The following years would be the real test to see whether value was being added, because in the first year we were really in the business of setting up what we were doing. We were recruiting 60 people-that is a lot of people to recruit, and therefore a lot of people to sift and sort-and setting up mechanisms, and getting people to know each other. We achieved more than that, but that was the prime purpose in the first year.
Q3 Chair: Presumably some non-executive directors have had their patience tried and tested and found wanting, and have packed it in and given it up?
Lord Browne of Madingley: No one has given up.
Q4 Chair: None of them?
Lord Browne of Madingley: This is a good sign. At least no one has given up at the moment. Everyone is enthusiastic, and everyone recognises that instant results and instant success is not realistic; you have to work at something in order to make it effective. No one has quit. We have 60 people, and they have all been there at various times. It has taken us time to set up; they did not all start on the same day, but they have all been there and they will continue.
Q5 Chair: What sorts of things most surprised non-executive directors about what they have found in the public sector?
Lord Browne of Madingley: I think they are some of the things I have put in my report, and there are several. First is that the number of priorities retained by a Department were just too many. Those who came from the third sector or from the private sector said, "How can you possibly have 60 priorities? Surely four or six would be good, maybe even 10, but there are simply too many objectives to be fulfilled." Their first big surprise was how many objectives were priorities.
The second was how much lack of measurement there was of where things were, where you started from and where you were going. This is commonly termed "management information", but it is simply information on how you are doing against what you said you were going to do. The lack of that was a very big surprise to most people from the private sector.
Q6 Chair: What about the comment I have heard from one or two nonexecutives that they are shocked at how risk averse the civil service tends to be in its mode of operation? Even the individuals concerned are trained to be very risk averse, which mitigates against good performance and, indeed, increases risk.
Lord Browne of Madingley: That is true. The comment manifests itself in different ways; options are not looked at and measured on a scale of risk and return, and of what is a tolerable risk. There is very little debate about that sometimes. The debate is "There shall be no risk". Usually that is almost impossible to achieve in anything in life; there is no such thing as riskfree. Debate is not engaged about where to put the risk.
The argument is often portrayed that for a civil servant there is no reward for taking a risk, because if something goes wrong there will be extreme criticism by scrutiny committees, and if something goes right there will be no thanks. It is a biased sample, if you will, of incentives, and that does need to change. Most nonexecutives were quite surprised at the lack of thanks that people got for a job well done. In the private sector, you would go round and you would thank people for what they did and congratulate them, and your progress through a company would generally be related to the level of success you had had. It is usually the case that you win your next position by doing things well. Companies also have incentives to do with pay and things like that, but for those who focus on getting things done, progress is more important than pay; progress is important. We think something needs to be done about that in the civil service. Some of that is in the proposed reform programme for the civil service.
Q7 Chair: In evidence to us in January 2011, Professor Kakabadse of Cranfield University, who is now an adviser to this Committee, said that he thought departmental boards "will not only reinforce silo mentality but create irritation with external non-executive directors, because they find they are helpless. Their hands are tied. I think you will make things worse." Are you experiencing a bit of that?
Lord Browne of Madingley: I do not agree with that. I think it is a very sweeping statement that just cannot stand up against the facts. It may stand up against some facts; there is always something that is not right, just by definition.
Q8 Chair: How are you making that not so?
Lord Browne of Madingley: Because there is real engagement with the non-executive directors. In the best of circumstances they have become advisers, critics, and protectors simultaneously, for both the Secretary of State and his or her team, and the Permanent Secretary and his or her team. They have the role, which is what was conceived, to provide both the sword and shield on both sides, and advice to both.
Q9 Chair: How are they actually integrated into the working of the Department?
Lord Browne of Madingley: Differently.
Q10 Chair: I can imagine that, within a Department, beyond the people who have direct contact with these alien species in the civil service jungle, they are regarded as a kind of irrelevance. How do they actually exercise their influence in order to change the culture and working of a Department? I find it very difficult to understand.
Lord Browne of Madingley: Because they have no constitutional power-they do not exist-
Q11 Chair: They do not have any fiduciary duties, do they?
Lord Browne of Madingley: No. They have influence only, and their influence is exercised in three ways: one is they can leave.
Q12 Chair: Or put political pressure on the Minister, and perhaps the Permanent Secretary, but that’s it.
Lord Browne of Madingley: That’s it, but that is not bad; that is the leadership, after all. That is what boards tend to do, even in the private sector; they influence the leadership. They can do that. They can also write an independent report in the departmental report, and they do have this nuclear weapon: they can recommend the sacking of the Permanent Secretary, and that is written into the governance code.
Q13 Chair: We will come back to the Permanent Secretaries later, but does the ability to write a separate part of the annual report not create a division between the non-executive directors and the rest of the Department.
Lord Browne of Madingley: That is the case with all boards. There is both supervisory criticism, as well as support. There is always duality of purpose in boards.
Q14 Lindsay Roy: You have given us a very clear contextual background in terms of priorities and measurement. To what extent do non-executive members encourage joinedup working across Departments, given that their prime focus is on Departments?
Lord Browne of Madingley: There is a limit to what non-executives can do. Joinedup working has been the big discussion in Government for a long time. We have a joinedup mechanism, which is that the lead independent directors of each Department meet under my chairmanship, reasonably frequently; there is no pattern set yet, but it is broadly quarterly. All the nonexecutive directors meet under my chairmanship once or twice a year; we have met twice to my knowledge. We discuss matters of common interest and try to join up what we are doing. Who did what will always be contentious, but I think these meetings provided the basis for what to look at in the civil service reform programme. There was a lot of coming together about the question of what has to be done.
Q15 Lindsay Roy: Have you seen any signs of concrete dividends from your work, or is it too early to tell?
Lord Browne of Madingley: It is too early to tell. I think there are a couple. We have all been very fussed as non-executive directors about how the Government spends its capital. Quite a few non-executives come from capitalintense industries, and I disclose that I do too. We asked a very simple question-I cannot remember when it was-but it took rather a long time to answer, which was: what was the sum total of the Government’s programme on capital programmes presently committed? The answer that eventually came was £750 billion, of which over £400 billion was in 200 projects; they were the major, major projects. All of us said our experience in the private sector is that the private sector is not very good at running capital projects, and with better attention you could save lots of money, and still get the same answer. You just do not do things that are impossible, and you do not bang your head against a brick wall assuming that if you do it enough times you will get rid of the bricks; you do not.
We looked at this and said, "We need to do something about it". Best experience says that what you have to do is train a cadre of leaders who know how to lead major projects. If you do that, experience shows in the private sector that you can get the cost down in a big way-20% would not be unrealistic. If you set a target of 10%, you might actually achieve it. Across the board we have been very keen, and we pushed for the establishment of a Major Projects Leadership Academy to teach people-I think teaching people is more important than anything else-at Oxford. That was done, and they are now on the second cadre. We want to see how that is working.
Q16 Lindsay Roy: You are beginning to model for the future and measure success against the criteria you set?
Lord Browne of Madingley: Yes, absolutely. We would expect to get money out of the major projects, for sure.
Q17 Chair: The code of practice adopted by Government Departments for the corporate governance of Government Departments is not obligatory. Departments can depart from the code of practice. How do non-executive directors exercise leverage through the code of good practice, if it can be ignored?
Lord Browne of Madingley: It is just like all codes of practice. Even the Financial Reporting Council and the corporate governance code for the corporate sector have the same points, which is that you must either comply or explain. We have not deviated from that philosophy: if you do not comply you had better explain, and you have to explain publicly. Hopefully that will put you off not complying just because you do not want to, but to not comply because there is a real reason. So far, no one has decided to explain; they have decided to comply.
Q18 Kelvin Hopkins: How have Permanent Secretaries reacted to the role of non-executives reporting on their performance? Do they think it is fair? Are they happy to submit to it? What has been reported and what evidence has been adduced in the reporting?
Lord Browne of Madingley: When these changes came into place there were very few Permanent Secretaries who welcomed them. Change is always not regarded as very good, because you do not quite know what you are signing up for. However, I would say that of Permanent Secretaries now I have certainly not seen anybody who is hostile to non-executives. They are actually rather welcoming, and use them to get advice on how to get things done. I have not seen the evaluations-I would not expect to see the evaluations of Permanent Secretaries-but I do know that this is now happening on a constructive as well as a critical basis. It is becoming part of the fabric, I would say.
Q19 Kelvin Hopkins: Have there been any specific reports, which you could use as an example?
Lord Browne of Madingley: Do you mean on the performance of Permanent Secretaries?
Kelvin Hopkins: Yes.
Lord Browne of Madingley: No. I have not seen them. I have contributed to several myself, to both the Cabinet Secretary and the Head of Civil Service, and the predecessor, Gus O’Donnell. I have been part of the contribution to that-one of several.
Q20 Kelvin Hopkins: The fact that they are fairly happy with what has been happening suggests that the reports are not very critical?
Lord Browne of Madingley: That I do not know. I think some of them, certainly my reports-I am not prepared to tell you what I said in these, because it is meant to be confidential-have been, I hope, constructively critical. Absolutely everybody has something they can do better.
Q21 Kelvin Hopkins: Under the Treasury’s code of good practice on corporate governance, boards are not supposed to get involved in executive decisions about the running of the Department. Does that sit comfortably with their role in commenting on the performance of individual board members, and potentially seeking the removal of individuals from their posts?
Lord Browne of Madingley: There is a fine balance. It is like any board; boards are not a higher form of management. There is management and there are the boards. The boards are meant to supervise management and advise them. There is an amount of information you need to do that, and it is the information, as opposed to the action, that you have to separate.
I come back to the point about management information. It is very important to understand who is accountable for what, what they have committed to, and whether they are achieving what they said they would do. It is very simple: you make a promise, and if you discharge it, great; if you do not, you need to explain, or you need to take stronger action. The boards are trying to get the right amount of information to do just that. What surprised all of us is that, right across the Government, there was nowhere that all of this was put together. There was no fourpage document saying, "Here are the 10 most important things the Government is trying to achieve, and here is their success on these things, and here is what to do". Maybe one day that might happen. I hope it will.
Q22 Kelvin Hopkins: One specific example-you may not be able to comment-is that there has been a lot of talk about the bureaucracy and expense of defence ordering, and the Defence Ministry has been under criticism by comparison with other nations, other Departments, and so on. It seems that money is no object in that particular Department. Of course, there has been a more recent problem with the Secretary of State, who resigned over-well, we know the story. All of that suggests that the board would take a great interest in the Department and the performance of the Permanent Secretary. Is it that sort of thing that you would have been-
Lord Browne of Madingley: Yes. The board of the MOD was very slow getting started. Certainly working with the former Secretary of State, it was taking time to get its role sorted, while the Levene review of the MOD was taking place, if you recall, with the service chiefs and what was happening to them, and what was happening to the head of procurement. All the parts were moving around, so Dr Fox said, "I can’t handle one more thing going on until I land some components."
It took time to appoint Gerry Grimstone, who is the Chairman of Standard Life, as the lead independent director of that board. It is now taking a much greater interest in all the things that are important. Is there real commercial sense in the procurement processes? Are the major projects being conducted with real accountability everywhere? Are the priorities being established and adhered to? All the questions that a board would normally ask are now being asked, but that board was not-I think-fully up and running until after Dr Fox left.
Q23 Kelvin Hopkins: A question I would be interested in is how you read across, if at all, to the NAO and the Public Accounts Committee.
Lord Browne of Madingley: Quite a lot. We took a lot of advice from the NAO on how the boards were to be established, and, in particular, how the audit and risk committees of each Department should work. In my experience, it is very easy-you can see it in many places-for an audit committee to get swamped. You provide a list of risks, which probably extends to thousands of risks, rankordered, and then you spend all your time going through them. That is not the way to think about it. In a complex organisation, the way to think about it is: when you sum up all the risks, what happens? It is much more like scenario planning, if you will.
It is that sort of focus that is quite important, and that has been a task that the Comptroller and Auditor General, Amyas Morse, has been very keen on, saying, "We should look at these things", and we agree with that. We have had several meetings with them, and also with the Government Actuary, trying to understand how to change the way people think about risk. It is very important indeed.
They have also been instrumental in helping us with the governance process. They will be reporting on the reports of Departments in regard to governance, when all the reports are in. We have worked quite extensively with them. I have given evidence at the PAC twice on this, once on accountability-or maybe both times on accountability; I will have to check.
Q24 Paul Flynn: Do you think any of your boards are likely to recommend future PFI programmes?
Lord Browne of Madingley: They are going to look at those very, very carefully. I will give you a direct example, if I may. In my second job, I am the lead independent director of the Cabinet Office, as well as all the boards. The Cabinet Office board looked at a proposal called My CSP, which is the way civil service pensions are to be administered. The question was about what should be done with that: outsource it, insource it, have a hybrid approach, or mutualise it?
The audit committee of the Cabinet Office really drilled down on that, trying to understand how you get a real determination of value for money along with the risks associated. That is the closest thing to a PFI, and it was decided it was not going to be PFI’d; it was going to be mutualised. It means that staff would have an interest in making it work, but it would be retained effectively inhouse, with some services outsourced, but very carefully. Experience would say that if the boards are asked, they will drill down very carefully to see what the overall risk profile and value for money is.
Q25 Paul Flynn: I am sure that answer will give great relief to civil service pensioners.
Lord Browne of Madingley: It is going to work okay, it seems; we were quite happy that it will work.
Q26 Paul Flynn: Do you accept the figures that are given, that previous PFI enterprises will cost the country £300 billion?
Lord Browne of Madingley: I have not looked at them, so I cannot comment. I hear lots of anecdotes, but I do not have any basis to comment on those numbers, I am afraid.
Q27 Paul Flynn: Do you think it is conceivable that there are circumstances in which new PFIs would be approved by the Government?
Lord Browne of Madingley: I do not want to avoid the question. The answer must be that if they are commercially sensible and people have thought through the control and risk envelope, there is no reason they would not be. They have to fulfil certain criteria, and PFI is just one option; it is one option of many, and it has to stack up against a list of options. If it comes out as, "Great value for money. I can control it. I know what I am doing and it is the only way to do it," the answer is: do it.
All the directors are concerned about commercial decision making and commercial negotiation. It is broadly true to say that people in the commercial world spend every waking moment trying to get a better deal. They hopefully do it with the long term in mind. They are very expert at negotiating and they are very expert at commercial activity. It is unrealistic to expect the civil service to be equally competent, because it is not what they do the whole time. One has to think about how these negotiations should take place, and, indeed, whether they should take place in every Department or only some Departments. Should there be a centralised approach? For certain procurement there is now a centralised approach, with Crown representatives who look after the relationship between big suppliers and the Government. In commercial life, such as in my old firm, for a contract that would be minuscule in Government terms-let us call it £200 million, which would be regarded as small, amazingly-there would be a fulltime person dealing with it. That is not the case here.
Q28 Paul Flynn: If I may make a final point, following your answer about the MOD, you said that the thing did not get off the ground before the departure of Dr Fox, which was in November last year, I believe. Do you think there should be a great deal more urgency, knowing the history of the MOD? Almost no contract for the past 30 years has been delivered on time or on budget. Is this not the Government’s basket case over many years, where money has been spent as though it were spent by a drunken sailor?
Lord Browne of Madingley: I cannot comment on the past. I just do not have enough information to do that. I want to look at the future. I am sure the MOD is not the only place where contracts have not met their promise. That is why we pushed for the Major Projects Leadership Academy-really teaching people how to lead. By that I do not mean managing the details. I mean setting up the structure for projects, understanding how to look at the options, making sure they are governed properly and that the managers involved in a project do not just leave, that they are scheduled to rotate at certain moments, so you maintain learning, and that you use the best practice around the world. It is surprising; if this works, people do deliver projects on time and on budget, and by that I mean the original budget, not the revised budget-it is fairly easy to deliver on that.
Q29 Alun Cairns: Lord Browne, from the picture you have just painted, you are trying to make the civil service far more like the private sector, in terms of its analysis and its management of these big projects. The private sector, quite obviously, can react much more quickly. Is the public sector, or the civil service, in a position to react and change its structure to changing circumstances, as the private sector can do?
Lord Browne of Madingley: First, to my mind, we are not trying to make the civil service or Government into a business.
Alun Cairns: Yes, I accept that.
Lord Browne of Madingley: What we are trying to do is import certain business techniques into government that arguably will make them more effective and efficient. The answer to your question is that I think it depends on what you are dealing with. Again, I can best speak in the private sector. In my own experience, you start a big project in the North Sea, Azerbaijan or Russia: when you fire the gun, you cannot retract that for seven years, or maybe 10 years. You have to be sure you understand how you react if life changes, and your reaction cannot be to stop it; it means to change things.
You need to manage risk the whole time; I think that is important. There is nothing linear about anything in today’s life. You have to think through, "What am I going to do to help change? Whatever I can," but you may not be able to change a lot. Sometimes you have to say, "I give up", and that is okay. If the cost of going forward, and the benefit of going forward, is negative, and you have sunk $1 billion, you just have to write it off. You have to be realistic about it. I hope boards will make that piece of reality clearer for people.
Q30 Robert Halfon: If I can ask a more general question, apart from performance management and the other areas that we have discussed, what does your board do to look at waste in Government Departments and cut it, in essence?
Lord Browne of Madingley: The answer is that it depends on what they are looking at, but basically they look in conjunction with groups like the Efficiency and Reform Group at the Cabinet Office, which is looking at administrative costs across the board. That is done in conjunction with Departments. A lot of money has been taken out of the system by avoiding the use of consultants, by looking at different IT contracting, and so forth.
In the end, the best way to measure that is to compare Department by Department, and to have a little bit of an edge put into things by saying, "This Department is doing better than that Department on the cost of administration per capita" or "the cost of HR per capita" or "IT costs". You have to look at the right metrics. This, again, is part of the process of collecting the right information across government so decisions can be made. That has been the subject of a recent project on how to collect management information and how to get people to do it.
Q31 Robert Halfon: In a nutshell, are you able to explain what your boards have done to cut waste, and what examples you can give of waste cuts in Government Departments?
Lord Browne of Madingley: Very few things, I would say, at the moment. I can think of examples in the Ministry of Justice, where the board has pushed through change in the IT structure, which has been very good. However, I cannot think of many big examples. This is not an excuse, and we will collect anecdotes, but people are very reluctant to give us anecdotes demonstrating that things were not right before interventions took place. That is a sadness that is not just in government; it is everywhere. People do not like to say that things are not working; they just do not like it.
Q32 Robert Halfon: Can your board take an eagleeye view on the amount of money, for example, that Government Departments spend on headhunters?
Lord Browne of Madingley: Yes, eventually.
Q33 Robert Halfon: Can you take a view that Civil Service Live may not be value for money? It may be value for money, or it may not be?
Lord Browne of Madingley: That may be too small a detail, but there will be plenty of things where we can measure comparatively across Departments and that will give us a better base than anecdote.
Q34 Robert Halfon: What have you done to reduce the cost of headhunters that Government Departments hire?
Lord Browne of Madingley: We have basically stopped using them to a great extent. They are still used, obviously, to bring this together.
Q35 Robert Halfon: That has actually been done by the boards, has it?
Lord Browne of Madingley: It has been done partly by the boards and partly by the Efficiency and Reform Group, led by Francis Maude.
Q36 Paul Flynn: Is it your view that headhunters not only add to cost by the amount that is paid to them directly, but they have also added to costs by raising the expectation for salaries received by people coming from the private sector?
Lord Browne of Madingley: My experience with recruitment is that you have to define very carefully what you want these organisations to do. If you define it carefully enough, they will do a good job for you.
Q37 Robert Halfon: Would you agree, then, that it is unnecessary for civil service Departments to use headhunters when they can advertise themselves and reach out themselves to various individuals?
Lord Browne of Madingley: Sometimes; there is no general, generic answer. If you advertise, unless people know the advert is there, they are not going to apply. You need to get people to notice it, so you advertise, and headhunters will often, therefore, have a role in simply getting people to know about it.
Q38 Robert Halfon: Why can it not just be put on a civil service website?
Lord Browne of Madingley: Because no one will look at it. That is not quite true, not everybody will look at it.
Q39 Robert Halfon: Isn’t it their problem, if they don’t look at it?
Lord Browne of Madingley: It is also the problem of the recruiter, because they want to get the best person. It is both their problems.
Q40 Robert Halfon: Is one of the reasons why people do not look at it because there are Departments still hiring expensive headhunters, so they know it goes through this cosy, oldboy network through the headhunters. If they knew that it was just the civil service who had their own system of advertising these things, people would look at them.
Lord Browne of Madingley: First, the headhunters do not make the appointments; panels do. For important appointments there is often a lead non-executive or a nonexecutive director on the panel. There certainly are for Permanent Secretaries; I have re-agreed a protocol with Kerslake, which says that the lead non-executive director will be on the panel for the appointment of Permanent Secretaries, even if it is a so-called "managed move", which is moving someone around in the civil service. I think the panels have to look through and make sure it is not an oldboys’ network that is in operation, and that it has diversity.
Q41 Robert Halfon: There have been some cases of former senior civil servants going to work for particular headhunters, and then various Departments hiring those headhunters.
Lord Browne of Madingley: I do not have enough information to say whether that is the case or not.
Q42 Robert Halfon: But would you agree with the view that the less use of headhunters the better, in terms of value for money for the taxpayer?
Lord Browne of Madingley: No, I would not. I would say that headhunters, when you have thought through carefully what you want them to do, and discovered the fact that that is the only way you can do something, should be used. They should be used with professional skill, not generically.
Q43 Chair: When you were in the private sector and you wanted to recruit senior management, or board directors, or board-level management, did you use headhunters?
Lord Browne of Madingley: Yes, we did. We had a rule that we would always recruit into a job description. We would be very careful to write down exactly what the job entailed-by that I mean a specific, rather than a generic, description-and then discuss with the headhunter exactly whether there was anybody there who could actually do the job, not just a big list of people who might be okay, or happen to have a reputation.
Q44 Chair: So you would regard any organisation of any significance that decided it was never going to use headhunters as rather silly.
Lord Browne of Madingley: I would regard it as very odd, yes, very odd indeed. I would also regard someone who used a headhunter for every single job that they filled as quite odd.
Q45 Chair: It is a balance.
Lord Browne of Madingley: It is a balance.
Q46 Chair: Coming back to the interface with Permanent Secretaries, can you describe what role the Ministry of Justice board had in the managed move-I think it was a managed move-of Ursula Brennan into the permanent secretaryship of that Department.
Lord Browne of Madingley: That did not work out well. First, the board is not-if I may, the question is really about the lead non-executive director. It was done without sufficient consultation with the lead non-executive director. As a result, that is exactly why we have reinforced the protocol; we are still discussing how to effect it, so that the process is not accelerated unnecessarily or bypassed inadvertently. Lead non-executive directors need to be involved with the appointment of Permanent Secretaries. That is essential.
Q47 Chair: This underlines a confusion really, because non-executive directors of Government Departments are not really directors, are they?
Lord Browne of Madingley: No.
Q48 Chair: They are advisers.
Lord Browne of Madingley: They are advisory directors.
Q49 Chair: This business about having the power to dismiss the Permanent Secretary-it is only the power to give advice.
Lord Browne of Madingley: Correct.
Q50 Chair: In their capacity as advisers, they have no separate legal personality from the Secretary of State?
Lord Browne of Madingley: That is right.
Q51 Chair: They do not have a shareholder base-it is a sort of public service role. They draw on public support or their professional credibility, but that is their only authority, is it not?
Lord Browne of Madingley: That is right. As I said earlier, there is no constitutional authority vested in these boards.
Q52 Chair: I am just asking about the accountability question for Permanent Secretaries. The Permanent Secretary’s accountability has not changed; they are still accountable to their Secretary of State, to the Head of the Civil Service or the Cabinet Secretary, and ultimately to the Prime Minister.
Lord Browne of Madingley: And, as accounting officers, to Parliament. That is correct.
Q53 Chair: That has not changed?
Lord Browne of Madingley: No.
Q54 Chair: What is the magic that non-executive directors bring into this then? I am asking a simple question.
Lord Browne of Madingley: It is very simple. They bring advice and influence. Day to day, in any board, that is what the board does. The board does not sit there, in my experience-I have been on many boards-saying, "We are now going to exercise our statutory authority and be there". They are there influencing, discussing and advising. Only in very rare circumstances do they stand up and say, "We fire the chief executive", or the chairman, or some board members. They work by influence and their own respect.
While there is always a threat-clearly a board can fire a chief executive easily-the non-executives can, if they find that their advice is being consistently ignored, do one of three things. They will leave, and people will ask questions about why they have left.
Q55 Chair: So are you expecting some departures.
Lord Browne of Madingley: Not yet.
Q56 Chair: Indeed, the system would not be working unless one or two carried out the threat.
Lord Browne of Madingley: It may well happen. Who knows? They might do that. They might comment in the annual report. They might comment outside the annual report as well. Or they might collectively say that it is time to fire the Permanent Secretary. They have three routes to exercise stronger influence.
Q57 Chair: We have already found, in some Departments, a really unproductive relationship between Ministers and civil servants, based on demarcation, defensiveness, and lack of trust. Then you are managing the expectations of non-executive directors, who, coming from the private sector, must have a very different expectation of what their role will be, if they are given the title non-executive director, from what is required of them in a Government Department. They are interfering in the relationship between the Permanent Secretary and the Minister. Is this not making things worse in some cases?
Lord Browne of Madingley: No, I do not think they are. I think they could also make it better, because they act as a bridge, and they act as a sounding board. I believe that is what they do. They can make things better; equally, they could make things worse. On balance, that is the point. Lead non-executive directors in the private sector, as most people know, are there to make sure that the chairman is performing, but they are also there to be a bridge between the chief executive and the chairman if something goes wrong.
Chief executives are fully aware that the person who can fire them more easily than anybody else is the chairman. Therefore occasionally they need someone sitting between the chairman and themselves, and that is the lead non-executive director.
Q58 David Heyes: I was wondering about the cost of this. There is an honorarium-£15,000 or £20,000 a year for the lead non-executives.
Lord Browne of Madingley: There is.
Q59 David Heyes: For the 59 in post that is pushing towards £1 million a year across the board.
Lord Browne of Madingley: If everyone took it, but they don’t.
Q60 David Heyes: I am going to come to that. Is that potentially the only cost? Presumably you need secretarial and administrative support and you need technical expert advice. Does your management information system tell you what the true cost of this non-executive director system is?
Lord Browne of Madingley: No, it does not. I am not sure you can measure it, because quite a lot of the things that the board want should be done anyway, in a modern management approach, like collecting information and testing whether people are doing what they said they were going to do. Quite a lot of this is not making work for the board; it is simply creating the right structure to get the management of the Departments into the 21st century.
Q61 David Heyes: That kind of support is derived from within the existing staffing of the Department. There is an opportunity cost in that, presumably?
Lord Browne of Madingley: There may be, but you could argue that maybe it should have been done anyway. The boards are pretty lowcost, I would say. Remember there are 16 Departments here, so the visible cost is by Department.
Q62 David Heyes: Are a significant proportion of non-executives waiving their fees?
Lord Browne of Madingley: I cannot remember. I think it is about a third, up to a third. I certainly waive my fees.
Q63 David Heyes: Is it enough? £15,000 a year seems very little for the range of skills, expertise and experience required.
Lord Browne of Madingley: We set it on the basis that it was the same honorarium as a member of the Court of the Bank of England. We said, ‘If it is okay for them-’
Q64 David Heyes: There is a good question: are they paid enough, given recent events?
Lord Browne of Madingley: We do not know. We are going to let them lead, and then we will think about it after they have led. Nobody does this for the money. When you talk to the non-executive directors-this is not hokum; I think it is true-they do it because it is part of national service. They actually do it for that reason. They think that they can contribute to making things better.
Q65 David Heyes: I accept that, but I wonder equally whether this low rate of remuneration is likely to exclude those who cannot be as benevolent.
Lord Browne of Madingley: It might. Again, we should review this in the light of what happens to other boards.
Q66 David Heyes: It is presumably arguable that a higher fee-a significantly higher fee-might attract interest from a higher calibre of people?
Lord Browne of Madingley: In theory, but it is a theory. So far, we have attracted some extraordinary people; they really are extraordinary.
Q67 David Heyes: What time commitment do you require of them?
Lord Browne of Madingley: Originally it was about 15 to 25 days, but most of the lead non-executive directors are doing double or even treble that. They are spending a lot of time. The chairs of audit committees are also spending a lot of time.
Q68 David Heyes: Can I take the inference from that that you are going to look at the time requirement and perhaps link it to a look at the honorarium?
Lord Browne of Madingley: We should do that, but not yet. So far so good, but I think, as other people keeping looking at these honorariums, we should do that. I will certainly undertake to do it.
Q69 David Heyes: I take from what you say that it is demonstrably not possible to do a good enough job in the original conception of how many hours were required.
Lord Browne of Madingley: Correct. Most people are spending more time. They could probably do a limited job, but I come back to the point about professional pride and national service. People want to do it really well. You speak to the directors on these boards; they are passionately involved. They want to see the right thing happen.
Q70 Chair: Can you give an example where the non-executive directors have challenged and created a process or a procedure, or achieved value where it would not otherwise have been achieved?
Lord Browne of Madingley: The biggest single example is the management information needed to look at how things are going, in Departments and across Departments.
Q71 Chair: Why do you think the civil service is incapable of doing that for itself?
Lord Browne of Madingley: All I know is that the information did not exist, and has not existed. That in itself is an explanation.
Q72 Chair: What is your diagnosis of the organisation? It does not seem to require the information that any commercial director would regard as axiomatic for the running of the business.
Lord Browne of Madingley: Because it is not commercial. We come back to the bigger question, which is about how much of the civil service was motivated to create policy, and how much of the civil service was motivated to deliver on the policy. It is broadly the case-they are not my words, but everyone’s words-that prestige went to those that developed policy.
Q73 Chair: It is the non-operational culture.
Lord Browne of Madingley: Absolutely.
Q74 Chair: You think that non-executives, and lead non-executives in particular can contribute to addressing that?
Lord Browne of Madingley: I really do think that is changing.
Q75 Chair: What is the biggest obstacle to Departments becoming more commercial in that way?
Lord Browne of Madingley: Skills. It is inappropriate to ask people to do things that they are not qualified to do. You need to look at the skilling of the civil service. We have the civil service, so we must make sure the skills are in tune with what is needed for the 21st century. That is part of the civil service reform programme. People need to be motivated to do this.
Q76 Chair: So it is skills and motivation. Do you think that has to be addressed Department by Department, or do you think the Government needs a more comprehensive skills and motivation plan? Do you see that in the civil service reform plan?
Lord Browne of Madingley: I do not know where to put the dividing line, but I think for the leadership, broadly stated, there needs to be a unified approach to skills generation and how people are skilled.
Q77 Chair: Is that leadership evident? Do you feel it is sufficiently focused?
Lord Browne of Madingley: Let us see what happens with the civil service reform programme; it is clearly there to do something about the broad cadre of leadership of the civil service, the general civil service, and how you reskill it. Above everything else in reform, changing the way people think of themselves and what they think is important-to know what to do-is the single most important thing to change behaviour. That is part of the programme of reform. I would like to see it happen.
Q78 Chair: Do you see any danger in the fact that the plan has quite clearly been born of a sense of frustration and even conflict between some Ministers and civil servants?
Lord Browne of Madingley: Again, I am not close enough to know whether that is the deep underlying cause. I look at it and simply say that the leadership of the civil service itself said, "We need to do something". Most people say the challenge of running the civil service, certainly in order to deliver some of the financial objectives that were established and are so necessary, requires changes of skills.
Q79 Chair: I feel you are avoiding my question.
Lord Browne of Madingley: I am not. I said I do not know how to answer it, because I do not know the answer. I do not know how this was born; I can read the preface, as anyone can, of the reform plan.
Q80 Chair: You personally work as lead non-executive director of the Cabinet Office.
Lord Browne of Madingley: Absolutely.
Q81 Chair: Therefore, you work closely with the Minister of State for the Cabinet Office.
Lord Browne of Madingley: I do, with the Minister of the Cabinet Office.
Q82 Chair: And with the Permanent Secretary departing?
Lord Browne of Madingley: And his predecessors, and the Cabinet Secretary.
Q83 Chair: You must be pretty aware of the to-ing and fro-ing, and the frustration that is evident in the centre that Departments are not delivering what the centre wants.
Lord Browne of Madingley: Yes and no. The centre is, in itself, trying to define who is that? What is that? There are certain things that are not being delivered about which people are frustrated. Some of it is being delivered, but there is much more that needs to be done.
Q84 Chair: Are you not frustrated yourself? You can see the dissipation of strategic focus at the centre of Government, the constant distraction by 24-hour news media, short-termism and all that, which our Committee has been very preoccupied with.
Lord Browne of Madingley: Yes, sure. Wouldn’t it be good if it were much more strategic? Again, the non-executives are very clear that they want to see more strategic thought and a limited number of priorities, which come from strategic thought.
Q85 Chair: Ministers then say to you, "You do not understand politics and the political and constitutional issues that we have to cope with, and it is all much more difficult. You do not understand us."
Lord Browne of Madingley: None of us are qualified politicians, although I would say that now that we have 60 people who have seen much more intimately what is going on inside Government, they can stand there and say, "We do not understand everything, but we now understand more than most groups of 60 people from the outside world have ever understood."
It is one thing going to a meeting with the Prime Minister-as I often did, with several Prime Ministers-to talk about the economy, or exports, or something. It is something quite different, as a business person, to get with the Permanent Secretary, the directorsgeneral, the junior Ministers, the Secretary of State, and begin to see what is really going on. You do not see everything, but you see quite a lot, and you learn much more. You understand constraints and you understand the language, which has its own peculiarities in the civil service. You understand much more; that is what we have achieved. We have achieved 60 people who are very different from the 60 people who might otherwise go to meetings with the Prime Minister.
Q86 Chair: Rather than just catapulting the directorgeneral of the CBI into some ministerial job, you might be breeding quite a good stable of potential ministerial candidates amongst these lead non-executive directors.
Lord Browne of Madingley: It still could make it possible that the directorgeneral of the CBI might become a Minister, if that were regarded as good.
Q87 Chair: I thought he was rather good.
Lord Browne of Madingley: He was very effective. Getting people who understand a bit more while they give advice is generally a good thing.
Q88 Kelvin Hopkins: Lord Browne, the first annual reviews of departmental boards’ effectiveness should now have concluded. What are the initial findings?
Lord Browne of Madingley: We have not fully concluded, but I would say that the findings were roughly as follows. First, trust was developed. Trust and cooperation is in the process of developing, and it has been developed, although not to the full extent. That was a very important finding.
The second important finding reinforced the conclusions right across the board, which is a lack of strategic focus, a need for more results orientation, a need for better information about where we are, and a need to manage the talent better and be more commercial. These findings were generally reinforced.
There were comments about the board management. Most people thought that the lack of presence of junior Ministers was a bad thing, and that they should be encouraged to come to boards where they are not coming, as well as the Secretary of State. That was a clear comment.
Also, when you make a commitment to have a board meeting, it should take place; it should not be simply cancelled, without very strong reasons. We understand parliamentary timetables get in the way enormously.
Q89 Chair: Are Ministers good attenders at boards, or are they bad attenders?
Lord Browne of Madingley: Secretaries of State are pretty good attenders.
Q90 Chair: Are junior Ministers?
Lord Browne of Madingley: Junior Ministers are not so good; we do not know why. We have written our report, saying that they should be motivated to come. It should be part of their job.
Q91 Chair: Is that because the Secretary of State says, "Don’t worry, I will cover for you. I will tell you what is going on."?
Lord Browne of Madingley: I think there are mixed reasons; I do not know why.
Q92 Chair: It is a cultural thing, is it not?
Lord Browne of Madingley: I think so.
Q93 Kelvin Hopkins: Is it a possibility that if the Secretary of State is going to be criticised by the board, he does not want his juniors there?
Lord Browne of Madingley: I do not know. We would like to see more junior Ministers come to these meetings. It is good.
Q94 Kelvin Hopkins: Have any reviews resulted in recommendations that individuals should resign their seats on the boards?
Lord Browne of Madingley: No, not yet. Everyone seems to be performing and turning up, which is important. There is a high degree of commitment. Since everyone was appointed on roughly the same day for a threeyear renewable term, we do not want everyone to leave on the same day. It would be a bit of problem. We have to talk to each board member about staggered terms, so that we can keep people with some continuity.
Q95 Kelvin Hopkins: In your report, there is no mention of names, as far as I recall; I have browsed through it.
Lord Browne of Madingley: There is an appendix.
Q96 Kelvin Hopkins: What criteria are used to assess the effectiveness of departmental management boards? It seems to be very important. You make some subjective judgements yourself, but are there some criteria?
Lord Browne of Madingley: The board evaluations are laid out; we have a threeyear programme of board evaluation. Year 1 is by general questionnaire, which is about the effectiveness of individuals on the board itself, year 2 is a more cursive discussion, and year 3 would be an independent external evaluation of each board. We are going to get someone in to do that.
Q97 Kelvin Hopkins: Within these boards, are there a sufficient range of different types of people who come up with slightly different views, and are there sometimes a range of views within the board?
Lord Browne of Madingley: I think so. If you take the Cabinet Office board, I am obviously the lead independent director; Barbara Stocking, who is the chief executive of Oxfam, is a member; Rona Fairhead, the chief executive of the Financial Times, is a member; and Ian Davis, former senior partner of McKinsey, is a member. There is quite a broad range of people and skills; they have different backgrounds and skills, and make different contributions.
Q98 Kelvin Hopkins: At a more modest level, I have been a member of governing bodies of colleges and our local university, before it was a university, and so on. There seem to be two types: those where they have strong boards with strong relationships, as they should have, and others, which are very much the cat’s paw of the principal or lead person, so they do not cause any difficulty. Where would you place your boards on that spectrum?
Lord Browne of Madingley: If I may reform the question, there are two types of Departments. There are big delivery Departments, which require very strenuous boards, because there is a lot of money and a lot of activity. I believe we have very tough boards there-people who are known not to be people who could be rolled over. They like getting their hands dirty. They have seen things happen, and they have been chief executives or they are chief executives of businesses at the moment. They are very tough indeed.
There are some boards that are purely advisory. They have a bite, but none the less they have a different role. On balance, none of the boards are pushovers. I do not think Sarah Hogg, for example, who leads the Treasury board, would be regarded as a pushover by anybody. She has to advise the Treasury on what it is doing.
Q99 Greg Mulholland: Lord Browne, you chair the lead non-executives network. The issues identified for the network to explore in 201213 include policy dependencies, improving the flow of staff between Departments, promoting best practice and networkbuilding across Departments, and building a more strategic assessment of governmentwide risks. Have you got examples to show how the network has been successful in doing those things, particularly sharing best practice?
Lord Browne of Madingley: This is the future programme. The past programme has been trying to identify the things that are important for all boards to focus on. We can see some success. I can talk about the past for a moment.
In terms of strategic priorities, we will find that they are better identified in the business plans that are coming out. That has been a shared experience for all boards. Worrying about commercial sense has been a shared experience, where the boards have influenced how people think about procurement. We have talked about management information several times in this session. I think that has come about by an awful lot of nonexecutive influence. There are a few things, and there can only be a few things, that the non-executives can focus on right across the Government. Our next programme will be partly taken up by what is happening in civil service reform, because the objectives in the civil service reform agenda are very close to one another.
Q100 Greg Mulholland: I will come to the civil service reform plan in a minute. I want to ask a couple of specific questions. Is the fact that you have identified promoting best practice as a key issue to explore in 201213 an indication that that has not really happened? Would you say the network has found consistency or lack of consistency in how departmental boards are used in Whitehall Departments?
Lord Browne of Madingley: They are certainly used very differently. Some are only used as a collective. Some Secretaries of State use their lead non-executive director or other directors for specific projects. There is big diversity in the way these boards are used.
Q101 Greg Mulholland: Do you think that is a problem that needs to be addressed?
Lord Browne of Madingley: No, that is a good thing. We are very interested in seeing how best practice is shared across Government Departments, and the activity we have undertaken there is the Major Projects Leadership Academy, which is right across Government. That would be bestpractice sharing, which is important. Secondly, management information is needed to compare and contrast the performance of Departments, notably in administrative costs and things like that: how well are they doing? By having league tables, by having comparisons, we should be able to promote the exchange of best practice.
Q102 Greg Mulholland: Turning to the civil service reform plan, how much input did the network have into that plan?
Lord Browne of Madingley: Quite a lot. There are five strands of activity, and each one had at least one non-executive director involved with it. I sat on the board that oversaw how the programme was coming together, as did Ian Davis, another non-executive director, so we had quite a lot of influence. We do not know how much influence eventually came out. We could see it in the words; we now need to see the words converted into action.
Q103 Greg Mulholland: The network has a specific role feeding back concerns about departmental progress with the implementation of the civil service reform plan. Have you had concerns at this stage with any Department, and have they been communicated to the monthly meetings?
Lord Browne of Madingley: It is too early to tell. We do not know. The civil service reform plan is still a plan, and it has not been activated operationally yet, so it is too early to tell whether we have concerns. We would like to see it happen.
Q104 Greg Mulholland: What will your specific role be as a member of the reform board? How will you ensure that by working with the network, you are both monitoring and then passing on those concerns in that role?
Lord Browne of Madingley: Monitoring will require the establishment of a performance reporting process. What are the objectives? Who is accountable for the objectives? When are they going to be done? What is their status? That programmatic approach to reform has to be put in place by the reform unit, which Bob Kerslake is establishing at present.
Q105 Chair: Finally, how do you think Parliament could make best use of non-executive directors to improve the accountability of Departments? Select Committees tend to be somewhat inexpertly, and with a variable degree of briefing, grappling with things of immense complexity. Do you think non-executive directors could play a constructive role with Select Committees?
Lord Browne of Madingley: I hope so, yes. Indeed, they have done in one or two cases already. There is no reason why they should not do more, subject to their own timetable. They are there to help. These are independent people. I have said several times that they are motivated by getting things right, doing a better job, and by national service. They have no particular axe to grind one way or the other; they want to see it done in the right way. I hope, therefore, they will be very useful to Parliament.
Q106 Chair: Is there any particular point you would like to add? Is there anything that you think we have missed?
Lord Browne of Madingley: I want to come back to the answer to your first question. This is an early stage. Like all things in early stage, the process needs watering, if you will. We need to build it. I am confident that if it is built systematically people will understand the role of boards-they do not have a statutory constitutional position but they are enormously powerful advisory groups that can change the way people get things done.
In the end, of course, they can easily be bypassed; you can just ignore them, and only after the event do you see the impact. That would be a great sadness. A lot has been invested so far. This is an unusual approach to governance in Government, and one that could produce some very good results, at a time when people need to look at the techniques of management and get them just right, so that we can get the objectives of the Government done.
Q107 Chair: To get from 2, to, say, 4 or 5 out of 10, what are the three things that Permanent Secretaries and Ministers need to do?
Lord Browne of Madingley: Use the boards well. Listen to the five things the boards said need to be improved. Engage and keep engaging. Then we will see things happen over the next 12 months.
Q108 Chair: Do you think the Prime Minister is giving lead non-executives enough political support?
Lord Browne of Madingley: Yes, I do. He is, I think, very clear; he knows exactly what is going on; he has been briefed-I brief him. He knows what the contribution is and understands the agenda going forward. He needs to continuously support this; without support from the top, it would collapse. So far the support is being given.
Q109 Chair: Lord Browne, thank you very much indeed. I thank you on behalf of the Committee and, indeed, on behalf of Parliament. I would be grateful if you could somehow communicate to all your non-executive colleagues how grateful we are for the time and effort they are giving to make this project a success. The fact that you are paid relatively little, and give probably far more of your time than you are contracted to give, is testament to your commitment collectively. I want to put that on the record and thank you formally for it.
Lord Browne of Madingley: Thank you very much. I will communicate that.
Chair: Thank you very much indeed.