Examination of Witnesses (Questions 200-219)
MR RICHARD BROADBENT, THE EARL OF CRANBROOK, MR MICHAEL WHITING AND MR NEIL CARRIGAN
MONDAY 5 NOVEMBER 2001
200. You did say that some sensitive issues were involved. Could you just tell us what the sensitivity involved in this is?
(Mr Broadbent) First of all, I appreciate the fact that you have gone into private session and I entirely understand that it is your judgement as to what you subsequently make public. I simply felt we should discharge our responsibilities and then allow you to make the judgement. The sensitivity is reasonably straightforward. A confidentiality agreement was signed in this case; we can debate why. It was signed and I believe we have a duty to the individual who is the other party to that agreement because the reason the confidentiality agreement was signed was that neither party in the event felt it worth pursuing, possibly through industrial tribunals, the issues which led to the parting of the ways by mutual agreement. The cost of that would have been very high. Equally, in order to get a voluntary agreement, the individual concerned did not wish statements to be made which suggested he was at fault. For example, there are not public statements that he had been suspended, there are not public statements which suggest that the board had a number of difficulties with his actions which led to a breakdown in trust. On the specific question you asked me at the outset, which I am now happy to answer if you wish, the terms of the settlement were to pay him approximately £59,000, which was 11 months' salary. His contract would have entitled him to six months, so it was more than his contractual entitlement but I understand and quite accept that ENTRUST were advised that the total cost was less than the cost would have been in legal fees and indeed salary costs if they had disputed the case and come to a final conclusion.
201. So this was the justification for paying him 11 months' salary: you were advised that any other course of action could have resulted in a greater cost to the public purse.
(Mr Broadbent) It was a decision which the ENTRUST board had to take. It was not a decision for Customs, but clearly we did see all documentation and would have made our views known if we had felt it was an entirely wrong decision in retrospect. It was a balance of judgement but the issues taken into account by the board were to get a reasonably quick settlement, because it is not a good thing for an organisation to have no Chief Executive, and to get an economical settlement, that is to minimise the cost of their advice and that was the best way to proceed and I have no reason to doubt that advice.
202. Was a settlement made before any legal costs arose? What legal costs were involved?
(Lord Cranbrook) The legal costs at the time were of a mixed nature, but there were inevitably legal costs on taking the proper advice in order to reach a settlement.
203. Can you not give us any feel for what they might have been?
(Mr Broadbent) We can tell you exactly what they were but they covered a number of items.
204. Could we ask for a breakdown?
(Mr Broadbent) We can certainly give you a breakdown of the costs. Some legal costs were incurred in the contempt hearing because clearly when the company realised they had inadvertently committed contempt they did take legal advice and they had to have advice all the way through and that had a cost. There were also legal advice costs in the board deciding what to do as a result of the contempt, because the board were very shocked at this event. There were also then legal costs in terminating the contract. The total of all those costs was £23,000 and I am sure ENTRUST could give you an exact breakdown if you wished.
205. I have the information I wanted. I think it is important when public money is being dolled out, that it should be transparent. One thing which does spring to mind is that in view of the paragraph I read out earlier from the Tenth Report of the Environment Committee, paragraph 5, which seemed to criticise virtually the whole organisation, why was it felt necessary for the Chief Executive's head to roll? Was he held totally responsible for the failure or was it shared between the Chair and the rest of the board? I do not think you can answer that, can you?
(Mr Broadbent) Would you like me to comment?
(Mr Broadbent) We have obviously looked rather carefully at this and I would say in Lord Cranbrook's presence that as the overseer of the regulator, when the regulator goes through a passage like this the overseer looks very carefully to see what has happened and to see whether necessary changes have been made. The issues which arose in the case of the Chief Executive were not just that there was a contempt hearing and that was the end of it. There were wider issues than that. There were several disciplinary issues; some of those were connected with actions which led up to the contempt hearing, some went slightly wider. In fact the board set up a panel consisting of directors, none of whom was Lord Cranbrook, who looked at the matter and concluded there was a case to answer and at that point the board and Chief Executive concluded really that the relationships had broken down. My comment is that what we as the overseer asked ourselves was whether the lesson had been learned and whether the board had really taken seriously the questions being put by that Committee. I believe the answer to those questions is yes, the board were very, very shocked by what happened and they did try to learn lessons. This is one of a number of outcomes.
207. Why did you not dismiss him?
(Mr Broadbent) It is not my role.
(Lord Cranbrook) What we did was set up an investigation into his performance. That investigation was conducted by two non-executive directors who were appointed by the board. They were board members and they were two non-executive directors who had fairly recently joined the board and therefore they came to it with a good new perspective. They were two non-executive directors who represented the two wings: one of them was familiar with industry and industrial processes and the other was very used to human relations and conciliation. The board considered that there were two persons best fitted from amongst us to conduct an inquiry to consider whether disciplinary proceedings were appropriate. At the end of their inquiry these two persons concluded that it would be appropriate to consider whether disciplinary proceeding were appropriate. Therefore there was a next stage and at that stage the Chief Executive tendered his resignation.
208. If he had not tendered his resignation, if he had not resigned, what would his entitlement have been then? On resigning he was entitled to six months, what would he have been entitled to on dismissal?
(Lord Cranbrook) I guess six months also.
(Mr Whiting) Six months' notice. It depends on the facts of the case.
209. Not for a disciplinary dismissal. You do not give six months' notice for a disciplinary dismissal.
(Lord Cranbrook) We did not get to that stage because he resigned soon after a disciplinary sub-committee was set up. A disciplinary sub-committee was set up and he chose then to resign.
210. So he got £59,000 in settlement, that is 11 months' pay. Is that in addition to the pay he had for three to four months when he was on gardening leave?
(Lord Cranbrook) He was on full pay during the period of the internal inquiry.
211. So that would be about another £20,000 he had over that period. So that brings him up to round about £79,000you can give me the precise figures later. I assume he had his pension contributions over both periods. Were pension contributions made for the 11-month period?
(Mr Whiting) No, he did not. The settlement included nothing for loss of pension.
212. But he did receive pension contributions for the four months.
(Mr Whiting) Yes, we would have paid them for that time.
213. What percentage was pension?
(Mr Whiting) Five per cent.
214. That would have been another £1,000 making it round about £21,000. Did he have the use of a car?
(Lord Cranbrook) Yes.
215. During the four months?
(Lord Cranbrook) Yes.
216. During the 11 months?
(Lord Cranbrook) No.
217. We also have to add on the use of a car. Did he have any performance bonuses despite what happened?
(Lord Cranbrook) No.
218. Anything else at all you can think of that he received?
(Lord Cranbrook) No. I do not think he received anything else.
219. Who asked for the confidentiality agreement, he or you?
(Lord Cranbrook) Both parties.
5 Ev 28, Appendix 2. Back
6 Ev 26 and footnote 1, Appendix 2. Back