100. Some years ago, when
BP was being privatised, part of the justification for it was
its activities as a multinational company were inhibited in some
parts of the world simply because at that time it was 100 per
cent owned by the British Government. Can you think of any instance
where CDC's activities have been impeded or curtailed in any part
of the world simply because it is 100 per cent owned by the British
Government?
(Earl Cairns) I cannot think of anything directly
but I think in an indirect sense one of the reasons why I welcome
and hope we can find the right path for this PPP approach is that
I think some organisations with whom we might wish to work are
suspicious—this is the private sector companies—that
the way in which we work is dangerously over-skewed towards do-gooding
and not sufficiently in favour of a commercial return. I think
the balance we hope to get out of the PPP approach will on the
one hand satisfy commercial partners that we are going to act
in a properly commercial way and at the same time that we will
enjoy the benefits which I have tried to explain earlier which
we see deriving very directly from a continuing relationship with
Government. While I cannot—and Dr Reynolds may be able to
do better than I can—think of a way in which I can answer
a direct yes to your question in any sense, I have at the back
of my mind that some people may have been put off working with
us in areas where they should have done just because of the concern
that we were not sufficiently commercial.
(Dr Reynolds) I would make a number of points
there. That is certainly one point, that when we are seen as a
public body surely we cannot be commercial and that is the way
people would see us. I think then there is the other side of that
which we discussed earlier with the Chairman, that when we are
looking to get ourselves involved with some businesses, the private
sector might say we have an unfair advantage. So that is another
angle where there can be an issue. I think there is a third issue
which we found recently, in that we are looking to manage funds
and we have the Commonwealth Private Investment Initiative where
we are managing funds in Africa, South Asia, the South Pacific
and are now looking for one in the Caribbean, and when we are
looking for investors in those funds currently we find we have
to go to the public institutions, whereas if we had private sector
investors as well in CDC then we believe we could get that from
the private sector. That is another area where having private
sector investors in CDC we believe we will be able to get more
private sector investors into those funds. We see managing those
funds is going to be a very important part of what we are doing
in the future.
Chairman
101. You actually earn quite a good income
from managing those funds, do you not, judging from your overhead
ratio to your investments? It decreases from 1.8 per cent down
to 0.8 per cent, presumably the difference being made up from
management fees for managing those portfolios, is that right?
(Dr Reynolds) We do earn a reasonable income,
but I have to say that is pretty well balanced by the costs currently,
because we still have to build up this business and we do not
make any profits currently out of it. But overtime we would hope
this could be a profitable business. We also believe it leverages
again what CDC does, because we can build on our office structure
and our technical knowledge by managing these funds. So what we
are now looking to do is see if we can attract private sector
money into those funds, and we think that will be a great benefit.
Mr Khabra
102. Talking about your investment, will
there be a form of mechanism for ensuring that CDC's investments
correspond to DfID's country strategies?
(Earl Cairns) I think the answer to that is no,
there will not. CDC in a privatised state will be answerable to
all its shareholders. It will have laid down certain constraints
in the memorandum and articles, in the prospectus, which says
that 70 per cent will be thus and 50 per cent will be thus, as
the Secretary of State said earlier. Beyond that, CDC must operate
as an independent organisation. It may well wish to take account
of the views of DfID and the Foreign Office but, at the end of
the day, the duty of the board will be to operate as it sees best
in the interests of all the shareholders.
(Dr Reynolds) I totally concur with that view.
One of the things, though, that we are looking to do is to see
how we can work more closely with DFID, for example, in managing
funds at a country level or maybe a regional level and also to
see how we can work in a particular investment with DFID where
they can bring in some special assistance. So I do think we will
be looking to seek synergy with DFID in particular investments
in managing funds but in doing so we will be operating very much
at commercial arm's length.
Ms King
103. Two brief points. You may have heard
earlier I asked the Secretary of State if it would be possible
for us to have a look at your ethical code when it is completed.
I am sure it would not be a problem. The second point is you saw
myself and Barbara taking note of those 40 women and unless Innes
Meek is a women——
(Dr Reynolds) Unfortunately not.
104. So that is a resounding zero out of
40 and we see these very nice very telegenic pictures of very
nice white men whom we hold nothing against whatever on this page
but would nonetheless be delighted if there were more women and
ethnic minorities. I do note on this page showing members of the
Corporation that there is one women and one ethnic minority but
if these could get out of single figures I think we would delighted.
(Earl Cairns) I share that objective. It is a
matter of regret that the gender balance is as it is and we are
taking steps to try and correct that balance. It is a long-term
very difficult issue. I have tried to do that in business throughout
the last 20 years and I could not say I have been very successful.
I have not been very successful I think for some reasons that
go beyond the ability of us as an organisation to deal with, but
that does not mean we do not think it is important.
(Dr Reynolds) We have certainly failed on the
feminist side and as Lord Cairns has said we are endeavouring
to put that right. We have two women who are currently country
managers in the Philippines and in Jamaica. We are looking to
see if we can encourage more women to be country managers in those
countries because in a way that is where I would like the women
to be operating in the front line in those sorts of jobs. May
I say that in terms of the international nature of CDC we are
a multi-national sort of organisation and we do employ all sorts
of nationalities and we believe that is the route to go as well.
We are looking to see if we cannot in each of the countries use
more nationals and see that they are developed. That is for us
again very much a strategy.
Chairman
105. How many of your country managers are
from the developing world?
(Dr Reynolds) Mr Chairman, I do not have the answer
to that. We currently do not look at it quite like that. In employing
them we move them around. We have someone who is running our Kenya
office who happens to be a Ghanian so we do move them around like
that. We are now very much consciously looking to develop local
people in those offices.
Mr Rowe
106. Can I ask a question which has always
puzzled me and that is that you operate in countries where bribery
is endemic and you clearly have an ethical policy so presumably
you do not approve of bribery. I have never been able to ask this
question seriously of anybody important enough. How in practical
terms do you actually resolve the dilemma that at every level
in your organisation there will be people asking for bribes and
at the highest level in some of these countries, permits for development
or whatever, seem almost impossible to get unless somebody feathers
their nest. Are you trading on 50 years of morality and integrity
or are you in fact constantly under pressure?
(Earl Cairns) I think we have been operating in
these countries for a very long time and to the best of all our
knowledge, and it is something we do keep a very close eye on,
we are able to do our business because those countries want us
and they know what we stand for in ethical, commercial and development
terms. They know if they want us, there is a basis on which we
operate. I suspect that at a very low level, from time to time,
there is no bribery as such but there are ways in which you get
things done—do you give a chap a tip, for instance.
107. Speed money for a telephone in India?
(Earl Cairns) I am not aware of it, but there
are ways in which I suspect on an individual basis people might
do that. We do not know of it and we do not encourage it, but
it is a very difficult issue. In discussing our ethical policies,
if you have a £100,000 piece of machinery and there is one
screw that is missing which is in a dock and you know if you pay
a chap ten shillings you can get it otherwise you wait six months,
those are dilemmas which people do face the whole time. We set
down some very clear guidelines as to how people will deal with
those issues.
(Dr Reynolds) We see this as a strength because
our position is absolutely clear, the Governments know exactly
what sort of organisation we are. Future investors know exactly
what sort of an institution we are. We believe that is a strength,
and we look to play to those strengths. In development terms we
believe that quite frankly some of the biggest development roles
we play are in being that ethical investor free of corruption
that is looking to develop businesses in these countries. We believe
that is a great strength. Lord Cairns has talked about implicit
values, it is now very important those become explicit so it is
absolutely clear they will be maintained into the new era.
Mr Khabra
108. I am sure you have been less effective
being a foreign company than companies which are companies from
the country where this corruption is being talked about, but at
the same time you maybe also aware of corruption in highly industrialised
countries as well. No society is in any way free of corruption
at all. It is a question of degree and how much you can adapt
yourself to different circumstances.
(Earl Cairns) I think at the highest level the
more regulations and constraints, the more permissions, the more
hurdles people have to go through for the flow of investment decisions,
the more opportunities there are for that to happen, and the best
way of reducing that is by reducing the number of government related
constraints that there are in a system.
Chairman
109. The CDC used to be debarred from what
was called refinancing, it now seems to me that you are in fact
engaging in refinancing in a big way. The reason it was debarred
originally was that it was thought if others were prepared to
invest in a company it was not CDC's role to take them out of
that investment, because CDC's role was a developmental role and
was to add to the amount of private capital going into that country
or to that investment. Now, as you begin to get even more involved
with privatisation, is it not difficult to justify the development
role of that investment, that refinancing?
(Dr Reynolds) We would only get involved in a
privatisation or a reinvestment when we believe that by adding
capital and adding management we can add value to that. That is
the only way we are going to get our commercial returns out of
it and it is the only way we believe we are going to play a developmental
role. We believe financing on its own is not what we are about
and that is not where we are going to get our returns. Our returns
come from adding value to that investment. That is going to be
more true in the future than it has in the past.
110. Thank you very much indeed. You have
helped us hugely to understand the problems that you are up against.
I think it is an intriguing concept because first of all you have
got to sell these shares to private investors and produce a return
which is consistent with being in the private sector and yet you
have got to meet the criteria which the Secretary of State is
determined to impose. I think it is not an unusual question for
you to confront in CDC because overseas you have to do this much
of the time, but it is a new one for this country, so thank you
very much indeed for giving us the information. We shall be considering
it and also considering the additional information which you have
sent to us before we prepare our report. Thank you very much indeed
for your time and for the work you have done in informing us.
(Earl Cairns) Thank you very much, Mr Chairman.
I might just say in response firstly we are very excited about
CDC and therefore any group of people, particularly a distinguished
one like this, that wishes to ask us questions about CDC, we love
it! Secondly, the point which you make, Mr Chairman, about the
difficulty of meeting the twin objectives of the private sector
and the other is a really difficult issue and it is one we are
going to have to work on extremely hard over the next two years.
I do not underestimate that difficulty at all but I think it is
an objective that is worth stretching for as far as we possibly
can. If I may in conclusion say thank you very much for showing
your interest in us. We look forward to keeping you in touch perhaps
here and perhaps informally in other ways. I hope you have some
feel for how enthusiastic we are and we want to share it with
any of you whenever you want to do so.
Chairman: Thank you
very much.
