Examination of Witnesses (Questions 120 - 139)
MONDAY 2 MARCH 1998
MR ROBIN
MOUNTFIELD, CB and MR
MICHAEL HERRON
120. But thoroughly disparate. After the
restructuring is what I am talking about.
(Mr Mountfield) My point is that they were perfectly
adequate up to the point when restructuring began.
121. At that point it is not your responsibility
because the chief executive of the agency reports to the Minister.
I see. Now Mr Mountfield, sir, you were seconded from the DTI
to the Stock Exchange between 1977 and 1978?
(Mr Mountfield) I was.
122. That must have been an interesting
experience for you. You must in that time or indeed in your time
in your responsibilities at the DTI from 1987 to 1992 have come
across the notion of fraudulent prospectus?
(Mr Mountfield) Yes.
123. Do you not think that the Information
Memorandum as a preliminary memorandum, one of the objects of
which you told Ms Eagle was to establish a good field of bidders,
comes very close to being a fraudulent prospectus?
(Mr Mountfield) No.
124. --Which was blown wide open as soon
as Coopers & Lybrand and the bidders began to look at the
numbers involved?
(Mr Mountfield) No, it is clearly not in Companies
Act terms a prospectus in any case.
125. I accept that point but you understand
the spirit of my question?
(Mr Mountfield) Of course, absolutely, and for
that reason and again following Treasury guidance we had lawyers
vet that Information Memorandum to satisfy themselves and us that
there was no factual error in the Memorandum.
126. Why just a legal check on that Memorandum?
Why not a financial check?
(Mr Mountfield) Because the Memorandum was very
clear in stating that the forecasts were the forecasts of the
business, they were the management's own forecasts and because
we then proceeded to the Long Form Report.
127. That is what you said in your earlier
evidence too. You said it was management's forecast. Although
you were the vendor, the Government at any rate collectively was
the vendor, you were not concerned at that point to check on management?
In spite of Uzbekistan, in spite of the blips, in spite of the
difficult trading, if nothing else, you did not see any reason
to check this? So that only a matter of weeks later when the next
report came out, the Long Form Report before the due diligence
exercise by bidders, you found that the world had to be told that
the management forecasts were not achievable. Who was fired at
that point?
(Mr Mountfield) If I may go back to the point
about the Information Memorandum. Although these were the management's
forecasts, as I explained before, we had not long before that
stage invited the management to take consultancy advice about
the forecasts in their business plan, the effect of which was
to reduce the forecasts. Thus we had applied, maybe not adequately,
some scepticism to those numbers and the management had taken
account of those views in putting forward the numbers in the Information
Memorandum.
128. Mr Mountfield you said Ministers-always
Ministers-had two options. They looked at a lower price now, as
it were, on a trade sale against the possibility of a higher price
later but at greater risk. What could that risk possibly be if
the players here set in hand a restructuring programme that was
supposed to work? Was it a market risk? Has that market risk been
borne out? Here is a business that has been going for 200 years
and after it has paid off a little bit of debt to the parent company,
namely the Government, you are left with absolutely nothing. What
was this terrible risk a few years away? That does not add up
to me. If you can explain it to me, that is fine. But let me put
an alternative to you: there was an all-fired rush with this agency
and two or three other agencies to get them to the market quickly
to satisfy Red Book forecasts on disposals of assets. Which was
it, Mr Mountfield?
(Mr Mountfield) First of all, on the question
of risk, the risk was in effect sold into the private sector and
that was the reason why we accepted a lower price than we might
have hoped.
129. That should only have been done if
you sensed that in the next few years you would have an even bigger
mess on your hands in trading terms.
(Mr Mountfield) That may well have been be the
judgment that Ministers took.
130. Was it your judgment too when you made
your recommendations or when you had the opportunity to object
to what Ministers decided?
(Mr Mountfield) I have already said that if I
had felt the course which Ministers were on was likely to produce
a worse net present value than the alternatives it would have
been my duty to seek an instruction. The fact that I did not seek
an instruction implies that I did not feel that the net present
value was so clearly biassed one way or the other that it would
be proper for me to intervene.
131. All of which suggests to me that you
knew that there were storm clouds ahead and yet you, Ministers,
officials, all of you decided that you wanted to create a good
market with four bidders in case any of them slipped away and
you were prepared to offer them an inducement. It is like selling
16second-hand cars. "Here's 100 grand against your expenses
but for heaven's sake stay in the exercise." What was this?
Was this HMSO, a 200-year-old business of which Britain should
be proud, or was it a second-hand car market?
(Mr Mountfield) At the point when the decision
was made to go for a trade sale rather than a floatation, which
effectively was in the late summer of 1995, the judgement to be
taken was whether the risk involved in keeping it in the public
sector was worth the diminution in proceeds that resulted. The
National Audit Office Report suggests that, in their judgement,
there was no reason for believing that delay would have improved
the proceeds and I have no reason to quarrel with that conclusion.
Mr Wardle: Thank you, Mr Mountfield,
thank you Chairman. Mr Mountfield, it seems to me, has had to
defend a practically indefensible position and has done so with
great vigour.
Mr Love
132. Good afternoon, Mr Mountfield. Can
I ask you since you have mentioned it on a number of occasions,
did you at any time give serious consideration to asking the Minister
for an instruction?
(Mr Mountfield) No.
133. You did not?
(Mr Mountfield) If I might just qualify that.
An accounting officer in these situations constantly has it in
front of his mind because it is a quite heavy responsibility to
carry but I would not wish to imply that there was a particular
point at which I gave it particular consideration. In principle
that consideration must have been around when the decision to
go for the trade sale rather than floatation was taken and at
the point of the final decision whether to proceed or not at the
price that was on offer.
134. Can I interpret that as you saying
it is always in the mind of officers but on those two occasions
it was more in your mind than would be in normal circumstances?
(Mr Mountfield) Yes.
135. You did talk about net present value.
Am I to assume that the indicative figure you are talking about
in relation to the net present value was the £47 million
minimum figure?
(Mr Mountfield) Yes, although as the NAO Report
rightly says, that was drawn up at a time when forecasts were
more favourable than seemed proper later in 1996. If we had been
really right up against the buffers it might have been necessary
to re-visit that figure of £47 million.
136. You mentioned earlier about the constitutional
position where your Department was responsible for the sale and
HMSO ran the business and were responsible for restructuring.
Do you think there was a management vacuum created because of
that?
(Mr Mountfield) No, I do not think I would describe
it in that way. I think I would say that it was a position which
one would rather not have been in. To have gone into a sale of
this kind with only an acting chief executive in place placed
a great burden on him and he did not have the freedom of manoeuvre
that perhaps a newly appointed chief executive appointed by competition
with a reasonable run ahead of him who would have been able to
take decisions of a more adequate kind. So all other things being
equal, one would not have liked to have been in his position.
137. I was not so much thinking about the
personnel that were senior managers in HMSO. I was thinking more
about the fact that you were responsible for the sale of HMSO,
which would have required you to have the detailed knowledge that
only the management could give you, yet there did seem to be a
separation between those two functions. Do you think that led
to a lack of adequate knowledge on your part about the business?
(Mr Mountfield) I think if the business had been
stable or more stable than it was, one would have looked to the
management of HMSO to continue to keep the business going in a
stable fashion and take ordinary day-to-day decisions. It would
have been our task to make sure that we were adequately informed
about what was going on to adjust the sale process accordingly.
What I think we had to do in the course of this sale was to deal,
at one remove, with the emerging position within HMSO which was
less satisfactory than it should have been.
138. Can I take a specific instance because
it states quite clearly in the Report that the vast majority of
both management and staff within HMSO were opposed to this sale.
Were you aware of that fact as this was going through? Did you
take that into account and did you inform ministers?
(Mr Mountfield) Ministers knew very well that
that was the position and indeed it is usually the position when
an organisation is being privatised that there is not a great
deal of enthusiasm on the part of the current staff for that process.
Ministers had a very clearly established policy.
139. But would it ever have rung alarm bells
in your mind that here was an organisation which was being managed
and controlled by a group of staff who were clearly not in favour
of it?
(Mr Mountfield) No, I think it is natural that
staff should be apprehensive as they would be, for example, in
a takeover. They would be apprehensive about their own futures
and not very enthusiastic about it. I have no idea what the current
view of staff within the Stationery Office who were previously
in HMSO would be. Of course there have been a number of changes
in the senior management since then.
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