Examination of Witnesses (Questions 290-309)
MR ROD
ALDRIDGE AND
MR JOHN
TIZARD
THURSDAY 22 NOVEMBER 2001
290. Just a final question. What is the average
length of contract that you would win in the public sector?
(Mr Aldridge) The average length has moved over a
period. When we first started, some of them were three- or five-year
contracts; they are now, an average is around seven years, and
we have got a lot of ten-year and 15-year arrangements. The contract
I mentioned with Blackburn with Darwen is a 15-year relationship,
and we are very proud of it. It will be something which I think
people will look at and watch, very closely. So they are getting
longer because people are more confident, we are confident about
our ability to be able to do things. In Blackburn, we took over
600 staff[1];
it is quite an interesting point about the unions, the people
that were not being transferred complained to the union that they
were not being transferred. Because what we are going to do in
Blackburn is we are going to recruit and double the size of our
business there, so there will be over 1,000 people working in
Blackburn with Darwen. There is going to be a modern business
centre, modern services provided, complete engagement with the
local community, through the schools, with employers and organisations,
and it is with a council that are very positive about wanting
to make this happen. So I am very pleased about this; it is early
days yet, it has begun very, very well, and the staff have performed
excellently.
291. And they do not need to become fans of
Brighton, if they take part in the transfer?
(Mr Aldridge) There are some limits, are there not,
Chairman?
Mr Prentice
292. This is to Mr Aldridge. You spoke earlier,
very briefly, about the individual learning accounts and you won
a five-year contract, I think, with £50 million; but the
whole scheme has just been closed down. You told us that the scheme
was phenomenally successful at getting people to sign up, but
who was responsible for the fraud amongst the learning providers
that caused the scheme to be closed down prematurely?
(Mr Aldridge) I think we do need to put some facts
around what actually our responsibilities are and what actually
has happened. The point is that 2.4 million people signed up for
the individual learning account, around that number, and around
7,200, I think, providers. Some of the problems that you referred
to are in a very small number of the providers; that does not
make it right or wrong. What our job was, the Department would
be very supportive of that, and they were in the press release
and they were subsequent to it, our job was to register names
and organisations and a bit more, but we have fundamentally followed
exactly what was part of our arrangement, in terms of that. We
are now working with them in looking at other possibilities.
293. You had no responsibility for checking
out whether the learning providers were competent to do what they
were being engaged to do?
(Mr Tizard) No, that was not a part of the specification
from the Department for Education and Skills.
294. That is what I am trying to get at, the
fact that there was this massive fraud, involving 279 learning
providers, it had nothing to do with you because it was not in
the contract between the Department and Capita?
(Mr Aldridge) Your statement is factually correct.
295. That is all I wanted to know. Can I also
say, I have been impressed, just looking at the briefing material
we have got, by the phenomenal growth of Capita, a major organisation,
so you are obviously doing something right. And I just want to
ask you about your training, the training system you use for staff,
because my colleague Kevin Brennan spoke earlier about the Lambeth
situation and the comments that were made by the Benefit Fraud
Inspectorate, and in their document they talk about your academy
system, and I wonder if you could just tell me about the academy
system and how you train your people coming into the organisation?
(Mr Aldridge) Starting first with training, we focus
very heavily on it, in the way we go about it. People who come
into the organisation have an induction programme about the organisation
and about the style of the organisation, what we do etc. In this
year alone, over 3,000 people have been through key skills training
that we offer, on a whole range of different aspects associated
with our business. We also run a fast-track management development
programme for people that we would see are going to be part of
our senior team going forward, and somewhere around 100 people
have been through that this year alone, and I am actively involved
in this programme. We also recruit graduates, and, again, there
is a whole programme for graduates. We encourage people to continue
with their professional qualifications, if they transfer to us,
when they are part-way through it. And, again, what we are trying
to do is to skill people as much as we possibly can and get them
feeling good about themselves, about what their opportunities
are, so that they can actually develop with us. On academy, academy
is our computer system, academy is a wide range of different computer
packages, one of which is involved with housing benefit, and it
is used by a large number of local authorities.
In the absence of the Chairman, Mr White was
called to the Chair
296. So I misunderstood the academy system.
(Mr Aldridge) It is not an academy of excellence,
but it is an excellent system, I have to say.
297. That was my misunderstanding. But what
I am trying to get to, the people that you bring into the organisation
from local government, what kind of special training do they need,
do they bring methods of working with them that you just find
unacceptable and you need to retrain them into the new ethos of
Capita?
(Mr Aldridge) They bring skills. I know that myself,
from working in it. Some of the programmes that we put people
through will be customer management type courses, improving the
whole area of how you deal with a customer. A fascinating thing
we found, in the centre, for example, in Hertfordshire, I mentioned,
the people recruited into it had no knowledge of the services
but had a lot of knowledge of how to deal with a customer, particularly
when a customer came through on the telephone; and what we envisaged
that they had is a detailed knowledge of the services, which they
can pick up very quickly, so we have almost turned it on its head,
in that sense. So that is customer contact, customer management.
How they can work better, in terms of project management skills,
maybe selling skills, if they are in those sorts of roles, skills
around their own activity. So it is a skilling of the person,
and it comes through the assessment of their performance and the
discussions that everyone has, it is an assessment of that. So
it is what they want to achieve and how they want to grow, not
us imposing it, so we are not like some of the large six, who
actually say `you have to go on these programmes', this is a two-way
response with people who want to be on them.
298. My final question is this, given your huge
experience in local government, over 30-odd years, are there any
common characteristics of failing, of public sector organisations,
failing local authorities, common characteristics?
(Mr Aldridge) I think what we found, in terms of success,
is where there is a very strong political leadership and engagement
of the political process, where there is a chief executive and
a team of officers who work as a team and who interact with that
political process, where there is an openness of mind to change
rather than to protect, which is a big point, it means sometimes
you have got to be very bold to actually think in those terms.
In the process that we go through of procurement, where we do
genuinely believe that there is a need to up the skill base in
procurement, but to engage with the private sector, or a person,
sooner, do not just send things out and then expect it, but to
have discussions about what is possible, so it is open-mindedness,
come and see what it is possible to do. And, in the failing sense,
hence my remark about we do not believe that the way of only engaging
is with failure, if you tell people they are a failure, in a sense,
you have got a problem to start with, you have got to actually
work a way of rebuilding their confidence and the capacity, and
simply being part of that in an organisation. Unless the other
things are being rebuilt around it, it will not succeed, because
you have to interact with the organisation. This is our point
about LEAs. So what we have done, for example, in Leeds, is that
the Council has transferred education out. It has formed a company,
that company is wholly owned by Leeds City Council, it is chaired
by Peter Risdale, of Leeds United, and there is a board where
we are represented, the staff have been transferred into it, and
now we are about making the changes to make it happen and go well.
Where it goes after that, we will see. But it is creating the
space to do things, which you do not always get in some of the
circumstances.
(Mr Tizard) It is just worth adding that, often, where
there is a serious and certainly a series of service failure in
local government, there is probably a corporate issue that needs
to be addressed, both political and managerial.
Brian White: Our Chair apologises, he has got
question five on Education and Skills Questions today, which are
going on now.
Mr Heyes
299. I should declare that, like John Lyons,
I am a UNISON member. In answer to his question about expansion
possibly into health services, you gave me the impression that,
I think you said, you have got quite a lot on at the moment, the
impression from that was that you were not looking to expand.
I just want to put that against the comment of your Chief Executive
recently, about the potential size of the market that you are
in, you felt you would hit maybe £50 billion, and that was
said to come from discussions with Government. What were those
discussions with Government, who did you speak to?
(Mr Aldridge) Can I, for the sake of completeness,
just comment on the points you make, and then I will come to that.
We are growing this year at something like 52 per cent, we have
a lot of options about, therefore, what we do and where we actually
do things. We are very taken with the public sector and we will
remain in the public sector. The position about health is one
where there is a lot of debate going on, is there not, and, in
a sense, local government has been engaged with this modernisation
for some time. Central government, I think, has done quite a lot,
there is a lot more to be done but there are things which are
going on now that we are involved with. So we are not unambitious,
quite the reverse, we are a long-term partner of the public sector
in the reform programme. In terms of the numbers that you quoted,
the £50 billion is a number which breaks down our individual
markets, and each of those markets has been externally valued,
in terms of what the size of them is; so, for example, the Local
Government Chronicle put £4 billion on local government,
£7 billion was put on education by Capital Strategists, £20
billion was put on the market by CommerzBank, who look at the
market-place, etc., and the rest of it is in the private sector.
So these are individually calibrated. What we are saying is, the
potential for our type of services is quite considerable in the
UK, because we are only in the UK. Now that is a backcloth really.
Engagement with Government; I see it as part of my role to talk
to people who are very senior about what we do, so I engage actively
with local government, chief executives and leaders, and with
the LGA, with think tanks and also with Government Departments,
the Cabinet Office, the Department for Work and Pensions, DfES,
because they are major customers, the Home Office are major customers.
So really that is what my role is, and others, and John is a part
of that in what we do. Because what we felt was that, unless we
tell people what we do and what we are capable of doing, people
are actually going to think it is not possible; what we are actually
demonstrating, and what Capita does, and others, is it is very
possible. And I think it right, when people are trying to shape
thinking, to actually share that with them.
300. There are some huge financial rewards,
obviously, however you measure it, in this takeover of the delivery
of public services, and I think you yourself have benefited from
that, it is a matter of public record, I think, about your salary,
including performance-related pay, in 2000 being nearly £370,000,
dividend on your share ownership of in the region of £300,000,
the recent valuation of your shareholding would suggest a potential
profit of nearly £3 million, if you were to realise your
share options; so there are tremendous rewards available to you,
and, I guess, some of your senior colleagues similarly. Your own
remuneration committee believes that your overall payment package
is rightly weighted to share-based rewards, which strongly link
the interests of directors in respect of shareholder value. This
is almost self-evident, that that is your primary objective as
a company, to maximise shareholder value, so, in fact, you have
probably got a legal requirement on you to do that. So what I
am trying to do is draw the contrast between that, that imperative,
and you have talked about giving a lot of thought to the issue
of accountability, you have talked about the democratically-elected
bodies that you work with, and the accountability through them,
it is getting the balance between that, your responsibility, ultimately,
to your shareholders, and that public accountability responsibility.
Can you tell me how you achieve that; it seems to me there is
a dilemma there for you?
(Mr Aldridge) I will deal with the point about me,
and maybe John can deal with the more general point. About me,
for example, what I am very pleased about, and it is not in what
you have there, is that over 50 per cent of the 13,000 people
in Capita are either shareholders or have the potential to be
shareholders through an SAYE scheme. People who join from the
public sector share in that scheme, people who join the public
sector have share options, which is a different scheme; so the
whole thing that we will do is not only about me, as an individual.
One of the things that you will check, if you look at me, and
I am not saying that the numbers you have quoted there are insubstantial,
but if you look in terms of the FTSE 100, I am probably the lowest-paid
FTSE 100 executive chairman. And, in a sense, my job is to maximise
profit for the shareholders, but I do not apologise for profit,
profit enables us to invest in our business, which we have done
enormously, it enables us to invest in our people. In some of
our contracts, we even share some of that profit. And the savings
that we have actually saved for our customers are enormous as
well. So it is a question of balance. And I feel the risk that
is taken, when I first started the company and I did a management
buyout, the risk which was there at that point was very, very
real and considerable. So one has to balance everything, and 17
years of activity has got me in the position that you have there.
I think, in terms of profitability, it is inconceivable to think,
in my terms, and it is a personal comment, that, as a company,
we would not go that extra mile for our customers just for the
sake of making extra profit; you do not make profit, you do not
retain customers at the level that we have retained them unless
you deliver, and that is day in, day out accountability of very
stark proportions, very stark proportions.
Brian White
301. But when the Government set the rules to
say that under CCT, as it did, it had to go out, then you have
got a ready-made market?
(Mr Aldridge) But we did not bid. Anything that happened
during that period was contracts where the authority had decided
that they wanted to do it voluntarily, and there would not be
an in-house bid; why would we want to bid against people that
were going to come and join us. It was an absolutely hostile environment,
and it was not a good period for us or others in the industry,
I do not think it was a very good period for anybody, frankly.
And, in a sense, what a lot of the conversations that we are having
here now, and John referred to it, a lot of those conversations
are being driven by what happened in that regime and, I think,
in some cases, what has happened in other parts of the industry
rather than in the part of the industry that we are in. Some of
the points about the way staff are treated is just something that
we had never, ever, thought of as being the way that you deal
in business, or as individuals.
Mr Heyes
302. You mentioned the share scheme that your
staff benefited from, as you benefit from one, I guess not at
a similar level to yours, but in what way do these share schemes
affect the motivation of your staff, compared with when they were
in the public sector?
(Mr Aldridge) Some of the fact of my position is that
it is an historic one, because, obviously, as being a founder
and in the business. In terms of the staff, they have a share
option scheme, some have a share option scheme which is where
they have an option over shares at a particular price, which is
then exercisable in three or five years' time. The SAYE scheme
we have has the ability for staff, which the majority of staff
are in, to convert to shares priced at a point when they entered
the scheme; frankly, there is no downside for them, there is only
an upside, because these monies attract interest.
303. Does that make them work harder or better
then?
(Mr Tizard) It is part of gaining a sense of belonging
to Capita as an organisation and a commitment to Capita and a
recognition that delivering quality public service, which is actually
what 70 per cent of our staff are engaged in, because 70 per cent
of our business is public service. There is a performance reward
for them as well, because of the impact on the Company. And to
answer your colleague's question, about the possibility of secondment,
one of the downsides of schemes like secondment is that staff
who were seconded could not benefit from those kinds of benefits,
which being an employee of a company like Capita brings.
304. A very swift point, Chairman, an important
one that needs to be asked, I think, and it probably only needs
a brief answer. If all the things that you say are true, about
your efforts to achieve accountability and achieve something that
reflects the public sector ethos, and your company is geared to
doing all that, if you are so financially successful and such
an attractive company, you must be ripe, at some point in the
future, for takeover; what if you were taken over by another firm,
maybe from overseas, that did not share your ethos and your accountability
approach, what effect for the public in that?
(Mr Aldridge) I have to answer that as a sort of financial
point, as it were. In a sense, it is not something the directors
want, or the shareholders want, because you would never try to
take Capita over in a hostile way, it would not be possible in
terms of the funding of it. As a public company, you are a public
company and therefore your shares are publicly traded.
305. But you cannot tell me, Mr Aldridge, that
you will never be taken over by another company; that is just
not possible, is it?
(Mr Aldridge) I can only tell you that my job is to
grow the business, and we believe we can grow that business, and
we are very engaged in that business, we are very excited about
that business, and that is our job. What happens in terms of futures
I cannot comment on. What I can comment on, in transfers or where
that happens, staff retain all the rights that they do retain
legally. Equally, it would not be possible to do what you have
just spoken about without retaining most of the management of
the company, because, bluntly, that would be the involvement that
anybody who was interested in us would want, and it would not
work without engaging and working with the workforce, because
it is the workforce that delivers. This is a company which is
about people.
Annette Brooke
306. If I could just declare, I am a councillor
for the unitary authority, I do not think we use you yet. I would
like to just explore two areas, and obviously it is going to have
to be rather brief. Just following on from that last point, it
seems to me that many of your contracts, and I know you will find
an exception to this, as you have been doing through the questions,
but, many of your contracts, actually, there is not a great deal
of risk involved, and that makes you rather different from other
private sector companies. Could you just comment? But let us take
the collection of council tax, it is a service, it has got to
be performed; once a council has signed up to that contract it
is absolutely dependent on you, and it cannot just move away.
You say here that you can just lose the contract, but my experience
from council is that you cannot get rid of contracts overnight
when they go wrong?
(Mr Aldridge) I think, on the level you are talking,
in terms of council tax collection, the contract, once it is transferred,
we would have Service Level Agreements around what our speed of
collection has to be, and there will be benefits and there will
be penalties for not achieving that.
307. But would you not build penalty clauses
into the price that you put in? I think the Islington Education
Company did, it did not achieve the right proportion of five A-C
GCSEs and it had obviously built in its £300,000 fine?
(Mr Aldridge) I do not know the circumstances around
the Islington Education Company, but I think it is a very complex
contract to be running. I think the one you have chosen, on council
tax, is quite less, in terms of us, but we have got the equivalence
of where the risk and reward is something we would look at very
thoroughly around the contract. So, for example, in things like
the Criminal Records Bureau, or the contract we have got with
Blackburn with Darwen, which is an integrated contract across
IT, finance, HR, property, very integrated and big, you would
look at all these issues. Your point about once you have got us
you cannot get rid of us,—
308. Not overnight, no?
(Mr Aldridge) In a way, what we have created is the
environment to have a discussion, if you are unhappy. Contractually,
you have got fallbacks to that. I am not suggesting for one moment
you can do it overnight, but, contractually, the example we talked
about with Lambeth has indicated that open discussion can happen,
if performance is not reached to the level that people would want
to share as being the way forward. History does say, in showing
our contracts, that most people, luckily and happily, are happy
with what we provide. In the extreme cases, one has to face what
that means, that is why the partnership rules are important, and
act accordingly.
(Mr Tizard) If I could just add, I do not want to
talk about Islington specifically, but there were a number of
local education authorities that, for many, many years, until
Ofsted and Government intervened, had actually been underperforming
at the expense of young people and learners in those authorities.
So what I would suggest to you is that, actually, often, there
is no ability to move when there is in-house provision either,
and actually what we need is much greater transparency of performance,
where we are all much more confident of the comparative information,
and, ultimately, in local government terms, the local electorate
can make judgements about the quality of performance, irrespective
of whether it is provided by private, voluntary or in-house providers.
309. I think that takes us back to the fact
it is how that contract is specified, and I think you yourself
said that if it was not in the contract then it would not be delivered,
so it then becomes the accountability is back on to the authority.
If I—
(Mr Aldridge) I do not want you to think, I do not
want you honestly to think, that if you have got a ten-year relationship
and you have got a contract, that you can run your life over ten
years by saying `it's not in the contract so they're not going
to do it.' This is not the style that we operate, and I do not
think it is the style that others operate. There is now in place
a structure to have that conversation about what it means. Because
things change, over the life of a contract things will change,
over a ten-year period, and you have got to have the space and
the capacity to be able to openly talk about that. That is the
style. I am not a contractor, I am a partner, and as a partner
I act differently.
1 Witness correction: 500 staff. Back
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