Examination of Witnesses (Questions 20-39)
23 JUNE 2004
MR DAVID
YOUNG AND
SIR HOWARD
NEWBY
Q20 Chairman: I thought Pearsons were
involved at one time. Did they bail out at some stage?
Sir Howard Newby: Pearsons were
one of a number of private sector companies who in 2000 expressed
interest in being private sector partners. In the end, at that
time, they decided not to pursue that interest. I am afraid I
do not know why exactly—you would have to ask them, obviously—but
they decided not to pursue it. Instead I think they created FT
Knowledge. Their involvement in higher education learning e-learning
is now very minimal, although I think they still have a presence
in e-learning in schools, which I understand has been quite successful.
Q21 Chairman: We were given a figure
of £44,000 per course that this has cost. Is that an accurate
figure?
Sir Howard Newby: I think the
figure of £44,000 relates to Baroness Perry's question in
the House of Lords about how much per student rather than per
course.
Q22 Chairman: A mischievous e-mail to
the Committee suggested that if you looked at it as a full-time
equivalent, it was £1 million per course.
Sir Howard Newby: The situation,
Chairman—and this is an estimate; I have to be careful here,
I cannot pin it down to the exact amount—is that we expect,
by the time we achieve the wind-down of the e-University, to have
expended £30 million on the e-University: £30-£31
million. There are 16 higher education institutions which have
developed courses as a result of this initiative. There were,
as you know—it is in the public domain—900 students
who were registered for courses which were offered on the e-University
platform. You do not need to be too much of a whizz at mathematics
to work out that £30 million divided by 900 students is approximately
£33,000 per student. It is of course the case in all conventional
forms of learning that when any university offers a new course
the initial costs will be very high. It costs a lot of money to
put on a conventional course and you hope the numbers build up
over time to make it worth everyone's while. If the numbers had
built up, it would have been worth everyone's while, but the recruitment
was extremely disappointing.[4]
Mr Young: And it would only be
a successful business if it operated at scale. That was always
recognised. Indeed, that was very much in our minds when we looked
at what they had achieved in the autumn of last year.
Chairman: Val, you wanted to come in
just now.
Q23 Valerie Davey: Yes, I wondered very
specifically about the change, as I understood it now, from the
PwC report to the later delivery. The one aspect in which I am
interested is the fact, as you rightly say in the information
you have given us subsequently, of some very good work on e-learning
going on, which you were supporting, at different universities.
Indeed, there was a British market for it, and, as I understood
it, the PwC report was building on a British market, whereas the
business plan as it emerged was purely for a global market and
did not seem to have that natural progression. Am I right, or
is that a misunderstanding?
Sir Howard Newby: I think there
was a shift in emphasis, yes. I do not think it was one or the
other but once the e-University Opco board had been set up, they
certainly felt that there was a major opportunity here, if you
like, for UK export earnings. A great deal of emphasis was placed
on international recruitment but not at the expense of students
and home courseware. Even those UK universities which were developing
courseware saw an international market for what they were producing
in addition to the home market, but I think it is fair to say
that the Opco board took the view that the major growth market
was overseas, especially in Asia.
Q24 Valerie Davey: But HEFCE, with its
educational background, perhaps ought to have been more alert
to the fact that you develop these things from known good practice,
and we had known good practice, and in the account you have just
given, the historic outline, as it were, the universities do not
seem to have been brought in with their expertise until March
2001, which is some way down the line of developing the business
plan. My underlying concern, looking in—and I am not an
entrepreneur—is that you have a process of delivery before
you have the product.
Sir Howard Newby: First let me
be clear, the university sector was brought in right from the
very beginning. There was extensive consultation over the structure
of the e-University as it went forward, and, as I said earlier,
only four institutions decided not to take up the offer to become
shareholders in Holdco.
Q25 Chairman: What did it cost them?
Sir Howard Newby: £1—because
Holdco is a company limited by guarantee. What I was referring
to specifically was working with those universities—some
of which, you are quite right, had already developed in embryonic
form and some of which had developed quite extensively, certain
amounts of courseware which could be improved and marketed through
the e-University. Some universities were approached by the board
to develop courseware from scratch. That is where a lot of investment
went, because the e-University believed it had spotted a market
in which it was looking for a UK institution or institutions to
help them develop. So the sector was brought in right from the
beginning. If I may say so, we are approaching one area, which
I hope we will come on to, which I personally did find extremely
difficult, and that is where my responsibilities as an accounting
officer end and those as a shadow director begin. This is what
was unique about this venture. To go back to your earlier comment,
Chairman, if I may, when we deal with a conventional university,
my role is very clear: I am the accounting officer for the sector,
the vice-chancellor or principal is the accounting officer for
the institution. That whole relationship is set out in a financial
memorandum between ourselves and the governing body of the institution,
and my rights and responsibilities are very clear. In this case,
because it was set up as a commercial venture, company law comes
into play, where I have to be very, very careful—and I was
always cognisant of this—of not acting or being seen to
act as a shadow director, and yet I had accounting officer responsibilities
which might, if it had been a more conventional institution, have
led me to act in a way which might have been judged as acting
as a shadow director.
Q26 Chairman: Going back to my earlier
question, Sir Howard, that was my very point: Why you? It does
not fit really, does it?
Sir Howard Newby: It did not fit
in that respect, no, but, as I said earlier, there was a recognition
by everyone concerned, including myself when I took over in this
post, that the e-University would not be a success without substantial
private sector involvement. It was not something we could do ourselves.
Q27 Chairman: Sir Howard, you keep saying
that, and we all agree with that, but why in this form? Why did
you not spin it off to the Open University or a cluster of universities
and give them the money to do it, so you had that traditional
relationship?
Sir Howard Newby: Both of those
options were very seriously considered and the answer to the question
why we did not do a deal with either the Open University or with
a cluster of universities was there was such enthusiasm from the
sector as a whole for this, to be involved in this, that the sector
did not take kindly to the idea that one institution or a group
of institutions should in some way be privileged in running this
venture.
Mr Young: My understanding is
certainly that the structure, the Holdco/Opco structure, was specifically
recommended in the Pricewaterhouse report which was published
for consultation in October. It was not that HEFCE overturned
their advice—because you made that point earlier. We will
go back and look at it, and if I am wrong we will put a note in,
but that is certainly my understanding.
Q28 Chairman: If the Secretary of State
said tomorrow, "We have this idea that you run this arm's
length venture" on a similar method for some other purpose,
what would you say?
Sir Howard Newby: I think I would
want to establish very clearly, as I said earlier, how we get
around this problem of shadow directorships conflicting with my
accounting officer role. That is a very serious lesson to learn
from that.
Chairman: Thank you for that introduction.
Q29 Mr Gibb: You have both been very
assiduous in disassociating yourself from this operation by highlighting
when you were appointed. David Young, you were appointed in June
2001; Sir Howard, you were appointed in October 2001. But some
key decisions were taken after that. The impression we have as
a Committee so far, I think it is fair to say, is that the failure
here was not in the plan; the failure was in the implementation
of the plan which falls squarely within the periods that you were
in office. For example, Sir Anthony Cleaver was appointed in December
2001 and John Beaumont was appointed in March 2002. Could one
of you tell me what commercial experience John Beaumont has had?
Sir Howard Newby: John Beaumont
was recruited from Energis, where he had been responsible for
their IT operations. Before that, from memory, he had been in
the academic sector as head of the University of Bath Business
School. We can send you a note on that.
Q30 Mr Gibb: For how long was he at Energis?
Sir Howard Newby: I cannot put
an exact figure on it, but my memory would be something in the
order of four to five years. But, again, his appointment was not
made by us but by the board. I can send you that information,
certainly. I am sorry, I just do not have that information at
hand.[5]
Q31 Mr Gibb: I know you are trying to
avoid some company law problems with being a shadow director,
but your recollection of events seems very vague and you seem
always to disassociate yourself from any of these key decisions.
I would have thought as the accounting officer you would have
been far more involved in deciding who was to be the chief executive
of this very large commercial venture.
Sir Howard Newby: No, I was not
involved in deciding. I was certainly consulted at the time by
the chairman Sir Anthony Cleaver—just as I was consulted
at the time about the appointment of Sir Anthony himself, which
again was a matter for the then interim board.
Q32 Mr Gibb: Should we have some other
people before us, then, instead of you two? Should we have Sir
Anthony Cleaver and John Beaumont before us? Is that what we should
do next?
Sir Howard Newby: I think that
is a matter for you. If you want to investigate in some detail,
which you may wish to do, the detailed operational management
of UK e-University, that really was a matter for the board and
its senior management. I understand what you are saying about
sounding vague and disassociating myself, and I am certainly not
disassociating myself with oversight responsibility of what happened—absolutely
not—but when it comes to the day to day business decisions
that were taken, they were taken by the board and its senior management
and not by HEFCE.
Q33 Mr Gibb: I was just trying to wonder
who was responsible for the senior management.
Sir Howard Newby: The senior management
of Opco was the responsibility of the Opco board and its non-executive
directors.
Q34 Mr Gibb: Who appointed the Opco board?
Sir Howard Newby: Formerly the
Opco board was appointed by the holding company, through whom
we channelled the funding.
Q35 Mr Gibb: So you had no responsibility
for that either, then?
Sir Howard Newby: No, I have absolute
responsibility, as accounting officer, for ensuring that the money
that we forwarded to the operating company, via the holding company
was properly spent.
Q36 Mr Gibb: And you did not have any
say in who was appointed to the operating company board.
Sir Howard Newby: Absolutely not.
Q37 Mr Gibb: Or the holding company board.
Sir Howard Newby: The holding
company board, yes, because that was a matter on which the Funding
Councils, all of us, and the standing committee of principals
were involved.
Q38 Mr Gibb: So you are responsible but
you are just trying to disassociate yourself by saying that indirectly
these different people had a decision. There seems to be nobody
who is to blame for this.
Sir Howard Newby: I am responsible
for the funding of the operation.
Q39 Mr Gibb: Right.
Sir Howard Newby: And for ensuring
that public money was properly accounted for and properly spent.
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