Examination of Witnesses (Questions 280-299)
21 JULY 2004
SIR ANTHONY
CLEAVER AND
MR JOHN
BEAUMONT
Q280 Chairman: But the risk is different,
is it not? Be honest, John.
Mr Beaumont: I think the risk
is about success and failure—
Q281 Chairman: Yes but, John, you are
on a substantial salary that is higher than for any Vice-Chancellor
I know. For most people in this country it is a very serious salary
in a non-risk business and you took nearly £50,000 in a bonus
and, as I have said, in marketing, product, and platform you have
serious problems, so my constituents would ask "Who set a
target that enabled you to get £50,000 nearly on top of your
salary of £180,000?" What was the process?
Mr Beaumont: Three non executive
directors—
Q282 Chairman: John, I am asking you
because it is my job as Chairman of this Committee to push you
on this. How can you justify, as almost a quasi public servant,
this bonus?
Mr Beaumont: Objectives were agreed
over a year earlier about delivery on a number of—
Q283 Chairman: Tell us about the delivery
and the objectives. I am curious because at the moment this Committee
is getting the feeling you are hiding behind the non executives,
and common sense is to unpeel that.
Mr Beaumont: There were six areas
for the 2002-03 bonus—
Q284 Chairman: Take us through them.
Mr Beaumont: 25% was related to
the platform and—
Q285 Chairman: 25%—
Mr Beaumont: —of the bonus
potential.
Q286 Chairman: To do what with the platform?
Mr Beaumont: To ensure an effective
e-learning platform is delivered on time and fit for purpose.
Q287 Chairman: I thought we were paying
£15 million to Sun Microsystems to do that?
Mr Beaumont: But somebody has
to be accountable that they will deliver.
Q288 Chairman: All right. Carry on.
Mr Beaumont: That we launch the
three pilots that we inherited and develop a more market-driven
pipeline of courses—that was 25%.
Q289 Chairman: That is product.
Mr Beaumont: Yes. Getting other
United Kingdom universities to offer their courses for which there
was local market demand. Develop a marketing strategy with direct
and indirect channels and establish a suitable internal marketing
sales business development set of activities.
Q290 Chairman: That is another 25%?
Mr Beaumont: Included in that
was to develop UKeU brand and awareness amongst the target audiences,
and that would include particularly overseas. Private funding
was 10%, to attempt to raise private funding in line with
budget assumptions recognising external market conditions.
Q291 Chairman: You did not win any of
that, did you?
Mr Beaumont: No.
Q292 Chairman: So you did not get your
full bonus.
Mr Beaumont: Financial management,
to ensure the management of the company is in line with the board
agreed budget, and to develop a robust 10 year plan.
Q293 Chairman: Where is the evidence
that you had a robust 10 year plan?
Mr Beaumont: We updated the PwC
plan and explained the markets and the strategy to implement that.
Q294 Chairman: So these were your targets
set by—?
Mr Beaumont: —the three
non executives.
Q295 Chairman: And at what meeting did
the three non executives decide that you had got sufficient of
these to get a bonus?
Mr Beaumont: There was a remuneration
committee meeting on 24 April 2003.
Q296 Chairman: April 2003, and that was
evaluating your performance in the previous year?
Mr Beaumont: That is correct.
Q297 Chairman: And how many students
did you have by April 2003?
Mr Beaumont: We only had the first
course from the Open University in operation at that time, and
from memory there were 55 but I would have to check that.
Q298 Chairman: Let us move on for the
moment, but you can see our concerns. We are not trying to make
your life difficult here, but it is of serious concern. Listening
to that list of targets, to me—I do not know about the rest
of the Committee—it seems that you had a pretty tame group
of non executive directors who set those targets and then thought
you should have won that large increase on your salary, given
what you had done.
Mr Beaumont: I am not sure I would
agree that they were "tame" non executive directors.
Chairman: They sound tame to me, John.
Is there no one time that you thought "We are not in a risk
business, we are a publicly funded organisation. Will it not make
us vulnerable as an organisation at some time?", because
I have to tell you, when we were listening to the evidence last
time we met HEFCE, we were pretty even-minded about what they
were saying. We thought "Well, this is going to be very interesting
to balance with what you say when you come," but the one
area that shocked us was this bonus. There were other things too,
but this particularly concerns me.
Mr Pollard: And me.
Q299 Chairman: And I still cannot see
that you could not have understood there would be a vulnerability
of this university at some stage.
Sir Anthony Cleaver: Can I unpick
some of the comments? Firstly, I think this was always a risk
business; we saw it as being high risk, and the fact it is a risk
business has just been demonstrated. It has been summarily closed
in a way I cannot conceive would have happened to a company with
normal shareholders, where there would surely have been some debate
between the board and the shareholders saying "Is this the
best thing to do? Could we do it rather better? Do you have information
that we do not have that suggests we are making the wrong decision?"
I have never known such a summary closure, so to say this is not
a risk business—it seems to me it is higher risk than anything
I have seen in my many years chairing public companies. So, firstly,
I do not accept that definition of "not a risk company".
It was a normal company, it was a company which had equity and
that equity happened to go back to the state, other than the Sun
Microsystems involvement within it, but it was a normal company
in that sense and in time we expected to bring in private equity
and ask for it to become a more normal company in that sense.
So in terms of the nature of the company and the risk I am entirely
comfortable that we knew where we stood. As far as the bonuses
are concerned, I think this is rather reminiscent of some of the
debates one hears about bonuses paid to people in public companies.
The sort of thing that happens is that a target is set at one
point, people are assessed a year later as to whether they achieved
the targets that were set then, 6 months later the company runs
into trouble and people say, "And this man got a huge bonus".
The fact is that bonuses have to be checked and assessed at the
point in time where you have reached. With 20/20 hindsight you
might form a different view, but what we were trying to do was
to say "We are not in this for one year, two years or three
years"; we were building something which I fully believed
would last for many years and would provide a proper foundation
for United Kingdom higher education e-learning. In building that,
you have to create the building blocks, and the building blocks
that John was charged with creating that first year were, firstly,
to create a platform. We had nothing. Specification only. In that
year we chose the supplier, Sun, we drove the supplier to deliver
as much as we could get fit for purpose and on time for those
first courses, and that was achieved. I believe that was a very
specific objective and that was quite properly remunerated. We
were asked to put in place the marketing capability in terms of
having the local agents and so on that we needed and we began
to put that into place. He was asked specifically to get courses.
I think it is a bit facile to take this view that we went out
to all universities and back came 69 super opportunities which
are directly fit for market, etc. What we got was a diverse range
of things from single sheets of paper that said "We would
quite like to do a course in this and if you give us a million
and a half funding upfront we can develop one" right the
way through to some people giving us a very proper full business
case saying "We think we know this market, we believe in
these countries there is an opportunity, and therefore . . ."
and we chose from those on the range of what we could get from
those 69. We did not get the ideal set of courses. We knew they
were not ideal but we had to drive the thing forward and make
as much as we could so that we were beginning to get funding in
to off-set the expenses we were incurring. It was, therefore,
entirely proper to say "You are required to get contracted
this number of courses"; he achieved that in formal terms,
and the remuneration committee quite rightly said "That percentage
of the bonus you should receive". There was an element in
there for the private funding and if you look he did not receive
his full bonus, and the reason for that was that element was not
achieved and therefore he was not remunerated.
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