Select Committee on Defence Minutes of Evidence

Examination of Witnesses (Questions 260-279)


24 MAY 2006

  Q260  Linda Gilroy: When was weatherXchange set up?

  Mr Hutchinson: 2001 originally and, on the back of the new agreement with Zions Bank, the data supply agreement was formed in 2004.

  Q261  Mr Hamilton: Can I go back to the original question Kevan asked because it got lost in the summaries? Has this made the organisation more risk averse to go into commercial interests? 12% is virtually the same last year to this year on commercial activities. I would have thought instinctively that you would be risk averse because of the experiences you have had. As the new Minister, I would hope that that would change. I think it would be advantageous for the organisation to go into the market and try to experience that. There will be a summary when this report comes out which will have an impact on everything else. I would like to see that summary when it is finally reported on.

  Mr Watson: What drives this organisation is world class science. It excels above any other organisation. That allows a commercial development that backs up that world class science. Perhaps Ian and Mark will tell you whether they feel more risk averse after their experiences with weatherXchange. It is my job to give them the support and confidence to make sure that in the long run they do feel that they can explore those new markets.

  Mr Hutchinson: We have a lot of ambition to succeed commercially and to grow our commercial programme. Over the next four years, we look to grow in absolute revenue terms from a position today of about £20 million a year commercial revenue to a position at the end of 2009/10 of £29 million, so about a third increase in our overall, commercial revenue. With that ambition comes an acceptance and indeed a willingness to consider risks. We are not risk averse in the sense of once bitten, twice shy, never go near a joint venture again. We will look to bring in relevant experience to help us make the right commercial decisions. A lot of the Met Office is public service and civil servants. We do not have an awful lot of hard, private sector, commercial experience. The value of our non-executive directors, the value of bringing people in with the right skills to help us make the right decisions in managing future risks in our commercial programme, is important. I think there is more rigour now to ensure that due diligence checks are made in a more coherent and integrated way than perhaps they were previously, but certainly I am not risk averse.

  Q262  Mr Havard: How are you going to do it? It has been an expensive learning curve, has it not? £1.7 million has gone in the bin in order to learn these lessons about how you structure governance processes in order to do what you have just described. I was going to ask you what experience you have in order to avoid that problem again. Governance structures have changed but you also need personnel who know their way around these particular markets because the derivatives market is a particular bunch of two legged snakes, in my opinion. I would be very wary if I were you. I would keep your left up and your elbows in and keep moving. You need somebody to guide and navigate you through these things. I am glad you have said what you have said because you do not have the experience in order to avoid it again, it seems to me. A description of governance structures internally in relation to the existing business and the MoD is one thing but there is this whole other area. I have no confidence, unless you can give me the confidence by what you have said, that you are going to get that experience.

  Mr Hutchinson: It is still work in progress. We now have non-executive directors with very relevant commercial experience on the board to advise me and to make sure I make sensible decisions. We have also just appointed a director of our sales and marketing operation within the Met Office who again comes from a commercial, private sector background and has a lot of the right range of skills. We are still recruiting to ensure that we have the right balance of skills to take forward our business.

  Mr Andrews: It is not a question of risk aversion but it is very definitely an issue of risk awareness. Throughout the weatherXchange saga, it was recognised that there was a balance here between the risks associated with this business in terms of reputation and financial risk and the potential rewards. With the benefit of hindsight, the appropriate call between those was not made. I have talked about the challenge of commoditising the Met Office product to take it to market. We do need people who have a very highly developed competence in that area and they are not typically to be found within the Civil Service. We recognise that and in terms of looking for a new chairman, which we are in the process of doing at the moment, and selecting a Chief Executive to succeed Mark that is very much at the forefront of our minds in terms of the skills and competences we need to bring in. As you have said, we are improving the expertise both through direct recruiting and through non-executives so we are on a track. As a department what have we learned from this? Precisely that we need to make sure that we are making the proper judgments in terms of risk awareness but what we need on behalf of the taxpayer is to get the maximum commercial return we can from this outstanding brand and outstanding scientific excellence, which is the key discriminator the Met Office has.

  Q263  Mr Jones: One of the fundamental problems I saw yesterday when he was before us and reading about what happened with weatherXchange was the fact that someone came to them with a proposal. I asked whether that was either looked at or market tested anywhere else to see whether there was anybody else in the market. What concerned me a little bit was the naiveté on the facts that this was taken as a good idea but it was not seen as whether there were any other partners coming in. How are the commercial decisions going to be taken? Are they going to be generated internally by you looking at your products, Mr Hutchinson, saying, "These are the things we can offer" or are you going to get people coming to see you and say, "By the way, we want you to do this"? If people are coming from outside, you need to be aware that that is one of the fundamental problems with weatherXchange. What they did not do was ask the question who else in the market is to provide this or are there any other partners, because I think that was part of the kernel of the problem in the first place.

  Mr Hutchinson: Part of our commercial strategy is to ensure that we have a growth plan so that we proactively select our partners if that is the way we want to go to market, rather than them selecting us. We cannot rule out opportunistic approaches from people but, where we get them, we will ensure they are properly scrutinised.

  Q264  Mr Jones: The problem with weatherXchange was they selected you rather than the other way around.

  Mr Hutchinson: I cannot say that because I was not around at the time. I do not have that sort of perspective.

  Q265  Linda Gilroy: I have an observation and a part question. One of the things I would learn from in looking at MoD agencies and trading funds particularly in future would be to look at the annual report and say, "Who are the non-executive directors?" I have just done that and obviously I would not expect to see the changes you are referring to but it would be nice to see in the annual reports, not just of the Met but of the other agencies that you are currently reviewing, some indication of who the non-executives are and why they are there.

  Mr Watson: That is a very good idea.

  Q266  Chairman: Moving on to the appointment of the chief executive, when we went to the Met Office two or three weeks ago, Mr Hutchinson told us that the chief executive post had been downgraded from a three star post to a two star post. Is that correct?

  Mr Watson: As far as I understand, yes.

  Q267  Chairman: The Ministry of Defence tried to find a suitable candidate to be chief executive earlier this year and it failed. Was that at a two star post or at a three star post?

  Mr Watson: A two star, I believe.

  Mr Andrews: You link the two questions but they are quite distinct.

  Q268  Chairman: I wonder if you can say at that stage what grade was the post at which you were trying to find a chief executive?

  Mr Andrews: If we had taken an internal candidate from the Civil Service, the issue was at what grade within the Civil Service structure this would apply. The issue was entirely the question, within the relative structure within government and across the Civil Service, what the status of this post would be. We were very clear that in terms of the market the status came from being the head of the world's best meteorological organisation.

  Q269  Chairman: I want to come on to that. When you were looking earlier this year for a chief executive, did you advertise it as at a two star grade or a three star grade?

  Mr Andrews: We advertised it as a financial package for the chief executive of the Met Office. The issue of the grading which we applied in terms of what the implications would be, had an internal candidate succeeded in that competition was the level at which they would transfer across. As it happened, we did not have any internal candidates.

  Q270  Chairman: When you advertised it, did you not advertise at a particular grade or did you limit it to a financial package?

  Mr Andrews: We advertised to my recollection for the chief executive of the Met Office at an attractive, six figure salary.

  Q271  Chairman: There was no mention at that stage of whether it was two star or three star?

  Mr Andrews: It would not have made any sense to anyone applying externally for the job.

  Q272  Mr Hamilton: Was it less than what was previously paid or more?

  Mr Andrews: The package we advertised was substantially above what we had paid previously and certainly within the band that one has for a two star within the department it was well to the top of that.

  Q273  Chairman: Compared with the band for a three star, was it to the bottom of that?

  Mr Andrews: It was probably closer to the bottom than it would have been for the two star. We were not constrained. In terms of setting the financial package, what we did was to look at the nature of the job and the sort of competences that we would require from someone who could lead the office. We took advice from commercial head hunters on the level at which we should pitch that package. The consideration of what the status within the technical terms of the Civil Service would be was not a factor in that because the advice we received on the package we should offer, both in terms of the combination of basic salary and bonus, was entirely within the range that we had available.

  Q274  Chairman: Mr Ewins told us yesterday that the quality of the work that the Met Office does which we accept, as the Minister said in his opening statement this morning, is world class was the key to getting into various other organisations across the world. Meteorological advice is an international business. He said that the grading of the post of chief executive was the key to the level at which you got into those other organisations across the world. Do you accept that as a proposition?

  Mr Andrews: No, I do not. In other nations, I do not think civilian grading is an issue but I am absolutely clear that in terms of access it is achieved through the status as the head of the UK Met Office and the recognition that comes with doing that. The internal grade of the individual I do not believe has any significance at all.

  Q275  Chairman: What on earth is the rationale for looking for a chief executive of a world class organisation like the Met Office, failing to find one and then downgrading the post?

  Mr Andrews: It did not follow in that sequence. As I said earlier, when we came to the interview panel, we did not have any internal candidates on it. We were looking for a very special individual. We have touched today on some of the challenges that Mark's successor is going to face.

  Q276  Chairman: Do you think you are more likely to find one if you downgrade the post?

  Mr Andrews: As I said before, with respect, I do not think downgrading the post has any influence at all. The issue is externally, if we want to get the best person to do this, a combination of being a chief executive of the world's best meteorological organisation and a household name around the world and the remuneration package we are able to offer. The internal Civil Service grade I believe is not significant in that context.

  Q277  Mr Jones: You are absolutely focused, are you not, on how many pips each person has on their shoulder? I hear what you are saying but in terms of that chief executive trying to interface with yourself and others in the MoD, clearly if they see the lower grade in terms of the military hierarchy that you have in the MoD, that puts that person at a disadvantage straight away, does it not?

  Mr Andrews: First of all, on the suggestion you made that I personally place importance on this, I place importance on what value the individual has to offer and what their expertise and knowledge are. I do not judge that by where they are in the hierarchy.

  Q278  Mr Jones: How many pips have you got?

  Mr Andrews: I do not know. In terms of the hierarchy, there is an issue of internal comparisons because if you look at the span of control in Civil Service terms, if it were an internal person who took on the role of chief executive of the Met Office, and compare that with other large management responsibilities across the department, in relative terms, it is of what we would call a two star level appointment. That is if you look at it in terms of the management charge, the resources and the challenge. Therefore, as far as the internal credibility of the individual is concerned, it is very important that they should be seen to be attracting a salary which is consistent with those across the department of people doing similar jobs within the department. This is entirely an internal issue.

  Q279  Chairman: Mr Ewins suggested it was not. He suggested it was an external issue.

  Mr Andrews: I beg to differ with Mr Ewins. I disagree with him. The issue both within the department and outside is not, with respect, the number of stars one has but what is one there to represent in terms of the status of being chief executive of the world's best meteorological organisation and that is the only basis upon which people are judged.

  Mr Jones: You are a very rare beast in the MoD if you do not think status is important in the organisation. I hope you look forward to your new transfer to the office in Battersea and you will not see it as a downgrade at all.

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