Examination of Witnesses (Questions 260-279)
MR TOM
WATSON MP, MR
IAN ANDREWS
AND MR
MARK HUTCHINSON
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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