Examination of Witnesses (Questions 1-19)
BBC
WEDNESDAY 6 JUNE
2007
Q1 Mr Williams: Good afternoon. The hearing
today is on the BBC's management of risk and this is the final
session on the first three-year programme in conjunction with
the National Audit Office; we will touch on that a little later.
I want to welcome Jeremy Peat of the BBC Trust, Mr Thompson, the
Director-General and Ms Zarin Patel the Group Finance Director.
We also have as guests a delegation from the Mozambique Public
Services Reform Authority. I hope nothing we do today puts you
off democracy completely, but you are very welcome to be with
us. May I start then by talking about the three years just for
a minute? Have you found the three years that we have had, the
six reviews of value for money, worthwhile and have you found
it additional to anything that you might have been doing yourselves?
Mr Peat: Perhaps I might answer
on behalf of the Trust, if that is all right, just to say that
I have been on the board of governors and then the board of Trustees
for two and a half years now and I have been responsible in that
role for the value for money programme. My answer to your question
is a very straightforward yes. We found the work undertaken by
the NAO on value for money studies, and the other studies which
have formed part of the programme, of great value. We have found
them additional to the work that has been undertaken within the
BBC by the internal audit department and other pieces of work
that we, as governors and Trustees, have commissioned for our
own benefit. We have found them of great value.
Q2 Mr Williams: I understand that
you have negotiated an arrangement for the future. Can you tell
us briefly a little about that?
Mr Peat: Certainly. The arrangement
for this year and for the next two years is that we shall discuss
the programme again with Sir John Bourn and his colleagues and
that rather than just taking to the NAO our proposals for studies
and discussing those with them, we have asked the NAO for their
proposals as to what studies should be undertaken. We have agreed
a programme for this year which includes both a study they proposed
and other studies that we have proposed and we have agreed the
programme jointly with them.
Q3 Mr Williams: Have you refused
any studies that they proposed?
Mr Peat: We have not, and if ever
that were to be the case, that is something we would have to state
publicly and explain why we would so refuse.
Q4 Mr Williams: Still you have the
final say and you insist on keeping the final say. Why are you
so adamant? We really are at a loss now. It seems it is just a
bit of power struggle as far as you are concerned. We cannot see
the logic of your position in relation to the National Audit Office.
Mr Peat: Let me say that we are
not just asking the National Audit Office for their involvement
in these value for money studies. We have also asked the NAO to
assist us, generally with looking for value for money and efficiency
and improvement across the BBC. We have asked them to come in
this summer to help with definitions on efficiency within the
BBC, to help with measurement of efficiency; we have asked them
to come in to work with us so that we can help better to define
what efficiency is, what it means and how it is measured. Then
we have asked if they would come back some time in two or three
years' time to see how the BBC efficiency has developed compared
with the targets that we in the Trust will be setting on the basis
of the NAO assistance in helping how those be defined and how
they be measured. We are broadening the relationship we have with
the NAO in a way that will be very valuable and I had a letter
just yesterday from Sir John indicating that he welcomed this
addition.
Q5 Mr Williams: I am glad you are
at the cuddling stage, but we are still some way off a matrimonial
relationship here. Do you still, for the future, see indefinitely
keeping the NAO at arm's-length or are you warming to the idea
of doing what everyone else who receives public money does, having
the National Audit Office have full access to your books?
Mr Peat: Let me just say that
under the new charter which came into being at the beginning of
this year, the BBC Trust is charged with securing that the independence
of the BBC be maintained. So we have absolute responsibility both:
"to exercise rigorous stewardship of public money",
I quote, and indeed to commission value for money investigations.
It is in the charter that we as a Trust should commission those
and we are also charged as Trustees with securing and maintaining
the independence of the BBC.
Q6 Mr Williams: But you are making
the independence wider now. In the past independence has been
that you have been worried about editorial intervention. You got
rather pushed off that when you could not produce any examples
of any attempt at intervention on the editorial front. At the
end of these three years, has the NAO or has this Committee in
any way tried to impinge on your editorial function?
Mr Peat: No, and as I said before
Mr Williams, I have no expectation that would be the case. However,
on behalf of the Trust, we reserve the right to have the final
say over what shall and shall not be studied and of course if
ever we disagreed with the NAO on what was appropriate to study
we would have to justify that. Given the role that is given to
us in the charter, we reserve the right to take that final decision
because the independence of the BBC, in our view, is so crucial.
Q7 Mr Williams: We are obviously
going to return to this in the future, but I am glad that some
progress has been made. Now, coming to the control of the risk,
I was rather puzzled when I read the briefing and discovered that
you have a list of top five risks. You have another list of 44
top risks. You have a separate list of 140 baseline risks and
you have another list of 85 top divisional risks. You are running
a risky business are you not?
Mr Peat: I might perhaps best
pass to Mark Thompson and Zarin Patel at this stage—
Q8 Mr Williams: You should know the
answer to that.
Mr Peat: I am very happy to answer.
I was just going to state that—
Q9 Mr Williams: It is management
of risk and you are management.
Mr Peat: No, we are now responsible
for oversight under the charter, not the day-to-day management.
As the Trust, we are responsible for oversight and ensuring that
the risk process is appropriate and the risks are properly safeguarded
and watched. We receive regular reports from the Director-General
and indeed from the audit committee, which is now a committee
of the executives of the BBC rather than something that is for
members of the Trust.
Q10 Mr Williams: How on earth can
you say you are managing risk when it is as complex as this incredible
list of lists?
Mr Thompson: It is worth saying,
and you will have seen in the Report itself in the NAO's overall
conclusions, that the BBC has an appropriate framework for managing
risk with top risks considered regularly by senior BBC managers
and, at this point when the Report was written, governors. We
have a system which tries to capture regularly at some level in
the BBC all of the risks that we can imagine and, because the
BBC has complex operations, that is a large number. You will have
seen in the Report something called the annual risk baseline which
has a very large number of risks in it. What we try to do is make
sure that each of the divisions of the BBC has a system for examining,
debating and exploring ways of mitigating the key risks which
are associated with their operation. In the executive board of
the BBC, which is charged with managing the risk, we see on a
quarterly basis, a smaller manageable number of critical risks
and then spend time debating them. As the chairman of the executive
board and Director-General I will talk to the Trust about the
absolutely top risks. So we try to make sure that at every level
of the organisation, the appropriate number and the appropriate
criticality of risks are being discussed.
Q11 Mr Williams: Having a framework
is different from having a working system. Let us explore a little
further. The framework is an outline; let us see how it operates.
I understand, for example, that a third of your risk managers—and
this is in paragraph 30—are not sure when they should refer
risk up the management chain. That is amazing, is it not? One
third of them?
Mr Thompson: The NAO came into
the BBC to look at this topic some time, but only a relatively
short time, after the BBC management and governors decided that
we should take the subject of risk much more seriously and put
new systems in place. As the NAO Report makes clear, significant
progress has been made by the BBC on the matter of risk but we
would recognise and accept the Report's conclusion, which is our
conclusion as well, which is that we still have some way to go
before it is fully embedded. Part of the complete embedding of
the right kind of culture for managing and mitigating risk in
the BBC is around, of course, every manager understanding exactly
what their role in the story is.
Q12 Mr Williams: But you have a third
of the managers who do not know whether they should refer issues
up the management chain and we also find that you ignored the
Treasury guidance and the Treasury guidance is that all identified
risks should be assigned to risk owners. According to the National
Audit Office, a third of your risks are not with identifiable
owners. How do you justify that?
Ms Patel: We do not. What we have
done is to make sure that, as part of our new risk management
system which we implemented while the NAO were in doing this study,
every single owner knows which risk they are responsible for,
every single risk has an owner and, most importantly, every single
action has an owner and a date as well.
Mr Thompson: So if you have identified
a risk and you assign the responsibility for mitigating that risk,
the assignment is to an individual and there is a date by which
they have to fulfil the action that is required of them.
Q13 Mr Williams: Do they now know
when they should refer issues upwards and to whom they should
refer them?
Ms Patel: Indeed. Since I took
over as Chief Risk Officer in January of this year, we have implemented
our new system and as part of that trained all 300 senior managers
who are responsible for reporting and managing risk. That has
been face-to-face briefing so they understand when to identify
risk, how to grade it, that was one of the other points the NAO
made, and how to report and escalate up.
Q14 Mr Williams: So what you are
saying is that you have taken a sticking plaster to the complaints
that have been identified by the National Audit Office so you
have a defensive position here, but does it work? Of the people
involved in risk in the BBC, 37% said that the risk training you
provide is barely adequate or not adequate at all. You cannot
have rectified that since you started this Report.
Mr Peat: I would like to state
that the recommendations that came from the NAO in this Report
were both welcome and timely. We were at a stage in the development
of the risk process in the BBC where we needed an overview, we
needed input from people with expertise and experience in other
bodies and we very much welcomed all the recommendations that
were made by the NAO. I certainly would not define the response
that has been made as putting sticking plaster onto it. We have
taken their recommendations extremely seriously, we have required
that the executive follow through and Zarin Patel as Chief Risk
Officer is responsible for making sure that the recommendations
are followed up appropriately and that we now have a fully fit-for-purpose
risk process.
Q15 Mr Williams: Are you saying none
of the 37% who said they were inadequately trained or barely adequately
trained can say that now? They are all adequately trained?
Ms Patel: The survey referred
to the overarching risk management guidelines and you are right,
37% said they were not fully aware of them. Actually, if you are
a health and safety adviser or you are in charge of compliance
on fair trading or you are in editorial compliance, you have very
detailed and specific training. For example, over 9,500 are trained
as health and safety advisers; 100% of people who are involved
in fair trading compliance are fully trained. Very specific training
to your area of risk happens. What we have done since this study
is a training needs assessment as recommended by the NAO and the
Treasury Orange Book guidelines so see where the gaps are. What
people are saying is that their specific training guidance is
adequate but they want more guidance about how to identify pan-BBC
risks, how to manage them better and how to share information
across the divisions. What I intend to do for the next year is
to bring that level of training up to what people need and what
they find useful and by the end of this year, a year after the
main survey was run, we will re-run the same survey and questionnaire
of the same group of people and test whether the improvement has
worked or not.
Q16 Mr Williams: In addition to whatever
programme you are considering for the future with the NAO, would
you welcome the NAO coming in, say in another 12 months, to see
how far you have fulfilled what you have just claimed?
Mr Peat: I would have absolutely
no objection whatsoever.
Q17 Mr Williams: C&AG, would
you be ready to add that to your programme?
Sir John Bourn: Indeed Chairman.
Q18 Mr Wright: May I talk about risk
management and the alignment with strategic objectives? Reading
the Report, it seems to me that you Mr Thompson, as Director-General,
seem to be very closely involved in this, which seems terribly
commendable, but it does seem that governors, non-exec directors
seem to be passive in the risk management process. You say you
have five or so risks each month and talk to them and Report them
but in terms of good corporate governance, in terms of having
a very close alignment between risk management and strategic objectives
of an organisation, this does not happen in the BBC, does it?
Mr Thompson: That is not right.
We have taken the opportunity of having non-executive directors
on the executive board—and it is the first time the BBC
has had non-executive directors—to make some appointments
of people who are specialists in this area. Robert Webb, who is
the general counsel for British Airways on the main board and
has responsibility at BA for safety and security, is an absolute
expert on compliance and risk and Robert and the other non-executives
question us extremely closely on the topics of compliance and
risk because they are used to environments where these are critical,
as they are at the BBC. They are about the safety of our people,
they are about the safety and security of our services to the
public and they are about the compliance of the BBC with its variety
regulatory and other issues.
Q19 Mr Wright: But in terms of stopping
the BBC from achieving its corporate objectives, which is essentially
what identification of risk is, I do not get the impression that
that is happening in the corporation.
Mr Peat: Sorry, just to make it
clear, the prime responsibility for management of the risk process
is with the executive, but the Audit Committee of the BBC, which
is made up of the non-executive directors of the BBC, has that
responsibility. They have the responsibility for monitoring the
risk process, making sure that is adequate and for working with
the Director-General and the executive board to make sure not
only that the process is right, but that the right risks are identified
and the issues are dealt with.
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