Statement submitted by the BBC Trust
INTRODUCTION
The Trust's role with respect to the commercial
activities of the BBC is distinct from that of the BBC Executive.
This statement sets out that role and explains how the Trust has
fulfilled its responsibilities for oversight of the BBC's commercial
activities in practice over its first 18 months of existence.
A separate submission, prepared by the BBC Executive and agreed
by the Trust, containing further information about the operation
of the BBC's commercial services is also attached.
CONTEXT
The BBC has undertaken some activities on a
commercial basis through most of its history. Successive Governments
have encouraged it to generate as much income as it can on behalf
of the licence fee payer. The most recent charter review reaffirmed
this principle but also established a clear framework for control.
THE TRUST'S
REMIT
The Trust is the guardian of the public interest
in the BBC. It is responsible for ensuring that licence fee payers
get the best value from the BBC's services and it holds the BBC
Executive to account for its delivery of the BBC's public purposes.
It takes a close interest in audience opinion, engaging directly
with audiences and also through the Audience Councils to assess,
from the perspective of licence fee payers, how well the BBC is
fulfilling its public purposes.
Through its purpose remits and service licences
the Trust has set the broad strategic direction for the BBC's
public services and established mechanisms for performance measurement.
It assesses new public service proposals (such as iPlayer) using
its Public Value Test framework and keeps existing services under
regular review (it is currently reviewing the provision of childrens'
services).
The Trust has an overarching duty under the
BBC Charter[1]
to have regard to the competitive impact of the BBC's activities
on the wider market.
The BBC Agreement[2]
sets out in more detail the regulatory framework which applies
in the case of the BBC's commercial activities and the Trust's
remit.
Under the Charter and Agreement the Trust's
general functions include:
(i) setting the overall strategic direction of
the BBC within the framework set by the Charter and Agreement;
and
(ii) approving high-level strategy and budgets
in respect of the BBC's services and activities in the UK and
overseas (Charter, Article 24(1)(a) and (b)).
These general functions apply across the full
range of BBC activity, including its commercial services.
Article 3(3) of the Charter provides that the
BBC may maintain, establish and acquire subsidiaries through which
commercial activities may be undertaken to any extent permitted
by the Agreement.
The Agreement requires:
— that a commercial strategy to be
adopted by the Executive Board and approved by the Trust (Clause
72);
— that the commercial services should
be organised separately from the "core" BBC (Clause
68);
— that BBC commercial services should
be provided through commercial subsidiaries, not directly by the
BBC; and
— that all of the BBC's commercial
services must comply with four criteria (Clause 69).
It also sets annual reporting requirements (Clause
74).
GOVERNANCE STRUCTURE
The BBC Worldwide Board is accountable to the
BBC Executive Board, which is in turn accountable to the BBC Trust.
Under the BBC's commercial governance framework
there are three independent non-executive directors: Etienne de
Villiers (also Chairman), Simon Clift and Thomas Geitner. In addition,
the public service non-executive directors, Jana Bennett, Nicholas
Eldred and Zarin Patel, represent the interests of the BBC. BBC
Worldwide communicates regularly with the BBC, its ultimate parent
company, and the Trust. It presents its strategy, financial results
and budgets to the BBC and Trust for review and approval and certain
other matters are referred to these bodies for approval and authorisation.
The non-executive directors share responsibility
for carrying out the Board's duties, although their participation
is largely supervisory. They bring an external dimension to BBC
Worldwide's corporate governance and provide independent advice.
Their responsibilities include:
— providing strategic and operational
advice and direction to the Board;
— reviewing performance of the Board
and effectiveness of the directors;
— ensuring appropriate standards of
conduct and financial probity; ensuring a robust and appropriate
internal controls environment is embedded in the business; and
— compliance and governance.
TRUST OVERSIGHT
OF THE
BBC'S COMMERCIAL
STRATEGY
The Trust has adopted and published a protocol[3]
which explains its role in relation to setting the strategy for
the BBC's commercial services. The protocol explains that whilst
responsibility for developing and gaining approval for the BBC's
commercial strategy lies with the Executive Board, the Board must
ensure that this strategy is developed and presented according
to the Trust's requirements.
In this way the Trust maintains appropriate
distance from the operational work of the BBC Executive and maintains
the independence that is necessary for it to hold the Executive
Board to account for the performance of the BBC's commercial arm.
In deciding whether to approve the draft strategy, the Trust takes
account of the following factors:
(i) The objective that the BBC should relieve
pressure on the licence fee by seeking to maximise commercial
revenue within appropriate areas and by returning value to licence
fee payers by reinvesting profits in the BBC's Public Services.
(ii) Assurance that the strategy fits with the
framework for determining what commercial activities it is appropriate
for BBC to engage in, as set out in the Charter (Article 3(3))
and the Agreement (Clause 69).
(iii) Whether the strategy covers an appropriate
period taking into account the need for stability, planning in
relation to the financial contribution that the commercial business
is expected to make to the BBC's public service funding, and the
pace of change in the market.
Trust approval of the BBC's overarching commercial
strategy does not signal agreement to items within it of individual
strategic significance, or in any way limit the discretion of
the Trust in relation to its decisions on proposals requiring
its approval. These are considered on a case by case basis once
sufficiently developed.
In accordance with the above arrangements the
Trust approved a commercial strategy for BBC Worldwide in March
2007. This strategy responded to the challenge set by the BBC
to maximise commercial revenue, in appropriate areas, to reinvest
in programming and talent to the benefit of licence fee payers.
The main growth areas were digital business and increasing BBC
Worldwide's operations outside the UK. Following earlier scrutiny
by the Trust's Finance and Strategy Committee the strategy also
included specific analysis of merger and acquisition opportunities.
Updates on progress against the strategy are required at least
annually, and changes to the plan require Trust approval.
In February this year the Trust instigated a
review of the BBC's commercial activity, the aim of which is to
reassess BBC Worldwide's strategy and governance arrangements.
Terms of reference were agreed with the BBC's Executive Board
and the BBC Executive, which is conducting the review, is expected
to report its findings to the Trust in November.
Similar principles apply in the case of the
BBC's other two active commercial subsidiaries—BBC World
and BBC resources.
BBC World
BBC World is subject to a separate business
plan which sets out its strategy, budget and targets. The four
commercial criteria apply to BBC World's activities and any new
service propositions must be subject to assessment against those
criteria. In the case of BBC World, the assessment of commercial
efficiency must be made against the financial targets set in the
business plan agreed by the Governors.
BBC World performance is monitored through quarterly
financial reporting arrangements.
BBC Resources
Whilst the principles in this protocol apply
to BBC Resources, the activities of this business are, at present,
subject to separate governance arrangements. The Trust agreed
to a sale process for the business and, in March 2008, agreed
that the Outside Broadcast part of the business should be sold.
It was agreed that two other parts of the business, Studios and
Post Production facilities, should not be sold at the present
time.
BBC Resources' performance is monitored through
quarterly financial reporting arrangements.
ARRANGEMENTS FOR
ASSESSING PROPOSED
CHANGES TO
BBC COMMERCIAL SERVICES
The Trust has set out arrangements for governance
and scrutiny of new service proposals and changes to existing
services in a separate protocol. This sets out the basis on which
it will be determined whether Trust approval is required, and
also the framework of criteria against which the Trust will make
its assessment of such proposals.
A new or changed commercial service proposal
is subject to approval from the Trust itself where it:
(i) Involves an investment or divestment in excess
of £50 million; or
(ii) Falls outside the strategy for the BBC's
commercial services as approved by the Trust; or
(iii) In the UK, represents entry into a wholly
new market sector for the BBC's commercial services.
In addition the BBC Executive Board must consider
referring any proposal for consideration by the Trust where it
believes that (i) matters of wider strategic significance for
the BBC may be raised; or (ii) the good reputation of the BBC
may be jeopardised.
Most proposals do not require Trust approval.
They are subject to the same requirements and assessment criteria
as those referred to the Trust, but decisions are taken, depending
on the scale of the proposals, at executive or main board level
in BBC Worldwide, BBC World and BBC Resources with input in many
cases from the BBC Executive.
The framework against which all proposals are
assessed, whether by the Trust, the BBC Executive or the relevant
commercial subsidiary, is the four criteria, set out in the Agreement.
No new/changed commercial service proposal should be approved
unless it:
(i) Fits with the BBC's Public Purpose activities;
(ii) Exhibits commercial efficiency;
(iii) Does not jeopardise the good reputation
of the BBC or the value of the BBC brand; and
(iv) Complies with the principles set out in
the Fair Trading Policy and with the Fair Trading Guidelines,
and in particular, avoids distorting the market.
In all cases the relevant commercial subsidiary
must secure sign-off from the relevant specialists in the BBC
Executive against each of the four criteria.
TRUST CONSIDERATION
OF "KANGAROO"
PROPOSAL
The Trust has not, at this stage, considered
detailed proposals for BBC participation in the proposed "Project
Kangaroo" joint venture. It did, however, give its approval
in principle in June 2007 for the BBC to proceed with the development
of such proposals with joint venture partners. At that stage the
Trust made clear that the proposals, once fully formed, would
be subject to approval by the Trust.
The framework against which the Trust will need
to evaluate any firm proposition if it is put forward by the BBC
Executive is the four criteria, set out in the Agreement, that
apply in the case of commercial services.
Since the proposals were referred by the OFT
to the Competition Commission at the end of June, the Trust has
maintained contact with the Commission and offered its assistance.
Whilst most of the Commission's work has focused on the proposed
joint venture partners, the Trust's Chairman has agreed to meet
with the Commission.
If the BBC Executive decides to bring forward
firm proposals for Trust consideration, the Trust will require
the Executive to submit their assessment of the proposals against
the four criteria. The Trust will consider this as part of the
evidence on which it would base any decision. Whilst we do not
anticipate the BBC Executive being in a position to make such
a submission until the Competition Commission has published its
findings, we are working to ensure that the Trust is kept informed
as the deal proposals evolve so that, should it have difficulty
with what is emerging it will have an opportunity to say so before
the Commission reaches its conclusions.
October 2008
1 http://www.bbc.co.uk/bbctrust/assets/files/pdf/regulatory_framework/charter_agreement/royalchartersealed_sept06.pdf
(Article 23(e)) Back
2
http://www.bbc.co.uk/bbctrust/assets/files/pdf/regulatory_framework/charter_agreement/bbcagreement_july06.pdf
(Clauses 68-74) Back
3
http://www.bbc.co.uk/bbctrust/assets/files/pdf/regulatory_framework/protocols/d6_commercialservices_approvals.pdf Back
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