Examination of Witnesses (Questions 180-199)
MR CHRIS
BANKS, MR
GEOFF RUSSELL
AND MR
DAVID HUGHES
20 MAY 2009
Q180 Mr Boswell: Specifically, while
we are discussing board responsibilities, before we widen this
out, while I understand that it is very commendable that you did
not want the board to be micromanaging the organisation, do you
not accept that it is a cardinal responsibility of any board which
you chair to manage the risks or to have satisfied itself it has
got a proper risk management and reporting system?
Mr Banks: Yes.
Q181 Mr Boswell: Therefore, is there
an implied criticism of the board that this did not appear to
be in place?
Mr Banks: I absolutely do acknowledge
that that is a key role of the board, or the council. Again, Andrew
Foster was quite explicit here, and I agree with him that the
way that we managed risk at that time with the Audit Committee
clearly did not do the right job, because capital was not on the
risk register at that stage. Again, as I think you also know,
because of the various changes that were going on and the uncertainty,
we did instigate, prior to the capital issues and prior to the
Foster Report, a full review of all of our risk management so
that we could get a better grip on it, but you are right, it failed,
and that is why we have had to take action there as well.
Q182 Mr Boswell: Given that your
CEO walked the plank, did you consider your own position?
Mr Banks: Of course I did. It
would be only natural to, would it not, in the circumstances,
and I do want to put on record my personal apologies as well as
those of the organisation to all of those people who have been
affected by the difficulties that we have had and the consequences
to everyone else, but my belief is that, as the day-to-day responsibility
for the management of that programme rested with the chief executive
and that he has resigned as a result of this, that is the right
thing, and my job is to try and ensure that this organisation
delivers all that it possibly can between now and the time when
it is dissolved in the spring.
Q183 Dr Iddon: Mr Banks, you were
appointed for two days. Admittedly, you have said you put more
than that in. My simple question is: do you think two days is
enough, with all of your other commitments whirling around in
your head, to manage an organisation like the LSC?
Mr Banks: I am saying really that
I put more than two days into it. I think it deserves that, and
you will understand, particularly in terms of the very wide remit
that the LSC has and the very wide number of stakeholders and
partners that we work with, I have been pleased to make that time
available and fortunate enough, as an independent businessman
rather than working for someone else, to be able to make that
time freely and positively available.
Q184 Dr Iddon: Is the answer to my
question, no, then, that two days is not enough?
Mr Banks: I think you can do the
job in two days if you have to. I just think I could do it better
by making more time available, and so I did, and do.
Q185 Graham Stringer: In answer to
Tim's question you said that the day-to-day management was the
responsibility of the chief executive, but actually when we had
the chief executive before us what he said was that he did not
know anything about it and that the problems were about communication.
As chairman, when there are reports within the system that are
screaming that there is a problem, is it not your responsibility
to have ensured that there were structures so that you would know
about them?
Mr Banks: Just a word on the word
screaming, to pick up on it. I have read the report now—I
expect you have as well—and actually I am not sure it says
screaming; it does identify the issue.
Q186 Graham Stringer: There is a
huge problem building up in your capital programme.
Mr Banks: In answer to your point,
I would have expected the management to respond to that and I
would have expected, in due course, for Mark or a member of the
team to have alerted us, and me personally, to that issue, yes,
you are right, and that is part of the failure, I think.
Q187 Graham Stringer: I think you
are missing the point. Clearly the chief executive did not think
it was his job to read the report, because he told us that when
he was here, that he did not want to read all these reports, he
left it to other people. The point I am making is should there
not have been communication systems in place that said, if you
have got a problem, if there is a major report, then it should
get into the chief executive's office and into the chairman's
office?
Mr Banks: I agree with that, and
as a business person and somebody largely in the private sector,
the ability to surface, escalate issues, make sure that people
are aware of them and then deal with them as quickly as possible
is one of the things that enables you to deal with the market
better than ever.
Q188 Graham Stringer: Why did you
not ensure they were in place: because that really is your responsibility?
Mr Banks: The escalation within
the management team, I think, is the responsibility of the chief
executive. I can only say that I think that part of the management
process would have to be run by the chief executive. I did not
know, and I should have known, that those issues were going on
and, given my time again, I suspect, like you, I would have asked
those questions and tried to put those pieces of data together
more quickly, but I think there is a general understanding that
the information coming to me and, indeed, other members of the
council was really imperfect and did not allow us to us make those
connections and, I agree we should have done. It would have been
much better.
Q189 Graham Stringer: Hindsight is
a very precise science.
Mr Banks: Indeed.
Q190 Graham Stringer: The most precise
science there is. We have analysed the communication, the structures,
Foster has analysed them, but there is a deeper question that
lies behind it, is there not? Should the LSC exist? Should these
large capital programmes be dealt with by primaries?
Mr Banks: All I can say, really,
is that since the LSC was established, 618 projects have been
any initiated or completed, actually, totalling nearly six billion
pounds, and 89% of colleges have participated in that programme;
so during that period the system, I think, was recognised and
acknowledged as working well. I think what went wrong was that
the mechanisms that had been used, which were largely about encouraging
demand and responding to it, because there was less demand than
there were capital funds available, was not changed the at the
time when it became clear, or because it did not become clear
that the equation was working the other way, and there was then
more demand than there was money available. So I think that these
organisations can, and this organisation did, run that programme
well for a long period of time.
Q191 Graham Stringer: It is really
whether you are better. You are in competition with local authorities,
which have a democratic mandate, and it is often said that quangos
are more effective and that local authorities are patchy as to
whether they can do this. This has been a minor catastrophe, has
it not? It has perverted the Government's priorities in where
money is going within the system. It has meant that projects have
been delayed. Do you really think you are better than local authorities
at doing it?
Mr Banks: I am afraid I am not
really in a position to comment on that because—
Q192 Graham Stringer: It is pretty
fundamental, is it not? Should you exist or not?
Mr Banks: ---there is such a wide
variety. The reason I got involved in the LSC in the first place,
and remember that I was one of the business people who got involved
before the LSC was set up, was because the previous system was
so much more complicated and difficult and I could see the opportunity
for bringing together these various and disparate programmes and
activities into one place and I think that over a period of time
that has served people well. I think it is now clear that what
we have got to try and do as we prepare for a new way of working
is just do our bit to make the transition work as well as possible.
Q193 Chairman: Can I turn to you,
David Hughes. I think somebody else would like to come in on this,
but as a precursor, you have been there throughout this period
of time and you, effectively, were the regional director of the
LSC London region. You also had a key role chairing the cross-cutting
group in terms of this capital programme. So you not only had
a key regional role, you were chairing the cross-cutting group
that was reporting directly to the board, because you had a seat
on the board. Why did you not alert the chief executive to the
fact that things were going wrong? Why did you not tell him that
the February report, which came to you, was predicting disaster
for the programme? Did the buck stop with you?
Mr Hughes: I do not think it was
predicting disaster for the programme. What it said was there
were some serious problems on the horizon.
Q194 Chairman: Serious problems with
a multi-billion pound project.
Mr Hughes: It had two conclusions.
It said we needed £100 million for the year 2008/2009, and
if you remember that the end of May was the period when we were
just talking about the potential underspend on the capital programme—
Q195 Chairman: I am sorry; this was
February.
Mr Hughes: No, we saw the report
on, I think, 28 May, and at that point we had just been discussing
an underspend on the capital programme for 2007/2008. Hindsight
is a very precise science, is it not?
Q196 Chairman: I wish I had not said
that actually!
Mr Hughes: It is fantastically
true, is it not?
Q197 Mr Marsden: Foresight is a rare
quality.
Mr Hughes: It is, and we did not
have foresight, and that was the mistake we made, but, very clearly,
at that point we had been overseeing a programme that for years
had been underspending and we had been struggling to get projects
through, so the whole setting was very different. It is not an
excuse, it is just part of the context. So when we saw this report,
it said: you need £100 million in-year to manage the budget.
We had a very strong assurance, unofficially, that we would end
up with that money.
Q198 Chairman: From whom?
Mr Hughes: From officials.
Q199 Chairman: Your own officials?
Mr Hughes: We were in discussion
about a budget that we believed, and in the end there was £110
million brought forward to make sure that we did overspend in-year;
so that foresight was right. The second conclusion was: there
are some actions we need to take, including prioritisation, including
limiting the grant paid by the LSC and a number of others that
we can see in the report, so we said we need to do that, and we
referred that, quite understandably, to the Capital Committee
and asked the Capital Committee to take that on. They did not
do that until September. If you look at the Foster Report, Foster
says there was a delay of two or three months.
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