Examination of Witnesses (Questions 1
- 19)
WEDNESDAY 9 JULY 2008
CHRIS MOXEY,
CLIVE HEAPHY,
STEVEN RYMELL
AND KEITH
LUCK
Q1 Chairman: Mr Moxey and your
colleagues, I am sorry that we kept you waiting. We had a lot
of business to conclude because the Committee will not have another
business meeting before the summer recess. We met you very recently
informally when we visited your facilities. We found that very
useful. Perhaps, for the record, you could introduce yourself
and your colleagues.
Chris Moxey: Thank you, Chairman.
My colleagues and I are delighted to be here today. To my left
is Keith Luck, who is the Director General, Finance at the Foreign
and Commonwealth Office. To explain his role a little as it affects
FCO Services, he is the sponsor, technically, for the management
of the stakeholder relationship between the FCO, as the parent
body, and us, the Executive Agency. Clive Heaphy is the Finance
Director of FCO Services, and Steven Rymell is one of our directors
with responsibility for the Information, Communications and Technology
Directorate, as well as being our Chief Information Officer.
Q2 Chairman: Thank you. This is
the first time that FCO Services has come before our Committee.
You have come at a time when you have undergone significant change,
with the establishment of a Trading Fund from 1 April this year.
How has that transition gone?
Chris Moxey: In short, it has
gone particularly well. It has been some two years in the making,
as we prepared ourselves over a considerable time to become, initially,
an Executive Agency in 2006. Quite a deal of preparation was put
into that launching point, which the then Foreign Secretary, Jack
Straw, announced at that time. In the years that have followed,
there has been a close engagement, as there should be, between
the stakeholder, which is the FCO, and staff in our organisation
to come to grips firmly with what the proposition for a Trading
Fund is all about, the nature of the relationship that needs to
ensue into the future and the range of services and activities
that we seek to undertake to pursue so that all parties completely
understand the nature of the relationship and the benefit that
is likely to follow. To that end, we had some particularly strong
progress as the out-turn for our last year of trading as an Executive
Agency, which reflects that we have done our jobs and satisfactorily
come to grips with the nature and shape of our organisation for
the future, with clarity around the proposition that we wish to
put to market. Indeed, that was underpinned by last year's trading
performance, which is a strong foundation for our future.
Q3 Chairman: Do you now have any
risks as a Trading Fund that you did not have as an Executive
agency or before 1999? You are subject to different pressures
in this new world that you have moved into, so are there any significant
risks in that?
Chris Moxey: That calls upon me
to expand slightly on my last answer. The fundamental tenet of
a Trading Fund is that it is no longer funded by the parent Department.
As an Executive Agency, we were funded year in and year out and
started trading for the new year every year, so any surpluses
or cash were handed back to the parent and dealt with by the Treasury
as part of end-year flexibility, and the Agency then moves on.
As a Trading Fund, however, the relationship is different. We
have to trade under our own resources and need a strong financial
structure on which to trade. It is therefore imperative that the
stakeholder, Ministers and the wider stakeholder community understand
the nature of the arrangement that we wish to put in place under
the Trading Fund and support it fully.
Q4 Sir Menzies Campbell: One of
the ways of mitigating risk is by the quality of the people you
have around the top table, which is why I am interested in the
introduction of non-executive directors. Were advertisements placed
and did those people respond to advertisements, or was there a
trawl among people whom you thought might be interested?
Chris Moxey: The colleagues with
me today are executive directors, rather than non-executive directors,
but perhaps you would like me to address non-executive directors
specifically.
Sir Menzies Campbell: If you would please.
Chris Moxey: Non-executive directors
went through a process of open competition and public appointment.
I now have three non-executives who were recruited that way, and
you have seen their photographs in the annual report. Sir Richard
Stagg is the chair of our organisation, as well as the High Commissioner
to New Delhi. He occupies a slightly different place in the relationship
that we have, in the sense that he has close ties to the Foreign
Office and a deep understanding of the organisation that was created.
Q5 Sir Menzies Campbell: Are they
remunerated in the normal way for non-executive directors?
Chris Moxey: They are paid a fee
in accordance with determined best practice in Whitehall. It is
a rate that is in line with the Whitehall Industry Group rate,
which is approximately £500 a day, and as we have declared
in the report, the remuneration for these folk is in the range
of £10,000 to £12,000 a year.
Q6 Sir Menzies Campbell: What
particular skills were you seeking to identify in non-executive
directors?
Chris Moxey: Well, a helpful blend.
One of our non-executive directors, Neil Masom, has been in post
for almost eight years and came from British Aerospace. He has
relevant experiences to share on the way services are provided
to a parent organisation, which is what we do with the Foreign
Office. During the length of time that he has been associated
with our organisation, that has been helpful for maintaining that
continuity of experience with us as we go forward as a Trading
Fund. Another of the non-executive directors is Mike Hayle, who
joined us with an interesting blend of public and private sector
experience. He was previously the Chief Executive of a Trading
Fund for Government called ABRO, which is part of the MOD family
of funds and agencies, and I think that that is declared in the
report. That brings some unique insights in itself, which is useful
and certainly helpful to me as the accounting officer as we manage
these early stages in our new life. That brings me finally to
David Kogan, who does not have any public sector experience and
is the wild card in the pack, if I can put it that way, in the
sense that he has very strong commercial sector experience, which
is going to be helpful to stimulate and focus our attention on
developing our opportunities in wider markets.
Q7 Sir Menzies Campbell: What
is the term of their employment? Is it three years, or five years?
Chris Moxey: Generally three years,
and, as we said in the report, one of them has been renewed for
a period of 18 months.
Sir Menzies Campbell: Thank you.
Q8 Sir John Stanley: As I am sure
you are aware, this Committee has had occasion to be very critical
of certain aspects of the FCO's financial management in previous
reports. Could you explain to us in your view what were the reasons
why the star performance rating in 2007 of FCO's financial management
was down to only a two-star rating?
Chris Moxey: Thank you. I am not
sure that it is for me to comment on the FCO's financial structure,
or the assessment of its financial performance, but as fate might
have it, I happen to have the Director General, Finance for the
FCO with me, who may be happy to take that question.
Keith Luck: The stars that you
referred to, Sir John, are the five-star finance programme that
we have been keeping the Committee up to date with, based on a
National Audit Office assessment of organisations. If they are
just able to manage their cash that is one star, and if they are
able to rely on good, accurate financial information produced
in a timely fashion, that would be a five-star organisation. We
self-assessed ourselves at two stars some 18 months ago, and would
now self-assess ourselves at three and a half stars. We are due
to get the CIPFA—the Chartered Institute of Public Finance
and Accountancy—financial management model in over the autumn
and the National Audit Office at the end of the calendar year
to evaluate our self-assessment around that. However, we have
consolidated the introduction of Prism; we have paid attention
to our financial processes; we have brought in some expertise
and skills, and part of the success of FCO Services, both as an
Executive Agency and going forward as a trading fund, is the calibre
of some of the staff that they have brought in for example to
my left is Clive Heaphy, Finance Director of FCO Services. I am
pleased to report that we have as a Department laid our accounts
before Parliament. When we were two stars some 18 months ago,
we were one of the last Departments to get our accounts into Parliament
just before the recess. Last year, we were in the middle of the
pack, and I am pleased to advise the Committee that we were the
first Government Department to lay its accounts this financial
year.
Q9 Sir John Stanley: Thank you.
I am sure we will welcome the fact that you carried out a self-assessment
and you have clearly not tried to gild the lily, and that is laudable
on your part. Can you clarify for us: you say that you are now
up to three and a half stars in terms of your own self-assessment.
I was not clear from your answer whether the CIPFA contribution
and assessment is or is not a wholly independent assessment. If
it is not, can you tell us who is going to carry out a wholly
independent assessment of your performance star rating, when that
will be carried out, and when the results of that will be available
to this Committee?
Keith Luck: The CIPFA financial
management process is semi-independent. It's a standard tool,
which is now being applied much more widely across Government
Departments, and which will allow us to benchmark our performance
against other Government Departments. It relies on people assessing
themselves, and then a degree of independence through some of
the partners that implement that product for us, so it is not
wholly independent. The wholly independent review will be the
National Audit Office assessment at the end of this calendar year,
which I mentioned briefly in my last answer.
Q10 Sir John Stanley: Can you
give us any indication as to when the NAO's wholly independent
assessment is going to be completed and available? It will obviously
be available to the Public Accounts Committee, but I am sure that
we will want to take steps to make certain that we get it in the
same time scale.
Keith Luck: Absolutely. I expect
that we are one of a number of Departments that that body is looking
at, but it will be publishing its report some time early in the
new financial year.
Sir John Stanley: Thank you.
Q11 Andrew Mackinlay: On that
point, you said that it was £500 a day and £10,000 to
£12,000 a year for non-executive directors, which suggests
about five or six board meetings a year. How does Sir Richard
Stagg come from New Delhi? Does he come to chair all the meetings?
I notice that he is not here today, which is not unreasonable
because New Delhi is a rather long way. How is he "hands
on" and how many meetings does he come to?
Chris Moxey: With regard to Sir
Richard Stagg as chairman, he attends all of our board meetings,
which is what we require him to do. Importantly, vis-a"-vis
the remuneration rate, he does not receive a fee from us.
Q12 Andrew Mackinlay: That was
not my point. How many board meetings are there?
Chris Moxey: There are at least
six board meetings a year for the full board.
Q13 Andrew Mackinlay: So he comes
six times a year?
Chris Moxey: Not always at our
expense, if I may draw out that point. He has reason to be in
the UK, as part of his duties for the Foreign Office generally.
Occasionally, during the year, the meetings will not be in sync
with those trips and we may meet the travel costs.
Q14 Mr Keetch: Do you think that
it is sensible to have a senior High Commissioner from the FCO
fulfilling that role? That is not a criticism at all of Sir Richard,
because he is a fine High Commissioner, but does not having somebody
on the inside fulfilling that role go against the point of having
a non-executive director?
Chris Moxey: May I suggest that,
if I had only two non-executive directors, that aspect of the
argument would probably carry more favour. I have three completely
independent non-executive directors who bring the strength of
challenge and oversight that is certainly essential and useful
to me and to our executive board colleagues in developing the
organisation. Regarding Sir Richard Stagg, there is a great strength
in the corporate memory that exists in his association with our
organisation. He worked through the transition and was responsible
for the proposition of creating FCO Services as an Executive Agency
and for developing the case, with the FCO board, for us to become
a Trading Fund. In a sense, there is nobody better placed just
now, I think, with that length and breadth of experience whom
we can draw upon. Perhaps in three years' time, as we have moved
on, delivered our strategic objectives, and begun to grow our
presence in the wider market generally, we may think again about
the construction of the board, but right now I think that we have
the balance about right.
Q15 Mr Keetch: I am sorry to labour
the point. I declare an interest as a non-executive director of
a company in the City. One of the reasons why I am there is that
I am not directly involved in that business. The whole point of
a non-executive director is to have somebody who has corporate
responsibility for a board but is detached, or at least semi-detached,
from the running of that business. I wonder why an active senior
member of the civil service is fulfilling that role and why somebody
from outside, or at least somebody who has retired from that position,
could not fulfil it.
Chris Moxey: Again, Sir Richard
Stagg no longer occupies the post that would have had him so closely
involved in an executive capacity. He was previously director-general
of corporate affairs, therefore, he has a very deep understanding
of how we have got to the place that we have. Our corporate governance
documents are plain and clear. They have also had ministerial
approval and have been subject to the scrutiny of third-party
evaluation, both by private firms, such as PricewaterhouseCoopers,
and by the NAO, to assure us that we are complying to best practice
standards, which should be in play for the governance of the organisation.
Sir Richard Stagg understands his role in giving the oversight,
challenge and assurance from the non-executive perspective, as
laid out in our corporate governance documents. He is performing
a different job, and he is doing it, I think, well.
Chairman: Your organisation is obviously
in transition and, as you have said, the arrangements may be different
in the future. We have to move on to some other areas.
Q16 Mr Horam: To come back on
that point—Sir Richard Stagg is a non-executive chairman?
You have three non-executives?
Chris Moxey: Three further non-executives—four
in total.
Q17 Mr Horam: Only one of whom
has a private sector background.
Chris Moxey: One has a firmly
private sector background—David Kogan—and Mike Hayle
has a blend of private and public sector experience.
Q18 Mr Horam: That is fine. Going
on, the Trading Fund arrangements that you have entered into for
some time are advantageous to you, in that they give you more
independence and more responsibility. What is in it for the FCO?
Chris Moxey: Again, that has been
carefully thought through and documented, in terms of the benefits
that the FCO is seeking.
Q19 Mr Horam: Could you give some
illustrative examples, which might bring home what benefits the
FCO gets?
Chris Moxey: Part of becoming
a Trading Fund was for us to become more commercially focused,
more effective and more efficient in how we deliver services.
In a sense, the reverse is also true. An obligation rests with
the Foreign Office, too, to become a more professional client—in
other words, to be clearer about how it wants services provided
and about what the constituent parts of value for money are to
be.
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