CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1389- ii

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Public Administration Committee

Public Appointments

Tuesday 6 September 2011

Will Hutton

Deborah Loudon and Peter Smith

Andrea Sutcliffe and Jonathan Stephens

Evidence heard in Public Questions 112 - 268

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Public Administration Committee

on Tuesday 6 September 2011

Members present:

Mr Bernard Jenkin (Chair)

Alun Cairns

Nick de Bois

Paul Flynn

Robert Halfon

David Heyes

Kelvin Hopkins

Greg Mulholland

Lindsay Roy

________________

Examination of Witness

Witness: Will Hutton, Author of Hutton Review of Fair Pay, gave evidence.

Q112 Chair : Will Hutton, thank you very much for agreeing to be with us this morning to give us evidence on this inquiry. For the record, could you introduce yourself and your role?

Will Hutton: I am Will Hutton; I was the independent leader of the Review of Fair Pay, which has produced a report; that is the final report. I am currently taking up a role as Principal of Hertford College, Oxford, and I will also Chair an organisation called the Big Innovation Centre. That is who I am. I write books and articles in newspapers too.

Q113 Chair : It is a great pleasure to have you. You have recommended that the Prime Minister’s salary should not be used as a universal benchmark for public sector pay. Why did you reach that conclusion?

Will Hutton: First of all, the Prime Minister’s total remuneration is a great deal higher than £142,500 when you take the inkind benefits into account, such as the use of Chequers and No.10 Downing Street and any other benefits that accrue to the Prime Minister. One estimate I used in the Review was that you could put his pay as high as £581,000. That is the first point; it does not take that into account.

Q114 Chair : To be fair to the Prime Minister, I do not think he has the time to enjoy the trappings of office in the same way as a company executive would.

Will Hutton: It is no word of criticism. The Prime Minister of Great Britain occupies 10 Downing Street and Chequers, it goes with the job, but if you are talking about the cash value of what he receives it is a great deal higher than £142,500.

Q115 Chair : So are you saying it is a dishonest benchmark?

Will Hutton: The Prime Minister of Britain is a unique role.

Q116 Chair : So it is not a fair comparator?

Will Hutton: Yes. Secondly, there are no recruitment and retention issues. Thirdly, a great many people would do it for free. For example, you are not in the same circumstance as the London Borough of Haringey when they tried to recruit someone after the regrettable incidents with child protection. If you talk to anyone in local government and beyond, they would say that danger money is associated with that job because if another thing happened on your watch your career would be completely over. These risks that attend senior jobs across the public sector of that type, and the fact they are embedded in an organisational structure, do not attend the role of Prime Minister. This is an extremely arbitrary figure to use.

Q117 Chair : But you are not telling them to stop doing it?

Will Hutton: I am an independent reviewer; I have no authority over the Prime Minister at all, so I cannot tell him anything. My strong advice would be to move as quickly as possible to a more robust, fair framework for the setting of top people’s pay in the public sector that reflects proper organisational dynamics, job weights and can be fairly understood by the public at large. That is why I made the recommendations I did in the report; I can go through them if you wish but I know that time is limited.

Q118 Chair : We will come to that. To what extent does pay matter when recruiting people into top jobs in the public sector? The view we regularly get from Francis Maude is that people should want to do the job and should not want to do it for the money, so long as the salary pays them a reasonable living. Mind you, this principle is more often honoured in the breach; there have been appointments of very substantially more than the Prime Minister’s salary while this Government has been in Office, not least, for example, quite a lot of Permanent Secretaries.

Will Hutton: There are a number of points to make here. First of all I did some comparisons. There are others available such as Hay-and you are taking evidence from a Hay executive after me-PwC and a number of organisations of that type who have benchmarked pay in the public sector at the top in comparison with comparable responsibilities in the private sector. The first point to make is that pay is running between 50% and 55% of salaries at the top of the private sector. So there is already embedded, even before using the Prime Minister’s pay as a benchmark, a very substantial discount being invited of people who wanted to work in the public sector and build a career going to the top. That is the first point to make.

The second point to make is the Committee may like to glance at this book by Professor John Donahue at the School of Government at Harvard; it is called The Warping of Government Work. It is a big study throughout the United States, where they have taken this much further than we have in the UK. There is a sorry story in the United States, where this philosophy is much more toughly applied, of a simple inability to fill top jobs in parts of the American public sector. He cites the FDA, where it has been very difficult to get approvals for new drugs because you simply have not got the quality of scientists or leadership in the FDA because you cannot recruit them for $80,000, $100,000 or $120,000 a year, which is what those jobs command in the United States public sector. There are similar problems in the SEC and across many US public agencies. You get very high turnover, and the people who tend to stay in the American public sector tend to be those who are very risk averse, not "get up and go" and not performance oriented. You move into a world in which you have a malperforming public sector led by-and these are John Donahue’s words not mine-a different character, to be politically correct. If you want to be more forthright, these are people who are undynamic, and it tends to get into a vicious circle.

He also makes the point that whereas at the bottom of the American public sector-it is very true of the UK-wages are very attractive compared with relatively low-skilled jobs, when you start to get to higher skilled jobs they are very unattractive. So you have an American public sector that, as he says, and it is the title of his book, involves the warping of Government work. Do get the book and glance at it; I will happily leave my copy if you would like, as long as you promise to return it.

Q119 Chair : I am sure the House of Commons library could obtain it.

Will Hutton: I am sure the House of Commons can get it, but obviously these things take time and you may be under time pressure. So that is a warning, and there is a panel in the final report on John Donahue’s work.

Thirdly, in many parts of the public sector we are seeing people, for example in the police and in Central Government Departments, who cannot afford to live in central London and are living further and further away. If the Committee were to take evidence from the Commissioner of the Met, I think you would discover that now, compared with 30 years ago, probably the majority of serving police officers are living outside the London area because they simply cannot afford to live in the London area. That makes it difficult to get police on the spot quickly because they are 30, 40 or 50 miles away. With teachers and nurses the same story applies.

Lastly, if you want talented people to come into the public sector who are ambitious to do things and make something of their lives, you cannot expect them to be completely indifferent to material reward. All of these things come together. I think it should always be the case that public sector pay should be a discount to private sector pay as there is less risk obviously and more security. Even after Lord Hutton’s reforms on pensions, the career average pension is still an attractive proposition; it is not a final salary pension but it is more geared to your lifetime earnings than a defined contribution pension. All of these things are attractive.

I think the Committee should be wary about getting into a situation where we create a second class public sector populated by third class people.

Q120 Chair : So your answer is that pay is a very instrumental-

Will Hutton: Pay counts. We did try to do some work, but we could not get anywhere because the data just is not there. I make this point in the interim report, that actually getting hold of the data, even for a dedicated Treasury team, was pretty difficult.

Q121 Chair : Where do they get their data from?

Will Hutton: What is going on across the top of the British public sector, all the salaries, payscales and so on, is not held centrally.

Q122 Chair : Is that one of your recommendations?

Will Hutton: Yes. I make the point that at the very least we need to know what is going on better.

Q123 Chair : But you conclude that pay is an instrumental factor in the recruitment of good public servants?

Will Hutton: Yes, you cannot neglect it. It is part of the proposition that you make, especially to young men and women who are thinking of making a career out of it.

Q124 Chair : So, for example, you defend Bernard Gray’s appointment and salary at the Ministry of Defence, which is very substantially more than the Prime Minister?

Will Hutton: I do not want to have a discussion ad hominem about individual people.

Q125 Chair : I am not talking about the quality of the individual; I am talking about the concept. You have to be prepared to make those sorts of decisions.

Will Hutton: Yes. If it is the Nuclear Decommissioning Authority or the FSA regulating the banking system, if you want men and women who are going to serve the public interest you have to be aware of the opportunity costs they face in giving up a private sector job to work in the public sector. If later there are scandals about how our banking system is regulated or the safety of our nuclear fleet in Britain because we paid people different sums of money and got second or third class people to do it, we have only ourselves to blame. We can go into this knowingly and say that this is a deliberate decision we want to take, but I do not think we should be indifferent to the consequences of our actions.

Q126 Kelvin Hopkins : I just have a very brief supplementary. A factor in this must surely be that if someone in the public sector shows themselves to be pretty good they might be poached for a substantially higher salary by the private sector.

Will Hutton: Yes, that is true, although the data show there tends not to be that much traffic between the public sector and the private sector in Britain and not as much as in some other countries, and I think that is a matter of regret. But yes, that is a possibility.

Q127 Paul Flynn: When this Committee was in America about three or four years ago we interviewed a group of people who had been subject to preappointment hearings. One of the people present, and Members will remember this, identified himself as the Public Printer of the United States; this is a grand title. He said that of course he was not in it for the money, and when we asked what he was paid he said it was about £30,000, a sacrificial salary. But he said that he was serving his nation’s interest, which is not a view that you commonly get here. I think there were a number of others. We had a dinner and others said that of course they were paid atrociously badly but they were working for the nation.

Will Hutton: When I began looking at this, like many people I thought I was going to come across many cases of egregious overpayment of executives at the top of the public sector. That is why I thought a useful place to start was with a ratio of 20:1 of top to bottom. In fact the number of people that you capture by that, or those whose pay you constrain at the top, was dozens. If you make the denominator not the lowest pay in the payscale but the median pay, you would only trap about half a dozen people across the entire public sector, and this is a public sector of 5.5 million people. Another way of looking at it was that for the top 1% of the income distribution in Britain in the latest figures that we have, which are 2008/09, the salary was broadly about £117,000. It is a tiny, tiny fraction of people-I think only 6% of people-who make more than £117,000 who are in the public sector.

Q128 Chair : I am going to have to hurry you along a little bit. Broadly, what you are saying is that these dozens of exceptions are in fact relatively few and broadly they are justified.

Will Hutton: I do not know if they are justified or not; that is why I came forward with my recommendations. You, like me, are in the dark on this question. That is why I recommended a multiple regime where we track over time the multiple of people at the top to the median, and if it changes and moves upward there is an explanation as to why that has taken place. That is codified every year by the Senior Salaries Review Body in a Fair Pay Review so that you and other people who are interested have in one place an overview of what is going on at the top of the public sector that shows to what extent top pay is moving ahead unreasonably and what explanations are afforded. You quoted Mr Gray at the Ministry of Defence; let us have an explanation for that that is public, transparent and within a multiple regime. I would go further and say that there really is the problem of the lack of a performance culture in large parts of the public sector, which is why I propose this notion of earn back, so if senior public officials want to qualify for a bonus they should place a corresponding part of their salary at risk. So if you are paid £200,000 a year, you should put 10% or 15% of that at risk to be earned back around four or five balanced scorecard objectives, not a ludicrous number of objectives or key performance indicators. The remuneration committee and the executive in question would codecide these objectives and, if they are achieved, only then would they be eligible for any kind of uplift.

Q129 Chair : That is an interesting idea. We were involved in the recruitment of the Parliamentary Ombudsman, and we were rather dismayed when it was decided by the Government that the salary should be cut.

Will Hutton: Sorry, I did not catch that.

Q130 Chair : We were rather dismayed when the Government decided that the salary of the Parliamentary Ombudsman should be cut. The Ombudsman is paid substantially less than the Head of the FSA and the Comptroller and Auditor General, but still the salary was intended to be cut. We advertised the job at the old rate and rather invidiously the candidate was left at the end of the process to negotiate her own salary with the Government. Maybe we should have taken a stronger line on that, but would you not regard that as a rather invidious position to put somebody like the Parliamentary Ombudsman in?

Will Hutton: I would entirely agree that is an invidious position to place somebody in. I think that a salary should be determined by job weight, responsibility, comparability and the need to retain somebody within a multiple regime, so you can see it bears comparison with other parts of the public sector.

Q131 Chair : And it should be possible to advertise that job with the salary.

Will Hutton: Absolutely, to maximise the number of candidates. Then you embed in the job contract the performance you want. What you want is to get as able people as you can for as reasonable a sum of money as you can, and then do everything you can to incentivise them to perform and embed understood penalties if they do not perform. That is a framework that I think the public at large would regard as fair, and many executives to whom I spoke when assembling this report also regard it as fair.

Q132 Chair : We are now involved in something of an argument with the Government about how the new Chair of the UK Statistics Authority should be appointed. The existing Chair, Sir Michael Scholar, has been very critical of the Government’s cut in his salary and the cut in the number of days that the salary should pay for. So in fact the remuneration of the post has been reduced from about £150,000 down to £57,000. That would seriously affect the quality of the applicants, would it not?

Will Hutton: Yes. You may find somebody who will think it is a fantastic thing to do for three years or five years and take the pay cut and live with £57,000 a year, but only because in five years’ time they want to do something that will earn them substantively more. So you might get some birds of passage who would accept such low pay, but you will not get someone who is going to commit to the organisation over years for that. Perhaps I should be more careful; in 20 or 30 such examples you might get four or five for whom it would be no problem, but as a general proposition it is a really indifferent way to try to run one’s public sector.

Chair : I think that is a very important statement, and I am very grateful for you being so clear.

Q133 Greg Mulholland: Could I ask, as much as you have had any response from the Government, how the Government has responded to your proposals? Considering it is six months since your report came out, do you think that the lack of substantive response is because you have not said what the Prime Minister and Chancellor were hoping that you would say when you were appointed back in June 2010?

Will Hutton: I am not sure about that. If the idea of 20:1 flew and was simple, robust and clear, it would have been a great thing to have done. Frankly if I could have made it work I would have-I thought the same thing-but actually it was not there as a proposition. So then I tried to build a frame that I thought was fair, robust and met the terms of my commission.

My understanding is that there is a team at the Treasury who have asked Departments to propose how they are going to implement my proposals. I understand that David Nicholson at the Department of Health has given a circular to all foundation trusts saying that the Department of Health is minded to accept the recommendations in full and inviting foundation trusts-he cannot require them-to say how they are going to implement them. The BBC have implemented the multiple regime. My understanding is that the Cabinet Office and the Senior Salaries Review Body are going to really go to town this winter and spring to work on the earn back idea.

If the Committee swing behind these proposals and try to hold the Government to account, I think there is no reason at all why in 2012 or perhaps 2013 there should not be the Senior Salaries Review Body publishing, in one document, the multiples across the top of the entire UK public sector, about 10,000 people altogether, and explanations for why multiples have gone up or down over time. That will be rolled out in parts, but not all, of the public sector. That is my expectation but we will see. I got a generous letter from George Osborne and I stay in touch with the Treasury; I discussed with an official just last week, partly in preparation for this hearing, where we have got to. So it is not completely a dead dodo.

Q134 Chair : Can you explain why multiples are important?

Will Hutton: You are going to take evidence from others and there will be some critical of it and some supportive of it. Interestingly, I think the centre of gravity is coming down in favour of multiples. In themselves multiples are just another indicator but they do a number of important things. Firstly it is a useful proxy for how fair the distribution of pay is in a given organisation. Once a multiple gets well beyond, say 20:1 or 30:1, you can cock your eyebrow and say that this senior executive is making very considerably more than the middle-ranking person in this organisation. That may be acceptable because of a particular job or responsibility, but how is it changing over time?

Q135 Chair : So it is for measuring trends and patterns?

Will Hutton: Yes, over time within an organisation. It also permits you to make comparisons with other organisations. So for example Mark Thompson’s salary at the BBC is criticised, and I actually share the criticism when he was being paid more than £800,000 a year. The salary has actually been lowered with his consent and it is now a ratio of 16:1. You can compare that to P60 earnings of the Chief Executive of ITV or the Chief Executive of BSkyB. The licence fee payer can also note that the multiple of Mark Thompson is 16:1 and see that his predecessors made 10:1, so what is going on here? Is running the BBC much more difficult now than it was 25 years ago? We can also note people in other parts of his industry.

Q136 Chair : What is the multiple for ITV?

Will Hutton: It is 30:1, and the multiple for BSkyB is north of 90:1. So it gives you an instant snapshot of what is going on. Suppose in five years’ time the DG at the BBC has gone down from 16:1 to 13:1 and ITV has gone up to 40:1 and BSkyB up to 130:1, it gives shareholders an instrument to ask if they are getting value for money for how much they are paying, what extra has been delivered for this multiple increase, if there is a case of market rigging, economic rent extraction and so on. So it is a useful framework and that is why I think it is useful to have as a tracking instrument to force explanation of why things have happened.

You asked about Mr Gray at the Ministry of Defence; I would have liked that appointment to have been accompanied with what the multiple is, what the multiple was, what reason the remuneration committee at the MOD considered to have allowed a higher multiple, and what value this gentleman is going to give over and above his predecessor.

Q137 Chair : There is a common case in the public sector where they wanted somebody in particular, and therefore he negotiated his package.

Will Hutton: If they do not want to do it through open, competitive advertising and the whole process because they think they have identified the right person, they have to say so. That has costs, but they think it has more associated benefits.

Q138 Chair : So it is just a case for more transparency?

Will Hutton: Well, transparency of information. Once you start forcing remuneration committees and they know they are going to have to have public explanations of why they have done what they have done, it will greatly improve hiring and salary setting. You asked earlier if there was a problem; there is a problem in that it is very difficult to get any sense of the geography, both between parts of the public sector and within an organisation over time, of why pay is where it is and what has driven it.

Q139 Chair : I should say I have heard no one criticise Bernard Gray’s appointment except people in the Ministry of Defence, which says something.

Will Hutton: That may be important.

Q140 Paul Flynn: I want to ask your reaction regarding two jobs, the Ombudsman and the Chairman of the Statistics Authority, who have to be very strong characters-they have to take on Government and the Opposition. The role is a very special one and you need a character there who is prepared to do that, as the past Ombudsman and Michael Scholar at the Statistics Authority were. You are trying to restore faith and trust in the Government’s statistics, which is an enormous task that affects us all. It affects all Government, it affects the strength of the Executive, and compared with that, those salaries are being reduced by large amounts. If you look at a job like the Chair of the Nuclear Decommissioning Authority, who is getting £380,000, that is nearly five times what the others are getting. That is for a nuts and bolts job where you have no political opposition at all and the Government is behind you. How can it make any sense?

Will Hutton: The welding of domes on to certain categories of reinforced concrete in the new generation of EPR nuclear reactors is something I do not know much about. I know that if it is done indifferently or not done to specification you risk a nuclear disaster with untold consequences. The population of people you are recruiting who have that portfolio of skills to make those kinds of judgments are tiny. Speaking personally, I want the best person possible to do that. I do not want the new generation of EPRs being built in Britain to have any risk whatsoever that might be avoidable. Imagine the scandal in 30 or 40 years’ time if-

Q141 Paul Flynn: Decommissioning, I understand, is clearing up the mess from the last nuclear development, £13 billion of it, before we create the new mess.

Will Hutton: Waste disposal is of a piece. The waste disposal is integral to the generation of the waste in the first place; it is not a discrete part of the nuclear chain. I understand very well where you are coming from but we have to be jolly careful about saying that arbitrarily the job is worth x-

Chair : £142,500.

Will Hutton: -without having any corresponding sense of what the skills pool is of the people whom you are recruiting, their options and the responsibility and weight of what they are doing.

Q142 Chair : Mr Hutton we have to press on.

Will Hutton: I am so sorry.

Q143 Chair : Mr Mulholland have you finished?

Greg Mulholland: No.

Will Hutton: I will make my answers very brief.

Q144 Greg Mulholland: We were diverted on some interesting points; can I just probe a little further on the Government’s response? We had a letter that seemed slightly contradictory from the Chancellor in July, which on the one hand said that the Chief Secretary will sign off any appointments for those earning over £142,500 in areas under Ministerial control-clearly backing up the Government’s continued commitment to the benchmark of the Prime Minister’s salary-but then went on to say the Government has made considerable progress in implementing your review and will take further steps in coming months to complete this process. Are you aware of what that considerable progress is? Are you not also concerned that it seems pretty clear that the Government is not prepared to give up this benchmark of the Prime Minister’s salary? If they are not, does that make it possible to realistically implement the other things within your review?

Will Hutton: I very much hope that when the multiple regime is in place and earn back is in place that they feel they can drop this requirement that Departments have to bring anyone they choose to pay more than the Prime Minister to the Chief Secretary’s attention and get his sign off. My hope is that is a transitional position before you get to the end game, and if they were to look at my report in full I think that could become a weapon of last resort. In both the interim report and the final report I do go through how you might escalate one’s interventions. If it were to happen that the framework I propose produces a rational result, it is always open to the Government to move in on a Department or a non-departmental body and actually take over responsibility for the setting of the pay. So you could always have that as a deep, deep longstop. It is always difficult to climb down from a position once you have got to it, but I would hope that the full implementation of this review would permit them to relegate the prices paid to the margins where it belongs.

Q145 Alun Cairns : Mr Hutton, could I go back to what you said a little earlier? You talked about the Nuclear Decommissioning Authority and the Financial Services Authority.

Will Hutton: Those are just two.

Q146 Alun Cairns : That is fine. If I understood your argument, it was that in order to do these top roles you need to offer the best salary because if there is a banking crisis then obviously you need the best person there to prevent it happening in the first place. Was that argument not used in relation to Chief Executives of local authorities’ salaries 10 or 15 years ago and it simply ended up with the same people earning 20%, 30% or 40% more?

Will Hutton: I do provide a table in the final report of what proportion of local authority Chief Executives are recruited externally. One of the problems with local government is that a tiny number of local government leaders come from outside local government; it is very much a hermetically sealed universe. You must see my report in the whole and I am very anxious that we expand the talent pool from which senior managers are drawn, so I recommended something analogous to a fast track management development scheme for the entire public sector. So you would leave university or have a professional qualification and then you might have two or three years in which you worked partly in local government, partly in Central Government, maybe in the front line or maybe in an administrative job, so that by the end of two or three years you would be branded and identified as having the capabilities and capacities to become a senior manager. Then there could be more crossover from parts of the public sector to other parts of the public sector. Once you have got to 30 in many branches of the British public sector you stay there.

One of the difficulties is that you get a very narrow pool from whom local government are recruiting and it is like an arms-race effect in local government, very similar to the arms-race effect in some FTSE 100 companies. You have to attack this by the multiple regime and by earn back, so that if you are paying somebody a handsome sum of money in local government they should put some of their money at risk and we will see if they can pull off what they allege they are going to pull off. Additionally we should expand the talent pool so that we have more candidates for these jobs who might reasonably do them.

There is a problem that local government, like FTSE 100 companies, want to appoint somebody proven rather than somebody you take a risk with but could be very, very good indeed. So there are lots of biases here that I try to address.

Q147 Alun Cairns: Whilst appointments are made from a narrow pool and without the impact of the other policy changes that need to take place, can I take you back to the Chairman’s first question of £142,500 being a fair level in that circumstance, where there is such a narrow pool?

Will Hutton: If you set the top at £142,500 it has cascade effects throughout the organisation. If it is a very big city government, then in order to get someone to do your IT or the accounts for an organisation with a turnover of £1 billion or £2 billion, you would actually pay so much lower because you are paying £142,500 to the top guy or woman. Having the capacity to give a differential is the way organisations work; it is the basic idea of fairness in organisations. Drucker and 101 other management organisational handbooks over the decades all make the same point: there has to be some kind of differential within the organisation. That means that tier three, tier four and tier five are also going to have their salary levels pegged back.

I want there to be more private sector people coming into the public sector, bringing their skills, experience and approach to work and performance to the public sector. However, even at existing salary structures, you find that already you have to pay them a 20% or 25% premium over those holding the same job. That becomes noxious and viral inside the organisation; people hear that a private-sector person has come in who is being paid 25% more than them and ask what they are doing to get this. These people then do not tend to stay for long either. So when you set this artificial cap, be aware it has deep knock-on consequences within the organisation.

Q148 Chair : This is not just a British trait is it? We do tend to be a slightly envy-ridden society unlike, for example, the United States, where they seem to be much more relaxed about wide pay differentials.

Will Hutton: As I said earlier, the United States is actually very tough on people at the top of the public sector. Given the conversation in the United States about debt you are not going to find anybody making arguments for fancy money or reasonable money being paid to American public servants, but it is becoming an issue in the United States. Some of the better performing European countries have an approach to this. The Asian tigers, notably Singapore and others, pay their officials very handsomely. I would not want to go there but I invite the Committee to steer a path.

Q149 Alun Cairns : Finally, what role do you think the Cabinet Office should have in developing the policy in pay restraint?

Chair : This is the crunch question: what should we recommend the Government do here?

Will Hutton: The locus of this has to sit within the Treasury, Cabinet Office, and Senior Salaries Review Body axis really. Those are the three places you look when talking about the top pay. Personally I think there is a case for building up the SSRB. It is there, it has a competence, it has a capability, it is where much of the data reside and they are very robust. In the first instance I would say-but I am parti pris-that the Cabinet Office should hold the SSRB to account for the implementation of a framework like this or something adjacent to it.

Chair : That is very useful, thank you very much.

Q150 Robert Halfon: You say that salary levels should be partly based on performance. How do you judge that performance? How do you benchmark performance, especially in these public sector bodies and so on?

Chair : That is one of the problems we have with the Parliamentary Ombudsman. How do you performance manage the Parliamentary Ombudsman? You cannot, can you? It would be invidious to put some of her remuneration on to a performance footing, which is completely contrary to the nature of the job.

Robert Halfon: Going back to Mr Flynn’s question: how do you benchmark how the person who runs the Nuclear Decommissioning Authority is doing a good job and deserves his £380,000?

Will Hutton: I must say that this is very tricky. I will make two or three points, as I know you are under time pressure. First of all I understand this argument very well; there are cohorts of officials in Britain who are completely public spirited, work all the hours that they need to and are very, very good at their jobs. They are not indifferent but they will work for modest salaries. Actually it is very hard in the public sector to decide what performance is; I understand this argument very well and I have some sympathy for it.

My challenge is that I think in any organisation, anyone holding a senior job needs to know what good looks like. What is it they are supposed to be doing, how are they supposed to be prioritising their time and what does good look like? They need to know where the organisation should be in one year or three years’ time, and what broad trajectory of travel they should be conducting. I could make it up myself and could persuade people to follow me but actually it is better in the public sector if there is some process of deliberation between the post holder and the people to whom he or she is accountable.

I think that conversation should take place between a remuneration committee, broadly constituted. I argue that a member of staff should be on it and somebody independent should be on it so the conversation is not completely hermetically sealed in a vacuum. Then you say that over the next three years broadly- and of course there are trade offs and we may need to revisit it-we think good looks like this: we think the Parliamentary Ombudsman should be processing or prioritising cases faster. I do not know what the criteria are but it is not beyond the wit of man or woman to come up with something. That should be the framework by which you say: "We are paying you £150,000 or £200,000 to do that, and give or take you will do this job extremely well and will meet all our expectations. If that is the case, that is the case for perhaps giving you a non-consolidated bonus, but if you do not meet expectations you will not earn back the pay you have at risk.

That is the conversation I think would be healthy to have across the public sector, though I know that, even as I say these words, there are some Permanent Secretaries, some at the FSA and at the Bank of England for whom this is almost an irrelevance. But if you take it as a whole, we do not have a public sector that, in my judgment, has sufficient performance orientation.

Q151 Robert Halfon: Isn’t the reality that performance in the public sector is very difficult to judge because people have very different views on what that performance should be?

Will Hutton: It is very difficult to judge in the private sector. When I took evidence I got slightly ratty, to the extent that I get ratty, as people would tell me it was so easy to measure performance in the private sector and so hard in the public sector. It is not easy in the private sector either. On what time horizons should you be assessing the performance of someone who runs a major FTSE 100 company? How do you balance the interests of customers or shareholders? What about workers?

Q152 Chair : But profit is easier to measure than public good, isn’t it?

Will Hutton: Profit is not the only indicator by which you judge performance. There is profit, there is the efficiency with which profit is gained and there is the sustainability of profit.

Q153 Robert Halfon: That is exactly the point though; you cannot do that in the public sector. Different people have different views about what makes the performance in a particular public sector flourish.

Will Hutton: My point is that it is a complex conversation wherever it is held.

Q154 Chair : Mr Hutton you have been really illuminating and very interesting. If you have any other supplementary thoughts you want to put in writing to us, please do so.

Will Hutton: I would be delighted to do that but I am happy to talk to any of you privately, on the record, or one on one if you want to take the conversation further because I know that time is constrained.

Chair : Thank you very much, we are most grateful.

Examination of Witnesses

Witnesses: Deborah Loudon, Consultant, Saxton Bampfylde, and Peter Smith, Director of Public Sector Consulting, Hay Group, gave evidence.

Q155 Chair : We are going to slightly change the order of the questions but can I first ask our two new witnesses to identify themselves for the record?

Deborah Loudon: Yes, I am Deborah Loudon. I am from Saxton Bampfylde.

Peter Smith: Hello, I am Peter Smith and I am Director of Public Sector Consulting at Hay Group.

Q156 Chair : I have to declare an interest. Ms Loudon was extremely helpful with the appointment of the Parliamentary Ombudsman and I have become a fan.

Deborah Loudon: Thank you.

Chair : Thank you very much for the help you provided us with. We are going to start with question nine.

Q157 Robert Halfon: Good morning. There have been concerns expressed that headhunters may increase the likelihood that insiders get appointed to the top jobs and that this reduces the diversity of appointees. Could you comment on this?

Deborah Loudon: Well I think it depends whether by an insider you mean someone who is already in the organisation or someone who is already known to the headhunting firm. In other words: is there a closed circle of people who are well known? I would say on both counts that using headhunters actually increases the chances of it being someone from outside. I always stress that in the end it is always the client’s appointment, and I have had clients where it emerges very late in the project that actually they had someone internal in mind and they have not shared that with us, which is very frustrating. But on any project that I work on, on average-I looked at the figures-we talk to 100 to 150 people about that appointment, and at least half of those are people we have never talked to before. So we are constantly extending the range of people we talk to.

Q158 Robert Halfon: May I ask why you think that Government Departments need headhunters? Why can they not just advertise on their own websites, through their own mediums or even use the new centre of excellence that is going to be set up?

Deborah Loudon: They often do not need headhunters. I used to be an HR Director in Government and I think that very often Government Departments need some education in when they should do it themselves and when they need help. I hope that the advice I often give is that clients do not need us on this matter, and I have given that advice quite often.

Where they often do need advice and help is where they want to look in many sectors, where the job has proved difficult to fill internally and perhaps in smaller Departments where they do not have the resources to run it themselves. If you look at the economics of dealing with very senior appointments, and I am talking about the most senior here, a very big department will have a big HR function and will have people who specialise in that, and they can deal with many of the senior appointments. For a small Department they often do not have anyone who is expert at that, and it often makes sense to outsource something to specialists if you do not have a strong internal function.

Q159 Robert Halfon: Can I confirm: you said you worked in Government before?

Deborah Loudon: Yes.

Q160 Robert Halfon: Without casting any aspersions on your integrity, does it not look a bit odd that somebody like you then goes to work for a top headhunter and then the Civil Service starts hiring that particular headhunter?

Deborah Loudon: Saxton Bampfylde has been in business for 25 years and it has done a lot of Government work. Actually our Government work is only about 10% of the firm’s business and I work in many other sectors. It is always difficult. Yes, it can look odd. On the other hand I like to think I was recruited because I was an expert in recruitment before I left. I see recruitment as something that I specialised in for the last 10 years of my Civil Service career. The reason I left was because what I enjoy doing is recruitment, and I had reached the stage in my Civil Service career where I might have had to do something else. I do understand how it can look.

Q161 Robert Halfon: It looks to be pretty cosy back scratching: you scratch my back, I will scratch yours type of thing.

Deborah Loudon: I could say it looks as though you know what you are talking about, and that when you work with Government Departments you understand what they need and can often persuade them to look at it differently and compare experience.

Q162 Robert Halfon: Going back to my first point, why is it that even if smaller Government Departments need to appoint somebody they cannot just advertise it on a website? Why do they need to spend a huge amount of taxpayers’ money hiring companies like yours?

Deborah Loudon: As I said at the beginning, you can often advertise it. What we, many Government Departments and others find is that you do not get a very good response to adverts. The best people for a job often are not looking for work, and the response to advertisements compared with how people respond to being approached is very different, even if what you are doing is directing people to the advert. That is the first important point.

Second, in hiring a company like mine you are not just getting access to different people; you are buying a three-month process and a degree of conversation, coaxing and explanation to potential candidates. A lot of potential candidates come and talk to us and to other firms all the time about what they might do next.

Q163 Robert Halfon: The Departments could easily set up an official to do that.

Deborah Loudon: They could.

Q164 Robert Halfon: Why do they need, again, to spend money on an organisation such as yours?

Deborah Loudon: They could set it up themselves. I think you would find that it was more cost-effective to use an external firm when you needed it. That is an interesting argument.

Chair : Moving on, we need to talk about diversity.

Q165 Lindsay Roy: First of all, could you enlighten us on the key tasks that you perform when you are asked to lead the recruitment process for public appointments, for the benefit of the uninitiated? What value added do you bring?

Deborah Loudon: I will use the Ombudsman appointment as an example, which was actually a very typical public appointment. The House felt that it did not have that expertise or a member of staff to put on it full time. What we did, and what we typically do, is take briefing from key people in a sector, talk to the Ombudsman, the client, draft the advertisement and plan the campaign, which means identifying lots of people to talk to about it and drawing their attention to the advertisement. It is then about recommending and working through hundreds of CVs and giving advice. Of course we show all the CVs to the client, we do not keep anything back, but we do some very valuable work in sifting them and recommending those we see as the strongest.

We then go away and talk to the strongest candidates and write careful reports on them. If it is wanted we provide psychometric assessment of those candidates. We then hold the hands of some of those candidates because one of the things about being independent is that the candidates will often talk to us about if they really want to do this-if they are reducing the pay here, they will ask about what might happen to them afterwards and so on. Then we will do all the admin of closing the deal. A lot of it is process consulting rather than ringing up important people.

Q166 Lindsay Roy: So there is a high degree of interaction?

Deborah Loudon: Yes, very high.

Q167 Lindsay Roy: Does your involvement, in your view, have an influence on salary levels for the post?

Deborah Loudon: It can in that we offer advice. I was very interested listening to Will Hutton and I thought there were some very interesting points there. One of the things I usually say to a client is that, in public sector appointments, if you set a salary we can find you people to do it at that salary, so long as you understand-and we can explain to you-which people you will not get. Many people want to undertake interesting public appointments and salary is not their first concern; they have often had a very successful career elsewhere. If anything I often find myself arguing on the side of the lower salary.

There are some specialist jobs, coming back to the Nuclear Decommissioning Authority-I do not know about that job-where you would be fishing in a very small pool of people who have a particular salary and the market advice might be: if you want one of these people, this is what you will have to pay.

Q168 Chair : Can I just say, Mr Smith, if you want to answer any of these questions, please feel free to do so?

Peter Smith: Thank you.

Q169 Lindsay Roy: Do you focus on key performance indicators and outcomes with the candidates?

Deborah Loudon: Yes, we talk to them and we get a detailed brief from the client about what they want this person to do. Actually that is one of the things where we are quite often helpful; we do have clients who have not really thought through what they want from the post.

Q170 Chair : Mr Smith, is there any more that you want to add at this point?

Peter Smith: I am not a recruitment consultant, so I am anxious not to step into that field too much.

Q171 Lindsay Roy: Just to clarify, would you argue that is a key part of the added value?

Deborah Loudon: Yes.

Lindsay Roy: Okay, thank you.

Q172 Robert Halfon: Could I just ask what you do about getting candidates from diverse backgrounds? I am not just talking about ethnic groups or sex, but those from more humble backgrounds as opposed to middle-class professionals. What do you do to ensure that those people are properly represented?

Deborah Loudon: The most important thing we do is to make sure that any candidates we present fit the brief. What we do to attract a wider range of people is simply to do more research. That is one of the things we can do because we are concentrating for three weeks on talking to people. So what I do is talk to sources and ask who they know who does not look like the usual sort of person for this job. It comes in particularly for nonexecutive appointments to a board when you want a wider range rather than specialised skills. You have to be very careful about these conversations because nobody wants to feel they have been put on as a token. So for instance, I would say to a source, "This area is very short of women. Typically women have not gone into this work. Who do you know who you think are the best women in this field?" Similarly, I belong to, or go along to, organisations such as the Society of Black Lawyers, bodies like that, and speak at conferences.

Q173 Robert Halfon: But I am talking about people from lower income backgrounds. Can you give examples of how many people from lower income backgrounds you have recruited?

Deborah Loudon: Very rarely for the appointments I work on because I tend to typically be hired for very senior appointments, ones with very specific requirements of background. So although people might have started from humble origins, usually the people we will be dealing with will have had very successful careers.

Q174 Chair: Can I ask about the degree of regulation of public appointments? Does this assist diversity or does it militate against it?

Deborah Loudon: I think that the proposals on the new draft code are very positive. I do think that the work being done by the new joint office is very good. The regulation of public appointments has done a great deal to aid diversity by making clear for a long time quite how seriously it is taken, but it does have the danger of degenerating to a slightly tick-box approach to it.

Q175 Chair: But you feel that the new code is moving away from that?

Deborah Loudon: I think it is, yes.

Peter Smith: David Normington’s comment is essentially that there has been too much attention to process and not enough to the outcome, as in which candidate you get, and shifting that balance back again is bound to be of help in including diversity.

Just another point, linking back to the discussion with Will Hutton earlier on, I think there may be a relationship between pay flexibility and diversity too. It is a lot easier if you cut the salary to get people from wealthy backgrounds than it is to get people who do not have an established wealth base to start with. If you genuinely want to attract people from all sorts of diverse backgrounds then you do have to be fluid on pay.

Deborah Loudon: One thing we have done on diversity is a lot of geographic diversity within the UK. If you look at the figures there is a South East domination of some of these posts, and we have got the figures to show that we have done a lot of work trying to attract candidates from all round the UK.

Chair: Excellent. Mr Mulholland, on the question of pay.

Greg Mulholland: I think it has already been asked, Chair.

Q176 Chair: The broad question is does pay matter, the same question that we were putting to Mr Hutton, and how much does it matter?

Peter Smith: You have already heard Will say that there is a discount for working in the public sector when you look at total remuneration, so that is the frame of reference. But within that frame it does matter. There are plenty of examples of career routes that have been short of candidates in the public sector. It is a moot point as to how well the Civil Service copes with its dualism of some people recruited externally and the majority still through an internal channel.

The other point that was made was that capping salary at the top also creates a huge compression below for all sorts of other people, and removes incentives for people to take on more responsibility in the same organisation. So there are plenty of arguments that public sector pay is not as high as people imagine it to be already, but to the extent that there is already that frame of reference, it does need to be kept fluid.

Q177 Chair: There has always been this thought that there is a conspiracy with the headhunters to increase the salaries because that increases commission.

Deborah Loudon: We do not work on commission.

Q178 Chair: Well you do not work on commission, but many headhunters do. Do you think that headhunters have the tendency to force up salary levels?

Peter Smith: Of course I am in the interesting position that I provide pay advice sometimes alongside a headhunting process. We do not do headhunting as a company or a management consultancy, but we sometimes provide pay advice alongside that. There have been cases of some differences sometimes, but a well informed headhunter will be good at providing solid advice about the range of candidates, and as Deborah said, quite good at identifying what candidates will be willing to accept or negotiate and what would be unacceptable for them. So you can bridge between sound benchmarking advice, which is what I would be providing, and that more evaluative service.

Q179 Chair: So as far as the public sector is concerned, you do not think this conspiracy exists?

Peter Smith: I do not think it is a conspiracy. If I were using a headhunter, I would be taking that advice.

Q180 Chair: Do you think it happened in the local government chief executive market?

Peter Smith: Lots of things happened in the local government chief executive market, most of all a complete failure of governance. I was on Will Hutton’s expert panel for his Fair Pay Review, and for those of us who were external advisers a lot of the attention was not on somebody from Central Government intervening to cap things but trying to build up capability in governance and structures in individual Government Departments in local authorities and so on, so they can and do make better decisions. So was it a good idea to escalate local government chief executive pay up towards £300,000 even though they were all chasing the same candidates? No, is the answer, but that is because those organisations did not have, and in many cases still do not have, proper remuneration committees. They often do not employ external advisers who know what they are doing, and they tend to make, as I think Will said, decisions that seem risk averse at the time, and then expose them to vilification for the level of salary. They are essentially saying if they want a chief executive who will give them the performance they need they will have to poach one with experience from somewhere else, and that is bound to cost more.

Deborah Loudon: Any closed group will end up arguing up its salaries. You need either competition or regulation.

Q181 Alun Cairns : Can I just pursue that a little further? What should government policy be from here then in relation to chief executive salaries of local authorities? We have already heard it is quite a narrow pool from which they are recruited, and when the salary levels are at the level they are now, is it not nigh on impossible to try to get them down again?

Peter Smith: They have been coming down a little in the last year or so. All of the major appointments to counties and unitaries in the last year have been at lower levels. I have got some figures on that that I can supply, if you wish. But I would start from the position that the answer is never imposing an arbitrary cap, which itself is invented from no particular place and applies oddly across district councils in local government, where if you were paying £142,500 you would definitely be paying too much, and Birmingham City Council, which is a huge venture. It makes no sense to apply arbitrary caps across all of those. That is why a combination of using legislative opportunity, which there is at the moment-or has been for local government-to put in requirements for proper regulation, proper disclosure and proper policymaking are the sorts of areas one ought to go for. Most local authorities, if you seriously ask them, do not have a policy for remuneration for their executives; they have a practice that has emerged from individual decision making. They ought to have a proper governance-based committee process with a policy. The policy and the decisions about pay ought to be disclosed, and so on, and that is not where local government has been. So if we get that circle right, that is a huge step forward.

Q182 Chair: By implication you are also criticising Central Government for setting this arbitrary Prime Ministerial cap.

Peter Smith: Yes, I do not think the Prime Minister’s salary, which in any event is only £142,500 because the last Prime Minister and the current one chose not to take their whole package, has anything to do with local government at all. It is a different market.

Q183 Nick de Bois: I would just like to revisit something if I may, to try to get a sense of scale in terms of the amount of business that you do, and how the Government pays for that. But first of all can I just let the Committee know yesterday my daughter started working for a headhunters firm-not yours-and just put that on the record?

Deborah Loudon: I am sorry to hear it is not ours.

Q184 Nick de Bois: You mentioned about 10% of your company’s work was in the public sector.

Deborah Loudon: No, in Central Government.

Nick de Bois: In Central Government. I think in about 2005/06 your turnover was about £6 million in fee income. Can you give us an idea of where it is now so I can get a perspective on that, if you know?

Deborah Loudon: Quite close.

Q185 Nick de Bois: So it has been fairly static over that period?

Deborah Loudon: Yes.

Q186 Nick de Bois: In terms of the way you get paid, it is not on the traditional commission element, so have you worked out fee arrangements with the Government? If so, can you explain the basis and how they were worked out? Was it department by department, or was it centrally done?

Deborah Loudon: There was a Central Procurement Contract for headhunting services to Government organised by the Cabinet Office in which we were all asked to propose a range for different appointments, and those who were successful were put on it. Government has consistently driven down those fees so that they look wonderfully, fictionally high if you look at what was put into procurement at that stage. We work on a fixed-fee basis because as a firm we believe it makes much more sense to say, "This job is so difficult and this is what we think is a fair charge for it," and agree that at the beginning. We think that is a better way to work.

Q187 Nick de Bois: Your calculations would make that time-based, presumably then?

Deborah Loudon: Yes.

Q188 Nick de Bois: So in your work with Central Government, if there is a level of income for senior appointments and you were to place it as a percentage of the salary, can you give us an idea how much that would be?

Deborah Loudon: If you were talking about £142,500, I believe those firms that worked on commission often worked on a third of total benefits, so you would be talking about £45,000. I have to be careful about client confidentiality.

Nick de Bois: I understand that.

Deborah Loudon: But fees are by a factor of half or so below that-they are nothing like. And fees are much lower in the Government and public sector than they are in the private sector. Nearly half my firm’s business is in the private sector.

Q189 Nick de Bois: I would be interested, without you having to stray too much into commercial in confidence, in how you, as a business, rate the amount of time that you put into that. Are the Government high-maintenance/low-value clients, or are they the alternative?

Deborah Loudon: Government has more process and more process requirements, so it is heavier on paperwork and accountability. That is something I am very familiar with and support because of my background, and that accountability is for good reason. On the other hand, Government is often more disciplined about an appointment staff process starting here and finishing there. We are quite a small firm and all sit in the same area, and I would say that the work my colleagues do for Tesco, who are one of our biggest clients, or BP, is much less process heavy, but often more demanding over a long period. There is a lot of to-ing and fro-ing and, "Okay, we have changed the requirement." That is the difference. Some of my colleagues would say you are always very caught up in lots of process and lots of meetings, but actually Government just bangs through the work and then it is done.

Q190 Nick de Bois: One final question. Given what you have kindly indicated to us, do you think the way that Sir David Normington seems to be heading about creating a centre of excellence in this respect for recruitment is based purely on a financial argument, or is it on the quality of placements that we will require for the future?

Deborah Loudon: It is probably both. Going back to what I said at the beginning, if you want good recruitment done then you need people who are experts at recruitment. So there is a question of scale there; the more you do of it the better you do it, as with anything else. So a centre of excellence makes sense in that way if you have people focusing on it. You may say, "I would say this, wouldn’t I?" I think there is always a role for someone, independent or private sector, to add to this because candidates talk to them in a different way and over a different period. But I think you could drive significant economies. Departments have not done themselves any favours by not sharing experience in the past, not doing recruitments together. I have seen a lot of examples of that both in Government and since I left.

Q191 Nick de Bois: I did say one final question, but let me explore that. You went on a preferred supplier list effectively.

Deborah Loudon: Yes, yes.

Q192 Nick de Bois: That is classic Government procurement, but you may only be working for one Department and another Department may end up working with another agency. Are you suggesting that there is greater room through increasing the revenues perhaps for a reduced supplier base, so spreading less money amongst fewer people could drive better value?

Deborah Loudon: I am not sure about fewer suppliers, but I think Government Departments could drive a much better deal for both sides by talking more openly. I think Government is slightly more fearful of partnership with the private sector, for good reasons. But I do think that quite often a better job could be done by saying, "This is what we think we will need over the next year." Because where I have worked with Government clients and other clients over a long time, fees drop and the quality of service goes up because you know the client. That can go on too long and get too cosy, so you need change and you need other people in it, but I think you can get much better value for the Department.

Q193 Robert Halfon: What is the percentage of your profits that come from Central Government or public sector?

Deborah Loudon: In the last year for which I have figures, Central Government total revenue was 8.2%. Our biggest single sector was not-for-profit; we work for a lot of the big charities. That was the single biggest number. Overall our revenue came 42% from the private sector and 58% from the combined. We work predominantly in large charities, higher education and Government.

Q194 Robert Halfon: But charities are not funded by the taxpayer as a whole.

Deborah Loudon: No, but we just lump them together.

Q195 Robert Halfon: So how much are funded by Government and/or public sector institutions including universities or taxpayer-funded institutions?

Deborah Loudon: About 29%, but some of the education work is done in private schools.

Q196 Robert Halfon: And has that figure gone up or down in recent years?

Deborah Loudon: It has gone down. Private and public sectors tend to be counter-cyclical, so there are times when we do more work in Government and times when we do more work in the private sector. Historically our firm, which is 25 years old tomorrow, has done about a third, a third, a third in broader public sector, charities, private. That would be quite a good indication, and that has not changed much even though in individual years it changes.

Q197 Chair: Mr Halfon’s question was about profits. Are profits about a third, a third, a third?

Deborah Loudon: No, profits are lower for Government.

Chair: Right.

Q198 Robert Halfon: Can I have your assessment of the capacity of HR teams within Government Departments to carry out recruitment for these senior posts that you do?

Deborah Loudon: Very variable. Some are excellent, some are not so good, and I think for that reason centres of excellence have a lot to offer.

Q199 Chair: Mr Smith, do you want to comment on that?

Peter Smith: I would agree that they are very variable. Coming back to the point about the centre of excellence, Government Departments have done themselves no favours in separating themselves off from each other.

Q200 Chair: How should we address that? Should we just name and shame the bad Departments?

Peter Smith: No. You talked earlier on about the role of Cabinet Office. There was a time when the Cabinet Office would have been seen, much as some of the centres of excellence in big companies, as being in charge of the management of the senior cadre right across the Civil Service, and that would include recruitment services. Almost all businesses would have a view that there is a certain level of seniority, let’s call it the Senior Civil Service Group, that would be managed centrally across lots of business divisions, and then would be recruited by some sort of centre of excellence. It would be that sort of model that could be used.

Deborah Loudon: I think it is rather astonishing that the Cabinet Office has abolished having a DG role effectively on Senior HR and talent management. I find it astonishing when you compare it with the best practice, and I think it is a great loss.

Q201 Chair: So you think we should recommend that the Government re-establish that post?

Deborah Loudon: That is what I would recommend.

Chair: That is very interesting.

Peter Smith: There needs to be some central role for managing talent and recruiting people in, but also managing the talent pool as a whole. The Senior Civil Service is 4,000-odd people. Arguably it could be defined slightly more narrowly because in its current definition it includes lots of expert medics in the Department of Health and lots of tax inspectors in HMRC. But somewhere in there is a definition of a senior cadre of people and, when their posts become vacant, the management of the process to get the best people in, whether internally or externally.

Deborah Loudon: And the succession.

Q202 Chair: When did the post go?

Deborah Loudon: About six months ago.

Peter Smith: It is relatively recent.

Chair: Oh, very recent.

Deborah Loudon: And I think a decision has been taken not to fill it.

Q203 Chair: Is this a cost-cutting exercise?

Deborah Loudon: No. I am not sure, but I think there will be the same number of DGs, but differently brigaded. But I think it applies to succession planning as well. Senior talent management is not taken so seriously, and my personal view is people do not stay in post long enough. A central function is needed to enforce that, whereas if you have a market people move.

Peter Smith: If you draw the Central Government parallel with Will Hutton’s comments and review and some Office of Manpower Economics Reports, what they have said is that you can only get sensible pay if you have a proper understanding of how to manage succession internally as well as recruitment externally. If you are always saying, "We do not have anybody for this job; we haven’t schooled anybody for it; all the candidates are external and they have all done the same job before," then you are going to have to pay the earth. We were talking about local government as well, and another way where local authorities and National Government could get pay down for external recruits is by being better at internal succession planning and talent management.

Chair: Interesting.

Peter Smith: The way to do that is to get experts on the case. Most Government Departments are not big enough to have experts on the case. If you went over to local government, that would be an argument for county pooling. So in Kent, for example, district councils cannot possibly manage succession planning, but if they get together as a succession planning group with the county council, which is very large, then they have got the makings of an expertise group and also a pool of people who they can manage across a number of different organisations who are in the same business.

Q204 Chair: What was the rationale for dispensing with the post?

Deborah Loudon: I do not know.

Peter Smith: I do not know.

Chair: We will have to ask the Government that.

Q205 Robert Halfon: If in the age of austerity the Government suddenly decided that we are not going to spend taxpayers’ money on headhunters, what would be the effect? Obviously turkeys do not vote for Christmas and so on, but would you see it as a disaster that the Government would never be able to recruit good people over the next few years, or even if they had a temporary ban on headhunters, given the state of the economy and so on?

Deborah Loudon: If they had a temporary ban they could manage, and it would depend how well they did it internally. If they did it very well internally they would not need to use headhunters. I come back to my argument that for many organisations if you did the costs, you would find it was more cost-effective to use an external person when you need one.

Q206 Robert Halfon: Why?

Deborah Loudon: Because otherwise you have to have the degree of commitment and knowledge internally, but for some big organisations that is more cost-effective.

Peter Smith: If you were a very big Government Department you could well have a talent management and recruitment team who became expert. But if you are a small central employer, for example the Education Department is not that large, there would be no justification for that; you would be very part time in your use of those people. They would not acquire and maintain the skills to be good at it, and you then either botch the appointment or you are better off going externally.

Q207 Robert Halfon: You could have one unit in the Cabinet Office, the centre of excellence, doing all this stuff, couldn’t you? You do not need to replicate it across Departments.

Deborah Loudon: You could have a Government headhunting or Government Senior Recruitment Service.

Q208 Robert Halfon: It could be within the Department, which would not be so costly, would it?

Deborah Loudon: It would not. I do not know; it would be worth them trying. In fact it is something I used to think we should do when I was inside Government. I think it is difficult culturally to have an organisation in Government that is ringing people up and saying, "Would you be interested in this job?" and maintaining relationships like that, but I do not see any reason why it could not work in practical terms if there was the commitment to it.

Q209 Chair: What does the head of the Civil Service do?

Deborah Loudon: It is a very interesting point. If you look at private sector organisations, I think all private sector chief executives would say that they spend a third or sometimes half of their time making sure their senior staff and their teams in the organisation are right. Whereas if you asked most Permanent Secretaries and they answered honestly, they would say it was less than 5% of their time. I do not think that is their fault, but it is an interesting point, and I think it is one reason why talent is not managed as well in those organisations.

Chair: Very interesting.

Q210 Kelvin Hopkins : Leadership is absolutely crucial to success, and I have become more convinced of that the older I have got. I have worked in a variety of fields, and you see time and again that with wrong leaders there is failure and with good leaders there is success. And I have become more convinced that headhunting is important. Do you have some measure of how successful you have been, comparing appointments with versus without headhunting, and have you had any spectacular failures yourself?

Deborah Loudon: Personally? We do measure success. Because the client makes the choice, our success measure is if the client is still happy with that appointment a year later: if we make an appointment and the client professes themselves still satisfied a year later. We are very proud that on that basis my firm has a 97% success rate. We measure it regularly and we do market research afterwards. But I would not overstate that because we are not in the organisation. We tend to work with an organisation for three or four months, and then we go away. I think there is quite a lot of academic evidence that shows the right leaders double or treble the performance of an organisation. I agree with you totally on that. Going back to what Will Hutton said, getting those measures right is a very difficult thing. A lot of it comes down to the team they build, which is why I come back to the leadership thing.

Q211 Kelvin Hopkins : Some of it is subjective as well. You can see people who work in the organisation have got it and are doing the right job.

Deborah Loudon: If you do surveys of employee engagement, and there is a lot of evidence on this, organisations that score very highly on having happy, committed staff tend to deliver better profit. I think that is a better proxy measure than trying to get very complex performance management criteria.

Q212 Alun Cairns : I want to go back to one of the responses you gave to Mr Halfon in relation to the cost of headhunters. He asked whether the Government Departments run their own recruitment. I think the response was, "That would be more expensive because they would need to build greater capacity." As an ex-civil servant that was in that post, would it be fair for me to say that you are saying that, having left the Civil Service, you are saving the Civil Service money?

Deborah Loudon: I think I offer my clients very good value for money on every project I work on. It could be done differently, and I hope if they set up an internal headhunting service they recruit externally.

Chair: I had that impression already. Thank you very much indeed; it has been a very useful session. Thank you again for the work you did for Parliament.

Deborah Loudon: Thank you.

Chair: I am sure we are very happy with the appointment you made . The Committee certainly endorsed the Department’s appointment of the Parliamentary Ombudsman very enthusiastically.

Deborah Loudon: If you wish to discuss it further or need more information, I would be very happy to.

Chair: That is very kind. And thank you, Mr Smith.

Examination of Witnesses

Witnesses: Andrea Sutcliffe, Chief Executive, Appointments Commission, and Jonathan Stephens, Permanent Secretary, Department for Culture, Media and Sport, gave evidence.

Q213 Chair: I wonder if our last two witnesses could identify themselves for the Committee.

Jonathan Stephens: Hello, I am Jonathan Stephens. I am the Permanent Secretary of the Department for Culture, Media and Sport.

Andrea Sutcliffe: Hello, I am Andrea Sutcliffe. I am the Chief Executive of the Appointments Commission.

Q214 Chair: I gather you want to say a few words before we start.

Andrea Sutcliffe: Just to explain what the Appointments Commission is for assistance.

Q215 Chair: Before we do that may I just press the Permanent Secretary on an outstanding matter between his Department and my Committee? I do not know if you are aware that we produced this Report at the end of last term.

Jonathan Stephens: I was.

Q216 Chair: We wrote to you in April to ask for a response that we could include in our Report. We sent several reminders but never got a response. Why is that?

Jonathan Stephens: I am extremely sorry about that. I am very disappointed about it because I think the whole subject of change and transformation within Government is an extremely interesting one. It is one in which I have personally spent a great deal of time because we have been through a pretty comprehensive restructuring of the Department over the past 12 months that has restructured our Senior Leadership team substantially, so I would very much like to have shared that information. I am really sorry; I am afraid the letter was not dealt with within the Department, and if there is another opportunity to set out for the Committee what we have been doing in that area I would really welcome it.

Q217 Chair: I am sure we accept your apology, but how long have you been the Permanent Secretary in this Department?

Jonathan Stephens: Since October 2006.

Q218 Chair: It does seem very odd to this Committee that you were not able to respond. You have apologised, but what was the reason?

Jonathan Stephens: The reason was it went into our correspondence system and was not clearly allocated a responsible official and was then not chased up. I am extremely sorry about that. What is particularly frustrating about it is that it is not characteristic of our correspondence system as a whole. I am also extremely frustrated because I think we have a very good and interesting story to tell on the transformation. So all I can do is apologise.

Q219 Chair: Given your personal interest in the change programme in your Department, it is astonishing that you did not take a personal interest in making sure that we got a response.

Jonathan Stephens: All I can do is apologise and say that if there is an opportunity to set out for the Committee what we have done I would really welcome that, and I am very sorry that we did not participate and did not respond.

Q220 Chair: If it is any comfort to you, there was one other Department that also failed to respond. I do not know whether you have had a chance to read this Report.

Jonathan Stephens: I have, and indeed one of the things that brought to my attention when I prepared for this Committee that we had not responded.

Q221 Chair: We have actually had two further responses to our Report from the Ministry of Justice and the Department for Education. We would still very much like your response, and as soon as you can produce it for us we would be extremely grateful.

Jonathan Stephens: Thank you.

Q222 Chair: In fact if you could produce it for us within the next few days we can include it and comment on it in another Report.

Jonathan Stephens: I am really happy to do that, and I will personally ensure that is done.

Q223 Chair: I think we should pass that message to the other offending Department. We will start with Ms Sutcliffe.

Andrea Sutcliffe: Thank you very much. I just want to explain the Appointments Commission, because we are a different sort of body from those that are seeing this morning. We are an executive non-departmental public body making public appointments on behalf of the Secretary of State for Health, and we also deliver recruitment services to some other Government Departments and Foundation Trusts as well as providing governance support and induction training for chairs and non-executive directors in the Health Service.

Q224 Kelvin Hopkins : Mr Stephens, the audit of your Department by the Office of the Commissioner for Public Appointments found there to be "significant issues of non-compliance to be addressed as a matter of urgency." Is this a fair assessment?

Jonathan Stephens: I think that gets us into the whole question of whether the current code and means of monitoring or regulating appointments is the most effective it could be. You have quite correctly summarised what they said in the last Audit Report. The particular concern that arose with that was the question of whether there was evidence of adequate appraisal of individuals serving on boards year by year. We pointed to the evidence that when individuals were up for reappointment we always sought and secured an appraisal from the chair and from other stakeholders. Those conducting the audit took the view that was not adequate evidence of the process they required.

I think this is one of the subjects that the new Commissioner is indicating-that he is much more attracted to a principles and risk-based assurance and audit regime, moving away from one that sets out a large number of processes and goes through ticking each individual box, and I strongly support that. Previously, another example of where we fell foul of the auditors was an appointment where the decision was taken by the Panel to conduct one of the interviews by telephone. That was agreed by the Panel and the candidates; everyone was happy with the interview and the consequences of it. It was agreed by the independent assessor who was part of the Panel, but technically under the rules we should have secured the approval of the Commissioner before conducting an interview by telephone. We failed to do so, and were then given a red flag, significant issues, because of that failure.

My view is that is an example of where the Department should have had the discretion; particularly where the independent assessor involved was content, it should have been within the Department’s discretion. I think that is the general thrust that the new Commissioner is setting out in his consultation document, and one I strongly support.

Q225 Chair: To summarise your response, the system is too onerous and makes unfair judgements about perfectly acceptable practices. Is that basically your reason for this?

Jonathan Stephens: I think it is too focused on process.

Q226 Chair: But why have other Departments not had the same problems? Do you have special circumstances in DCMS?

Jonathan Stephens: I do not think we are particularly special. I am making a general point that the new Commissioner has reflected in his consultation document. We do deal with quite a large number of public appointments. There are not as many as the Appointments Commission, but we have some 400-plus ministerial appointments and stock to keep going, so we have quite a regular number.

Q227 Chair: Is that each year?

Jonathan Stephens: No, there is a stock of 400, so roughly about 100 appointments and reappointments each year.

Q228 Chair: How does that compare with other Departments?

Jonathan Stephens: I think it puts us in the top six or eight Departments.

Q229 Chair: So you are not a special case?

Jonathan Stephens: No, I do not think so.

Q230 Chair: We are not getting off to a very good start here, are we? A letter that did not appear and a bad mark from the Appointments Commission.

Jonathan Stephens: The point I am making is that that did not reflect the outcomes we achieved and the attention we give to public appointments. They are one of our key levers for quite a small Department over quite a large number of public bodies. We take them very seriously. We have a dedicated unit within the Department because we have the size and number of appointments that justifies that. The feedback we get, aside from the individual reports from the Commissioner and his staff, is we do it very well and we are looked to as a source of excellence in a number of areas and ways in which we conduct our public appointments.

Q231 Kelvin Hopkins: Your first reaction to criticism seems to be somewhat defensive-to explain what you do and not to immediately jump into action-but later you seem to have accepted these criticisms. Are you sufficiently energetic in following up criticisms and making sure that you do a better job in future?

Jonathan Stephens: We are very energetic in getting the best people into the jobs. We make really key public appointments. They are responsible for large sums of public money and some of our most important national institutions, many of which have a significant global presence. They are responsible for some of our most important national collections, and along with funding and strategic direction from Ministers, appointments are the key thing we do to influence them. As Permanent Secretary, I think the people you get in, both public appointments and Civil Service appointments, are one of the key things I do. We take a lot of time, effort and attention over them, and we listen to the feedback we get from our bodies, from people who are successfully appointed, sometimes from people who are unsuccessfully appointed. We look around for what other people do, and try in particular to put a lot of effort into securing a wide and diverse pool of candidates.

So I do not want to suggest that we are not open to constructive criticism. I was making the point that, in the particular case you cited, we thought that was identifying a rather narrow process failure that did not actually impact on the outcome we were seeking to secure. I think that is a general point that the new Commissioner has sought to build on, and say by putting more of a focus on the principles and the outcome here we can achieve a better outcome across the whole of public appointments, and I strongly support that.

Q232 Chair: Ms Sutcliffe, do you accept that explanation, particularly about the unfairness of a red flag?

Andrea Sutcliffe: Absolutely. I think the proposal that Sir David is making, to move towards a principles-based code, is very welcome. The code we have at the moment has nearly 200 directions about what must be done and what must not be done.

Q233 Chair: We are coming to the new code, but in terms of the explanation given by the Permanent Secretary for non-compliance, do you accept all those explanations and have you forgiven him?

Andrea Sutcliffe: It is not me that has been doing the criticising. As the Appointments Commission we are delivering recruitment services and making appointments for the Secretary of State. It was the Commissioner for Public Appointments. So we are subject to the same audit and the same process as my colleague is.

Chair: I beg your pardon, I misunderstood.

Andrea Sutcliffe: We have had similar conversations about wanting to be innovative in the way that we conduct appointments to ensure that we do focus on getting the best person fairly, transparently and from the most diverse field. On occasions the code inhibits that innovation and progress forward, so the new proposals are very welcome in that respect.

Q234 Nick de Bois: Could I ask both of you to answer this? Do you think that, as a result of the red flags, any serious errors of recruitment have been made?

Jonathan Stephens: Obviously I cannot talk for other Departments. I have given some examples of what has given rise to red flags in our case, and I would say I am not aware of that in the time I have been in and reading the audits from the office. There are often sensible and helpful suggestions, but not something stating we have made an unfair appointment or unfairly or improperly narrowed the field.

Q235 Nick de Bois: Have you been dissatisfied with the outcome despite having a few red flags?

Jonathan Stephens: Have I been dissatisfied with the outcome of appointments?

Q236 Nick de Bois: The outcome being an appointment, has an appointment been a disaster or a mistake notwithstanding there have been a few red flags? I think you are suggesting, and I happen to agree with you, that these are technical breaches and I do not want to get too excited about them. I am trying to ask if there has been evidence of a big mistake despite you getting these red flags.

Jonathan Stephens: No. What do you mean by big mistake?

Q237 Nick de Bois: Regret for hiring.

Jonathan Stephens: I can think of one or two cases where an appointment has not worked out as one wanted.

Q238 Nick de Bois: And could you link those to anything as a result of the process?

Jonathan Stephens: No.

Nick de Bois: Fine, thank you.

Andrea Sutcliffe: I think the process started off with good intentions in terms of doing things fairly and transparently, and I think that is something we would all agree with, but we have ended up with something that does focus very much on the technical side of things. The audit looks at compliance with the code as it is written and not with the success or otherwise of the appointments that we have made or supported. I think that focusing on that, as you have done in earlier conversations today with Deborah and as I think Sir David is with his new proposals, is the way that we have got to take this forward.

Q239 Chair: So you would agree with Sir David’s comments that the system is over-prescriptive and bureaucratic, and that people were put off by the length, rigidity and unfriendliness of the process?

Andrea Sutcliffe: I would, and I think that from the Appointments Commission’s perspective we have tried very hard, and we have worked very well with the Commissioner’s Office, to use the code as flexibly as possible to provide information to candidates and to support them through the process so that we do not have people put off by it. But I think that absolute narrow focus on process without thinking through whether a good appointment was achieved and a difference has been made in the organisations to which we are making those appointments was regrettable.

Q240 Chair: So we really only need an eight-page code?

Andrea Sutcliffe: I would like to work with that, certainly.

Q241 Chair: Would you agree?

Jonathan Stephens: Yes, and those are sorts of comments I have heard echoed from others involved in the process.

Q242 Chair: What about the very dramatic reduction in the number of independent assessors? Are the independent assessors deemed as otiose as that suggests?

Andrea Sutcliffe: As Sir David says himself, he has 157 independent assessors, and the previous Commissioner introduced an accreditation but an accreditation in terms of understanding the code. I think Sir David is right to say they have a role to play. That role could be enhanced, and he can support a much more professional cadre of independent public appointment assessors by focusing the numbers down and supporting them in a better way. But I would say from the Appointments Commission’s perspective what is important is we are very clear about the role and the responsibilities of the independent assessors, how they are recruited, what objectives they have and how they are trained, and how their performance is assessed as well. We do have to be sensitive about that because sometimes an independent assessor will upset people, but that is because they are doing their job properly, so we do have to take it in the round.

Jonathan Stephens: The new Commissioner is proposing a reduction in the number of assessors he employs or certifies, but is not proposing a reduction in the independent element involved in appointments. So for every appointment a member of the Panel is still required to provide that independent element from the Minister, the Department and the body being appointed to. Different Departments will take different approaches to that, but in our case we think it is very likely that we will still need to have our own pool of suitably qualified and experienced people who will provide that independent element, albeit not necessarily part of a centrally run pool.

Q243 Chair: He also recommends that Departments will be responsible for ensuring their own compliance with the new code, which might come as a great relief to you, I do not know. How will you do that, and how will the public have confidence-and how will he have confidence-in that self-compliance?

Andrea Sutcliffe: We already have a process whereby we are providing information in our compliance statement to the Commissioner, and I think that is reinforced again in his new proposals, and that is a very important element of it. We have to be able to demonstrate from individual Departments exactly how we are making sure the processes we run comply with those three key principles: that we are appointing on merit, that we are doing it fairly and openly, and that we should be transparent in the information we provide to the Commissioner, and anyone else who asks, as to how we are achieving that, and, if we feel we have fallen foul of it, what we are doing to rectify and improve it.

So there has to be a responsibility back on ourselves because Sir David reserves the right to send independent assessors back in to every single appointment if he thinks Departments are not complying. He also has the responsibility for investigating complaints that may arise from people who feel aggrieved from the process, and as I am sure we would all know from looking at complaints from all walks of life, you can learn an awful lot by looking at individual cases. Again, I think that will give the Commissioner good evidence on which to base his views and to give confidence and reassurance to the public.

Q244 Chair: How will DCMS internally certify your compliance?

Jonathan Stephens: As we do now, we will provide a compliance statement. We will set out processes and the numbers of appointments, the outcome of those, and we will set out where for any reason we have diverged from normal practice. I am expecting it to be lighter touch but not less rigorous. Certainly, with the fact that an independent element is involved in each appointment, in my experience that independent element, be it a central assessor or another form, is very prepared to raise a flag if they think something is going wrong or is inappropriate in an individual appointment. So that would be a key guardian. Although there will be self-assessed compliance statements, I am fully expecting the Commissioner to still be applying a critical eye to those and to be ready to step in either on a random basis or where he has cause for concern because of complaints or any other reason.

Q245 Chair: Are there any other suggestions you have to improve the process?

Andrea Sutcliffe: I think one of the things that the code necessarily does is focus on individual appointments and the process we go through in making them. One of the concerns we have had from the Appointments Commission, which I know Sir David shares, is about getting a diverse field of candidates and doing the most that we can about that. So although the code focuses on individual appointments, and there are aspects of that process that I think can either assist or militate against diversity in the field, if we just wait for an appointment to arise to address diversity, that is too late. This is something that the Appointments Commission has done a lot of work on, and I would recommend that Departments take a strategic approach to the issue of diversity and look at it every step of the way: how they are promoting public appointments, how they are developing the pipeline, nurturing the talent that does come through, maintaining their interest and supporting them, and also making sure that when they appoint people from different backgrounds, the organisation that they are joining is receptive of that different perspective, and as somebody said earlier, that it is not just a token appointment.

Jonathan Stephens: I strongly support that. I think, rather surprisingly perhaps, the focus on process slightly lost the focus on achieving a wide and diverse pool of candidates under the previous regime.

Q246 Chair: For which your Department has been commended.

Jonathan Stephens: Thank you. We put a lot of effort into it, we think it is important, and it requires consistent effort over time and, as Andrea has said, effort at all stages of the process: the criteria, publicising the appointments, nurturing people who are potentially interested and providing opportunities for them to network with established board members and chairs as well as the final selection of the candidates. But I think that is an area where, partly because we have put a lot of effort into it and we deal with quite a number of appointments, we feel we have something to share with other Government Departments. That might be something that a future centre of excellence might be able to buy into. From what I have seen, one thing I would say about a centre of excellence on public appointments is in many ways the excellence is actually out in Departments-not all Departments; some Departments only deal with very few appointments. I just want to make sure that situating the centre of excellence at the centre does not mean that it is rather divorced from where the experience and expertise on handling a large number of appointments actually lies.

Q247 Alun Cairns : Mr Stephens, how far do the policy and the codes that you follow now extend? Does that extend just to the public appointments themselves, or to the appointment those public bodies may well make?

Jonathan Stephens: It only applies to the appointments regulated by the Commissioner for Public Appointments, which by and large are ministerial appointments; appointments that are ultimately decided by a Minister.

Q248 Alun Cairns: So when the public become angry about appointments that those bodies make themselves-and I will be direct because I have had lots of complaints about the salary level offered to the acting Chief Executive of S4C, the Welsh Language Channel, of full-time equivalent of £212,000 for an acting role, although it may well be adequate for the permanent role-what process would that body take in relation to discussions with your Department?

Jonathan Stephens: I would have to look into that individual case. When appointing a new chief exec, the general assumption would be that the salary level would need the approval of the Department concerned.

Q249 Alun Cairns : If it is higher than £142,500, the figure we have been talking about, or if it is above what level?

Jonathan Stephens: Generally, if it is a new appointment, we would expect to be consulted on the salary level. There are requirements now in Government that, if it is above a certain level, it requires Ministerial agreement and ultimately in some cases agreement with the Treasury.

Q250 Alun Cairns : Would you be able to let the Committee know the detail of the question I asked?

Jonathan Stephens: Sure.

Alun Cairns : That would be helpful, thank you.

Q251 Nick de Bois: You pre-empted one of my questions, Mr Stephens, so perhaps I will direct this to Ms Sutcliffe, if I may. Regarding the setting up of the centres of excellence, be they in the Cabinet Office or in the five Departments that are most involved in public appointments, do you support that idea?

Andrea Sutcliffe: I think it is an excellent idea. We have learnt from over 10 years of experience at the Appointments Commission that the more you do it, the more expert you become. Some of the Departments we work with in supporting their recruitment of public appointments do it very rarely, and particularly junior members of staff are very involved in the process, particularly at the outset. Having something that provides that assistance, support and expert guidance is helpful. But there are two other areas that I think the centre of excellence could focus on. One is about providing some practical tools to assist everybody, and sharing the good practice, which as Jonathan quite rightly says does exist, and we probably do not do enough of that collectively; the other is the approach to diversity that I was suggesting earlier, which is going through all of those phases. We have been able to do that because we make so many appointments, and that is the same for DCMS. But across the board, collectively we could work together much better to approach diversity in a more strategic way, and ensure that we speak with credibility and authority around the opportunities that are available. A centre of excellence could do that for us.

Q252 Nick de Bois: Do you think one of the possible downsides of an in-house centre of excellence is that we might continue a merry-go-round of, with respect, the usual suspects? I do see that as one of the great barriers to change and progress. Is that a danger?

Andrea Sutcliffe: That is why I would absolutely emphasise the responsibility of the centre of excellence for enhancing the diversity of the field and developing the networks and liaisons, building on the work we have already done at the Appointments Commission, around, for example, the pipeline. We have had lots of conversations with the School Governors’ One-Stop Shop and the Charity Commission, where there are a tremendous number of opportunities for people to learn their trade as a non-executive director. It is different from being a chief executive or a member of staff, so we need to be taking those things forward. If the centre of excellence has that as part of its responsibility and is held to account for that-that is its objectives and we test and measure its success in that way-then I think the risk you quite rightly highlight will be mitigated.

Q253 Nick de Bois: Did you want to add anything?

Jonathan Stephens: One of the key tests of a new centre of excellence should be whether they are producing new, fresh, more diverse candidates that Departments are putting into their appointments processes and out of which some appointments are being made. The challenge with all these central lists is always keeping them fresh and upto-date and restocked.

Q254 Nick de Bois: I think you sat in on the last interviews with recruitment consultants.

Jonathan Stephens: Yes.

Q255 Nick de Bois: Do you therefore think that outside headhunters are needed to fulfil that diversity, given we will have the centre of excellence, or not? What is your thought on that?

Jonathan Stephens: Our practice is to use headhunters quite sparingly. Over the past year or so we have only used them for two recruitments out of 40 to 50 new processes as opposed to reappointments. One of those was the Chair of the BBC Trust, where we took the view that this was such a high profile job that we wanted someone who would search across a wide range of possible candidates. The other was an appointment where we had failed to get an adequate candidate from the first round of appointments, so we thought it was appropriate.

Q256 Nick de Bois: So would you say it is not going to require that if the centre of excellence is motivated enough to do it?

Jonathan Stephens: No.

Q257 Chair: Can I just ask about that particular case, the BBC Trust? There comes a point where you are involved in an exercise to prove there is nobody else as eligible to do the job as the person who has been widely touted to do the job. Is that a fair description of the process?

Jonathan Stephens: I suppose a more positive way of describing that is: giving the public confidence in the appointment system is very important. That it has searched widely, that the appointment has been made on merit, is very important.

Q258 Chair: There was no other former Governor of Hong Kong applying for the job.

Jonathan Stephens: No, but that is a pretty narrow pool and we did not restrict ourselves to that. Not surprisingly, because people are very interested in that sort of job, we had a very wide range of very strong candidates, and there was a very good pool to choose from. It is always difficult to say, and, particularly with that level of appointment, I would endorse what was said by one of your previous witnesses: at that level, where you are looking after £3 billion worth of licence fee money, a big corporation with a global presence, the sort of people-and skills and attributes-you are looking for there are not scanning the adverts regularly. Having someone who can go out and raise the possibility of serving in this sort of way is quite useful, but we really use headhunters very sparingly, and we only use them for that search function; we do not use them for processing the appointment because we have our internal unit.

Q259 Chair: Right, I think we have covered diversity. The only question I would ask is whether the expertise of the Appointments Commission can in fact be transferred to the Health Service.

Andrea Sutcliffe: I would hope so. One of the things we are working very hard on is our legacy, as we will disappear next year. We are already in conversations with the Cabinet Office and the Government Equalities Office around the development of toolkits, so using the experience we have had and the material we have developed so that we can bequeath that to the nation, as it were, to assist in the future.

Q260 Greg Mulholland: Could I ask you what you both think about Sir David Normington’s proposal to have independent assessors to chair interview panels rather than civil servants, as is currently the case? What effect do you think that will have on the independence of such panels, and do you think that will have an effect on the range of candidates who might wish to apply?

Jonathan Stephens: I always found the role of independent assessors to be extraordinarily valuable. I am not sure whether or not they chair the panel itself makes a huge amount of difference, in my opinion. I can see that it provides an extra encouragement to viewing the process as independent and fair and above board, but in my experience when they have not been chairs they have been very ready to speak up if they felt anything was going wrong.

Andrea Sutcliffe: I agree with Jonathan that the new independent assessors have an important role to play, and I think Sir David’s proposals in general are very supportive of that and will move to a more professional approach as well. The only issue I would raise about independent assessors chairing the panels is that currently it would be a Senior Civil Servant reporting through to the Minister who is ultimately making the decision. So the only issue would be whether the change in chair would break the accountability, if you like, to the ultimate decision maker, and how we could manage that. But I think Jonathan is absolutely right. If independent assessors are there to ensure that there is due and fair process, and to support that, and they are appointed, trained and appraised to do that, then I think we can expect them to do that whether they are chairing or being a member of a panel

Jonathan Stephens: Perhaps I may add one further point, which is that Sir David’s proposal, as I understand it, is that they should chair panels for chair appointments, but not for other appointments. Obviously those come up less frequently, so that might mean that they were only involved in a very small number of our appointments each year. Perhaps one of the questions to think about is whether they would be building up as much expertise that equips them to play that chair role on a panel as the serving Civil Servants. But my fundamental view is I do not think it makes a lot of difference one way or another.

Q261 Greg Mulholland: Do you not think there are some particular posts where clearly the occupant of that has to display and have the confidence that they are genuinely independent of Government? Do you not think in some of those particular positions that it would make sense to have an independent assessor as chair? As an example, something that this Committee has been very involved in, as I am sure you know, are the recommendations that we made with regards to the process over the Chair of the UK Statistics Authority. Just to put you on the spot, do you think perhaps this is now the time to pilot Sir David’s proposal, by introducing that which is not at the moment-the Committee and myself are sorry to say-what Ministers are recommending?

Andrea Sutcliffe: I am always a fan of a pilot on the basis of properly setting out what it is we are trying to achieve and then evaluating whether it is successful or not before we make pilots permanent. So that might absolutely be a good way of looking at it. But of course, moving into the issue of the assessment of people who will have to be thoroughly independent of Government, yesterday I looked at the Liaison Committee’s Report on pre-appointment scrutiny hearings, which obviously you would have been a part of. They have pulled that out as well and suggested another way of handling that in terms of the different lists of public appointments and how they may be scrutinised by Select Committees and indeed Parliament. So there is quite a lot to be discussed around how we ensure and support the independence of some of our key regulators.

Q262 Greg Mulholland: But a pilot of this particular position now could be-

Andrea Sutcliffe: I would not be able to say specifically on this particular position because I am not directly involved in it, and so I really would not want to give anybody else a problem by giving a positive or a negative view on that, because I think you have to take an assessment of it in the round. As I say, pilots work if we are very clear about what it is we want to achieve and how we are going to evaluate them, so that we can make a clear decision. It may well be that throwing something into the ring at this stage, when a process is already being taken through, might not be as helpful, but certainly could be for the future.

Jonathan Stephens: I would gently suggest that it does not make a huge amount of difference. I have worked with Civil Service Commissioners who chair panels of appointment for Senior Civil Servants, and always felt as Permanent Secretary that I have been able to have a key role in that appointment, although just a panel member. I have also chaired public appointments panels in which independents have played a key role and an extremely valuable one. I do not think the question of whether they are chair or not makes a huge amount of difference. I think having an independent member, as is the requirement at the moment, does make a difference.

Q263 Greg Mulholland: So you think Sir David has got it wrong?

Jonathan Stephens: I am just indicating I do not think it makes a huge difference one way or another.

Q264 David Heyes: Just a quick couple of final questions. The point was made in our session with Sir David back in July that, in our role as constituency MPs, we find ourselves working locally with the people that emerged from your appointment process. By and large they are some very impressive people: good to work with and doing a good job, and that is self-evident. But that is not always the case. There are some people who at best are disappointing, and at worst you feel really frustrated by their failure to do what you expect they ought to be doing in their job. For instance, failure to hold executives to account properly is something I have come across from time to time. When we raised it with Sir David he thought this was something he needed to give attention to-the appraisal of people in their posts. What are your views on that?

Andrea Sutcliffe: I would absolutely support that. From the Appointments Commission’s perspective, and particularly with the appointments that we make on behalf of the Secretary of State and the ones you are referring to, Mr Heyes, we expect those appraisals to happen every year. Three years ago we changed the process by which we expected the information to come back to us. It is one side of A4, it asks what has been happening, what are the learning development needs, what are the future aspirations, and expects the chair and the non-executive director or the strategic health authority chair for the local organisational chair to sign that off and to act upon it so, if there are learning and development needs, they are addressed. That is something we expect to happen on an annual basis.

Q265 David Heyes: So it seems to be working, in your experience?

Andrea Sutcliffe: Absolutely. But we have made it as simple as possible, and frankly if you cannot fill in one side of A4 then-you know. We have had a very good return rate, so we know that it is happening. Then at reappointment we look at it much more carefully because that is an absolutely critical point. I think the reappointment of chairs and non-executive directors is a crucial stage at which to consider whether the organisation needs those skills in that particular way: do we need a refresh completely or should we go ahead to reappointment? We would only reappoint if we felt that there was consistent evidence of good performance that we assess both locally with other stakeholders and with our own Appointments Commissioners who take a very keen interest in making sure that we are getting the right people.

Q266 David Heyes: You may question my objectivity here, but I can promise you that I have seen cases where people who have really failed to perform in their term of office appear to have been just nodded through for a reappointment. You harbour a hope that their underperformance will be recognised and therefore they will not be reappointed. Sometimes it has been quite shocking to see someone given another term of office. I think there are some question marks about the quality of the reappointment appraisal.

Andrea Sutcliffe: One of the things that we have also developed some guidance on, which is available on our website, is the terminology or jargon being 360˚ appraisal, particularly for chairs. It is important to take into account the views of other stakeholders, and of course I would include local Members of Parliament as some of the key people who may well have a view on that, as well as the other partners that people would be working with in the local authority or anywhere else. The role of the chair, both externally and, as you quite rightly say, in holding their executives to account, is critical. We need to make sure there is public confidence in people doing those roles.

Q267 David Heyes: Okay, I will not push it any further except to ask if there is any risk that the appraisal system, despite my feelings about its possible shortcomings, will be damaged by the abolition of the Appointments Commission?

Andrea Sutcliffe: We are going because the vast majority of the organisations to which we appoint are also going, so there will not be appraisals to be made in those circumstances. The remainder are the NHS Trusts, who will ultimately all become Foundation Trusts, whereupon the Governors will have the responsibility for appointing and assessing. One of the issues that we want to make sure of in terms of us passing on our legacy, if you like, is that there is guidance and support available to Governors, so they can discharge what is an incredibly important role for them as well as they possibly can.

David Heyes: That is another cause for concern for me, but that is for another day. Thank you.

Q268 Chair: Thank you to both our witnesses; it has been a helpful and informative session. Can I particularly thank you, Ms Sutcliffe, for your service in your current role? It must be a rather unhappy period, and very difficult for your staff. So the thanks of this Committee to you and your staff, and if you could pass that on I would be very grateful.

A ndrea Sutcliffe: I really appreciate that, thank you very much.

Chair: Thank you very much.

Prepared 4th October 2011