Business Appointment Rules

Written evidence submitted by Spinwatch (BA 04)

David Miller [1] , William Dinan [2] , Tamasin Cave [3] , Melissa Jones [4]

Summary

1. This submission expresses the views of Spinwatch, which campaigns for greater transparency in governance in the UK and EU. Spinwatch is a project of Public Interest Investigations, a not-for-profit company based in the UK. Our views are based on many years academic research on transparency issues by two of the authors as well as a number of years experience of campaigning for greater transparency and ethics regulation in the UK and EU. We should also note that Spinwatch was a founder member of the Alliance for Lobbying Transparency.

2. In summary, we are of the view that ACOBA has failed to enhance public confidence or to effectively handle the many challenges of conflict of interest in public life with which it is charged.

3. We think that part of the reason for this is the inadequate basis of the committee and we thus believe that ACOBA should be abolished and replaced with a statutory body responsible for ethical conduct in the public service, which significant powers to investigate and hold civil servants and ministers to account where necessary.

4. We draw attention to the work of the OECD, which has established a series of principles and guidelines on conflict of interest and post-employment. We note in particular the key statement on the need to create a public service culture in which conflicts of interest are ‘properly identified and resolved or managed’. [5] This can be contrasted with the implicit model in the UK where it is deemed sufficient to simply declare conflicts of interest.

5. In what follows we respond to the questions asked by the PASC issues paper and then raise a number of other issues.

Question 1: How can Government draw in and benefit from external expertise without giving rise to concern over propriety and undue influence?

6. The issue here is how to balance expertise and vested interests. The main issue under successive governments has been specifically in relation to the recruitment of senior people from corporate management. There has been no similar concern about propriety and influence in relation to the recruitment of expertise from citizen groups, NGO’s, trades unions and representatives of the professions. On the other hand it is clear that some practical way to deal with the increased role for business in government. Rather than pretend that this is not happening, it seems clear that transparency and accountability require significant new thinking in how to manage the revolving door phenomenon and the conflicts of interest it raises. We include as an annex two examples of the practical problems of the revolving door in relation to the National Health Service, based on Freedom of Information disclosures and research by Spinwatch. We should also point to the report on the financial crisis and the revolving door that two of the authors of this paper completed for the OECD in 2009, which highlighted the problems of regulatory capture by the banks. [6]

7. Fortunately these issues have been grappled with in a number of countries and the OECD has done significant work on this issue. The UK can learn much from investigating the experience of other countries - especially those that have moved to create new regulatory bodies with power to rule on ethical and conflict of interest situations. [7]

Question 2: Does the Big Society model of government, under which officials will increasingly procure public services from the private sector and civil society, require a change in approach to business appointments after employment in the public services?

8. Yes. The greater volume of interactions means increased potential for conflicts of interest and possibilities of corruption in pre and post-public employment situations.

Question 3: Do the Business Appointment Rules work against recruitment of experts into Ministerial and official ranks?

9. There is little evidence to support such a contention. There appears to be little difficulty in government attracting secondees to work in the civil service on fixed term contracts, with the expectation that they will return to the private (and less often, the voluntary) sector. In order to ensure the probity of governance and decision making it is very important that clear rules and guidelines exist and are enforced, to ensure that the public interest is served by a system of secondment and business appointments to official positions in public service. It is also important that private interests do not gain a competitive advantage by virtue of the inside knowledge, contacts and networks  developed while in (temporary) public service. The risk of revolving door conflicts is well recognised, and guidelines have been developed in many different polities to mitigate these risks. The OECD recently produced guidance on this matter, and we would recommend that the UK system of business appointments is aligned with best practice in this area. [8]

Question 4: Whose responsibility should it be to monitor the contact between Government and outside interests for signs of undue influence, and how could this be achieved in a proportionate manner?

10. In our view this should be the responsibility of a statutory body, which should have the following features:

a. Responsible to Parliament (and not to Ministers)

b. Powers to order disclosure of documents

c. Powers to take testimony under oath and compel attendance

d. Independently resourced

11. Such a body might be tasked with pre and post employment issues only or this role might be one of a number undertaken by a larger ethics regulator or superintendent. Any larger body might take on responsibility for a number of disparate roles currently undertaken by disparate organizations on a piecemeal basis. For example such a body might also take responsibility for compiling and hosting the new lobbying register. This would make sense since relevant data and background information would already be gathered by such an organization. This body might also collect together other relevant data such as that on ministerial meetings with outside interests, the register of members interests, members expenses etc. At present there are already similar bodies in existence such as the Office of the Information Commissioner, which has similar powers.

Question 5: How effective is the Advisory Committee on Business Appointments?

12. We believe that ACOBA is an ineffective body that should be abolished and replaced with a statutory regulator. In its current configuration its guidance is regularly flouted by ex-ministers, and civil servants in some instances. For example, in November 2007, senior members of the armed forces stopped submitting applications to ACOBA. [9] Lord Lang has said military officers had received legal advice that they were not obliged to seek the committee's advice, though the matter has now been settled and ACOBA is now accepted as having the responsibility for vetting such applications. [10] This two-year lapse in scrutiny from the committee appears to have attracted little public or media attention but is potentially of considerable importance. Campaigners against the ‘revolving door’ between the public and private sectors have long seen the defence industry as an area of particular concern, as officials responsible for awarding multi-million pound contracts move easily to companies that have benefited from these deals and then lobby their successors. [11] ACOBA itself has said that the numbers of former Ministry of Defence employees seeking jobs in the defence industries were arguably ‘so significant as to amount to a "traffic" from the Department to the defence contractors who supply it.’ [12]

13. It also appears that ACOBA takes an overly relaxed view of the post-public employment activities of senior civil servants and rarely blocks the revolving door between Whitehall and the private sector. In theory, ACOBA can advise applicants not to take jobs that may raise conflicts, but such instances have been extremely rare. In 2008, the then-head of the committee's secretariat said ACOBA had only ever told ‘one former minister and probably two, maybe three, Crown servants’ not to take a job. [13] Lord Maclennan of Rogart, the Liberal Democrat nominee on the committee from 2002 to 2009, believed that the majority of his fellow ACOBA members were sometimes too lenient with applicants. "I...found myself the odd man out rather more often than I would have liked to have been," he says. [14]

14. This culture and practice has given rise to concerns about undue influence on government decision-making, procurement and regulation. In part the weakness of ACOBA reflects the fact that it is an under-resourced and poorly respected watchdog. The committee describes itself as independent in the sense that it is not formally part of the government. It is, however, supported by a small secretariat [15] from the Cabinet Office. The secretariat cost £184,000 to run in 2010/11. [16]

Question 5a: Should the membership of the Advisory Committee on Business Appointments be revised to better reflect the make-up of society?

15. We believe the Committee’s current cross-party membership of four peers and two knights is too elitist and should be broadened to include a wider cross section of civil society. Some commentators and politicians [17] have suggested the inclusion of lay members, which we would support.

16. With public trust in politicians and government officials at an all time low, the ‘Establishment’ makeup of ACOBA and its choice of chairman does little to instil confidence in the impartiality and independence of a ‘watchdog’ tasked with the scrutiny of former public servants to ensure there is ‘no suspicion of impropriety’ when they join the corporate world. We note with concern that ACOBA’s chairman, the former Cabinet minister Lord Lang, was appointed despite having a raft of lucrative company directorships himself, and despite the questions raised over him being caught up in a high-profile Channel 4 Dispatches sting that exposed other former ministers keen to cash in on their contacts. [18] Committee members who sit in judgement on those moving into profitable private sector jobs must themselves be perceived to act with the utmost integrity. This inevitably includes, not merely the declaration of specific conflicts of interest, but the management of such conflicts such that they are minimised or eliminated. One key argument against ACOBA is that an independent regulator would employ staff whose conflicts of interest could be much more effectively managed or eliminated.

Question 5b) Is the current structure of Advisory Committee on Business Appointments ready to handle a short-term rise in civil servants leaving the service, and in the longer term a growing traffic between the Civil Service and private/third sector?

17. The current structure of the Committee is not adequate for the present scale of business in that it is not able to properly investigate and assess applications or monitor or enforce them. The occasional nature of the Committee’s deliberations also suggests that it would struggle to do anything but cursory inspections of an increased number of applications, with the implication that conflicts of interest and potential corruption may flourish.

18. Under the current Rules on the Acceptance of Outside Appointments by Crown Servants, [19] also known as the Business Appointment Rules, a civil servant is obliged to obtain official approval before taking up a job within two years of leaving government service, except in a limited range of circumstances. Such advice can come from the ministry or agency of the applicant if the applicant is junior in rank and the proposed job is seen as uncontroversial. There would appear to be grounds for extending ACOBA’s scrutiny of the revolving door to include civil servants well below the level of Permanent Secretary, though ACOBA’s powers and resources should be considerably expanded. Applications from more senior civil servants and others that may be seen as sensitive are referred to the Cabinet Office while ACOBA itself deals with those from top-level civil servants such as Permanent Secretaries. ACOBA also reviews a sample of the other applications sent to the Cabinet Office to check the advice given.

19. ACOBA passes on its advice on applications from civil servants and members of the armed forces to the prime minister while its recommendations on diplomats go to the foreign secretary. ACOBA's advice is almost always accepted but the prime minister can overrule a recommendation from the committee if it is believed to be in the national interest to do so.

Question 5c: Should the remit of the Advisory Committee on Business Appointments be extended to allow the Committee to enforce compliance with its advice?

20. Yes. We believe that the Committee’s effectiveness is undermined by its non-statutory ‘advisory’ status. It lacks the necessary teeth to ensure that ex-ministers and senior civil servants comply with the business rules and guidelines or act with propriety in their post-government careers.

21. ACOBA’s website, for example, discloses a number of occasions in the past year where applications for the Committee’s advice were made retrospectively after a minister or official had already accepted or started a new job in the private sector. [20] In December 2011 the Sunday Telegraph reported that ‘seven former ministers and top civil servants this year alone did not bother to approach ACOBA for approval [until afterwards]… ACOBA retrospectively approved six of the jobs, declined to consider the seventh, and took no action other than noting its "concern" on its website’. [21] That those seven jobs represented 25 per cent of ACOBA’s cases in 2011 implies that the rules and guidelines are treated with a distinct lack of seriousness by some of those covered. They appear to fear neither sanction nor censure.

22. In a similar vein, we believe ACOBA’s greatest weakness is its inability to monitor whether ex-ministers and officials respect its advice or to impose sanctions when they flout it. Widening ACOBA’s remit to give it the necessary powers to ensure compliance would be a welcome move.

23. However we would argue that greater reform is needed and support the calls from Transparency International and others to make ACOBA a statutory body. We also back the idea of a requirement for ex-ministers and officials, along with their new employers, to make periodic public declarations that they are abiding by ACOBA’s advice. [22] In addition, ACOBA could consider a ‘register of interests’ that requires them to publish their annual earnings from any approved business or appointment during the specified period.

24. Finally, we would add there is also a need for full transparency and disclosure of the reasoning behind the advice ACOBA gives, including on those applications it turns down. This will allow better public scrutiny of potential conflicts of interest and also help ACOBA to avoid charges of inconsistency. For example, it is not clear why the former permanent secretary at the Department for Business, Sir Brian Bender, received unconditional approval without any restrictions to take up his position as senior adviser for a large PR and lobbying firm in July 2010, [23] given that ACOBA’s chairman is on record as stating ‘that lobbying is the most sensitive area that we have to deal with’. [24]

Principles for reform

25. Many countries face similar issues to those currently faced in the UK. A number of countries have recently taken steps to tighten the way n which the ‘revolving door’ phenomenon is handled. We note that the OECD has devoted considerable resources to examining the experience around the globe and has developed a number of principles on how to handle conflict of interest situations. [25] The OECD commissioned report on the revolving door and the financial crisis contains significant data on the problem of the revolving door in relation to banks and other financial institutions and regulators. [26] We also draw attention to the work of ALTER-EU (of which Spinwatch is a founder member) on the revolving door [27] and similar work in the US. All of this evidence could be reviewed by the committee and in particular the principles and practical suggestions for reform considered.

Annex: Recent issues in relation to health policy

McKinsey, the revolving door (and corporate capture of DH)

26. McKinsey has long been associated with market-driven reforms of the health service. This latest - and most radical – round of reforms are no exception.

27. McKinsey’s involvement extends from helping to craft national policy in the Department of Health, to designing programmes to implement the reforms on the ground. Today, it advises everyone from the prime minister, NHS management board, the regulator Monitor, regional bodies, and foundation trusts.

28. At the very local level, McKinsey has also won contracts to provide commissioning support for at least 25 of the new GP consortia. This presents McKinsey with a potential conflict of interest, given its involvement in the design of the NHS Commissioning Board.

29. It has earned at least £13.8million from Government health policy since the Coalition took office.

30. McKinsey maintains a database of ex-McKinsey-ites, or its alumni network as it calls it, which is exploited to further its influence.

31. David Bennett and Adrian Masters, respectively chair of Monitor and its director of strategy, are both ex-McKinsey. As reported in the Mail on Sunday, both have enjoyed many benefits from their old employer. [28]

32. Bennett has received trips and dinners worth £6,500 from McKinsey since May last year. In June 2011 alone, he enjoyed a two-day trip to New York and a £250-a-head dinner as a guest of McKinsey’s Penny Dash at the Health Investor Awards. [29] As well as being ex-head of strategy at the Department of Health, Dash is also a former director of Monitor.

33. Other senior officials to have passed through the ‘revolving door’ between McKinsey and the NHS include: Tom Kibasi who started at McKinsey in 2004, left two years later to become Senior Policy Advisor to chief executive of the NHS David Nicholson, and moved back to McKinsey in 2008, where he’s been busy helping the DH reform the system [30] ; David Cox, who worked in the NHS, jumped ship to McKinsey, then moved to the Conservative Party’s ‘Implementation team’ for 9 months, before settling at NHS London as ‘Strategy Manager’ responsible for ‘cutting-edge system-wide design and planning of London's healthcare system strategy’; [31] ex-NHS hospital chiefs like Mark Goldman who is now an adviser for the McKinsey Hospital Institute, (which contracts its services to NHS hospitals); ex-McKinsey consultant Nick Moberly who is now CEO of Royal Surrey County Hospital; Dr. Doug Russell, ex-medical director of Tower Hamlets and now senior advisor to McKinsey. The list goes on.

34. Such links can help generate further contracts. In May 2011, McKinsey emailed Mr Masters at Monitor, saying: ‘Would you be happy to provide a reference [on behalf of McKinsey] for Maidstone and Tunbridge Wells Trust who are looking for a two-year contract to support the development of the Board?’

35. Mr Masters’s office replied: ‘Adrian is happy to provide a reference for the policy work but he wouldn’t want it to be inferred that he had been involved in any application decisions.’

36. McKinsey’s close ties to DH could prove invaluable for its private health clients. So has the firm been exploiting its privileged access?

37. An email from an unnamed McKinsey executive from May 2010, suggests it has. It states: ‘We have been gathering our thinking on the implications of the new Government programme for the NHS [and] have started to share this with clients.  Would you like to meet to discuss it?’

38. The recipient of the email? Monitor’s Mr Bennett, whose role is to police the relationship between the private and public sectors.

Civil servants in DH and KPMG

39. Mark Britnell made his way up the ladder in the Department of Health, making Director General in charge of commissioning in summer 2007. According to Britnell, GPs will have to effectively buy in bulk to get costs down. He said in Oct 2010: ‘There will be a big opportunity for those companies that can facilitate this.’

40. After a couple of years in the job he moves to the accountancy giant KPMG (left in June 2009, started at KPMG in October 2009). According to AcoBA, he had to wait just 3 months before he could take up the post… and not lobby for 12 months.

41. During Britnell’s 12 month cooling off period the job of DG for Commissioning was left in the safe hands of Britnell’s colleague Gary Belfield. (June 2009 – May 2010)

42. Bellfield stayed in post less than a year before himself moving to join Britnell in KPMG (Autumn 2010 - )

43. It was in the Autumn of 2010 that Britnell addressed a conference of private healthcare executives that it was open season in the NHS: ‘In future, the NHS will be a state insurance provider not a state deliverer…. The NHS will be shown no mercy and the best time to take advantage of this will be in the next couple of years.’

44. Months later (Jan 2011) KPMG was awarded one of the first contracts to a private company to provide support to GPs on commissioning. Announced by Belfield, in his new role as an associate partner at KPMG.

February 2012