6.The White Paper states that the new Charter will:
Create a unitary board for the BBC;
Introduce full external regulation of the BBC by Ofcom;
Reform the mechanism of regulation including establishing a new operating framework and operating licence regime;
Separate the Charter Review process from the political cycle;
Make the BBC more accountable to the nations of the UK;
Reform the BBC’s complaints system; and
Set new expectations for public engagement and responsiveness.
7.While supporting these proposals in principle, we made clear in our previous report our belief that the BBC needed a strong, independent Board led by a Chair who was willing and able to stand up to BBC executives, to vested interests in the BBC where necessary and to anyone, ministers or otherwise, attempting to undermine the independence of the BBC. At the same time, we argued that the Board had to hold the BBC’s executive directors to account on behalf of the viewers and listeners for fulfilling its primary purposes, delivering high quality and ensuring value for money. We therefore decided to look closely at both the composition and the appointment of the proposed unitary Board to ensure that it could deliver this remit.
8.The White Paper proposes that the board should consist of between 12 and 14 members, a majority of whom would be non-executives, with a non-executive chair and deputy chair. Four non-executive members would be designated to represent each of the constituent nations of the UK, with the rest of the board composed of at least another four non-executives and at least two executives. Under the Government’s proposals, therefore, the minimum number of non-executives would be ten and the maximum number of executives four. The White Paper suggests that the non-executive posts would be significantly more time-consuming than in other organisations.
9.While the Board as a whole will have responsibility for all that the BBC does, in editorial matters it is intended that the Board will only set the direction and framework for editorial standards. The Director General will remain editor in chief, the executive board members will have functions relating to the day-to-day operations of the BBC and specific editorial decisions and the non-executives will not be involved in pre-broadcast case-by-case decisions.
10.The White Paper adds: “it is essential that these appointments are made with due transparency and scrutiny. It is equally important that the BBC board is able to ensure it has the right mix of skills and that the process of appointments and make-up of the board is compatible with the fundamental principle of the independence of the BBC.”
11.Lord Hall, the Director General of the BBC, said that his preference would be for a smaller board, with more executives and fewer non-executives—in his experience, fewer board members with a greater proportion of executives would act more cohesively: larger numbers ran the risk of not allowing everyone to express their views or discussions becoming cumbersome, and a non-executive-dominated board would create the feeling that the executives were reporting to it decisions taken elsewhere rather than the board itself taking the decisions. His preference was for a board of ten members with four executives and the rest non-executives appointed by either the Government or the BBC. However, he recognised that the Government wished to have six government-nominated appointees to the Board: the Chair and Deputy Chair/Senior Independent Director, plus the four representatives of the nations.
12.The UK Government and the BBC have agreed Memoranda of Understanding with each of the devolved administrations and legislatures. All three devolved administrations will have a formal, consultative role in any Charter review, the BBC will lay its annual report and accounts in each of the devolved legislatures, and the BBC will be required to submit reports and give evidence to committees of each legislature.
13.We concur with Lord Hall in preferring a smaller board, with a higher proportion of executive members than the Government suggests. A board of twelve comprising five government-nominated non-executives (the Chair and four representatives of the nations), together with three non-executive and four executive Board members appointed by the BBC would give a better balance. It would also, we believe, produce a more coherent and effective Board. The BBC may wish to consider including a staff representative as one of its non-executive nominees, as the Prime Minister has suggested in connection with private sector company boards.
14.The Director General indicated his support for the idea that the Board should collectively choose a Senior Independent Director from amongst its number. We agree, and believe this arrangement would be superior to the Government also nominating a Deputy Chair.
15.We recognise that having national representatives on the Board both continues a long-running tradition and honours the agreement made between the UK Government and the devolved administrations. We are also conscious that under recently announced changes, Lord Hall has demoted the operational Directors of the Nations to the third tier of network management, beneath the unitary Board and the Board of Management.
16.We are anxious that the presence of national representatives on the unitary Board should not absolve the Board as a whole from its duty to represent and reflect all the nations fairly—something we feel it has not always done, for example in relation to the disparity between the amount of licence fee money paid by viewers in Scotland in comparison with the final spend there. Moreover, it goes without saying that the national representatives, in common with all other Board members, should bring special skills to the Board and a passion for public service broadcasting, in addition to their particular understanding of the views and needs of their respective nations. The Board must be clear that it exercises its responsibilities collectively, here as elsewhere.
17.The process for making the appointments to the Board differs according to the role of the Board member. The White Paper envisages that the Chair, a Deputy Chair and the non-executives for the nations would all be appointed under a Public Appointments process; in the case of the Chair this would also involve a pre-appointment hearing with us or any successor committee, and in the case of the representatives for Scotland, Northern Ireland and Wales including the current arrangements for involving each nation in the process. The other Board members, both executive and non-executive, would be appointed by the BBC itself. The non-executives would be selected by a nominations committee of the Board, but this would also be expected to follow best appointments practice by including independent members. The BBC Chair would be closely involved at each stage of the appointments process; and the Queen-in-Council would appoint each member on recommendation from the government.
18.A number of commentators have expressed concerns that the appointments process for the unitary board leaves too much power in the hands of the Government. We were aware of a recent example of a government appointment of a Trustee of the National Portrait Gallery, where the Public Appointments process was stopped, the panel dismissed and the process started again because the panel had not been informed of the Minister’s preferred candidates before it started a blind sift, which resulted in none of the Minister’s five preferred candidates being selected for interview. When we pursued these concerns with the Secretary of State, he stated that the process for these appointments in this case had been determined to be flawed, and that there was no danger to the independence of the BBC from the proposed method of appointment because board members would not be involved in “editorial decisions”. However, the Board will be responsible for setting out the BBC’s strategy and overseeing its delivery, taking account of both public and market impacts, and ensuring value for money. It could therefore take decisions about the balance between genres of programmes, or stopping services, which could limit the BBC’s output without any suggestion that it was interfering in editorial decisions about individual programmes.
19.Lord Hall expressed confidence in the Public Appointments process—while also pointing out “Who gets involved in that is quite key”—and he said that would be his preferred process for the BBC-nominated non-executives. He concurred with the White Paper that the Chair of the new unitary Board should play a key role in the selection of board members. He emphasised that his main concern was ensuring that independent people with useful skills were appointed. When we pressed him on whether the Minister’s choices should be made known to selection panels, he agreed that he thought it would be inappropriate for the final board to be given names of government-preferred candidates before the final sift and interviews.
20.It is vital that the new governance arrangements should preserve, and be seen to preserve, the independence of the BBC from interest group pressure, and from pressure from politicians. This is especially important following the decision to abolish the BBC Trust and create the unitary Board. Another Committee has been examining public appointments processes, including the recommendations of the Grimstone Review that would enable more direct political intervention in public appointments. Whatever decisions are made in respect of other bodies, the freedom of the BBC from undue political interference must be defended. We do not believe that drawing a selection board’s attention to candidates preferred by Ministers can be anything other than an attempt to influence the board, and we would ask the Government to ensure that no such indication of preferred candidates is made in respect of the Government’s nominees to the BBC Board.
22.The new framework places the Charter at the highest level, setting out the BBC’s mission, purposes and overarching constitution, with a Framework Agreement providing details, as now. Then other facets of regulation and governance would be simplified into an operating framework setting out details of how Ofcom and the BBC would interact, plus an operating licensing regime which would set out what the BBC was expected to provide from each service or group of services (the Government hopes that this regime would reduce the number of service licences from the current 26). The Clementi review also recommended a greater focus on quantitative measurements of whether the BBC was fulfilling its duties under the licences.
23.The White Paper says: “The government will provide guidance to the regulator on content requirements and performance metrics… Ofcom will then be expected to consult to establish the final set of requirements and metrics in accordance with this guidance” and to keep these under review for appropriateness over the period of the Charter. In addition, the BBC would be expected to publish annual workplans, including budgets.
24.One of the issues which caused us in our last report to recommend a new system of governance for the BBC was that decisions on the launching or continuation of services (the broadcasting of BBC 3, the continuance of Radio Six) took a very long time as it was not clear who had the final word, the BBC Trust or the BBC Executive. While the Government’s proposals place great emphasis on the need for the unitary board to take decisions, there is still considerable ambiguity about where final responsibility will or should lie. For example, in relation to the Public Value Test (undertaken to determine whether a major change like opening or closing a radio station is in the public interest and whether any market impact is justified), the White Paper states “the BBC Board should take responsibility in the first instance for taking account of the public value and impact on the market … [but] Ofcom should be able to make a final determination on whether a change is acceptable … .with particular regard to market impact and protecting the legitimate interests of third parties to the extent that the BBC has failed to give them due consideration”. This diminution in the power of the unitary Board may be justifiable where the start or expansion of a BBC service might disrupt the market. But the issue is much less clear-cut in cases where, for example, the Board decides that a service is no longer sustainable on cost grounds. Here and elsewhere, a great deal hangs on the specific arrangements reached; and forbearance and goodwill will be needed on all sides during the transition process.
25.In order to separate the Charter review process from the political cycle, the Government proposes that the next Charter should be in place for 11 years, ie 1 January 2017 to 31 December 2027. However, given the speed of change in the broadcasting industry, the Government suggests that there should be a mid-term ‘health check’ focusing on governance and the regulatory reforms. It also suggests that future funding issues should be considered alongside the review.
26.The Secretary of State insisted that it was not the Government’s intention to re-open the Charter process mid-term but just to give an opportunity of seeing whether the new systems were working. However, he did admit that the BBC itself had been concerned that the mid-term review could expand into something more fundamental. Lord Hall told us that the BBC had been reassured over this issue by the Secretary of State that this would not be the case.
27.Even after the Royal Charter is made and the Framework Agreement put in place, it is likely that there will be areas where it is unclear whether Ofcom or the Board have the final word. If this leads to the sort of protracted decision-making seen under the Trust, then the mid-term review will have to provide clarity.
28.Lord Hall expressed his concerns about the appointment of the National Audit Office (NAO) as auditor, particularly in respect of the BBC’s wholly-owned subsidiaries such as BBC Worldwide and the proposed BBC Studios. He argued that it was unprecedented for the NAO to have such a role, and explained that a particular worry was that, for example, BBC Worldwide’s overseas partners might be hauled before the Committee of Public Accounts to justify the value-for-money to taxpayers from a deal. James Purnell, Director of Strategy and Digital, BBC, also suggested that employees of BBC Worldwide might be confused about whether they were expected to maximise profit or to obey public sector value-for-money criteria.
29.The NAO is very experienced in handling the evaluation of commercial contracts across different parts of the public sector, and there is little real reason to think it cannot discharge this function effectively with care in relation to the BBC’s commercial operations. It may be that the BBC is less worried about the suitability of the NAO as an auditor than about the prospect of it, or its overseas partners, being called before the Committee of Public Accounts to account for their actions. While we understand the need for BBC Worldwide—and, in due course, BBC Studios—to operate on a commercial basis, the inescapable facts are that the products they are selling have been created from licence fee funds, paid for by the public, and that the public are, therefore, entitled to hold all parts of the BBC to account for what their money has funded.
30.In practice, however, there are much more obvious areas of potential waste of public money than BBC Worldwide, and we would not expect its affairs to occupy much of the time of either the National Audit Office or the Committee of Public Accounts.
7 A BBC for the future: a broadcaster of distinction, May 2016, Cm 9242 (hereafter ‘White paper’)
8 White Paper, Chapter 3
9 White Paper, p49
10 Qq 187–193
11 This case has been brought to the attention of the Public Administration and Constitutional Affairs Committee:
12 Qq 12–17
13 See Qq 23–25
15 Qq 203–205
16 Public Administration and Constitutional Affairs Committee, Better Public Appointments?: The Grimstone Review on Public Appointments, Third Report of Session 2016–17, HC 495
17 Sir David Clementi, A Review of the Governance and Regulation of the BBC, March 2016, Cm 9209
18 White Paper, p55
19 White Paper, p57
20 White Paper, p58
21 Q30 and 47
23 Now Director of Strategy and Learning
1 August 2016