Written evidence from Professor Robert Hazell and Alan Cogbill[1] (NED02)

Public Administration and Constitutional Affairs Committee

The Role of Non-Executive Directors in Government inquiry

Five years ago, UCL Constitution Unit carried out the first major study of non-executive board members in Whitehall[2]. This summary may be helpful to the Committee in giving a baseline assessment of the picture then. 

Our study

We analysed the literature; compiled details of NEDs appointed since 2010; organised a survey, receiving 55 responses from NEDs in 19 departments; conducted 67 interviews with NEDs, ministers, permanent secretaries, and senior officials, predominantly in our case study departments; and tested findings in briefings with senior NEDs, officials, and in a private seminar at the Institute for Government. 

The study was led by Professor Robert Hazell.  The interviews were conducted by three retired senior civil servants, Alan Cogbill, Hilary Jackson, and Howard Webber, and by two of our research volunteers, David Owen, and Susie Smith. Research volunteers also compiled the database of non-executives and analysed all the literature. The report was written by Alan Cogbill, Howard Webber, David Owen, Lucas Chebib and Robert Hazell.

We chose four departments for case studies: MoD - dealing with large capital projects; DWP - with major customer service operations; MoJ - with a mix of policy and operational functions; and BEIS - with close interest in the commercial sector, from which most NEDS across Whitehall were drawn.

Our study was largely qualitative.  Practice differed markedly across departments, but consistent themes emerged.  We have not updated our findings since 2017, but there is no evident reason to believe there will have been change for the better in the intervening years.

History of non-executives in Whitehall

Non-executives were introduced in the early 1990s. In 2005 the first corporate governance Code recommended that each Whitehall department should have at least two, to sit on the management board chaired by the permanent secretary. At the time there were 37 NEDs, in 14 departments.

In 2011 the Code was revised and relaunched by Francis Maude, the new Cabinet Office minister. Boards would be chaired by the secretary of state, with at least four NEDs, largely drawn from the commercial private sector, to advise on performance, delivery, and strategic leadership. They were given an explicit cross-cutting role in spreading best practice through a network of lead non-executives. In April 2017 there were more than 80 NEDs in 20 departments.

We have adopted the language of board governance, and Whitehall has found it helpful to cast the approach in these terms.  But departmental boards are quite unlike boards in companies and charities.  The secretary of state has final authority and accountability.  The permanent secretary has specific duties and responsibilities as accounting officer but can ultimately be over-ruled by ministerial direction.  All members bar the minister in charge, including NEDs, are advisory to the minister; they do not bear joint and several responsibility for board decisions.

Our findings

Who the non-executives are, and how they are appointed

We found NEDs to be high calibre, mainly from business but also professional backgrounds, successful and very senior in their own fields. They were committed, energetic, keen to make a difference. They were not in it for the money, or to build a CV. Their motivation was to aid public service, and fascination with the business of government.

Almost 150 NEDs had been appointed since 2010. Their average age was 58 on appointment. Half were privately educated, almost half attended Oxbridge, and three quarters Russell Group universities – backgrounds not so different from those of most senior civil servants or ministers. 80% had careers in business, finance, and commerce. Just over 60% appointed in the period were men, but of those in post in late 2017, 44% were women.

NEDs are appointed by the secretary of state, but in practice the permanent secretary takes the leading role. In our survey, over half said they were approached to apply, by the department or head-hunters; only 20% responded spontaneously to an advertisement.

NEDs can also be dismissed by the secretary of state. In 2015 the new Lord Chancellor Michael Gove dismissed all the NEDs on the MoJ board to make his own appointments. In 2017 one of them, Sir Theodore Agnew, was made a minister, together with another former NED Rona Fairhead.

What they do

Appointment is for a three-year term, renewable once. The average time served was 41.5 months (median 40 months), suggesting a lot of NEDs leave early, or serve only one term. The advertised time requirement varies from 20 to 35 days a year; but our survey showed that NEDs do a lot more, contributing 45 days on average.  A quarter of their time was spent preparing and attending board meetings. They also chair audit and risk and nominations committees.  But their main input falls outside these meetings.

NEDs advise on projects, conduct reviews, mentor senior staff, and generally act as in-house consultants. They contribute generic expertise (in finance, HR, digital, data, change management, etc.), and subject specific expertise (eg. on food, transport, trade). They are generally paid £15,000 per annum, the lead NED in each department £20,000. One third of NEDs waive the fee.

What impact they have achieved in departments

Most NEDs felt they made their greatest contribution outside the board. This might include leading on assigned themes (eg talent management, procurement, digital delivery), coaching and mentoring, advising on major projects, testing delivery chains. Senior officials greatly valued their advice and expertise, the mentoring role, their willingness to take on additional tasks. They particularly valued the discipline and experience they bring to chairing the audit and risk committee.

NEDs expressed less satisfaction with the central part of their role, as board members. But the literature on private sector boards suggests that their performance too is often mixed, with NEDs’ effectiveness being highly dependent on personal, cultural, and contextual factors. The attitude and approach of the board chair - in our case, the minister - is critical.

In Whitehall, the negative aspects are exacerbated by two factors. First, these boards have no legal role or status: their effectiveness depends on the commitment of all parties. Second, a form of ‘structural deference’ is built in. They are chaired by the secretary of state; NEDs’ role is advisory, and subordinate in a way not paralleled in the private sector.

Few Whitehall boards were said to be working well. Ministers failed to understand their purpose, and NEDs’ expertise was not tapped to its full potential. Ineffective boards reduce NEDs’ effectiveness in other ways: they fail to get an overview and are less well placed to advise on the capacity of the department overall, its management of resources and risk, its strategy, planning, and priority-setting. As a result, many departments had failed to gain full advantage of the benefits NEDs can bring.

Effective risk management requires identifying risk at the early stage of policy development. Our interviewees said the doctrine that policy is not for the board has frustrated NEDs, wasted a valuable resource, and contributed to poor decision making. Policy formulated without a shrewd appreciation how to deliver it and how it will bite will be flawed policy.

There is no single model of an effective board. The MoD board met monthly and operated much like a good private sector board. Under Philip Hammond and Michael Fallon (both with backgrounds in business), theoretical fiction had taken on practical reality.  Another good example was BEIS, where the NEDs made challenge a reality, and took the trouble to assess and record their impact. Outside our case studies, other departments with effective boards were said to be DfT and DIT.

Boards only work well when the secretary of state takes them seriously.  As we found, not enough did. But there was no wish to revert to the pre-2010 model: it was felt NEDs would be taken less seriously by the department if not part of a board chaired by the secretary of state.

Nor was there any wish to strengthen the board by giving NEDs stronger powers, closer to the private sector model. Accountability in Whitehall cannot easily be shared: ministers are accountable to parliament for policy, and the permanent secretary for propriety and value for money (which now includes feasibility). NEDs had no wish to share this accountability: they accepted that they could have only an advisory role.

In sum, in the few departments where boards worked well, non-executives had been particularly effective. They had managed to influence strategic choices. Where boards worked less well, the great majority, NEDs had still found numerous ways to help departments improve their performance, and this was widely appreciated.

What impact they have achieved cross-departmentally

Cross-departmental groups of NEDs had shared best practice on talent management, the governance of arm’s-length bodies, and management of risk. But we found limitations on what they could achieve, because of weaknesses in the centre of Whitehall, and lack of prime ministerial interest, exacerbated by Brexit.

NEDs themselves are part time, which limits what they can achieve even in their own departments. Half of all NEDs did no cross-departmental work; the remainder reported that it occupied one-sixth of their time. There are real limits on what they can achieve in such a small fraction of their time.

NEDs alone cannot be expected to address systemic weaknesses in Whitehall. There is a subsisting issue of the ability of those advising ministers 'to speak truth to power', without fear of being side-lined or worse.  There are longstanding weaknesses in how government clarifies strategy, applies lessons learned from previous failures, and configures the relationship between the centre and departments. Brexit threw the first and last of these longstanding weaknesses into acute prominence. The centre had not been able to guide even on broad types of possible outcomes. This militated strongly against effective risk management.

Success factors

One key success factor is to continue to attract high quality recruits. For all their frustrations, NEDs spoke warmly of their experience. They could be more powerful recruiting agents if their frustrations were more actively addressed.

NEDs easily found affinity with permanent secretaries, with shared interests in leadership, management, and delivery. But the key relationship is for the lead NED to gain the trust and respect of ministers. This takes time; and NEDs must understand and accept the political context.

For board meetings, the key to success is ministerial engagement. Ministers who take the board seriously can make it work; but it takes time, regularity, and commitment. And it requires the board to focus on core governance issues: strategy, resourcing, capability, delivery, and risk.

The single departmental plan (SDP) is the vehicle to achieve strategic clarity, realistic planning matched to resources. Framing and managing SDPs should oblige ministers to decide which projects to shed or downgrade. SDPs had improved, but too many still consisted of long lists of projects stapled together.

NEDs must be consulted on the single departmental plans. But there was still reluctance to challenge ministers’ wish to do everything, with consequential risks of overstretch. NEDs’ role could interlock more with the permanent secretary’s duty as accounting officer to seek ministerial directions before proceeding with programmes which are not feasible or offer poor value for money.

Strengthening the contribution of non-executives

Non-executives had definitely proved their worth: they were high calibre people, who had shown real commitment, contributing a lot more time than they signed up for. Civil servants greatly valued their input and expertise; but many NEDs found the role frustrating and felt they could have been more effective if the system only allowed.

But there was no wish for NEDs to have more formal powers, and no wish to change their title. They prefer soft power to hard power. Their powers include chairing the audit and risk assurance committee, and nominations committee; being consulted on the single departmental plan; ensuring the chair acts on regular performance evaluations of the board; the right to have their concerns formally recorded in the board minutes; the right to echo any concerns in the department’s annual report, and the annual report of the government lead non-executive; and power to recommend dismissal of the permanent secretary.

The role of NEDs is to challenge, and they fail in that core task if they do not challenge more effectively the unreality of many departmental plans. Our report ended with recommendations for the key players.

Ministers

• Need to make the most of departmental boards. This means allowing regular meetings, at least quarterly; for at least two hours; allowing for effective, robust discussion.
• Recognise non-executives as top-quality troubleshooting allies – they can check that plans are credible, and help turn policy into results
• Allow NEDs to discuss policy as well as implementation, because good policy making requires discussion of delivery mechanisms from the start
• Allow a strategy awayday (or half day) meeting for the board to discuss the single departmental plan (SDP) candidly and critically, and set fresh priorities – this includes dropping things to make room for new ones
• Consider allowing the lead non-executive to chair those parts of board meetings which call for detailed scrutiny of the department’s performance or plans
• Meet privately with the NEDs at least once a year.

Permanent secretaries

• Agree with each secretary of state how the board will be used, explaining the key elements of the Code; and the need to comply or explain departures from it, with an explanation in the governance statement
• Ensure there is a formal and rigorous annual evaluation of board performance
• Appoint highfliers as board secretaries, to liven up meetings, and engage the interest of ministers
• Agree with the secretary of state how NEDs will be used for optional tasks beyond core governance
• Talent spot and foster interest in their sector, maintain a good panel of potential applicants
• Arrange briefing for new NEDs, including face-to-face meetings, on the business environment, key challenges facing the department, the expectations of NEDs, with ‘how to’ scenarios.

Cabinet Office

• Work to maintain a high-quality cohort of NEDs, with more candidates from the public and voluntary sectors, and continued emphasis on diversity
• Recognise the full range of NED activities beyond core governance
• Monitor and record the range of NED activities
• Continue to support cross-departmental network of NEDs and lead NEDs
• Provide central training to new NEDs on the basics like parliament, the role of the centre and Cabinet, arm’s length bodies, government accounting and the accounting officer.

Lead non-executives in departments

• Play a key role in positioning the board and NEDs with the secretary of state
• Ensure the chair acts on the results of the annual and triennial performance evaluations, by recognising the strengths and addressing the weaknesses of the board (as required by paragraph 4.13 of the Code).
• Be more assertive about the risks of overload, especially cumulative overload, and use the departmental planning system as the main vehicle for more realistic planning and prioritisation
• Voice warnings about the risks of projects or programmes to the board as well as in the audit and risk committee; if unheeded, encourage the permanent secretary to request a ministerial direction.

Government lead non-executive

• Continue to provide strong leadership to the non-executives, and be their collective voice
• Re-issue Sir Ian Cheshire’s 2016 note on board responsibilities, with backing from the prime minister.

Prospective non-executives

• Explore non-executive board membership: if you are motivated by challenging work in government, it provides a unique opportunity
• Establish how the secretary of state uses the board; do not assume that it meets the aspirations of the Code
• If the secretary of state is not engaged, work with the permanent secretary to construct an influential role: there is still a fulfilling job to do
• These posts are fascinating. Be prepared to contribute beyond the advertised time, to do the work justice, with extra effort at the start for induction and familiarisation.

July 2022