THE SHAREHOLDER EXECUTIVE AND PUBLIC SECTOR BUSINESSES
Publication of 42nd Report, Session 2006-07
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
âSince it was set up four years ago, the Shareholder Executive has improved the government's performance in managing its shareholdings. But the Executive's powers are too limited; its independence has been compromised by being placed within the principal shareholding department; and some government departments have failed to use its services.
âThe Shareholder Executive must be given the powers it needs to help government get the most from the businesses in its portfolio. At the same time, the Executive must be able to tell Parliament and the public how much these businesses are worth.â?
Mr Leigh was speaking as the Committee published its 42nd Report of this Session which, on the basis of evidence from the Department of Trade and Industry and the Shareholder Executive, examined the management of government's shareholdings and on the barriers to more effective performance.
The mission of the Shareholder Executive (âthe Executiveâ?) is to act as an effective owner of businesses owned or part-owned by government. It was established in 2003 and is now an operational group within the Department for Business, Enterprise and Regulatory Reform (it was formerly within the Department of Trade and Industry). Its portfolio covers 27 businesses with a combined turnover of £21 billion, including businesses that are responsible for providing critical public services, such as air traffic services over national airspace. Whilst it is crucial that these public policy objectives are achieved cost effectively, the government, as shareholder, also has an important interest in protecting or enhancing value so that the businesses provide a satisfactory return on the public money invested in them.
It has delivered value for the taxpayer by putting a framework in place under which clear priorities are set for the businesses; performance is monitored; and management is held to account for delivery. The Executive's success is dependent on it having high calibre staff and the freedom to provide clear and independent advice on shareholder matters. It employs staff with a good mix of public and private sector skills and works within civil service pay limits. The Executive needs to market its services to publicly-owned businesses outside the Executive's portfolio because they are not required to use its services as the government's shareholder.
The Executive can hold management to account for the performance of businesses by using several âshareholder leversâ?, which include: selecting the Chair and Board members; approving transparent business objectives that respect policy constraints; and agreeing finance for investment. The ability to access financing for investments is critical to the success of a commercial business. As long as a business is within the public sector, however, its investment needs are subject to fiscal policy constraints and compete with departmental and government-wide spending priorities. Because of these constraints, decisions on whether or not to invest in a business are not considered on the basis of commercial objectives alone, as in the case of private sector businesses, so the scope for using this important shareholder lever is reduced.
The Executive looks likely to meet its target of increasing the value of six businesses by £1 billion by 2007. This target is not, however, connected to the Executive's own performance, and is based on a single measure without any reference to other measures such as market valuations of the businesses.