Remind me- why do we trust these people?
Last week Tyler attended the Public Accounts Committee hearing on MOD's bungled 2003-06 sale of QinetiQ (transcript here and see previous blogs, including here). BOM readers will be familiar with the huge profits made by the purchaser- Carlyle- and the company's executives led by Sir John Chisholm.
As you might expect, PAC members launched a heavy attack on the witnesses, who included Sir John himself and the present MOD Permanent Secretary, Bill Jeffrey. Overall, both came out of it with their wickets intact: ie they stood their ground and the Committee learned little beyond the NAO report (see here).
But it was still a sobering reminder why civil service mandarins cannot be trusted to avoid a skinning when it comes to dealing with the sharp end of the private sector. PAC Chairman Leigh described MOD officials as "naïve babies in a sea of sharks".
One exchange is especially worth highlighting. Leigh was questioning Chisholm, who as you will recall, made a £25.8m profit on his £100,000 investment (a 19,900% return):
Q18 Chairman: What the public think is that it is frankly appalling. It goes totally against any concept of ethical capitalism, Sir John, that you can put £100,000 into a business and emerge with £25 million of taxpayer's money. Nobody from outside can understand it. Do you have any sense of shame here before us?
Sir John Chisholm: I have a considerable sense of having led a team to create £1 billion worth of value for the taxpayer. I think that is a great achievement by the team...
I believe in any deal like this there was a contractual agreement put by the investor to the management team that had considerable risk for the management team at the time and they signed up to it...
The NAO report itself says that if the company had not achieved a 20% return at least then the management team would have lost their whole investment.
It wasn't a popular line with the Committee, but Tyler has a lot of sympathy with Chisholm. He did risk his own money, and he was only receiving what had been agreed by MOD. Why should he be ashamed?
The shame rightfully belongs to those who committed taxpayers to the transaction- ie MOD ministers and officials. They were the ones who let in Carlyle at too low a price, and they were the ones who then agreed the juicy incentive scheme for execs.
And lest we forget, the Defence Secretary at the time was Geoff Hoon, now Labour Chief Whip. The MOD Permanent Secretary was Sir Kevin Tebbit, now a director of Smiths PLC, the technology company, and also Chairman of Finmeccanica UK. Both companies have extensive defence businesses, and... well, whaddaya know... extensive contracts with MOD.
But behind both of them was the Treasury, pressuring the MOD to secure a sale in order to hit its top-down asset sales target. Now remind me... who was Chancellor at the time?
When we talk of shame, let's locate it in the right place.
PS This is not the first time BOM has disageed with Chairman Leigh on blame attribution. Regular readers will recall the appalling case of the Norfolk and Norwich hospital PFI contract, where the contractors cleaned up at taxpayers expense. Sir Edward described them as the unacceptable face of capitalism, but the real blame lay squarely with the Simple Shopping Department of Health.
PPS The QinetiQ debacle contains some ominous pointers for the Northern Crock escape plan- public officials under political pressure to reach a quick deal, a preferred bidder arrangement that went disastrously wrong, and some pretty sharp operators on the other side of the table. We'll be blogging it separately.