The Week 23 June 2023

It's not been the most upbeat of weeks — inflation up, interest rates up, England's men lost the first Ashes test (hopefully the women can do better!) — but for all of us machinery of government geeks, there was one highlight: the Public Administration and Constitutional Affairs Committee (PACAC) published their report on 'The role of non-executive directors in government'.

As the Committee notes, little is actually known about government NEDs, yet they are one of the main ways that external expertise is brought to bear on departmental activity — and they can play quite a sizeable role in Whitehall.

The basics… departmental boards are not comparable to those in the private sector, they are purely advisory with no legal standing. Up until 2011 when Francis Maude changed it, they were typically chaired by the Permanent Secretary. Maude — who is now reviewing the role of NEDs as part of his independent review of governance and accountability, due to report *soon* — wanted the Secretary of State (SoS) to act as chair.

The board's activity is essentially at the discretion of the SoS. Its focus is primarily on operational performance, it does not have a remit to examine policy. NEDs can also be — and often are — involved in other tasks (e.g. reviewing arm’s length bodies, or undertaking permanent secretary appraisals) and sit on committees outside the board (e.g. sitting on audit and risk committees, departmental portfolio boards and challenge panels).

PACAC, rightly, is concerned about the extent to which NED activities are discretionary and the lack of transparency over the work they undertake outside of the board — there is no doubt a case for “more public accountability and clarity on the work of NEDs and their purpose”, as they say.

Concern has also been raised in recent years, which PACAC echoes, that appointments have been politicised. The Corporate Governance Code states that NEDs should “come primarily from the commercial private sector, with experience of managing large and complex organisations”, though the PACAC report notes that departments also benefit from deep expertise in areas they cover (e.g. local gov for DLUHC, the arts or media for DCMS). On perceived political appointments (e.g. former SpAds), both the current lead NED and the Minister for the Cabinet Office told the inquiry they saw no problem. PACAC argue for a ban: “Secretaries of State should avoid appointing individuals with clear political or personal connections, including former or current Special Advisers”. They also call for a change to the Code to focus recruitment on specific skills rather than specific sectors — which seems eminently sensible.

Amazingly, unlike appointments to public bodies, NED appointments are unregulated. PACAC are calling for this to change, which the Government had previously indicated they would do, but has not confirmed when. At a minimum, greater transparency is needed around the appointment and dismissal process for NEDs.

During our Reimagining Whitehall research we've heard that the insular nature of Whitehall, the lack of experience outside of the civil service, and a bias towards policy in promotion decisions, means that departmental leadership can lack the delivery capabilities needed to successfully translate political priorities into action, and to implement major change programmes. NEDs can provide some of that expertise (though Whitehall must simultaneously address those shortcomings).

In short, NEDs can be of huge value, but that means appointing the right people and deploying them in the right way. When that happens, as one former permanent secretary told us, “you get absolutely first rate consultancy at a bargain basement price”.