Conclusions and recommendations |
1. Reconciling public policy with shareholder
value objectives can be difficult because the cost of meeting
the former can have a negative impact on the latter.
Currently, the Executive reports to officials in the Department
of Trade and Industry and the Stakeholder Group who have policy
interests in the Executive's businesses. The Department is setting
up a Board to provide direction and accountability to which the
Executive will report. The Board will need to articulate what
it expects of the Executive, and how it proposes to assess the
2. The Executive lacks a mandatory role as
the government's shareholder, but is dependent on the voluntary
cooperation of the businesses and their sponsor Departments.
There should be a presumption that government businesses come
within the Executive's portfolio and any exclusions should be
specifically authorised by the Treasury.
3. The Executive's advice is not being harnessed
effectively across government. Transactions
which affect departments' ownership interests are continuing to
take place without any input from the Executive. The Executive
should market its services comprehensively and seek to be more
visible across government as a whole.
4. The Executive's effectiveness in its dealings
with businesses is constrained by its limited ability to provide
finance. Investment by departments in
their public businesses is subject to public spending constraints
and competes with other priorities. But the availability of finance
for investment can have a major impact on the value of a business.
The financing of such investment cases could be assessed more
consistently by giving the Executive an explicit responsibility
for advising sponsor departments on the investment needs of their
5. The target for increasing the value of
six of its 27 businesses by £1 billion is not an adequate
test of the Executive's effectiveness.
One or two large businesses, potentially affected by market conditions,
can influence whether the Executive meets its target, regardless
of the Executive's underlying performance. Its performance management
regime needs to include wider measures that are based on the results
of individual businesses, alongside an aggregated portfolio-level
6. The Executive operates within departmental
pay and grading limits which may inhibit recruitment of appropriately
skilled staff. The quality of the Executive's
staff is key to its effectiveness. The Executive needs sufficient
pay flexibility to continue to recruit high calibre staff in a
market for commercially-related skills.
7. The Executive has a range of responsibilities
for the postal services industry, which extend beyond shareholder
value issues. The Executive's current
location in the DTI means that, in addition to the shareholding
in Royal Mail, it is responsible for DTI policy on the postal
market and the Post Office network, and oversight of the market
regulator and consumer watchdog. This arrangement could inhibit
the Executive from articulating the case for enhancing shareholder
value in Royal Mail. The Department should identify options for
relieving the Executive of responsibility for Royal Mail policy
and oversight of PostWatch and PostComm.
8. Between 2004 and 2006, the dividends paid
have increased from £24.3 million to £45.3 million,
while operating profits have risen from £1.1 billion to £3.7
billion. The Executive should set business-level
dividend targets, which take into account the risks faced by businesses,
the capital invested in them and a credible estimate of future
investment needs, so that over time a greater flow of dividends
could be returned to the taxpayer.
9. The Executive does not undertake valuations
of all of the businesses in its portfolio.
Although it is not cost-effective to conduct valuations of all
of its businesses on an annual basis, the Executive should systematically
undertake valuations of the businesses in its portfolio every
few years and use these to highlight the impact of policy on shareholder