Baroness Noakes (Con):

Moved by Baroness Noakes (Con)

15: Schedule 1, page 6, line 18, leave out “five” and insert “four”

My Lords, in moving Amendment 15, I will also speak to my Amendments 16 and 18 in this group. With these amendments, I am returning to the issue of governance of ARIA. We debated these or similar amendments in Committee, and I thought I would give my noble friend the Minister another chance to answer the issues that I raised.

Amendment 15 is directed at the maximum size of the ARIA board. In Committee, I explained that large boards are subject to weaknesses such as passive free-riding, dislocation and groupthink. While it is true that there is no magic formula determining the size at which boards become ineffective, studies generally agree that, once they get to 13 or 14, they do not work well.

Schedule 1 has no overall size constraint but does require a Majority of non-executive directors. One way to constrain the size of the board is therefore to limit the number of potential executive directors. My Amendment 15 would limit those executive members to six, which implies a board size of 13, assuming that non-executives are appointed simply to achieve a bare majority. The current Bill would allow a board size of 15 with a full complement of seven executives.

In Committee, the Minister said that the Government believed that a size of 15 was

“in line with standard practice”.—[Official Report, 17/11/21; col. GC 103.]

It might well be standard practice for public bodies that BEIS creates, but I am sure that it is not in line with any of the literature on effective boards. I would hope that BEIS, in particular, would want to be at the forefront of best practice in this area.

Amendment 18 is about the executive/non-executive balance on the board, and I full support a majority of non-executive directors. I am concerned, however, that by allowing a quorum of half the members, as paragraph 10(2) does, a quorum could be achieved with only one non-executive member. My amendment requires a majority of non-executives for all board meetings, in order to ensure that important decisions are not taken by a dominant executive cadre.

My final amendment in this group, Amendment 16, would delete a power to pay pensions or gratuities to non-executive members, which I believe is drafting from another era and which keeps being repeated merely because it follows precedent. My noble friend the Minister said that the Government had no intention of using the power, but curiously then said that the Government wanted to retain it in the Bill. On the basis that the Government do not want to use the power, I hope my noble friend will now agree with me that it is time to read it its last rites.

Lastly, I will offer a comment on Amendment 17 in this group, tabled by the noble Lord, Lord Morse. I completely understand the thinking behind this amendment, but I believe we should be very wary of imposing this kind of legal straitjacket. We need ARIA to be the kind of place where high-quality people come to work. The concept of employment, which places a considerable fetter on life beyond ARIA, could well end up with exactly the wrong kind of people being attracted to work in ARIA. I agree with the earlier remarks of the noble Lord, Lord Broers, on this. I beg to move.

My Lords, I just repeat a remark I made in Grand Committee in response to the noble Baroness’s speech: I think that she is expressing best practice, certainly as I understand it, on how boards should function. I reconfirm the supportive comment that I made before.

Amendment 17 stands in my name. I thank the noble Baroness, Lady Chapman of Darlington, and the noble Lord, Lord Browne of Ladyton, for their support. My amendment is intended to address potential abuse; I just put that clearly in people’s minds to start with. It sets out to do so in this way: it specifies that those who have been employed in a department that is either supervising or sponsoring ARIA and have been directly involved as part of the team doing so should not be employed by an entity that has benefited from ARIA funding within five years of leaving the department. It also, in proposed new paragraph 8A(2), applies the same five-year exclusion to persons who have been employed in ARIA itself and who might seek employment in an entity that has benefited from ARIA. Finally, in proposed new paragraph 8A(3), it provides that a person falling under either of the two new paragraphs I mentioned shall not acquire a proprietary interest, either directly or indirectly, in intellectual property or bodies owning intellectual property that have benefited from ARIA for a period of five years.

I will just explain the point. This is all about making sure that decisions are made independently of private interest. The amendment provides that officials in a department supervising ARIA who might make decisions and subsequently gain employment, or those working in ARIA making a funding decision to benefit a body applying for funding from it, need a gap—a cordon sanitaire—before they turn up working for that company or directly investing in it. That is ordinary protection of independent interest. It is important to understand.

I come from the world of scrutiny. Scrutiny has intensified a great deal over the past few years. The ARIA project will be scrutinised many times, not just by the National Audit Office; other scrutineers will feed from its work. That is our normal experience. This will be very closely examined, and if you find people popping up working for downstream companies, it may be viewed within the technology industry very tolerantly, but it will be viewed much less tolerantly in the journalistic or scrutiny community, if I may call it that, so putting strong protection in place now makes a lot of sense. That is what I seek to achieve in my amendment.

Would it be better, rather than having the amendment, to rely on a complex set of regulations that are supposed to govern these matters? Unfortunately, when you look at the record of success in such an approach, the results are extremely patchy and unconvincing. That is because, generally speaking, these codes are applied in quite a light way that understands people’s desire to have employment, rather than the importance of being seen to protect the taxpayer and the public interest.

In my view—this is the purpose of my amendment—it is better to go firmly in the direction of protecting the public interest now and prevent people making decisions that could be alleged to arise from conflict of interest.

I speak principally to support Amendment 17 in the name of the noble Lord, Lord Morse, to which I added my name, but having heard the noble Baroness, Lady Noakes, twice—in Committee and today—on Amendments 15, 16 and 18, I am persuaded by her simple, accessible and convincing explanation that changing the Bill in this way would be to its benefit. Hearing from the noble Lord, Lord Morse, that the amendments reflect current practice, I am even more convinced, so I have corroboration and I support them.

I have had the benefit of having had the noble Lord, Lord Morse, explain his amendment to me on a number of occasions. If I was going to be partisan about this, I could think of a lot of contemporary examples of behaviour which the existing ACOBA system has manifestly failed to deal with. Apart from anything else, recent history has damaged significantly the reputation of politics and politicians as a group, and it has bled into civil servants because of the apparent practice of senior civil servants taking positions in private industry while continuing to work in the Civil Service. I have no intention of going through all of them. I am just convinced by the argument made by the noble Lord, whom I have known for a long period, that if we do not recognise that this could become a problem, and if it does become a problem, it will seriously damage ARIA and we should protect it—at the very least by including these provisions in the Bill and indicating that Parliament decided that people who have had those experiences should not move to other positions where it looks as though they are exploiting the information that they had for their own personal gain, and therefore operating in a way that most people in the country would think unethical. If in these circumstances we do not have a narrative that says, “We in Parliament are concerned that this may happen and took the steps that we could to prevent it from happening”, we will be complicit in the damage that will inevitably be done not only to ARIA but, yet again, to those who work in the public service as officials, civil servants, Ministers or just politicians.

My Lords, I recognise the expertise of noble Baroness, Lady Noakes, on issues of corporate governance and, like my noble friend Lord Browne, I have enjoyed listening to her in Committee and again today. I will be interested to hear what assurances the Minister is able to give as a consequence of her amendments. I have learned a lot from her through this process and I look forward to learning more in the future.

I welcome Amendment 17 from the noble Lord, Lord Morse, whose case is no doubt bolstered by his experience over many years. It is a real joy to me that we have come to this House at more or less the same time. This is our first Bill together, and I am very pleased to add my name to his amendment.

There have long been concerns about “revolving doors” in politics—it is not something that started with this Government—but my noble friend Lord Browne was correct to observe that concern about issues such as those dealt with by Amendment 17 is growing, and frankly the Government have brought it on themselves. There is deep concern in the public mind about these issues and we shall see on Thursday what the people of North Shropshire make of it all.

I am struck by the fact that the Minister has taken the amendment from the noble Lord, Lord Morse—a very good amendment which we support—and has directed us to look at paragraph 11 of Schedule 1, which states:

“The Secretary of State may by regulations make provision about the procedures to be adopted for dealing with conflicts of interest.”

They may, but “may” is doing a lot of lifting there, and obviously they may not as well, so there is nothing to give us any assurance that the danger of which the noble Lord, Lord Morse, is correct to warn us could be averted by that provision. We are just not buying it. Although the Minister has, for illustrative purposes, provided a suggestion of how the regulations might look, that does not provide us any assurance whatever.

Given the Minister’s reluctance to accept any of the suggestions that we have made—none of the suggestions, from FoI to reporting, have been taken up by the Government—he is somewhat leaving ARIA exposed, in the way that the noble Lord, Lord Morse, explained so well. We want this organisation to succeed, but because of the Government’s rigidity on these issues, the fear is that we are setting it up with a weakness: this lack of transparency and ability to challenge.

The Minister is kidding himself if he thinks that these issues will not be scrutinised and that some of the problems that may emerge will not somehow get out. I am sure that the Public Accounts Committee will enjoy crawling all over this when it gets the opportunity to do so. We want this to work, but I am afraid that the Government’s approach is not doing ARIA any favours.

I want to hear what the Minister has to say and whether something can be done to provide us with the assurance we are looking for that ARIA will not be characterised—or mischaracterised, I hope—as some sort of secret agency. That would only cause this fascination and determination to probe into its activities to grow.

Before I start, I will deal directly with the comments of the noble Baroness, Lady Chapman, which I thought were a little unfair. We have responded to a number of the points she has made, and we have adopted some of her suggestions on transparency, delivery partners and regional funding. We obviously have not gone as far as she would like in some respects, but it is slightly unfair to say that we have not listened at all to many of the reasonable suggestions that have been put forward from all sides. I will come on to another suggestion that we will adopt shortly.

I start by responding to the amendments put forward my noble friend Lady Noakes. I thank her once again for her considered contributions, which, together, aim to ensure that ARIA is a well-governed and effective agency. I certainly echo the comments of the noble Baroness, Lady Chapman, about her great knowledge of corporate governance. My noble friend’s Amendment 16 would remove the Secretary of State’s power to determine a pension or gratuity for non-executive members. As I said in Committee, it is in fact not our intention to offer these for ARIA’s non-executive members. In consequence of the helpful suggestions and debates we had on that occasion, I have reflected further on the functions of ARIA and the duties and responsibilities we expect of its non-executive members, and I am pleased to be able to confirm to my noble friend that we do not see circumstances in which this power will be required. I am therefore able to say that the Government will support this amendment, and I thank my noble friend again for bringing it forward.

I turn to Amendment 15, also tabled by my noble friend Lady Noakes, who spoke about reducing the maximum possible number of executive members from five to four. The chair of the agency will have responsibility for appointing ARIA’s executive members. Following government guidance for corporate governance, we will set out the responsibilities for ARIA’s chair to review the performance of ARIA’s board and its members in the framework document. This will include evaluating the composition of the board and considering its size, diversity and balance of experience and skills. We expect that, in the initial phases of ARIA, this will tend towards a small board structure. However, I believe that it is important to retain at least some flexibility in the legislation to account for ARIA’s future needs as appropriate, and to allow for a slightly larger board if necessary.

As ARIA will be working across the public and private sectors, using a range of funding mechanisms and funding research at various stages of technological development, I do not think we should rule out a slightly larger arrangement so that ARIA can bring knowledge from a range of backgrounds and ensure that this is represented at board level. I thank my noble friend for her thoughtful remarks on groupthink; it is this diversity of thought and experience that would be the best antidote to such an outcome.

Again, it will be the chairman’s responsibility to consider the best overall balance and composition for an exemplary board to lead this new and unique agency. Clearly, having an experienced and effective chairman is crucial for the good governance of ARIA, as it is for any other organisation, and we will be running the recruitment campaign for such a candidate shortly.

Turning to Amendment 18, also from my noble friend Lady Noakes, I agree that the quorum for ARIA should ensure a Majority non-executive presence, as far as is practicable. I believe it is most appropriate to follow the “Governance” section of the Treasury’s specimen framework document guidance and set this out in ARIA’s framework document, rather than on the face of the Bill. We will agree the right form of words with the new chairman when they are in post, so that this is implemented in a way that is practical for the organisation. For example, there may be four executive members and five non-executive members, and we will need to ensure that a quorum can be achieved if one non-executive member is absent because of illness, for example. This will allow the chairman some flexibility to determine how to deal with absences, such as making arrangements for proxy voting or duly authorised representatives, and this reflects back on the chairman’s duties to lead the board. I hope that my noble friend is therefore suitably reassured. We agree with the intention behind her Amendment 18, but believe it is best to implement this outside the Bill itself.

Amendment 17, tabled by the noble Lord, Lord Morse, sets restrictions for ARIA’s staff and its sponsorship team in BEIS in respect of working for any organisation that has received financial support from ARIA, for five years after terminating their contract. I know the noble Lord, Lord Morse, brings an extreme amount of expertise on this subject from his work as the Comptroller and Auditor-General at the National Audit Office, when he spread fear throughout civil servants—and Ministers, I might add—across Whitehall, he will no doubt be delighted to hear. I have carefully considered his 2015 report on conflicts of interest across government. The report discusses business appointments policy where individuals transferring from public to private sector roles may be associated with conflicts of interest.

Those working in ARIA’s sponsorship team will be civil servants and will therefore be required to comply with the Civil Service’s business appointments policy. For senior civil servants, rules apply until two years after leaving the Civil Service; for those below, they normally apply for one year after leaving. Before accepting new employment, individuals must consider whether an application to the Advisory Committee on Business Appointments, which provides advice to the Prime Minister, is required under the rules. There are several considerations, including whether civil servants have been involved in developing policy affecting their prospective employer.

As these rules do not consider non-civil servants, I can confirm that ARIA will be required to implement its own business appointments policy, which will be agreed with the new chairman once he or she is in post. I believe this is the appropriate mechanism for guarding against abuse of office, undue influence or profiteering. Alongside this, ARIA will be required to have a conflict of interest procedure, which, at a minimum, will require the declaration and evaluation of board members’ interests, so that anyone with a conflict of interest is therefore not involved in any financial or executive decision-making relating to that interest.

Noble Lords will also be aware that the Bill allows for the Secretary of State to set out ARIA’s conflict of interest procedures through regulations, as the noble Baroness, Lady Chapman, referred to, to give them a legislative footing if needed, and I shared draft regulations for illustrative purposes with Front-Bench colleagues and the Cross-Bench Convenor’s office last month. ARIA will also be required to set other necessary policies, including a whistleblowing policy and a gifts and hospitality policy. Those working for both ARIA and its sponsorship team in BEIS will be required to follow the procedures in place, so that decisions are not made with other or future interests or bias in their minds.

We should not indiscriminately deny talented people the chance to share their skills and experience where it can genuinely add value. It is not unlikely to expect those working in ARIA or its sponsorship team to have a passion for science and research. They may want to move on to interesting careers at a university, research institute or exciting tech start-up. I am concerned that such an amendment could deter talented people from applying for these positions, as it would limit their career prospects.

I thank the noble Lord, Lord Broers, for his earlier contribution to the discussion on the amendments in the first group. The noble Lord is right that we must keep and motivate brilliant people, to help to make a success of ARIA, rather than creating a culture of distrust among its employees right from the start. I also welcome the remarks from my noble friends Lord Bethell and Baroness Noakes in supporting that sentiment.

On a practical point, these employees’ future roles might be in an organisation that received funding from ARIA but in an entirely different department, role or project. Furthermore, ARIA’s sponsorship team will not be involved in assessing funding programmes. It is key to the model we are pursuing for ARIA that it will have the autonomy to make its own funding decisions. That will not be down to civil servants, the Government or Ministers.

With particular reference to proposed new sub-paragraph (3) of Amendment 17, even when ARIA’s staff wish to pursue future roles connected to the work that they did at ARIA, that could be extremely valuable for the outcomes that ARIA is being created to achieve, such as the generation of new technologies and businesses in the United Kingdom. For example, a programme manager will bring forward a proposal that they are passionate about developing at ARIA. At the end of the programme, they may develop a successful proof of concept, thanks to all the contractors involved. The programme manager is then keen to take the benefits of ARIA’s funding through to commercialisation with the company that was funded to develop the original work. Such an amendment would outright ban the collaborative and seamless funding of R&D that we should be encouraging between the public and private sectors.

Let us not forget that ARIA will be funding high-risk research, which may be in extremely niche fields, with very few people in the country working on it. We should capitalise on these networks, encourage them to work together and follow their ideas through to real outcomes, with processes in place to consider and act on any conflicts—but on a case-by-case basis.

I hope I have clearly illustrated the potentially damaging unintended consequences of placing such broad restrictions in legislation. I hope I have also assured noble Lords that ARIA will be required, as is any other arm’s-length body, to have clear and robust business appointments and conflict of interest policies in place. On the basis of the assurances that I have been able to provide, I request the noble Baroness to withdraw her amendment.

My Lords, I thank those noble Lords who supported the amendments that I spoke to in this group. There was a small, select bunch of us, but it was a high-quality debate.

I am grateful to my noble friend the Minister for the further helpful explanation that he has now given in relation to my Amendments 15 and 18. I should say that I am thrilled that the Government are accepting my Amendment 16. It remains only for me to say thank you and beg leave to withdraw Amendment 15.

Amendment 15 withdrawn.