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Woolley bully: the MoD's finance director
A revealing exchange occurred earlier this year between the MP for South Norfolk, Richard Bacon, and a man you may very well not have heard of called Trevor Woolley. It happened during a Public Accounts Committee (PAC) hearing and went as follows:Bacon: “Mr Woolley, are you a chartered accountant?”
Woolley: “I am not”
Bacon: “Are you a qualified financial person of any kind? Do you have any financial qualifications?”
Woolley: “I do not have any financial qualifications.”
Bacon: “What is your job?”
Woolley: “I am the financial director of the Ministry of Defence”
Woolley’s job requires him to oversee a budget of £34 billion, a workforce of over 100,000 civilians and nearly 200,000 military personnel, and a property portfolio that equates to 1% of the UK, amongst other things. It’s a shame the department hasn’t found the time to put him on a course of some kind since he arrived in 1975. After all, the military pride themselves on that sort of thing, and the MoD often boasts how it is “committed to Investors in People and is dedicated to the training and development of its staff”. You never know, having some sort of accounting or even bookkeeping qualification might help him do his job. That’s the opinion of the committee, anyway.
You see, Woolley was up before the PAC over the privatisation of the annoyingly titled QinetiQ. If you don’t know what QinetiQ does you must have a pretty good idea already, right? A firm with a name that bad has to have something to do with new labour’s public-private partnership strategy, and indeed it has. QinetiQ, now a PLC, was once part of the Defence Evaluation and Research Agency (DERA). But how it came to be a PLC has been the subject of some concern.
In a nutshell, declining research budgets in the nineties meant DERA might have to tighten its belt more than was practical. So a decision was made to split it in two in 2001. The really top secret stuff would be kept in the public sector and handled by the new Defence Science and Technology Laboratory (DSTL). Everything else would be parcelled off to a government-owned private company (QinetiQ), and privatised in two stages: the sale of a minority stake to a “strategic partner” in 2002, and then outright floatation in 2006.
Back in early 2002, prior to privatisation, the market for technology stocks was pretty poor and Sir John Egan, the then Chairman, wanted to develop QinetiQ while it was still in public ownership. There was, after all, a meaty Long Term Partnering Agreement (LTPA) still to be finalised between the firm and the MoD. Instead, what happened was this.
The Treasury said if the sale was completed before March 2003 and raised over £250 million, the first £250 million would be credited to the MoD’s budget. In March 2002, there were 16 potential bidders lined up, almost all private equity firms. The management crew at QinetiQ, now under the chairmanship of Sir John Chisholm, picked Carlyle as front-runner in September and ceased discussions with everyone else. The LPTA still had to be negotiated and a pension fund deficit hadn’t been resolved, which meant Carlyle got £55 million off the valuation. It also transpired that prior to appointing Carlyle, Chisholm had been discussing the question of “management incentives” with the firm. Carlyle promptly doubled the equity set aside in its incentive scheme to 20% and then promptly won the bid.
The top 10 managers at QinetiQ picked up £107 million between them from a total investment of £425,00. The only way they could lose on this investment was if the equity value of QinetiQ didn’t see a minimum increase of 20% before floatation. Yet there was that LPTA still to be negotiated, of course. The details were quickly ironed out, and it was predicted to bring in £5.6 billion over the course of its life. A mere 20% was no problem: the MoD and Carlyle saw their investment multiply in value nine times almost immediately.
All this of course completely flaunts the Combined Code on Corporate governance. Chisholm et al also neglected to inform the remuneration committee of their dealings. A further sweetener was also offered: despite the fact the Department had long made clear that bidding costs would not be reimbursed, it forked out £16 million to Carlyle for its efforts, without attempting to verify or validate any of its expenses.
If you think all this sounds a bit dodgy, so did most of the Public Accounts Committee. But sadly, as with most committees, all it was able to do was show some righteous indignation.
“I think it was right to say that this was a very complex deal,” concluded an unscathed Woolley, who actually sat on Qinetic’s board as a director between 2004 and the flotation.
But others, notably Richard Bacon, remained irate.
“It is not the job of government to allow senior civil servants to become multimillionaires by selling off assets at knock-down prices which taxpayers have paid for,” said Bacon. “I simply do not understand how the Treasury let this happen. I am all for rewarding success, but for the Treasury to force through the sale while civil servants made a 20,000 per cent return on their investment is disgusting”.
Woolley and the Ministry of Defence don’t appear to have learned much from Qinetiq when it comes to the problems of privatisation. A move to privatise elements of defence training to a consortium called Metrix in an £11 billion deal now has MPs calling for a National Audit Office investigation. Meanwhile, the MoD’s IT contract with Atlas is a year and a half late and £182 million over budget. Earlier this month the Public Accounts Committee (PAC) also looked into the fact that while troops in Afghanistan have been forced to use lightly armoured vehicles, eight Chinooks have been sitting uselessly in hangars for the last seven years. The Ministry spent £422 million on the helicopters but mistakenly bought ones that could only fly in clear daylight. Sir Edward Leigh, PAC chairman, described it as a “gold-standard cock-up… they might as well have bought eight turkeys.”
There are plenty of accountants who rate Woolley’s expertise, however. In 2006, together with the high-living Sir John Bourn, he won the PricewaterhouseCoopers public trust award for “telling it like it is”. That same year he also won the Public Sector Power 100 Finance Award, and he is also a senior member of the Treasury’s Financial Reporting Advisory Board. Despite such accolades it seems Woolley’s days may be numbered, however. The MoD has been advertising for a new finance director since April, but private sector candidates have been thin on the ground (as of May, none had applied). It is reported a qualified accountant would be preferred.
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AccountingWEB.co.uk 18-Jul-2008
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