Source · Select Committees · Public Administration and Constitutional Affairs Committee
Seventh Report - The Role of Non-Executive Directors in Government
Public Administration and Constitutional Affairs Committee
HC 318
Published 20 June 2023
Recommendations
1
Acknowledged
Para 18
Increase public accountability and clarity regarding non-executive board members' purpose and activities.
Recommendation
Non-executive board members were brought in in their current form in 2010 to “make Government operate in a more business-like manner”. However, it is unclear whether the corporate governance of Whitehall still sits at the centre of their purpose and …
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Government Response Summary
The government acknowledges the need for consistency and public accountability for NEDs, stating it has taken steps and will continue to embed this approach. Further adjustments will be considered alongside Lord Maude’s review, maintaining departmental flexibility, and guidance will be provided for Lead Non-Executives to support Secretaries of State.
2
Rejected
Para 19
Update or replace the Corporate Governance Code to define non-executive directors' comprehensive roles.
Recommendation
The Corporate Governance Code is not fit-for-purpose as the main guidance document for NEDs, given it does not encompass all of their work in Government. It should be updated or replaced by the end of the calendar year to set …
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Government Response Summary
The government rejects the recommendation that the Corporate Governance Code is not fit-for-purpose, stating it will only consider updates while prioritizing departmental flexibility rather than a prescriptive new document.
3
Accepted in Part
Para 20
Publish departmental board terms of reference and individual non-executive board member responsibilities annually.
Recommendation
We recommend that each Government department make public the terms of reference for their departmental boards, including the individual roles and responsibilities of each non-executive board member. These should be published on GOV.UK and updated annually, or sooner if there …
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Government Response Summary
The government agreed that roles and responsibilities of NEBMs should be published for transparency, suggesting this occurs as part of their biographies on departmental websites rather than requiring full departmental board terms of reference to be made public.
5
Deferred
Prioritise publishing Lord Maude's Review findings within two weeks of delivery.
Recommendation
The Rt. Hon. Lord Maude of Horsham should take into consideration the conclusions and recommendations of this inquiry into his final report for the Review of Governance and Accountability. The Government should prioritise publishing the findings of the Review within …
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Government Response Summary
The government stated it would consider the recommendations from the Review of Governance and Accountability once it has been published and respond in due course.
6
Rejected
Para 37
Non-executive director appointments from within government undermine independence and public confidence.
Recommendation
The Corporate Governance Code says NEDs will be “experts from outside Government”. However, we have highlighted examples in this Report of individuals that appear to have been recruited to NED roles from within Government or through personal connections. This includes …
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Government Response Summary
The government largely rejected the concern about NEDs from within government or with political connections, asserting that previous political activity is not a bar to appointment and former civil servants or political advisers can bring advantageous experience, while stating it will continue to follow the Governance Code.
8
Rejected
Para 39
Update the Corporate Governance Code to reinstate non-executive board member independence and restrict politically connected appointments.
Recommendation
The Committee recommends that the Corporate Governance Code is updated to reinstate the “independence” of non-executive board members, which was removed from the 2011 and 2017 editions of the Code. The updated Code should outline the expectation that Secretaries of …
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Government Response Summary
The government rejects the recommendation to reinstate 'independence' and avoid appointing individuals with political connections, arguing that such exclusions are not aligned with existing codes or are inappropriate for former Special Advisers and serving Peers.
9
Rejected
Para 40
Prioritising commercial experience for Non-Executive Director roles risks limiting applicant diversity.
Recommendation
The Corporate Governance Code for Central Government Departments states that non-executive board members will be primarily from the commercial private sector and the Committee recognises the value individuals with this experience can bring to departmental boards. However, written evidence from …
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Government Response Summary
The government rejected the recommendation to reduce the priority of commercial experience, arguing that while the current NEBM cadre includes diverse experience, the benefits of strong commercial representation on boards are very apparent.
10
Not Addressed
Update the Corporate Governance Code to define standard desirable skills for departmental Non-Executive Directors.
Recommendation
We recommend that the Corporate Governance Code is updated to include a standard set of skills and qualities which are deemed desirable to undertake the role of a departmental NED or Lead NED, rather than express a preference for individuals …
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Government Response Summary
The government states that the Secretary of State considers specific experience and skills for vacancies, but does not address the recommendation to update the Corporate Governance Code with a standard set of skills.
12
Accepted
Para 51
Ensure full departmental transparency in NED recruitment and require prompt publication of appointment details.
Recommendation
The Government Lead Non-Executive should ensure that every department is fully transparent about the recruitment process for its NEDs and that all departures from the Corporate Governance Code are justified in the governance statements of departments’ annual report and accounts. …
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Government Response Summary
The government stated that existing processes address transparency, with departures from the Corporate Governance Code disclosed in annual reports, appointments announced on GOV.UK pages, and adverts published on the Cabinet Office website detailing the process.
13
Accepted in Part
Para 52
Confirm GOV.UK Non-Executive Director list is updated and require annual updates with appointment years.
Recommendation
The Cabinet Office should confirm in their response to this Report that the list of NEDs by department has been updated on GOV.UK, given this transparency data is now two years out of date. In addition to their names and …
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Government Response Summary
The government confirms the latest list of NEBMs was in the Lead Non-Executive Annual Report and commits to publishing a supplementary list twice annually, addressing the call for more frequent updates but not explicitly confirming the inclusion of appointment years on GOV.UK.
15
Accepted in Part
Para 54
Confirm timeline for regulating NED appointments and class Lead Non-Executive as significant appointment.
Recommendation
The Cabinet Office should confirm in its response to this Report the timeline for implementing the CSPL recommendation that NED appointments should be regulated by the Commissioner for Public Appointments. This should apply to all NED appointments in Government departments. …
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Government Response Summary
The government has implemented the regulation of NEBM appointments by updating the Public Appointments Order in Council. However, the classification of the Government Lead Non-Executive position as a 'significant appointment' will be considered during the next refresh of the Significant Appointments list.
16
Accepted in Part
Para 55
Continue and expand annual reporting on departmental Non-Executive Director diversity, including ethnicity data.
Recommendation
The Committee notes that the latest Government Lead Non-Executive Report for 2021–22 shows a drop in female representation on departmental boards since 2020– 21, and we are particularly concerned by the absence of any data on black, Asian, and minority …
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Government Response Summary
The government agrees to include ethnic minority representation data in the Government Lead Non-Executive Report where it is made available, but will not mandate disclosure. The Commissioner for Public Appointments will also monitor and publish department diversity data annually.
17
Deferred
Para 56
Update Corporate Governance Code to stress value of NEDs and advise against automatic removal.
Recommendation
The consensus from oral witnesses to the inquiry, including the current Government Lead Non-Executive, was that NEDs and boards have a role to play in providing continuity and corporate memory between new Ministers and administrations. While we recognise that the …
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Government Response Summary
The government states it will consider amending the Corporate Governance Code to include provisions on the removal of departmental NEDs, taking into account the committee's recommendations and other reports, while affirming ministerial discretion.
18
Acknowledged
Confirm consistent policy for Non-Executive Director numbers related to department size and remit
Recommendation
The number of NEDs per department is variable. We believe there should be common standards underpinning the rationale for the number of NEDs per department in the interests of consistency and good governance. The Government should confirm in response to …
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Government Response Summary
The government states it will continue to improve consistency and will consider additional adjustments alongside Lord Maude’s review. While it highlights the need for departmental flexibility regarding NED numbers, it commits to updating or replacing the Corporate Governance Code by the end of the calendar year to define NED roles and tasks.
19
Rejected
Para 69
Mandate the Government Lead Non-Executive to monitor compliance with the Corporate Governance Code
Recommendation
The Committee is concerned by the variability in board performance, the differing commitment of Secretaries of State in engaging with departmental boards, and examples of non-compliance with the Corporate Governance Code which are not being reported in departments’ annual reports …
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Government Response Summary
The government rejected the recommendation, stating that compliance monitoring lies with Principal Accounting Officers and it would be unhelpful for the Government Lead Non-Executive to intervene in a monitoring or enforcement role.
21
Accepted in Part
Para 71
Mandate ministerial board training and require departments to list board evaluation actions
Recommendation
The effective use of departmental boards requires sufficient ministerial interest and regular scrutiny. Secretaries of State should undertake mandatory training, with the Prime Minister’s sponsorship, on their role chairing quarterly board meetings, how to work with NEDs, and how to …
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Government Response Summary
The government accepts in part, stating that Lead Non-Executives, supported by NEBMs, should support Secretaries of State in running effective boards, and will provide supporting guidance. They will also encourage all departments to list actions from board effectiveness evaluations in annual reports, rather than mandating it, differing from mandatory training for SoS.
22
Acknowledged
Para 72
Increase public availability of information regarding Non-Executive Director roles and responsibilities
Recommendation
Given that non-executives in Government departments, unlike their private sector equivalents, operate in an advisory capacity only, the Committee does not believe that NEDs should have more formal accountability to Parliament. However, there should be more information in the public …
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Government Response Summary
The government acknowledges the committee's feedback and states it will consider whether the Corporate Governance Code would benefit from changes to improve transparency around NEDs' roles and responsibilities.
23
Accepted in Part
Publish updated Governance Code, board terms of reference, minutes, and Lead NED reports
Recommendation
In chapter two in this Report, we recommend that the Government publishes an updated Corporate Governance Code and terms of reference for each departmental board to provide greater transparency on the individual responsibilities of NEDs. In addition to this, we …
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Government Response Summary
The government agrees to publish terms of reference for departmental boards and the responsibilities of NEBMs. However, they reject the routine publishing of board minutes and will only consider improvements to the Corporate Governance Code, while indicating an October deadline for the Government Lead Non-Executive report rather than the recommended August.
25
Acknowledged
Para 75
Publish departmental board members' registers of interests and monitor conflict management clarity
Recommendation
We recommend that departments’ registers of board members’ interests be published on GOV.UK, as well as included in departments’ annual reports and accounts. These should be published in a consistent format, updated every six months, and include any relevant non-financial …
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Government Response Summary
The government agrees that a common and consistent format for registers of interests would be welcome but does not commit to the recommended frequency of six months or specific publication on GOV.UK, instead stating periodic publication via departmental websites.
26
Accepted
Subject the Government Lead Non-Executive to direct parliamentary scrutiny and oversight
Recommendation
The Committee acknowledges the arguments against NEDs being formally accountable to Parliament for any departmental or policy-specific matters, given the potential implications for the principle of ministerial responsibility. However, we believe that the Government Lead Non-Executive, as a quasi-regulator and …
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Government Response Summary
The government does not agree with the committee's characterisation of the Government Lead Non-Executive as a quasi-regulator, but notes that GLNEDs have historically appeared before the committee and will continue to make themselves available for scrutiny.
27
Rejected
Subject future Government Lead Non-Executive candidates to pre-appointment hearings with the Committee.
Recommendation
We recommend that future candidates to the role of Government Lead Non-Executive should be subject to a pre-appointment hearing by the Public Administration and Constitutional Affairs Committee. We also recommend that, as has been practice in the past, the Government …
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Government Response Summary
The government rejects the recommendation for the Government Lead Non-Executive to be subject to pre-appointment hearings, stating the role does not meet the necessary criteria for such scrutiny.
Conclusions (6)
4
Conclusion
Acknowledged
Para 21
The Government’s commitment to review the appropriate role for NEDs and departmental boards, as part of the broader Governance and Accountability Review being led by the Rt. Hon. Lord Maude of Horsham, is welcome. However, the Committee is disappointed that it is now over five months overdue.
Government Response Summary
The government acknowledged the delay in Lord Maude’s Review of Governance and Accountability, stating that additional time was granted for full consideration, and the Cabinet Office expects to receive and publish the final findings in the near future.
7
Conclusion
Acknowledged
Para 38
Furthermore, the Committee considers that the power of NEDs, currently included in the Corporate Governance Code, to be able to recommend to the Prime Minister, Secretary of State, and Cabinet Secretary that the Permanent Secretary be removed from their post if they are deemed to be an obstacle to delivery, …
Government Response Summary
The government acknowledged that NEBMs are able to recommend the removal of a Permanent Secretary and affirmed that NEBMs adhere to the Seven Principles of Public Life, acting impartially and on merit.
11
Conclusion
Accepted
Para 50
The Corporate Governance Code stipulates that non-executive board members should be appointed on merit through a fair and open process. The current Government Lead Non-Executive told the Committee that a small proportion of NEDs currently in post have been directly appointed and, since he took on the The Role of …
Government Response Summary
The government states that all NEBM appointments now comply with the Governance Code, ensuring transparency and consistency through public appointment processes. They agree that Code departures should be reported and will consider summarising these in the Government Lead Non-Executive's annual report.
14
Conclusion
Accepted
Para 53
The Government has indicated that it will implement the Committee on Standards in Public Life’s (CSPL) recommendation that NED appointments should be regulated by the Commissioner for Public Appointments, which we welcome. However, it is disappointing that it appears no progress has been made since the CSPL report was published …
Government Response Summary
The government confirms it has met the commitment by updating the Public Appointments Order in Council 2023, which now includes the regulation of non-executive directors to ministerial department boards by the Commissioner for Public Appointments.
20
Conclusion
Deferred
The Government Lead Non-Executive should provide a report on compliance with the Corporate Governance Code in the Government Lead Non-Executive Annual Report. This would cover all aspects of the Code, such as attendance at board meetings, whether fair and open recruitment practices have been followed, the management of conflicts of …
Government Response Summary
The government agrees there are benefits to publishing NEBM roles and responsibilities but does not commit to providing a report on Corporate Governance Code compliance or departmental justifications for departures. It notes its commitment to review NED roles is part of the overdue Lord Maude’s Governance and Accountability Review.
24
Conclusion
Acknowledged
Para 74
We are concerned by the lack of consistency and transparency in how departments manage any real or perceived conflicts of interests. This includes a wide variation in how information is reported in departments’ annual report and accounts and a lack of transparency over non-financial interests.
Government Response Summary
The government agrees that a common and consistent format for registers of board members' interests would be welcome and notes that conflicts should be disclosed and managed internally, with public disclosure periodically via departmental websites.