Shareholder stories: ex-UKGI chief Mark Russell on life as Whitehall's corporate governance guru
Mark Russell has been helping government support businesses for nearly two decades. The former head of UK Government Investments tells Richard Johnstone about his civil service baptism of fire in the early 2000s and what the Treasury-owned company will be doing in response to coronavirus
The coronavirus pandemic represents an emergency unseen in peacetime, with government pulling out all the stops to create new ways of working and to support the economy.
However, some departments and agencies have been able to model their response on schemes or projects that they had run before. The Treasury, for example, has developed its plans to support the economy at a speed that it learned during the 2007-08 financial crisis. To test supply chains during Covid-19, the Department of Health and Social Care used plans to import medicines developed during its no-deal Brexit preparations, while the Foreign Office has chartered flights to get Brits home, building on government repatriation flights after the collapse of the travel company Thomas Cook.
Another organisation that is ready to use its experience to deal with the fallout from the pandemic is UK Government Investments. The Treasury-owned company is Whitehall’s centre of expertise in corporate finance and corporate governance, meaning it both advises on any support for private firms and acts as shareholder in state-owned entities as diverse as Channel 4, the Land Registry and the Post Office.
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The state has stepped in to support the economy on an unprecedented scale through loans and support for workers. And the team at UKGI stands ready to support any further interventions, says Mark Russell, who was chief executive of UKGI and its predecessor body, the Shareholder Executive, from April 2013 to November 2019.
Russell, who remains UKGI’s vice chair as well as chairing the MoD’s procurement agency Defence Equipment & Support, says it will be doing “a mixture of things” to prepare for the next steps.
“I think it’s certainly advising departments and ministers on the financial health of our corporates, and – to the extent corporates turn up at the door of a department saying they may need more money – helping them to test that fairly robustly,” he says.
Some large companies have indeed begun to do just that, with calls for support from the airline industry perhaps the most high-profile so far.
UKGI will be helping the Treasury, in particular, to think through the case for interventions for companies such as Virgin Atlantic, Russell says, “and if it were to intervene in any of these cases, how would it do it?”
When Russell speaks to CSW at the end of March to reflect on his time at UKGI, he notes that the government is prioritising widespread support through mechanisms such as the Coronavirus Job Retention Scheme, rather than bespoke deals for industries or companies. “At the moment we’ve got blanket support schemes that go across industry sectors,” he says. “To the extent government policy changes and we start looking at individual sectors or individual companies, then potentially we’re going to get more busy.
“If it ever came to intervention, then we would be in the thick of some of those discussions because they can be highly technical.”
"If corporates turn up on the door of a department saying they may need more money, UKGI will be able to test that fairly robustly”
Russell oversaw a number of such interventions to support large companies when he was at UKGI, in what he calls its “special situations work”. These firms are not typically major suppliers to government, he says, but rather economically significant companies that need help to survive. The interventions during the 2007-08 financial crisis to bail out UK banks fit into this category, as do those to save the UK car industry before that.
These are companies with economic significance “where ministers would be bothered if they were to fall over”, Russell says, and UKGI has worked to facilitate private-sector solutions to keep them operating. They also prepare options for possible state interventions “on the right terms if private sector solutions aren’t possible”, he adds. “But that is very much plan B.”
Russell’s “baptism of fire” after joining UKGI’s predecessor body the Shareholder Executive (ShEx) in November 2004 came in the form of having to prop up the car industry.
Having joined as ShEx’s director of corporate finance practice from KPMG’s corporate finance department, he quickly became involved in efforts intended to save carmarker MG Rover – although a mooted takeover did not materialise and the company entered insolvency in April 2005 – followed by successful interventions to protect both Jaguar Land Rover and General Motors’ UK operations.
“Jaguar Land Rover and General Motors were both companies that government may have had to intervene to support. But we helped engineer private sector solutions,” he recalls.
Engineering such interventions became a key strength of ShEx and then UKGI, with the body providing corporate finance and governance advice that hadn’t previously been available for much of government.
“Being able to understand corporate distress and liquidity problems is a very useful resource for departments, and UKGI being that interface between departments, the Treasury and the corporates is very useful. That’s one category that I was very pleased we’ve developed.”
That initial move into the civil service thrust Russell into “a very different environment” from his time working for private accountancy firms.
He made the leap after Richard Gillingwater, the first head of ShEx, was asked in 2003 by then-cabinet secretary Andrew Turnbull to professionalise the government’s management of its commercial shareholdings. This covered firms like Royal Mail, British Nuclear Fuels Limited and “various other fairly commercial organisations”, Russell says.
“Then by the time I went to talk to [Gillingwater], he was being asked to take over a group in the Department for Trade and Industry which was essentially a corporate finance group, which mainly advised on regional assistance investments,” he recalls.
“What he asked me to do was head that group up as it came into the Shareholder Executive. So from 2005 corporate finance became the Shareholder Executive’s second leg, with the first being corporate governance.”
A key difference working in Whitehall was that Russell, fresh from a top job in a Big Four firm, didn’t have to juggle multiple clients.
“Suddenly billing targets, and chasing clients for fees, didn’t exist, so that was nice,” he says with a smile that can be heard down the phone. “It also became clear pretty early on that the relatively small group of people from the private sector [who made up the burgeoning Shareholder Executive] could relatively easily add value within Whitehall.”
The value was in being able to provide “a finance and commercial skillset and experience of corporate governance” – such as how corporate boards operate and undertake transactions – that complemented the work of civil servants.
Russell was named deputy chief executive in 2008. Five years later he took over from the then-chief executive Stephen Lovegrove, who went to head up the Department for Energy and Climate Change and then the Ministry of Defence, where he is still permanent secretary.
The organisation had already changed from the one Russell had joined – “we were starting to move away from governance of government companies to the governance of arm’s-length bodies” – and when he took charge a big shift was on the horizon. In 2016, ShEx merged with the Treasury’s UK Financial Investments unit – formed to steward the government’s stake in the bailed out-banks – to form UKGI. At the same time, it moved from the business department to become a company owned by the Treasury, providing assistance on investments and privatisations across government.
One particular sale that garnered headlines around this time was the privatisation of Royal Mail. The 2013 sale of the government-owned firm was controversial because the shares rose in value from the initial offer price of 330p to 455p on the first day of trading, leading to accusations that the postal firm had been sold too cheaply, although they are now valued at around 160p.
Putting in place the sale, which also included a mutual stake in the firm for employees, “took 18 months out of my life”, Russell says.
He adds that while it the share price was controversial, UKGI “felt it was a well-priced transaction at the time”.
Lots of people disagreed, he acknowledges, but argues the years since have proven the sale, which in total raised £3.3bn, was well priced.
“So although it was a stressful 18 months, I feel that was a very satisfying transaction in the end,” he says.
Around this time, UKGI developed what Russell calls a sideline in supporting the establishment of arm’s-length bodies for departments. UKGI works to get the governance of ALBs right, with Russell particularly proud of his involvement in establishing both the Green Investment Bank and the British Business Bank.
This work led Russell to produce a paper on best practice in managing the relationship between departments and their arm’s-length bodies.
Published in January this year with contributions from the Cabinet Office, Treasury, the Infrastructure and Projects Authority and the Department for Transport, the paper identifies seven critical success factors for those relationships.
These include: a clear purpose and objectives; clear accountability for both the arm’s-length body and the department, including for the official serving as senior responsible owner; clarity about the capability and capacity of the body and its operational and financial framework; and transparency about management information.
Russell says the report came about after conversations with departments about how UKGI could help spread best practice, particularly in how to manage being both the arm’s-length body’s shareholder and its main customer.
He took a “back to basics” approach to help explain why departments should consider using arm’s-length bodies, compared to the other options like in-house delivery or outsourcing provision.
“When things go wrong in delivery, a very typical response of central Whitehall is to say that the model is wrong. But our experience is often that the model is right, it’s just been very badly executed”
They are effective in cases that require a complex policy outcome that a department itself doesn’t have the capability to deliver, he says, but where effective outsourcing would be difficult because of problems with risk transfer. “They are powerful because they take the delivery mandate, and break down the task to deliver it.”
However, Russell found in his review that the ALBs often don’t get the backing they need from their sponsor departments, which often change the delivery structure when something goes wrong. High profile examples in recent years include the UK Border Agency being abolished and taken into the Home Office when Theresa May was home secretary, and a drive under the 2010-2015 coalition government that reduced the number of public bodies by more than 290, including over 190 abolitions and a host of mergers.
“When things go wrong in delivery, a very typical response of central Whitehall is to say that the model is wrong,” says Russell. “But our experience is often that the model is right, it’s just been very badly executed.
“Very often a part of that is the capability within the body, so that is the other thing we’re trying to address. And given some of the challenges these arm’s-length bodies have, it is not surprising things go wrong.”
Working on this paper towards the end of his time at UKGI gave Russell a unique perspective when he moved to become chair of the MoD’s DE&S.
He took up the post in November, working closely again with Lovegrove. “When I was in a conversation about the role of [MoD] arm’s length bodies, he turned to me and said, ‘Mark’s written a book on it’,” Russell recalls. “So it’s certainly given me a bit of credibility. I have pondered this role of the arm’s-length in a number of different situations, and I hope I can bring some of that experience to DE&S.”
He says his early impressions are that there is “much sense” in having a separate body focused on providing equipment and support, rather than having that as part of what departmental officials, or the armed forces, do themselves.
Military procurement is often in the headlines for delays and overspends, and it has been an area where the prime minister’s chief adviser Dominic Cummings has a history of calling for reform.
Speaking to CSW before it was announced that the government’s defence, security and foreign policy review has been paused due to coronavirus, Russell said: “What I’m seeing is a very talented organisation, but it is very complex. It is up against some challenging market conditions and it is dealing with some really very complex equipment.”
And in a spirit he believes can be seen across the civil service as it responds to Covid-19, there is “this fabulous can-do attitude in the organisation to do what it takes to deliver”.
“It really is quite humbling to see,” he says. “So what we have to do board level is just give them cover to be able to do what they’re best at doing.”
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