By Joshua.Chambers

01 Jul 2011

Phil Bartlett is leading the formation of the coalition’s first joint-venture mutual. With ministers keen for others to follow suit, he tells Joshua Chambers how his civil service organisation will shortly be leaving the public sector.

The Leeds headquarters of My Civil Service Pension (MyCSP) are as intimidating as a fortress – especially when their high, redbrick walls and security gates are offset by a gloomy Yorkshire sky that seems to promise rain.

But sitting inside in his shirtsleeves Phil Bartlett (pictured above), the chief executive of MyCSP, is relaxed and cheery. On the day of our interview, some of his employees are on strike over his plan to turn their organisation into a ‘joint venture mutual’ – a company partially owned by employees, and run in partnership with a private sector provider – but his bosses in government are big fans of his strategy.

Indeed, the government wants to see many more public sector organisations follow MyCSP’s example. Cabinet Office minister Francis Maude has said the proposals encapsulate the Big Society approach, and praised the “entrepreneurial zeal” of Bartlett and his senior management team. The Cabinet Office has also set up a specialist taskforce with £10m of funding to encourage other organisations to follow suit.

So there’s a huge amount of pressure on Bartlett’s burly frame to prove that the model is workable, and to bring his employees on side. “We’re the pathfinder; we’re blazing the trail,” he says, before admitting: “That’s a double-edged sword, because it means that we’re dealing with things for the first time. There’s not a blueprint to do this.” He also has a tight deadline: “From September, we will be trading as My Civil Service Pension Limited, as opposed to My Civil Service Pension, the business within government,” he explains.

Mutually appealing
Given the challenges of being first, why did they decide to try this now? Bartlett explains that the history of the organisation has been one of reform: until recently pensions were managed by a number of competing government agencies, but last year these were brought together to form one single entity. “This reduced our costs, improved our flexibility, and we were heading down that road making good progress,” he says.

However, Bartlett soon discovered that these reforms were not enough. “We found that the world was changing around us,” he says. “We’d expected some changes, but not to the degree that was occurring.” First, the company needed money for investment, but the spending review meant that there wasn’t any available – in fact, there was pressure for further efficiency savings. Second, the company faces an increased workload because of Lord Hutton’s review of public sector pensions, which is set to change the way that pensions are run. And third, the company also administers civil service redundancy packages which, Bartlett explains, increased fourfold last year, will double this year, and are set to double again next year.

Bartlett reviewed the situation and decided that there had to be big changes. “We couldn’t carry on as we were. There wasn’t a solution for us if we’d carried on in the direction we were travelling,” he says. The company couldn’t afford to remain in-house without further investment, so Bartlett considered recommending outsourcing to the private sector. “It stood out as a viable option against those pressures, to be honest. If we weren’t doing what we’re doing as a mutual joint venture, I think I would have advised that the only way forward for this was outsourcing,” he says.

Then, last year, the coalition set out its ideas for mutualisation. Bartlett found them appealing, starting a conversation with the Cabinet Office in September about how they could be applied at MyCSP. The plans were deemed workable, and it was announced in January that MyCSP will become the first organisation to test out this new approach to public service delivery.

What’s in place?
Bartlett has been working with a team of Cabinet Office advisers to put the appropriate mechanisms in place. The head of the Cabinet Office’s ‘Enterprise Incubator’, Vincent Geake, has been assisting with management processes, while his colleague Frank van Baar has assisted with the shareholder structures. Most importantly, Bartlett speaks “day in, day out” with Stephen Kelly, the Cabinet Office’s crown representative for mutuals.

Bartlett meets his Cabinet Office advisers once a week to role-play decision-making for the company on its ‘shadow shareholder board’: a thinking exercise designed to work out how a mutualised MyCSP would operate, and to prepare structures which can take over the strategic management role when the time comes. “Essentially, the best way of describing it is the main company board,” Bartlett explains. It takes the “big, crunchy decisions around the company strategy and the business plan for the company.”

“Just now we work in a government framework but we need to work in a company framework, so we’re shadowing as best we can and making sure that we’re learning our trade as we go along,” he continues. Shadow board decisions are reported to the Cabinet Office to help the department understand how other mutuals will operate.

Bartlett is certainly grateful for the support he has received: would he have been able to get this far without it? “Oh, certainly not in these timeframes, and not without bringing in the expertise,” he replies. “We know what we’re good at and we know our business [but] here we’re talking about changing the ownership structures of companies and making sure that they are sustainable. That’s not the expertise that normally sits within a government department.” His answer is important, because it indicates that the Cabinet Office will have to provide similarly intensive support for other joint venture mutuals if they are to be successful. But if dozens of organisations volunteer to convert, how will Kelly, Geake and co divide their time to fit them all in?

Perhaps in the future, more support will come from the joint-venture partners, Bartlett says: “As the model matures, there’ll be lots of different places you can get the support from.” However, he adds that “right now, it’s probably important that it’s coming from the Cabinet Office”.

MyCSP has yet to choose its joint-venture partner. It kicked off the bidding process at the end of May, and held an investors’ day in early June to drum up interest in the model. In a sign of the Cabinet Office’s commitment to the process, the event was also attended by some very senior figures, Bartlett explains. “I guess normally these things would be headed up by the procurement manager setting the scene for potential partners or bidders. We were fortunate enough to be able to present Francis Maude, [Cabinet Office chief operating officer] Ian Watmore, Stephen Kelly – and I went along as well.” More than 20 potential investors attended.

They’re all in this together
The structure of the company will split ownership three ways, with a third retained by the government, a third owned by the joint-venture partner, and a third owned by employees themselves. Employees will receive a share on joining the company, and forfeit it on leaving. They will not be able to buy and sell their shares. Instead, the shares will be held in trust by an employee benefit trust, which is based on the ‘John Lewis model’: staff will receive dividends on their shares each year, with their value dependant on the company’s performance. The trust will be chaired by a professional director, who the company will select (see graphic).

Meanwhile, the staff will elect representatives to an employee-partnership council, and two members of that council will join the board of the benefit trust alongside the director. “We’ve just received nominations for our first employee-partnership council, and right now we’re going through the process to elect our representatives onto that council,” Bartlett explains.

A representative from the employee-partnership council will also sit on the company’s executive board alongside the chief executive, the chief finance officer and the chief operating officer. But on the main shareholder board – the new company’s key strategy-setting body – the employees will be represented by the appointed director from the employee benefit trust, acting as a non-executive director.

So employees won’t be able to directly elect their own representative to the shareholder board? No, Bartlett replies – but ultimately, he hopes that employee representatives will be involved in selecting the director of the employee benefit trust.

For the first appointment, though, it doesn’t sound like Bartlett intends to give employees a say in who chairs their benefit trust – and represents them on the shareholder board. This individual has yet to be appointed, he says, but might come from outside or within the organisation: “If we have someone within our employee base who is suitably qualified, the appointment could be made from there.”

Dissatisfied staff
A crucial difference between Bartlett’s scheme and the kind of mutualisation project envisaged by the Cabinet Office is that, while Francis Maude has talked of mutualisation as a way to empower staff and let them take control, it’s clear that frontline MyCSP staff haven’t pushed for change here. Last year, Maude pledged “a genuinely ground-up movement where staff, who are the real experts, can come together to take over and deliver better services. I know that across the country there are literally thousands of frontline employees who can see how things can be done better – but at the moment, with the existing constraints, they just can’t get it done.”

Yet Bartlett’s staff haven’t pushed for this. Do they even approve? “I would say it’s very mixed right now,” he says. “We didn’t have the luxury, in the circumstances we were in, of taking this journey over a number of years. Frankly, we wouldn’t have been around long enough for that, so we’re having to move at a pace – and some people are going to be comfortable with that, and others aren’t.”

Some staff discomfort has manifested itself as industrial action: a group of PCS trade union members voted to go on strike over the proposals, with the action occurring two weeks ago. Why does he think they are dissatisfied with the proposals? “The specific is the loss of civil service status. That’s the nub of the dispute,” Bartlett explains. “At an emotional level, I can associate with that: 34 years as a civil servant, it means something.” The PCS says its members’ biggest concern is the prospective changes to staff benefits as MyCSP leaves government, but Bartlett stresses that civil service regulations mean employees will “still have the same terms and conditions of employment, and they’re protected on transfer.”

In particular, the PCS argues that MyCSP staff are, somewhat ironically, worried about their future pensions: they will administer the civil service pension scheme, while no longer being entitled to one themselves. Bartlett responds that employees will receive a “mirror image of the pensions that we now have within the civil service”. This means their pensions will still be run in a defined-benefit scheme, with employee contributions starting at the same level as those currently paid.

However, there are some differences, because it will be a “funded scheme”, Bartlett says. Rather than being paid for by the Treasury, with any deficit between contributions and outgoings topped up by the public sector, the scheme will have to ensure that its pension pot is full enough to afford to pay retired employees. Therefore, Bartlett explains, there will be “commercial considerations” for the company to bear in mind over time. “The variables will be things like set-up costs between different versions of the plan options, the running costs of that with the private provider for the plan and, potentially over time, the employer contribution – and that’s something that’s kept under constant review, to make sure that the fund and the plan is viable.” So far, staff will have the same pension scheme, but in future they could be paying higher contributions than their civil service counterparts.

The future shape of MyCSP
Even once MyCSP is established as a limited company, there will be further change in order to make the company competitive. “We’re very traditional in the way that we work,” Bartlett explains. “We’re not very automated. We can’t offer members access in the same way that you might access your bank account. Through the web you can self-serve, but we still have to come through quite a heavy, people-based administration.”

Does that mean that, in future, staff numbers will fall? “Yes. Overall when we start out, we’ll probably employ about 700 people in the public and private sectors running this. When we’ve re-tooled and opened up the new channels, then we’ll be smaller than that; probably half the size, maybe a bit less. That’s if nothing changes,” he says. Bartlett explains that they are looking to “have retooled the business in about the middle of 2013… If this year’s all about setting up our mutual structure and our mutual joint-venture, next year will really be all about retooling the business and getting it in shape.”

This will be on the core, pensions administration side, he explains. Redundancy administration is increasing, and he has “ambitions to grow our business to build on capability there”. The company currently subcontracts some redundancy admin work to the private sector, Bartlett point out: he plans to run down these contracts, and move surplus employees from pension admin into the redundancy business as demand increases. Nonetheless, he doesn’t expect to get enough extra business here to find work for all the staff no longer required on the pensions side: “Overall, in the arrangement across the public and private sector, we will probably be employing fewer people.”

The business has to become more competitive, because in the future it will compete with private sector rivals to administer civil service pensions. Bartlett expects this to happen in 7-10 years’ time. If the company still exists as a mutual, that is: in the past, public sector mutuals have been bought by large private sector providers. Is there the potential that MyCSP could be sold to its joint-venture partner? “I guess there’s always the potential. It’s one of the things that we’ve been looking at when we set up the shareholder arrangements,” Bartlett explains.

As Bartlett points out, the staff cannot sell their shares because they are held in trust by the employee-benefit trust. However, there will be arrangements in place to allow the joint-venture partner to exit the scheme, or for the government to sell its stake. It should be noted that if the government sold its third to the joint-venture partner, the employees would no longer be an equal partner.

And what if there were an appetite for MyCSP to become a privately-owned or limited company? Bartlett says decisions would have to be taken through the shareholder board. “We want a mutual shareholding structure that provides good stability over time. But you never say never in these things. It will be the shareholders themselves that will take those decisions to change those arrangements in the future,” he says.

Without notes, and despite tricky labour relations, Bartlett has remained chipper throughout. He seems calm under pressure; perhaps one of the reasons the Cabinet Office has trusted him to blaze this trail. Yet currently he is ensconced securely in his Leeds headquarters – a building nicknamed ‘the Kremlin’ by locals. In the months and years to come, the company will relocate, and leave the safety of the public sector for the unforgiving landscape of the free market.

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