Government 'doesn't have expertise' to run companies

Thursday 14 March 2019

The government does not have the skills to be a good shareholder and should consider bringing in experts to monitor its stake in JT, Jersey Electricity and other companies, a critical report has found.

The comments came from financial watchdog Karen McConnell, the Comptroller and Auditor General (C&AG), as she followed up on recommendations made relating to publicly-owned telecoms provider JT, which she said were applicable to all companies it controls, back in 2014.

At the time, she criticised the government for not keeping a close eye on how the companies it 'controls' are being run, given their significant effect on the government's bank balance and the impact on the wider island.

Pictured: The list of companies controlled by the Government of Jersey.

She also called for the government to analyse in each case whether ownership was appropriate, suggesting a potential sale of JT.

Since then, the number of entities it controls has increased from five to seven - but in her latest report, Ms McConnell says there has been little improvement, slamming the government for being "slow" to change.

Four of the companies are 'strategic investments' - Jersey Electricity, Jersey Water, JT and Jersey Post - and together were valued at over £370million at the end of 2017.

With net assets of more than £1.2billion, the others are taxpayer-funded 'independent' companies Andium Homes, Jersey Development Company and Ports of Jersey.

Of those, she found that many of the Memorandums of Understanding (MoUs) outlining the nature of the government's relationship with each of the companies had not been updated for a long time - "some have remained unchanged for over a decade," she wrote.

Others were weak and vague in their objectives, with "general" targets like "be a good employer" and "be responsive to the wider interests of Jersey's island community" - criteria without specific measures.

Ms McConnell also revealed a lack of clarity over which company transactions should require consent or approval from Ministers.

She added that there was a greater need for transparency in the accounts of each company - specifically in relation to the risk and their off-island activity.

"It is interesting to note that Jersey Post explicitly discloses the risks relating to off-Island activities in its Annual Report even though such activities represent only 30% of its activities. In contrast, JT does not disclose the risks even though off-Island activities represent over 50% of its activities," she said.

The C&AG therefore recommended that business conducted away from Jersey be disclosed in greater detail, as well as disclosure of risk to the public, which she said "would provide increased transparency of the operations of States-owned companies."

The report said that some progress had been made in that there were more regular meetings occurring between the government and its company heads, but that there was still much progress to be made.

In closing her report, she suggested the "slow" rate of improvement was the result of "a culture where there was not a strong corporate priority to implement recommendations" and the government's own lack of expertise.

She therefore suggesting outsourcing these skills.

"Effective oversight of controlled companies requires significant insight into the operation of companies operating in different sectors. I welcome the strengthening of the shareholder function since my previous report, but I consider that bought-in capacity is required to secure the expertise in different sectors to ensure that the shareholder function is fully effective," she said.

Ms McConnell will be stepping down before the end of 2019, but said she expected "real progress" to be reported to the Public Accounts Committee - a panel of politicians tasked with probing government spending - "by the end of this year."