CABE Audit
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CABE Audit

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Return to an Address of theHonourable the House of Commons dated17th June 2004 for theCOMMISSION FOR ARCHITECTUREAND THE BUILT ENVIRONMENTAudit of Conflicts of InterestJune 2004Report by AHL LtdOrdered by the House of Commons to be printed17th June 2004HC 678 London: The Stationery Office £6.50CONTENTSPageExecutive Summary 1Main conclusions and recommendations 3Introduction and scope of work 4Detailed findingsBackground 5Appointment and re-appointment of Chair of CABE 5The Commercial interests of the Chairman 6Commercial interests of the Commissioners 8Managing and declaring interests of the Chair and Commissioners 9Use of common advisors 11Design Review 12Other general practices concerning management of conflicts of interest 17AppendicesA Summary of recommendations 19B Recommendations made by Accounting Officer, endorsed by this review 22C The Seven Principles of Public Life 24EXECUTIVE SUMMARY1. The Commission for Architecture and the Built Environment (CABE) was establishedin 1999 and has since developed an excellent reputation in the fields of architecture and design.This was confirmed in its recent stakeholder review, published in March 2004, which showed96% approval and the overall impression of CABE as overwhelmingly positive. Thestakeholder review was commissioned by CABE to identify how CABE is perceived by itsstakeholders, to review CABE’s current activities and to help identify areas for improvementand future direction. ...



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Return to an Address of the Honourable the House of Commons dated 17th June 2004 for the
HC 678
Report by AHL Ltd
Ordered by the House of Commons to be printed 17th June 2004
London: The Stationery Office
Executive Summary Main conclusions and recommendations Introduction and scope of work Detailed findings Background Appointment and re-appointment of Chair of CABE The Commercial interests of the Chairman Commercial interests of the Commissioners Managing and declaring interests of the Chair and Commissioners Use of common advisors Design Review Other general practices concerning management of conflicts of interest Appendices A Summary of recommendations B Recommendations made by Accounting Officer, endorsed by this review C The Seven Principles of Public Life
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5 5 6 8 9 11 12 17
19 22 24
EXECUTIVE SUMMARY 1. The Commission for Architecture and the Built Environment (CABE) was established in 1999 and has since developed an excellent reputation in the fields of architecture and design. This was confirmed in its recent stakeholder review, published in March 2004, which showed 96% approval and the overall impression of CABE as overwhelmingly positive. The stakeholder review was commissioned by CABE to identify how CABE is perceived by its stakeholders, to review CABE’s current activities and to help identify areas for improvement and future direction. CABE’s remit is primarily to promote architecture and good design in the built environment. 2. Opinions expressed by CABE on design are respected and highly valued. The opinions have influence and are often relied upon by planning authorities when reviewing schemes as part of the planning approval process. The value of opinions is dependent upon the involvement of active experts across CABE’s business. This gives rise to the inherent risk of potential conflict of interest. This report focuses on the adequacy and effectiveness of arrangements implemented by CABE to manage such potential conflicts. This audit review has only examined one aspect of CABE’s processes and should not be considered as being applicable to any other aspect of the way in which CABE conducts its business. A key reason for undertaking this review is to ensure CABE’s reputation is protected from any public perception of conflicts of interest which could lead to the integrity of CABE’s opinions being undermined. 3. It is important to recognise throughout this report that the effectiveness of any system implemented to manage conflicts of interest, is dependent upon the willingness of individuals to declare any potential conflicts that may arise, in line with Nolan principles. CABE’s procedures are designed to manage conflicts arising which could potentially harm the reputation of CABE in its specialist field. 4. CABE has processes in place to ensure Commissioners are aware of, and understand, the seven principles of public life as defined by the Nolan Committee. These principles are outlined in Appendix C. Recommendations have been made in this report to further enhance those processes. These are summarised in Appendix A. 5. Commercial interests of the Chair of CABE and Commissioners
5.1 The Department for Culture, Media and Sport (DCMS) recognised that in establishing a credible organisation, the Commission needed to include representatives in a number of fields including design, architecture and property. Ten of the existing sixteen Commissioners, including the Chair, have professional interests which are directly related to the activities of CABE. The inclusion of industry experts on the Commission results in higher risks of potential for conflict and therefore greater systems of internal control are necessary. CABE needs to operate to standards which exceed those required of many other NDPBs in managing conflicts of interest, in view of the inherent level of risk. CABE therefore needs to be able to demonstrate particularly robust and strictly applied procedures to manage any potential conflicts of interest which arise. 5.2 The Chair of CABE, Sir Stuart Lipton, is a highly respected property developer. He has a number of commercial interests, some of which are naturally related to the core activities of CABE. Sir Stuart is also the major shareholder, Chairman and Director of Stanhope plc, a substantial property development company. The changing nature of Stanhope’s core activity, in
recent years, from project managers to property developers, coupled with the significant growth of Stanhope and the growth and increasing influence of CABE has given rise to an increasing number of areas where potential conflict might arise or could be perceived to arise. The cumulative effect of the Chair’s interests is becoming, in our view, too great and may be perceived as being contrary to Nolan principles.
5.3 There are also a number of commercial relationships between Commissioners, or between the Chair of CABE and individual Commissioners. Our audit review noted that although the Accounting Officer has regularly reviewed the register of interests and has reported on some of these to the DCMS, the Commission do not formally undertake such a review and so Commissioners may be unaware of the cumulative effect of these interests. The register should be formally reviewed by the Commission to ensure they are aware of the extent and depth of interests and the perceived or potential impact these may have on their objectivity or independence as Commissioners.
5.4 Recommendations have been made in the report concerning the way in which interests are recorded as a basis for managing the associated risks.
5.5 In view of the potential for conflicts of interest and the possibility of public challenge, CABE should determine an appropriate handling strategy. This strategy should ensure any enquiries or public challenges are quickly addressed. The strategy should provide assurance that CABE has effective processes in place for recognising and managing conflict of interest risks.
6. Design Review
6.1 Design review is a significant aspect of CABE’s activity. As previously recognised, opinions given are respected and relied upon by third parties, for example, planning authorities and private clients. A key factor in this is the experience and expertise of Design Review panel members. It is accepted that a Design Review panel without industry specialism would be less effective. However, industry specialism brings with it the inherent risk of conflict of interest which CABE has to be seen to be managing successfully.
6.2 This report confirms the importance of independence and objectivity throughout the design review process. CABE has processes in place for ensuring Design Review panel members understand the need to declare conflicts of interest as they arise. This is important given the nature and remit of Design Review. It is also important to demonstrate the independence of the Chair of Design Review and Committee members in the decision making process. The CABE Accounting Officer1has recently made recommendations for further improvement of the transparency and independence of the design review process which we endorse. In addition, other recommendations to strengthen existing processes are made in the body of this report.
6.3 It is essential that CABE is able to demonstrate publicly, the openness and integrity of the design review process. As such, the independence of the position of Chair of the Design Review Committee is critical. In our view, the post of Chair of the Design Review Committee should not be held by a person with significant commercial interests which, potentially, impact on that person’s ability to objectively fulfil their responsibilities in this key role. In response to this, Commissioners are proposing to undertake a risk assessment as part of the appointment process for the Chair of Design Review.
1The roles of Accounting Officer and Chief Executive of CABE are undertaken by the same person
7. General practice
7.1 CABE has established procedures for the declaration and management of conflicts of interest. The procedures have recently been reviewed and extended, by CABE, to ensure the management of potential conflicts of interests is more robust. Whilst CABE procedures are generally sound they should be further reviewed in light of the recommendations made in this report. Main Conclusions and recommendations 8. The key conclusions and recommendations arising are:
8.1 CABE has grown in size and influence since its inception in 1999. It has developed a significant reputation and its opinions are highly valued. This is largely due to the commitment, knowledge and expertise of the Chair, Commissioners and CABE officers.
8.2 There is a higher risk of conflicts of interest within CABE, through the nature of its business and also the desire to include industry experts within the Commission, than would be the case for many other NDPBs. From time to time, there is a likelihood of negative public perception from interested third parties where Commissioners are involved in schemes upon which CABE may give an opinion. With this in mind, it is important that CABE is seen to be managing potential conflicts appropriately.
8.3 In our view, CABE has taken reasonable steps to ensure it is operating in accordance with the principles defined by the Nolan Committee. As one of the steps, the Accounting Officer has been proactive in monitoring the higher risk of potential conflicts of interest. We have made further recommendations to improve existing processes in support of ongoing compliance with the Nolan principles and these are summarised in Appendix A.
8.4 There are specific issues relating to the timing of the declaration of some of the Chairman’s interests. We have reviewed the cases concerned against the seven Nolan principles and, in our view, in the spirit of ‘openness’ the timing of declaration of interests should be more closely linked to intent rather than commitment.
8.5 Given the growth in Stanhope plc and CABE, the position of Chair of CABE should, in the future, not be held by a property developer with significant commercial interests because of the cumulative effect of perceived conflicts of interest on CABE and its reputation.
8.6 The DCMS should review the composition of the Commission to ensure a balance is struck between experts currently active in the industry and experts from an independent but relevant background.
8.7 A risk assessment should be formally undertaken as part of the appointment of the Chair of Design Review. Such an assessment should be undertaken for the existing post and any future appointments. Consideration should also be given to extending this approach to the appointment of Chair of all of the Commission’s sub-committees.
8.8 Where common advisors, such as lawyers, are used, for example, where specialist support is required that is not readily available elsewhere; different partners from the professional advisors must be involved.
8.9 The Audit Committee should formally consider CABE’s register of interests twice a year to assess the extent or depth of specific Commissioner interests. The review should focus on the perceived or potential risks to CABE’s reputation and the impact cumulative interests may have on a Commissioner’s position at CABE. The findings of these reviews should be reported to the Commission. 8.10 The register of interests should be extended to: include the interests of connected parties; clearly reflect the potential impact of any interest on CABE; and detail cross working relationships between Commissioners. This will enhance the effectiveness of the review undertaken by the Audit Committee referred to above. 8.11 Induction and training processes for Commissioners should be strengthened to ensure the Nolan principles are clearly communicated, understood and observed by all Commissioners. 8.12 The recommendations made within the report fall within two categories, firstly those which relate to compliance with Nolan principles and secondly the improvements that are required to existing conflict of interest procedures to ensure CABE achieves standards in this area commensurate with the risks involved. Introduction and scope of work 9. This audit was commissioned by the Department for Culture, Media and Sport (DCMS) and was undertaken during April and May 2004. 10. The terms of reference for the audit were agreed as follows: 10.1 Is CABE operating in accordance with Nolan principles, with specific regard to: The commercial interests of the Chairman and the commercial relationships between him and the Commissioners, taking into account the terms of their appointment and any relevant changes of circumstances since appointment; The procedures for management of conflicts of interest in respect of the design review process; The practices adopted in respect of conflicts of interest. 10.2 The auditor was asked to report (a) findings of non-compliance, and (b) recommendations to achieve compliance. 11. The Government endorsed ‘The Seven Principles of Public Life’ (the Nolan Principles) in March 1996 and these were included in its publication ‘Spending Public Money: Governance and Audit Issues’. The principles are attached as Appendix C to this report. The application of these principles has been addressed throughout this report. 12. During the review meetings were held with DCMS officers in the sponsoring division, a number of CABE executive staff and CABE Commissioners. Telephone discussions were also held with three members of the Design Review Committee and three individuals who had been involved in presenting schemes at Design Review.
13. There has been no detailed investigation of specific interests which have been declared or schemes which have been reviewed at Design Review in which the Chair of CABE or Commissioners have an interest. Detailed findings 14. Background 14.1 CABE was established by the Secretary of State for Culture, Media and Sport in August 1999 and replaced the Royal Fine Arts Commission (RFAC). CABE is a Non-Departmental Public Body (NDPB) and a company limited by guarantee. It is sponsored by the DCMS and is jointly funded by the DCMS and the Office of the Deputy Prime Minister (ODPM). CABE’s principal activity is to advance, for the public benefit, education in architecture and good design in the built environment by promoting and encouraging the promotion of high standards in all areas of architecture and by promoting an understanding of architecture and design amongst members of the public.2 14.2 CABE’s stakeholder review, the findings of which were reported in March 2004, reports that ‘the overall impression of CABE from all groups is overwhelmingly positive with a high level of support for its agenda and its progress to date. Stakeholders see the setting up of CABE as having been a visionary move by the Government…’ 14.3 The Secretary of State for Culture, Media and Sport appoints the Chair and all Commissioners of CABE. 14.4 At the time CABE was established there was a strong feeling that its Commissioners should include a number of experts active within the areas of CABE core activities. Whilst this is desirable in terms of meeting CABE’s objectives most effectively, it significantly raises the risk profile for potential conflicts of interest to arise. All Commissioners are required, following appointment, to adhere to public sector standards and Nolan principles. 15. Appointment and re-appointment of Chair of CABE 15.1 Sir Stuart Lipton, Chair of CABE, was previously a Commissioner for the RFAC and held this post for 10 years. Sir Stuart was appointed by the Secretary of State for Culture, Media and Sport. This was confirmed in formal correspondence from the Secretary of State to Sir Stuart dated 14 June 1999. As CABE had not been formally established at that time, the position was initially that of ‘shadow chairman’. His initial appointment was for a period of three years commencing on 20th August 1999, following which Sir Stuart was re-appointed for a further term of three years. Sir Stuart’s term of office expires on 19 August 2005. The appointment and re-appointment of Sir Stuart was properly documented in correspondence between the DCMS and Sir Stuart. 15.2 Whilst the appointment process was not considered in detail as part of this review, it is clear from available correspondence that the DCMS was aware of Sir Stuart’s commercial interest in Stanhope plc at the time of his appointment and re-appointment as Chair of CABE. There is evidence that consideration was given to how this potential conflict might be handled. However, we understand that the risk of potential conflicts of interest, while considered as part of the DCMS’s public appointments process, was not formally documented in this case.
2CABE Financial statements for the year ended 31 March 2003
Recommendation 15.3 Where potential for conflicts of interest exists the DCMS should formally document the assessment of any risks arising including whether this impacts on the suitability of a candidate for the proposed public position. The risk assessment should be re-performed at the time of re-appointment to ensure any change in circumstances is understood. The risk assessments should be retained as part of the appointment process. Actions required on the part of CABE to manage potential conflicts of interest should be agreed between the DCMS and CABE at the time of appointment. 16. The Commercial interests of the Chairman 16.1 Sir Stuart Lipton is a Director and Chairman of Stanhope plc. The Annual Return dated 12 February 2004 states that Sir Stuart owns 400,000 shares in Stanhope plc. This represents 75.04% of the ordinary issued share capital of the company. The remaining shares are held by two other Directors in equal proportion. In addition, on 26 February 2004, Stanhope plc filed a Return of Allotment of Shares for the issue of 1,599,000 ‘B’ Shares. These have been issued to the existing shareholders in the same proportion as described above, thereby maintaining Sir Stuart’s interest at 75.04%. 16.2 At the time of his appointment to CABE in 1999, Sir Stuart was a Director of Stanhope plc but not the Chairman. Stanhope plc was, at that time, known primarily for its project management services. In 1999, Stanhope reported having projects in the city which totalled in excess of 1m sq ft of development. The net assets of the group amounted to £3,582,449.3 16.3 Since 2001, in response to the changing market conditions in land and property, Stanhope plc activities have been more firmly focused on property development. The Stanhope group has grown considerably, and at 31 March 2003, the accounts reflect involvement in projects in excess of 17m sq ft of accommodation with a construction value of approximately £4bn. The net assets of Stanhope plc amounted to £16,426,733 at 31 March 2003. This represents a significant change in circumstances which impact upon the position of Sir Stuart as Chair of CABE. 16.4 Sir Stuart is also a Director of 29 other Companies registered with Companies House. This can be broken down as follows: CABE, 14 Stanhope group companies (5 of which actively trade), 5 Exchequer Partnerships which relate to one property, 4 companies in relation to the Royal Opera House, the National Gallery Trust, and the remainder being of a commercial nature. In addition, Stanhope plc, as a growing organisation, has an interest in a number of other companies. Many of these companies are involved in property related activity, for example, as a project manager or developer, some of which may be considered by CABE, for example Design Review or CABE’s Enabling programme. The way in which Commissioner commercial interests have been managed by CABE is considered further in this report. 16.5 It is also apparent from our work that CABE has grown significantly since its inception in 1999. CABE has developed a significant reputation in that time and its opinions are highly valued by stakeholders. This is largely due to the commitment, knowledge and expertise of the Chair, Commissioners and officers of CABE.
3Stanhope plc Accounts for the year ended 31 March 1999
16.6 The increase in growth and stature of both Stanhope and CABE has led to an increasing number of Stanhope schemes falling within CABE’s core activity and there have been instances where CABE’s Design Review Committee has given opinions on Stanhope schemes or Stanhope schemes have been considered by Design Review at officer level. Documents prepared by CABE highlight that eleven Stanhope schemes have been considered by Design Review since inception, five by the Committee and six at officer level. As identified later in this report, there are commercial relationships between the Chair and Commissioners and of the eleven Stanhope schemes reviewed at Design Review, Commissioners were involved in ten. CABE’s processes for Design Review, originally put in place by Sir Stuart at the time CABE was established ensured that Sir Stuart was not involved in Design Review either as a member of the Committee or as part of the Stanhope team presenting to the Committee, for any of the Stanhope schemes reviewed. The minutes reviewed of Design Review meetings did not identify any instances where Sir Stuart was present. The modus operandi of Design Review does allow for projects to be seen by the full Commission where they are particularly significant. To date, there has been only one example of a project of this kind, the London Bridge Tower, which was reviewed by the Commission following review by Design Review Committee. In addition, there have been three examples where projects have been reviewed as part of Commission visits outside London. Sir Stuart was present on all these occasions but he did not have a commercial interest in the schemes under discussion. As would be expected of any competent Chair, Sir Stuart plays a significant role at CABE. Whilst the controls put in place by Sir Stuart ensure that he is not involved in the work of Design Review, there remains a risk of negative public perception and potential challenge.
16.7 It is important to note that the perceived commercial advantage of a developer, as principal client, is different from that of say a consultant on a scheme. CABE’s opinion can have a significant impact on the value of land which is directly beneficial for a developer, whereas a consultant’s commercial benefit is limited to any fees that may be due on that particular scheme.
16.8 The above highlights that the potential for conflict of interest, real or perceived, is likely to be substantial where a property developer with a significant commercial interest is in the position of Chair of CABE. Sir Stuart has recognised that the potential for conflict of interest has increased since the time of his original appointment.4Steps have been taken by CABE to manage such risks, particularly through the involvement of the Accounting Officer in ensuring such interests are properly monitored. The potential impact of the cumulative effect of perceived conflicts of interest, on CABE and its reputation, is such that, in our opinion, it is now becoming untenable for this post to be held by an active property developer. The DCMS should consider the desired profile of any future Chairman of CABE and the risks relating to the impact of any other business activity should be formally assessed.
Recommendations 16.9 The profile of the future Chair of CABE should be re-defined to minimise the risks associated with any public perception of conflict of interest arising. It is our view that it is not in the public interest for this post to be held by a person with significant commercial interests that may come into conflict with CABE’s remit.
16.10 Given the growth both in CABE and Stanhope, we have concluded that the position of Chair of CABE should, in the future, not be held by a property developer with significant commercial interests.
4Lipton to Secretary of State 22.3.04Letter from Sir Stuart
17. Commercial interests of the Commissioners 17.1 There are currently 15 Commissioners, excluding the Chair, on CABE’s Board, all of whom were appointed, independently of CABE, by the Secretary of State for Culture, Media and Sport. The appointment process for these commissioners was not considered as part of this review. Nine of CABE’s Commissioners have commercial interests relevant to CABE’s core activities. Five of these nine Commissioners have provided commercial services directly to Stanhope plc. Additionally, three other Commissioners have worked with Stanhope in different capacities without commercial benefit. In addition, commercial services may be provided between Commissioners. This raises the potential for public perception of non-compliance with the Nolan principles, such as those pertaining to objectivity or integrity. However, given the desire to have the expertise of active practitioners on the Commission, it is inevitable that such commercial relationships will exist. 17.2 We recognise that it is important to CABE’s credibility and reputation that the Commission reflects the expertise of CABE’s stakeholders. In our view, there is currently an imbalance between the number of Commissioners active in the industry and those from an independent but relevant background. This balance should be addressed whilst ensuring that CABE objectives can be effectively met. 17.3 The Nolan principles recommend that new Board members should make a commitment to undertake induction training which should include awareness of public sector values and standards of propriety and accountability. A detailed induction for new Commissioners of CABE was held for the first time in August 2003 which covered these points. Prior to that time, induction was undertaken on a more informal basis. It is now becoming standard governance practice for Board members of NDPBs to receive some form of training on an annual basis. There would be a benefit to CABE if this annual training was introduced. The training should comprise reinforcement of Nolan principles and the practical application of these to CABE as well as general training for Commissioners on emerging issues they should be aware of, current examples being freedom of information or changes to the data protection act. 17.4 Commissioners are not currently required to sign a statement on appointment confirming their acceptance and understanding of the Nolan principles. This is becoming standard governance practice and would be advisable. The statement would normally also include other points such as the responsibilities of Commission members. Recommendations 17.5 The DCMS should review the balance of the Commissioners active in the industry and those from an independent but relevant background. 17.6 In line with standard governance practice, training on an annual basis for Commissioners should be provided. 17.7 Commissioners should sign a statement on appointment confirming their acceptance and understanding of the Nolan principles and their attendance on the induction training programme.
18. Managing and declaring interests of the Chair and Commissioners 18.1 As part of the development of CABE’s governance framework, a register of interests was established for Commissioners in 2000. The register has since been updated formally on an annual basis, with Commissioners required to declare any changes during the year as necessary. A standard form is used to report interests for inclusion on the register and the register of interests is available for inspection at CABE’s offices. CABE has also issued a Conflict of Interest Guidance Note to Commissioners and Staff, the detail of which is considered further in the report. 18.2 Our review has highlighted issues concerning the timing of the declaration of interests. These particularly relate to some of Sir Stuart Lipton’s business interests. CABE’s Accounting Officer has been robust in following up potential interests he becomes aware of. There are instances, highlighted during the course of our review, where interests have been declared following correspondence from the Accounting Officer to the Chairman. This correspondence was available within the register of interests. Examples of these include: 18.2.1Network Railwas appointed as an unpaid Advisor to– In March 2003 Sir Stuart Network Rail with the first Board meeting taking place on 1 April 2003. An article was issued in the press on 26 March 2003 concerning this position prior to the appointment being discussed or registered with CABE on 30 March 2003. The DCMS were advised of this appointment in early April 2003 as the interest was considered significant. CABE has regular contact with Network Rail particularly in relation to Design Review and station improvement schemes. In confirming no objection to the appointment, the Permanent Secretary wrote to Sir Stuart, on 6 May 2003, as follows: ‘While these individual commissions do not in themselves present a problem …., there might come a point where cumulatively, they could. At a time when CABE is growing so rapidly, we need to be alert to the wider public perception.’ 18.2.2Cibitascorrespondence dated 9 February 2004 it became apparent that–Following Stanhope plc has an interest in Cibitas Investments Limited. In addition, Sir Stuart is a Director appointed to this post on 14 November 2003. The share capital of Cibitas has yet to be confirmed. We understand that Cibitas has been established with a view to investment in brown field sites but has not yet started trading. This activity could potentially come into conflict with CABE through their enabling work. 18.2.3First Basewhich did not appear on the register of interests, at the– this is a company time of our review. However, Stanhope plc own 20% of the shares and the remaining 80% are owned by Sir Stuart’s son, who is also a Director. The second Director is also a Director and shareholder of Stanhope plc. In addition, Stanhope has invested in 100,000 deferred preference shares of the company. First Base’s business activity is in affordable housing which could again potentially conflict with CABE’s work. Sir Stuart believes his interest in this company was declared in a presentation to CABE, on affordable housing, in January 2003. To date, this interest has not been recorded in CABE’s register of interests. This highlights the need for CABE’s proforma ‘register of interests’ form to explicitly include the need to declare familial or company interests. It also confirms the importance of Commissioners taking responsibility for ensuring interests are properly recorded in CABE’s register of interests.