On Thursday 10 May 2018, the Cabinet made the following decision:
1. The Cabinet agrees Option 4, as set out at clause 6.5 in this report iSK002, to establish InvestSK as a private company limited by guarantee, with the Council as the sole member.
2. The Company, as a company limited by guarantee, will not have a share capital. Rather, as sole member, the Council will guarantee the liabilities of the Company up to the amount of £1.
3. The following be appointed as Directors of the Company:
3.1 Councillor Matthew Lee, the Leader of the Council (Chairman).
3.2 Councillor Kelham Cooke, the Deputy Leader of the Council
3.3 Aidan Rave, the Chief Executive of the Council
4. The Board determines who should be nominated to become the Company Secretary.
5. The Board appoints an interim Chief Executive.
6. Delegated Authority be given to Councillor Mike King, Cabinet Member for Economy and Development, to put in place the proposed Memorandum of Understanding, to determine membership of the Advisory Committee, agree the Articles of Association for InvestSK and to agree an initial award of seed funding to allow the incorporation process to take place.
This decision has been subject to a call-in request, made in accordance with Article 6.18 of the Council’s Constitution, by Councillor Ashley Baxter, Councillor Nick Craft, Councillor Phil Dilks, Councillor Charmaine Morgan and Councillor Paul Wood on the following grounds:
· It is a Key Decision which has not been included in the Schedule of Decisions
· There has been inadequate/insufficient consultation
A copy of report iSK002InvestSK is enclosed.
The Chairman welcomed everyone to the meeting and outlined why the meeting had been called. He confirmed that:
a decision made by the Cabinet on Thursday 10 May 2018 had been called-in by five members of the Council. The decision as set out in Report iSK002 was:
a) The Cabinet agrees Option 4, as set out at clause 6.5 in the report iSK002, to establish investSK as a private company limited by guarantee, with the Council as the sole member.
b) The Company, as a company limited by guarantee, will not have a share capital. Rather, as sole member, the Council will guarantee the liabilities of the Company up to the amount of £1.
c) The following be appointed as Directors of the Company:
Councillor Matthew Lee, The Leader of the Council (Chairman)
Councillor Kelham Cooke, The Deputy Leader of the Council
Aidan Rave, The Chief Executive of the Council
d) The Board determines who should be nominated to become the Company Secretary.
e) The Board appoints an interim Chief Executive.
f) Delegated Authority be given to Councillor Mike King, Cabinet Member for Economy and Development to put in place the proposed Memorandum of Understanding, to determine membership of the Advisory Committee, agree the Articles of Association for investSK and to agree an initial award of seed funding to allow the incorporation process to take place.
The Chairman noted that the Leader and the Councillors who called in the decision had all been invited to the meeting and would have the opportunity to speak to the Committee during the course of the meeting. A copy of the report iSK002 relating to the decision had been circulated with the agenda papers to Committee Members, the Councillors who called in the decision and the Leader.
In accordance with the Constitution, the item had been called in by five Councillors, these being Councillor Ashley Baxter, Councillor Nick Craft, Councillor Phil Dilks, Councillor Charmaine Morgan and Councillor Paul Woods.
Councillor Baxter, Councillor Dilks and Councillor Morgan were in attendance for this meeting.
The reasons given for the call-in were that the decision had not been included in the Schedule of Decisions and there had been inadequate / insufficient consultation.
The Chairman acknowledged the list of questions and the amount of work undertaken to ensure these and the responses were provided in advance of this meeting. The Chairman assured those Councillors present that they would be provided with an opportunity to address the Committee.
The Call-in Councillors were invited to explain their reasons in more detail.
The Committee was informed that:
A presentation on investSK had been given at a Councillor briefing in November 2017 but there had been no mention of it becoming a company then or during the more recent budget planning and scrutiny process. During that briefing Councillors were informed that Opportunity Peterborough, a Company owned by Peterborough Council, would act as consultants to SKDC at a cost of around £250k. A few weeks later an urgent decision was made for investSK to become a company. Why was the decision so urgent?
The Leader noted that the creation of investSK as a separate company had not been a consideration at that point in time. He commented that if the urgent procedures outlined in the Constitution had been followed the potential for scrutiny would have been impeded. By making the decision the way it had been made, the Call-in process would be available to Members and enable scrutiny. Although the proposal for investSK to become a company had not been included on the Forward Plan and because circumstances had moved on a pace especially around various changes in lead officer roles and the contractual and commissioning of Opportunity Peterborough it was decided to use the general exception rule.
At the beginning of the last municipal year, consideration had been given on the best ways to initiate the investment and growth processes for the District. Creating an investment and growth company from scratch had been one of those considerations but the potential to use the experience and knowledge of Opportunity Peterborough seemed more appropriate for the initial stages.
The following issues were raised:
· Why had such a major and key decision not been to Overview and Scrutiny prior to the decision being made at Cabinet?
There was no requirement to call a meeting of Overview and Scrutiny. The general exception rule was applied because there was insufficient time to wait to put the item on the next forward plan and would provide the potential for a Call-in. The Chairman of the relevant OSC was informed of the proposed decision and the use of the general exception rule.
The main factors taken into consideration when making the decision were the changes in the senior management structure at SKDC and the resources required to lead investSK; the legal status of investSK; the contractual and commissioning arrangements with Opportunity Peterborough that were due to expire in late July and whether they would be renewed. Waiting a month would have potentially left investSK without the necessary economic development.
Discussions with Members about the staffing circumstances and the need to make a decision about the future of investSK had taken place at the Employment Committee on 19 April 2018.
The following questions were put and responses give:
· Was the proper procedure followed? (i.e. under Para 17.7.3 (d) of the constitution the decision maker should have written to the Chairman of every relevant Overview and Scrutiny Committee of the reasons of taking a non-key decision as a matter of urgency)
The Chairman of Growth Overview and Scrutiny Committee was notified of the intention to take the general exception report to Cabinet on the 10 May.
· Should public consultation have taken place bearing in mind the public elects Councillors?
There was no requirement for public consultation. For the first time in 8 years a survey was being undertaken to gather the views of residents on the Council’s services.
The Leader referred to Councillors being elected by the public to deliver services and make decisions that would be beneficial to the District. By making investSK a company, this would enable the continued encouragement of investment and growth within the District.
· When was the contract with Operation Peterborough due to expire?
Mid to end of July 2018.
· The decision to make invest SK a company of the Council must have been made between 12 April 2018 and 12 May 2018 – the usual process for a key decision was for it to go before an overview and scrutiny committee for consideration and recommendations made to Cabinet.
Discussions had taken place with Members at the Employment Committee about the staffing circumstances on 19 April. Options considered, included renewing the contract with Opportunity Peterborough but it was felt the most appropriate way forward to maintain momentum was for investSK to become a company owned by the Council.
· The Call-In Members confirmed they understood that sometimes a decision had to be made to maintain the momentum for the work being undertaken but any decisions made had to be clear and transparent.
Decisions did sometimes have to be made quickly. The Cabinet had a forward plan which aimed for transparency. InvestSK was now the initial point of contact that offered guidance and direction for businesses wishing to move or relocate within the District. It was proving to be popular and was appreciated by the business community and seen as a gateway to the Council especially in respect of potential planning guidance.
· Did investSK have a business case and why was it that changes to key personnel within investSK meant that a company should be created.
It was important to identify that the creation of the company was not as a result of personalities. InvestSK was providing an advocacy role and facilitating ideas. It was also a gateway to the statutory roles and services provided by the Council and it was important to maintain the momentum and ensure that investSK remained in place. The business case, the Articles of Association and the Memorandum of Understanding would be drafted by the Advisory Committee which would oversee these key documents.
Further discussion took place around the setting up of the company, the business plan, Articles of Association, Memorandum of Understanding, the order in which they should be undertaken and how these were crucial elements for creating a company. A Member commented that it was normal practice to have a business case when requesting assistance from a bank in respect of setting up a company. Discussion ensued around staffing and the impact on contracts if moving from the Council to investSK; Whether the company would be sustainable and who would be responsible for any losses.
The intention would be to reduce any burden on the Council. Initially investSK would be dependent on a grant from the Council and would be limited to the budget that was available to it. InvestSK would not sustain any financial losses. Staffing issues would be outlined in the business case.
InvestSK was dependent on a budget from the Council and could not afford to lose money. The company would be encouraging business investment and growth into the district. Other local authorities were creating companies in order to enable different ways of delivering services and encouraging growth and investment in their areas.
Discussion continued around schemes that had gone before; how the focus needed to be on moving forward and encouraging growth and investment; the potential for conflict between a solely subsidised Council owned company offering advice and acting as an advocate especially when providing guidance on planning issues; the need for the Council to act collectively and include the opposition members who were mainly in favour of investSK as a project but wanted to ensure the process was transparent; a requirement for the ring fencing of key functions, priorities and direction.
The Chairman commented on there being clear guidance in respect of planning applications and issues and that Growth OSC would monitor the outturn budget expenditure for the company.
The following questions were put and responses given:
· On 7 April Councillor Baxter sent an e-mail to SKDC requesting clarification of the legal status of investSK. He received a response on 12 April. Why did this response make no mention of the potential creation of a separate ‘investSK’ company?
The creation of investSK as a separate company was not under consideration at that point in time.
· A Cabinet Member had been delegated to grant ‘seed money’ for the incorporation. Was is just the £13 payable to Companies House, or would there be other costs involved? If so, what was the expenditure forecast?
The seed money was intended to comprise of the £1 payable to companies house to set-up a company; to appoint the interim Chief Executive, and any legal costs required to incorporate the company. The seed money would be covered by the budget approved by the Council for investSK.
· During the last 12 months the Council had paid Opportunity Peterborough around £200k for staff etc. What would happen to this money and the staff costs?
The current contract arrangement with Opportunity Peterborough was not expected to be renewed. If the contract was not renewed the costs would not continue. If the contract was renewed then the costs of contracting with Opportunity Peterborough would be met within the current budget for investSK.
In response to discussions around investment figures referred to in the report the Committee was informed that £200k of the agreed budget of £800k was for economic development.
· How many staff would be employed directly by the company?
This had not yet been determined but would be included in the business case.
· If SKDC staff were transferred or seconded would they retain existing employment rights and benefits?
This had not been determined but it was not about reducing entitlements it was about ensuring the most appropriate staff were in place to help encourage growth and investment.
· Where would staff be based?
The intention would be to continue to operate investSK from the Maltings. This would reinforce the fact that it was a separate entity from the Council. These decisions would be made after the remodelling of the offices in Grantham
· Would back office functions such as payroll and marketing be outsourced to the Council or to a third party?
This had not yet been finalised, although it was likely that investSK would continue to rely on SKDC’s payroll function alongside other functions. Marketing for investSK was currently delivered through the contract with Opportunity Peterborough.
· Were there any other anticipated costs relating to the establishment of investSK Ltd? If so, how much, what for and over what time period?
These had not yet been determined.
· Would the Advisory Committee for the Company be subject to the OSC process?
· Why was the company ‘limited by guarantee’ rather than ‘limited by shares’?
The Cabinet report of 10 May covered this (para 3.3 of Report iSK002 refers):
“Companies limited by guarantee are often used by organisations that operate a not-for-profit business. Common reasons why a company limited by guarantee is used rather than a company limited by shares are that the members of the company wish to benefit from limited liability and do not require the ability to share profits by way of dividend payments. The benefit of a company limited by guarantee is that any trading surplus made is reinvested into the company; it is not shared out amongst shareholders as would be the case with a company limited by shares. Given the nature of investSK's proposed operations, it is considered that that a company limited by guarantee is a suitable vehicle.”
· The Council had a Shareholders Committee for the existing wholly owned company, Gravitas. Could this committee be tasked with overseeing the new company and who would determine the membership of the Advisory Committee?
The Advisory Committee would be a committee of Cabinet and membership would be determined by the Cabinet Member for Economy and Development. The purpose of Gravitas was very different from investSK. The two companies would have very different functions
· The initial Board of Directors was going to consist of the Leader, the Deputy Leader and the Chief Executive. Were these positions regarded as ‘ex-officio’? If at the elections next May the Councillors on the Board did not get re-elected, would they be removed from the Board?
The termination of directorships would be set out in the Articles of Association, but this had not yet been determined.
· What experience did the proposed Board of Directors have of managing limited companies?
The Directors would receive any necessary training. Councillor Lee ran Operation Peterborough along with another company. The following extract from the Cabinet report iSK002 was read out.
“Directors are personally liable for certain activities of the company, some of which can carry criminal liability. For this reason, it is standard practice for a local authority to provide an indemnity to the individuals concerned in relation to all areas in which personal liability may arise (except for criminal law where no indemnity can be given) and also to purchase "Directors’ and Officers' Insurance". It is proposed that directors' training is provided so that the Directors clearly understand the remit of their roles and the "dos and don'ts" of being company directors.”
It was also proposed that the skillsets of the initial directors would be complemented by additional directors from the private sector (para 3.15 refers):
“It is proposed that, in due course, the company may wish to invite suitably qualified individuals from the private sector to sit on the Company's board. It will be important that these are appointed on a clear basis of demonstrably no conflict of interest. No directors will be remunerated for their roles on the company board.”
· If the Advisory Committee is to be chaired by Councillor Mike King would the Leader, the Deputy Leader and the Chief Executive also be involved or would they be removed from the process?
This would be established by the articles of association.
· Who would be responsible for appointing or removing Directors to the Board?
This would be established by the articles of association.
· Would the advisory group need to be politically balanced and ratified by Full Council?
It will need to be constituted. Like all Cabinet remits it would be directed by the Leader.
· Would the meetings of the Board of Directors be public and would the minutes be available for scrutiny by Councillors?
The minutes could be in the public domain. If they were not in the public domain then availability to Councillors would depend on the Articles and the constitution of the Advisory Committee. FOI could apply.
· Would the meetings of the Advisory Committee be public and the minutes in the public domain for scrutiny by Councillors?
As a committee of the Cabinet or a committee of the Council, it would need to be as transparent as all committees relating to the business of the Council.
· As a wholly-owned subsidiary of SKDC would the same procurement procedures apply and would it need to abide by Public Contracts Regs?
It would be the role of the Board, through the Articles of Association, to determine the procurement processes for investSK. Being wholly-owned by the Council, European Procurement rules would apply, but there would be no requirement for the company to follow the Council’s procurement rules.
· Would the company be obliged to itemise spending over £500 alongside the Council?
The Company would be required to publish its accounts and it would be for the Board to determine how or if it disclosed its spending.
· How would a Councillor be able to summit a question, comment or criticism of InvestSK, would there be a formal channel?
The formal route would be through the Cabinet Member for Economy and Development, who would then bring it to the attention of the Advisory Committee. Alternatively, activities undertaken through investSK could be scrutinised through the relevant OSC, at the agreement of the appropriate chairman.
The Chairman thanked everyone for their questions and responses and invited the Call-in members to sum up.
The Call-in Councillors thanked the Committee for handling the Call-in. They queried whether the contract with Opportunity Peterborough could have been maintained on a monthly rolling basis and felt that the Articles of Association should actually refer to “roles” such as “The Leader” and not individual names. They also sought reassurance that the roles of SKDC and the Company would be separated, that the Growth Overview and Scrutiny Committee would have an input into the drafting of the Articles of Association and the Memorandum of Understanding along with the measures used for KPIs which would ensure that the whole process was transparent.
The Leader thanked the Committee and acknowledged the work undertaken by the Call-in Members in respect of this decision. He recognised that the Cabinet could have been seen to have acted hastily but the decision had been taken in good faith. He also commented that the naming of people was suggested for clarity but the articles of Association would determine the correct terminology.
a) After consideration of the reasons for the Call-in together with the responses given to the questions submitted by the Members who called the decision in, the Committee decided that no further action was required and all agreed that they were in favour of the Cabinet’s decision.
b) That the Articles of Association and Memorandum of Understanding would go to the meeting of the Growth OSC in July
c) That the Articles of Association reflect the “roles” rather than specific naming of people.
The Articles of Association and Memorandum or Understanding may be presented to the Growth Overview and Scrutiny Committee at the July meeting.