Interview: Mark Russell, Shareholder Executive

When you think of managing stocks and shares, slick city executives may spring to mind. The term ‘British business’, meanwhile, may conjure up the big, brash figures of Richard Branson or Alan Sugar.

Mark Russell is neither slick nor brash; he’s quiet and rather unassuming. Yet as chief executive of the Shareholder Executive, he’s responsible for overseeing the British government’s stake in over 20 businesses, including the Royal Mail, the Met Office, Ordnance Survey and Eurostar. And while he may be quiet, Russell isn’t restrained. Our interview runs and runs, with meetings pushed back as, at length, he talks about privatisation, public sector pay, government transparency, supplier bailouts and big corporate mergers. In government, as in business, often it isn’t the loudest voice that has the most interesting message.

Picking up the portfolio
Russell has been chief executive of the Shareholder Executive since February – replacing Stephen Lovegrove, now the energy department’s permanent secretary – and says his organisation has two main roles: managing the UK’s shareholdings; and providing corporate finance expertise to the officials across Whitehall overseeing investments and interventions in the private sector. The Shareholder Executive helps decide whether, for example, the government will directly invest in a British business to help it expand, and whether and how to bail out a UK firm in distress.

The executive has a great deal of commercial expertise, Russell says, because “the majority of my colleagues are from either investment banking or the big four [accountancy firms].” Indeed, before Russell joined in 2004 as head of corporate finance, he had spent much of his career at KPMG. “We’ve got some idea of how business thinks; I like to think that the Shareholder Executive adds business credibility to the Department for Business [Innovation and Skills],” he adds.

The ‘P’ word
In many ways, the executive acts like a government-owned private equity firm; but instead of focusing narrowly on maximising profits, it has to take a broad range of aims into account.

Currently, the government is looking at whether to sell some state-managed firms. “The view is that unless there is a good policy reason for holding a commercial shareholding, most commercial shareholdings are better managed in the private sector.” Russell says.

There’s been a great deal of press speculation about potential sell-offs, which would be led by Russell’s organisation (except for the state-owned banks, which are managed separately). “As you would expect, as through any spending round process, all departments are being asked whether there are any assets that could potentially be realised,” Russell says. “Yes, a process like that is going on at the moment. But there’s no magic to this: the list of organisations that could potentially be either wholly or partly sold is very well-known, and it’s very rare that we’d suddenly stumble across something that we’d never thought of.”

According to the Economist, that list of companies comprises Companies House, the Land Registry, the Met Office, Ordnance Survey, Royal Mail, Urenco, Channel 4, Eurostar and the Student Loans Company, although in each case there are arguments for keeping the business in public ownership.

Given that retaining state ownership of a firm is dependent on there being a sufficient policy justification, what does Russell think would be a good policy reason to retain ownership of, for example, Ordnance Survey? “On those that we call the Public Data Group [the Met Office, Companies House, Ordnance Survey and the Land Registry], those four assets are all providing – to a greater or lesser extent – a public service,” he says. “Perhaps it’s most easily understood with the Met Office: they are an essential scientific establishment, providing a very important public service for the country.”

Privatisation is ultimately a decision for ministers, not Russell, but it does sound as though the Met Office has a good case to remain state-owned. What is the policy case for retaining a holding in the Land Registry? “It’s an extremely well-established part of the government infrastructure. Could you argue that it could be serviced in the private sector? Possibly; I don’t know. It’s like many functions the government carries out. You could at an academic level say: ‘Well a number of these functions could be carried out by the private sector perfectly adequately,’ but actually when you get into how that would be done, what would be the change, the case isn’t overwhelming,” Russell says.

The Land Registry only charges a modest sum for its services, he adds, using those revenues to run a good, low-cost service. “Would transferring that to the private sector necessarily be to the [public] benefit? Well no, not necessarily at all, because you’d then have a situation where they’d want to make profits, and although you’d have a capital receipt up front, the ongoing cost to the public would be higher.”

Better off out
For this part of our interview, Russell is a little tense. His sentences are still fluent and expansive, but he crosses his arms, furrows his brow, and looks down at the table as he’s discussing the topic. Privatisation is a sensitive subject, and he’s clearly keen that civil servants working in trading funds don’t start to panic about their futures.

In front of us, there’s a handy list of all of the companies in which the UK government has a stake. Which of these don’t have a good policy case for being held in government? Ministers would say Royal Mail, Russell explains, whilst Urenco – the European uranium enrichment firm owned by the British, Dutch and German governments – “would have been our one. I think, to a greater or lesser extent, there are others. I mean, our shareholding in Working Links [the welfare supplier]: I think there’s less of a policy reason for holding that now.” That said, Russell stresses that “I’ve got to be careful with that question because that automatically might suggest we’re going to sell off these things.”

In some cases, the government would like to sell off its holdings but is stymied by the difficulty of getting an adequate price. As an example, Russell cites the Nuclear Decommissioning Authority (NDA): “We’d be delighted to sell the NDA, but nobody would take over an enormous liability like that.”

There are two important considerations when deciding an organisation’s future, Russell says: the economic cycle (which helps decide the business’s price), and “what is right for the business?” – would a private sector owner help the business to expand, become more efficient or improve its services? He adds that “no decision has been made on Royal Mail in terms of a sale, but the reason we’re looking very carefully at a sale is that actually, what’s in the best interests of Royal Mail is access to private capital.”

Indeed, that’s also important for other state-owned organisations, he says: “They do need capital, and at the moment, to the extent that they’re in public ownership and we put more capital in, that goes straight onto public sector debt. So we are constrained, and some of them are going to become liberated if we can put them into the private sector.” There are alternative models to full privatisation, he says – government can, for example, sell a stake in the business.

No decision has yet been taken on the Royal Mail, he says, although the government is looking carefully at an IPO (stock market flotation). Minds will be made up by next April: “Nothing’s tighter than that at the moment.”

The government is also looking at privatising student loans. Already, it’s selling the relatively small, £900m chunk of its loan book whose repayment isn’t linked to debtors’ income. That’ll be sold in the autumn, Russell says, and there’s plenty of interest from the market. The bigger, income-contingent chunk of the loan book is trickier, because payment isn’t guaranteed, but Russell says “there’s likely to be developments on that in the next few months.”

Driving good governance
Where government does keep hold of a shareholding in a business, says Russell, “that doesn’t necessarily mean that they should be immune from good commercial discipline.” The executive looks to ensure that state-owned firms have high-performing boards, good financial reporting and high standards of accountability: indeed, Russell notes that “in practically every organisation, we’ve had a [management] ‘refresh’ of some sort – and it’s not just the boards; it’s also the executives themselves.”

In the case of the Land Registry, that meant bringing in Ed Lester – the former head of the Student Loans Company, who attracted attention in that job when it emerged that he was paid through a service company rather than via PAYE. Russell says that Lester “successfully turned around the Student Loans Company; he can bring lots of commercial disciplines.” Further, “the board of the Land Registry is very clear: there is more to be done to make the Land Registry an efficient organisation.” The former chief executive, Malcolm Dawson, held the job for only two years, but Russell says “that was always a fixed-term contract, so there would always have had to be a competition.”

Russell says there was strong competition for the post – does that mean Lord Browne was incorrect to suggest that current Cabinet Office pay restrictions are damaging civil service recruitment? “It’s a mixed picture,” he responds. In some cases, they are “definitely a restraint, and we have many healthy arguments with the centre [of government] about pay, and we do firmly believe that if you don’t get decent management – and, potentially, pay a bit more for them – you can lose many tens of millions of pounds.”

That said, the Shareholder Executive is managing to fill posts, he says. “We have no real difficulty in attracting people; [but] money is an issue – certainly in the more junior level, where people have just started to have families and take on big mortgages.” Secondments from the private sector are used to plug expertise gaps at that level, he notes.

Ultimately, Russell would like to see a civil service employment model more like those in the United States and France, where there is more interchange between the public and private sector. There, “it’s part of one’s corporate career that you spend time in the public sector,” he says.

Open Data
As well as overseeing good governance in state-owned firms, the Shareholder Executive also ensures they follow broader government initiatives – for example, the open data agenda. However, on this topic it must balance competing objectives: the open data community complained loudly recently, because the mooted privatisation of the Royal Mail involves selling off the Postal Address File (PAF), which underpins many of digital apps and web technologies. Open data supporters want it to be released for free, rather than sold with the Royal Mail to a company that will want it to turn a profit.

However, the PAF “was seen to be integral to the job of Royal Mail,” says Russell. “Royal Mail are probably the only people who visit 27 million addresses every day, so there’s nobody else who does that and they are the best people to keep the PAF up to date.” The PAF will at least be made more accessible, Russell says.

Isn’t that argument one that all trading funds could make, suggesting that they’re the people best placed to retain control of their data? “Yes indeed, and all our Public Data Group are engaged: they’ve already released a lot of data. But that is a point of continual challenge and debate,” he replies. Ordnance Survey and the Met Office could release still more data for free, he believes. (See news.)

Internal expertise
The executive doesn’t only work with the trading funds it oversees: it also supports other departments as they engage with the private sector. For example, it’s working with the Department of Health to assist with the privatisation of Plasma Resources UK. “It’s about guiding them through a good process, making sure that they’re negotiating functionally with potential bidders,” Russell says. Indeed, when departments are planning to sell off an asset, the Treasury usually asks them whether they’ve involved the Shareholder Executive.

Russell’s team is also trying to secure better consultancy deals for the public sector. “One of the areas where I believe we’ve added a lot of value is in driving very big adviser deals,” he says, arguing that his experience in business has proved valuable here: “I think if you’ve been on the other side, you know how far you can push it [with the private sector].”

On the troubleshooting side, Russell’s organisation worked closely with the DH when care home supplier Southern Cross faced financial oblivion: the executive helped broker a deal that prevented the firm from going into liquidation. “There, we were very involved in trying to see what we could do without government needing to put in money,” he says, recalling that the executive had helped restructure the firm and keep it alive.

There have been other cases where the Shareholder Executive has considered whether to offer direct support to a government supplier, he admits: “There’s been nothing quite as big as that, but we have been involved in one or two situations where government’s interested because a supplier – to a significant part of government – might be in financial distress.”

In those cases, “you might have to find a new supplier; you might end up putting money in to keep the company going because there’s no alternative supplier – there’s all sorts of situations there. As you’d expect when you’re in a state of the economic cycle like this, you will get significant suppliers who have their financial problems. We have had involvement in that.”

Supporting business
As well as supporting departments and suppliers, the Shareholder Executive helps British business by providing useful information – on, for example, cyber security – to FTSE 350 firms. Its connections with the big four accounting firms help, he says, because they work for many large companies and can readily twist arms about the importance of good IT security.

Russell’s organisation also provides support on big commercial mergers, to make sure they’re in the national interest. So when defence supplier BAE Systems was looking to merge with defence giant EADS, Russell led the negotiations alongside Bernard Gray from the Ministry of Defence (see interview).

Further, the executive is expanding into the banking sector. It launched the Green Investment Bank, and is now doing the same with a Business Bank – building it internally before transferring it to the private sector. “We’re not necessarily the people who devise a policy on these things, but we like to think we can try and convert that policy into some sort of deliverable,” he says.

It’s clear that Russell’s quite comfortable with his organisation’s vast remit: despite his role’s political and commercial sensitivities, he’s broadly at ease throughout the discussion. He does get a little uncomfortable when a group of his colleagues walk by as he poses for photographs – just as our photographer is shouting David Bailey-style encouragements – but this unassuming individual will put up with a little embarrassment as he works to raise the Shareholder Executive’s profile on Whitehall.

Russell knows that civil servants don’t find it easy to manage businesses, privatise government bodies, or pick up the pieces when government suppliers get into trouble. And his message is that they need not do so on their own: his organisation is there to help ensure that government gets a good deal as civil servants venture beyond the safety of Whitehall to do battle in the unfamiliar, and sometimes-intimidating, environment of the private sector.

See also: Ordnance Survey and Met Office should release more data