Clementi Report

A Review of the Governance and Regulation of the BBC

Sir David Clementi March 2016

Presented to Parliament
by the Secretary of State for Culture, Media and Sport by Command of Her Majesty

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/504003/PDF_FINAL_20160224_AM_Clementi_Review.pdf


Extracts from the Clementi report of relevance to our inquiry

SUMMARY OF MAIN RECOMMENDATIONS

  1. The high-level recommendations of the Review are:●  regulatory oversight of the BBC should pass wholly to Ofcom;●  the BBC should have a unitary Board, with a majority of Non-Executive Directors;

    ●  the primary responsibility for the interests of the Licence Fee payers should lie with the BBC Board;

    ●  Ofcom should issue the BBC an Operating Framework, consistent with the revised Charter and Agreement, setting out the obligations placed on the BBC;

    ●  the Operating Framework should include Operating Licences in respect of the BBC’s broadcasting content and distribution obligations; and should include Operating Licences in respect of services for the Devolved Nations;

    ●  the Charter should place on the BBC a duty to consult with the public both as consumers and as Licence Fee payers; and

    ●  the BBC should have a ‘Broadcaster First’ system of complaints; appeal above the BBC on editorial issues would be to Ofcom.

  2. The discussion and argument behind these high-level recommendations are set out in the chapters that follow. Set out below is an executive summary.
  3. CHAPTER 1 considers models of governance and regulation for the BBC. The Consultation Paper proposed three possible models: (i) that the existing Trust model should be retained, albeit with changes to reflect the experience of the last ten years; (ii) that regulatory oversight should move to a new independent body, OfBeeb, a bespoke regulator for the BBC; and (iii) that regulatory oversight should move to Ofcom. The Chapter considers the advantages and disadvantages of each model.
  4. The Chapter analyses the Trust model and concludes that it is flawed. It conflates governance and regulatory functions within the Trust. However re-structured, it would still leave two Boards within one organisation, with the likelihood of confused responsibilities.
  5. If the Trust model were rejected, the Consultation Paper suggested that the choice lay between regulation by OfBeeb and regulation by Ofcom. In fact the choice lies between regulation by OfBeeb and Ofcom, and regulation by Ofcom alone. Nobody argues that the market and competition issues, which increasingly bring the BBC into contact/competition with commercial interests, should be overseen by anyone other than Ofcom.
  6. The strongest, and simplest, argument in favour of the Ofcom model is that Ofcom is already the public service regulator for the United Kingdom’s broadcasting industry. It already has regulatory powers in respect of the BBC, already has considerable experience in almost all of the regulatory issues that the BBC gives rise to, and has during its twelve years of existence built up a significant reputation for dealing with competition issues which are likely to come increasingly to the fore. Ofcom has scale and credibility. It would be a strong regulator to match a strong BBC. Against this background there would need to be a very powerful argument for the Government to want to set up a second public services regulator, OfBeeb. There are arguments in favour of such a bespoke regulator; but it should be recognised that the body would have responsibility for only one organisation, the BBC, and that precedent for a satisfactory ‘single regulator–single regulatee’ relationship is poor. The Chapter concludes that the arguments for consolidating the regulation of the BBC within Ofcom heavily outweigh those in favour of setting up a bespoke regulator.
  7. If the recommendation of this Review is accepted, there would need to be a further discussion about how Ofcom dealt with the significant increase in its work– load: which responsibilities would be discharged in existing Ofcom teams, and which might best be discharged within a new separate board within Ofcom. Any new board should have a clear link to the Ofcom Board, similar to the Ofcom Content Board.
  8. Alongside a single regulator, it is proposed that the BBC should have a unitary Board, with governance responsibilities for all its activities. It would consist of a Non-Executive Chair and Deputy Chair, a majority of Non-Executive Directors and a small number of Executive Directors. The Board of the BBC should continue to include members for the constituent Nations of the United Kingdom, able to balance their representative role with an ability to contribute with specific skills to the significant workload of the Board. The Chapter includes recommendations about the size of the Board; the Directors would be in part appointed by Government and in part appointed independently via a Nominations Committee.
  9. The primary responsibility for the interests of the Licence Fee payers should lie with the BBC: the relationship between Licence Fee payer and Licence Fee recipient should be direct, not via a regulator. It is proposed that the reporting requirements on the BBC would be substantial, requiring the Corporation to account in detail for how it had complied with the regulatory obligations placed upon it by the Charter, Agreement and related documents. The obligations placed on the Board, and time commitment expected of Directors, would be considerable.
  10. CHAPTER 2 looks at mechanisms of governance and regulation of the BBC. It describes the current framework, covering Public Purposes, Purpose Remits, Quotas, Service Licences, Statements of Programme Policy and other related documents. It proposes a revised framework, which would flow from the new Charter and Agreement, both as regards duties placed on Ofcom and obligations placed on the BBC.
  11. For Ofcom, the key ‘forward looking’ documents would be an Operating Framework, which would set out how the BBC should operate across all its activities in areas such as competition in services, distribution of content and relationships with independent producers; and, flowing from the Operating Framework, a series of Operating Licences, setting out what the BBC should be delivering in its television, radio and other activities including on-line. It is also proposed there would be Operating Licences in respect of the Devolved Nations.
  12. The key ‘after the event’ obligation placed on Ofcom would be the production of an Annual Report, providing an overview of how the regulatory duties had been delivered, and including a review of BBC delivery against Operating Licences. Ofcom would also undertake an in-depth assessment of the BBC’s performance against its remit once every four years.
  13. The BBC Board would be required to produce a Workplan and Creative Remits document, providing a ‘forward looking’ view of how it planned to deliver against its Operating Licences. This would include associated budgets. The key ‘after the event’ document would be the Annual Report and Accounts, detailing the BBC’s performance against a long list of obligations placed on the unitary Board.
  14. The Chapter goes on to look at the mechanisms for making changes to licences in the periods between Charter Reviews. The current operation of a Public Value Test is described, and proposals made for its evolution. There should be greater flexibility so that changes to services face appropriate and proportionate scrutiny whilst being determined to a tighter timescale. The determination of whether a full Public Value Test were required would rest with the Board of the BBC. This responsibility would be balanced by a broad right of Ofcom to ‘step-in’ to investigate where it felt that the public interest issues had not been fully considered. Where a full Public Value Test were carried out, Ofcom would be the final arbiter of whether the change was in the public interest.
  15. CHAPTER 3 considers the way in which the BBC engages with the public. Under the current Charter, specific duties are placed on the BBC Trust in respect of engagement with Licence Fee payers in a broad sense: to know the views of audiences both in regard to issues around individual programmes and services, and also in regard to wider issues such as value for money. The new Charter should place similar obligations on the Board of the BBC.
  16. The Chapter discusses the existing out-reach work of the BBCTrust, and in particular the Audience Councils, which are prescribed in detail in the current Charter. Having these Councils chaired by a Director of the BBC unitary Board would bring the Councils closer to the decision-making body of the BBC. Furthermore, the introduction of an Operating Licence for each of the Devolved Nations would give greater substance to the work of the related Council.
  17. Overarching these issues is the growing ability for any organisation to relate to its public through digital platforms. New technologies and techniques should mean that during the next Charter period the BBC will be able to engage more effectively with the public and understand the public interest better than ever before. The BBC already has a considerable audience linked to its platforms; and the new Charter should encourage the BBC in its work to reach out to the public as widely as possible. Given the speed of change, it is proposed that the Charter should be less prescriptive than at present in how the out-reach obligations are met.
  18. There would be a requirement on the BBC to demonstrate in its Annual Report and Accounts how its Charter obligations had been met, and delivery in this respect would be subject to oversight by Ofcom. Ofcom itself is likely to broaden the audience research it already carries out.
  19. CHAPTER 4 looks specifically at the Editorial Standards and Complaints System of the BBC. The current system is complicated and confusing, since the remit of the BBC Trust and Ofcom overlap. Ofcom can hear complaints against the BBC, subject to certain exclusions of which the most important is editorial complaints about ‘accuracy and impartiality’. The BBC Trust can investigate any complaint, even if it is within the Ofcom remit. Although the majority of complaints do go direct to the BBC and are dealt with by the Corporation itself, complaints may also go direct to Ofcom.
  20. It is proposed that the BBC should adopt a formal ‘Broadcaster First’ rule, subject to a right of ‘step-in’ by the regulator, Ofcom, in exceptional circumstances. The Chapter includes suggestions for simplifying the existing BBC arrangements for handling complaints. Complaints to the BBC would be judged against the BBC Editorial Guidelines, which would be the responsibility of the unitary Board.
  21. Appeals against judgements of the BBC would be made to Ofcom and would be heard against the Ofcom Broadcasting Code. It is argued that this would not lead to any diminution in the BBC’s editorial standards. This is in part because the Editorial Guidelines of the BBC and the Ofcom Code are similar in how they define the important editorial test of ‘accuracy and impartiality'; and in part because the responsibility for upholding the highest standards of editorial integrity rests not with the Regulator, but squarely with the BBC itself, as a key part of the remit of the unitary Board. Whilst the reputation of Ofcom and its Content Board for editorial integrity is high, regulation by Ofcom represents a second line of defence. The Chapter also includes recommendations for broadening the scope of Ofcom’s existing coverage of the BBC’s output.
  22. Overall I believe that the recommendations in this Review would add significantly to the transparency and accountability of the BBC. The Corporation would have a unitary Board responsible for all its activities; it would have a single regulator, Ofcom, to whom it would be accountable. The Board must act in accordance with the obligations placed upon it by the Charter and related documents and should have a clear responsibility for the interests of the Licence Fee payers who fund it.
    3 Burns, T. (2005) Final advice presented to the Secretary of State [On-line]. Available at: http://webarchive.nationalarchives.gov.uk/+/http://www.bbccharterreview.org.uk/pdf_documents/050123a_Governance.pdf
    Burns, T. (2004). Independent Panel on BBC Charter Review [On-line]. Available at: http://webarchive.nationalarchives.gov.uk/+/http://www.bbccharterreview.org.uk/pdf_documents/041130_emerging_themes.pdf
    4 House of Commons Culture, Media and Sport Committee, (2015), Future of the BBC Fourth Report of Session 2014–15, [On-line]. Available at: http://www.publications.parliament.uk/pa/cm201415/cmselect/cmcumeds/315/315.pdf
    5 Patten and Hall (2013), Review of BBC Internal Governance: A joint review by the BBC Trust and the BBC Executive Board [On- line]. Available at: http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/about/how_we_govern/governance_review_2013.pdf

Appointments to the Board

  1. A considerable amount of attention will be paid to where responsibility lies for appointments to the Board.
  2. The majority of respondents to the Consultation Paper who covered governance issues stressed the importance of the BBC being independent of the Government, and seen as such both in the UK and overseas.
  3. A number of respondents argued that appointment of the Chair should be made by the Regulator, since this would signal clearly that the candidate selected was independent of Government. In general, notwithstanding the Channel 4 precedent23, it would be considered unusual practice for a Regulator to have the lead role in selecting a candidate to lead the Board of a regulated entity, because of the conflict that arises when regulators are required to make a judgement about the quality of the regulatee’s management and its capacity to carry out its responsibilities. On the other hand it is quite usual for the Regulator to have an involvement with the selection process. In the financial services sector, the Board of a major company, having made its choice, is required to submit the name to the regulator who would confirm or not the candidate’s suitability.
  4. For the reasons set out above, I do not recommend appointment of the Chair by the Regulator. Nor do I recommend appointment by the Board. An appointment by the Board, even with the assistance of an outside assessor, would be likely to attract criticism that the Board had appointed ‘one of their own’.
  5. If appointment by the Regulator and appointment by the Board are both rejected, the choice lies between: (i) a specially devised system which is independent in all respects; and (ii) appointment by the Government, subject to certain safeguards.
  6. A number of respondents argued the case for the appointment to be entirely independent of Government, and drew my attention to the appointment of the Chair of the Recognition Panel for self-regulation of the Press. On this model a small independent appointments committee would be established by the Commissioner of Public Appointments. The Committee would be expected to follow a transparent process to determine a short list and, following interview, to agree on one candidate. The final decision would rest with this independent Committee.
  7. If this process were followed, the individual chosen would still be subject to a confirmatory hearing by the CMS Parliamentary Committee to determine suitability. Whilst the appointment would be independent of Government, the candidate would have, and should recognise, a responsibility to Parliament.
  8. If the Government decided it wished to retain the right to appoint the Chair, then it would follow the process that has become established and which includes a number of safeguards. It would, with the assistance of the Commissioner of Public Appointments, appoint a committee to review candidates. This Committee would advertise and, following consultation with appropriate parties and interview, put forward a very short list of appointable candidates to Ministers, with whom the final decision would rest. The proposed candidate would appear before the CMS Parliamentary Committee who would consider suitability.
  9. I would propose that the process chosen for appointing the Chair should also apply to the Deputy Chair.
  10. Turning to the appointment of Non-Executives, the BBC Trust is required by the current Charter to have one member designated for each of the constituent Nations of the United Kingdom: England, Scotland, Wales and Northern Ireland. Each person so designated is required to be suitably qualified by virtue of their “knowledge of the culture, characteristics and affairs of the people in the nation” and their “close touch with opinion in that nation”.24 The current practice is for those who apply to be shortlisted and interviewed. The interview panel is chaired by a senior civil servant from DCMS and also includes an independent assessor, an assessor from the Nation itself and the BBC Chair. The recommendation is then passed to Ministers.
  11. A number of commentators arguedthat, whilst the Non-Executive Directors of the BBC needed to be chosen so as to achieve an appropriately diverse Board, there should not be specific representatives for Nations, or indeed for any demographic such as age or ethnic background. They argued that it should be the duty of Directors to represent all Licence Fee payers, not some, and to act collectively in the public interest. It is a legitimate argument but the precedent of having representatives on the sovereign board of the BBC for Scotland, Wales and Northern Ireland has been in place since 1952 and has provided an important link between the BBC and the Nations it serves.
  12. I propose that the current practice of having members for the constituent Nations of the UK should remain in place, alongside the existing process for their selection. Those chosen will need to be able to balance their representative role with their legal duty under the Charter to serve the BBC as a whole; and given the need to limit the size of the Board they will need to bring specific skills to complement the skills of others.For this reason the Chair of the BBC, who would carry the primary responsibility for ensuring that the balance of skills on the Board was appropriate, needs to have a direct involvement in the selection process.
  13. I propose that the other Non-Executives be appointed by the BBC Board, the appointments to be led by the Nominations Committee. It will be particularly important that these appointments are of suitable candidates with the balance of skills to deal with the significant responsibilities placed upon them.
  14. I propose that the appointment of the Director General, and any other Executives appointed to the Board, be made by the Board, led by the Nominations Committee.

Size of the Board

  1. The Board needs to represent as best it can the diversity of the public it serves. As noted, it also needs to include the necessary skills to carry out the specialist Board functions referred to above. I think it unlikely that these objectives could be met in a Board of fewer than 12; and I counsel against a Board larger than 14, on the grounds that above this number it is hard to operate as an effective group in which all members feel engaged and responsible.
  2. I propose that some latitude be granted in the Charter to the Chair to determine
  3. If Government chose to continue the right to appoint the Chair, Deputy Chair and the Non-Executive Directors for the Nations, with other Directors being appointed by the Nominations Committee of the Board, half the Board or slightly above half would be appointed independently. Once appointed, all Directors must act in the best interests of the BBC to meet the Public Purposes set for the Corporation in the Charter and to uphold the BBC’s editorial independence.

Term of Appointment

  1. There is a lot of literature about the optimum term for Non-Executives. At present BBC Trust members are appointed under the Charter for five years, with the possibility of renewal for a further term. There is a move towards shorter terms for Directors, and the Combined Code comments that “any term beyond six years (e.g. two three-year terms) for a Non-Executive Director should be subject to particularly rigorous review.”25 My view is that it may take time for new Non- Executive Directors to understand how the BBC functions and, therefore, I would be against very short terms. My proposal would be a period of four years, with the ability to renew for a further four.
  2. The initial appointments of the Chair, Deputy Chair and Non-Executive Directors in respect of their term needs to be phased to ensure that not all will come up for renewal or retirement at the same stage.

Remuneration

  1. I propose that the remuneration of the Chair, Deputy Chair and all Non-Executives should be set by the Secretary of State at the DCMS. The remuneration of Executive Directors would be set by the Remuneration Committee of the Board.
23 The Chair of Channel 4 is appointed by Ofcom, subject to approval by the Secretary of State
24 Department for Culture, Media and Sport (2006). The Royal Charter for the Continuance of the British Broadcasting Corporation (s.14 (3)) [On-line]. Available at: http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/about/how_we_govern/charter.pdf
25 Financial Reporting Council, (2008). Section 1 Companies (A7.2) in The Combined Code on Corporate Governance [On-line]. Available at: https://www.frc.org.uk/getattachment/1a875db9-b06e-4453-8f65-358809084331/The-Combined-Code-on-Corporate- Goverance.aspx