UKGI00044300 - Guidance Note - The role of UKGI in ALB sponsorship
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This Guidance Note is for the information of UKGI staff. It is not to be circulated outside of UKGI
Guidance Note 18 The role of UKGI in ALB sponsorship Updated May 2023
Introduction
Sponsorship is the activity that delivers effective relationships between departments and their arms-
length bodies (ALBs). This document sets out the role of UKGI in supporting government's effective
ALB sponsorship, and the value that we bring in that role through our Shareholder Non-Executive
Directors (NEDs) and teams.
1. ALB sponsorship — the different roles
Government can have up to five sponsor responsibilities for its ALBs: customer; policy setter; funder;
regulator; and owner / shareholder. If there are complex or significant trade-offs between
government's different sponsor functions, they should be conducted separately with capable and
dedicated resource. Defining and maintaining the relationships between these functions, and agreeing
the behaviours, roles, and responsibilities is vital to enabling effective performance and
accountability.
2. UKGI’s role and responsibilities within ALB sponsorship
UKGI conducts the shareholder role on behalf of government departments for a portfolio of ALBs (our
‘Assets’). To ensure comprehensive sponsorship of an ALB, Figure 1 below provides a guide on how
the different government sponsor functions dock in and the role of UKGI as shareholder within this. It
should be used to ensure joined up sponsorship without duplication of functions.
1. Customer 2. Policy sponsor 3.Funder-Department ff 4. Regulator 5. Shareholder - UKGI
Department Department finance team If applicable
Role Role Role
i
Responsibilities, Responsibilities Responsibilities Responsibilities Responsibilities
Hold ALB to account II+ Establish required II+ Agree funding, if * Carryout functions I}+ Establish and
for specifications of ALB policy outcomes required as set out in statute maintain effective
project + Ensure alignment of II+ Advise on financial II + Monitor and enforce corporate
Manage delivery of policy objectives and issues relating to ALB the performance of governance
the contract with direction to + Provide relevant the regulated body foundations
AB departmental financial information inline with statutory II+* Promote effective
objectives from central powers objectives, business
Enable effective government/depart II+ Enforce compliance planning, and
relationship with ‘ment relating to ALB with Directions from performance
‘other policy teams as required sponsor department II+ Promote strong
within the + Receive dividend if and/or licence corporate capability
department applicable conditions, including supporting
Support effective health and safety organisational
relationship for ALB performance
with department and + Promote effective
Government from a leadership - high
policy perspective quality Board and
Monitor delivery of senior management
policy objectives + Promote effective
relationship between
the ALB and
government
+ Provide an
experienced
shareholder NED on
the ALB Board
Customer Example ‘Sponsor Example Funder Example Regulator Example ‘Shareholder Example
The Royal Mint has a HIMT has a sponsor team I I HMT provides a working. I I The Royal Mint does not I I UKGI conduct the
contract with HMT for I I for The Royal Mint capital facility to The have a regulator. shareholder role for The
coin production. An HMT Royal Mint. Royal Mint on behalf of
team negotiates this HMT.
contract and manages
performance against it
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Figure 1: The roles and responsibilities of government’s sponsor functions for its ALBs
2.1 The UKGI target shareholder role
UKGI conducts a proactive shareholder role on behalf of departments to optimise ALB performance.
The six key responsibilities of UKGI in our target shareholder role are included in the shareholder
responsibilities box in Figure 1. The relationship between the department and UKGI should be set out
in a Memorandum of Understanding (MoU) and includes the activities we are responsible for as
shareholder. A Framework Document should define the relationship between the Asset, UKGI, and
the department.
Our target shareholder role is designed to support and challenge our Assets’ governance and
corporate performance, including financial. We do this to build shareholder value by promoting the
Assets sustainable success. We typically perform this in two ways: by holding a Shareholder NED Board
seat, and via a dedicated shareholder team.
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2.2 The role of the Shareholder NED
The role of the Shareholder NED is an important governance lever in the performance of the
shareholder role. The Shareholder NED normally attends the main Board and any required
Committees. This provides UKGI, and (through it) the department, with an important line of sight into
developments at the Asset.
UKGI would not recommend that a policy director from the department act as a Shareholder NED on
an Asset Board. This is because actual or perceived conflicts may be created if an individual who makes
policy decisions for the Asset also sits on the Board. Lines of accountability can also be confused, which
detracts from the effectiveness and empowerment of the Board, and ultimately undermines the
purpose of the Asset in operating at arm’s length to government. It can also compromise the
separation between the policy and shareholder functions, which best practice shows enables effective
oversight and good governance.
i. Becoming a Shareholder NED
UKGI Shareholder NEDs are typically Directors or Executive Directors with the skills, background, and
expertise appropriate to the needs of the Asset. UKGI actively manage our portfolio of Shareholder
NED positions through a formal and rigorous succession planning process chaired by the CEO. This
will ensure appointments are appropriate and is good practice risk management. This exercise is
regularly completed from the top down, looking at what each Board position requires to be
successful, and from the bottom up, building a pipeline of suitable aspiring Shareholder NEDs. We
aim to maintain a consistent Shareholder NED on our Asset Board seats and reduce rotation where
possible, but it may be required particularly if the needs of the Asset change.
Each Shareholder NED will have an induction with the Portfolio Director, Jamie Carter, General
Counsel, Lucie Lambert, and Sam Baker Head of L&D. An overview of the induction can be found
here.
ii. The role of the Shareholder NED
The Shareholder NED has the same duties as the other Directors on the Asset’s Board. However,
they also have additional responsibilities as Shareholder representative on the Board. Therefore,
their typical role is to:
Fulfil the relevant statutory and/or fiduciary duties of a Director under the Companies Act, acting
in a way which is most likely to promote the success of the Asset for the benefit of its
shareholder whilst having appropriate regard to other stakeholder interests
¢ Contribute to the overall strength of the Board by bringing appropriate skills and expertise
e¢ Contribute expertise in best practice corporate and government governance
¢ Facilitate the relationship and understanding between the department and the Asset, including:
© Sharing the context of the department's objectives and perspective (established through
regular meetings with departmental officials and Ministers to discuss Asset
developments and relevant government interests) to the Board to aid its decision-
making
o Whilst fulfilling their duties of confidentiality as a member of the Board, providing a
direct line of sight to the department on developments at the Asset and the quality of
the Board and management in the performance of their functions
© Supporting wider relevant government stakeholder relationships
How the role of the Shareholder NED differs from other NEDs
Unlike the other Asset Board NEDs, the Shareholder NED is not appointed to provide specific subject
matter expertise, but to facilitate the relationship between the department and the Asset. Whilst
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the Shareholder NED has the same responsibilities as the other Board NEDs, their additional
shareholder responsibilities means they need to wear two ‘hats’, which are acting in the: interests of
the Asset, and of the shareholder.
In rare circumstances there may be an actual or perceived conflict between the interests of the
Shareholder NED as the shareholder representative and the interests of the company. This may
require the Shareholder NED to recuse themselves from specific Board decisions in extreme
circumstances. If this happened regularly UKGI would consider the appropriateness of the role of the
Shareholder NED as shareholder representative.
UKGI Shareholder NEDs hold their posts as ex officio members of UKGI and should cease their Asset
directorship if they leave UKGI. They will not receive additional remuneration for their NED role
outside of their UKGI salary. UKGI Shareholder NEDs should receive indemnities from the department,
which may require HMT approval.
iv. Knowledge, skills, and attributes of a successful Shareholder NED
To be a successful Shareholder NED and effectively wear the two ‘hats’, the following knowledge,
skills, and attributes are generally required and are set out in Figure 2:
« Deep governance expertise to undertake fiduciary responsibilities, understand the public
sector governance landscape and drive governance best practice
¢ Politically astute in interpreting the political landscape for the ALB, recognise reputational
risks to HMG, and be an able interlocuter between the ministerial office, government
department and ALB
© Operates effectively in a public sector context and in particular helps the ALB leadership
team: i)) translate policy into strategy ii) deliver against complex (and sometimes
contradictory or ambiguous) objectives and iii) work prudently against a backdrop of financial
constraint
e Exceptional stakeholder management skills using soft power to influence effective ALB
results by developing active communication channels amongst a range of stakeholders. This
includes in particular the ALB Chair, the Board, its senior leadership team and relevant senior
officials within the department
Strong commercial acumen and financial literacy and able to draw on deep experience of
business planning and performance monitoring including provision of financial insight and a
balanced approach to risk management
¢ Confidence to be curious and persistent when an issue or risk is identified and knows how to
mitigate, seek expertise from elsewhere and/or escalate in an appropriate way
© Resilience to represent the shareholders position when the majority of the Board hold
different views
Pragmatism and the ability to operate in grey areas given the dual hatted nature of our role,
including knowing when to recuse from the Board
¢ Effective team leader of the UKGI Shareholder team
Each Asset will require a different mix of the above skills, and these are carefully considered by UKGI
to recruit and appoint the right person.
Figure 2: Knowledge, skills, and attributes of a successful Shareholder NED
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Governance &
Commercial skills
Behaviours
Working in government
experience
We look to enhance these areas through our dedicated learning and development programme.
2.3 Shareholder teams
UKGI’s shareholder responsibilities are much wider than the appointment of a Shareholder NED and
are carried out by shareholder teams. A NED only role is the only instance when a UKGI NED may not
be supported by a team, but they still utilise the wider expertise of UKGI. In this role UKGI doesn’t
perform the typical shareholder activities, but primarily acts as an interlocutor between government
and the Asset. It is not our preferred shareholder role as it limits our ability to add value, and we have
reduced the number of these we have.
i. Responsibilities of the shareholder team
UKGI’s target shareholder role activities are set out in the MoU between UKGI and the relevant
department. How we carry out these activities is outlined in our Portfolio Operating Principles
(POPs). The POPs are a 53-page internal document that provides guidance for shareholder teams on
how to perform the target shareholder role. The target responsibilities of shareholder teams are
summarised in Figure 3 below across the six principles.
Each year UKGI should agree their objectives against the MoU and POPs with the department and
provide a regular update on progress.
Figure 3: The target shareholder role as set out in the UKGI Portfolio Operating Principles (POPs)
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Challenge and support
the ALB’s performance as an organisation
2. Promote effective 3. Promote strong 4, Promote effective 5. Promote effective I I 6. Supporting and
objectives, business corporate capability leadership relationships supplementing these
planning, and supporting high quality Boards and I I between the activities by providing
performance against organisational senior management. department and ALB. I I an experienced
business plan. performance. shareholder Non-
¥ x ¥ x
+ Promote clear + Regularlyengage I I* Lead Board * Develop effective I I support the UKGI
objectives from the with the Asset’s AO recruitment and relationships and I I shareholder NED,
department + Promote an appointments in work closely with I I including in the
+ Encourage the effective internal line with the FWD the client following:
Asset to develop controls + Advise Ministers department
robust and governance on setting Board through a regular I I+ Read and provide
meaningful KPIs framework, remuneration in meeting rhythm advice on Board
+ Assess and providing feedback line with the FWo I I+ Provide regular and Committee
challenge the on internal + Enable the Board reports to senior papers. Suggest
Asset’s business assurance to understand how department items to raise given
plan and provide I I+ Promote HMMG operates officials, including ongoing dealings
advice to the appropriate + Promote and a qualitative view with the asset and
department on its internal policies challenge and any concerns department
strength and assurance to Executive and + Build effective + Communicate
+ Promote a underpin the Board succession relationships with regularly with the
workable business Asset’s governance planning Asset Executives Asset Chair and
planning cycle framework + Promote Chair & and Board CEO
+ Monitor and + Challenge and NED appraisals + Provide the Asset I I+ — Regularly consider
challenge the promote effective I I+ Promote and with a government whether the Asset
Asset’s long and Asset challenge Board perspective and Board is effective
short term organisational and committee assistance in and properly
performance, health systems and reviews navigating central composed to
including financial, corporate culture I I+ Regularly assess government undertake its
against the and advise the processes ies and
business plan department on provide a view to
Asset leadership the department
tablish and maintain appropriate and effective corporate governance foundations which govern the de
relationship.
* Establish and maintain Framework Documents (FWD) with the department and Asset.
* Work with the Asset and the department to record clearly and accessibly all delegated authorities relating to the Asset.
+ Ensure the department issues a Chair's letter on an annual basis, and contribute, where appropriate, to its content.
+ Assess the sufficiency and quality of the Asset’s core governance documentation eg Board and Committee ToR.
There are certain activities UKGI does not do, including but not limited to: setting government
policy; assuring satisfaction of policy objectives; mediating between departments on policy conflicts;
assuring or approving business cases; assuring or approving procurement activity; determining
funding allocation or funding strategy. These activities are the responsibility of other sponsorship
functions or the Asset, and if UKGI were to do them it would compromise the separation between
them, and could impact effective Asset sponsorship.
However, our approach and work will differ depending on the government’s shareholder relationship
and as we ensure to fulfil the required role in any legislation or legally binding documentation.
i Responsibilities of the team leader
The Shareholder NED generally leads the shareholder team and will often be the senior point of
contact with senior department officials, senior Asset staff and their Board. This includes overseeing
performance of the Asset through regular shareholder meetings, as well as often representing UKGI
in any recruitment process to the Asset Board where UKGI has a role.
The team leader will also allocate the roles and responsibilities from the POPs across the
shareholder team. This distribution will vary between teams and should be reviewed regularly to
ensure the activities are carried out by the most suitable team member.
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The department, especially senior departmental officials, will regard the Shareholder NED as both a
point of contact, day-to-day, with the Asset’s Board and a facilitator of information flow in both
directions, as well as an important evaluator of the performance of the Asset’s Board and
management. However, the shareholder team will manage stakeholders at all levels and their
continuous effective engagement with the department and Asset is fundamental to understanding
and delivering the shareholder priorities.
The Shareholder NED should make sure that the department receives regular and timely performance
information regarding the Asset from the shareholder team. They should also provide a qualitative
and candid assessment of Board and Executive performance, morale, and relationship with
Government as necessary. In order to do 50, it is vital that the Shareholder NED maintains an effective
relationship with the Board and senior management of the company, the relevant senior officials
within the department, and other stakeholder groups.
iii. Skills required within shareholder teams
UKGI shareholder teams are resourced according to the skillsets and experience required to best serve
our clients and Assets, so can vary considerably. Team composition is regularly reviewed and will be
adapted over time depending on our role, risk profile, and complexity of the current issues. They range
from less than one to more than five full time dedicated people across a range of grades, with an
average of 1.6 full time equivalents. Teams generally include an Executive Director who may be the
UKGI Shareholder NED, an Assistant Director, and a Manager. Figure 4 below gives an example of a
shareholder team in UKGI and the mix of seniority and expertise alongside their overall
responsibilities.
Figure 4: Nuclear Decommissioning Authority shareholder team
UKGI Director
Responsibiities:
+ Shareholder NED
+ Senior relationship leod
Responsibilities
+ Joint team leader
+ Oversight of governance
Executive Director
© Private sector finance
vate sector governance
e
@ Pudiic sector policy
ublic sector finance
Responsibilities:
+ Joint team leader
+ Oversight of finance and.
performance
Assistant Director
Responsibilities: Responsibilities Responsibilities Responsibilities: Responsibilities:
+ Department sponsorshipteamII+ Boardstrategy, appointments I I+ Oversight of Board and + Support on Board and + Supportthe team as required
liaison and remuneration performance reporting performance reporting,
+ Chairsierer + Boardetfectiveness © Commercial advice to + Supporton major projects
+ Framework document + Coordinate team toread and II department
+ Business plan assessment provide advice on Board and
+ Government briefings Committee papers.
Shareholder teams also benefit from access to additional central specialist expertise across UKGI, for
example the internal Legal, Procurement, Project Management Office, Appointments, and
Remuneration functions.
iv. Challenging and supporting shareholder teams
UKGI has tailored infrastructure and processes to support consistent delivery of the shareholder
role. Figure 5 below shows the three key areas and the supporting activities that challenge and
support shareholder teams to be successful.
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Figure
reviews conducted at least annually for all
shareholder teams and chaired by a UKGI
Director. They provide assurance and quality
control to manage issues, assess
performance, consistency, and share best
practice.
UKGI has a robust risk management process
with reporting every 2 months reviewed and
mitigated in line with UKGI's risk appetite
statement,
Each year the Board assess our shareholder
performance, informed by feedback from
key stakeholders and an assessment against
performance indicators; teams also
evidence where they have made a
difference and added value.
This is supplemented by feedback on UKGI's
performance from regular engagement
between UKGI’s Chair and CEO with senior
department sponsors and Asset Chairs.
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Shareholder teams and NEDs have access to
a tailored Corporate Governance
Development Framework. This provides
staff with opportunities at different stages in
their careers, and also sets out the core
‘mandatory training required to be on a
shareholder team.
‘There are specific Shareholder NED
development opportunities which include
professional development days and
masterclasses. Aspiring NEDS also have a
tailored programme of opportunities
including formal training and experiential
learning.
Shareholder teams have a lessons learned
database to learn from and share with
others. Lessons learned sessions are also
conducted at key stages. These are then
shared at the weekly huddle, Corporate
Governance Group, and in the monthly
Corporate Governance Newsletter.
The infrastructure and support processes for Shareholder Teams
Best pra
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‘The UKGI Portfolio Operating Principles set
out UKGI's target shareholder model. This is
supported by Guidance Notes which give
teams detailed practical guidance for how to
conduct each activity.
‘The monthly internal Corporate Governance
Group forum enables the sharing and
developing of house views and best
practice.
‘The internal Shareholder NED forum
enables UKGI Shareholder NEOs to share
relevant experiences and discuss issues they
may face.
‘A monthly Corporate Governance
newsletter enables shareholder teams and
NEDs to share and hear best practice and
topical items
Shareholder teams also have access to in
house expertise such asa Project
Management Office, Procurement,
Appointments, and Remuneration teams,
3. Conclusion
UKGI acts as a proactive shareholder on behalf of government for its ALBs by supporting and
challenging their governance and corporate performance. Our Shareholder NEDs and teams bring a
unique blend of specialist corporate governance and corporate finance expertise, supported by senior
resource and infrastructure. In this role we specifically bring:
¢ Deep specialist expertise in applying private sector governance disciplines to a government
setting, reflecting the nature of the challenging interface where more complex or commercial ALBs
Operate
¢ Portfolio knowledge and experience gained from working across government on multiple Assets,
enabling us to share learnings of cross-departmental perspectives and issues, and act as a
consultation point for best practice corporate governance across HMG
¢ Senior, stable & experienced resource with colleagues from the private sector and civil service,
who combine financial, commercial, portfolio management and government expertise, and are
Board-experienced on public and private sector organisations. Relative to departments we
manage a lower rotation model with more consistent teams, building Asset-specific knowledge
and relationships
¢ Acontinuous focus on continuously maintaining and developing our expertise within the rapidly
evolving field of corporate governance, through bespoke training programmes and seminars as
well as via a secondment programme, bringing in relevant private sector and HMG expertise. The
execution of our role is underpinned by our internal portfolio management and quality assurance
systems
Strong networks within government and across ALB Chairs, Board members and management
teams, as well as with specialist advisors
Departments should seek advice from UKGI on complex or significantly commercial ALBs to optimise
performance, as stated in Managing Public Money".
‘MPM Spring 21_ with annexes 080721.pdf (publishing. service.gov.uk)