Government non-exec director appointments not efficient, transparent or fair, PAC warns

The Public Accounts Committee (PAC) does not have confidence that the public appointments process is efficient, transparent and fair. In a report published today, the PAC warns that the appointments process is not set up to encourage diversity amongst non-executive directors (NEDs), with a lack of transparency on requirements for political independence, and appointments for these roles taking far too long.

The role of a NED is to provide government departments and arm's-length bodies with strategic leadership, by scrutinising performance, promoting transparency and taking a long-term perspective. The report finds that the Cabinet Office, which oversees all public appointments, has not set out a suitable level of political independence for NEDs. For the subset of NEDs that the Government collects data on, 3% have declared a political interest and this figure relies on candidates self-declaring conflicts of interest or donations to political parties.

The report finds there are no plans for new diversity targets or any convincing examples of how conscious or unconscious bias is dealt with in appointing NEDs. Also, ministers currently appoint selection panels , candidates are identified by the panels, with the final decision left to ministers. Without checks on bias, the report finds this way of appointing candidates could appear insular and circular.

The report further finds that it takes an unacceptably long time to make NED appointments. In 2022-23, only 7% of appointments were completed within the expected three months of a competition closing, with the average appointment taking over double this expected time, while nine took more than a year to complete, with the longest taking more than 400 days.

Delays in appointments can lead to vacancies on boards, which risks those boards not being able to function properly. Candidates may also drop out of the application process, take up posts elsewhere or be put off applying in the first place, with the Committee separately left unconvinced that current outreach activities are helping Government to recruit the best candidates for NED roles.

Dame Meg Hillier MP, Chair of the Committee, said: “Many non-executive directors do a fantastic job in providing independent challenge and strategic oversight on the boards to which they are appointed. But the appointment process is in a number of cases wanting in fairness and political independence. Too many selection panels are set up in a way which leads to a closed loop of people involved in the process – from the recruit panel members to those appointed. Government is falling short on best practice in other sectors.

“Not enough is being done to ensure that these roles are fully representative of society at large. The process itself is unacceptably sluggish, with most waiting over six months to take up their roles. Given the significance of non-execs to any board on which they serve, the Government must also ask itself hard questions on whether it's doing everything possible to attract the right and the best people for the job.”

Conclusions and recommendations

1. It is taking far too long to make non-executive director appointments. On average, across Government including arms-length bodies (ALBs), it took 203 days from a competition closing to a regulated public appointment being announced in 2022-23. The Cabinet Office's Governance Code sets out that the aim should be to conclude the process within three months of a competition closing. However, in 2022-23, only 7% of appointments were completed within this time period. The Cabinet Office acknowledges that the current lengthy process is not acceptable. Delays in appointments can lead to vacancies on boards, creating a risk that boards cannot carry out their functions. Delays may also cause candidates to drop out of the application process, take up posts elsewhere or put candidates off applying for these positions in the first place.

Recommendation 1:

1. a) The Cabinet Office should use data from its new applicant tracking system (see below) to report publicly by September 2024 on appointment delays, identifying average length of time for appointments and at what stages delays are occurring. In addition to aggregate data, consideration should be given to providing information at the departmental level, in particular highlighting the best performers to help encourage the sharing of best practice.
2. b) The Cabinet Office should set out in its Treasury Minute response what actions it will take to reduce delays in order to complete appointments within its three-month aspiration.

2. The Cabinet Office does not yet have the data it needs to oversee the appointments process effectively. Until April 2023, the Cabinet Office's only method of collecting data about public appointments was a manual exercise, requesting data from departments once a year, in which errors and inconsistencies were common. Its new applicant tracking system, introduced in April 2023, should allow it to build up a picture of how each department is performing on appointments, including timeliness and causes of delay. It currently requires departments to use the new system for all regulated appointments. However, the Cabinet Office does not yet have the data it needs because not all government departments and ALBs are adding accurate data to the system or using the system as intended. For instance, some departments are still running the recruitment process outside of the new system or making errors when inputting data. The Cabinet Office does not currently track unregulated appointments so cannot say how many unregulated NEDs there are across government, how diverse they are, or how long they take to appoint. While it expects departments to use the new system in the future to track unregulated appointments, it does not currently require them to do so. 

Recommendation 2: In response to this report, the Cabinet Office should:

1. a) confirm in the Treasury Minute that all regulated appointments are now being run through the new applicant tracking system and what steps it is taking where departments do not comply;
2. b) write to departments mandating that they use the new applicant tracking system for all unregulated appointments.

3. The Cabinet Office does not publish transparent information about NEDs, the diversity of panels who select them, or the requirements for independence in these roles. The Cabinet Office publishes an annual report on regulated public appointments, of which there were 4,476 in post as of March 2022. However, this report does not break the data down by role so we do not know how many of those appointments are NEDs as opposed to other types of public appointment. Furthermore, the Cabinet Office does not collect or publish any data on either unregulated public appointments (an unknown number of which are NEDs) or about those who serve on Advisory Assessment Panels (which interview applicants and produce a list of appointable candidates, such as their diversity characteristics). Advisory Assessment Panels are required to include independent panel members, with some “significant appointments” requiring a “senior independent panel member”. The Cabinet Office has not set out what determines a suitable level of political independence for NEDs, independent members, or senior independent panel members. It says that around 3% of all regulated appointments have declared a political interest, but it relies on self-declaration by candidates of, for example, conflicts of interest or donations to political parties.

Recommendation 3: The Cabinet Office should:

1. a) Include data in its annual public appointments data report about numbers and diversity of:

• non-executive directors specifically; and
• unregulated public appointments.

1. b) Centrally collect data about those who serve on Advisory Assessment Panels, including diversity data, and publish the aggregate data at least annually.
2. c) Set out clearly the standards of independence expected of non-executive directors, independent panel members, and senior independent panel members, including what matters must be registered.

4. The appointments process is not set up to encourage diversity amongst NEDs. In June 2019, the government launched a Public Appointments Diversity Action Plan to focus on broadening access and improving the diversity and quality of appointees. The plan included an ambition for 50% of all public appointees to be female and 14% of yearly appointments to be from ethnic minority backgrounds by 2022. The Cabinet Office did not meet those targets, reporting that in 2021-22 47% of all serving public appointees were female and 12% of all appointments and re-appointments went to people who were from an ethnic minority background. We recognise that the National Audit Office's analysis found that the diversity of new appointees has improved: it found that in 2022-23, 53.7% of new appointees were female and 14.6% were from an ethnic minority background. But the Cabinet Office has not put in place a new diversity targets and has no plans to do so. Nor could it point us to convincing examples of how it deals with conscious and unconscious bias within the appointments process. Without checks on any bias, the current process - in which ministers appoint the Advisory Assessment Panels who identify appointable candidates on which ministers then make a final decision - risks seeming insular and circular. While Ministers can only directly appoint a non-executive director in “exceptional cases” when making regulated appointments, there is no such restriction for unregulated appointments and it is not apparent if this has occurred or how frequently.

Recommendation 4:

In its Treasury Minute response to this report, the Cabinet Office should:

1. a) state a date by when it will put in place a new diversity action plan for public appointments;
2. b) set out the steps it has taken so far to review the feasibility and usefulness of compiling data on the diversity makeup of members of Advisory Assessment Panels, and the date by which it would report its conclusions to Parliament.

Recommendation 5:

It should be a requirement that all departmental and ALB job advertisements for NEDs are scrutinised for any bias before being provided to ministers for approval.

Recommendation 6:

The Cabinet Office should:

1. a) carry out a review to identify in-built bias in the public appointments process and set out what it will do to tackle any bias identified. This review should be reported to Parliament within 12 months of the date of this Report's publication.
2. b) Within 6 months of the publication of this report, commence a public consultation on the appointment process of the Advisory Assessment Panels. The consultation should, among other things, seek the public's views on the current process and how it might be improved to achieve greater diversity in the NED recruitment and selection process. The process should include a section that makes clear that any unsuccessful candidates will be provided with feedback on their performance. The Cabinet Office should publish the findings of this consultation and its response to it within 18 months of the date of this report's publication. 

Recommendation 7:

3. a) The rules set out in paragraph 3.3 of the “Governance Code on Public Appointments” that apply when Ministers appoint a non-executive director without competition should apply to both regulated and unregulated appointments.
4. b) the Cabinet Office should maintain a register of all non-executive directors appointed without competition by Ministers. This register should be established immediately: it should be published three months after the date of this report's publication, and an updated version published every three months thereafter.

5. We are not convinced that current outreach activities are helping government to recruit the best candidates for NED roles. The Cabinet Office, the Government Lead Non-Executive, and the Commissioner for Public Appointments have all publicly declared their interest in improving outreach in order to encourage diverse and talented applicants to apply for public appointments from a wide range of sectors, including the private and voluntary sectors, as well as veterans and disabled groups. The Cabinet Office has sought to strengthen its outreach activities to encourage people to apply for public appointments, for example, by holding in-person events around the UK and by running a Boardroom Apprentice Programme, whereby people with no experience on boards can serve as an observer on a board for a year to gain experience. The Cabinet Office could do more to demonstrate the effectiveness of these activities and to learn lessons to better focus its outreach work: for instance it does not have data of sufficient quality on the social and professional backgrounds of candidates. It is important that, as part of being fully effective, candidates to be a non-executive director should expect to regularly engage with ministers at all levels within a department.

Recommendation 8:

1. a) In its Treasury Minute response to this report, the Cabinet Office should set out how it is measuring the effectiveness of its outreach activities and what plans it has to develop them further to reach a wider pool of candidates.
2. b) The selection and recruitment process for non-executive directors should cover the need for them to regularly engage with ministers at all levels within a department, and there should also be in-post training to support this objective. In addition, the Cabinet Office should draw up a new code of best governance practice, which should include a requirement that all ministers and non-executive directors attend departmental board meetings as a matter of routine – this new code should published within 12 months of this report's publication.