Tuesday, 13 June 2006. A Discussion was held in the Council Room. Deputy Vice-Chancellor Mr Duncan Robinson was presiding, with the Junior Proctor, a Pro-Proctor, the Registrary, and twelve other persons present.
The following Reports were discussed:
Report of the General Board, dated 10 May 2006, on the establishment of a Professorship of Historical Anthropology (p. 652).
No comments were made on this Report.
Report of the Council, dated 29 May 2006, on the financial position of the Chest, recommending allocations for 2006-07 (p. 671).
Professor A. C. MINSON
Deputy Vice-Chancellor, last year's Allocation Report predicted that, after several years in deficit, the Chest budget for 2006-07 would be close to balance but the Report also noted that there were significant uncertainties in making future projections. The situation twelve months later is much as predicted but the uncertainties remain and have caused problems in compiling this year's Report. In particular estimates of future income are increasingly dependent on projected research income and recovery of indirect costs in the new era of full economic costing (FEC) of research. Similarly, expenditure estimates depend on the outcome of implementation of the new pay and grading structure, on changes to pension costs and, at the time the Report was compiled, on the outcome of the pay settlement. I shall return to the last matter.
Three years ago it seemed unlikely that a balanced budget could be achieved by 2007. The University was running a significant operating deficit and increases in contributions to the Contributory Pension Scheme (CPS) seemed likely to increase future deficits. The improved position is due in part to the efforts of all institutions within the University to plan their budgets and control their costs. This has taken a great deal of work at a time when other administrative burdens - pay and grading restructuring, preparation for the RAE, and the introduction of FEC for research - have had an impact throughout the University. All those involved deserve thanks. We have also benefited from increased income. Increased undergraduate fees will add about £5m to income next year (after deduction of predicted bursary costs) and the R element of the HEFCE Block Grant will again shown an increase well above inflation due to increased research activity and additional HEFCE funding. On the debit side, pension costs and energy costs have risen above inflation. Increased costs to the Chest also arise as a result of renegotiation of the College fee this year. Until now Colleges have met the full cost of the reduction in funding imposed by HEFCE. We have returned to a per capita transfer formula and have agreed to restore the per capita fee to its value, in real terms, prior to the change in funding arrangements in 1999.
Although the funding situation is clearly improved, the long term position remains a concern. Any projected surpluses are very small in relation to the operating budget and are within the margin of error. Our projections do not indicate sustainability and we remain largely dependent on HEFCE infrastructure funds (SRIF and Project capital grants) for refurbishment and replacement of the Estate and for replacement of equipment. We cannot assume that these funds will continue to be available beyond the end of the decade. On a more optimistic note, the end of year out-turns are showing a significant improvement on projections. In 2005-06 a £10m deficit on the Chest was predicted but, on the basis of third quarter accounts, the University will be close to break even overall. The Schools and the Unified Administrative Service (UAS) are spending well within budgets and it has been agreed that 50% of the savings made from the 2005-06 Allocation will be returned to the Chest to supplement the 2006-07 budget. This accounts for the reference, in table 2 of the Annex, to a £3m transfer from Reserves. In effect this is a transfer from School and UAS Reserves arising from under-spends this year.
Finally I should like to return to the pay settlement. In planning future expenditure the University assumes a 3% annual pay increase, equivalent to a small annual increase above inflation. At the time the Report was compiled it was apparent that pay increases in the period 2006-08 would be above 3% per annum, but the actual figures had not been agreed. The alternatives were therefore either to use planning assumptions that were likely to give low figures or to attempt to guess the pay settlement. In the event Council chose the former option but included text to indicate that they recognized the variables inherent in the Report. We now know the outcome of the pay negotiations. The approximate impact on Chest projections is as follows: £1m additional expenditure should be added for 2006-07, £4m for 2007-08, £8m for 2008-09, and at least £8m in subsequent years. In the absence of income additional to that projected, the effect will be to eliminate the small projected surpluses.
Professor R. J. ANDERSON
Deputy Vice-Chancellor, I did not sign this year's Allocations Report, and the Regent House might care to know my reasons.
Last year I remarked that Allocations Reports had settled into a disturbing pattern. They predicted significant trading losses, but promised to do better in future. I likened them to the prayer of the youthful St Augustine: 'Lord, make me virtuous, but not yet.'
This Report, like its predecessors, promises jam tomorrow, and in similar terms: in two years' time we will be have a Chest surplus of about 1% of turnover, while in three years we will be making about 2%. The 'J-curve' has shifted a year to the right. So far, so predictable.
However, this year's Report differs from last year's in claiming that we will roughly break even in the current financial year, with a loss of only £0.8m.
Unfortunately, I am not quite convinced that the figures are wholly comparable with last year's. Careful readers of the Report will notice a £3m transfer from reserves, together with cuts in the maintenance budget and in contingencies.
Last year I also remarked that the budget provided 3% annual growth for central administrative departments, 2% for academic departments, and only 1% for Colleges. Perhaps I should have kept quiet, as this year's puts the Colleges in the clover. This reflects the disproportionate College votes on Council rather than underlying business reality; as we become more like an Ivy League university, with our focus shifting steadily from undergraduate teaching to graduate teaching and research, the contribution made by the Colleges becomes ever more marginal, and the proportion of University teaching officers who also hold a College Fellowship is falling steadily - especially in our growth areas of science, technology, and medicine. Subsidizing the feasting of the lucky few becomes less and less defensible with every passing year.
Last year I remarked on a structural reason for our deficit - the gradual transfer of power from the Finance Committee to the Planning and Resources Committee. Splitting the old Financial Board into these two committees separated the bean-counters from the spending barons; marginalizing the former makes financial restraint ever harder. (In passing, I note with regret the resignation from the Finance Committee of one of our distinguished external members, Nicola Nicholls.)
This year I might mention a policy reason for the deficit. The previous senior Pro-Vice-Chancellor introduced the RAM as a market-based mechanism for imposing cost discipline on Schools and Departments by linking what they spent to what they earned. Our current senior Pro-Vice-Chancellor has shifted the emphasis firmly towards the central plan. Regents who have a professional relationship with the NHS may recognize an echo of its recent history - I refer to the abolition of fundholding by Frank Dobson after the 1997 election. That decision eventually had to be reversed by his successor. And just as NHS Trusts find the rules constantly changing under their feet, prudent Cambridge Departments who managed to underspend their budgets are now finding some of that money clawed back.
Deputy Vice-Chancellor, our budgeting and financial management are clearly unsatisfactory. Excessive centralization leads to inefficiency and promotes rent-seeking behaviour. Coupled with high marginal rates of tax on productive business units and an unstable planning environment for Heads of Department, it invites us to repeat the errors of economic management from which Britain suffered so much while I was an undergraduate during the 1970s. Instead of a framework within which people and organizations strive to achieve their objectives, whatever they might be, we have micromanagement from the centre.
To get out of this mess, we need fiscal reform. We must limit the marginal tax rate on profitable Departments. If a Department making a million a year has to hand over 92% of that to the centre, then why should they bestir themselves to make a second million? Limiting the tax on successful science, technology, and medicine Departments will encourage more of them to make money. If it also restricts the amount that can be wasted in subsidies, and thus undermines the incentives for rent-seeking, so much the better.
Professor D. W. PHILLIPSON
Deputy Vice Chancellor, I speak on behalf of the Board of Scrutiny on both the Allocations Report and the Report on the incorporation of Cambridge Enterprise.
The Board of Scrutiny has commenced its consideration of both these Reports. It notes that they appeared in the Reporter dated 1 June, which was received by most subscribers the following day, but by some not until 5 June. The Board and other members of the Regent House have thus had little more than a week, at a time when most of them are very busily involved with examinations, to consider two dense, complex, and important documents. The Board notes this tight schedule with concern, and will comment in detail on this and other aspects of both documents in its Annual Report which is currently under preparation.
Professor G. R. EVANS
Mr Deputy Vice-Chancellor, this is a more upbeat Allocations Report than usual. It suggests that deficits may be diminishing and cheerfully puts these improvements down to the structural changes which have been made in recent years. I hope it is right, though there do still seem to be many imponderables and areas where uncertainty is and will remain inescapable, as the Pro-Vice-Chancellor in whose portfolio all this lies has just accepted.
'(3) A significant factor this year has been that actual and potential increase in costs of certain items have proved difficult to predict, including utilities, the College fee transfer, and the cost of assimilation to the single spine.' These three instances are worth quoting here because they arise for different reasons. The first relates to costs which have to be borne (we must have electricity and we have limited control over the rates at which the supply will be billed). The second relates to costs where the University and Colleges can come to mutually agreed arrangements. The third relates to expenses which could have been avoided, things the University chose to do, for the pay and grading saga was a matter on which we could have challenged HEFCE and its requirements on the grounds that it was likely to lead to a considerable increase in the expenditure of public money, and the 'risk management' was not going to be easy.
Nevertheless, I am bound to say this year something much more positive than is usually my way. Cambridge is fortunate to have two opportunities a year to consider its financial planning and the results, now and when the Accounts are published.
In the Oxford University Gazette of 1 June (the one with the White Paper on governance which I do urge everyone in Cambridge to read, since it is likely to be our turn again next), is a set of new Regulations of direct relevance to the matters we are here to discuss today. 1 Oxford's Audit Committee is to be renamed the Audit and Scrutiny Committee and it is to carry out the functions of what in Cambridge continue to be two separate committees. It is a very long way indeed from being a body freely elected by Congregation, though one or two concessions are now going to be made to improve its accountability in that direction.2 In Oxford Scrutiny will not easily be able to scrutinize Audit, for it will be gazing at its own navel.
And there will be many hoops to jump through before inquiries or 'reviews' can take place. The resultant opinions will not be published for the world to see but only on Oxford's intranet. I am well aware how often I have stood here and held up Oxford's ways for comparison and recommended Cambridge to imitate them. But things have changed over there. And the patchwork doll of the new 'Audit and Scrutiny Committee' will not be publishing for debate the thoughts of Congregation's direct representatives on 'the Annual Report of the Council' [there is nothing to match Cambridge's version]; 'the Abstract of the Accounts of the University, and any Report of the Council proposing allocations from the Chest' [to which there is no Oxford counterpart].
So let us hope that when our Board of Scrutiny examines the Report now before us as it is its constitutional duty to do, it will share the optimism of its drafters and Professor Minson, qualified though his appears to be. Professor Anderson's warnings suggest that it is just as well we have kept our Scrutiny independent of our Audit Committee. We have just heard some preliminary concerns from its spokesman.
1 http://www.ox.ac.uk/gazette/2005-6/weekly/010606/acts.htm#3Ref
2 http://www.ox.ac.uk/gazette/2005-6/weekly/150606/acts.htm#1Ref
Dr M. R. CLARK
Deputy Vice-Chancellor, I would like to make some comments on this Report in my capacities as both the elected President of the Cambridge branch of the Universities and Colleges Union (UCU, formerly AUT) and also as an elected member of Council. It will be noted that as a member of Council I did not sign the Allocations Report. This is because several important questions that I asked on both the Finance Committee and also on Council did not receive a satisfactory response and thus I felt unable to put my signature to the final Report.
The first point, covered in paragraph 9, concerned the use of 3% per year as the assumed pay increases for the next 3 years. This was in the face of current data on pay increases in the public sector being closer to 4%, and also with the forward projections on the Chest showing a return to surplus in the next three years with adequate resources to consider a higher pay settlement. It should be noted that the forward projections include the increases in HEFCE allocations and also student fee income that was the basis for the claim by UCU that the universities should be in a position to offer a higher pay settlement.
The second major concern I have also relates to paragraph 9. Within this paragraph I believe that the Council misleads the University by referring to 'an uplift of £7.5m (over 4%) as a result of the single spine assimilation'. Many might read that as meaning that a 4% pay increase is included as part of the introduction of the single spine. However for many significant groups of staff, including Research Assistants, Research Associates, Senior Research Associates, Assistant Directors of Research, Directors of Research, Lecturers, Senior Lecturers, and Readers, the assimilation across on to the new single spine is by read across to the next 3% increment, up the scale. In theory, for this large group of staff this should produce increases showing a distribution between 0% and just under 3%, with an average increase of just under 1.5%. By way of an example my own letter confirming assimilation to the new spine says, 'Your salary at 1st January 2006 was £39,452. Your salary following assimilation at that date has become £39,935 which is point 57 on the single salary spine. The new grade for your post is 9'. So that is a 1.22% increase. So if this substantial group of staff is only receiving an average of 1.5%, but the Allocations Report suggests that the overall uplift is over 4%, this must imply that a proportion of staff are receiving more than 4%, perhaps considerably more than 4%. I have asked for more details of which groups of staff are affected, for example in which new grades, but I have only received a general reply that eventually, without any indication as to when that might be, the Personnel Division will produce anonymized statistical data for publication.
If it turns out that most of this money is to be allocated on correcting discrepancies for underpaid staff in the lower to middle grades, such as technical, clerical staff, and academic-related staff, then I will not have any complaint. However I have a suspicion that a substantial proportion of this money has been allocated to providing substantial pay rises to Senior Administrative Staff in Grade 12 and to a selected group of academic Professors in Grade 12, many of whom might have had significant influence over the introduction of the single spine and the inclusion of the Cambridge extension that allows Grade 12 to cover base salaries all the way from point 68, £55,280 (January 06) to point 92, £112,373, a range of £57,093 (not including any additional payments or market supplements, both of which can be added on top of this basic salary).
If you look at the Reporter for 22 November 2000,1 you will see that a Professor on step 31 received £45,688 and the top of the scale was step 41 £69,902, a range of £24,214.
So the top of the scale has increased by £42,471 (about the same salary as a current Senior Lecturer) which is a 61% increase on the January 2000 salaries. Over that same time the maximum point for the salary of a Senior Lecturer has gone from step 27, £36,740, to point 41, £44,947, a rise of £8,207, or 22%. If you look back through the Reporter and search on 'Stipends' you will see that the percentage rise of about 21% is the nationally agreed compounded cost of living rises agreed with UCEA over the five-year period (approximately 4% per year).
Clearly what the Council and the General Board seem to have done is to gear any substantial pay increases resulting from the introduction of the single spine to have a much greater percentage impact on those at the top salary levels (Grade 12) than those in the middle to lower levels (Grade 11 and below). Interestingly, in 2005 the University reported that there were 76 non-clinical staff earning salaries over £70,000 at an estimated cost of £6.8m, whereas in 2001 the number was 24 staff at an estimated cost of just £2m. In paragraph 9 of the current Report we are told that £2m would be enough to increase pay for all staff by 1%.
It's quite clear to me that the underlying policy is that Council and the General Board expect pay restraint at the lower levels in order to fund selected and substantial pay rises at the upper levels. How many members of the Council and particularly the General Board are to receive pay increases in excess of 3% on assimilation to the single spine?
1 http://www.admin.cam.ac.uk/reporter/2000-01/weekly/5827/33.html
Dr D. R. DE LACEY (read by Mr. D. J. GOODE)
Among the many and varied puzzles raised by our figures, I note one small oddity. Under 'General income from donations in advance of 800th Campaign' there is the figure of £0.6m under 2006-07 as against the figure of £1.5m for the current year. Yet a year ago the Council's Report included the sentences 'Since it is difficult to predict the scale or the timing of donations, a global estimate of £1.5m a year has been included in income projections for 2005-06 and beyond. This is likely to be optimistic for 2005-06 but pessimistic for later years'.1
This last sentence now appears to be wrong in both particulars. So what has happened to our forecasting? Has the 800th Campaign failed, precisely at the moment when we receive another incomprehensible letter from the Vice-Chancellor to launch it?
Ah well, at least she has learned how to write on both sides of the paper.
As last year, there is the statement that there remains a need to make good the depletion of the Quinquennial Equalization Fund (QEF). According to Statutes and Ordinances (p. 917) 'The surplus income of the Chest shall be transferred at the end of the financial year to the Quinquennial Equalization Fund which shall be used to make good any deficiency of income in a year in which the authorized expenditure of the Chest exceeds the income'. There appears to be no authorization to run it at a deficit. Yet over the past six years the QEF balance has been:
2000: £7.3m
2001: £(1.1)m
(the figure for 2002 does not appear to have been published)
2003: £(8.4)m
2004: £(22.3)m
2005: £(29.4)m
and now we read 'The forecast balance on the QEF at 31 July 2006 is a deficit of £(26.2)m, which after the estimated deficit in 2006-07 will increase to £(27.0)m at 31 July 2007' (paragraph 63). Other than hand-wringing, what is the Council planning to do to bring the QEF back into balance?
1 http://www.admin.cam.ac.uk/reporter/2004-05/weekly/6001/16.html
Mr. D. J. GOODE
Deputy Vice-Chancellor, I wish to focus on just one aspect of this long Report: pay. Paragraph 6 notes that several of last year's predictions were a long way out, and one of those is the cost of implementing the single pay spine. The original estimate of £5m has been shown to have been a gross underestimate, and has been increased by one half, to £7.5m.
I have a simple question for Council, Deputy Vice-Chancellor: how much has the implementation of the single spine actually cost the University?
Clearly, the estimate has had to have been revised to £7.5 million, which from paragraph 9 of the Report seems to be 4% of something or another not entirely clear. The uplift figures I have seen so far do not look anything like 4%. Have I got hold of the wrong end of the stick, or is this paragraph suggesting that the implementation is going to result in an average uplift to stipends of more than 4%?
But what is the true cost of implementation? There is a Pay and Grading team, there are offices on Trumpington Street, there are computers. What is the total cost to the University of the entire pay and grading exercise?
Paragraphs 7 and 9 talk of pay rises, and a projected annual rise of 3% is shown. However, since this Report was written, the Universities and Colleges Employers' Association (UCEA) has finally brought to the table its third and final 'final offer'.
This offer is not good enough. It does not do much to address the serious decline in salaries I have spoken of here in the past.1 But it is a start, and UCU nationally has recognized this by suspending all industrial action pending a ballot of members on the offer.
The offer is spread in instalments, over a 22-month period. In terms of this University's financial year, the offer consists of a 4% pay rise in 2006-07, and a 6% pay rise in 2007-08, with not less than 2.5% guaranteed for 2008-09.
In other words, a total of 10% over the two years of the offer, with a guarantee for the third year.
Now, we know from paragraph 9 of the Report that each 1% rise in stipends and salaries adds almost £2m to Chest expenditure. So, we can safely predict that in the next two University financial years, the Chest will have to produce rather more than the 3% per annum allowed for in this Report. And we can work out the extra cost to the Chest if UCU members accept the offer: I had it at close to £20m over two years. Professor Minson's figures differ.
In addition, paragraph 10 talks of 'as yet unquantified costs' arising from harmonization of terms and conditions, required to fulfil the 2004 Framework Agreement. I have some experience here as I am Cambridge UCU's chief negotiator at the harmonization working group. The perennial response to just about every trades union initiative is some variation of 'It's too expensive. We can't afford it'.
So, Deputy Vice-Chancellor, the pay deal on the table at the moment, coupled with the Framework Agreement's harmonization of terms and conditions of employment, isn't going to be cheap. Council should withdraw this Report, factor in these costs, and come back with an Allocations Report that tells the Regent House enough to be able to actually make an informed decision as to whether or not it should be accepted.
Mr R. J. DOWLING (read by Professor R. J. ANDERSON)
I did not sign this Report and I feel I should explain why.
The University's loss this year was not £800,000, it was £3,800,000. The £3m difference is clawed back from those Departments that spent less than their budget. Was this a freak event or a sign of how Departments over-budget that we can carry reliably into the future? The Report does not say.
More importantly, did some Departments tighten their belts while others didn't make the effort? This £3m rightly belongs with the Departments, or at least the Schools, to which it was allocated for them to spend and the University's loss this year should stand at £3,800,000.
Further, the Report, which to be fair had to precede the resolution of the pay dispute, allows for 3% per annum pay increase. But was 3% ever a plausible outcome? No. But there it is.
The Allocations Report is flawed in its representation of the present, setting a bad precedent for savings made by efficient Departments, and is dangerously optimistic in its representation of the future. I could not sign it.
Report of the Council, dated 29 May 2006, on the incorporation of Cambridge Enterprise as a limited company (p. 683).
Professor I. M. LESLIE (read by Mrs S. BOWRING)
Mr Deputy Vice-Chancellor, the proposal contained in this Report arises from the Review of the Research Services Division that I chaired in 2004 and represents the last organizational change resulting from that Review. I believe the separation of Cambridge Enterprise from Research Service was widely welcomed, but it did leave the issue of how Cambridge Enterprise was to fit into the structure of the University.
Technology transfer is part of what we do, but it is distinct from the bulk of what we do, requiring a culture slightly different from academia and decision-making processes more familiar in the commercial world. It also pushes the envelope on the charitable status which the University enjoys.
Encompassing technology transfer activities within a wholly owned company provides an appropriate environment and makes more transparent the financial performance associated with these activities. This is not being proposed because it is imagined that the University is going to make vast amounts of money, rather that these activities will be professionally managed within a vehicle fit for purpose and will, in time, produce not just a return for inventors and Departments as at present, but also for the University as a whole.
Incorporation is half of the story, the other half is the control that the University will exert over Cambridge Enterprise. I emphasize, this would not be a spin out, but a structure which the University would use to pursue a set of activities. It would very much remain ours. Control is specified within the Memorandum of Understanding referenced in the Report and prevents Cambridge Enterprise in engaging in certain activities without reference to the University. Forward selling of IPR which might come into its ownership is a specific proscription. The Memorandum also gives the University complete control over the appointment of Directors of the company.
I am very pleased that we now have a permanent Director, Teri Willey, in place to lead Cambridge Enterprise. She has contributed to the thinking behind this proposal and I am confident that an incorporated Cambridge Enterprise will aid her in taking technology transfer in Cambridge forward for the benefit of us all.
Professor R. J. ANDERSON
Deputy Vice-Chancellor, six years ago, after the Broers reforms created RSD and charged it with making money out of our ideas, I was in the habit of billing occasional consultancy work through CUTS. The deal then was that in return for providing indemnity insurance, CUTS took 5% on any contract that I had sold, and 10% on anything they sold. As they never managed to sell my services to anyone, I paid 5% for my insurance - slightly over the market rate, but not enough so to be worth bothering about.
All of a sudden I was brusquely informed by RSD that the CUTS percentage was going to rise to 10%, and that this would be charged on work already in the pipeline. My colleagues on one of the assignments, who were my research students, were not informed at all - CUTS simply started taking double from their invoices. When I protested this breach of contract, RSD denied that we had a contract. When I told them I'd had a verbal agreement with a named senior manager, they denied that verbal contracts existed. When I pointed out this was wrong in law, and that I had been doing work under this contract for years, including work with Roger Needham - who had just retired as Pro-Vice-Chancellor - we got our money. However I have never since billed any consulting through CUTS. I just don't trust them.
Looking now at the business plan for CUTS as it is renamed Cambridge Enterprise, I see that 'Consultancy Fees' paid to staff will be 80% of the 'Consultancy Income' received from external clients. So it appears that the same gambit is to be repeated - the University will in future charge 20% rather than 10%. The affected staff don't seem to have been notified, except - obliquely - via the tables in this Report.
What is the likely outcome of such high-handedness? Quite simply, the number of academics billing their work through CUTS/CE will fall still further. A typical science Professor billing £15,000 a year can get indemnity insurance for about £500, or a bit under 5%. Many people may be too busy to arrange their own insurance, or their income may fluctuate so much from one year to the next, so they will pay a few hundred pounds over the odds rather than undertake the extra administration. Paying a couple of thousand over the odds is harder, and CUTS will lose still more business.
Yet when we look at the business plan, we see total consultancy billings trebling from £1.5m this year to £4.5m by 2010. It strikes me the only way to achieve this is compulsion. We know that this was next on the RSD agenda after the IP grab of 2002, which caused such a fuss - and now that the University has worn down or bought off enough opposition to get its IP policy through, we can expect that an attempt to compel us to place our consulting through CUTS/CE will be next.
There is plenty precedent - some universities, such as York and Glasgow, take a 50% share of their academics' self-employed income. Until now, that has been their loss and our gain, as a number of highly capable scientists and engineers have come south to Cambridge. If we follow their example, we risk compromising our core mission, of excellence in research and teaching, in a vain attempt to earn a trifling sum of money.
There are many other things wrong with this business plan. The fundamental problem is that the Old Schools have not worked out whether it is supposed to make money for the University or have a quasi-charitable status. We have seen this problem in the management of the University Press, which six years ago was a business worth half a billion pounds and now makes no money - while Oxford's still makes an eight-figure annual dividend for that University. Having another lost soul of a company, with a vague mix of business and charitable objectives, will do us no good.
Next, the royalty income projections are not believable. To a first approximation all University patent royalties come from drugs, and it takes ten years at least to get a drug through the trials pipeline into revenue. If this were a pharmaceutical start-up (and in this aspect of its business it is) then investors would expect to see an analysis of the portfolio. Instead we see spreadsheet projections. This is unconvincing, especially as we get most of our revenue from the Campath patents which are approaching the end of their lives.
Next, there are staff issues. If we were seriously attempting to build a venture-capital firm that would create viable new businesses out of academic ideas - rather than just tick Treasury boxes on the number of patents filed - then instead of having a large number of low-grade staff, we'd hire three or four stars on six-figure salaries. And if CE does not have any ambitions beyond box-ticking support of Gordon Brown's enterprise agenda, then the staff who do this might as well remain in the Old Schools.
Deputy Vice-Chancellor, I originally supported the incorporation of our technology transfer operation into a limited company on the grounds that once it became clear how unproductive they were, we could withdraw the subsidy and they would have to raise their game or make themselves redundant. However, the transfer of substantial assets into the company, coupled with the Transfer of Undertakings (Protection of Employment) Regulations 2006 and the wholly unclear corporate objectives, mean that we can no longer look to commercial pressures to fix the problems that have afflicted our technology transfer operation over the past six years. I can therefore no longer support the plan before this House.
Mr J. LANG (read by Professor R. J. ANDERSON)
Deputy Vice-Chancellor, I welcome the transfer of Cambridge Enterprise to a separate commercial organization. However, I am concerned that without the constraints of a normal commercial organization it will continue to be a drain on the University. As proposed it would seem it is a licence to spend the University's money - at least £250,000 per annum assuming the financial projections are achieved, and a bottomless pit if they are not. I doubt whether the financial projections will be achieved, since they project a 50% annual increase in consultancy profits, and a 10% annual increase in royalty gross income, despite the ageing of the principal revenue earning patents.
What happens if the loss is much greater than anticipated? Can CE Ltd take out a loan secured against the University's intellectual property assets? Can it raise funds by pre-selling the University's future IPR? Can CE Ltd raise equity, be floated, or sold as a commercial enterprise, complete with the University's IPR it owns? Can its staff have share options or a share of the profit?
I urge strict (and commercial) financial controls, including a maximum cash drain that will be funded, a fixed capital investment, an absolute requirement for profitability within, say, five years, and a prohibition on raising external finance without prior approval of Regent House. Otherwise we have a white elephant kept alive only by grant aid and by the University's money.
I also urge either absolute prohibition against external sale of the company, or poison pill conditions that end the special relationship with the University and the gift of the University's IPR should the company cease to be 100% owned by the University. Otherwise are we simply being asked to approve the vehicle to sell off the University's present and future IPR as a bulk lot?
Mr R. J. DOWLING (read by Professor R. J. ANDERSON)
Deputy Vice-Chancellor, is it a business? Is it a charity? Cambridge Enterprise is being set up to be both.
There is a danger with unnatural chimeras like this. There is a temptation to defend its failings as a business with its strengths as a charity or its failings as a charity with its strengths as a business. The Regent House must watch Cambridge Enterprise very closely. The University has chosen to set it up as both a business and as a charity. It must be seen to succeed at both. A failure in either field is grounds for its future to be brought into question.
If the University had wanted failure in one not to bring down the other it would have founded two separate institutions, not a single one with two targets.
There is an even greater danger. There is a huge risk that by trying to be two things at once Cambridge Enterprise may fail at both. This is a gamble on the University's part and I'm not happy signing off on that so this is the second Report this afternoon that I was not prepared to sign.
Dr S. J. COWLEY
Deputy Vice-Chancellor, I have been on leave for two terms, part of which was spent at Imperial College. Having again observed the alternative, I have been strengthened in my belief that Universities should be academically led, with transparency and honesty, whilst being mindful of the need to be efficient and cost-effective.
Before I comment on the current Report, it would be churlish not to thank the many members of the University (both academic and academic-related) for the hard work put in on the University finances, leading to an improving financial situation as represented in the Allocations Report.
I have three points to make on this Report. The first concerns money. Reports in this University are often of as much interest in what they omit, as to what they include. One of the striking features of this Report is the absence of a comparison of historical financial performance with future projections. As a former member of the Board of Scrutiny I can recall David Secher, the erstwhile Director of the Research Services Division, explaining to the Board how the University made money out of IPR, etc. (although if truth be told I did not always believe his figures). We now have a Report where the University has given up hope of making money; for the success or otherwise of Cambridge Enterprise (CE) will be judged on the 'basis of financial self-sufficiency', and whether there is 'progress towards a positive return by 2016'. I was under the misapprehension that when the University ran a shoestring operation, it used to make a profit.
Council, how do the projections compare with the return provided historically? In particular, is the University moving from a situation where royalties etc. made a net contribution to the University to one where, at best, they are neutral?
Further, since income from IPR takes years, possibly decades, to materialize, in assessing the financial viability and cost-effectiveness to the University of CE, an attempt should be made to identify that part of the income from the shoestring operation, and that part from the newly formed CE. One would hope that CE would be more cost-effective, but I have my doubts. Finally for this point I would like to pick up on the fact that the University is going to 'subsidize CE Ltd though Chest … funding', but Departments are still going to receive their share of royalties. If this is so, since the Chest funds the whole of the University, and it is science and technology Departments that are likely to receive royalties, I would hope that the RAM would take this into account so that arts Departments were not, de facto, subsidizing science and technology Departments.
Moving on from voodoo economics, I come to salami government. Whilst I agree that projections are included in the Report for business plans both with and without the East Forum, given that the projected size of the profits depends on whether the East Forum proceeds, why are this Report and that on the East Forum not being discussed simultaneously? Why are the Discussions a month apart? It seems to me that the two Reports are intimately linked, and I for one am concerned that the Chairman of the Audit Committee has signed a note of dissent to the East Forum Report over potential conflicts of interest. A decision based on the less rosy financial forecasts without the East Forum would seem to be prudent.
My last point might be viewed as nebulous. However, again when I was a member of the Board of Scrutiny it was put to me that a primary reason for the incorporation of CE as a limited company was so that the staff could be paid more, since they would fall outside the University's pay policy. For instance, it was suggested that there was difficulty recruiting a new Director since the University could just not pay enough! I can find no reference to this justification in the Report, but believe it to be true. Indeed, if I was a Director and could envisage a release from the shackles of the University's pay policy (a policy that members of the Regent House are bound by), I too might be 'fully supportive of the proposals', but I might also feel constrained to ensure that my conflict of interest was reported.
Professor G. R. EVANS
Mr Deputy Vice-Chancellor, we are here to Discuss whether Cambridge Enterprise should become a Limited Company. It will not be the first arm of the University of Cambridge joined to the body at the armpit of academic research to end up by plunging its fist into the world of commerce. Given the new complexities introduced into the Cambridge situation by the IP rules and the emergence of Cambridge Enterprise,1 especially in the way now proposed, I invite the Council to prepare a Report to the University to enable it to discuss the underlying principles governing activities of the commercial arms of the educational charity that is Cambridge.
One awful warning, though perhaps few employees' memories go back that far, is the consequence to those who worked for UCLES of its transformation into a business and the moving of its employees from University to new business-style contracts. I see that the plan here is to 'inform all employees individually of any change'. Contracts are mutual of course and those individuals may object. The change of climate and culture following the transition from academe to business is subtle, but considerable, as the UCLES employees discovered too late.
By way of a second awful warning about other aspects, I would like to spend a couple of minutes on a precedent. The 'other aspects' are touched on at paragraph (2) of the Report before us, where the 'mission' of Cambridge Enterprise is spelt out: ' (i) to aid the transfer of knowledge from the University via commercialization; (ii) to aid staff and students in making their ideas more commercially successful; and (iii) to produce a financial return for inventors, Faculties and Departments, and the University as a whole'. It is admitted that there are dangers of mission drift ('difference in mission'). I notice that the spring issue of the RSD's magazine Insight: Research Opportunities at Cambridge, in an article entitled 'The business of disruption' and beginning 'It takes a lot of guts to successfully bring [sic] a truly disruptive technology to market', promises that Cambridge Enterprise works 'with' staff and students; that 'with' will change now. It is unclear, to me at least, how conflicts of purpose and general muddle can be avoided by creating a business not in the usual way of the wholly owned subsidiaries which merely have the purpose of standing at a sufficient distance not to compromise the University's charitable purposes, but in a new way, which leaves the academic project at the mercy of the commercial objectives. The publication of the Report on the East Forum to be discussed on 11 July (why on earth were these not published for Discussion on the same occasion?), sharpens these concerns, adding conflict of interest, as the four Council signatories to the dissenting note to the Report point out. And four members of the Council constitute an unusually strong exclamation mark.
To my precedent. 'In November 1999, Her Majesty's Treasury announced the government's intention to establish the Cambridge-MIT Institute (CMI) as a joint venture between two world-class institutions.' (I quote from the current CMI website.) I was on the Council at the time and tried to raise a number of questions about the practicalities and the need for protection of the interests of the University of Cambridge. The Government's hot breath was too insistent to allow for reflective planning, though it was prevented by a whisker from carrying through a plan (not mentioned to the Council) that all CMI projects should have Government approval before the money could be spent. ('Discussions with the Chancellor of the Exchequer and H[er] M[ajesty's] T[reasury] officials' were referred to in a later Report to the University seeking permission to take this forward.)2
The Report says that 'the Council noted that it was important that any alliance with MIT should be directed by Cambridge's and MIT's academic priorities'. 'If the recommendations contained in this Report are approved,' it was promised, 'the Council and the General Board will report to the University from time to time on how the proposals are being implemented.' This has never happened.
When CMI Ltd was launched upon the world with the strong following wind of £68m from Gordon Brown, the intention was that it should be an educational charity. This proved impossible to achieve for a joint venture with an institution in the USA which was not a UK charity, so CMI became a limited company. The 'Ltd' has quietly been dropped when 'CMI' is spoken of.
I have told elsewhere3 the story of the absurd projects which were resorted to in order for the money to be spent at all, with accompanying embarrassing headlines. There was a major overhaul in 2003 to try to get the project on track. On the current website you may read its highly coded though somewhat illiterate account of CMI Ltd's 'Mission' ('imbedded' (?)); 'to systematically learn' (though not, thank goodness, 'to boldly go'), which has now taken it out of the provision of elements for degree-courses and into spin-outs. 'Executive education' has been bolted on, with enticing courses on such matters as 'the latest developments in lean thinking'. The current 'news headlines' include the following: 'A team of Cambridge University and MIT researchers, who together developed a revolutionary medical device technology that can help to reduce the need for joint replacement surgery, are now taking it to market'. And see Insight p. 4 on the Quantum Group.
CMI is now in a final phase. 'In summer 2003, CMI agreed with the DTI a one-year, no-cost extension of its whole programme, which will now run for six years until summer 2006. The project aims to facilitate the creation of relationships and partnerships that will endure after the formal alliance ends.' I would have thought a success would not have ended in the severing of the 'alliance'. I see that they aspire 'over a five- to ten-year time-frame' to 'put CE Ltd in a position of financial sustainability, requiring no resources from the University other than ownership of such Intellectual Property as accrues to the University under its IP policy.' But what if this does not work out as planned? Is there going to be any way back or out?
There is a slightly desperate air about the claim on its website that now, in its dying months, 'building on past successes, and anchored in the 2003 strategic review, CMI is launching a series of bold experiments designed to test key hypotheses about the knowledge exchange process. We will set these experiments in the context of research programmes, the outcomes of which will flow to our educational programmes, and will be made available for uptake by UK industry, government and educational institutions through our strategic networks.'
In sum, the educational purposes of the CMI project have been open to subversion, in a manner which has been made possible only by its mutation from educational charity to limited company, and it has not even 'worked' on its own terms. It has not paid its way. It has not created an enduring legacy or brought about the changes Gordon Brown was looking for when he made that gigantic sum of money available in so FECkless a manner (on FEC see Insight issue 7, p. 13). It is all to end in a vague hope that its effects will be felt in the long-term, not in the world of higher education so much as in the world of business, being 'made available' for 'uptake' through 'strategic networks'. Let me say it again. The Regent House has never had its promised Reports, or the opportunity to keep a hand on the tiller. I am concerned that such Reports are not even promised at the birth of this new Ltd baby. The Pro-Vice-Chancellor made promises just now but I am not clear how they would work, or how the Regent House would be enabled to keep control.
1 http://www.cus.cam.ac.uk/~mrc7/cuipr/ for the relevant earlier Reports and Discussions.
2 http://www.admin.cam.ac.uk/reporter/1999-2000/weekly/5803/24.html
3 Inside the University of Cambridge in the Modern World, (Edwin Mellen Press, 2004)
Dr M. R. CLARK
Deputy Vice-Chancellor, I should first declare an interest. I am an inventor of a number of pieces of intellectual property, some of which are handled by Cambridge Enterprise, and others of which, whilst being handled by an entirely separate technology transfer company, BTG Ltd (formerly the UK Government's own National Research and Development Corporation, 'NRDC'), generate contractual payments through CUTS Ltd on behalf of the inventors. I have previously spoken to the Reports on the University Intellectual Property Rights policy and have given further details of my interests in my earlier remarks.
As a member of Council I did not sign this Report. My reason is that it has never been clear to me whether the intention of the Council and General Board is that it is to provide a technology transfer service, made available to all staff and all areas of commercial IPR covered by the policy, or whether it is intended to try to make a profit for the University by cherry-picking the best IPR offered to it and then committing additional resources and efforts to enhance the value of the exploitation. My fear is that it will try to compromise these two alternative approaches and as a result it will not be successful at either.
Of major concern to me are the details in Annex B, particularly the evaluation of the financial performance of Cambridge Enterprise Ltd. Cambridge Enterprise will inherit previous assets from CUTS Ltd, including revenue streams. It won't have any influence over many of those revenue streams, but they will appear in its future balance sheets. If a distinction is not made in the balance sheets, particularly as reported to the University, between income from earlier assets and income arising from later assets, we will never have a clear financial picture of the performance of Cambridge Enterprise Ltd in exploiting IPR under the new policies and technology transfer structure.
I think the University deserves to have a clear financial picture so that it can truly judge the outcome of the changes in University policies on IPR and technology transfer.
Mr. D. J. GOODE
Mr Deputy Vice-Chancellor, I was Cambridge UCU's representative in the staff consultation exercise over the future of CUTS. As such, my sole concern was that the Transfer of Undertaking (Protection of Employment) Regulations 2006 (TUPE) would be applied to Cambridge Enterprise (CE) should privatization be proposed.
Thus, I was pleased to see from paragraph 13 of the Report that TUPE will apply, as of course it should. Council anticipates no material changes to terms and conditions of employment for staff transferring. The transfer will, from the staff point of view, be largely neutral: they will neither gain nor lose materially.
But, even though there is a relative short-term security for staff who decide to transfer, the overall picture is rather less rosy.
Annex B of the Report is vague on profitability. Maybe CE will be self-sufficient in five years. Maybe it won't. And if it isn't, the Report suggests the University will continue to subsidize CE until 2016, at which point the Finance Committee and the Board will decide what to do, with the possibility of closing CE and reabsorbing its activities into the University.
Mr Deputy Vice-Chancellor, we need something better than: 'Let's create a limited company and guarantee to subsidize it for five years. Then we'll review it, and maybe we'll subsidize it for another five years. Then we'll close it down if it's still costing us money.'
If Cambridge Enterprise cannot be profitable, what is the value in doing it? Following the fuss made at the time of the vote last year, surely the University would want to be making money from IPR, not committing itself to subsidize, ahem, 'commercial exploitation' until at least 2016?
Mr N. M. MACLAREN
Deputy Vice-Chancellor, I have not had time to read the Memorandum of Understanding, but Reports are on the record, whereas web pages are not, so I shall comment on the Report alone.
In sections 5 and 11, it refers to the University's intellectual property being transferred to the new company, but completely fails to mention how. To remind people, this includes most copyright in materials created for the administrative and managerial purposes of the University or commissioned by the University. It surely cannot have escaped notice that a significant proportion of this material is highly confidential, or even restricted under various laws from being passed to another organization. What does the University propose to do about this, and why was the issue not even mentioned in the Report?
On this matter, may I remind the Council that we were promised a clarification of what the University understands by those words, but no such clarification has yet appeared.
The Report also describes a worthy mission for Cambridge Enterprise but, despite being repeatedly told of the problem in Discussions, fails to mention how this will help to reduce the hostility to it by the many creators of intellectual property who have been ill-treated by it in the past, or who have been put off by speaking to such people.
And, lastly, I have difficulty in believing the financial aspects of this Report. Am I really correct in understanding that it will be heavily subsidized for five to ten years and then, if it fails to break even, will be reabsorbed into the University as a permanent drain on resources? Surely, the Finance Committee should at least consider dissolving the failing company at that point? I can only assume that this was omitted. Why?