Cambridge University Reporter

Report of the Council on the incorporation of Cambridge Enterprise as a limited company: Notice

16 October 2006

The Council have considered the remarks made at the Discussion of this Report on 13 June 2006 (Reporter, 2005-06, p. 773) and respond as follows.

Most speakers addressed specific issues in respect of the operation of Cambridge Enterprise which are independent of incorporation. The Council are of the view that the activities carried out by Cambridge Enterprise are an important component of the overall mission of the University and that incorporation provides Cambridge Enterprise with the most appropriate structure for success, and is indeed a more appropriate arrangement to address some of the concerns arranged.

Many speakers commented on the business plan. It has to be recognized that technology transfer is inherently a high-risk business. While predicting the future based on the past is not fool-proof, it is an apt approach and one that will be enhanced by having an experienced Board of Directors with an appropriate range of expertise scrutinizing such predictions, precisely as incorporation will necessitate. Moreover, incorporation provides both transparency of financial performance and an environment in which both commercial opportunities and associated risk can be better managed, not least by putting more effort into modelling the performance of the patent, licensing, and equity activities. The plan is presented as a baseline plan; the Council expect that the incoming Director, in collaboration with the Board, will develop a more ambitious plan.

Several speakers spoke of the problems of mixed objectives. This is a reflection of reality and inherent in this area of activity. The governance structure must balance independence of action within Cambridge Enterprise with ultimate control by the University as sole shareholder to maximize the support it provides to the academic community. The issues of mixed objectives and the ability to manage potential conflicts of interest arise whether or not Cambridge Enterprise is incorporated.

In response to Professor R. J. Anderson, there has not been, nor is there planned to be, a change in the approach to costing and pricing consultancies. Management fees are paid by the client and the numbers within the business plan to which he refers simply reflect that, firstly, use is sometimes made of departmental facilities which, correctly, are charged for, and, secondly, some academics direct that some or all of the consultancy income for which they are responsible be passed to their Department to support their further research. The Council confirm that there is also no intention to make consultancy through Cambridge Enterprise compulsory.

Professor Anderson implied that the University would be creating a venture capital company. This is not the main purpose of Cambridge Enterprise, although it does have a role to play in improving the environment for seed funding. He also implied that by transferring assets the University would be losing overall control of them. This is not the case; the University is Cambridge Enterprise's sole shareholder and if incorporation does not prove to be successful, assets can be reabsorbed into the University.

The Council agree with the thrust of some of Mr J. Lang's remarks, although are surprised that he was simultaneously pessimistic about performance but demanded financial profitability in five years rather than the ten proposed. The time frame to sustainability provides a means to balance profitability with support to the academic community. Incorporation provides the transparency he seeks and the Memorandum of Understanding specifically prohibits forward selling of Intellectual Property Rights (IPR) by Cambridge Enterprise. Any sale of part of an asset which results in a change in rights over ownership of IPR would be a modification of the University's IPR policy and therefore would have to be put before the Regent House. The Council have no intention of proposing any such sales. Furthermore any sale, issue of further shares, or issue of share options to staff would all be matters which would require the approval of the shareholder, which is the University.

Dr S. J. Cowley commented on the profitability of Cambridge Enterprise. As he rightly pointed out, monies flow into Departments, and so long as there is a call on the Chest to support Cambridge Enterprise, it could indeed be argued that the Chest is subsidizing particular Departments, hence the view taken that self-sufficiency should be measured not in the total return to the University (which has been and remains positive) but in terms of the calls on the Chest.

On the separation in time of the publishing of this Report and the Council's Third Report on the proposed East Forum mentioned by Dr Cowley, given the Notice of Dissent to the latter, it was felt polite to inform the donor of the views expressed by certain members of the Council before that Report was published. More importantly, the Council do not believe the issue of incorporation should be tied to the East Forum: the logic is not based on a business plan per se, but on the decision that a company structure is more appropriate for the activities of Cambridge Enterprise regardless of its location.

As Dr Cowley pointed out, the flexibility in pay scales within the University removes pay flexibility as a motivation for incorporation, although flexibility in employment practice does remain as a motivation. The Memorandum of Understanding between the University and Cambridge Enterprise gives the University sight and influence over any substantial changes in pay whether positive or negative.

The Council will forward all remarks on to the Board of Directors of Cambridge Enterprise for consideration in formulating their plans. The Council's view is that the remarks, while relevant to the performance of Cambridge Enterprise, are not specifically relevant to the issue of incorporation, and are therefore proceeding with incorporation as described within the Report. The Council expect that the new company will become operational on 1 December 2006.