§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Harper.]
§ 12.25 a.m.
§ Mr. Eric Lubbock (Orpington)
It is a very pleasant surprise to see the right hon. Lady the Paymaster-General on the Front Bench opposite to answer this debate. I look forward to hearing what she has to say about the important subject of the employment of American management consultants by Government Departments and nationalised industries.
I should like to begin by saying that I am not a chauvinist and do not insist that Government Departments and nationalised industries should always employ British consultants under every possible set of circumstances. If there is fair and open competition between the Americans and British firms, and the Americans can definitely show that they have more to offer, Government Departments are justified in employing them in preference to our own nationals. What I object to, and shall illustrate has happened in a number of instances, is those public bodies and Government Departments going to American consultants without giving British firms the opportunity to show what they can do, or even holding any discussions with them before the appointment is made.
I should like to make one other general point before coming to the detail. I speak from a certain amount of knowledge, because I was a consultant for five years some time before I came to the House. When one employs a consultant one does not only look at the reputation of the firm concerned but the individuals who will be appointed to carry out the assignment. One cannot tell who those individuals will be unless one enters into discussions with the consultants who might be appointed. If one sticks to one 683 potential consultant one never knows what the other firms might have to offer. It is important to make that point clear at the beginning.
The decision on which my speech will largely be based, that of the Bank of England to employ American management consultants, is the most recent of a number of similar instances where public bodies have given assignments to American consultants.
It appears to those involved in the profession and to many of their clients that the Bank of England's decision stems from a serious lack of faith in British professional skills and ability by some of the most influential people in our society. That impression has been given, and I hope that the right hon. Lady will do what she can to dispel it tonight.
As far as I am aware, there were no discussions between the Bank of England and British consultants who might have been able to take on this assignment if asked. Yet it is a fact that British firms in the management consultancy profession have carried out major assignments in the field of top management structure and organisation for some of the largest industrial, commercial and governmental bodies in many countries all over the world, and have done an extremely good job in competition with American consultants overseas.
I shall mention one case later where a client of a British firm has asked, "Why should we employ you? We have given you the assignment now, but we have obviously made a mistake because the greatest bank in your country, the Bank of England, has decided to employ the Americans, and it must have chosen the best." That is the sort of impression which has been created abroad by the decision.
The Bank of England says that it carefully considered the potential of British consultants. But what does that amount to? Did it simply get in touch with Government Departments and corporations which had used McKinsey in this country and overseas, including the U.S. Federal Reserve Bank, which could hardly have been expected to recommend the appointment of British consultants, or did it extend its inquiries more widely to include other major governmental and 684 industrial users of British consulting services which might have a different opinion? One rather suspects the former. One would like to know how many meetings were held by the Bank of England to discuss the merits of various firms. I wonder whether the decision was not based purely on the result of the workings of the "old boy network", the Governor of the Bank of England going round to other people who had employed McKinsey asking what they thought and when told "It is a good firm. It has done a good assignment for us." taking that as good enough, so that he did not go through the list of British consultants which might have done the assignment.
Another point of tremendous importance is the take-over of Inbucon by the American firm, the Leasco Data Processing Equipment Corporation. This is important in the context of these discussions, because if it goes through—and the closing date for the offer was this afternoon—there will be one fewer British consultant from which to choose. It would mean that the Americans had taken over the biggest British management consultant which could offer these services to Government Departments and nationalised bodies. I would deplore that. I think that those who are working in this organisation would leave in very large numbers. Moreover, it would mean not only that Leasco would have a foot in the British consultancy world, but that indirectly it would have access to the files of many of our top industrial enterprises which it could use for selling American computers, apart from the introduction of American methods into the management consultancy professsion. I mention that in passing because it illustrates another potential danger to which the Government should pay attention.
I turn to the essence of my complaint. I have no objection in principle to the employment of overseas consultants by the Government and public bodies, but what is manifest not only in the case of the Bank of England but in the other assignments given to the Americans, such as the G.P.O. and the B.B.C., is the failure to give British firms an equal opportunity to submit proposals and say what they can do. Apart from the bodies that I have mentioned, there is the lesser 685 known case of the Gas Council, into which I will not go in detail because I think the right hon. Lady will already be aware of it, but this is yet another example of a public body which has employed American consultants. A further one, which was almost a case of an American getting the assignment, was the Metropolitan Police, but I am glad to say that in that case in fair and open competition a British consultant got the order.
What is the damage that the action by the Bank of England has done to British consulting practice at home and overseas? I used rather strong language in my Question to the Prime Minister the other day, with careful consideration to the words that I chose. The overseas fee income of Management Consultants' Association firms in 1967 was no less than £3 million, which was 20 per cent. of their total turnover, and £¾ million of this was earned on assignments of the type now being undertaken by McKinsey in the field of top level reorganisation. It is ironic to see that British firms belonging to the M.C.A. have been doing McKinsey-type assignments for the Swiss Post Office and the New Zealand Broadcasting Commission at the same time as McKinsey has been chosen for their United Kingdom counterparts.
The effect on the clients and potential clients, overseas particularly, of the continued and apparently automatic preference of Government and public bodies for these foreign consulting firms cannot be exaggerated. I quote from the European director of one of our biggest firms of management consultants who is based on Paris and has a major practice in this type of work. He saysI hope no one underestimates the damage that the Bank of England announcement has done to the reputation of British consulting firms trying to expand in Europe.I do not think Sir Leslie O'Brien has appreciated this argument even yet.
These are some of the points which I think the right hon. Lady ought to take into account. I hope she will not say that the decision by the Bank of England was purely a matter for the Bank, because as she knows, the Chancellor of the Exchequer has in the last resort the power to give directions to the Bank.
I asked him to exercise them the other day. Probably one would not wish to 686 go as far as that, but it was a matter of getting the Question on the Order Paper so as to get public discussion of it.
This matter has gone so far that the Government cannot just sit back and say that these are matters of day-to-day management for the bodies concerned. The damage done to British consultants is so great that the Government must intervene.
§ Mr. John Smith (Cities of London & Westminster)
I am pleased to be able to follow the hon. Member for Orpington (Mr. Lubbock), if only briefly, because I and all of us owe a great debt to his father. I know it is not very fashionable nowadays to have a father, and most of us try to keep it dark but I hope the hon. Member will not mind my alluding to this gentleman, because his father founded the first firm of British management consultants.
Many years ago I asked if I might have some time off from my own work in order to go to work briefly with that firm and do a course with them. As a result, I have ever since been firmly converted to the merits of management consultancy, and very fundamental are the services which management consultants have rendered to the various companies with which I have been associated since.
I am bound to say that on some occasions we have called in British firms, and on other occasions American firms. There is an advantage sometimes in having United States consultants, and that is the advantage of the shock which it delivers to public opinion.
For example, some of us think that management consultants might usefully be employed in this building. How, for example, can we urge the employment of management consultants in Government Departments and other State activities when we do not have them here in a place which may be thought by some to be one of the more antiquated spots in the kingdom? In our case here, the fact that the consultants were American would certainly increase the impact of calling them in.
I was interested by the hon. Member's reference to European firms calling in English consultants, while we call in Americans. I think sometimes there is an advantage in that, very much the 687 same as the advantage of calling in outside consultants and not using one's own internal people.
But whether consultants are to be American or British is not nearly so important as that Government Departments and State bodies should go to consultants of some sort. The Government still seem to have a rather old-fashioned attitude to consultants. I have constantly asked, for example, that they should be appointed for the Customs and Excise Department, but without success. The Government's attitude is a little like that of the public attitude to psychiatrists in the 1920's—that it is not quite the thing, not quite respectable, to consult them. But far from a sign of weakness, to go to a consultant is a sign of a progressive outlook. Furthermore, to go once is not enough. Departments should go regularly, like servicing a motor car.
Moreover, they should go to outside consultants. There were some very interesting strictures on the subject of internal consultants in the Fulton Report which I feel did not perhaps have the publicity they might have had.
Therefore, while supporting the hon. Gentleman, I feel that although the nationality of the consultants is important, it is equally important that the Government should hoist in the idea that Government Departments and State bodies should go regularly to outside consultants of some sort.
§ 12.40 a.m.
§ The Paymaster-General (Mrs. Judith Hart)
I wish that we were debating the desirability of employing an American consultancy firm to advise on our conditions of work in the House of Commons, but I fear that this is not so, and if it were it would be beyond my responsibility.
I am grateful to the hon. Member for Orpington (Mr. Lubbock) for raising this very important subject. No one is more aware than the Government of the striking progress management consultancy in this country has made in recent years, and rightly so. Skilled and specialised work of this kind makes a valuable contribution to the achievement of greater management effectiveness and industrial efficiency and, therefore, to the 688 higher productivity we all want and need in order to be a more competitive industrial nation.
Over the last five years, the annual growth in fee income has averaged about 12½ per cent. It is fair to say—and this is the answer to the hon. Member for the Cities of London and Westminster (Mr. John Smith)—that the Government have played a full part in this development. Apart from the use of consultants for Government Departments, my right hon. Friend the President of the Board of Trade has introduced in Glasgow and Bristol a grant-aided pilot scheme for assisting small firms to employ consultants—small firms which might not, if left to themselves, be able to afford to do so. This has met with an encouraging response. The results are being considered with a view to possible extension nationally, although it will be some time before it could come into effect.
We are particularly concerned tonight with the employment of American management consultants by Government Departments and public-owned enterprises. The Civil Service Department—before that, the Treasury—co-ordinates the use of management consultants by Departments. Its role is not to pre-empt Departmental decisions on the need to employ consultants or on the final choice of a particular consultant, but to provide central advice about consultancy firms and on the procedures which should be followed in commissioning and selecting consultants and liaison with them during the course of assignments. It also provides a number of selection boards.
In addition, financial approval for the approval of consultants has to be given by the Civil Service Department or, in certain circumstances, by the Treasury. This is desirable not only in order to ensure that the cost is justified by savings or improvements in efficiency expected to result, but also to provide the opportunity to consider whether central management services resources could more appropriately be offered to the Department concerned. Unless there are exceptional reasons for an alternative procedure, the normal arrangements are to invite about three selected consultancy firms for initial interview. These often lead to their carrying out a preliminary survey without charge before they put forward proposals for carrying 689 out the assignment and indicate the cost involved.
Normally, an approach would be confined to a single consultancy firm only where the assignment was in the nature of a follow-up to previous work undertaken by that firm in an area of activity with which it was particularly conversant or where specialist services were required which a single firm was best qualified to give.
But the general procedure is to invite three selected firms for interview. The Civil Service Department maintains an index of consultancy firms and of the assignments undertaken in Departments. In advising Departments about the use of consultants for particular assignments, the Civil Service Department gives information on those it thinks suitable to undertake the task. In doing so, consideration is given to the range of services offered and the particular experience of the firms concerned.
It is important to bear in mind the wide range of consultancy services available to the Government from internal resources. It does not follow from that that external consultants do not have a valuable part to play in supplementing the internal ones. It is our view that. in many cases, they can make a special contribution which cannot be made by internal resources alone.
In this careful selection procedure, Departments are not told to exclude American firms from consideration. and I believe that it would be wrong to introduce an outright ban of that kind. The choice of consultant should rest mainly upon suitability for a given task not only of the consultancy firm but also of the individuals engaged on the assignment. Some British firms of management consultants, as the hon. Gentleman knows, have extensive overseas organisations. In 1967, about a fifth of the fee income of member firms of the Management Consultants' Association came from overseas business. A policy by Government Departments here of using only British firms might have unfortunate repercussions abroad. It is a fact, however, that British firms have certain built-in advantages. In general, they have much more experience of operating in this country, their fees are lower than those of the American companies operating 690 here, and their degree of skill is certainly as high. Those are factors which are taken into account in making a selection.
What are the results of this policy? The records of the Civil Service Department show that Government Departments, excluding the Post Office, have engaged management consultants for some 160 assignments over the past 3½ years, of which just over half involved work within the Departments themselves. I think that that is the answer to the anxiety expressed by the hon. Member for Cities of London and Westminster, who is anxious that the Government should appreciate the need to use consultancy services. The hon. Member for Orpington will be interested to know that, of those 160 assignments, American firms have been used for only seven. I think that that will be a sufficient indication for him of the degree of confidence which the Civil Service Department has in the capacity and skill of British consultancy firms.
The arrangements which I have outlined apply only to the selection and use of management consultants by Government Departments. Decisions by publicly-owned enterprises to use consultants are matters for the management of the enterprise concerned, and I deal now with the question of the Bank of England. There are several sources of advice, including the joint B.I.M./C.B.I. advisory service, available to commerce and industry generally. While the Civil Service Department would give what advice it could if approached by a public corporation, its information is angled to suitability of consultants for work in the Civil Service.
The tenor of what the hon. Gentleman said towards the end of his remarks was to suggest that the Government should set aside the principle of accountable management and direct publicly-owned enterprises on how they should set about selecting consultants. The hon. Gentleman said that the Government should have given a direction. To begin with, it is doubtful whether the Government have the right to do so. Taking the example of the Bank of England, its right to conduct its domestic affairs derives from the Bank of England Act and the Bank of England Charter, 1946, which provides:The Court of Directors may and shall…generally in all matters do whatsoever they 691 may judge necessary for the well ordering and managing of the Bank of England and the affairs thereof.While the Treasury has power to make directions to the Bank, it is the clear intention of the Act that such directions should be used only for matters of major public importance. In fact, no directions have been made so far, and I think the hon. Gentleman will agree that the matter under discussion, given that in no circumstances since the passing of the Act have directions been issued to the Bank of England, this could hardly be held to be one of such public importance that it should be the first example.
§ Mr. Lubbock
The right hon. Lady is implying that the power has lapsed because it has not been used since it was taken by the Government in the 1946 Act. But the very least that she could do would be to draw the attention of Sir Leslie O'Brien to the admirable methods for the selection of consultants adopted by Government Departments. If in all cases three different firms were invited to carry out preliminary assignments, I would be satisfied.
§ Mrs. Hart
I am sure that what is said in the House this evening will be read with interest by a number of people, possibly including Sir Leslie O'Brien.
I should like to add something to the legal position. The legal position is one thing. but there are other aspects to it. It would be wholly inconsistent with the Government's relationship with publicly-owned enterprises to intervene in decisions of this character which are intrinsic to the efficient operation of the enterprise concerned. Public corporations and nationalised industries have, for the most part, acquired a good deal of experience of using British firms of consultants. The Bank of England, for example, has used British consultants on more than one occasion on particular aspects of its work. So it could not be said that it had any resistance to the employment of British firms of consultants. It clearly made its latest selection in the light of this experience as well as its knowledge of the services available and the need for confidentiality.
I referred earlier to the very remarkable progress which has been made by management consultancy in this country. 692 This has been matched by increasing professionalism among consultancy firms. It has been the aim of most of the leading figures in management consultancy that their calling should be accepted as a profession alongside the traditional professions like law and accountancy. This is clearly right, and I do not hesitate to say so. What I do not quite understand is how this acceptance of the professionalism of consultancy, with which I am sure the hon. Gentleman agrees, can be reconciled with the point of view that he has put tonight; in other words, his disapproval of the decision of the Bank of England to employ McKinsey and Co. I can well understand that this was a disappointment to United Kingdom firms of consultants, but I hope that they will not take it as in any way a criticism of the level of their own performance. What I have said about the use by the Civil Service of British firms, and the figures that I have given, should be an indication of the confidence that is felt in them. However, McKinsey has practised here for some years now and, through its specialisation in top management problems and the experience and reputation that it has gained, it has been engaged by a number of our leading firms for top organisational and management assignments. It is not surprising, in these circumstances, that the leaders of some of our major public corporations should wish to employ it for similar work. I do not think that that need necessarily be regarded as being in any way a reflection on British consultancy firms.
After the Bank's decision to employ McKinsey, the Governor of the Bank met the Chairman of the Management Consultants' Association and the President of the Institute of Management Consultants and expressed the Bank's general confidence in British management consultants. That confidence is certainly shared by the Civil Service Department. I think that the British profession of management consultancy can look forward to an extremely bright future in which it can feel that it has the confidence of those in this country who are concerned with the profession of management consultants.
§ Question put and agreed to.
§ Adjourned accordingly at six minutes to One o'clock.