3.17 In order to protect the reputation of the public sector body, its sponsors and stakeholders, the public sector body should consider as early as possible issues where there may be potential for the JV to make decisions or act in a manner contrary to the public interest (e.g. security) or contrary to wider policy objectives. Many of the propriety considerations in selecting a partner will be the same as for commercial sponsorship of government activities and are set out in Cabinet Office guidance.29 Consideration should also be given to ensure civil servants act in line with the principles of public life identified by the Committee on Standards in Public Life.30
3.18 More generally, the commercial success or otherwise of the JV may bring reputation concerns to the fore - does the authority wish to be associated with a very profitable venture, or with a financially unsuccessful one potentially failing to deliver high-profile services such as leisure or cultural services? Public bodies can be seen as lenders of last resort and there may be pressure to fund loss-making ventures they are closely connected with - but not entirely in control of - for political reasons. Reputation issues could also arise if the JV is seen to be paying excessive salaries or bonuses.
3.19 Protection may be needed if the JV's name is closely linked to that of its public sector participant. In such cases, the public sector parent will need to ensure that it can insist on a change in the name of the JV if it ceases to have a significant interest in the entity.
3.20 The public sector body will need to consider the most suitable approach to alleviate any such concerns and protect its reputation.
3.21 Depending on the relevant issue, protection could be sought as outlined below:
● an express provision in the JV Agreement imposing a contractual obligation on the JV and/or the private sector participant;
● where the JV is a company, a provision in the Memorandum and Articles (e.g. the objects clause which sets out the nature of the business);31
● reservation of the matter to be decided by the participants, and an express right of veto for the public sector (whatever the percentage participation of the public sector body); or
● adoption by the JV of a specific "corporate policy".
3.22 The public sector body should ensure that the controls it puts in place do not undermine the JV's ability to be effective in delivering the objectives for which it is being established. In addition, in the light of recent ECJ cases,32 any "golden share" or similar rights reserved by public sector bodies to maintain control and prevent a JV from take-over may now be deemed a breach of a member state's obligations under Article 56 EC (free movement of capital). The public sector body will also need to keep in mind that if it includes too many controls, it may affect whether the JV is classified to the public or private sector (see Chapter 5).
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29 Guidance to Departments on Sponsorship of Government Activities, Cabinet Office, updated May 2007.
30 The seven principles are: selflessness, integrity, objectivity, accountability, openness, honesty and leadership. See the Committee on Standards in Public Life website at: www.public-standards.gov.uk.
31 It should be noted that provisions in the Memorandum and Articles of Association can be changed by a party with more than 75% ownership of a company. Companies Act 1985, as amended by Companies Act 1989. However, under the Companies Act 2006, from 1 October 2009 a newly incorporated company will not have a Memorandum of Association and the Memorandum of an existing company will be treated as part of its Articles of Association.
32 See Commission v French Republic, C-483/99, 4 June 2002.