1.20 In advance of the legal separation, the Department ran DERA as two organisations in order to test the separate IT systems and management structures that had been put in place to ensure they operated independently. This shadow operation lasted three months and was successful in demonstrating that the new arrangements were working as intended. QinetiQ and the Defence Science and Technology Laboratory were legally separated on 1 July 2001.
1.21 The opening balance sheet of QinetiQ is set out in Figure 5 overleaf. This was prepared in line with accepted practice and as such the value of shares in joint ventures that were commercially exploiting intellectual property did not reflect their potential to generate future revenue. The Department held share capital with a book value of £346 million and long-term loans amounting to £156 million.15
1.22 When QinetiQ was formed the Department had appointed five non-executive directors, including a chairman with relevant private sector experience,16 to uphold good corporate governance and protect the Department's interests. In addition, two senior members of the Department were appointed as observers to the QinetiQ Board.17 At this time there were also three executive directors - the then chief executive officer, chief financial officer and chief executive officer of QinetiQ Ventures.18 The Board formed a remuneration committee comprising the chairman and three of the other nonexecutive directors.19
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15 Incorporating a £150 million loan note and £6 million relating to DSTL relocation costs. All loans were on a commercial basis.
16 Mr Jonathon Symonds, Dame Pauline Neville Jones, Mr Clay Brendish, Mr Jack Fryer and Sir John Egan respectively (Sir John Egan resigned in May 2002 and Dame Pauline Neville Jones became chairman).
17 Colin Balmer and Terence Jagger.
18 Sir John Chisholm, Mr Graham Love and Mr Hal Kruth respectively (QinetiQ Ventures is responsible for exploiting defence research in the wider commercial sector).
19 The remuneration committee comprised Sir John Egan (chair), Dame Pauline Neville Jones, Mr Johnathon Symonds and Mr Clay Brendish.