Q181 Mr Bacon: I would like to pursue the question which the Chairman asked you earlier, Sir John, when he quoted Lord Gilbert, former Defence Minister, who said on the radio the other day that he was very annoyed with you because: "never once in my presence did Sir John Chisholm indicate that he might have a conflict of interest or he was going privately to be enriched by what was going on". You replied to the Chairman that private equity was not in prospect. Your exact words elude me but it was along those lines, that private equity was not in prospect. You also mentioned that it was to have been an institutional investor; this was the assumption. It is a long time since I have worked in an investment bank or a finance department, but when I did private equity was not anything like the industry it is now, but even then, when there was institutional investment, it was normal to have management equity, absolutely normal. The Chairman's question was about whether you were wrong not to draw Lord Gilbert's attention to the fact that you would privately benefit. You chose to answer by saying that private equity was not in prospect, although institutional investment was, even though it was quite possible, even with institutional investment, that you would benefit. Now I look at the transcript of the Defence Select Committee on 28 February 2001, to which you gave evidence, and Laura Moffatt asked you, and she had obviously asked you for a while because it starts at paragraph 54 but she says: "I ask you one more time: is there to be any financial benefit to you or to anyone else involved in this process?", to which you replied, "I draw a salary from the Ministry of Defence at the moment". Her next question was, "What about shares?", and you replied, "I hope that I shall draw a salary from New DERA plc", that is the new co, "in due course", and so when she asked, "What about shares?", your answer was, "I hope that I shall draw a salary . . . ". She went on, "There will not be any stock involved at all, will there?", and you said, "The issue of share schemes for employees is an issue for the vendor to decide.", although we have just established from the way you read out paragraph 2.17 that you were the one establishing who got which shares. We then go on in the Defence Committee over the page where Baroness Symons said, in answer to Bruce George, the Chairman of the Committee, "You say you do not expect anyone to be out of pocket . . . but we expect those appointed to earn reasonable salaries for what they do, which will be different from what they are doing now." Bruce George replied, "You know what I am getting at. I do not want to see people leaving the Ministry of Defence who have been part of the negotiation for New DERA and within 6 months, 12 months or two years ending up on a tripled salary . . . ", and he goes on, "I would be reluctant to acquiesce to any system which would allow people who were part of the negotiations to profit significantly from their work", and Baroness Symons replied, "The important point to remember is that there is already a very robust monitoring of how civil servants move from the public to the private sector . . . ", and then we go to Lord Moonie on the radio the other day, again in the same package with Lord Gilbert on the Today programme, who said, and I quote, "We moved heaven and earth to put into position safeguards to ensure that the senior officials who were taking a stake in the company were not able to enrich themselves". Mr Jeffrey, what were those safeguards where you moved heaven and earth? What were they?
Mr Jeffrey: As I said earlier, the executive returns arrangements were set by Carlyle.
Q182 Mr Bacon: Sorry, Mr Jeffrey. I was not asking who set the arrangements. My question was, what were the safeguards?
Mr Jeffrey: In the sense that you are asking the question there were not safeguards.
Q183 Mr Bacon: There were not any safeguards, so Lord Moonie was actually wrong when he said, "We moved heaven and earth to put safeguards in place"? You have just said on the record there were no safeguards. That is correct, is it not?
Mr Jeffrey: What I have said is what I have been saying throughout this hearing, which is that-
Q184 Mr Bacon: I am just asking you, because you are not speaking that loudly, to confirm what you said a minute ago: there were no safeguards.
Mr Jeffrey: The arrangements for executive returns-
Q185 Mr Bacon: Did you say a minute ago there were no safeguards?
Mr Jeffrey: In the sense that you asked the question, I mean,-
Q186 Mr Bacon: Did you say a moment ago-I do not want to have to wait till I read the transcript- there were no safeguards? Yes or no?
Mr Jeffrey: There was nothing in the arrangement that SERCO6 set that prevented the kind of additions to the value that senior executives had-
Q187 Mr Bacon: I am asking about your statement a moment ago, which I did not quite hear. I think I heard you say there were no safeguards. Is that what you said?
Mr Jeffrey: What I said was that there were no safeguards in the sense that the arrangements that SERCO7 settled on were ones that were capable of producing the result.
Q188 Mr Bacon: It seems to me the best safeguard was your statement much earlier where you said, "It might have been an option to place a cap on it". "It might have been an option to place a cap on it"- that was the extent of the safeguards, was it not, Mr Jeffrey?
Mr Jeffrey: Which I followed up by saying if our predecessors had chosen to place a cap on it, and, as I say, that might have been an option, they would have had to reckon on the fact that by doing so they were reducing the value of the company and they would be second-guessing the judgment of Carlyle whose business is exactly this, to find ways of incentivising senior managers to deliver for the companies that they are working in.
Q189 Mr Bacon: The Report makes it clear in paragraph 2.30 that: "to achieve market value the competitive process needs to be strong". I know you do not agree with all of this Report, but do you agree with that?
Mr Jeffrey: Yes, I do.
Q190 Mr Bacon: You do? And yet for six months, from 3 September until the thing closed on 28 February 2003, there was no competitive process. It was just Carlyle.
Mr Jeffrey: It was Carlyle but with Permira there as reserve in the background if a satisfactory deal was not done with Carlyle.
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6 Correction by witness: Mr Jeffrey should have referred to "Carlyle" not "SERCO".
7 Correction by witness: Mr Jeffrey should have referred to "Carlyle" not "SERCO".