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trading fund DSG: an MOD Trading Fund DSG is a Trading Fund of the Ministry of Defence. This is an often used phrase but what exactly is a Trading Fund of the MOD and how is it governed? Gary Abbott, DSG Head of Strategy, explains; ‘A Trading Fund is a UK government owned organisation or agency that is established by the host government department, in DSG’s case the MOD, in agreement with Her Majesty’s Treasury. ’ “Unlike other parts of the MOD, such as DE&S, which is vote funded, the Trading Fund is not financed by the host department, it hard charges its customers for its services and uses the revenue it makes to run the business, reinvesting in the business to deliver improved efficiency and effectiveness in management of operations. This gives the Trading Fund freedoms to operate as both part of a government department, and a commercial organisation.’ Trading Funds are set up under an act of parliament, the Government Trading Funds Act 1973 and the first Trading Fund was the Royal Mint established in 1975. MOD currently has four Trading Funds, DSG, Dstl, the Met Office and the UK Hydrographic Office. The Corporate Governance and accountability arrangements for DSG draw on best practice in both the public and private sectors, and reflect its special position operating as both part of a Government department, and a commercial organisation. The central features of the governance arrangements revolve around the Owner, Chief Executive and a series of boards. Owner - As an MOD Trading Fund, the Secretary of State for Defence is the Minister with formal responsibility for DSG. Day to day ministerial oversight and business ownership is delegated to the Minister for Defence Equipment and Support, who is advised by a group of senior stakeholders from across and outside MOD that forms the DSG Owner’s Advisory Council (see Governance Framework diagram).’ Chief Executive - the role of the Chief Executive is to lead and manage DSG effectively in order to ensure delivery of the objectives and targets set for it by the Owner, and in particular the successful implementation of an approved Corporate Strategic Plan. The Chief Executive is formally accountable to the Owner for all aspects of the operation of DSG. In view of its delegated authority, the Chief Executive is accountable to the Trading Fund Board (acting on the Owner’s behalf) on issues of business strategy, plans, targets and performance, and also on major business proposals. Talking about his experiences in leading three MOD Trading Funds, DSG’s Chief Executive, Archie Hughes told Digest, “Delivering important aspects of government business by means of a 8 <strong>DIGEST</strong> April/May 2010 www.dsg.mod.uk
trading fund Trading Fund offer significant benefits to the end customer and, of course, the taxpayer. Operating at arms length from Whitehall ensures Trading Funds can develop and sustain vital key principles and disciplines from a broader commercial perspective. It allows for greater transparency of costs and encourages important commercial processes aimed at delivering more with less.” He goes on to explain why Trading Funds offer a viable alternative to retaining these capabilities in-house and on-vote. “It is important that Trading Funds offer best value for money and have a strategic role to play in delivering important products and services. On occasions, these are not readily or necessarily available from the private sector but Trading Funds must show they can actively and successfully compete for business in wider commercial market place, if required.” The DSG Framework Document 2008 sets out the purpose of Trading Fund including its governance. TRADING FUND GOVERNANCE FRAMEWORK DSG Owners Advisory Council (OAC) • Min DE&S (Chair) • Chief of Defence Materiel • MOD Director Financial Management • Shareholder Executive • DSG Chairman • DSG Chief Executive The OAC sets DSG’s top level objectives, Key Targets, establishes its policy and financial framework, and approves major business decisions Meets up to 3 times per year DSG Trading Fund Board (TFB) • DSG Chairman – Jamie Pike • DSG Chief Executive – Archie Hughes • NED – David Barrass • NED – Terence Jagger CBE • NED – Janet Baker • Industrial TU Rep – Kevin Coyne • Non Industrial TU Rep – Steve Jary • DSG Executive Directors • Secretary – Gary Abbott The TFB comprising an independent Non Executive Chairman, Non Executive Directors (NEDs), the CE and the Executive Directors who act on behalf of the Owner and scrutinising the business plans and performance of the Trading Fund Meets up to 6 times per year DSG Executive Management Board (XMB) • DSG Chief Executive • COO • Finance Director • HR Director • Strategy Director • Commercial Director The XMB is led by the CE and comprises all the Executive Directors who are responsible for leading, directing and managing the Trading Fund Meets monthly www.dsg.mod.uk April/May 2010 <strong>DIGEST</strong> 9
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