Jersey Innovation Fund: Board remuneration

STATES OF JERSEY

JERSEY INNOVATION FUND: BOARD REMUNERATION

Lodged au Greffe on 24th July 2014

by the Minister for Economic Development

STATES GREFFE

2014   Price code: B  P.134

PROPOSITION

THE STATES are asked to decide whether they are of opinion

to  refer  to  their  Act  dated  1st  May  2013  in  which  they  approved  the establishment  of  the  Jersey  Innovation  Fund  and  agreed  the  Revised Operational Terms of Reference April 2013, and agree to vary the Revised Operational Terms of Reference so that Advisory Board members may be remunerated for their work.

MINISTER FOR ECONOMIC DEVELOPMENT

REPORT Operation of the Jersey Innovation Fund

1. Introduction

The key objective of the Economic Growth and Diversification Strategy, as approved by the States in P.55/2012, is to deliver growth, improve competitiveness, diversify the  local  economy  and  create  employment.  To  achieve  this,  the  States  approved P.124/2012 Amd.  which,  under  Article 3(3)(a)  of  the  Public  Finances  (Jersey) Law 2005 resulted in the creation of a special fund – the Jersey Innovation Fund ("the Fund"). The States also agreed that the Fund should operate within the terms of the Revised Operational Terms of Reference, which included the policy that the private sector members of the Advisory Board should not be remunerated.

2. The Board

The Jersey Innovation Fund Advisory Board provides essential management and a corporate Governance framework for the Fund. The Advisory Board consists of a minimum of 3 non-executive Advisory Board members and an independent Chair from the private sector, plus 3 representatives from the public sector. The private sector Advisory Board members play a vital role in assessing the likely success of any project  applying  for  funding  from  the  Fund.  Their  commercial  expertise  and experience  is  proving  critical  in  the  assessment  of  all  the  applications  and  the assessment of risk.

3. Remuneration of Board Members

During the operation of the Jersey Innovation Fund, it has become clear that the time commitment required of the non-executive Advisory Board members is far in excess of that originally envisaged, with the non-executive directors spending an average of 11 days on JIF Advisory Board matters in the first 6 months of 2014 alone. Therefore, in order to retain and attract the appropriate calibre of Advisory Board member with the  skills  and  expertise  for  these  critical  roles,  some  level  of  remuneration acknowledging the commitment is required. The Economic Development Department has therefore reviewed the policy within the agreed Operational Terms of Reference, and  concluded  that  the  non-executive  Advisory  Board  members  should  be remunerated. Such remuneration will be in the form of an annual fixed sum awarded on an honorarium basis. An extract of the Revised Terms of Reference has been amended to reflect this recommended change and is attached as an Appendix to this Report.

4. Financial and manpower implications Operational costs

It has been agreed by the States that the Economic Development Department will meet the operating costs of the Fund in the first instance, and on an annual basis recharge costs  incurred  to  the  Fund,  also  agreed  at  £100,000  per  annum.  The  proposed Advisory Board's total remuneration for the Chair and private sector non-executive members will be in the region of £50,000 per annum. This additional cost will also be recharged to the Fund on an annual basis.

5. Conclusion

The private sector Advisory Board members are making a significant contribution to the operation and performance of the Fund. Through the operation of the JIF, it has become evident that the time commitment required of the non-executive Advisory Board members is far greater than originally anticipated.

Therefore, in order to retain and attract the appropriate calibre of Advisory Board member,  with  the  skills  and  expertise  for  these  critical  roles,  some  level  of remuneration will be required.

It is recommended that the Proposition to amend the Operational Terms of Reference and remunerate them is approved.

APPENDIX

Extract from:

Revised Operational Terms of Reference – Jersey Innovation Fund Grants and Loans – Phase 1

April 2013

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The JIF Board, as appropriate, will also draw on other expert opinions to provide comprehensive due diligence when considering and assessing applications. This will include, but not be limited to, technical expertise, market intelligence, financial due diligence, and company or patent searches.

In  every  case  and  during  the  assessment  process,  the  States  of Jersey  Economic Adviser's Unit will undertake an economic impact assessment and present a written report to the JIF Board, which they will use in considering and assessing the project from an economic prospective.

The JIF Board, after being fully satisfied with the due diligence checks, reviewing the expert and economic opinions and a detailed analysis of the proposal, will make a recommendation to the Minister for Economic Development to approve or reject the project. The recommendation will be presented using the Business Case template (Appendix 3) which is based on H.M. Treasury Green Book best practice.

The JIF Board, which will act in an advisory capacity, will be responsible to the Minister for Economic Development. The JIF Board will, at all times, ensure that the JIF operates within both the Public Finance Laws and any current or future Financial Directions. Board Members will also operate within an approved corporate framework and publish an Annual Report that will be presented to the States.

Private sector Board Members will be appointed through a process overseen by the Appointments Commission. Public sector Board Members will be appointed by the Minister  for  Economic  Development.  Board  Members  will  be  offered  an honorarium in recognition for their time and valuable contribution. The level of the  honorarium  will  be  subject  to  approval  by  the  Minister  for  Economic Development.

Board members will be appointed for a period not exceeding 3 years. A member of the Board will cease to serve before the 3 year term if –

• they resign;
• they cease to be employed as a civil servant of the States Department they are representing;
• with respect to a private sector representative, they commence employment with the States of Jersey as a Civil Servant.

Board members will be expected to declare an interest and not consider an application where there is any risk of a conflict of interest. Conflict arises where an individual's obligation to further the purposes of the JIF Board is at odds with their own financial interests. For this reason, members will have to abide by the 7 principles of public life set out in the Nolan Report, attached at Appendix 4.

Page 20

11. Risk

No form of financial support comes without a level of risk. It is acknowledged by the nature of the projects supported that some will fail. This may result in a loan not being repaid, the non-payment of royalties, or a grant supported project not delivering the desired outcomes.

Although the pre-investment due diligence, plus the post-investment monitoring and assessment process are designed to minimise risks, it is important to acknowledge that it is impossible to operate a fund of this type without accepting some level of risk.

During the due diligence and assessment process, the JIF Board will consider all reasonable and appropriate security and recommend to the Minister for Economic Development if and how any available security should be used to reduce any risk to the JIF.

12. Scope of the Fund

The Fund will be used to support projects across all sectors, including the public and thirds sectors, but targeted and prioritised towards –

• Attracting new innovative businesses to the Island. This is an important part of the inward investment proposition and supports Government's commitment to enhancing its ability to attract and create new jobs.
• Assisting would-be entrepreneurs and early-stage start-up enterprises to invest in innovation.
• Established businesses with growth potential to invest in innovation.
• Research projects that may improve the Island's competiveness.
• Enabling investments in infrastructure.
• Establishing  better  links  with  universities  with  the  objective  of commercialising academic IP.

13. Financial and manpower implications Financial costs

There will be financial costs associated with the operation and management of the Fund, particularly relating to due diligence, assessment and approval of applications, e.g. company searches, background checks, market research, credit checks, legal costs and specialist advice. It is intended that EDD will meet these costs in the first instance and  on  an  annual  basis  recharge  them  to  the  Fund.  The  Economic  Development Department estimates the cost for managing an estimated 10 applications a year will be no greater that £100,000 per annum.

It is estimated that the proposed Board's total remuneration for the Chair and non-executive  members  will  be  in  the  region  of  £50,000  per  annum.  This additional cost will also be recharged to the Fund on an annual basis

Manpower implications

The  operation  of  the  Fund  will  place  manpower  demands  on  the  Economic Development,  Treasury  and  Resources  and  Law  Officers'  Departments  and  the Economic Adviser's Unit. It is estimated that the total man-hours will cost £50,000 per annum. This cost will not be recharged to the Fund and will be included within the relevant Department's year-end accounts.