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Thursday, November 03, 2011

Welsh Government abandons scholars

Yesterday's debate on European funding and the decision by the Welsh government to end funding for the Prince of Wales Innovation Scholarships failed to change Ministers' minds but it did highlight their failure to understand the scheme and their own role in it.

As I said in the chamber, that decision has had a number of consequences, one of which is to send a signal to academics and investors outside Wales that we are not interested in commercially based research and that the Welsh Government does not understand the needs of business.

If we are to build the Welsh economy then we need to make use of the very important work that is going on in our universities and turn it into wealth creating enterprise and high quality jobs. That is something that POWIS was particularly good at. This is a scheme that has hit all the targets set for it. It has brought in £14 million of inward investment and assisted 72 companies.

Minister argue that their own audit of the scheme found that it was in breach of the terms on which funding was allocated to it, that it did not award scholarships to the best scholars and that there were issues about scholars and others benefitting from the firms they were working in. They have now circulated the executive summary of their audit which can be read here

However, the independent report commissioned from Price Waterhouse Cooper by the audit committee of the University of Wales provides a point by point rebuttal of these claims. It can be read here. The report says:

The business case for the POWIS scheme attempted at the outset to address a number of the issues that were expected to arise in the implementation of the scheme that would determine both the quality of the project and the basis on which it could establish its uniqueness in terms of how scholars were to be recruited, placed and monitored. The business case set out to re-emphasise on a number of occasions that unlike most post graduate placement programmes, the emphasis of the POWIS scheme was to be on the commercial aspects of the placement and the benefits to the participating private sector companies rather than on the academic development of the student. The case study specified that “It must be emphasised that it is the business and not the individual placement recipient or any academic institution which is the main beneficiary for this project.”

It is worth quoting in some detail from the PWC report on the accusation that scholars and others personally benefitted from the scheme. In fact the scheme was set up in that way from the start as should have been clear to both the Welsh Government and WEFO:

Our review of the operation of the POWIS scheme highlighted a number of factors relevant to a consideration of these issues. These are as follows:

As highlighted in section I of this report, the emphasis of the POWIS programme was on the need of the “company” and not the scholar

The purpose of the scheme was to match commercial requirements with academic resources to develop a research and development culture for the benefit of the private enterprise and ultimately theWelsh economy

Given these factors, it is almost inevitable that in a number of circumstances “mutually beneficial” relationships would develop between the parties to a specific project. For example, in a number of instances, scholars would be likely to receive offers of long term employment from the company (this must have been envisaged as a long term benefit of the programme, i.e. the ability to ensure high quality individuals came to reside and work in Wales). In addition, in order to lock the scholar into the long term success of the company, it would not be unusual to offer the individual either equity or an option to acquire equity.

Equity participation in relatively small high technology companies is often the norm where it is often difficult in the short term to pay the going rate for the skills required and therefore equity participation becomes effectively part of the employment package. UK tax law, for example, recognises that such remuneration packages are often the norm and have specific rules dealing with how such options and equity stakes are taxed in order to actively encourage the benefit of such relationships. Accordingly, the need to develop appropriate “POWIS Scheme Rules” to deal with such situations could have been envisaged if not from the outset then certainly as the scheme began to be implemented.

As is noted in the WAG report, POWIS had a process for dealing with conflicts of interest and the minutes of the Industry Panel contain a number of references to individual members of the Panel drawing attention to areas of potential conflicts of interest. However, this process in itself contained a number of weaknesses that needed to be addressed:

As actual or potential conflict of interests (either real or perceived) had not been anticipated and addressed at the time of preparing the business plan, no mechanism existed which established any of the following:

The parameters within which actual or perceived conflicts of interest would be dealt with at the time of the initial approval of the project or as the project developed

Where responsibility lay for determining the response of the POWIS scheme on how to resolve such conflicts of interest

Establishing within the POWIS scheme an appropriate method for recording conflicts

Establishing parameters within which scholars or other parties would not be prohibited from benefiting from involvement in a company, e.g. a rule could have been established that a scholar could participate in equity schemes once the 3 year placement period had ended or earlier if the scholar resigned from the scheme.

On the issue of the students the PWC report says that this was a genuine misunderstanding but one that should have been addressed earlier, especially as WEFO and Government officials were aware of practice from the start. They say:

In practical terms and based on my discussions with members of the POWIS management team, the recruitment methodology outlined in the business plan issued by POWIS management, was in reality an ideal or theoretical model of how it could work rather than intended to establish a strict code of practice on how it had to be undertaken. Given the unique nature of this scheme it is not surprising that actual practice evolved in a different way to that envisaged in the business plan. There appears, therefore, to be a gap between what WAG now insist in their recommendations should occur if the recruitment process varies from the programme and what POWIS management consider was accepted practice, particularly given the knowledge through Panel meetings that WAG and WEFO representatives and other stakeholders had of the actual process involved.

Given the unique nature of this programme, the precise recruitment methodology would inevitably be difficult to spell out in advance to the level of detail set out in the POWIS business case. In appendix K, we attach a copy of the marketing initiatives provided to us by POWIS, including the methods adopted to recruit scholars. It is clear from this analysis that a considerable number of the initiatives followed the ideas and methods set out in the business plan. However, despite this it is clearly the case that a number of scholars were not recruited in line with the methodology set out in the business case.

The extent to which this represented the evolution of the process (the view of POWIS management) or a material breakdown from laid down procedures (WAG) is a matter of interpretation. However, what is clear is that WAG are now formally, although both they and WEFO attended meetings at which this actual recruitment process was discussed, dissatisfied with the process. It would not be unreasonable to conclude that this could have been addressed at the time.

What is most surprising about the criticism is that both the Welsh Government and WEFO were represented on the Steering Group and Industry Panel of POWIS and were party to all the decisions that they have subsequently been critical of.

They say: “There is no evidence that any WAG or WEFO representatives raised any concern in respect of these issues as being ‘deal breakers’ for the POWIS scheme.”

They also say that: “There is nothing in the WAG report on corporate governance or conflicts of interest matters that they would not have been aware of from the Industry Panel and Steering Group meetings. It is therefore surprising that they now formally raise these matters in a way which questions the validity of the totality of the project rather than by addressing them at the time that they arose.”

In the light of this it seems to me to that the decision by the Government to withdraw funding is both perverse and against the interests of Wales and its economy.

Note: comments to this post will be carefully moderated.
I don't see why you should delete this comment Peter but you probably will. It is carefully worded and in the public interest.

This question has been put to at least one Welsh Government (WG) Minister:

Did any members of staff at the University of Wales purchase stakes in any company that received one or more Scholars under POWIS and if so did he/she/they have access to information on such companies in which they purchased or otherwised acquired a stake that was not known to Joe Public. This is an important question as it raises serious concerns if true. There should be a thorough investigation of all such stock/company stake purchases and a report published. This question is not going to go away until there is a transparent investigation. After all, a lot of public money was given to POWIS. cw
The answer to your question is in the extracts from the report above and in the report itself, which I have linked to.
That is serious accusation by Christopher Wood which is incorrect.

None of the UW staff members "purchased" stakes in any companies after they were given POWIS scholars.

As the PWC report notes, there were companies which were put forward for POWIS support in which members of staff already had stakes but this was declared at industry panel meetings ATTENDED BY WEFO OBSERVERS.

Is Christopher suggesting that Welsh academics should not have stakes in innovative companies?

If so, then perhaps he would ask Cardiff University to bar all its staff from having equity stakes in companies supported through an organisation - IP Fusion - which receives public funding through the Welsh Government owned Finance Wales

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