Structure and governance

The Crown Estate has all the powers of an outright owner and uses these to actively manage its assets in a commercial and sustainable way to maintain and enhance their value and the financial return they deliver. The Crown Estate aims to be known as a professional operator in the market, a good landlord, a responsible employer and a reliable and respected counterparty in its decisions and its dealings.

Overview

Overview

Status

The Crown Estate is constituted as a statutory corporation under the Crown Estate Act 1961. It is a body established in perpetuity under the Act as a trust estate. Independent of government and the monarch, The Crown Estate's public function is to: Invest in and manage certain property assets belonging to the monarch; and remit its revenue surplus each year to the Exchequer.

It was in 1760 that the Sovereign first surrendered the surplus revenue (but not the ownership) of what is now The Crown Estate in England and Wales to Parliament, in exchange for income from the Government under the Civil List. Crown lands in Scotland were included in this arrangement from 1832. The arrangement has been renewed ever since by subsequent monarchs at the start of every reign. The assets of The Crown Estate are therefore not the property of the Government, nor are they the Sovereign's private estate. They are part of the hereditary possessions of the Sovereign "in right of the Crown".

Accountability

The Crown Estate observes the Nolan principles of public life, that is, it is committed to honesty, fairness, integrity, openness and transparency. Although it is not an instrument of government policy, it is a public body. As such, The Crown Estate follows the standards in Managing Public Money.

The Treasury is The Crown Estate's sponsor department. The Economic Secretary is its sponsoring minister who answers for its affairs in parliament when the need arises. The Crown Estate's usual working level contacts are the Treasury Officer of Accounts team.

The Crown Estate's Accounting Officer is its chief executive. The chief executive is bound by the requirements of chapter 3 of Managing Public Money, with personal responsibility for leading the organisation in an ethical manner, seeking good value for money and securing the quality and integrity of its business. Should a conflict arise between a decision of the board and the chief executive's personal view of their duties as Accounting Officer, they should seek guidance from the Treasury Permanent Secretary, from whom, in extremis, they may seek a direction. A direction in this instance would be given under section 3 of Managing Public Money as distinct from a direction given under the Crown Estate Act (see below).

The Treasury and the Scotland Office may exercise a statutory power of direction over The Crown Estate's business, acting with or without each other as circumstances demand. A direction may be given only within The Crown Estate's statutory duties. If a direction is under consideration, the Treasury (or the Scotland Office as the case may be) will discuss the matter with The Crown Estate to see whether a jointly agreed course can instead be reached informally. Such discussions may result in written understandings about how The Crown Estate will conduct its business.

In the nature of its business The Crown Estate also has dealings with a number of other Whitehall departments, as if it were an independent commercial organisation. However as a public body it always seeks to work with the grain of prevailing government policy. In a number of instances, framework documents are agreed with the departments or public bodies with which it has regular dealings in order to introduce clarity to the working relationships.

The Board

Crown Estate Commissioners, who are alternatively known as Board members, are appointed in accordance with the Office of the Commissioner for Public Appointments (OCPA) Code of Practice. One of the key principles of this Code of Practice is selection based on merit, after fair and open competition, and with the aim of achieving a balance of relevant skills and backgrounds on the Board, with minimal conflicts of interest with their outside activities.

Board members are nominated for appointment following interview by a selection panel which comprises the chairman (who chairs the selection panel), the chief executive, a Board member, a representative of HM Treasury and an OCPA registered independent assessor. HM Treasury is responsible for recommending The Crown Estate appointments to the Prime Minister and Her Majesty the Queen.

Similar arrangements apply to the appointment to the role of chairman and chief executive.

Appointments are made by Royal Warrant for a term of four years with the possibility of extension for a further four-year term. Under new rules the maximum term which a non-executive Board member, in any capacity, can serve on the Board is ten years.

Board members are appointed by Her Majesty The Queen on the recommendation of the Prime Minster from candidates identified by a selection panel on which the Treasury is represented. The Scotland Office is a member of the panel for the appointment of the Scottish Board member.

They bring a range of experience and skills collectively apt to oversee, manage, control and guide The Crown Estate's business. The Board includes a member with a particular knowledge and understanding of business and public affairs in Scotland.

The Crown Estate Board is steered by its chairman, supported by its Chief Executive. With the exception of the Chief Executive, all Board members are non-executives. The finance director also always attends Board meetings. The general principle is for each non-executive member to be appointed for four years. In general board appointments may be renewed for a further four years. No non-executive board member may serve on the Board for more than ten years in total.

The chairman of the main Board, Sir Stuart Hampson, is responsible for chairing the Board and overseeing the official business of The Crown Estate. His duties include managing the business of the Board, ensuring its effective operation, keeping under review the general progress and long-term development of The Crown Estate, representing The Crown Estate to its various stakeholders and the general public, chairing the selection panel for the appointment of Board members, and undertaking the annual appraisal of non-executive Board members.

The chief executive, Roger Bright, is responsible for directing and promoting the profitable operation and enhancement of The Crown Estate. His duties include responsibility for the development of The Crown Estate and its effective operation, strategic planning, ensuring implementation of objectives, policies and strategies approved by the Board, including sustainability targets and objectives, being responsible for public relations and acting as the Treasury's appointed accounting officer for The Crown Estate.

The main duties of the Board are to:

agree objectives, policies and strategies, and monitor the performance of executive management
agree and set the overall strategic direction of the business for implementation through the management board
keep under review the general progress and long-term development of the organisation in light of the political, economic and social environments in which it operates
control and monitor the financial state and performance of The Crown Estate
approve major expenditure and transactions including acquisitions, disposals and investment in joint ventures
ensure that The Crown Estate pursues sound and proper policies in relation to risk management, health and safety and corporate governance
ensure a system of controls (financial and otherwise) is in place
ensure adequate succession and remuneration arrangements are in place.

The Board has a formal schedule of matters reserved for its decision which include:

approving the annual report and accounts
approving the annual budget and strategic plan
agreeing capital expenditure or disposals over £20 million for urban transactions and over £10 million for rural and marine transactions
agreeing investment strategy
granting or varying authority levels for Board committees and the chief executive.

Certain matters are delegated to committees of the Board and these are described in the terms of reference of the committees in question. The duties of the audit committee, sustainability committee, remuneration committee, Scottish committee, Quadrant board committee, and offshore energy supervisory committee are summarised later in this report. Other issues are delegated to executive committees which include the management board (including investment and strategy matters), stock selection committee and communications committee.

The Board operates to high standards of corporate governance. It reports on its performance in its annual report and reviews its own performance once a year. Generally it seeks to improve its internal workings to meet the changing requirements of the business.

The Board works through a number of operational board and executive committees, including an audit committee, a management board, a remuneration committee and such other committees as it considers conducive to its business.

HM Treasury

HM Treasury

The Treasury is charged with general oversight of The Crown Estate's business. The Crown Estate therefore supplies the Treasury with:

the quarterly financial information supplied to the board, including a balanced scorecard of its financial and non financial performance;
information about significant business developments;
information about any unusual or innovative proposals, e.g. proposals undergoing legal clarification.

In addition to ad hoc meetings as business dictates, the following regular discussions with the Treasury normally take place each year:

in spring, the corporate plan and revenue targets looking forward to the next financial year and projecting the two following financial years ahead;
in autumn, the investment strategy for the year ahead.

The Crown Estate agrees revenue targets for three years ahead with the Treasury and reviews them at its spring meeting. The targets take account of the likely development of the income stream from the portfolio and of GDP.

The Crown Estate measures its performance against:

the revenue targets agreed with the Treasury;
a bespoke IPD benchmark (measuring total return);
other external indicators from time to time as appropriate e.g. Business in the Community.

The pay of Crown Estate staff is set within an overall pay framework which takes account of both Whitehall guidelines and individual job responsibilities, performance and movements in market pay, which are tracked annually. This framework is agreed with the Treasury, taking account of market pressures for staff. The remuneration of senior executives, apart from that of the chief executive, is approved by the remuneration committee. The chief executive's remuneration is approved by the Treasury, following consultation with the chairman.

Governance

Governance

Good corporate governance is the cornerstone of how The Crown Estate operates and pursues its business objectives. It is unique in its position as a public body sitting outside Government, and a statutory corporation operating on a commercial basis. There is no single set of standards governing its corporate governance; instead its seeks to apply the standards that are most appropriate to the various elements of its business in pursuit of applying best practice.

The Crown Estate is committed to business integrity, high ethical values and professionalism across all its activities - all in accordance with the core values of commercialism, integrity and stewardship. As an essential part of this commitment, The Crown Estate recognises the importance of high standards of governance and has put in place a corporate framework document setting out the basis on which it operates and the formal structure for decision-making.

The UK Corporate Governance Code issued by the Financial Reporting Council is widely acknowledged as representing best practice in governance. Although The Crown Estate is not obliged to comply with the requirements of the Code, its Board nevertheless supports the principles and provisions set out in the Code; and in so far as the code provisions are applicable to the circumstances of the organisation, it seeks to comply with the code where this is appropriate. Many areas of The Crown Estate's governance, however, are governed by the Crown Estate Act 1961, HM Treasury guidance or other government guidance where relevant/appropriate. In 2011, the Board noted the new provisions in the new UK Corporate Governance Code and the applicability of changes in relation to The Crown Estate.

The duties of the Commissioners are to maintain The Crown Estate as an estate in land (with such cash or investments as may be required for the discharge of their functions) and to maintain and enhance its value and the return obtained from it, but with due regard to the requirements of good management. Under the Civil List Act 1952 the net income from The Crown Estate, after defraying costs of collection and management, is required to be paid into the Treasury and made part of the Consolidated Fund (general government revenues). The Commissioners have authority to do on behalf of the Crown in relation to The Crown Estate all such acts as belong to the Crown's right of ownership, subject only to the detailed restrictions set out in the Act. The Board must comply with such directions, as to the discharge of their functions under the Act, as may be given to them by the Chancellor of the Exchequer and the Secretary of State for Scotland. The Commissioners submit annually to the Treasury a forecast of their activities in a corporate plan covering the following and two ensuing years.

The Crown Estate is not the property of the Government, nor is it the Sovereign's private estate. It is part of the hereditary possessions of the Sovereign in right of the Crown. It is a statutory corporation and not a company for the purposes of the Companies Act and may not hold assets other than in land, gilts or cash. Investment in equities or outside the United Kingdom is not permitted. The Crown Estate has no general powers to borrow, either for capital purposes or for working balances, and there is thus no external indebtedness in the balance sheet. Under the Crown Estate Act 1961 (First Schedule, para. 5) monies are provided by Parliament (Resource Finance) towards the cost of the Commissioners' salaries and the expense of their office.