Inside File: Our man on the board

THE SCOTT inquiry has exposed the pitfalls of putting British arms sales before foreign policy. It is interesting to note, therefore, that under a scheme whereby senior British diplomats sit on the boards of British companies, at least one major arms manufacturer is involved. Is there a conflict of interest? No, says the Foreign Office.

'Because they are unpaid, non-executive directorships, there is no conflict of interest as far as we're concerned,' said a Foreign Office official. 'Our experience is that it is a beneficial thing for both sides. The officers, because they have been overseas, impart their experience to the company concerned. The officers gain greater knowledge of British industry.'

It is the Foreign Office which actively encourages the scheme. The 'godfather' is the Permanent Under-Secretary himself, Sir David Gillmore. The diplomats in question sit on the boards by virtue of their Foreign Office positions. But if the scheme is so above- board, why is the Foreign Office not prepared to disclose the identities or positions of the individuals involved, nor the names of the companies on whose boards they sit? 'Because they are unpaid, non-executive directorships, it is a private matter as far as we're concerned,' said one official.

The Foreign Office is perpetually caught between accusations of being an anti-British institution not doing enough for British industry on the one hand, and colluding in arms exports to nasty regimes on the other. Because of the former charge, it was not prepared to go against the Department of Trade and Industry over arms sales to Iraq.

It is now expanding its share in a Whitehall-wide scheme whereby civil servants are encouraged to take unpaid, non- executive directorships in industry concurrently with their positions in government. This is in addition to the scheme whereby civil servants do a few years' full-time secondment to industry.

There are four officials at present involved in the non- executive director 'cross- fertilisation scheme', as it is know internally. One of the four serves on the board of Vickers Defence Systems. He is Sir Michael Burton, the Assistant Under-Secretary for the Middle East. Before conflict- of-interest bells start ringing, the Foreign Office points out that not only is the position unpaid; the company, like the other three involved, is not a public limited company. Vickers Defence Systems is a subsidiary of Vickers PLC; the position does not carry with it some of the powers of PLC directorships, such as setting the chairman's remuneration.

But consider this. Vickers, having failed to get a massive order from Kuwait for tanks two years ago, is setting its sights on other markets in the Middle East. It already has the promise of a pounds 140m order for Challenger II tanks to Oman. But the big prize is probably going to be Saudi Arabia.

'Yes, we are talking to the Saudis,' said a Vickers source. 'We see Saudi Arabia as a very good potential market for Challenger II.' Because Saudi Arabia has a 'dual sourcing policy' and has already acquired tanks from the United States, Vicker hopes it will, in 18 months time, be looking for 200 tanks from Britain (in some ways easier for the Saudis to deal with, since it tends to be less worried by an Israeli lobby than does the US).

Under the secondment scheme, there is a Foreign Office civil servant working full- time for British Aerospace, a key supplier in Britain's massive al-Yamamah deal with Saudi Arabia. Charles Drace- Francis, invariably known as Francis Drake, has been on secondment to BAe since January 1991, dealing with 'government relations'.

It might be argued that whatever the unpaid status of a non-executive director now, there is nothing to prevent him or her being rewarded with a paid directorship after retirement. The Foreign Office points out that this requires approval by the Cabinet Office. How does it enforce that restriction? It operates on a 'basis of mutual trust'. Even then, the 'quarantine period' is only two years.