THE MT INTERVIEW: Rod Aldridge

THE MT INTERVIEW: Rod Aldridge - The fortunes of Capita's CEO rose as his firm became this country's biggest contractor of government services. But its entanglement in a string of public controversies - it has been dubbed 'Britain's most unpopular company' - have put him on the back foot.

by MATTHEW LYNN
Last Updated: 31 Aug 2010

The fortunes of Capita's CEO rose as his firm became this country's biggest contractor of government services. But its entanglement in a string of public controversies - it has been dubbed 'Britain's most unpopular company' - have put him on the back foot.

Rod Aldridge jumps up out of his chair. He attacks the white board in his office with a blue felt-tip pen, drawing diagrams and lines between them. One circle represents the private sector, which is where he is; another circle represents the public sector, where a lot of his customers are. A couple of squiggly lines show the links between them. 'In the private sector, you've got fast-moving, solution-driven people,' he says, pointing proudly to his circle. 'In the public sector, you've got people who are cautious and don't have commercial skills. The critical thing you have to work on is the interface between them.'

In the past few months, Aldridge has had a lot of experience of how treacherous the territory between those two blue circles can get. His company, Capita, has in the past decade been one of the most formidable success stories of British industry. Only 15 years after its formation, it is an established member of the Footsie, with a value of pounds 1.7 billion. It has made Aldridge a pounds 100 million-plus fortune. And it touches just about everyone in the country. Capita is the biggest contractor of government services. It collects television licence fees and council tax payments, and runs depart- ments, divisions and government programmes.

Yet it is also a controversial company - and about to become a lot more so. It runs the Criminal Records Bureau and, last autumn, schools stayed shut as it tried to work through every school employee in the country to see whether they had any criminal record. Estelle Morris, the former education minister, blamed those delays on Capita, an allegation the company fiercely rejected. This month, it is running the new London congestion charge, making sure every car driver that comes into central London pays a pounds 5 charge, and everyone who doesn't is fined. The firm was identified in the media as the most unpopular company in the UK, Private Eye rechristened it 'Crapita', and any mistakes in the charge will be gleefully jumped on by opponents of London's mayor, Ken Livingstone. If anything goes wrong, Ken may well throw up his hands and say: 'I made a mistake, you should probably vote Tory next time.' Or he might decide to blame Aldridge and Capita instead.

The lines between Aldridge's two blue circles are not likely to get any less squiggly.

The point about politics, I suggest to him, is that doing things is only part of the game - the other part is distributing the blame for not doing things. 'It's not easy working with them, but there are major changes that are needed,' replies Aldridge. 'I'll give you one example. On one issue we were working on, it took us six weeks to get a decision. In this organisation, if it took us six hours I'd be mortified. That sums up the difference in the culture.'

At this point I feel like rushing around the corner to buy Aldridge some DVDs of Yes Minister. He is a charming, pleasant man, and it's a shame for him to be so constantly beaten up by the people he has to work with.

A couple of days with Jim Hacker and his cronies might lower his expectations.

He shows a touching yet possibly naive faith that Whitehall is full of Capita-style managers who just want to sit down and figure out the right, technocratic solutions. But, I persist, they aren't really very interested in whether stuff works. They want somebody who, when it all goes pear-shaped, they can turn to and say, well, it was all Capita's fault. That's what they pay you for, Rod. They want you to take the fall.

'We don't have to work in an environment that is the way you describe,' he says. 'I think there's a big point here. If public-private partnerships are going to work, there has to be a big change in the way the relationships are managed. It's not always easy. Quite often, you can't even get to speak to the minister.'

So you didn't get to speak to Estelle Morris and explain that it was not going to be as easy as she might imagine to check all the teachers before schools re-opened?

'It was worse than that,' answers Aldridge, a long-suffering look starting to drift across his face. 'Our contract was with the Home Office. The procedure was agreed, and that's what we were doing. The education minister decided we had to do a full check on teachers. Nobody discussed that with us. I'm not even sure they discussed it with the Home Office.'

That's unfair on you, isn't it - since you were the guy who got it in the neck?

'It was very unfair on us,' he replies. 'In the end, I had to come out and talk in a way that is fundamentally very difficult when you are meant to be working in a partnership. Frankly, the public sector needs us. I am a very unusual person in that I have worked in both the public and the private sector. So what we are going through is a learning curve.

What the private sector does is focus on getting things solved and sorted, as opposed to analysing what has gone wrong. In the public sector, a lot of energy goes into protecting and controlling.'

In many ways, Aldridge is the right sort of man to be dealing with politicians, and the 101 different disasters that seem to befall any Government project.

He can take as many blows as the world is prepared to throw at him. He bats away adversity as if it were a cricket ball. His jaw is made of steel.

Knock him down, and he shakes the dust from his jacket and climbs back into the ring.

That has a lot to do with his upbringing: he learnt young that the world can be a cruel, unfair place, and you have to struggle to make your way in it. Aldridge grew up near Brighton. He was an only child, a role that always carries a heavy burden of expectation. His parents were not particularly wealthy but he had a happy childhood, until he failed his 11-plus and had to go to the secondary modern rather than the local grammar school.

That's strange, I point out. You've started a Footsie company, you're obviously bright enough to pass the 11-plus. Was it the system that was wrong, were you having an off-day, what happened?

'That's true, the brainpower was there, but the environment wasn't right,' he replies. 'Maybe it was the way I was taught, or I was a late developer. But it created a lot of determination in me, it has driven me and it still does.'

So how did the 11-year-old Rod feel about it?

'I felt it was wrong, what had happened to me,' he replies. 'When you go to a school and there's another elitist grammar school nearby, you either accept that as what's going to happen to you in life or you don't.'

It must be quite hard to hold on to your self-confidence, I suggest.

There must be part of you at least that thinks: I'm not as clever as the other boys, I can't do what they do.

'Well, fortunately I was very determined,' says Aldridge. 'I had a very stable home life, and if I hadn't had that it might have all started to go wrong. What I regret most is that I didn't have the chance to go to university, because I think I would have loved it. But I can remember the day that I failed the exam even now, and I can remember the reaction of my family. That's sad really.'

There were other traumas lying in wait. His father, Len, was a sheet-metal worker and a union official, but he was laid off when Aldridge was 16. The family suddenly found itself moving down in the world, and his mother had to go out to work for the first time.

'We had a very stable family life, but that stability was built around employment,' says Aldridge. 'His being made redundant had a completely destabilising effect on the whole family.'

His father set himself up in business as a builder and eventually became quite successful. 'It proved to me that you don't sit around and mope, you go out and do something with your life. The thing I learnt from that was that determination was the most important thing you could have.'

So what else did you learn from your father?

'The thing he always said to me was: be very ambitious for yourself, never be satisfied with what you have. And keep your options - because he had no options other than working in the factory.'

Aldridge had limited options when he left school with five O-levels: he could go and work in a bank, become an accountant or work for the local council. He chose the council because it paid pounds 2 a week more. 'It was all around job security, that was the main priority,' he recalls. 'With my background, that was the most important thing.'

At 16, Aldridge started at the council. For the next quarter of a century, his life was to be completely unremarkable. Safe, conventional and bordering on the dull. He qualified as a local government accountant, got married, had four children and moved out of local government to work for CIPFA, the Chartered Institute of Public Finance and Accountancy. He applied for a few other jobs in his thirties but didn't get any of them. Then, at 40, he decided to throw all the cards up into the air and go into business for himself.

Aldridge had been working for the computer services division of CIPFA.

Its job was to provide outsourced IT work, mainly for the public sector.

In 1987, CIPFA decided to sell off the division, and Aldridge put in an offer for a management buy-out. Three decades after failing his 11-plus, he had finally decided to take a shot at out-thinking the grammar school boys.

'The transition for me from being in the public sector to the private sector was, for me, quite a protected route,' he says. 'I had worked at CIPFA for a few years, which was half-in and half-out.'

Aldridge had little doubt that he wanted to grasp the opportunity, even though MBOs were still a relatively new and untested concept in the mid-80s. 'The alternative was to have left and to have started again completely from scratch,' he says.

The MBO team paid pounds 330,000 for the business, and raised pounds 600,000 in total financing, most of it from 3i. Aldridge himself paid pounds 24,000 for his stake in the company - a lot of money for someone who had worked in the public sector all his career. 'I had to re-mortgage the house, which was quite a risk,' he says.

Many men on turning 40 are losing their taste for risk, I point out.

They are worrying about pensions and school fees, and how they will hang on to the job they have, not how they are going to strike out in a new venture.

'I think I recognised that it was an opportunity that was not going to come again,' replies Aldridge. 'I could see the potential of the company. You get to a stage in your life where you think: If I don't gamble now, then when do I? And frankly, where was the gamble? If it didn't work out, I'd have just got another job. My pension was protected.

'It comes back to the adversity point. The point where people said: This will never work. That was when I knew I had to do it.'

It worked, and worked well. The CIPFA division changed its name to Capita, found new offices, and kicked off with 30 staff. It had four good clients: McDonnell Douglas, Honeywell Bull, London Underground and the Department of Education. Fairly quickly, it started winning more work. It got a big contract from the Department of the Environment, and the business was up and running.

In 1989, Capita floated, yielding a quick profit for its backers. It had a market value of pounds 8 million - a decent increase on pounds 600,000 in a couple of years. Since then it has rarely looked back - until 2002, it was one of the fastest growing companies in the country

Aldridge's timing was good. Just as the early 20th century was a good time for Ford to start selling cars and the 1970s was a good time for Microsoft to start selling software, so the early 1990s was a good time to get into the business of outsourcing government contracts. A wave had started rolling, and Capita was perfectly placed to ride it. Both central and local government convinced themselves that the antidote to chronic inefficiency lay in hiring private companies wherever possible. It might or might not turn out to be true, but vast quantities of money are being poured into the experiment, and Aldridge is there to collect it.

'Timing is always a great thing, but in the end you make your own luck,' reflects Aldridge. 'We could see that the public sector was going to go through a period of massive change. And you could see it was going to need advice and guidance, and you could see what role you could play.

But rather than just being a consultant, where we scored heavily is that we shaped the market. The first contracts where staff were transferred from the public sector to the private sector were our contracts. We started a trend, and we've always wanted to be at the cutting edge of change.'

Mostly, it has been a successful strategy. Aldridge is good at bridging divides. He doesn't fit preconceived ideas of a private-sector tycoon. Modestly dressed and modestly spoken, he explains what he is doing in clear, rational terms. It is an act designed to reassure and calm, and not to threaten anyone. Public-sector organisations fearing they were about to be raped by a vicious capitalist would be put at ease by Aldridge. He is one of their own.

It is in local government, the sector where he grew up, that his links are strongest. Says Phil Watson, chief executive of Blackburn and Darwen Council: 'He is very straightforward, very committed and honest. If he says he is going to do something, it gets done.'

In Blackburn, staff have been transferred out of the local council into Capita with very little resistance. 'Often there is a fear of the unknown with these things in the public sector,' says Watson. 'We worked very hard with Capita to overcome that.'

That ability to make things happen and to smooth over resistance has made Aldridge popular with his shareholders. The City certainly likes him. 'He has done amazingly well over a long period of time, which is always very difficult,' says Andrew Ripper, an analyst who covers Capita for Merrill Lynch. 'It is very hard to find companies that have delivered growth for a decade or more with only one or two minor blips.'

The share price is the main explanation of his popularity. Aldridge has made a lot of money for people other than himself. In 1989, the shares were trading at just under 5p. At their peak, they were trading at 645p, a 120-fold increase. Yet at the time of writing, the shares are trading at just over 250p. In October 2002, they hit a low of 167p. The reason? The City has fallen out of love with public-private partnerships. It has looked at what has happened to companies like Railtrack and Amey, and decided that working with the Government is not easy money after all. It is actually hard money - with a high risk that the Government might pull the plug one day, leaving shareholders to pick up the bill.

Worse, Capita has been involved in some high-profile disasters. The run-in with Estelle Morris over checking up on teachers was one, but there have been others. It had also been managing the Individual Learning Account scheme, which was dropped late last year after allegations of massive fraud. The scheme cost pounds 270 million and ran pounds 70 million over budget, and was meant to fund new training schemes.

The trouble was, just about anyone could set up a scheme and walk away with a big pile of taxpayer's money - and a lot of enterprising people did. A National Audit Office report into the fiasco placed most of the blame with the Department of Education, pointing out that it had excluded Capita from key discussions on the implementation of the programme. But an enquiry by the House of Commons education and skills select committee also pointed the finger at Aldridge's company. The committee said it found it hard to believe that Capita failed to point out that without a 'quality threshold' for providers, 'the ILA was a disaster waiting to happen'.

The committee added: 'The culpability of Capita was matched by that of the department, in particular for not demanding more robust anti-fraud mechanisms in their specifications.'

True, the ILA was a poorly designed initiative, but the scheme's implemenation looks ramshackle. More worrying for Capita is that, even though the scheme has been scrapped, much of the pounds 55 million it was due to be paid has not yet been handed over.

Incidents such as these illustrate why working for the Government can be so hard. But they have also created the impression that Capita can be accident-prone - not a good image for a business that is essentially selling itself as 'manager' of problems.

One response from Aldridge has been to buy companies that lessen Capita's dependence on Government work. Last April it acquired City Financial Group, which supplies payrolls services to financial firms. In December, it bought Cost Auditing, another big supplier of payroll services. It is now one of the biggest back-office contractors to UK industry.

Overall, only half its business is now with the public sector. Aldridge is keen to emphasise Capita's growth in the private sector - in part to allay fears about the stability of the public-sector work.

This year, the congestion charge is going to be Aldridge's main focus.

It is a massive logistical exercise, with hundreds of thousands of cars passing through its systems every day. If it fails, some of the mud will inevitably fly in his direction, and the charge may well not survive the next mayoral election in 2004. If it succeeds, it could well be copied in cities around the world - and Capita will be in the perfect position to pick up those contracts.

The potential for disaster is huge. Motorists may hate it, the traffic may stay as it is, and it might not even raise any money. The current estimate is that in its first six years, the charge will cost pounds 490 million and raise pounds 784 million. Those figures have only to be out by 20% each way, and the charge won't raise any revenues. So Londoners may end up paying higher taxes just to fund the administrative costs of running the charge - and public transport won't get a single extra penny. Sounds good.

So, you're confident it's all going to work like clockwork on day one, Rod? 'Well, if I said nothing could go wrong, that would be simply unbelievable, wouldn't it,' he replies. 'Everything has been designed and tested. But the thing we have to make sure is that people understand we are the deliverer; we didn't design the process.'

And do you support it yourself? 'Well, something has to happen,' says Aldridge. 'Because the way the traffic is at the moment just isn't acceptable.'

Aldridge himself won't be feeling Livingstone's whip. He lives in Surrey with his wife and family but also has a London flat just around the corner from Capita's central London HQ. Five days a week he walks to work - and, from this month, he may find the pavements a lot more crowded than they've ever been before.

< ALDRIDGE IN A MINUTE 1947: Born 7 November in Portslade, East Sussex. Educated Portslade School for Boys. Qualified as public-sector accountant; member of Chartered Institute of Public Finance and Accountancy. 1974: Joins CIPFA after working for local councils in Sussex, Brighton and Crawley. 1987: Leads buy-out of CIPFA computer services division. Forms Capita, becoming its CEO. 1989: Floats Capita on the stock exchange at a capitalisation of pounds 8 million. 2000: Capita wins 10-year Criminal Records Bureau contract to check out staff who work with children; enters FTSE 100. 2001: Capita appointed by the BBC to collect TV licence fees and by Transport for London to administer congestion charges scheme. Rod Aldridge is also a trustee of the Prince's Trust, chairing a scheme to help children who have dropped out of school.

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