This is my third report, as Chairman of the Council of the Institute, to the Annual General General Meeting. And it is one which I am particularly pleased to be able to make. RUSI has had a remarkably successful year; and it is, in my view, in better shape, both financially and reputationally, than at any time in the recent past.
Our Overall Performance
There are a number of ways of assessing our performance. We have budgetary targets which are quanitified and we can therefore easily calculate whether we have met them. But we also have other goals, particuarly those relating to intellectual excellence, reputation and, to use the jargon, thought leadership, which are qualitative in character and where performance measurement is inevitably more subjective. The nature of our mission statement is such that we need to factor in both elements, success in meeting our budgetary targets and the quality and recognition of our output, in judging the extent to which we are achieving our objectives.
For the first six years of this Millennium the emphasis was on the figures. We needed to consolidate and to re-invigorate our finances, following a period in which the Institute was, frankly speaking, struggling to stay afloat. We sought of course, and with good results, to improve the quality of our output as well. But the primacy of the financial targets inevitably limited the scope for innovation and for risk-taking.
2006 marked, we hope, something of a turning point. We achieved a healthy budgetary surplus; and we were able to take a more balanced view of the requirements for revenue generation and reputational credit. To oversee this balance we have established a Change Team, drawn from both the Council and the Staff, which reports to the Finance and Performance Committee on how our quantifiable activities measure up; and which seeks to identify means by which we can assess our less easily, or only partially, quantifiable achievements.
One such partially quantifiable achievement is, I suppose, the Head Count of our speakers. In the last year we have had as our guests the Prime Minister, the Chancellor of the Exchequer, the Defence Secretary (three times), the Foreign Secretary, the Home Secretary, the Lord Chancellor and the Attorney General. As well as the Leader of the Opposition and the Opposition spokesman on defence. All of them have chosen RUSI as a forum in which to speak and to expose themselves to questions. Yes, our location is convenient to British politicians. But they would not have come here, surely, unless they felt that we were a forum in which they had confidence.
Nor are we attractive only to our own compatriots. The quality of overseas speakers at our events is high. In the last year we have hosted two Heads of State, President Kagami of Ruanda and, only yesterday, President Saakashvili of Georgia; as well as a wide range of Foreign and Defence Ministers and senior military and civilian officials and academics.
But it is not just the prestige speakers who make our reputation. It is the quality of those who come to RUSI to share their wisdom and their experience and whose presence at our conferences and seminars makes us a venue of choice for public policy discussions on defence and security issues. I believe that in the past year we have been even more innovative in the choice of themes to address and individuals to hear. One should beware of anecdotal evidence. But I have been struck by the number of people who have told me in the course of the last twelve months how much they enjoy our events; and how they value RUSI as a forum in which they will hear something new and interesting.
An opportunity to test our image in the market place was presented by what was the most important decision which the Council had to take in the course of the year, namely the appointment of a new Director. In my Report to last year's AGM I said that Richard Cobbold would be a hard act to follow when he retired this summer. Indeed he is. But it was gratifying that when the post was advertised a wide range of highly qualified candidates, from different backgrounds, applied or expressed potential interest.
Several of them were people of great distinction who could, in the view of the Council's Appointment Committee, have done the job well. But we were fortunate to have one candidate whom we unanimously identified as having outstanding qualifications and whose presentation convinced us that he had the vision for the Institute which we were seeking. Professor Michael Clarke is one of the country's leading security and defence academics. He was the founding Director of the Centre for Defence Studies at King's College London. And he has, as Director of Research at King's, an impressive track record in managing research programmes. He takes over at the beginning of September. I am confident that he will be able to lead the Institute to even greater success.
So it's been a good year. But it's also been one in which the environment in which we operate has continued to change. The traditional defence community is shrinking, both in terms of numbers of companies and groups that might become corporate members and in terms of actively interested individuals. We have ourselves responded to the change by broadening the scope of our membership, by reaching out to the practitioners and policy-makers in the broader security field and by extending our activities to include counter-terrorism and the ideologies which underpin it, as well as resilience issues relating to natural and man-made disasters. Our catchment area now includes the large, disparate and often fragmented homeland security communities; and our stakeholders are less homogeneous than previously.
This is, for the Institute, an advantage and an opportunity. The advantage lies in the large numbers of small and medium enterprises who will, we hope, be attracted to RUSI membership for professional reasons. The opportunity is represented by the evolving nature of homeland security in the UK and the novelty, in both policy and organisational terms, of the challenges which we face. The increasing attention to these issues does not in any way detract from our commitment to study what our name connotes, namely the concerns of our armed forces. But just as the mission of our armed forces is changing so too must the focus of RUSI's interest.
Let me now review the year in more detail. First the Financial Results.
The headline figures of the Institute's financial statements paint a good picture. Our finances are more robust than they were last year. The surplus of over £51K (which would have been over £72K excluding the cost of hiring a head-hunter to assist in the recruitment of the Director's successor)compares will a surplus of only £325 in 2005. It meets the budget target and is in line with the second year of the Institute's Five Year Business Plan. It is the best result in recent times. Furthermore the reduction of Net Current Liabilities from £84K to £6K on the Balance Sheet indicates a re-assuring trend in the strengthening viability of the Institute, and good prospects of having free reserves (under the Charity Commission definition) in the near future. If this trend continues, we will have more scope for investment decisions which contain an element of risk.
Risk is ever present in our business. It has to be manageed and understood, and where possible reduced, without detriment to the Institute's growth and reputation. This involves the exercise of judgement, the balance of which is often finely poised. Activities which have the potential to yield a significant gain sometimes require an initial element of risk, for example in the form of pump-priming. Hitherto, the Trustees have exercised prudence in such cases, preferring to forego opportunities if the scale of initial risk was judged too high. The availability of free reserves would not of course obviate the need for prudence. But it would affect the judgement of the risk/benefit ratio in some cases.
The net contribution from conferences during 2006 increased by almost 50% over 2005. The reason for the increase was that we completed 50% more conferences, thus demonstrating that the conference market has neither, as some feared, plateaued nor become saturated. This was in line with the budget. But the income per conference remained steady, rather than increased. We did not therefore meet the budget's target figure.
The lessons we draw from this experience is that the subject matter of conferences needs to be chosen with care. It is important to innovate and to be agile. Yet the highest earning events, and often the most satisfying, are those in well-established series (for example C4ISR). Marketing is important and we need to complement our existing routines with more imaginative use of differing media. So too is venue. Not only does a venue outside Whitehall open our events to a different audience, it can also help to create a specific identity for a conference or series. Moving venues either with in the UK or internationally involves additional work, but we need to be able to do this. One recent example was the HSR conference on "Preparing Scotland" which took place in Edinburgh and was enthusiastically received.
(b) Seminars, Workshops and Lectures
Not all our conferences are designed to make significant amounts of money (though they are all expected to break even). Some take place to satisfy the interests of our members and to follow the Institute's remit to lead thought and to explore policy issues. The same applies to our seminars, workshops and lectures. We were able in 2006 to offer an unprecedently varied programme, from which our individual members particularly benefitted.
This was the one area of the Institute's activities in 2006 where the results were disappointing. The net contribution from research fell from the promising 2005 figure by some 15% and missed the comparatively undemanding budget target by a similar amount.
There were a number of reasons for this. One was the collapse of discretionary spending for outside research at Joint Forces Command in the United States and our consequent failure to secure contracts which we had been expecting to receive and which, had they been awarded, would have made up the shortfall. There were also timing problems and it is noteworthy that the department hardest hit towards the end of 2006 has done best in the first quarter of 2007.
But we obviously need to improve our performance, to seek out new sponsors and to increase the attractiveness of our proposals. We are working hard at this and have identified some encouraging long term leads.
The events management function includes both the "back-stage" support for the Institute's own core activities and the commercial letting of our premises when we do not ourselves need them. The Events Management department's income comes only from this latter function, so the shortfall against budget of some 14% reflects a greater than anticipated in-house use of our facilities. This is likely to be a continuing phenomenon. Although there may be some potential for further expansion in the evenings and at weekends, we have probably reached the peak of what we can earn in this way.
The budget target for Publications for 2006 was a loss of £10K. The out-turn was a surplus of £54K, a variance from budget to actual of a remarkable 618%.
During the year publications subscriptions, RUSI Defence Systems, Whitehall Papers and Reports and copyright fees all did significantly better than budgeted. From 1 January 2007 the publication of the Journal and the Whitehall Papers has been undertaken by Routledge, who should increase still further our subscriptions and our profile, including in the United States. But it isn't just the business side of our publications which has prospered. Under Dr McNamee's direction their content, their scope and their appearance have undergone major improvement.
So too has the Institute's website. With the increasing amount of analysis which appears on it, this is becoming a publication in its own right, as well as an invaluable management and marketing tool.
In 2005, you may recall, we re-organised our subscription structure. 2006 was the first full year in which the new rates operated. The result was that corporate subscription income did well, rising £42K and almost 25% over the previous year and 12% over budget. This was where we concentrated most effort during the year and was a good result. But, with less effort applied, the individual subscription income rose only slightly above the 2005 level and fell short by 5% of the budget target. Clearly we need to do more in this area. Nevertheless with a saving in related salaries, subscription income overall was 8% over budget.
The expansion to No 41 proved successful, including a further extension on the same floor this year. We have moved some staff from No 61 to No 41 to ease crowding in No 61 and to allow better conditions for our events. The HSR Department is now based there in addition to the Administration Department. The main building's lease is due for re-assessment later this year and the new rent will take effect in October. This will be the last rent adjustment before the lease runs out in 2014. The nature of our lease is that we have a first refusal for renewal. During 2006 we completed the refurbishment of the eastern side of the building, having done the western side in 2005.
Following a period of some volatility in 2005 we now have a full complement of qualified full time staff, backed by a strong team of part time colleagues and associates. There have been no changes at Head of Department level. The measured expansion of our researchers continues, in line with the increases in the Institute's turnover.
So much for the year's activites and results. I would like to close by expressing my thanks to those who have helped achieve them.
First, I would like to thank the Institute's staff whom I have just mentioned. They make everything happen. They plan and organise the events, they undertake the research, they contribute to the publications, they find the subscriptions. And they do it not just with professionalism and efficiency, but with enthusiasm and with good spirits. I am deeply grateful to them for the help they have given to me personally, as well as their contribution to the Institute as a whole. We can be proud of them.
Second, I would like to thank the Vice Presidents of the Institute, my fellow members of the Council and the members of the Finance and Performance Committee. They are the governance of the Institute, they set its strategic direction and monitor its performance. I am grateful for their wisdom, their advice and their commitment of time, not just at Council and F&P meetings, but also through their willingness to offer guidance and support to the Institue's staff and to take part in our events.
I pay a most particular tribute to Sir Thomas Boyd-Carpenter, the Chairman of the Finance and Performance Committee. His wise guidance has balanced the drivers of growth and the reins of prudence. His monitoring of the accounts, and his collaboration with Michael Rose, RUSI's Business Manager, is exemplary. As is his selflessness and diligence in pursuing these sometimes unglamorous taks. We owe him an enormous debt. Let me also acknowledge the splendid work of Mike Maiden in chairing the Change Team, whose role I have already mentioned.
Third, I would like to thank our members and our supporters, both individual and corporate. We are, uniquely, a membership based organisation; and we can only flourish if our members contribute themselves to our work. This they do, and their contributions come in many forms. I am delighted that so many individual members attend our events. And I acknowledge the most generous support we derive from our corporates. I like to think that they support us because we offer a service which they appreciate, and not simply out of charity. But they are more than just our customers, they are also hugely important sources of advice and guidance, as well as of sponsorship. Without the major donations of one of them, BAE Systems, in 2000 and 2001 it is doubtful whether we would have been able to recover our financial fortunes and achieve the results we are seeing today.
And I would like also to express my gratitude to our fellow denizens of Whitehall, the officials and others who attend and speak at our events. Although we are independent of government, we represent, through our membership, those who serve the government. We could not function if serving officers and other officals and representatives of the police and the emergency services, as well as their political masters, were not willing to come here and share their thoughts. I am grateful fot their time and I hope that they too find it rewarding.
But there is of course one special tribute which I would like to pay. And it is to Richard Cobbold. This will be the last AGM which Richard will attend as Director. He retires at the end of June after nearly 13 years of service.
What RUSI is today is mainly Richard's creation. He took over an organisation which had, to put it bluntly, lost its way and which was struggling to survive. Its building was crumbling. Its staff were demoralised. Its finances were desperate. Its reputation was poor. It needed to be re-invigorated. But there were no resources to rely on and, despite the goodwill, not much practical help in the early years.
Yet Richard succeeded in turning RUSI around. He did so through his energy, which is phenomenal; his ability to focus on the important; his personal sharpness of intellect and his ability to recruit capable staff; his networking; and his management talent. Richard was determined to use effectively the resources he had, and to extract more performance from them, rather than bemoaning their paucity. And because of this he was able in time to attract outside support. There were difficult financial times. But Richard never wavered from his conviction that RUSI could be made viable and that it had a unique role to play. In recent times one of the buzz words in Whitehall has been delivery. Richard delivered.
RUSI is not a one man show. But it is an organisation where the personality and quality of the Director is crucial. We have been fortunate to have Richard at the helm during these critical recent years. He brought an ideal combination of experience to bear. Operational command, policy awareness, procurement and management skills. But above all he had the vision and the insight to adjust to the changing realities of Britain's security environment. Terrorism and resilience are not part of the natural mind set of all naval officers. Yet Richard spotted their saliency and drove forward the adaptation of RUSI to the new challenges. We owe him a huge debt For my own part I have benefitted enormously from his support and advice. I know that my predecessors as Chairman had the same confidence in him and in his judgement as I do.
There will be other ocasions to pay tribute to Richard's stewardship of this Institute. But at this AGM I would like to record our deepest admiration and our gratitude.