Top Qinetiq raider to retire with vast treasure chest

Sir John Chisholm, the famous biz kingpin who led a decade-long corporate raid on the Ministry of Defence (MoD) and amassed a huge personal fortune while doing so, is reportedly about to retire.

The Times reports that Qinetiq, the firm assembled by Chisholm and his associates from privatised government laboratories and US defence companies bought with private-equity cash, is looking for a new chairman. Chisholm is expected to depart next year.

Sir John was originally brought into the MoD back in 1991, following a successful business career in the 1980s. He became head of the Defence Research Agency, which later expanded to become DERA - the Defence Evaluation and Research Agency.

MoD research spending fell all through the 1990s, and as ever the government lacked the resolution to handle the inevitable job losses and downsizing itself. Instead, much of DERA was prepared for a move into the private sector. Chisholm and his inner circle of executives were allowed to handle the process more or less unsupervised, according to subsequent investigations by the National Audit Office.

One in particular of Chisholm's inner circle, Graham Love - who is nowadays CEO of Qinetiq - must have come to believe he could do more or less anything he liked. Placed in charge of the Defence Support Services Division (DSSD) by Chisholm, he then arranged a management buyout in which DERA sold the organisation off. DSSD, renamed Comax, was then sold on - making Love an undisclosed sum of money.

Amazingly, Love was then allowed to go back into the government and repeat the process as a DERA/Qinetiq executive. At the end of the 1990s, Chisholm and his team decided to sell off almost all that remained of DERA - and nobody argued with them. Government auditors later described the decision-making process at the MoD:

The Strategic Defence Review [of 1998] stated that the Department would ‘harness the opportunities offered by a Public Private Partnership’ for DERA... Although DERA’s top management could potentially benefit personally from the involvement of private investment, the case for a PPP was not validated by the Department. The Department sees no reason why it should have validated this policy decision which was based on analysis prepared by DERA management.

Chisholm, Love and the rest of the DERA inner circle were then permitted to handpick the equity investor which would carry DERA to flotation, and to arrange their own share incentive deal with that investor (the Carlyle Group). They reaped 20,000 per cent returns on their personal investments, with both Chisholm and Love receiving share packages worth in the neighbourhood of £20m.

The National Audit Office, reviewing the process afterwards, said that "returns in this case exceeded those necessary to incentivise management". The Commons Public Accounts Committee, more bluntly, described the process as "profiteering".

Qinetiq's losses at its UK-based former government labs have been offset over the last few years by profits from US companies bought up using Carlyle's equity cash. However, the layoffs at the British end of the business have already begun, and the firm's centre of gravity might be expected to shift further across the Atlantic as time goes by.

Qinetiq does do a lot of business with the MoD, however. In particular it is trying to put together a massive £12bn deal to rationalise the armed forces' extensive training establishment in the UK - a similar deal to the original DERA selloff, indeed, in which a sprawling government empire will be massively chopped down in size offering many chances for those on the inside to get rich. There are already rumours of a government investigation.

Whatever the ongoing results of the DERA/Qinetiq saga from the point of view of the taxpayers or employees, you have to say it has been a very happy story indeed for Sir John Chisholm.

Qinetiq told the Reg today it had no comment on the speculation over Chisholm's departure.

The Times report is here. ®