HC Deb 17 June 1986 vol 99 cc1018-26

Motion made, and Question proposed,That this House do now adjourn.—[Mr. Neubert.]

11.17 pm
Mr. Tim Smith (Beaconsfield)

I am grateful for the opportunity to raise this evening the subject of the appointment and role of the independent directors of The Observer newspaper.

On 9 July 1981, my right hon. Friend the Lord Privy Seal, who was then Secretary of State for Trade, gave his consent under section 58 of the Fair Trading Act 1973 to the transfer of The Observer newspaper from the Atlantic Richfield Company to George Outram and Co. Ltd., a subsidiary of Lonrho plc. He had received an application for his consent on 27 March 1981 and, as required by section 59 of the Act, he had referred the matter to the Monopolies and Mergers Commission for investigation and report. By a majority of seven to one the Commission decided to recommend that Lonrho be permitted to acquire The Observer, subject to certain conditions. The dissenting member, Dr. R. L. Marshall, concluded that: In particular the crucial relationship between editor and chief officer is too close, subtle and continuous to be subject to control by third parties, or amenable to effective mediation by them in circumstances where the trust and mutual forbearance on which their relationship is ultimately based has broken down under the strain of a legitimate clash of interest. Accordingly I do not believe that the proposed safeguards would be effective. I believe that Dr. Marshall was right and that the safeguards have been ineffective. The safeguards were that five independent directors should be appointed to the hoard of The Observer and that the articles of association of The Observer should be altered in certain respects.

Among others, there were to be requirements that the editor of The Observer should retain control over all content of the newspaper and over any political comment published in it, and should not be subject to any restraint or inhibition in expressing opinion or in reporting news that might directly or indirectly conflict with the opinion or interest of any of the newspapers proprietors of The Observer. Any dispute concerning these or certain other matters between the editor of The Observer, the directors of The Observer Ltd. or the directors of its holding company was to be referred to the independent directors, and their decision was to he final and binding.

I believe that subsequent events have shown these conditions to be inadequate in two respects. First, while they envisaged a situation in which the editor might be restrained from reporting news which conflicted with the proprietor's commercial interest, they did not envisage a situation in which the editor might be encouraged to report news which furthered the proprietor's commercial interest. Secondly, the independent directors were given a positive role only in the event of a dispute between the editor and the directors. But if the editor and the directors" or a director, were acting in collusion, no positive role was specifically given to the directors.

It appears that the independent directors have, in effect, regarded these conditions as the terms of reference of their appointment and have chosen to interpret them narrowly. It is true that they meet together regularly as a group. It is true also that they meet the editor and the staff regularly independently of the other directors. I believe, however, that they go along to hear what the editor and the staff have to say rather than to raise issues with them. I suspect that this is because they see their role as one of protecting the editor and his staff from the proprietor. They feel constrained by their terms of reference and are inclined to overlook the fact that they also have all the responsibilities of any company director. If they were to interpret their role in a less restrictive fashion, they would perhaps see that it is not their job to protect the editor regardless of his quality, and that it is their job to take a more active interest in the editorial policy of the paper and in the commercial aspects of the business. They should be as aware as any other director of their ultimate responsibility to the shareholders of Lonrho and wary of the possibility that the proprietor might be more interested in using The Observer to further his particular interests than in making a commercial success of it.

I have two examples to support my case. The first occurred in April 1984 when, following a visit to Zimbabwe, the editor wrote a story about Zimbabwe security force atrocities in Matabeleland. The chief executive of Lonrho, Mr. Tiny Rowland, subsequently wrote the Prime Minister of Zimbabwe, Mr. Robert Mugabe, a letter of apology. He said that his editor had been discourteous, disingenuous and wrong. His story was not substantiated and not based upon any research.

As there was a clear dispute between the editor and at least one director, the independent directors were able to intervene. They concluded that Mr. Rowland's criticisms constituted an inhibition, if not a restraint, on the editor's freedom and improper proprietorial interference in the accurate presentation of news and free expression of opinion. Mr. Rowland's response to this was to reduce the fees of the independent directors from £4,000 to £1,000. He described them as "troglodytes" and said that they had served no useful purpose.

The second example is current and concerns the House of Fraser plc. I think that it is well known that for many years Lonrho had hoped to acquire this company. In November 1984, Mr. Rowland agreed to sell Lonrho's 29.9 per cent. shareholding in the company to Al Fayed Investment and Trust (UK) Ltd., a company owned by the Fayed brothers. This enabled them, in March 1985, to launch a successful bid for the company.

Since then, The Observer has run a succession of stories to the effect that the Sultan of Brunei financed the Fraser purchase. The most recent appeared on 18 May. It claimed that powerful new evidence had emerged that Mark Thatcher visited Brunei with Mohammed Fayed at a crucial time in the Harrods takeover battle. It said that The Observer was in possession of a certificate signed by the former permanent secretary in the Ministry of Home Affairs in Brunei confirming the visit.

The story alleged that the two men flew in Fayed's private jet on 24 October 1984 and left two days later. It said that that was just a week before the Monopolies and Mergers Commission's report into Lonrho's bid to buy the House of Fraser was delayed for three months. According to the story, the Egyptian Fayed brothers used that time to acquire the group with the help of the sultan's millions. The story was written by a staff reporter.

In relation to a previous story in January, also written by a staff reporter, the UK Press Gazette commented that it had been written or "pulled together" by the editor himself. It said: Why him? Because it came to the paper through the proprietor, 'Tiny' Rowland, a fierce business rival of Fayed's. The story on 18 May made a number of other claims. I believe it to be largely a fabrication. I believe the certificate to be a forgery. I have seen a statement signed by the permanent secretary in the Ministry of Home Affairs on 2 June in which, he declares that the certificate is an outrageous forgery and that it is an absolute lie to suggest that I am the author of that document. Can it be just a coincidence that it is The Observer, owned by Lonrho, which has been running this series of stories and that other newspapers have hardly touched it? Perhaps it is. Writing in The Sunday Times of 11 August last year, Ivan Fallon reported that most Fleet Street newspapers, including The Sunday Times, had investigated the allegations without finding any link between the vast wealth of the sultan and the Harrods takeover. The Mail on Sunday of the same date went further and claimed that a letter purporting to be from the sultan to Mohammed Al Fayed and on which a story in The Observer of 28 July had been based was a forgery. I am convinced that it is not a coincidence that The Observer has been running such stories. I am satisfied that they are largely untrue.

The matters were inquired into by the Director General of Fair Trading last year. Mr. Rowland claimed that he had evidence to support those assertions, but, in response to a request from the Director General, he declined to make it available. Nevertheless, the Director General inquired into the assertions. He was given information which satisfied him that none of the assertions was well-founded.

I am sorry that, in those circumstances, the directors of The Observer are either unable or unwilling to prevent Mr. Rowland from pursuing his personal vendetta against the Fayed brothers. It seems to me that, in circumstances in which such claims are made, the independent directors of The Observer in particular ought to be able to intervene. They feel unable to do so, however, on the ground that there is no dispute between the proprietor and the editor. On a strict interpretation of their terms of reference, they may well be right. That is why l believe those terms of reference to be defective.

In a recent article in the Spectator, Paul Johnson drew attention to the fact that The Observer is also subject to censorship by the unions. He reported that the print unions had recently told the editor that he must not print a review in the paper's literary section by Bernard Levin. Levin has a freelance contract with the The Times and writes passionately in support of individual freedom and democracy in the unions.

The editor decided not to publish the Levin review. Readers of The Observer were given no indication that they were buying a union-censored newspaper. Mr. Johnson argued that the danger in such cases is not only that a weak editor submits to blackmail—in this case he had been given an ultimatum "Put in Levin and you will not have a paper" — but that he almost unconsciously begins to do what he thinks the bully boys want him to do, without their even having to ask.

An even more serious danger for The Observer, Mr. Johnson continued, was that its proprietor, seeing the way things were going, would take advantage of editorial weakness. He said that a man such as Rowland does not mind the unions getting their way on the bits of the paper which concern them, so long as he too gets his way on the hits of the paper which concern him. But between the pair of them, there is not much left of the newspaper's old independent voice. Perhaps it would be fairer to readers to print under the newspaper's masthead the slogan Owned by Lonrho and censored by the unions". Union censorship should, of course, be the concern of all the directors, but perhaps here, too, the independent directors feel unable to intervene because there is no dispute between the proprietors and the editor. My conclusion is that they should approach their task in a more positive and less circumspect manner. However, if they genuinely feel constrained by their terms of reference, those terms should be extended so that it becomes clear beyond doubt that, in the context of The Observer, it is their responsibility to defend and uphold the freedom of the press.

I put it to my hon. Friend the Minister that these matters should now be examined as part of the Government's review of competition policy. Sections 57 to 62 of the Fair Trading Act 1973 deal with newspaper merger references. Consideration might be given to the possibility of allowing the Secretary of State to impose conditions going beyond those recommended by the Monopolies and Mergers Commission. More importantly, consideration should be given to the kind of conditions attaching to a consent to the transfer of a newspaper that would prove effective in practice. Mr. Rowland has made a laughing stock of the existing policy, and the review of competition policy is therefore most timely.

11.31 pm
The Minister for Information Technology (Mr. Geoffrey Pattie)

I thank my hon. Friend the Member for Beaconsfield (Mr. Smith) for drawing attention to this topic. I shall begin by explaining the role and responsibility of my right hon. Friend the Secretary of State in this matter, which is very limited. I shall then go on to refer briefly to some of the specific criticisms that my hon. Friend has raised.

My right hon. Friend has a role in the transfer of ownership of newspapers because of his responsibilities under the Fair Trading Act 1973. This legislation contains special provisions relating to newspaper mergers. These differ from those applying to the generality of mergers. These provisions spring from the 1962 report of the Royal Commission on the press. This concluded that action should be taken to regulate the increasing concentration of newspaper ownership, which could threaten the freedom and variety of expression of opinion, and which might, in extreme circumstances, threaten the unbiased presentation of news.

The Act provides that the transfer of a newspaper to someone who already owns newspapers requires the Secretary of State's consent. Consent is required if the combined paid-for circulation of those papers is 500,000 or more, or if the transfer increases the combined paid-for circulation above 500,000. A transfer without the Secretary of State's consent when consent is required is void and unlawful. It is also a criminal offence.

Except in closely defined circumstances, my right hon. Friend must refer any application for consent for a transfer to the Monopolies and Mergers Commission for investigation and report. In making its investigation and report, the commission considers whether the transfer would be expected to operate against the public interest, taking into account all matters which appear in the circumstances to be relevant and, in particular, the need for accurate presentation of news and free expression of opinion.

In considering whether to give his consent, the Secretary of State must have regard to the report of the commission, but he is not bound to follow it. He may give unconditional consent to the transfer, or he may impose conditions.

I turn now to the application of these arrangements to the case of The Observer. In 1981,The Observer was owned by the Atlantic Richfield Company. Lonhro plc applied to my right hon. Friend's predecessor for consent to the proposed transfer of The Observer to its wholly owned subsidiary, George Outram and Co. Ltd. That subsidiary already owned newspapers—the Glasgow Herald and the Glasgow Evening Times. Another Lonhro subsidiary, Scottish and Universal Newspapers Ltd. was then publishing 23 local weekly and bi-weekly newspapers in Scotland.

None of the closely defined exceptions permitting the Secretary of State's consent without a reference to the Monopolies and Mergers Commission applied in this case. These exceptions have to do with the economic viability of newspapers as going concerns and urgency. The matter was referred to the Monopolies and Mergers Commission for investigation. The commission's report, published in June 1981, concluded that, if the transfer were made subject to conditions described in the report, it might be expected not to operate against the public interest. The commission recommended that consent to the proposed transfer should not be given unless those conditions, designed to safeguard editorial independence, were attached to it.

The commission's role in newspaper mergers is purely advisory. As I have said, it is for my right hon. Friend the Secretary of State to give, or to withhold, consent to a transfer and to impose whatever conditions he—and I stress he — thinks fit. In the case of The Observer he accepted in principle the commission's recommendations But he thought it right, before he finalised his conditions, to give interested parties an opportunity to comment. He was particularly concerned that the conditions which were to be imposed should be no more than the minimum necessary to safeguard editorial independence, and to permit the running of The Observer with the smallest degree of interference from outside authorities.

In the event, the conditions that my right hon. Friend's predecessor decided to impose following these consultations with interested parties differ from those suggested by the Monopolies and Mergers Commission. The purpose of the conditions actually imposed was to secure the independent position of the editor in determining the content of the newspaper. This was achieved by requiring amendments to the articles of' association of Observer Ltd., the company which is the direct owner of the newspaper. The articles were further required to provide that the editor should not be subject to restraint in expressing opinion or reporting news that might conflict with the opinion or interest of the proprietor. His control over the journalistic staff of the newspaper would be set out. The articles would, in addition, provide for five independent directors, who would have the special responsibility for resolving any disputes on matters of editorial independence between the editor and the directors of Observer Ltd. or its parent companies, including Lonrho. The consent of the majority of these directors would also be required for the appointment or dismissal of the editor and of any of the independent directors themselves.

Other conditions ensured that these arrangements should continue if The Observer were to be transferred within the Lonrho group as the result of a company reorganisation, and provided for consultation with the board of Observer Ltd., if Lonrho proposed to dispose of The Observer outside the group at a future date. These articles of association may not be altered in any way affecting the requirements as to editorial independence without the consent of the Secretary of State.

As I have said, the object of these conditions was to ensure that the editorial independence of a newspaper—an important and distinguished national newspaper —such as The Observer, was safeguarded against any danger of undue influence from its proprietor. The conditions were also intended—and I make no bones about this—to ensure that the policing of this editorial independence was removed from the political arena. This was clear from the statement made in the House on 9 July 1981 by my right hon. Friend the Member for Shropshire North, (Mr. Biffen), now the Leader of the House. I think that it would be quite wrong—and I have little doubt that this would be widely supported on both sides of the House—that Ministers should interfere in day-to-day matters affecting the editorial policy of great national newspapers. I have little doubt that my hon. Friend the Member for Beaconsfield, as well as hon. Members on both sides of the House would be the first to complain if Ministers started interfering in these matters. If Ministers started interfering they would no doubt do so in the name of editorial freedom. But there is a narrow line between that and ensuring or preventing the publication of views or facts of which they approve or disapprove.

Against that background, the role of my right hon. Friend, as I said earlier, is limited. He has a role to play if the conditions to the consent are broken but only if they are broken. The conditions, as I have said, required the articles of association to be altered in certain ways. The articles were amended in those ways. I am aware of no evidence which suggests that the articles had been further amended without my right hon. Friend's consent in circumstances when such consent was required. Nor have I any evidence that The Observer has been transferred to another member of the Lonrho group without my right hon. Friend's consent.

It is only these matters which amount to a breach of the consent. Within the framework created by the amended articles of association, the operation of the arrangements directed at editorial independence is a matter for the independent directors, and not one for my right hon. Friend. It is up to the independent directors to agree to any dismissal or appointment of an editor. Any dispute between the editor and the proprietor is to be referred to them. The way in which they discharge these responsibilities is a matter for them and not for my right hon. Friend.

My hon. Friend the Member for Beaconsfield has described a series of stories in The Observer about Lonrho's attempted takeover of the House of Fraser and the eventual takeover of that company by the Al Fayed brothers. He has described the accounts given in that newspaper about the alleged role in those matters of my right hon. Friend the Prime Minister, members of her family, my right hon. Friend the Chancellor of the Duchy of Lancaster and others. I need say only that my right hon. Friends have made it clear that the allegations in The Observer that they behaved improperly are unfounded. Others who are mentioned in these stories may wish to take legal advice about the remedies open to them in the courts. That is a matter for them and not for me.

My hon. Friend the Member for Beaconsfield has suggested that the appearance of these stories in The Observer means that the editor has taken instructions from the proprietor on editorial matters. He suggests that this shows that the arrangements for editorial independence established by the consent given in 1981 are inadequate. He says that the independent directors can intervene only when a matter is referred to them; and that they cannot volunteer their good offices. He says that this is a weakness. He says that the proprietor is letting the paper lose money; and that the independent directors should play a more active role in the development of the paper's commercial policy.

These are all matters for the independent directors, not for my right hon. Friend the Secretary of State. In order for an editorial dispute to be referred to the independent directors, there has to be a dispute: and either the editor or the proprietor must acknowledge the existence of such a dispute and refer it. If one or other of them does not do so—and I say if, because I do not know whether in any particular set of circumstances one or the other has not acknowledged the existence of a dispute — that is his decision and not mine. Any set of arrangements of this kind will depend for its effectiveness on the readiness of the individuals governed by it to make use of it. There is nothing that I or my right hon. Friend can or should do to oblige them to make use of it, if and I repeat if, they choose not to do so.

As my hon. Friend the Member for Beaconsfield knows, my right hon. Friend the Secretary of State has no power to change these arrangements. His consent was applied for under the Fair Trading Act five years ago and was duly given. The matter has been dealt with and was discussed in the House at the time. My right hon. Friend has no powers to reopen the matter or to refer it at this stage to the Monopolies and Mergers Commission. The transfer has taken place. The conditions are being complied with. I have no evidence that they have been broken.

My hon. Friend the Member for Beaconsfield expresses the hope that in a future case of this kind, tougher arrangements will be made to ensure editorial independence. I do not accept that the existing arrangements are inadequate. He will understand that I will not be tempted into committing my right hon. Friend's attitude on a future occasion.

Mr. D. N. Campbell-Savours (Workington)

Will the Minister give way?

Mr. Pattie

No.

Mr. Campbell-Savours

Why will not the Minister answer questions on this matter?

Mr. Pattie

I can assure my hon. Friend the Member for Beaconsfield that in any future case where editorial independence is a vital element in our decision, we will ensure that appropriate arrangements are made to balance that consideration against the need for the newspaper concerned to flourish profitably.

11.42 pm
Mr. D. N. Campbell-Savours (Workington)

I rise only briefly to intervene, although there are five minutes left in which to debate this issue.

I condemn the action of the hon. Member for Beaconsfield (Mr. Smith) in raising this debate. The only reason for it is that an attempt is being made by Conservative Back Benchers and Government Ministers to silence The Observer over the whole question of the takeover of Harrods by the Al Fayed brothers.

During the past four months, The Observer has repeatedly levelled accusations, yet none of them has been answered. Letters have been sent to the Prime Minister by The Observer and also by Mr. Rowland. Despite what the Minister said, there have also been repeated references in other organs of the press. The Prime Minister has refused to answer. The Order Paper is effectively blocked. Questions are being asked about the role of Sir Gordon Borrie, the Director General of Fair Trading, as to why he was willing to give permission for the takeover. He was in a crucial position, because he read the submission by Kleinwort Benson.

Much controversy surrounds the nature of the statements that the company has made on the matter. The House tonight is seeing a disgraceful attempt to shackle The Observer in a legitimate campaign that it is carrying out. If The Observer is wrong, Ministers should answer the questions. If there is a full and complete statement from the Dispatch Box by the Government on all the circumstances surrounding the takeover of Harrods, the whole matter can be brought to an end. But until that statement is made, The Observer will legitimately raise questions of public concern and hon. Members are entitled to persist in asking questions orally on the Floor of the House because the Order Paper is effectively blocked on this important matter.

Question put and agreed to.

Adjourned accordingly at fifteen minutes to Twelve o'clock.