§ 7.59 p.m.
§
LORD DRUMALBYN rose to ask Her Majesty's Government on what grounds they insisted on the Industrial Reorganisation Corporation taking a shareholding in the Chrysler-Rootes merger. The noble Lord said: My Lords, I must start by apologising to your Lordships for raising this Question at this late hour, but having once had an Adjournment raised against me in another place at five o'clock in the morning, perhaps I do not feel quite so keenly about this as I ought to. I shall try to be as brief as I can, although it is a complicated subject. Some time in December (the Government have not revealed the exact date, but I hope they will to-night; and, at any rate, there seems no doubt that it was while this House was considering the Industrial Reorganisation Corporation Act) Rootes Motors asked the Government what their attitude would be if the Chrysler Corporation applied to the Treasury for consent under the Exchange Control Act to inject more capital into Rootes, in which they already controlled some 45 per cent. of the voting shares and over 60 per cent. of the total equity. Apart from the Exchange Control Act Chrysler had agreed in 1964, when they first acquired a holding in Rootes, that they would not increase it to a controlling interest against the wishes of the British Government, and the British Government, in considering any proposal to do so, would
take into account the interests of a prosperous and viable development of the motor-car industry in general and of the Rootes business in particular".
Here I am, of course, quoting from what was said at the time.
§ At the time when Rootes made this approach to the Government they had plans for development, particularly of their Scottish plant at Linwood, but without further capital it seemed unlikely that they could have realised them. The Government, quite rightly, first wanted to be assured that this development would go on and that control by Chrysler would not mean any contraction of Rootes's efforts in the export market. So our Government asked for assurances that, first, home development would go ahead; secondly, that exports would be expanded without restriction; thirdly, that the Rootes-Chrysler board would continue to have a majority of British directors, and, fourthly, that there would be an exchange of directors with Chrysler International and with Simca.
§ All these conditions were sound. So far, so good. But in addition, according to the Minister of Technology, who made a statement in the other place on January 17, the Secretary of State for Economic Affairs not only requested the industry—meaning the Corporation—to acquire a holding in Rootes under the Industrial Reorganisation Corporation Act 1966, which we passed on December 21, but insisted on their doing so. That was in column 37 of the House of Commons OFFICIAL REPORT of January 17.
§ I think I should make clear the extent and nature of the holding. The letters indicate that Chrysler will leave at least 15 per cent. of the entire equity capital (both voting and non-voting) in the hands of shareholders other than Chrysler, including any shares held by the Industrial Reorganisation Corporation. The letter goes on to make plain the "put" option that is provided for by undertaking (vii). It concludes that the 15 per cent. of the entire equity capital includes the holdings which the Industrial Reorganisation Corporation has the option to sell back to Chrysler on January 1, 1972. Finally, the Industrial Reorganisation Corporation are to have the right to nominate one director to the Rootes board so long as it owns all the securities made available to the Industrial Reorganisation Corporation in the seventh undertaking, which I have quoted.
§ This arrangement with the Industrial Reorganisation Corporation seems to give rise to the following questions: first, is it within the spirit of the Industrial 1347 Reorganisation Corporation Act? Secondly, is it compatible with the independence of the Industrial Reorganisation Corporation? Thirdly, is it right that what is apparently regarded as an interest of the British Government in an American-controlled company should be held by the Industrial Reorganisation Corporation? Fourthly, is it right that the British Government should be represented on the board by a nominee of the Industrial Reorganisation Corporation?
§ Let me deal with the first point; namely, is it within the spirit of the Industrial Reorganisation Corporation Act? What are we really confronted with here? Obviously, it is a take-over or a merger. Chrysler have moved from participation in Rootes to control of it. This is rationalisation on the grand scale—reorganisation and development of Rootes by an American-based international company, of which Root snow become part. It would have been appropriate for the Industrial Reorganisation Corporation to exercise its powers under Section 2(1)(a) rather than 2(1)(b), but for the fact that under Section 2(2) it is the I.R.C. itself which has to determine the priorities.
§
In the debate we had on December 12 in this House on the Committee stage of the Bill, the noble Lord, Lord Shepherd, said:
It is therefore right that the Corporation should be given full discretion to set their own priorities and be responsible for the choice they make."—[OFFICIAL REPORT, C01. 1509; 12/12/1966.]
So Section 2(1)(a) would clearly not do here. Somehow or other the Government would have to bring what they wanted to do within Section 2(1)(b). The initiative clearly lay with the Government and not with the Industrial Reorganisation Corporation. So, although essentially this was in fact a merger and not a mere development, the meaning of Section 2(1)(b) was stretched to cover the case.
§
Section 2(1)(b) says
The Corporation may…if requested so to do by the Secretary of State, establish or develop, or promote or assist the establishment or development of, any industrial enterprise.
The implication clearly is (and this was the tenor of our discussions) that the
1348
Secretary of State will make such a request only where the industrial enterprise will not be established or developed, as the case may be, unless Exchequer money is forthcoming. The whole purpose of the Act is to try to get desirable things done that would not otherwise be done. Yet here we have the taxpayers' money being forced upon a company which is well able to rationalise, to reorganise, to modernise and develop without the meagre assistance of the Industrial Reorganisation Corporation—comparatively meagre, I mean in this context.
§ Of course, I presume that the Rootes development at Linwood will receive the full assistance under the Local Employment Act that it would have received but for the take-over. I hope this is so, and that this is not a way of compensating for doing things in another way by injecting money through the I.R.C. The Joint Under-Secretary of State in another place—and I am grateful to the noble Lord, Lord Shepherd, for having drawn my attention to this debate—
§ LORD SHEPHERDI should not have done so.
§ LORD DRUMALBYNThis debate took place at an unconscionable hour of the night, and in it the Joint Under-Secretary of State stated that the intention of the Government was
…to see the Government represented at this crucial period in the company's life and to see if we could obtain some share in the profitability of the company, which we hope will be achieved."—[OFFICIAL REPORT, Commons; 1/2/67, col. 656.]So, to put those intentions in a nutshell, the twin objects were, first of all, Government representation, and, secondly, speculation with the taxpayers' money. These surely, are quite outside the purposes of the I.R.C. Act as they were explained in Parliament. The Joint Under-Secretary of State made it quite plain that it was not in order to restore the fortunes of Rootes, but because Chrysler were prepared to take action to restore them, that the Government demanded a share.The next point is this: is it really compatible with the independence of the I.R.C.? How can the I.R.C. "represent the Government" and at the same time be independent? The Joint Under-Secretary of State claimed that the I.R.C. were perfectly free to reject what was 1349 politely called the "request" of the First Secretary, and he said that they could
have decided that there was no need to buy Rootes-Chrysler shares ". (Col. 653.)He did not refer to the "insistence "of the First Secretary, which the Minister of Technology admitted. But, surely, it is obvious that if the First Secretary, in a matter of international finance, indicates that he wants the I.R.C. to make the investment—he either says "I want or" I should like", which amounts to the same thing—the only ground on which the I.R.C. could possibly refuse would be that in their commercial judgment it would be wrong. From the I.R.C. point of view there was certainly no need to buy the shares, apart from the Government's insistence. So Mr. Grierson, obviously with his customary resourcefulness, devises the "put" option, which means that in the short term, at any rate, barring a complete collapse, the I.R.C. cannot lose. With that, of course, the I.R.C. are perhaps more willing to go ahead.Then the First Secretary "turns the heat" on Chrysler, and of course they, too, have to accept. Your Lordships know, and I know, and certainly the noble Lord opposite knows, that to call that sort of approach on the part of the Government to the I.R.C. a "request" is sheer humbug, and I hope the noble Lord will not try to humbug us to-night with the same argument. So much was made of the independence of the I.R.C. during the debates we had on the Bill, that we can only deplore that, almost before the ink on the Act is dry, the Government are forcing the hand of I.R.C. to take action which was quite outside the spirit of the Act and which they certainly did not take, and would not have taken, on their own initiative.
The third point is whether a British Government interest in an American-based company should be held by the I.R.C. at all. The Minister of Technology said:
We felt that the British public should be represented through the I.R.C.It would clearly have been possible for the Government to acquire an interest direct, as it has in British Petroleum.Granted that it is decided to have a Government investment through I.R.C., is the I.R.C. nominee on the board to represent 1350 the Government and be responsible to them? On this point the Joint Under-Secretary said this, speaking for the Government:
What was done here, however, was to put a voice on the board of directors which a bona fide foreign company, as we believe Chryslers to be, will respect, especially when it is as important a voice as the kind emerging from a director whom we intend"—and then he corrected himself—to put it more exactly, whom the Corporation intends"—that was a Freudian slip—to nominate to the board in this case".—[OFFICIAL REPORT, Commons: 1/2/67, col. 654.]My first comment is that that observation was not phrased as tactfully as most of those which Mr. Harold Lever normally makes. It seems to contrast the respect in which a nominee of the Government or of the I.R.C.—in this case it is evidently one and the same thing—will be held by Chryslers, with the respect in which the other British directors will be held. From what was said there about the person they are intending to appoint, it looks as though the finger points to the one person who has knowledge of the production of vehicles on the Industrial Reorganisation Corporation. I will only say at this point that I very much hope that is not so. I think it would be a great shame to put a good man to the stress and strain of this kind of test of divided loyalties; conflicts of interest could far too easily arise there.But, whoever is appointed, what is he going to do? Is he to represent the I.R.C. or the Government, or both, or is he to be a director in his own right? The Joint Under-Secretary of State told the other place:
The board"—meaning the Board of the Corporation—can preserve confidentiality". (Col. 659.)He went on:In its workings, it goes to elaborate lengths to maintain confidentiality and to justify the belief of the people with whom it deals that it does not pass on automatically to the Government what is confided to it"."Automatically" is the operative word.It is the practice that a substantial holder in a company is allowed to nominate a director to the board, but I must put this very clearly. The Government go 1351 out of their way to emphasise the closeness of the links between them and the I.R.C. We are told that both the Minister of Technology and the First Secretary are in the closest touch with the industry. Is the nominee of the Government and the I.R.C. to report to the Government decisions of the board and what is going on in the company's affairs? Will he act on the instructions of the I.R.C., or will he act on the instructions of the Government? Is he, in short, to be a colleague or a commissar?
Taking all these circumstances together, it is difficult to avoid the conclusion that in this transaction the Government have put a foot in the door of the motor industry—not their own foot but that of their chosen instrument—and the conclusion that the spirit of the Act has been tortured, if not violated, and that the independence of the I.R.C. has been imperilled, if not destroyed, at the very outset of its career. In the debate which took place elsewhere since I put down this Question, the only clear answer which emerged was that of the Joint Under-Secretary of State to the effect that this was to get Government representation in what is now an American company and to have a bit of a flutter with taxpayers' money. I am putting a gloss on what he said.
§ LORD SHEPHERDThe noble Lord certainly is.
§ LORD DRUMALBYNThis is a fair interpretation of what he said. I think what we have to ask is this. Is this sort of forcible intrusion of Government finance in companies which are well able to look after themselves, forcible intrusion of Government nominees or representatives in their board rooms, to be the pattern for the future? If so, Parliament has been grossly deceived over the Industrial Reorganisation Corporation Act.
§ 8.18 p.m.
§ LORD SHEPHERDMy Lords, one thing that must be said about the noble Lord, Lord Drumalbyn, is that those who take part in this debate remain to the end. I make this comment because I think this is something of which the House should take account. I see that in the last debate 17 noble Lords took part, and when my noble friend Lord Longford was replying only 10 of those 17 were 1352 present in your Lordships' House. This is a growing practice, and I think it is one that is to be deplored. But at least on this occasion the noble Lord has made a penetrating speech and certainly has put a particular gloss upon it. Certainly he might have created the impression that there is something sinister behind the Government's actions in this matter. I think, therefore, the noble Lord, Lord Drumalbyn, should be reminded of the circumstances of 1964.
Then the Rootes Group were in urgent need of new capital and they found their source of new capital from the Chrysler organisation of the United States. The previous Administration were consulted, as they were bound to be consulted, particularly in view of the exchange measures. The Government were consulted because this was a serious change in the structure of the British industry. In fact this increased strength of Chrysler in Rootes has, in view of other developments in the motor industry, created a situation where obviously there must be concern.
To-day there are five groups in this country manufacturing motors, and after the Chrysler operation three will now come within the orbit of American control. The previous Administration sought an agreement from Chrysler's that they would not seek to develop their voting strength in the Rootes Group without consulting the Government of the day. This Chrysler's readily agreed to.
There was concern because Rootes have had some difficulties in recent months. In the last financial year they lost £3 million, and during the last six months I understand their losses have been in the region of £4½million. Clearly Rootes needed further assistance, and Chrysler's were willing to provide it. But clearly, in the circumstances, they wanted to have control of the Group. Therefore, in view of their undertaking to the previous Administration, they came to Her Majesty's Government to seek approval to acquiring the controlling interest in this Group. The previous Administration obviously sought that agreement on an undertaking such as I have mentioned because it is of considerable importance.
Certainly both sides of the House welcome United States or foreign capital, but it is a matter of considerable concern 1353 to all Governments, and I think all industries, as to what impact that overseas capital will have upon the management of that organisation, particularly if the organisation is a considerable contributor both to the home trade and to the export markets. Therefore, with this big change in the control of Rootes, and in view of the fact that of the five groups two already were in United States' hands, the Government felt it right to see what could be done to ensure that Rootes would continue to operate for the benefit of the British economy.
The Chrysler organisation accepted the seven points to which the noble Lord, Lord Drumalbyn, drew attention, which were given in the Statement of January 17. I see that the word "insisted" was used in another place by my right honourable friend the Minister for Technology. But my information, certainly before coming to this debate, was that the discussions between Her Majesty's Government, Messrs. Rootes and Chrysler's were on the most friendly basis, and that Chrysler's well recognised the problems that confronted Her Majesty's Government.
I say at this stage that, before agreeing to the Chrysler project, Her Majesty's Government sought to find out whether there were any other British organisations willing to take over, but no practical or viable proposal was found. Therefore, we decided to permit Chrysler's to obtain control of Rootes, on the seven conditions which, as I have said, are in the Statement. I think the word "insisted" is too strong. As I say, my information before coming here was that the discussions were on a friendly basis, and that Chrysler's recognised our position.
We now come to the role of the Industrial Reorganisation Corporation.
§ LORD DRUMALBYNMy Lords, may I just intervene for the purpose of the Record? The insistence was in regard to the role of the I.R.C., not an insistence of Chrysler's.
§ LORD SHEPHERDMy Lords, yes. I must admit, because I had not seen this quotation, that I am not quite sure what my right honourable friend had in mind. It could mean the role of the I.R.C.; that is, that the I.R.C. would itself have to go in; or it might well have been an 1354 insistence to Chrysler's for the I.R.C. to participate. It is a moot point when one looks at it quickly, as I have just done.
The noble Lord, Lord Drumalbyn, knows well the spirit of the Industrial Reorganisation Corporation Act, and he knows its details. It is perfectly clear—and I repeat it again for the benefit of the noble Lord—that the Industrial Reorganisation Corporation is a free and responsible body. The Government are not in a position to insist. As the noble Lord knows, the only power that the Government have over the I.R.C. is to give directions of a quite general character. Clearly what we are now discussing is not of a general character, it is specific. The request was made under Section 2(1)(b). If, in the commercial judgment of the I.R.C., they did not wish to proceed, they could have refused to do so, and, as I say, there was no insistence by Her Majesty's Government on the I.R.C. to take the course that has been taken.
I think the noble Lord put his finger on the point. Even supposing that the I.R.C. had been willing for or had volunteered such an operation, as the noble Lord knows, they are precluded from taking that action. Had they wished to volunteer this action they could have done so only by going to the Minister and asking the Minister to request them. As the noble Lord knows, they can operate for the purposes of an existing organisation only at the request of the Secretary of State. They cannot take over or buy shares in one company. That is my understanding of the Act. Clearly, while there is further new money going into the Rootes Organisation, Rootes as a corporate body remains. I hope that the noble Lord is now satisfied by what I have said, that there was no insistence and therefore there was nothing against the spirit of the Act.
The noble Lord asked me on what date these negotiations between Chrysler's, Rootes and Her Majesty's Government took place or started. I am afraid I do not have that information, but the noble Lord will know that the letter confirming the agreement was dated January 16. It may well have been that negotiations started in late December or early January, but if the noble Lord wishes this information I will seek to provide it for him.
§ LORD DRUMALBYNMy Lords, I was seeking the date of the original approach.
§ LORD SHEPHERDYes. The Government felt that in the circumstances there was a lot to be said for a connection between Her Majesty's Government and the Rootes Organisation, particularly during the critical years that now lie ahead. As I see the director on the board, he will take his place on the board of Rootes as do all other directors. He certainly will not be a servant of Her Majesty's Government. He will be standing in his own right, like any other director, with the same responsibilities as any other director. He will be appointed by the I.R.C., not by the Government. It will be for the Corporation board itself to nominate which director should be appointed. Therefore, I will not go over the ground which the noble Lord covered as to which director it should be.
The noble Lord referred to the I.R.C. and taxpayers' money going into this new grouping. It is true that the amount which the I.R.C. are taking up is very small compared with the total voting strength of this organisation, but I think it would have been wrong for us to suggest to the Chrysler organisation that there should be a director to represent a British voice without participating in the shareholding of the organisation. Clearly the amount we are putting in will not give us any veto, nor will it put us in any overriding position. As I am advised, during these next critical years we believe that this director will be able to consult with this new organisation, with his own Corporation, and with the Government as matters arise. But I would make it quite clear that this director will be as free as any other director on the board. Therefore, there is no question of his acting, shall 1356 we say, in the noble Lord's expression, as a "commissar".
I do not believe that the request that we made to the I.R.C. is in any way incompatible with the independence of the Corporation. It is clearly within the provisions of Section 2(1)(b). I do not think that the independence of this organisation is in any way affected. I am quite sure that the Government take the view that we must see that this organisation, having appointed such eminent men, as both sides agree, remains free and has commercial judgment in relation to all the matters which come before it.
I should also make clear that it is not Her Majesty's Government's intention that a director should be appointed automatically, or that it should be necessary for a director to be appointed when overseas capital takes control of an organisation. But here was a case where it could have had special significance in the motor industry. This was unique, and I should be very surprised if a similar situation arose again—it might, but personally I think it very unlikely. I do not believe that the decision taken by the Government, the decision taken by the I.R.C., is in any way contrary to the spirit or even the intention of the Act setting up this Corporation. I hope that the board will be able to contribute to the "knowhow" so that this important company can overcome its difficulties and will be able to provide employment and also increase our exports. As I have said, I believe that what has ben done in this case is unique and is unlikely to arise again, but I believe that what was done in the circumstances was absolutely right.
§ House adjourned at twenty-five minutes before nine o'clock.