§ (" .—(1) This section applies if any property, rights or liabilities are transferred under a transfer scheme to a transferee which at the time of the transfer is—
- (a) a company which is wholly owned by the Crown;
- (b) a company which is wholly owned by the CAA;
- (c) a company which is a wholly owned subsidiary of a company falling within paragraph (a) or (b).
§ (2) The Secretary of State may by order designate such a transferee for the purposes of this section.538
§ (3) The Secretary of State must ensure that, in relation to members' resolutions of the designated company, the proportion of votes exercised by the Crown shareholder, as a proportion of the total votes available to all shareholders, shall be in direct proportion to the proportion of shares in issue held by the Crown shareholder.
§ (4) The Secretary of State must ensure that the Crown shareholder must appoint a number of Directors to the Board of the designated Company, so that the proportion of its appointees on the Board is equal to the proportion of shares in issue held by the Crown shareholder.
§ (5) The Secretary of State must ensure that at least 5 per cent. of the designated company's issued ordinary share capital shall be held by an Employee Share Trust on behalf of employees.
§ (6) The Secretary of State must ensure that a representative of the Employee Share Trust is appointed to the Board of Directors of the designated company.").
§ The noble Lord said: My Lords, the amendment deals with the detail of the strategic partnership, which is lodged in the Library and is not on the face of the Bill. That makes matters rather difficult.
§ We first raised this matter in Committee. This is an unusual PPP, and the question arises of what view the House should take about the strategic partnership agreement. One can readily acknowledge that there is a tension between, on the one hand, giving potential bidders the reassurance they seek regarding their capital investment, and, on the other hand, a cluster of features of the industry, about which we have heard, which circumscribe that.
§ Perhaps I may begin with the formula under which 49 per cent of shares will be retained by the Government, 46 per cent will be for the strategic partner to purchase, and 5 per cent will be for the employees. In his reply at Committee stage, my noble friend said that the Government have always made it clear that the strategic partner will have operational control of NATS. He said that to oblige the Government to retain voting rights equivalent to their proportionate shareholding would effectively deprive the strategic partner of voting control. Of course it would—but what was the point of the 49 per cent, 46 per cent, 5 per cent split in the first place.?
§ One of my noble friends referred earlier to PPPs in sectors such as the National Health Service and described how well they operated. Perhaps I may take that as an analogy and demonstrate why this particular PPP is not a normal one. Is it the case in the National Health Service that a PPP would operate on the basis that strategic control of a trust would be vested in a private sector partner even when that private sector partner had a lesser shareholding than the Government? Perhaps my noble friend will comment on that when he replies.
§ It has been pointed out that we are talking about an area of rapid structural change, which will increase in the coming years. That is an argument which cuts both ways. The Minister's speculation, which he has reiterated, is in the context of half-a-dozen centres dealing with the lion's share of air traffic over the whole of Europe. We look forward to the report of a high level group on the single European sky. That will be the start of the process my noble friend referred to as a tremendous opportunity for the UK air traffic control industry, NATS specifically.539
§ In some respects, it is rather unfortunate that the European dimension will become clear only after the Bill has passed all its stages. But, depending on the amount of water that will have gone under the bridge by then, can the matter not be adjusted, if necessary, by looking again at the strategic partnership agreement, both in terms of further relations with the bidders and in terms of the European dimension? Perhaps there was a hint of that in the Minister's earlier comment.
§ The second element in the amendment concerns employee interests. The key issue is found in subsection (6), which seeks to build on the proposal in subsection (5) that the 5 per cent of the shares earmarked for employees should be reflected in the appointment of a director. This would be minimum recognition of the fact that we are talking about a partnership between the different stakeholders. In this regard, perhaps my noble friend will reconsider the nature of the objection he advanced in Committee when he said that he does not believe that representatives can sit on a board because of a conflict of interest. I paraphrase. That is the last argument the Minister should use. If that is his argument, I should point out that there are conflicts of interest all over the place.
§ We are talking about a new style of partnership. My noble friend is to be congratulated on trying to innovate. But he says that this is one area in which he cannot innovate because of his experience in Glasgow 30 years ago. We have all had experiences. He said that in those days workers' representatives could not sit on both sides of the fence. We are now talking about innovation and about a stakeholder board, in effect. Life has moved on in the past 30 years. I hope that my noble friend will feel able to revisit his philosophy on these issues.
§ Lord Brett
My Lords, perhaps I may refer again to my "Gulliver's travels" to Canada. I raised with the people I met in Canada the role of the trade union directors—there were two trade union directors on the board—and I asked the airline representatives whether there was a conflict of interest. They said that one of the reasons for the success of the trust was both the choice of the partners—the board of directors—and the quality of the people. They said that they found it a great advantage to have trade union representatives—this was not the trade union representatives speaking but the other directors—because they knew directly that they represented an influence; that is, the staff. They felt that in the planning process and some of the difficult decisions they had to take, that allowed for a greater understanding and a greater confidence in the workforce than otherwise would be the case.
They have a stakeholder council similar to that envisaged in the PPP. They said that they did not believe that holding the trade union representation at that level would have provided anything like the value 540 of having trade union representatives on the board of directors. I hope that the Minister will take that into account in his consideration of this issue.
§ Lord Clinton-Davis
My Lords, I support the amendment on behalf of myself as president of BALPA. I do not speak on behalf of BALPA but on behalf of myself.
As my noble friend Lord Brett said, there is an advantage in ensuring a proper reflection of the point of view of employees. The amendment does not state that the employee must be a representative of a particular union; it involves the idea that the employees have a contribution to make. Of course they have. There is no way other than representation through the official trade union that they can make that contribution.
I know of people who have been elected because they are members of BALPA and involve themselves in policies which are important to them and important to the people from whom they have come. But it does not seem to me imperative that they should represent individual employees per se.
The amendment encapsulates the idea that employees should have a voice—no more, no less. I entirely agree with the views of those who are in favour of the amendment.
§ 7 p.m.
§ Lord Hoyle
My Lords, Gulliver's Travels was referred to by my noble friend Lord Brett; but perhaps we are talking about "Brett's travels". We owe my noble friend a debt of gratitude. On so many of the issues raised in our debates today he has ascertained whether there are practical advantages in what is being said.
To take up a point made by my noble friend Lord Lea, perhaps my noble friend the Minister did have some experience in a Glasgow shipyard years ago, but the idea of not being able to serve two masters has a ring of Marxism about it rather than of partnership with new Labour. Matters have moved on. We are talking about continuous partnership between employer and employee. As we are breaking new ground, the amendment offers a unique opportunity to put an employee representative on the board.
As always, my noble friend the Minister has approached us to see whether we could reach agreement that there should be consultation with the trade unions, of their being instrumental in advising on the appointment of a director and having the same director as on the board of trustees. However, in the words of the TUC, having a trustee director on the main board could lead to a conflict of interest. As I say, it is a substitute for the employees either being directly represented or having a representative on the board.
I turn to an equally important point. We must give the employees confidence in the changes that are taking place. At present, they lack confidence and trust. They are concerned about what is happening. The way to bring them along with us is to make sure that they are directly represented on the board.
541 I hope that my noble friend the Minister will take this point on board and that he is prepared to break the necessary new ground. My noble friend means what he says; there is no doubt that he would consult with employers in relation to the appointment of directors. But there will be Ministers other than my noble friends who may belong to different parties with a different philosophy. Even given what my noble friend has said, a provision needs to be written in to the Bill. If consultation is to take place, we must ensure that it does not merely take place with this Government or this Minister but with other Ministers in future governments.
I hope that my noble friend will say that employees can have direct representation. However, even given his own method—namely, consultation—I hope he will agree to consider a provision on the face of the Bill to ensure that, whichever method is chosen, it will also happen in the future with governments of a different political hue.
§ Lord Macdonald of Tradeston
My Lords, the new clause proposed in the amendment, which has already been laid once at Committee stage, seeks to do four things, and I shall deal again with each in turn.
Turning to the first of these objectives, on the subject of voting rights, the Government have always made it clear that the strategic partner will have voting and operational control of NATS, except in relation to certain key areas where the approval of the government-appointed directors, or in some cases the Secretary of State, will be required.
In reply to the noble Lord, Lord Lea, let me say that obliging the Government to retain voting rights equivalent to their proportionate shareholding in NATS would effectively deprive the strategic partner of operational control of NATS, as its share of the votes would be less than that of the Government. That would jeopardise NATS' private sector classification, which would ultimately deny it access to private sector capital—one of the key objectives of the PPP. Perhaps I may remind the House that NATS will face a huge investment programme over the next 10 years. The inability to give the strategic partner voting control would undermine its confidence in its investment, possibly reducing the value of the NATS shares that the Government, and ultimately the taxpayer, will receive.
With regard to the second objective—namely, to ensure that the Government can always appoint a proportionate number of directors to the NATS board—this would deprive the strategic partner of board control, thereby again placing NATS' private sector classification at risk and rendering an investment in NATS unattractive to potential strategic partners. Furthermore, it would most likely result in the Government and the strategic partner having an equal number of directors, creating the potential for deadlocks at board level—something that could jeopardise not only the commercial future of NATS but also the ability of NATS to put in place the systems and procedures necessary to guarantee the ongoing 542 provision of safe air traffic services. Having a clear line of direction, albeit with proper checks and safeguards, is essential to a successful future for NATS.
Turning now to the third objective, namely to ensure that 5 per cent of NATS' share capital is held by an employee share trust, the Government have always made it clear that employees will be entitled to participate in NATS through holding up to 5 per cent of the ordinary share capital. This policy has not changed. It is inappropriate to attempt to prescribe the details of a complex employee share participation arrangement in primary legislation. The amendment proposed would have the effect of requiring the shares to be owned, both legally and beneficially, by the employee share trust. This would deprive employees of the full benefit of the shares (that is, the receipt of dividends and proceeds from their sale).
Finally, the amendment seeks to secure employee representation on the board of NATS. It would be highly unusual for a major UK company to have employee representation on its board, particularly in the case of a company which is intended to be operated along the lines of a listed company. I say to my noble friends that I spoke as much from my experience as a director and chairman of a number of listed companies as I did from any trade union experience. An employee representative could face a conflict of interest between the protection of the rights of employees and the best interests of the company. This would create tensions at board level which could hamper the effective management of the company and could increase the risk of deadlock.
§ Lord Clinton-Davis
My Lords, will my noble friend give way? There are ample examples of employee representatives, or people advanced by their trade union, who are already directors. Is he saying that they are always beset by problems of conflict of interest?
§ Lord Macdonald of Tradeston
My Lords, I did not say "always". I said that this could create tensions at board level, that it could hamper the effective management of the company and could increase the risk of deadlock. For that reason, we do not think it appropriate to put suchx2014;
§ Baroness Thomas of Walliswood
My Lords, I had not intended to intervene in this debate. However, I am puzzled as to why one type of employee representative would be prejudicial to the board's performance, when the presence of other employees who are directors of companies is not damaging to the board.
§ Lord Macdonald of Tradeston
My Lords, it is for the simple reason that a board director would have a fiduciary duty to the interests of the company. If such people were seen as representatives of trade unions and employees, it would be difficult for them in some circumstances to perform that fiduciary duty without a conflict of interest being perceived by those who thought that they had been appointed to represent their interests, not the interests of the company. We do not believe that it would be appropriate to include such 543 a prescriptive clause in primary legislation. However, if following discussion between employee representatives and the strategic partner, the strategic partner felt it appropriate and beneficial to put an employee representative on the board, the Government would not oppose that. I can tell the House that we intend to facilitate such discussion. Once we have established a short list of bidders, we shall arrange meetings between them and staff representatives to discuss bidders' plans for the future of the company.
I must also point out to noble Lords, as I have before, that we have endeavoured to give employees a voice on the stakeholder council that is to be created. It will be an influential body whose views will carry considerable weight. More importantly, it will allow representatives of NATS' employees and users of aviation access to direct involvement in the company.
The council will offer a forum for discussion and influence on NATS' plans and arrangements for the provision of air traffic services. It will also offer the opportunity for any member of the council to raise an issue regarding the provision of these services by NATS and its subsidiaries, and for this issue to come to a resolution. The council will pay particular attention to areas such as major investment projects, safety issues, standards and service provision, long-term investment plans and the development of new technology.
I should also remind noble Lords that the Government will have the right to appoint two or perhaps three "partnership directors" to the board of the PPP company. The Government will also have the right to appoint a trustee to an employee share trust. We are proposing that we should consult staff representatives about the criteria that we shall use in selecting these appointees, so that staff can feel comfortable about the appointments. We are also proposing that the government trustee be appointed as one of the partnership directors. This person, although bound by the rules of both appointments, would be uniquely well informed on matters of interest to staff. I am confident that that unique position could helpfully inform the board as it takes key decisions.
I hope that noble Lords will agree that these measures, together with staff representation on the stakeholder council that I mentioned, will go a long way towards addressing staff concerns and provide sensible working arrangements that will be of benefit to all the parties involved. These matters are essentially—
§ Lord Hoyle
My Lords, before my noble friend concludes, perhaps he could answer my query on his proposals regarding how we can ensure that consultation will take place in the future; that is to say, when he is no longer the Minister with such responsibility.
§ Lord Macdonald of Tradeston
My Lords, if noble Lords study the documentation that we have produced for the PPP, they will see that the partnerships that we have talked about are entrenched as far as possible. In any future situation, it seems unlikely that a government would transfer their right to have directors appointed away from themselves and in that way deny themselves the opportunity to have the strategic role that we presently propose.
These matters are essentially for the partnership documentation—that is where we have already undertaken to place them. Therefore, they would be out of the place on the face of the Bill. In view of that explanation and the reassurances that I have given, I invite my noble friends to withdraw the amendment.
§ Lord Lea of Crondall
My Lords, I thank my noble friend for his clarification on the matter. However, I have two points to make. First, this is clearly not just a normal plc; it is a PPP and, inherently, a partnership multi-stakeholder model. In effect, the Minister is seeking a third way. Indeed, he mentioned the stakeholder council, as well as many other innovations that would be on the agenda in that respect.
Secondly, I should just like to point out that the board that is emerging is a two-tier concept; it is not a traditional unitary board in the sense that we have always understood. We are innovating as we go along. I shall withdraw my amendment, but I should like to consider the position further before we reach the final stages of the Bill. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
§ Clause 52 [Loans]:
§ [Amendment No. 58 not moved]
§ Clause 53 [Guarantees]:
§ [Amendments Nos. 59 to 61 not moved.]
§ Clause 54 [Grants]:
§ [Amendment No. 62 not moved]
§ Clause 55 [Trustee investments]:
§ [Amendment No. 63 not moved.]
§ Clause 56 [Shadow directors]:
§ [Amendments Nos. 64 to 66 not moved.]
§ Clause 57 [Extinguishment of liabilities]:
§ [Amendment No. 67 not moved.]
§ Clause 62 [Exercise of functions through nominees]:
§ [Amendments Nos. 68 and 69 not moved.]
§ The Deputy Speaker (Viscount Allenby of Megiddo)
My Lords, in place of Amendment No. 70, I call Amendment No. 70A.
§ 7.15 p.m.
Lord Brett moved Amendment No. 70A:
After Clause 64, insert the following new clause—