Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence


Examination of Witnesses (Questions 1000 - 1019)

TUESDAY 12 DECEMBER 2000

RT HON LORD MACDONALD OF TRADESTON, CBE, AND MR BOB LINNARD

  1000. This uncertainty that you inform us of, this is not going to help the railways to get back to where they were before Hatfield and to advance upon that. One of the strategies in the ten year plan is to increase the amount of passenger and freight on to rails. We are 25 per cent below Hatfield now, what is going to be the position or what do you envisage the position will be post-Hatfield, are we going to reach the targets? How long will it be without skilled operators?
  (Lord Macdonald of Tradeston) I should say that the SRA, the Government and the Health and Safety Executive are planning to have discussions to see what extra action, in addition to what Mr Linnard has described, would be needed to try and develop skills and training. There is no doubt there is a developing shortage in the railways, as there is, of course, in many other industries. With the expansion that we have and the prospect of 50 per cent growth in passenger travel over the next ten years it is vital that we try to get recruitment and the training up to the necessary levels.

  1001. What is the Government doing about this?
  (Lord Macdonald of Tradeston) As I said, we have given them a ten year plan, which should allow them to begin to recruit and train with much greater confidence. We have the discussions planned for the SRA and with the Health and Safety Executive to say, "What more do we have to do?" The initiative described by Mr Linnard and the Institution of Railway Operators came after the 1998 Rail Summit. I think it is time to go up a gear or two on that.

  1002. When do you anticipate that there will be some results of the training coming through so that we can see growth? Do you consider that there will be conflicting pressures upon the network with safety performance and growth and that without skilled workers this will be exacerbated?
  (Lord Macdonald of Tradeston) Running a railway is clearly very demanding and the companies involved in it have to be quite clear that we need the level of skills and experience that perhaps was there in days past and we hear has been too easily lost—in some areas of track maintenance, for instance.

Dr Ladyman

  1003. Lord MacDonald, before you became a Minister you were a very successful private businessman at a very senior level in those businesses. What, in your judgment, was the right balance on the boards of the companies with which you were involved between industry specific knowledge and general business knowledge?
  (Lord Macdonald of Tradeston) There has to be a balance particularly in a regulated company like Railtrack, so you do want people who understand the pressures of public life and the political demands but you want, too, people with experience of industry, experience of perhaps heavy engineering in particular, experience of systems as well as the kind of financial expertise and corporate legal expertise that you would look for in a FTSE 100 board.

  1004. Out of the 13 board members were you aware that there were only two members of the Railtrack board that had any experience of the railways?
  (Lord Macdonald of Tradeston) I understand the weakness of the board which has been discussed publicly in recent months and I think Sir Alistair has drawn your attention to that, Madam Chairman. In the creation of the company taking it over into the private sector, the board membership may not have evolved to the kind of levels demanded by a FTSE company in the time that it has been in existence.

  1005. So you accept that there are weaknesses in the board?
  (Lord Macdonald of Tradeston) From my business background I would say it is a board that could be strengthened. Since we anticipate an incoming Chairman in the months ahead I am sure that would be a priority for that incoming Chairman or Chairwoman.

  1006. Would you like to comment on the fact that the Safety Committee on the board did not have a railwayman on it?
  (Lord Macdonald of Tradeston) Again if that implies a lack of expertise in the areas of safety that it is dealing in, that would clearly seem to be an omission, but I know that there are considerable changes going on inside the safety regime in Railtrack.

  1007. When you were in business and you went to your financiers for money for investing in your companies, did you expect them to make comments about the way the company was managed or did you not regard that as any of their business?
  (Lord Macdonald of Tradeston) Since many of the financial analysts that you meet represent major institutional stake holders, then of course you anticipate that there is a very detailed grasp of your business and a very sharp critique of it. That is indeed the way a PLC should work since in the end it is owned by its shareholders and those shareholders can feed in their views. As I said earlier, the board itself has a fiduciary duty to all shareholders and therefore cannot act on the instruction of any single shareholder.

  1008. Did you ever when you were borrowing money for any of your businesses write to your financiers and tell them that you were an independent business, "keep your nose out"?
  (Lord Macdonald of Tradeston) I would never have been in a position to do that because I was in an industry regulated by the ITC.

  1009. You would be horrified if anybody did that?
  (Lord Macdonald of Tradeston) I would certainly be surprised. It would not have been inside my business practice.

  1010. What did you say to Railtrack when they did that?
  (Lord Macdonald of Tradeston) It is not something I would have to say I am immediately aware of. I would have to look at the text and context of what was said.

Chairman

  1011. It was quite public, was it not, Lord MacDonald?
  (Lord Macdonald of Tradeston) As I say, I have not seen the context or detail of it.

Dr Ladyman

  1012. Following up Mr Stevenson's remarks about the amount of money that the Government has put into Railtrack—and I accept at the present time the Government is only a very, very tiny shareholder in Railtrack because of the way that the industry was privatised—the fact of the matter is that the Government is putting a huge amount of money in. If you are not prepared to go down the road that Mr Stevenson was perhaps trying to take you down in taking a stake in the company again, would it not at the very least be a reasonable thing for the Government to do to insist on having a veto over who becomes Chief Executive and Chairman?
  (Lord Macdonald of Tradeston) No, I do not believe that would be consistent with the governance of a PLC. I think that must be something for the shareholders in the end to decide. If they are interested in the stakes that they have in a company, they must ensure that they have got the right board which will appoint the right management. If the management is wrong, the board should act. If the board is inactive, the shareholders should act.

  1013. We have a situation here where we have an entire industry in chaos; not your fault, you were not responsible for privatising it, and a structure that everybody agrees is entirely failing; not your fault, you were not responsible for that structure. It is industry which everybody now agrees is poorly managed and is letting down its customers and its main investors (which I would suggest is the Government, not just the shareholders) and within all of this chaos you do not think that there is a role for the Government to insist on being able to at least appoint or to veto members of the Safety Committee on the board or the Chairman of the board? You think it is entirely down to ordinary shareholders to influence that?
  (Lord Macdonald of Tradeston) But you will recall that within recent weeks we have just passed a Transport Bill and made it an Act which embodied in it the Government's thoughts about the architecture that is required for the railways. Indeed, when it was a Railways Bill before it was a Transport Bill your Committee, I believe, gave it a very thorough going over and tried to put in place the kind of architecture that the railways would need for the future. As I recall, I was coming into the job at the time, the Government very readily accepted the good work you had done in trying to create that architecture. Had there been something else that might have been done, I feel it might have been spotted at that time when there was a Transport Bill that could have taken it into law.

  1014. So you have never at any point considered since the Hatfield incident that maybe the time has come to insist, in return for the money that you are putting into the industry, on a golden share or some other mechanism whereby you would have more direct influence over the day-to-day decision-making of Railtrack?
  (Lord Macdonald of Tradeston) My approach has been to try to focus on getting the railways running again and working with that management to ensure that it gets more miles rerailed every week and more speed restrictions lifted. I do not think it would help were I to speculate about what the options might be if that in any way destabilised the company or in any way demotivated the management or the workforce.

  1015. Finally then, you said to Mr Stevenson "We are putting this money in and we are expecting better management out." That was your bottom line. Do you accept that the ethos within a board, the way the board thinks does permeate all the way through a company and has a direct influence on the way managers, middle managers and junior managers implement the decisions of the board and therefore manage that business?
  (Lord Macdonald of Tradeston) I do indeed, but I think it is also true that a company made up of 12,000 individuals which has the unique characteristic of having been a nationalised railway company which is taken into the private sector, is still in a state of change and it is therefore a very difficult culture, I would imagine, to try and manage. So I have got some sympathy with those managers who were trying to sort out all those dilemmas that they inherited inside a very difficult structure, a very complicated structure of that new privatised railway, but at the same time it should not be beyond a company with the resources of Railtrack to ensure that those issues are addressed urgently and the right people are recruited and the right board is in place.

  1016. But that ethos that those 12,000 people are working within is set by a board which was made up, until 12 months ago, of the Chairman of a supermarket, a number of people who have extensive experience in the property industry and the ex-Chief Executive of the Dome. Under what circumstances is the ethos they are setting within the board going to permeate down to those 12,000 people who are trying to run a railway?
  (Lord Macdonald of Tradeston) That must be a judgment for the Chairman and the Board of that company, informed by their stakeholders. I accept that the Government does have a stakeholding in it. All I can say is that you have the opportunity now, with the chairman having announced that he is standing down, to get a strong chairperson in there. I am sure the body will be very much seized of its responsibilities and, perhaps, need to extend the range of its experience in the light of what it has gone through in recent times.

Mr Donohoe

  1017. Have you happened to have read today's Herald?
  (Lord Macdonald of Tradeston) The Glasgow Herald? Sadly speaking, for my old newspaper, it arrives a day late, so I will not see it until tomorrow.

  1018. You will not have seen the headlines to suggest there is another problem looming, out of 690 new trains only three are going to run before May of next year?
  (Lord Macdonald of Tradeston) No, I have not seen that report. I was talking earlier today with Richard Branson who was very enthusiastic about the new trains that he hoped to bring on to the network.

  Chairman: Have you ever known Sir Richard when he was not enthusiastic?

Mr Donohoe

  1019. He has made an announcement about 14 times that these trains were going to run, maybe that is 15 times. In Scotland itself, have you seen yesterday's Herald which identified a problem with the new rolling-stock in Scotland? You must have read that by now if you get it one day late. That is magnified by every company across the whole network. What the Herald are saying today is that only three trains out of 690 are to be delivered and are going to run before May of next year, which is going to impact immensely on the industry. If you thought you had a crisis, as far as the industry itself is concerned, with Railtrack, the operating companies are going to have a major, major problem. The article does mention, in fact, that only one of Richard Branson's trains will run on time, the rest will not.
  (Lord Macdonald of Tradeston) Sir Alastair Morton is chairing various groups that are trying to push through the use of the new rolling-stock. I believe that if you look at the categories, if you like, the diesel and the electric rolling-stock, on the diesel side they have had quite a success in managing to get more into service, but there are continuing problems with some of the electrical units. One of the problems we have in this country is a lack of test track. I believe we are in a position where some of these trains have to be tested elsewhere on the continent.



 
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