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National Enterprise Board And Rolls-Royce

Volume 974: debated on Wednesday 21 November 1979

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With permission, Mr. Speaker, I should like to make a statement on the relationship between the National Enterprise Board and Rolls-Royce.

I have had in recent months to consider the relationship between the NEB and Rolls-Royce in the light of evidence of some friction over a considerable period. I have concluded that the friction is not a passing problem of personalities or a difference of opinion on the management of the company but is inherent in the relationship and would almost certainly survive a change of management.

Rolls-Royce is a company of a scale and importance such that the supervision of its board by another board, however eminent and accomplished, is bound to give rise to strain.

Moreover it is a company with which, inescapably, the Government have exceptionally close connections and where important decisions lie directly with the Government.

I therefore decided that in view of these two considerations, from which there is no escape, it would not be right to paper over the cracks but would, rather, be right to plan to remove the source of the difficulty.

Clause 2 of the Industry Bill now before the House will give me power to direct the NEB to transfer its shareholdings in Rolls-Royce to the Secretary of State, and I told the NEB of my intention to make such an order as soon as the Bill becomes law. This decision was in no sense whatsoever a reflection on the members of the NEB or their staff. Rather, it was a judgment that the role that they had been given in relation to this major company was, in the last analysis, not an appropriate one.

When I expressed to the NEB my intention I was told categorically that were I to adhere to my proposal all the members of the Board would resign. I was asked to reconsider. This I did.

Yesterday I told the Board that I did adhere to my proposal. The House knows that the chairman, Sir Leslie Murphy, and all the members of the NEB have resigned from their posts. I have accepted their resignations with regret. The Board was composed of distinguished people from business and trades unions who co-operated together to serve the country with dedication. I hope that this form of co-operation will become possible in the new Board.

The NEB has, as the House knows, important disposals to arrange and other continuing tasks to perform. It will have a catalytic investment role especially in connection with advanced technology and increasingly in partnership with the private sector; as well as its regional and small firms roles.

I am glad to tell the House that Sir Arthur Knight, chairman of Courtaulds Ltd, has accepted my invitation to take over the chairmanship of the NEB, with immediate effect. Sir John King, chairman of Babcock International Ltd. has accepted my invitation to become deputy chairman, and five other persons have similarly indicated their willingness to serve. Those five are: Mr. Robert Clayton, technical director of G.E.C.; Mr. Alec Dibbs, deputy chairman of National Westminster Bank; Mr. George Jefferson, chairman and chief executive of British Aerospace, Dynamics Division; Mr. Dennis Stevenson, chairman of Peterlee and Newtown Aycliffe new towns; Mr. John Caines, secretary to the NEB. I am deliberately leaving some places vacant. I have today written to the TUC about this.

The House will wish to know that, following the recent announcement that Sir Kenneth Keith wishes to retire from the chairmanship of Rolls-Royce after seven years' service, Sir Frank McFadzean has indicated his willingness to accept appointment as chairman.

During the course of the past few months we have had a number of disturbing statements from the Secretary of State, but none, I think, so disturbing as this. The right hon. Gentleman has constantly said in this House, that he would never interfere with the management of the companies with which he was concerned. In this case there can be no other explanation than that he has interfered in one of the most important questions of management in any company—[HON. MEMBERS: "Question."] If Conservative Members will wait they will hear the questions in due course. I am entitled to comment on a statement.

Order. The right hon. Member for Deptford (Mr. Silkin) is following a very long-established custom. When a statement has been made in the House comments from the Opposition Benches have always been permissible. However, they will include questions. I have no doubt.

There will be several questions, Mr. Speaker.

In this case the entire Board has resigned, including the non-executive directors. It is not the resignation just of the chairman. There have been occasions in the past where a Minister and a chairman have been at variance, and we understand that. In this instance, then, what is the reason for the resignation of the Board, and in what circumstances will the new Board be permitted to be created?

The five or six gentlemen whom the Secretary of State has named as the new Board know perfectly well that if they differ from him in any matter of management they will be out on their necks too. What sort of independence is that? How, in those circumstances, does the Secretary of State expect or even hope that the vacancies that he has left will be filled by trade unionists whose duty is to participate and who, as the right hon. Gentleman said, have played a distinguished part in the history of the National Enterprise Board and in their dedication to our country?

Is it not true that the chairman of the NEB, when presenting his half-yearly accounts, made a number of criticisms of the management and administration—particularly the financial administration—of Rolls-Royce, and that that statement had been endorsed previously by the Secretary of State? If that is so, how does the right hon. Gentleman reconcile that with his description of the difference between the holding company and the subsidiary company as a difference of opinion on the management of the company inherent in the relationship? It is not inherent in the relationship, and the right hon. Gentleman well knows it. It is inherent in the duty of the National Enterprise Board, as a holding company, to supervise and monitor its subsidiary company—[HON. MEMBERS: "Too long."] This is a most important matter, and Conservative Members should listen to it.

Since the agreement between Rolls-Royce and the NEB—an agreement in writing, the existence of which the Secretary of State and all of us are well aware—gives the right to the NEB chairman to be present at all discussions between the Secretary of State and the chairman of Rolls-Royce, will the right hon. Gentleman now tell us how many discussions, minuted or unminuted, he has had with the chairman of Rolls-Royce without the chairman of the NEB having been invited?

Finally, will the Secretary of State, who has not mentioned the matter in his statement, tell the House what his reaction will be to the open and avowed desire of Sir Michael Edwardes and BL also to cease being a subsidiary of the NEB?

I adhere to my view, formed over recent months that there is an inherent impracticability in expecting a high-powered board of an important international company such as Rolls-Royce to be supervised by another board, however distinguished, and to have its results monitored yet again by the Government. I was asked how many times I have seen the chairman of Rolls-Royce on his own. I saw him when he came to confirm to me what he had told my permanent secretary a year ago, namely, that he wanted to bring to an end his responsibility for Rolls-Royce at about the end of this year.

The board of British Leyland has also indicated its desire to be outside the National Enterprise Board. There are some similarities between British Leyland and Rolls-Royce in relation to the NEB. I do not regard these similarities as in any way complete. I must listen to the case that the board of British Leyland makes.

The Secretary of State has not answered two important questions. First, how many meetings and discussions have there been without an invitation being given to the chairman of the NEB? Secondly, why did the right hon. Gentleman endorse the statement of the chairman of the NEB about the financial administration and management of Rolls- Royce when he still maintains that it is merely a matter of protocol and nothing more?

I answered the right hon. Gentleman's first question. I said that I had had only one meeting privately with the chairman of Rolls-Royce. Of course, one meets both the chairman of the Board and the chairman of Rolls-Royce on occasions other than private meetings. The comments that the NEB has legitimately made about what it considered to be weaknesses in Rolls-Royce have been echoed by me and by Sir Kenneth Keith in his reports. Sir Kenneth has emphasised that now that Rolls-Royce—thanks to a most impressive team effort, led by him—has a huge order book, it has a great task to fulfil in financial control and improved productivity. That is common ground.

Is the right hon. Gentleman telling the House that he secured overnight the appointment of the five busy people he has named? Was he preparing the way for the enforced resignations for some time? Secondly, does he accept that the statement is astonishing, coming from a Government and a Minister so dedicated to non-intervention by government? Is this not yet another chapter in the rather sorry story of our failure to secure an independent and expert body to assist industrial investment in the mixed economy? Is the NEB going the same way as the Industrial Reorganisation Corporation?

About half way through the period between the NEB telling me of its categoric determination to resign if I adhered to my proposal and the final decision to go ahead with my proposal, I saw that there might be no possibility of a compromise that would be workable. Therefore, I set about approaching possible members for the new Board.

I do not regard what has happened as an example of improper intervention. I came to the conclusion that a separation between the NEB and Rolls-Royce was best in the interests of Rolls-Royce and the country. It was when I told the NEB, at the earliest possible moment, of that intention and was faced with its categoric intimation of intention to resign if I carried out a legitimate government function, that all these developments came about.

I do not regard the NEB as having completed its function. There is a Bill before the House that gives authority for a lesser but still important function to be undertaken by the NEB. We are lucky to have the new Board members whom I have announced today to preside over the NEB.

Will my right hon. Friend accept that he has done the right thing for Rolls-Royce in removing the source of friction of too many layers of control? Does he agree that for too long Rolls-Royce has been weak in financial control? Will he ensure that the new Board puts that right? In the longer term will he consider the possibility of finding a private sector solution for Rolls-Royce, as was always intended under the 1971 rescue plan, so that the taxpayer does not have to take the full burden of all the financing of the company?

I agree with all the propositions and hopes expressed by my hon. Friend.

Does the right hon. Gentleman agree that to run a great public company it is necessary to have the collaboration and co-operation of the work force—which the right hon. Gentleman has wilfully thrown away with his contemptible treatment of the NEB—and proper public accountability, such as the Board provided? Is he now going the whole hog and returning Rolls-Royce Limited to the position that it faced before the nationalisation of 1971, and flogging it off to GEC? Will he give a categorical answer?

I am sure that the House would be surprised if I did not hope that Rolls-Royce would finish up firmly and profitably in the private sector. However, that time has not arrived. With the arrival of so strong a new board I do not believe that there will be any damage to industrial relations within Rolls-Royce.

Is my right hon. Friend aware that we sympathise with him for having become involved in a quarrel between the NEB and the board of Rolls-Royce, and that his decision, which he alone could take, was not honoured by the Board of the NEB? In our proceedings in Committee on the Industry Bill we are discussing the NEB in some depth. Will my right hon. Friend consider adding a clause to the Bill to enable a gentle rundown of the Board over the next two to three years?

I am not casting any aspersions on the behaviour of the NEB Board. It took a view different to mine about the effectiveness of the relationship between the NEB and Rolls-Royce.

May I remind the right hon. Gentleman that Rolls-Royce was in private ownership when it went bankrupt? Will he be explicit in answering the question asked by my hon. Friend the Member for Derby, North (Mr. Whitehead)? Will the NEB Board have the same power and authority with new members?

The NEB will have the same statutory responsibilities for Rolls-Royce as it has now unless and until the Industry Bill allows the Government to transfer the shares from Rolls-Royce to the Secretary of State.

Is my right hon. Friend aware that there is a widespread feeling among the staff of Rolls-Royce that it will not be able to market its technical excellence more profitably, as we know it must, until there is a return to genuine public ownership along the lines of the solutions that we are now proceeding with for British Airways and British Aerospace?

Rolls-Royce has a task to perform in working towards profit before that will be practicable.

Did the right hon. Gentleman admit to my hon. Friend the Member for Burnley (Mr. Jones) that until the Industry Bill obtains Royal Assent he does not have statutory authority to require the NEB to divest itself of Rolls-Royce? Therefore, is he not be-behaving ultra vires?

Secondly, is the right hon. Gentleman aware that many of my constituents who work in companies owned by the NEB, or in which the Board has shareholdings, are fearful for their future now that a Board of proven integrity has been replaced by a gang of stooges whose only qualification for appointment is that, unlike the present Board, it is ready to do the Secretary of State's bidding?

The only contemptible behaviour is that of the right hon. Gentleman, who is constantly seeking to stir up fears—I believe totally ineffectively—in the minds of those who work in companies with which the NEB is involved. I am not acting ultra vires. I have never pretended that the Government have power to transfer the shares under present legislation. I thought it my duty, and only honourable, to tell the NEB at the earliest possible moment of my intention to use the power contained in clause 2 of the Industry Bill to shift the shares into the Secretary of State's hands.

As my right hon. Friend thinks it right to persist with this Socialist millstone, would he at least give some consideration to reducing the numbers on the Board, consistent with the reduced, and reducing, responsibilities that it is supposed to be taking on.

I can go some way towards meeting my hon. Friend. While the NEB does have a continuing and important role, the role envisaged by the present Government is less widespread and less considerable than that envisaged by the previous Government.

What will be the implications, if any, of the right hon. Gentleman's statement on the position of the northern NEB?

Subject to the decisions of the new Board, which I imagine will not be different from the old on this matter, none.

The Secretary of State said that it would be inappropriate for a board such as Rolls-Royce to be subjected to a Board as eminent and capable even as that of the NEB. Does he therefore believe that the civil servants to whom the Board will now be answerable are more eminent and more industrially capable, or does he foresee Rolls-Royce having less supervision from the public sector?

That is a valid question. The role of the Department will be entirely different from that of the NEB. The Department will help me to fulfil the role of shareholder on behalf of the country. We do not have a management or a holding company function, as the NEB legitimately considers itself to have. There will not be any tendency to intervene in management. We shall ask probing questions in order to assess the performance of the management because the ultimate sanction of the Government is to change the management.

The departure of Sir Leslie Murphy and Co. will not be greatly missed. The new Board sounds a vast improvement. In his departmental dealings with Rolls-Royce, however, will my right hon. Friend bear in mind that the company has shown a daunting appetite for the taxpayers' cash and a rather light-hearted attitude towards the return on the orders that it wins around the world? Will he assure the House that there will be the early appointment of a chief executive to this company and that the company will be required still to observe the target return on assets that the NEB set for it?

I believe that the House should have confidence in the proven capacity of Sir Frank McFadzean to look to the management-effectiveness of Rolls-Royce.

Would the Secretary of State care to be drawn more on why he requires a buffer between his Department and the smaller companies and the highly technological companies, but no buffer in the case of a complicated company like Rolls-Royce?

The hon. Gentleman speaks as though I invented the NEB. I inherited it. As such, it has a large number of equity situations, most of which I am expecting it to dispose of.

How does my right hon. Friend see the new role of the new NEB in its surveillance of the development of taxpayers' money? He spoke of its having a catalytic role, but he also said that he does not want to see it supervising another board. How is the new NEB to ensure that it is safeguarding taxpayers' money that is voted from this House? Can he explain the new role of the Board in that regard?

Yes. My hon. Friend may have heard the speech with which I introduced the Second Reading of the Bill spelling out the role. The NEB will have a relatively small amount of taxpayers' money. It will be primarily concerned with encouraging private enterprise into ventures of high technology and in regional and small firms' roles.

Will the right hon. Gentleman admit that the appointment of McFadzean, which he announced today, is simply a reward for the political connivance in which he indulged while—disastrously—purporting to be chairman of British Airways?

Sir Frank McFadzean is a man of admirable qualities and performance, patriotism and integrity.

As my right hon. Friend has said that the Industry Bill has not yet passed into law, can he tell the House whether he was told by the outgoing chairman of the National Enterprise Board why the Board felt that it could lay down its work overnight rather than continue, during a period of notice, to discharge its responsibility to other NEB businesses?

My hon. Friend must ask Sir Leslie Murphy and his colleagues that question direct.

Given past dealings with Rolls-Royce, in what sense can the right hon. Gentleman seriously believe that his civil servants will be a tougher and more effective watchdog than the NEB? Is it not nonsense to talk of non-interventionism and maintaining the confidence of the business community when the Government will be forced to intervene directly and in detail in Rolls-Royce and when this decision was taken in the teeth of the strong advice of the Government's own business appointees?

We shall not be intervening in detail in the management of Rolls-Royce. We shall be monitoring, as shareholders, its performance.

Does my right hon. Friend agree that the friction that he has portrayed between Rolls-Royce and the National Enterprise Board is likely to exist between that body and the other companies in the National Enterprise Board? There is therefore a good case for returning these other companies to the private sector as soon as they can face it.

The declared policy of the Government, accepted by the old NEB and the new one, is precisely to return the bulk of its assets to the private sector as soon as possible. There is no evidence at all, apart from British Leyland, of any friction between the managements of the other, much smaller, companies and the NEB.