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The Relationship Between The National Enterprise Board And Rolls-Royce (1971) Limited

Volume 975: debated on Monday 10 December 1979

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General Principles

This memorandum of understanding about the relationship between the National Enterprise Board (NEB) and Rolls-Royce (1971) Limited (RR71) is based on certain general principles:

  • (i) Except as provided in this memorandum, RR71 is expected to continue to operate as far as possible on a normal commercial basis like a company in the private sector.
  • (ii) The NEB has no intention of usurping the responsibilities of the Board of RR71 or to intervene in the day to day management of RR71.
  • (iii) The NEB has however certain responsibilities in respect of RR71 as:
  • (a) the sole shareholder;
  • (b) a major potential provider of finance in the future;
  • (c) a public corporation with certain duties under the Industry Act 1975 and guidelines issued under the Act.
  • (iv) In exercising these responsibilities the NEB's prime concern will be to see that the Board of RR71 runs the company efficiently and successfully, since the performance of RR71 will have a major effect on the NEB's total performance.
  • The following provisions are designed to enable the NEB to carry out its responsibilities with the minimum disturbance to the normal operation of RR71 as a major industrial company.

    Composition of the Board

    Recommendations for changes in the composition of the Board of RR71 and for changes in remuneration will be put forward by the RR71 Board for approval by the NEB. It is accepted that, as sole shareholder, the NEB has ultimate responsibility for determining the composition of the Board of RR71, and approving its remuneration, subject to such arrangements for consultation with the Government as the NEB and the Government may agree from time to time.


    RR71's long-range plan and annual plans will be subject to agreement by the NEB.


    4. RR71 will be expected to supply to the NEB such information, in a nature and in a form to be agreed by RR71 and the NEB from time to time, as will enable the NEB to monitor the performance and financial prospects of the company.

    Capial Investment

    5. RR71 will seek approval from the NEB for:

  • (i) major investment programmes;
  • (ii) projects involving capital expenditure of £5 million or more.
  • Acquisitions and disposals

    6. RR71 will seek prior approval from the NEB for any proposal to acquire any of the share capital of a company:

  • (i) if its acquisition would entitle RR71 to exercise or control the exercise of 30 per cent. or more of the votes; or
  • (ii) if the value of the consideration for its acquisition, together with the value of any consideration paid for share capital of that company previously acquired, would exceed £10 million; or
  • (iii) if the cost of the acquisition would be £5 million or more.
  • 7. RR71 will comply with the restrictions imposed by Section 9 of the Industry Act 1975 which relate to acquisitions of businesses concerned with the media.

    8. RR71 will seek prior approval from the NEB for the sale of any voting shares held by RR71 or its subsidiaries.


    9. In order to enable the NEB to comply with Section 8 and Schedule 2(3) of the Industry Act 1975, RR71 will not borrow from sources other than the NEB without the NEB's approval.

    Wider Economic and Social Responsibilities of the NEB

    10. RR71 has agreed that, in drawing up its long-range and annual plans, it will:

  • (i) examine the case for locating any expansions of new undertakings in an area of high unemployment;
  • (ii) take adequate steps to provide for the full involvement of employees in decision-making at all levels.
  • Counter-Inflation Policy

    11. In negotiating terms and conditions of employment, RR71 will naturally ensure that settlements reached are consistent with the financial situation of the enterprise and with the requirements to be observed for the period up to 1 August 1976 as set out in the White Paper "The Attack on Inflation" (Cmnd. 6151).

    Early Warning Of Major Issues

    12. RR71 will be expected to warn the NEB, and the Secretary of State for Industry, in advance about any decisions which clearly have major Parliamentary implications.

    Contacts With The Government

    13. On all major issues affecting RR71's strategy, plans and performance and the NEB's responsibility for securing the efficient management of RR71, RR71 will deal with the NEB. The NEB will, however, be accompanied by representatives of RR71 at major discussions with Government of the plans of RR71 and will invite the RR71 representatives to explain the plans to the Government at those discussions. It will also be open to the Chairman of RR71 at any time to seek a meeting with a Minister, provided that the Chairman of the NEB is consulted beforehand and has the opportunity to attend if he wishes.

    14. RR71 will maintain its dealings with Government Departments on day to day matters, including dealings with the Department of Industry in its role as sponsor Department for the aero engine industry, dealings with the Ministry of Defence (Procurement Executive) on all matters for which it is responsible, dealings with the Foreign and Commonwealth Office, and day to day contacts with the Department of Employment on pay questions.

    15. When RR71 is brought within the Planning Agreements system, arrangements will be worked out by the NEB and RR71 in accordance with the principles set out in this memorandum.

    Channels of Communication

    16. The normal channel of communication on major issues will be between the Chairman of the NEB and the Chairman of RR71, supported as appropriate by contacts between senior staff of the NEB and their opposite numbers in RR71, to whatever extent is necessary to carry out the NEB's responsibilities, without intervention in the day to day management of RR71.

    17. The supporting staff of the NEB will agree a programme of discussions through the RR71 Chairman's office. Their purpose is to ensure that the Chairman of the NEB is properly informed. It is not to take part in the decision-making process of RR71 itself, nor is it in any way to act as an inspecting team. Both the NEB and RR71 will do their best to make the relationship a harmonious one and one of trust.

    asked the Secretary of State for Industry if he will publish in the Official Report the letter from Rolls-Royce to which he referred in the first full paragraph of column 168 in the Official Report of Standing Committee E for 27 November.

    The letter is as follows:"Dear KeithI am writing to confirm what I believe you already know—that is, that my Board are unanimously of the opinion that it is in everybody's best interests that the shares in Rolls-Royce should, in the forthcoming Bill, be transferred back to your Department.It would be much better for us, for reasons of which you are already aware, to be responsible to you direct and to deal with your officials than to remain under the NEB.My Board feel that I should write formally to express this view, notwithstanding the fact that I have just had an excellent talk with Adam Butler.Yours sincerely(signed) Kenneth".

    asked the Secretary of State for Industry on how many occasions since 4 May he has met Sir Kenneth Keith; what were the dates, places and purposes of these meetings; and at which of them Sir Leslie Murphy or some other representative of the National Enterprise Board has been present.

    Since 4 May I have met Sir Kenneth Keith on the following occasions:

  • 1. On 23 May I met Sir Kenneth at the Department of Industry, with the knowledge of the chairman of the NEB; our talk was of an introductory nature, prior to a subsequent meeting with the NEB chairman.
  • 2. On 1 August I held a meeting at the Department to discuss Rolls-Royce's financial prospects at which Sir Leslie Murphy and Sir Kenneth Keith were both present.
  • 3. On 19 September I lunched with Sir Kenneth Keith at Rolls-Royce's office; this replaced a visit I had been due to make, with Sir Leslie Murphy's agreement, to the company's Derby factory, which was postponed due to the industrial dispute in the engineering industry.
  • 4. On 31 October I accompanied Chairman Hua on his visit to Rolls-Royce Derby, when Sir Kenneth Keith was also present.
  • 5. On 6 November I met Sir Kenneth Keith at the Department to discuss his intention to give up the chairmanship of Rolls-Royce. Later in the day I was also present at a meeting at the House of Commons when Sir Kenneth informed the Prime Minister of his intention to give up the chairmanship.
  • 6. On 7 November I met Sir Kenneth Keith at the Department again in connection with his departure.
  • As I have previously informed the House, there have been other social occasions when I have come into contact with Sir Kenneth Keith. However, none of these occasions was at the Department or Rolls-Royce, no one was at my initiative, and at no one of them was there discussion of matters affecting the relationship between Rolls-Royce, the NEB or my Department.