Examination of Witnesses (Questions 1000
TUESDAY 12 DECEMBER 2000
CBE, AND MR
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
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
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
lostin some areas of track maintenance, for instance.
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
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
(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
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
(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
(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.
1011. It was quite public, was it not, Lord
(Lord Macdonald of Tradeston) As I say, I have not
seen the context or detail of it.
1012. Following up Mr Stevenson's remarks about
the amount of money that the Government has put into Railtrackand
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 privatisedthe 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
(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
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.
1017. Have you happened to have read today's
(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?
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