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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

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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 such--

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

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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.

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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.]

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