Network Rail Governance Review

by

Ian McAllister

Network Rail Chairman, Sir Ian McAllister, is not very happy. First there was the New Year fiasco, when more than half a million passengers found their trains cancelled as engineering works over ran in London, Rugby and Glasgow. He was away from his desk at the time and his comment, that if he had returned to work he would have only ‘got in the way’, didn’t play the way he had hoped in the media.

His image should have improved when he was awarded a knighthood. Unfortunately, the Office of Rail Regulation chose the day of his investiture to announce that they were fining Network Rail £14 million for systemic weaknesses in the planning and execution of their engineering work. This was followed by irritating reports in the quality press that Rail Under secretary Tom Harris had appointed a team of head hunters to look for his successor. Of course the story was quickly denied, ‘prudent succession planning’ was the official explanation, but the damage had been done.

Norman Baker, the Liberal Democrat shadow Minister of Transport, didn’t help matters with his comment, “This sounds like a huge fine, but it is a pointless one. All it means is Network Rail will have £14 million less to invest in railways, and the Chancellor £14 million more in his coffers. This is actually bad news for passengers. The only sensible leverage over Network Rail in its present structure is to penalise directors through their bonuses.”

Just as people were beginning to forget about the New Year catastrophe, and Sir Ian was hoping that he could pay his top directors their performance bonuses without generating any fuss, the Transport Select Committee had the effrontery to dredge the matter up all over again.

14. It is quite extraordinary for Network Rail to reward its senior managers with huge financial bonuses in a year where passengers have been humiliated and inconvenienced by three separate major engineering fiascos, where an entire catalogue of management failings has been laid bare for all to see, and where a record fine has been imposed for breach of the Network Licence. It is a gesture which adds insult to injury for the long-suffering passengers who have had to struggle with the consequences of the company’s failings. If Network Rail’s members cannot, or will not challenge and block such a move, they are not a body worth having.

Some of Network Rail’s members took the hint and a resolution was duly proposed for Network Rail’s AGM which would have limited the bonuses paid out to senior directors. Sir Ian and his board blocked the resolution. Philip Davis, chairman of the Network Rail member steering group and a West Midlands councillor, and Lord Berkeley, another Network Rail member and chairman of the Rail Freight Group, countered by briefing the press.

At this point Sir Ian lost the plot. It can happen to any busy professional when he takes his eye off the ball. After all, he does have to find time for his Network Rail job when he is not busy working as the chairman of the Carbon Trust and as a non-executive director of Scottish and Newcastle. In a letter to Network Rail members he complained, Given the open and ongoing dialogue between us, I am disappointed to see that two members have felt it necessary to take directly to the media an issue without discussion with us previously. It is my view that we should debate our issues in an inclusive way, so that all members can express their views in the hearing of others. He just didn’t see the contradiction that by declining to debate the bonus issue at the AGM, he had denied Network Rail’s members the opportunity to debate our issues in an inclusive way.

Many Network Rail Members were furious, while Tony Berkeley quickly swung into action with Plan ‘B’. Perhaps this had been his intention all along? He sent out another letter to members urging a change in Network Rail’s corporate governance, saying the current systems did not work and the company was not being held to account by anyone.

If NR were structured as most private-sector companies, its shareholders might have something to say . . . we have nothing like the power or the responsibilities that go with owning large blocks of shares, and of course the NR board effectively appoint us. Even if we wanted to, we cannot easily organise ourselves. In other words, one can argue that there is a democratic deficit in the corporate governance structure of NR,

Tony Berkeley and his friends succeeded in pushing through a resolution calling for the setting up of a review group made up of 12 National Rail members to consider the effectiveness of the company’s corporate governance practices, with particular reference to the accountability of the board to its members and of its members to the company’s wider stakeholders.

The resolution stipulated that, “The reasonable costs of the review group, including any advice that it seeks, will be met by Network Rail.”

The motion was carried by 42 votes to 34 – with four abstentions. Sir Ian is reported to be furious. In BTWT’s humble opinion, Lord Berkley, who has been campaigning for years to get long distance freight traffic between the UK and Europe transferred to rail, would make an excellent successor.

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