Lord Tunnicliffe
Main Page: Lord Tunnicliffe (Labour - Life peer)Postal Services Bill
Lord Tunnicliffe Excerpts
Lord Tunnicliffe
( ) The arrangements must ensure that an equal dividend is paid from earnings to all participants in the trust.”
Lord Tunnicliffe
My Lords, we welcome the principle contained in this Bill which earmarks some of the shares for employees in the event that Royal Mail is sold. Introducing the Second Reading of the Bill, the Minister said:
“A commitment to employee shares was not a feature of the previous Postal Services Bill but it is an important addition to this legislation. I am pleased that it has support from all sides of the House”.—[Official Report, 16/2/11; col. 776.]
I am advised that during the debate on the 2009 Bill—I say I am advised because, although I sat through the many hours of the debate, it is now but a fading memory—we accepted representations from noble Lords, including the noble Lord, Lord Hunt of Wirral, to make provision for employee shares within the plans contained in that Bill. Of course, under the 2009 Bill, the Royal Mail would have been in public ownership, so when we said we would allow for employee shares, we were able to do so without a specific clause in the Bill at that time. Since we are all in favour of employee shareholdings in Royal Mail in principle, let me now turn to the amendment.
The benefits of employee share schemes have been widely recognised. They can include motivating employees to become more productive, helping to align the employees’ interests with those of shareholders, remunerating employees in a tax-efficient way, increasing loyalty and reducing staff turnover. Of course, employee share schemes cannot do all that on their own; they have to be part of a wider approach to good industrial relations. Employee shares will not be welcome if they are felt to be a sop, to come at the expense of pay or to be a substitute for the usual channels of interaction among management, unions and staff.
The government position is that at least 10 per cent of the shares of Royal Mail should be put into an employee share scheme. That is why our amendment proposes that 20 per cent of the company be made available for such a scheme. We know that any privatisation of Royal Mail will inevitably entail a lot of change and upheaval. Its success will rely heavily on the good will of the workforce and on improved industrial relations—and on those relations remaining improved. It would therefore be appropriate to give a greater proportion of the company’s shares to the workforce. Since this Bill is designed to achieve complete privatisation, with the Government having no direct say after the date of transfer, it is important to pin down in legislation how things are going to work. We accept the principle of employee shares, but employees need to know a lot more about exactly how the scheme would work.
First, we would like to clarify things by our suggestion that the proportion should be larger than 10 per cent. I will listen with interest to the proposal from my noble friend Lord Clarke about 25 per cent and to the Minister’s response to that—there may be complexities about 25 per cent that we will have to consider. However, we certainly urge the Government to provide for a 20 per cent share. We need to understand whether employees would really have to wait until the last Crown share is sold before being able to apply for any employee shares. We need to know what mechanism is going to be there to prevent shares going to employees one day and being sold within a year or two. If the purpose were to have employees feeling that they have a stake in the company, what long-term purpose would be served by passing shares swiftly through the hands of employees and back out to private institutions or hedge funds, even if the employees make a casual profit from the transactions?
We need to be clear that shares would be held on an equal basis with equal voting rights for each shareholder and an equal distribution of dividend. Would some shareholders be more equal than others? Will employees be able to act cohesively to influence the strategic direction of the company to some extent, albeit from a minority position? We would like to have greater certainty about eligibility criteria: who would be entitled to shares or share options and what would it mean in practice? Last, but not least, what proportion of costs would be borne by whom?
There is still much we would like to know about the scheme. Over the past 20 years in the industrialised world, there has been a significant increase in the proportion of employees who own shares in their own firms. This has happened in the UK, other European Union countries and the USA. By 2004, one-fifth of British workplaces had share ownership schemes, covering one-third of all private sector employees, encouraged by tax allowances. In evidence to the Public Bill Committee in another place, Carole Leslie, policy director of the Employee Ownership Association, said:
“I am a bit disappointed at 10%, because 10% to me is small, which means that you have to put more effort into giving employees that real voice in the company so that they do feel that it is theirs—they do feel that that ownership, if you like, is real and it is not a token”.—[Official Report, Commons, Postal Services Bill Committee, 09/11/10; col. 71.]
George Thomson, general secretary of the National Federation of SubPostmasters, said to the same committee that,
“if Royal Mail Group is privatised, I think there is a case for the postmen and the staff to own 20% of Royal Mail Group; for that to be mutualised as a concept so you do not sell your shares when you leave the company but leave them behind; and for the CWU to be on the board of the new Royal Mail Group. So I see it not just for Post Office Ltd. I see it as let’s do it right within Royal Mail Group. If it is going to be privatised to bring in private capital, there is a case for making it 20% of the shares, which are not sold on”.—[Official Report, Commons, Postal Services Bill Committee, 09/11/10; col. 29.]
An employee share scheme can take many different forms. We believe that it is best if we look at the possibilities now rather than leave it until the Bill becomes an Act, while there is time to design a scheme that will work best for Royal Mail.
The Bill implies some form of trust. However, it is unclear whether these shares would be held in trust, with a percentage of the dividend being paid out annually to each employee, or whether there would be a pot of shares to be handed out to individual employees as shareholders. If there is an offer of shares to employees of Royal Mail, how will this be made most attractive to employees? Will there be an offering along the lines of two or three for the price of one? Perhaps there should be multiple pots of shares for employee benefits, with one pot in the form of a share incentive programme or save-as-you-earn scheme to take advantage of the tax incentives. A further pot of shares could be set up for training, bursaries and so on, which could be held in trust. These rewards could also be linked to transformational targets.
It goes without saying that any structure proposed for the future Royal Mail must be stable, if it is to be genuinely for the good of its customers and its employees. Any change in the status of the ownership of Royal Mail should provide an ideal opportunity for setting up a scheme. I beg to move.
Lord Cotter
My Lords, in one sense I welcome the amendment. Speaking for these Benches and, I think, for the Government as well, I think there is no harm in the Postal Services Bill emphasising the importance of shared ownership. The issue has already been rehearsed, but I welcome the fact that it is being raised again. However, it is not necessary to say that 20 per cent or 25 per cent share ownership should be required. We on these Benches, and I think the Government as a whole, are determined to ensure that as many shares as possible are distributed.
Another issue that I feel strongly about, which I am glad is being rehearsed again—and on which I am sure the Minister will respond, as she has done previously—is that share ownership and the input of the employees into postal services are very important. I know that the Minister has accepted that already, and we on these Benches also think that it is very important.
There is no harm in having a discussion on these issues, but being specific about more than 10 per cent could be counterproductive. Much as we would hope that share ownership will be quite high, we want to ensure that a purchaser feels able to have a level of control of the company that the purchaser considers sufficient and appropriate. I would urge the Government to provide as many shares as possible for the postal services employees. In that sense I welcome the amendment, but we should not be prescriptive beyond the 10 per cent that we have said already. I look forward to the Minister’s response on the various questions when the time comes.
Lord De Mauley
My Lords, I thank the noble Lords, Lord Tunnicliffe and Lord Clarke, for tabling their amendments, and also thank my noble friends for their contributions. I should perhaps declare an interest; my wife owns and jointly runs a web-based mail order company that uses Royal Mail to deliver its products.
I am delighted that the noble Lords, Lord Tunnicliffe and Lord Clarke, agree with the Government about the attractions of the establishment of an employee share scheme. I say that in the most welcoming and genuine sense. We all agree that this key feature of the Bill will help to improve employee engagement and the culture of the company. We should not lose sight of the fact that the overriding purpose of the Bill is to safeguard the universal service and to secure the future of Royal Mail. A key means of doing that will be by introducing private capital. In deciding on the size of the stake that should go to employees, as my noble friend Lady Kramer said, the Government have had to balance giving a meaningful stake to employees with the imperative of ensuring the private sector investment that the company needs. This is a matter of judgment.
I will put in context the commitment that we are making through Clause 3. The minimum 10 per cent share requirement in the Bill is the largest statutory employee share scheme of any major privatisation. The share is unprecedented, and there is no doubt that it is meaningful. Most major privatisations did not even refer to employee shares in their respective Bills. Furthermore, the share schemes that eventuated offered smaller stakes: 5 per cent in the case of BT and British Gas, and less than that for the other utilities of electricity and water. Only Rolls Royce and BA came close, at 10 per cent and 9.5 per cent respectively. However, we are committed to at least 10 per cent.
I share with my noble friend Lady Kramer experience of advising companies in similar situations. I did that for nearly 20 years, and my experience convinced me that a requirement that employees should own at least 20 per cent, or even 25 per cent, of the shares in the company, as the amendments suggest, would jeopardise getting the investment that the company needs simply by virtue of the substantial size of that stake. We therefore unfortunately cannot accept the increases to the size of the employee share scheme proposed by these amendments. I hope that noble Lords will accept that what is offered is offered in good faith, and that to commit to more would prejudice our ability to achieve a sale.
The requirement to pay equal dividends to all participants of the scheme certainly has attractions. However, Clause 3 is designed to maintain as much flexibility as possible to design the right scheme. We would be ill advised to set in stone the form of an employee share scheme until we have more certainty on the form of the private sector investment. Furthermore, there are other equally sensible methods for determining the allocation of shares and therefore dividend payments. An example of another equally sensible method is length of service, for example. I therefore urge noble Lords not to restrict options at this stage.
The noble Lords, Lord Tunnicliffe and Lord Clarke, asked about the specific route to be followed. The noble Lord, Lord Tunnicliffe, helpfully compared, for example, share trusts against individual ownership. This subject will come up again in subsequent debates on amendments. In brief, some of the benefits of share trusts are that they can be structured to last indefinitely. Depending on their design, they would always keep the capital value of the shares within the trust. Against that, this may not be the appropriate form of scheme to motivate individuals, and we will assess the merits of a share trust and other designs at the appropriate time. Individual ownership clearly offers individuals the opportunity to build up a share pot while they are employed in the business, which they can benefit from when they retire or move on. Individual shares can also be better for employees, in that they offer a greater sense of ownership and can be more tax efficient. The noble Lord, Lord Tunnicliffe, suggested other options, which I found very helpful. This emphasises why it is important at this stage that we keep our options open.
The noble Lord, Lord Tunnicliffe, specifically pointed out some risks of going down the route of issuing shares to employees. As I have said, the exact form of the scheme is still being developed and will be likely to be dependent on the form of the private sector investment. If the share scheme allows for individual ownership of shares by employees, we will obviously explore the most appropriate way of encouraging employees to keep their shares for the long term. Many of the tax efficiencies associated with those schemes relate to a certain holding period, which could be incorporated into the scheme rules. Noble Lords should not assume that employees will automatically sell their shares. In its written evidence to the other place, ifs ProShare noted that two-thirds of BT employees retained their shares rather than selling them off.
The noble Lord, Lord Tunnicliffe, was concerned that there is no guarantee in the Bill that employees will get any shares until the Government have sold their entire holding. Employee shares are an integral part of our policy for Royal Mail, and we have committed to ensuring that there are shares within the scheme at the same time as private capital is introduced. This is the strongest legislative commitment of any major privatisation. The exact sequence of events in such a large and complex sale is difficult to predict at this stage. This means that we need to maintain a degree of flexibility about precisely when during the process the scheme is set up, so as not to complicate that process even further.
The noble Lord, Lord Tunnicliffe, quoted Employee Ownership Association evidence to the Commons Public Bill Committee, saying that 10 per cent was not enough. I might give another quote from evidence to that committee. Alexy Armitage of ifs ProShare said:
“Although they might not hold as much as 10 per cent, or more than that, they like the fact that they own shares in their company and they see that as a benefit and a worthwhile thing to do”.—[Official Report, Commons, Postal Services Bill Committee; 9/11/10; col. 71.]
That is at all levels, not just executives; it goes right through those organisations.
The noble Lord, Lord Clarke, was concerned about how to ensure that management does not get all the shares. I think that was the nub of his concern. He makes a very important point. As I have said, it is too early to get into the specifics, but we imagine that management will be able to benefit from the share scheme as well as other employees. However, the point is to incentivise employees and to give most of the shares to management would simply destroy that purpose; that is absolutely not the intent.
The future ownership of Royal Mail, by both private investors and its employees, will be inextricably linked. Within the important boundaries set by Clause 3, the exact size and form of the scheme will, therefore, be informed by the type and detail of the transaction. It is very important that we keep our options open, for the reasons mentioned by the noble Lord, Lord Tunnicliffe, among other things. I assure noble Lords who have taken part in this debate that their suggestions will be taken into account. I, therefore, ask the noble Lord to withdraw the amendment.
Lord Tunnicliffe
My Lords, I thank all those who have taken part in this important debate and the noble Lord, Lord Cotter, for his general support. I hope that his influence will be, as I think I heard him say, that as many shares as possible go to employees. I accept that this debate is about balance and we are obviously putting our finger on a particular balance. I certainly hope that the eventual situation is closer to our position than the minimum.
I thank my noble friend Lord Clarke of Hampstead for his contribution. I hope that the Government will look back at previous privatisations because they have not been universally successful in properly engaging employees through share ownership schemes. His other point, which supplements my own point, is important: that this must not be seen as in place of a proper relationship between employees, trade unions and the new company but must complement it and make the whole relationship stronger and more meaningful. He referred to the trust solution, and the closer we are to a trust solution than an individual-ownership solution the more comfortable we would be. We hope that the Government are thinking in that way.
The noble Baroness, Lady Kramer, said that this was a great improvement on the previous Government’s contribution. I am sorry that the noble Lord, Lord Hunt of Wirral, is not here to assure me that my recollection and research are correct, but my understanding of our debate is that we took the point on employee share ownership but because our Bill did not have a 100 per cent sale, it left within our discretion an ability to award shares—fairly late in the Bill we were persuaded of that situation—and therefore our advice was that we could bring that forward without the need for a specific clause.
The noble Baroness made the point that there must be a balance between the new owners and the employees, which I take on board—I think it is the same point as the Minister made. However, she said that it would be wrong to introduce too much complexity into the Bill. My reading of the situation is that this will be quite a lengthy process, and we are seeking as much clarity as possible in this area, because we want to create confidence in the workforce. The more that can be done to create that confidence, the better the outcome.
Lord Tunnicliffe
“( ) Any employee share scheme will be entitled to have at least one representative from the scheme on the board of any company operating the scheme.”
Lord Tunnicliffe
My Lords, we have just debated the merits of having an employee share scheme, for which there seemed to be general support on all sides of the Committee. We previously debated the merits of there being an employee representative directly appointed to the board of Royal Mail. That, too, garnered some support around your Lordships’ House—I particularly recall the powerful speech by the noble Lord, Lord Cotter. However, despite warm words for the principle by the Minister, on that occasion at least, she refused to incorporate any provision in the Bill on this matter.
The amendment proposes that the employee share scheme should be entitled,
“to have at least one representative from the scheme on the board of any company operating the scheme”.
That person might be an employee or an agent or expert or other representative chosen by the employee share scheme to represent its interests appropriately on the board of Royal Mail. As we have heard, one of the main purposes of an employee share scheme is to secure a greater identification and involvement of the workforce with the company. Given that the employee share scheme, most probably constituted under a trust deed, is the embodiment of this, it would seem a very sensible proposition to cement the relationship by affording the trust representation at the highest level of decision making in the company.
Postal workers already have a major stake in the company, as their livelihoods depend upon its viability. They are what my noble friend Lord Myners called “high-conviction” stakeholders—the sort of people who should make up the shareholder representation on the board—because, as well as being employees of the company, they have a cash stake in its success. I understand that where these schemes have worked successfully, an example being a Norwegian airline, employees go around switching lights off in offices and storerooms where they are not needed. That is the sort of personal involvement we would want to see.
Employee shareholders with a minimum of 10 per cent shares in what would be one of the country’s major private companies—a privatised Royal Mail—should be encouraged to take part in the work of the board of the Royal Mail. Postal workers have over many decades secured comprehensive negotiating rights on matters of national and local significance. This has meant that people in the workforce have some influence over their own working lives. They have made the workplace a better, safer, more amenable and rewarding place. Royal Mail management, for its part, fully accepts that the workforce has a say in workplace relationships. Sometimes there are conflicts but in most cases these are resolved by the usual pattern of industrial relations that has been established in the industry. The modernisation agreement in March last year has improved relations and allowed the company to go forward positively.
If there is to be an employee share scheme—and undoubtedly there will be one with the enthusiasm for it in all parts of the House—it is only right that it should be introduced with employee involvement and an employee voice. Placing a member on the board to represent the employee share scheme would be a benefit to both the workforce and the employer. Of course, one representative on the board would not be able to outvote the rest of the board, but that representative could ensure that he represents the viewpoint of the employee share scheme and the employees when a decision is debated and voted on in the new company. The workforce would see that there was someone who reflected the experiences and concerns at the highest level and the employer could have an immediate expression of the wider, long-term concerns of the workforce. I beg to move.
Baroness Turner of Camden
I support the amendment, which is rather similar to something that I put forward in a previous sitting in Committee. I got the impression then that there was general agreement on all sides of the House that staff representation is a good thing that everyone could support. Everybody seems to agree that the involvement and commitment of the staff are very necessary, indeed essential, for the new company to make progress and for the future of Royal Mail. For that reason, it is necessary to state clearly in the Bill that staff representation is essential. Indeed, rather than just “at least one representative”, I would suggest that it will probably be necessary to have more than one representative, but staff representation will certainly be necessary for the success of the scheme and of the company. Therefore, I hope very much that the general agreement around this idea commends it to the Government. If they do not accept this wording, I hope that they will accept something very similar before the Bill leaves this House.
Lord De Mauley
My Lords, I thank the noble Lord, Lord Tunnicliffe, for moving his amendment and all noble Lords who have contributed to this debate. While the idea of an employee share scheme representative on the board may well have merits, it is for Royal Mail and its shareholders to decide how it will structure its board, just like any other company would. Thanks to this Bill, Royal Mail’s shareholders will include its employees in the future.
The noble Lord, Lord Clarke, spoke from his experience of the vital importance of effective employee engagement and communication. The Government wholeheartedly agree with him on that. The employee’s shareholding is not the only way to create that engagement. I understand that there are a number of initiatives that Royal Mail is following at the moment which also contribute helpfully to that—for example, the world class mail initiative.
As we have already discussed, in the debate on Amendment 4 on Monday, we ask noble Lords to accept that it is not appropriate to impose the composition of a company’s board through legislation. In fact, I am not aware of a single precedent where such an imposition has been made by statute. Furthermore, if this amendment were passed, it would mean that in the future a fully independent Royal Mail, which had no government shareholding, would be obliged to request new legislation if the company or the employee share scheme were ever to want to change the way its views were represented to the board.
I am grateful to the noble Baroness, Lady Donaghy, for her recognition that the scheme will enhance the modernisation agreement concepts regarding fostering better relations between the company and its employees. She raised the fact of employee representation on the boards of some European companies. Of course, my noble friend Lady Kramer is absolutely right that their corporate structures are very different to the typical United Kingdom board structure. The noble Baroness also gently questioned the Government’s commitment to the concept. Perhaps I may tactfully say to her that, as the noble Lord, Lord Tunnicliffe, admitted in the debate on the previous amendment, the previous Government had to be pushed quite hard even to agree to contemplate an employee share scheme in the 2009 Bill; we are embracing this concept wholeheartedly.
Richard Hooper’s reports for both this and the previous Government stated clearly that Royal Mail must be freed of the “spectre of political intervention”. I ask noble Lords to accept that specifying the composition of the board in statute will not help with achieving this objective. I would therefore ask the noble Lord to withdraw his amendment.
Lord Tunnicliffe
My Lords, I thank all noble Lords who have participated in this debate, and I thank my noble friend Lady Turner for reminding us how modest this amendment is in providing for only “at least one representative”.
As so often happens, the noble Viscount, Lord Eccles, probably lighted upon the essence of the debate, which is the extent to which such a provision should be on the face of the Bill. It is about whether there is uncertainty for the new owner or not. We disagree on that point. We want the new owner to know that there is going to be at least one employee representative on the board—I have to admit that we want to discourage an owner who would have difficulty with that. We want to take away the uncertainty so that, when Government are negotiating for either a trade sale or some other form of disposal, the new owner cannot resile from this provision. We believe that any owner who would have difficulty with it would not be good for the interests of the Royal Mail in the long term.
My noble friend Lady Donaghy, whose chairmanship of ACAS was so important to a period of change in that direction, pointed out that, while the European structures are different, nevertheless the acceptance of significant board-level presence is part of their legal structure. There is significant employee representation, and large, successful European companies manage with that. Under the structure of our company law, the only way we can sensibly introduce such a requirement into the new structure is by including a provision about who should be on the board. It is a change of attitude, but we are living in a changing world.
I concur with my noble friend Lord Clarke of Hampstead that there was an important initiative in the 1970s on moving towards industrial democracy. I was involved in that on one side of the fence, many of my noble friends were on the other side, and we were starting to make some progress. In many ways I wish we had built on this so that we might not be having this debate now. We would probably be taking the involvement of the workforce for granted in the management of major companies, whether in the private or public sector, because we would have had years of experience of it working. I think that this is the time to set this down.
When I was on the government Benches, I always got a sense from my civil servants that, when they had run out of ideas, they scribbled on a piece of paper “Not appropriate”. Another one that they would come up with was, “It is unprecedented”. Of course, all law is about setting precedents, and we think that this is an occasion when this chance should be seized.
Clearly, I am not going to press the amendment today. We will read the Minister’s words with great care, but we may come back to the issue because I think it is an important marker of the style and the character of company that we hope Royal Mail will become. With that, I beg leave to withdraw the amendment.
Lord Tunnicliffe
Lord Tunnicliffe
My Lords, this repeats an amendment already discussed in the Public Bill Committee of the other place, because we still do not really understand why the Bill is drafted as it is, so in that sense this is essentially a probing amendment. The current draft gives rise to concerns that the employee share scheme could be designed for people other than employees of Royal Mail. Do that on a wide scale and all the benefits of introducing such a scheme, which we have been through in previous discussions, will be dissipated. Of course we accept the narrow definition in the Bill of the employees of Royal Mail only, which could exclude former employees, but who else do the Government have in mind by the use of the term “or include”? Could it be other public servants, customers or competitors? Surely the scheme has to be centred on and be for the benefit of the employees of Royal Mail, whoever it is owned by.
The fault-line here, as in so many issues raised by this side of the Committee—some with the support of other Benches—is that the answer is, “It will be all right on the night. Royal Mail is going to be sold to a wonderful company with all the virtues and none of the faults of big business”. I hope I will be forgiven for saying that, at the end of the day, it will be an average company because in the long term we are all average. We feel that this is the time for the Government to give a more specific response to this probing amendment in order to allay our fears. I look forward to hearing what the Minister has to say and I beg to move.
Lord De Mauley
My Lords, as the noble Lord, Lord Tunnicliffe, has explained, Amendment 21 relates to the scope of the employee share scheme. The words “or include”, which through his amendment he seeks to remove, allow the employee share scheme to encompass those employees of Royal Mail who work for its subsidiaries, even if those subsidiaries do not fall strictly within the definition of a Royal Mail company in Clause 2. Royal Mail has a number of subsidiaries that do not themselves directly provide the universal service, but would nevertheless be considered to be part of the overall company infrastructure and play an essential role. An example would be Royal Mail Estates Ltd, which oversees Royal Mail’s property portfolio. It is clearly our intent that those who work for any Royal Mail company be able to be part of the employee share scheme, but without the words “or include” in subsection (4), there would be significant legal doubt over whether the Government could extend employee shares to the employees of other group companies not strictly falling within the definition of a Royal Mail company.
We do not wish to create a situation where some staff in the group are barred by statute from being members of the employee share scheme. It would mean that they would not have the same incentives to engage with the business they work for and share in its future success. I do not believe that that is what the noble Lord, Lord Tunnicliffe, wants, and I therefore ask him to withdraw his amendment.
Lord Tunnicliffe
My Lords, it would be unprecedented for someone to rise from these Benches and say that they were wholly satisfied with the answer, and therefore I will not set that dangerous precedent. I will say that I like what I have heard, and I will study the noble Lord’s words with great care, but in the mean time I beg leave to withdraw the amendment.