Will NR awayday bring returns?

Friday, September 11 2009

Picture 13

Tynley Hall, Conference Room.

(The ‘awayday’ referred to in the article is not actually taking place at Tynley Hall, but we had to have a picture. So we choose a photo of a room in a rather nice hotel in Hampshire where Dyspozytor used to organise such events in his shady past.)

Network Rail’s hundred or so members are enjoying a two day ‘awayday’ to discuss corporate governance. We have been sworn to secrecy regarding the location. “Don’t want hordes of placard waving customers trampling all over the golf course, do we old boy?” Ironically, it is the angry customers that are part of the reason the reason that NR’s members are enjoying their two days of luxury.

Each Christmas – New Year holiday brings misery to hundreds of thousands of passengers who suffer badly delayed trains or services cancelled altogether as civil engineering works over run. Each year, the Office of Rail Regulation imposes heavy fines on Network Rail for missing key targets. Yet every year, Network Rail’s remuneration committee awards senior directors very large bonuses! Clearly something is not right.

Network Rail is a not-for-profit company limited by guarantee. Imposing fines on the company does not hurt the shareholders – there are no shareholders! It does not hurt the executive directors – they continue to enjoy their bonuses. The fines only increases Network Rail’s costs and these are ultimately passed on to the passengers – a double whammy!

For some time now a debate has been gathering momentum about the mechanisms which are supposed to ensure that Network Rail is effectively governed. At Network Rail’s 2008 AGM, a group of renegade members including Lord Berkeley, chairman of the Rail Freight Group, and Rob Holden, the London & Continental Railways chief executive, forced through a resolution by 42 votes to 34 to establish a governance ‘Review Group’ 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.

Also in 2008, the House of Commons Transport Committee, in its report Delivering a sustainable railway: a 30-year strategy for the railways stated in its circumlocutory manner, we do not agree…that the governance structure of Network Rail is adequate… Passengers, Government and train operators all have a significant stake in the success of Network Rail. The current system where members are effectively approved by Network Rail’s Board, albeit indirectly, is inadequate. [emphasis added D.]

The NR Governance Review Group report has not been made public. (If you have the report do please send us a copy!) However, the Office of Rail Regulation did published the Report it commissioned from KPMG on Network Rail: Membership aspects of governance.  The reported noted that, members with experience of the railway industry agreed that the current membership structure and approach are flawed.

The views of the remaining Members differed both from this view and from one another! The report observed that the divergence of views seems to stem from a lack of consensus between Members about their role… this is not conducive to the exercise of effective governance.

Two particular issues emerged from the study. There is insufficient clarity about the role of Members and the way they are selected. Members also lack access to the information and analysis needed to take an informed view of Network Rail’s performance, including future prospects, and to hold the company to account efficiently.

The ORR has the option of requiring changes to Network Rail’s corporate Governance procedures through alterations to its licence conditions as part of the periodic review process. Let us hope that the output from today’s ‘awayday’ will make it unnecessary for the ORR to impose reform from above.



One comment

  1. I argue that reforms are needed because execs have too much power over corp governance. Ironically, the reforms would bring corps closer to the public interest. Anyway, I’ve just posted on it. If you are interested, you might check out the following: http://skipworden.wordpress.com/2009/10/24/corporate-partisanship-eclipsing-the-public-interest/

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