Dáil Éireann debate -
Thursday, 25 Mar 1999

Vol. 502 No. 5

Telecom Éireann Board Resignations: Statements.

Minister for Public Enterprise (Mrs. O'Rourke)

I will be as quick as possible because we want to give time to other people.

The primary focus of Government in recent years in regard to communications has been on the introduction of strong and effective competition in the marketplace. Effective competition is rapidly being achieved and with the Government's decision last year to bring forward the date of full liberalisation to 1 December 1998, the pace of change is even faster. As the competitive landscape unfolds, the Government looks forward to Telecom Éireann expanding along with the industry in an increasingly competitive market.

The Government decided to proceed with the IPO of Telecom Éireann at the same time as it announced the full liberalisation of the market. Ireland's ambition to be a lead player in global e-commerce is dependent on a strong and internationally competitive telecommunications sector.

With all these changes it has been important to respond quickly and effectively. Different skills are required to drive this process forward and board changes are and have been part of this process. Mr. Brian Thompson was appointed as a director and chairman of the board of Telecom on 20 January 1999. Mr. Ray MacSharry and Mr. Jim Flavin were also appointed as directors effective from the same date. They were each appointed to the board for three years.

I learned on Friday, 19 March, of Mr. Thompson's impending appointment as chairman and chief executive officer of Global TeleSystems. I immediately instructed officials to discuss the matter further with Mr. Thompson and that took place over the weekend.

There is a limited amount of competition between the Irish operations of Global TeleSystems – ITL – and Telecom Éireann in that ITL resells minutes which it buys from Telecom at wholesale rates. Going forward, as both companies develop their businesses there are likely to be other areas of potential competition. The competitive interests of GTS and Telecom Éireann required that Mr. Thompson resign from his position as chairman to remove any potential or actual conflict between his roles as chairman of Telecom and his potential position in GTS.

Brian Thompson has made a substantial contribution during his tenure as chairman of Telecom. He has played a significant role in positioning the company for its forthcoming flotation. While I am disappointed he is not in a position to continue the role, I would like to wish him every success in his new post. We greatly appreciate his contribution to Telecom Éireann and his invaluable work in chairing the Advisory Committee on Telecommunicatons, which reported to the Government last November and which has become a blueprint. In addition to Mr. Thompson's work with the advisory committee, he has been an active member of the Ireland-United States Economic Advisory Board.

Following Mr. Thompson's departure I have appointed Mr. Ray MacSharry as chairman.

On Tuesday, 23 March, Mr. Ron Bolger, vice-chairman, tendered his resignation. It is with great regret that Mr. Ron Bolger has chosen to resign from the board. He has served Telecom Éireann well as a director and as a chairman and I thank him for his contribution.

I have appointed Mr. Pat Molloy as non-executive director with immediate effect. He is a former group chief executive of Bank of Ireland, chairman of Enterprise Ireland and a non-executive director of CRH. I am very pleased that a person of his calibre has accepted the position.

I am glad Mr. MacSharry has agreed to steer the company through the remainder of this process. I do not need to outline Mr. MacSharry's CV for the House.

I have also appointed Mr. William Ferguson as non-executive director. Mr. Ferguson is a former chairman and chief executive officer of the NYNEX Corporation in the United States. He has more than 40 years experience of the communications industry.

Mr. MacSharry's contribution as chairman, together with the other directors, will successfully steer the company through this historic phase of its corporate development. I also welcome the appointment last week of Mr. Malcolm Fallen as finance director.

The board met yesterday and the plans are advanced. I will be glad to take questions.

Mr. Yates

I regret this debate is taking place at a time of personal worry for the Minister. I want to convey my very best wishes to her and her husband. I regret we have to do our business against that backdrop.

Mrs. O'Rourke

I accept that but I do not want anything of a domestic nature to interfere with my professional job.

Mr. Yates

I will deal with this matter professionally and in a non-personalised manner. My concerns relate to Mr. Thompson's terms of appointment, what happened at the time of his appointment, the circumstances which led to his departure, the subsequent departure of Mr. Bolger and the circumstances relating to the appointment of Mr. MacSharry in the context of the largest ever flotation and IPO in the history of this State and the fact that the largest ever return to the Exchequer of up to £5.5 billion is at stake in terms of its valuation. These are matters of very serious public interest.

What concerns me most is that in January, the Government set out a criteria for the new board of Telecom Éireann in the context of the IPO. It meant a former Governor of the Central Bank, Mr. Maurice Doyle and an eminent professor of information technology, Gerry Wrixon, were not fit. Leaving aside any political appointments because they were apolitical people, we had to have a super-duper new board with very high standards of qualifications. The coup de grace in that regard was Mr. Brian Thompson.

When the Minister's officials were in discussion with Mr. Thompson, he was between jobs and had left Quest. This was a non-remunerated job, and I tabled a parliamentary question on whether he had share options, which would not be unreasonable in the commercial world, or extra remuneration relative to the previous chairman. Were there any discussions about his future employment? Did he give the Minister to understand, explicitly or implicitly, that he would or would not be seeking employment and if the conflict of a new job might conflict with his appointment as chairman? Did the Minister agree any tenure of office, any loyalty or exclusivity? It has been suggested to me that Mr. Thompson was very much above board and indicated that he may well take up another job. I do not know whether that it true so we need to establish that.

I assume Merrill Lynch and the advisers in AIB Capital Markets advised the Minister to make the board changes. Did they raise any questions in this vein about the loyalty and exclusivity of Mr. Thompson's appointment? I understand the dis cussions with GTS were going on for some considerable period before his appointment in the past week. Therefore, the period in which he was exclusively separate in terms of working for Telecom Éireann was perhaps a few weeks. So soon after his appointment, his resignation raises serious questions.

Does Mr. MacSharry's appointment meet the criteria the Minister set in terms of global telecommunications experience? It seems that it is reasonable to conclude that Mr. Bolger's actions show he was not consulted about Mr. MacSharry's appointment. My understanding from Mr. Bolger is that he resigned as managing partner of KPMG in 1995 to devote his full energies to his chairmanship of Telecom Éireann. He was appointed by Deputy Cowen originally and was reappointed by a non-Fianna Fáil Administration, so he is an apolitical figure. His record was impeccable and he perhaps deserved consideration for appointment. Was Merrill Lynch consulted about Ray MacSharry's appointment?

My point is that Ray MacSharry did not meet the criteria set out by the Minister and I do not believe KPM/Telia, the other shareholders, or Merrill Lynch were consulted prior to his appointment. Therefore, it was a hasty decision and more to do with his political CV. Remember Ron Bolger was involved in the flotation of Greencore and has an impeccable track record not only with Telecom Éireann but with flotations.

I now come to Mr. Mackay's comments. It was a cause of upset to some people that not everybody resigned from the board in January. Mr. Mackay said yesterday or the day before that Mr. MacSharry was the wrong person to appoint and that there was a crisis in the board. Is his position tenable? The Minister made one unsuccessful attempt to get rid of him. Will she make another? He is, as I understand it, the Tánaiste's nomination, so what is his position on the board?

The key issue is the sensitivity of investor confidence. Resignations so immediate and imminent to the draft prospectus being issued and the road shows taking place is not inspiring. I regret this has occurred and believe it would have been avoidable if prior care had been taken as regards the appointments.

Mr. Stagg

I am glad the Minister is here and am sure she has good news.

Eight weeks ago with great fanfare a gentleman of whom I had not heard of before, Mr. Brian Thompson, was hand picked by the Minister and imposed on the board of Telecom Éireann as chairperson. In so doing, she pushed aside the existing chairman, Ron Bolger, and forced the resignation of other board members, except Paul Mackay, the PD nominee, who told the Minister to take a running jump and that he had no intention of resigning. Of course, he had the full sup port of the Tánaiste in giving that message to the Minister.

Mrs. O'Rourke

He gave it to me himself.

Mr. Stagg

I am sure he did and he had plenty of support in so doing.

New smart people were appointed to replace the people who had brought Telecom Éireann from quite a low level to a very high one, and that included the outgoing chairman, Ron Bolger, and the other board members. They were pushed aside for these smart people. It is now clear the old fashioned money grubbing we associate with American capitalists was very evident in the character of Mr. Thompson and that he was indeed no ragged trousered philanthropist who wanted to give public service for £7,500 per year, less than the amount he would get on the dole. That was not the reason he took the job.

Mr. Thompson took the job because there was something on offer and there was a deal which he would get to do the job. I want to find out what the deal was. Obviously, the deal he got from the American company was better than the one he got here. However, he wanted to hold on to both and the Minister was effectively forced to sack the man she had hand picked and imposed on the board of Telecom Éireann. He left the Minister who had hand picked him in the lurch. I really wonder what attracted him to the position in the first place.

Most of all this is an indication of the Minister's poor judgment. I tie in somebody else I know very well into that poor judgment and that is the Secretary-General of the Department of DTEC, as we used to call it. I am certain his fingerprints are all over this appointment as well. That bad judgment was followed by a knee-jerk reaction decision to give the vacant job to a political crony. Mr. Ray MacSharry has many fine qualities. I remember selling him a calf at a fair in Ballinrobe a long time ago. He struck a hard bargain then and paid me £3 and five shillings for it. He has come a long way since then and fair play to him. However, he does not fit the CV which the Minister set out clearly on what was required for the chairman of Telecom Éireann. Again she passed over the man who stood aside previously, and humiliated him by appointing this person without the required CV. Ron Bolger had to resign immediately.

I am worried the new appointee, who is also a director of Ryanair, might bring the rabid anti-union ethos of that company into Telecom Éireann as well. I say to the Minister that to lose one board member might be described as unlucky but to lose two is careless in the extreme. In the face of the flotation with which we are now dealing, serious damage has been done. Independent observers like Senator Shane Ross have had to agree that damage has been done to the valuation of Telecom Éireann, to the actual worth of the company. The Minister should take time to rethink the strategy and postpone the proposed flotation of Telecom Éireann. Given that it cost £40 million to put this roadshow in place, this debacle, chronicle of ineptitude and series of bad judgment calls lies squarely at the door of the Minister and the Secretary General of her Department. Those two people must carry the can for this.

An Ceann Comhairle

The Minister used four of the five minutes allocated to her and she indicated she would share one minute of her time with Deputy Sargent.

Mr. Sargent

I thank the Minister for sharing a minute of her time with me. Many people are concerned about the issue of sensitive information being passed to the private sector. It must be clarified whether any conditions attached to the term of Mr. Ron Bolger as chairman of Telecom Éireann which would prevent sensitive information being used against Telecom.

I heard that people who attended a recent event in Westmeath, at which the Minister was present, said one would not want to catch the eye of the Minister as one might end up on the board of Telecom. I found that of interest. As Ray MacSharry is chairman of Coillte, that suggests Coillte is going down a certain road, which will also have implications.

The KPN Telia partner was not informed about the appointment of Mr. MacSharry until after his appointment, which seems to have been a gross discourtesy. Has that been clarified and does that partner accept the appointment of Mr. MacSharry?

Mr. Yates

Did the Minister, her Secretary General or any senior official of her Department ever discuss with Mr. Brian Thompson his plans for future employment while he was chairman of Telecom Éireann? Did she have an agreement, implicit or explicit, as to his tenure, loyalty and terms of appointment and, if not, why not?

Mrs. O'Rourke

I am extremely sorry to lose Brian Thompson. Ron Bolger has voluntarily retired, as did Brian Thompson. The appointments of Brian Thompson, Ray MacSharry and Jim Flavin were for three years. One cannot impose exclusivity or loyalty in the capacity of non-executive. Perhaps those issues should be addressed by Government in the future as we face privatisations of various kinds. For the £7,500 emolument offered, it would be incorrect to have made such assumptions. One could not provide for that commercially or financially. I was aware Brian Thompson had considerable experience and, therefore, was likely to be hit upon by other firms which might ask him if he was free or what could he do. I have no way of tying down anyone in that situation. We checked all other appointments at various times. Where an appointment is made for three or five years or for whatever tenure, both sides agree that in good faith, hope the friendship will continue and they will work together, but that was not to be in this case.

Mr. Thompson made every effort over last weekend, as did the officials who talked through with him exactly what he would be doing – I do not fault him – to check if this could be in accord with his job in Telecom. He even went so far as to check if the subsidiary could be offloaded or something of that nature, but that was not possible as it has been only set up. That shows how keen he was to keep the Telecom position, but that could not be done. If he had remained in that position, perhaps in two weeks' time we would be debating a far more serious matter, which I could not and would not allow.

The Deputy also asked about whether there was loyalty and exclusivity in the terms of Mr. Thompson's agreement, but that was not possible in those circumstances. It is not possible for a Government to impose that on any chairman. As soon as the potential conflict arose, there was no way I could allow it. It was put to me in good faith by Brian Thompson, but I would not allow any contrivement that would lead to such conflict.

Mr. Yates

From the Minister's answer, it seems it was foreseeable that Mr. Thompson could get another job offer. Surely his resignation was avoidable, if the Minister concluded he would jump ship. We are not talking about a period of three years, but a matter of months for the IPO. Was it not imprudent to appoint him in those circumstances, when he could and did quickly jump ship?

Mrs. O'Rourke

I never used the term "jump ship", the Deputy used it. Let us be clear on that. I neglected to say that Mr. Thompson chaired the e-commerce committee for six months in a voluntary capacity, apart from his travelling expenses, which he would have to be given. He gave two months of his time to Telecom and I understand from worker representatives and other directors that during that period he did enormous planning and strategic work on the board. That is generally recognised.

One would not expect a man aged 58 or 59 with his experience to refuse an offer of the magnitude made, having given eight months pro bono publico here and continuing on the Taoiseach's advisory committee. I would not have expected he would say no to this in that he had a tenure for £7,500. I expect he had hoped that any offers that would be made to him would not be conflicting. Last weekend we teased out whether there was a potential conflict and found there was one. Having discovered that, I did not react in a knee-jerk way. I could not and would not have it on my conscience or that of my Department that at this very important time a potential conflict of interest might arise in a week or two weeks' time. That would be wrong. If there was a potential conflict, it had to be immediately cut out.

Mr. Stagg

The Minister is recognising a bad decision she made. Nobody believes this man was working for £7,500 a year. Will she tell the House the deal for Mr. Thompson at the end of the period when the flotation would occur? Was he going to get a packet of shares, an enhanced salary or a contract for life? There was something there to attract him. What was there to attract this man, who can seemingly command millions in other areas?

When he did a bunk and left her in the lurch after she hand-picked him, will she agree she made another bad decision in not reappointing Ron Bolger, who had brought the company from a very low level to a point where it is worth £5 billion? Will she agree that arising from that serious damage has been done to the valuation of Telecom and that she should postpone or, at least, defer the flotation until the effect of what must for her be a nightmare, with the house of cards coming tumbling down around her, is corrected? I would like to see it cancelled.

Mrs. O'Rourke

That is not possible. We are certainly not going to postpone the flotation. Since this happened last weekend, the advisers have told me daily and emphatically that the flotation is on course, that the work is proceeding and that it is hoped the vision and strategy we have laid out will succeed.

I offered no deal to Brian Thompson. He was offered £7,500 and a three year tenure. If the Deputy is implying that I had some secret under the counter arrangement with him, he is incorrect.

Mr. Stagg

I am not implying it was under the counter but it may have been secret.

Mrs. O'Rourke

I have no secret—

Mr. Stagg

I am not saying it was illegal or wrong.

Mrs. O'Rourke

I have no secrets.

Mr. Stagg

It does not add up.

Mrs. O'Rourke

If the Deputy is impugning me by saying that I made some secret arrangement with Brian Thompson, he is completely wrong.

Mr. Stagg

I am not impugning anyone – I am just trying to get information.

Mrs. O'Rourke

There was no secret agreement with Brian Thompson in the Department, in Telecom or with me.

Mr. Stagg

There is something wrong somewhere.

Mrs. O'Rourke

He had already worked for six months in a completely voluntary capacity. He worked with this Taoiseach and with former Taoisigh, John Bruton and Albert Reynolds. He gave very great service to the Irish-US economic committee.

Ron Bolger was the vice-chairman of the board. I had five meetings with him in early January when we discussed the matter. He, naturally, would have liked to stay as chairman – everyone to whom I spoke would have liked to keep their positions.

I did not do this off the top of my head nor did the Secretary General. I had emphatic advice on the composition of the board. The point was not that the chairman should have international telecommunications experience but that the board should comprise people with certain attributes – people with international telecommunications experience, extensive corporate experience and experience of flotations. It was not that any one person or the chairman had to have particular attributes or qualities but that the board should have those attributes. The Deputy referred to £40 million. He is wrong if he thinks I got something out of that £40 million.

Mr. Stagg

I know politicians get nothing out it.

Mr. Sargent

The Minister claimed Mr. Thompson was working for the public good. Does that public good include Mr. Thompson and Ron Bolger being bound by confidentiality requirements when they move on to more fertile pastures? Has the Scandinavian partner of Telecom, KPN Telia, been informed officially of Mr. Ray MacSharry's appointment? Has it indicated it is satisfied with that? Why was it not consulted before that appointment was made? That is a fundamental question

Mrs. O'Rourke

The Deputy asked about confidentiality agreements. I thought I had the document with me but I do not. I sent copies of it to Deputies Yates and Stagg and left a copy in the Library. I will send a copy to Deputy Sargent. The document is the confidentiality agreement which was agreed between the ex-chairman and me last Monday. It is quite explicit. Ron Bolger is also bound by that and I will be writing to him in a similar fashion about that matter today.

Deputy Yates made that point on radio the other morning and I took strong note of it because it is very necessary they should be bound by such requirements. I have no doubt they will abide by that because they are both people of probity and good character. However, to fulfil my duties, we drafted a confidentiality agreement which is being sent to Ron Bolger today.

KPN Telia is in the Department this morning and this afternoon for a scheduled meeting. The officials tried very hard to contact the principals in the company on Monday afternoon—

Mr. Stagg

Do they not have mobile telephones?

An Ceann Comhairle

I wish to bring in Deputy Joe Higgins before the time expires.

Mr. Yates

Can I just say—

An Ceann Comhairle

I have called Deputy Joe Higgins.

Mr. Yates

Is there not a process-—

An Ceann Comhairle

I have called Deputy Joe Higgins. The Deputy had six minutes.

Mr. Yates

Can I ask a final supplementary?

An Ceann Comhairle

The order of the House was explicit—

Mr. Yates

The order was explicit as regards two Opposition parties.

Mr. Higgins

(Dublin West): Thank you for your fairness. Will the Minister agree that when one subjects publicly owned companies to the politics and culture of greed which dominate the cut-throat world of the multinationals, one finishes up with a shambles such as this one? Does she agree that publicly owned companies should be under the stewardship of those who are committed to public ownership? That was obviously not the case here because when a better offer was made to the former chairman we saw a clean pair of heels. Does the Minister agree that when she and her advisers thought—

An Ceann Comhairle

The Deputy must conclude.

Mr. Higgins

(Dublin West): I want to ask a last question.

An Ceann Comhairle

The Minister will not have time to reply.

Mr. Higgins

(Dublin West): Why did the Minister revert to type, circle the wagons and send out Mr. MacSharry, a member of Fianna Fáil, to do a bit of gunslinging when things were disastrously wrong? Will she explain why she went from a supposedly brave new step to old cronyism?

An Ceann Comhairle

The order of the House is that we must conclude now. We have exceeded the time allowed and must proceed to the next business.