I move:
That Dáil Éireann approves the following Order in draft:
Worker Participation (State Enterprises) Order, 1996,
a copy of which Order in draft was laid before Seanad Éireann on the 13th December, 1996.
Worker Participation (State Enterprises) Order, 1996: Motion.
I thank Members of the Seanad for the positive reception they gave the principal Bill when it was discussed here and the excellence of the contributions on that occasion. I also want to take this opportunity to wish the Members of the House a very happy Christmas.
The draft order which Seanad Éireann is being asked to approve is part of arrangements for the restructuring of the board of Telecom Éireann following the conclusion of a strategic alliance between Telecom Éireann and the KPN/Telia consortium.
The draft order is to be made by the Minister for Enterprise and Employment under section 23 of the Worker Participation (State Enterprises) Act, 1977, as amended. Under section 4(4) of that Act, a draft of an order proposed to be made under section 23 must be laid before each House of the Oireachtas and may not be made until a resolution approving the draft has been passed by each House.
The legislation enabling the strategic alliance and the associated board restructuring is the Telecommunications (Miscellaneous Provisions) Act, 1996, which was recently enacted by the Oireachtas. Senators will recall that these issues were extensively debated by the House during consideration of the Bill. I propose to briefly review the purpose of the strategic alliance for Telecom Éireann and then outline the purpose of this order and its place in the context of the strategic alliance.
Telecommunications have an increasingly important role to play in modern society, not only for economic reasons but also for social, personal and leisure purposes. Telecommunications are becoming more and more important as a driver of economic growth and job creation. To maintain and further improve Ireland's economic competitiveness and job creation potential, Ireland must have a top quality telecommunications sector. The Government's objective is to achieve a telecommunications sector which is in the top quartile of OECD indicators of price competitiveness, quality and availability as soon as possible.
The telecommunications sector itself is undergoing a revolution. Developments in technology, rising customer demand, global-isation of business, liberalisation of the sector and competition are all contributing to this revolution. Telecommunications companies which do not adapt to this rapidly changing situation will not survive.
Telecom Éireann, like all other telecommunications companies, is subject to this changing environment. It is essential that Telecom Éireann be equipped with the capacity to survive and succeed in this new environment. This is not just to protect Telecom Éireann; it is because a successful Telecom Éireann will play a major part in the achievement of our objective of bringing about a top quality telecommunications sector for Ireland.
Telecom Éireann has made considerable progress in adapting to the new circumstances by, for example, improving its financial structure and reducing prices. However, further progress must be achieved if it is to become a successful company in the new competitive marketplace. In order to accelerate the further development of Telecom Éireann, the Government and the company agreed that it should form a strategic alliance with a major telecom operator. Furthermore, it was agreed that the best way to secure a successful long-term strategic alliance would be to enable the partner to take an equity stake in Telecom Éireann.
The Government and Telecom Éireann sought a partner which would have the necessary commercial and technological experience as well as the capabilities and commitment to support the company in growing and developing its business. The Government approved a mandate for negotiation of a strategic alliance in July 1995 and, following an open and competitive selection process, it approved the signature of an alliance agreement with KPN/Telia in July of this year. A key element of the deal is the fact that 85 separate strategic initiatives have been agreed between Telecom Éireann and the consortium. These provide a comprehensive strategic support programme involving technical support, expert and managerial assistance, software and system improvements across all business categories.
When the strategic alliance agreement is concluded, the process of accelerating the transformation of Telecom Éireann can begin with the assistance of the strategic partner. The success of the alliance will depend on co-operation among all interests involved in the company: the Government as the main shareholder, the strategic partner, the company management and, not least, the employees.
The employees, in particular, will be in the front line in bringing about improvements in the company's operations. It is important that they have a voice in the further development of the company. Up to now the Worker Participation Acts have provided for the participation of employees in decision-making processes of the company through representation at board level. The arrangements which have been agreed, and which I will describe more fully later, provide for the continuation of this arrangement although in a slightly altered form.
However, a further opportunity is made available by the strategic alliance for employees to participate in the fortunes of the company. The Telecommunication (Miscellaneous Provisions) Act, 1996, enables the company to issue, and the Minister to transfer, shares in the company for the purpose of employee shareholding schemes. The Government's intention is that the terms under which the shares will be issued will be to encourage active participation by employees as shareholders in the company and that the scheme should facilitate the continued improvement of the company's customer service, quality and commercial success. Proposals from unions for an employee shareholding scheme have been received and these are being examined at present prior to the commencement of detailed negotiations.
I am satisfied that the arrangements made for the participation of employees in the future development of the company will enable them to make a meaningful contribution to the future direction of the company. This draft order, which includes arrangements for employee directors under the Worker Participation Acts, is part of these arrangements.
The Worker Participation Acts apply to ten State enterprises in total, including Telecom Éireann, and provide for the election of employee directors to the boards of those enterprises. In the case of nine of the enterprises involved, all nine being commercial State enterprises, one third of the board positions are reserved for employee directors. In the other case, a non-commercial State enterprise, provision for less than one third exists.
Currently, the board of Telecom Éireann consists of 12 members appointed by the Minister, of which four are employee directors. This is clearly appropriate where the State is a 100 per cent owner of the company and where the Minister has power to appoint all the directors. The strategic alliance involving the Government, Telecom Éireann and the KPN/ Telia consortium provides for the sale of up to 35 per cent of the equity of the company to the consortium as part of the arrangement. The consortium, as a substantial shareholder in the company, will be entitled to representation on the board of the company. In that case, a revision of the board structure in order to balance the interests of the Government, the strategic partner and the employees, is required. The provision reserving one third of the total number of seats on the board for employee directors is no longer appropriate in these changed circumstances. It is more appropriate that the number of employee director seats should be determined by reference to the number of directors which the Minister is entitled to appoint.
The Government agreed, in the context of the strategic alliance transaction, that the consortium will be entitled to appoint three directors to a board of 12, reflecting their shareholding in the company. In restructuring the board, the Government sought a solution which would satisfy a number of essential requirements. These are the need to preserve effective control for the State's majority shareholding; the representational interests of the strategic partner; the objective of maintaining a small to medium sized board for the purpose of effective governance and the need to have meaningful employee representation at the key decision making forum in respect of company operations.
On the basis of agreement with the strategic partner and following intensive discussions with the trade unions in Telecom Éireann, the Government has agreed a board structure as follows: seven members, including the chairman and chief executive, appointed by the Minister; three members appointed by the strategic partner and four employee representatives. Two of the employee representatives will be appointed as directors on the basis of an election under the Worker Participation (State Enterprises) Acts. The other two employee representatives will be alternate directors, appointed on the basis of the results of an election under the Worker Participation (State Enterprises) Acts. The alternate employee directors will be entitled to attend all board meetings but not to vote, except in the absence of the directors to which they are alternates.
When an employee shareholding scheme in Telecom Éireann is established, the members of the scheme will be entitled to nominate a director for appointment to the board by the Minister. In that event, the employee director who was second placed in the last election will become an alternate director and the term of office of the alternate director who was placed second of the two alternates in the election will expire.
The purpose of the draft order is to facilitate the restructuring of the employee representation on the Telecom Éireann board in accordance with the arrangements I have outlined. The order will fix the total number of members of the board of the company for the purposes of the Worker Participation Acts and the number of members to be appointed under the Worker Participation Acts.
The Telecommunications (Miscellaneous Provisions) Act, 1996, provides that an order under the Worker Participation Acts, in relation to the board of Telecom Éireann, may specify that the number of employee directors shall not exceed one third of the number the Minister is otherwise entitled to appoint. The draft order provides that the number of directors of the company will be 12 and that, of those, two will be appointed under the Worker Participation Acts. This is the only provision of the order. However, in addition, the Telecommunications (Miscellaneous Provisions) Act, 1996, enables the Minister to appoint two alternate directors to the board.
The restructuring of the board of the company will take place as soon as the strategic alliance transaction is concluded. It is intended that the draft order will come into effect following the conclusion of the transaction. As well as this order, certain further steps will be taken to complete the restructuring of the board of the company. These include the expiry of the terms of office of two of the current employee directors, the appointment of those persons as alternate directors and the appointment to the board of the three nominees of the strategic partner.
The draft order is one element of a process aimed at preparing Telecom Éireann for successful development and growth in a new competitive telecommunications environment. The implementation of the strategic alliance is essential to enabling the company to achieve that success. The board of the company will have a key role to play in guiding the company to success in this new environment. The new board structure for the company has been carefully balanced to reflect the various interests involved and I am satisfied that this will facilitate the effective performance of its functions. I am also pleased that the employees of the company will continue to have a meaningful representation on the board of the company in this new arrangement.
I commend this resolution to the House.
In broad terms, I accept the thrust of this order and normally there would be little discussion about it. However, I wish to pose a number of questions regarding Telecom Éireann.
Following changes in Telecom in recent years, the quality of the telephone service provided to the ordinary subscriber has suffered. I say this as someone who uses the telephone for work purposes on a 24 hour basis. Changes in staffing levels and the kind of attention given to customers have led to a fall in the standard of service provided by Telecom. With regard to delays in contacting someone or receiving messages from one's answering service, at night one could wait up to two to three minutes to obtain a telephone number from directory inquiries. At present, customers are treated in an appalling manner by Telecom Éireann.
I draw the Minister's attention to the way 087 numbers are being sold. We were told this service would provide security against those earwigging on telephone conversations with scrambling machines. The 087 numbers were considered a must for those who wanted to conduct business confidentially. Efforts to introduce the 087 number are a disgrace. Telecom Éireann is not reinvesting the enormous income accruing to it from 087 numbers.
I greatly respect this Minister who is a man from the midlands. As I said before, he is the best Minister of State in this Government. Does he agree with this deal? As a member of the Labour Party, is he satisfied we got value for money for the 35 per cent share? While I do not believe it is a good deal, I recognise it was necessary to have a partner. Our market is so small that we would have been swallowed up in the long term, particularly with the opening up of the industry. Will the Minister of State confirm he is happy with this deal?
I welcome the statement by the Minister for Transport, Energy and Communications, Deputy Dukes, in this morning's newspapers that there will be no further increase in charges for the next five years. That will be welcomed by telephone users and those who depend on it. However, costs are still too high and I suggest they be reduced over the next two years.
I accept the Minister had to amend the legislation to take account of the new partners. However, former worker directors have a role to play. There is an active former worker director on the board of Bord na Móna who makes a considerable contribution because he worked in the company for over 40 years and knows the industry inside out. While the Minister may only appoint a certain number of worker directors, perhaps former worker directors could be considered.
This is a straightforward issue arising from the Telecommunications (Miscellaneous Provisions) Bill, 1996, passed by the House a few weeks ago. We are being asked to approve an order arising from that legislation. I understand an order is required under section 23(1) of the Worker Participation (State Enterprises) Act, 1997, to reduce the number of worker directors under the provisions of the Act from four to two. An ingenious arrangement has been made to preserve, to a large degree, the presence of four worker directors. Two will have voting powers and there will be two alternates.
An ingenious arrangement has been made and I see no reason to disagree with it. The strategic alliance between Telecom Éireann and the KPN/Telia consortium will benefit all concerned, particularly users. We also cannot ignore that what is proposed enjoys the support of the unions in Telecom Éireann and the other interests which negotiated the deal and enabled it to be brought before the House. It is interesting that both companies have in the past provided for worker representation on their boards.
There is no reason to do anything other than support this order.
I congratulate the Minister on this order. Senator Howard called it an ingenious solution and I agree. Previously there were 12 members on the board. That number is unchanged but, as three of the members will represent KPN/Telia, the presence of four worker directors would constitute an excess of one-third representation. The solution of allowing four worker directors to attend board meetings but allocating only two votes to them is ideal and worthy of Solomon.
With regard to the concept of worker participation on boards, modern thinking refers to "stakeholders" in companies. Stakeholders are not just limited to those who work in the company but are considered to include shareholders, employees and customers. People in Ireland have not yet understood the real benefit of competition for what are traditionally State run enterprises. This applies not just to Telecom Éireann but to the ESB and other bodies and I am not thinking solely of State run versus privately run enterprises.
It would be marvellous if we had State organisations which could compete with non-State organisations. We must move quickly into that world and Telecom Éireann is already doing that. There is a degree of competition in that sector and there will be more shortly. However, there must be a change of attitude and culture. We still tend to think that if an enterprise is State owned it is ours but if it is privately owned it is only performing for the greedy owners who are in competition with the State enterprise. This attitude could be seen in the airline sector in the past, yet our State owned airline is much healthier as a result of competition from other airlines, regardless of whether they are owned by other states or by private companies.
Telecom Éireann will also become healthier because of competition. However, our nation does not seem to understand that yet. We almost applauded the Minister when he returned from Brussels with a derogation to put off the evil day of competition for another year or two. When we postponed competition it was not in the interests of the users of the telephone system or in the interest of the users of airlines. I urge competition because it is best for an organisation's customers.
Senator Cassidy referred to the Minister's direction that there should be no increase in prices for five years. That is great. However, if we are to have competition, it is the board of directors who must decide whether it is right to increase charges to make an organisation healthier. When we remove the hands of the Minister and the Government from the running of State companies, we will have healthier State companies and a healthier competitive marketplace. Ireland has yet to recognise that competition is good for the nation and the organisation involved, even if it is a State one. Therefore, it is good for the employees of that State organisation and for the customers which includes all taxpayers. I applaud the Minister on his solution to this matter. It is one which was forced by the strategic alliance but we will have a healthier telecommunications system because of it.
It is difficult to disagree with the thrust of Senator Quinn's comments. This Government and the previous one made it clear that State companies were to have a commercial mandate. If that is limited in the interests of the national good or for social reasons, it should be put to one side, costed separately and whatever subvention needed should be paid. I have no difficulty with the Minister's draft order which, as Senator Howard said, is quite ingenious. Following Senator Cassidy's comment that he is the best Minister for State in the Government, I would not question his judgment.
I wanted to endorse it.
I am concerned about the effectiveness of the board of directors system. I disagree with Senator Cassidy in that we cannot swim backwards in the commercial world. Ireland is a small market and we have to fight our corner. We have proven we are talented and skilled enough to do so. In the normal commercial situation, people are appointed to boards not just because they are financial stakeholders but because they bring some element of expertise to it which enables a company to succeed. If a company does not exploit that expertise among its board members it quickly goes off the rails.
I have met members of private sector boards who did not seem to have a clue about what they were doing. I have also met worker directors on State boards who did not have basic information about the operation of which they were technically in control of. I am also concerned that there does not seem to be any report back mechanism. If the Minister appoints someone to a board, what is the relationship between the Minister as a representative of taxpayers and the people he appoints on their behalf? Is there a reporting mechanism or is there a conflict between board secrecy, the need to operate the commercial mandate and supervising the people's asset?
As regards the hepatitis C saga, it has now become clear that officials in the Department of Health were notified by the blood bank of information which they did not pass to the Minister. In this case, what is the purpose of having an official appointed by the Minister who does not report back to him? I am sure there are very good answers to this. I am unclear about the relationship between the appointee on behalf of the State and that person's responsibility to the Minister. I know there has to be a separation of powers but I am confused.
Is there any mechanism to train worker directors? There should be proper training in relation to the finances of the company, the ability to assess various proposals and the balance sheet, an awareness of the fiduciary duty and other matters, because they will be sitting with people who had the benefit of attending the Harvard or Smurfit schools of business where they were trained to take control of a company. I applaud the idea that if somebody has a huge stake in a company, it is their life, hands, skill and brain and they should have an element of control and input to it. However, that input can be enriched by a proper system of training and education to enable them to do their jobs as directors.
The Minister will recall that one of the most appalling aspects which emerged from the sugar company, Greencore, was the inability of the worker directors to find out what was going on in the company. There is no point having people involved as token figures. If that was the case, the board could have cardboard cut outs and save on expenses. The worker directors need to be equipped to keep up with the game in every way. I am interested in the Minister's response to this aspect. I have no difficulty with the order.
I thank Senators for their positive contributions. The purpose of the order is to facilitate restructuring of the board of Telecom Éireann in the context of the strategic alliance between Telecom Éireann and the KPN/Telia consortium. As part of the strategic alliance agreement, provision must be made for board representation for the partner. At present the Telecom Éireann board comprises 12 members — eight appointees of the Minister and four worker directors. While representation for the partner is to be provided, the Government wants a continued meaningful role for employee directors on the board, together with the continued provision for voting control by the majority shareholder.
The formula agreed with the strategic partner, taking account of detailed discussions with the trade unions in Telecom Éireann, is a board comprising seven ministerial appointees, three partner appointees and four employee representatives of which two are alternate directors. I hope the position where the alternate directors do not have a vote will not come into play on a regular basis because it is not normal practice that decisions are made by majority voting at board level. We have managed to meet everybody's concerns, although it was not easy to reach agreement. It satisfies the new partner, the majority shareholder — the Government — and the workers in the company.
The new board structure reflects the scale of the alliance transaction, the position of the majority shareholder and the importance attached to the participative role of employees. More importantly, it does this in the context of manageable board structures under which the main board will continue to act as a key decision making forum. The proposed board structure is designed to maintain employee representation on the board of the company while ensuring an appropriate balance of voting strength among the various interests on the board. The solution providing for two alternate directors to offset the reduction of employee directors from four to two raises substantive policy and legal questions.
I am not aware of any precedents for the arrangements worked out, which required careful consideration of a number of questions relating to the status of the alternate directors. The approach adopted was to base the concept on the already existing formula contained in the articles of association. This formula was adapted to the needs of the emerging situation. I am satisfied that it was the most practical approach. I am also happy the solution addresses the concerns of employees, the Government, the company and the strategic partner.
Any move to retain four votes for employee representatives would lead to the necessity of a board membership of at least 19 to protect the position of the shareholders. As a consequence, the work of the board would inevitably be devolved to subcommittees, thereby effectively weakening the impact of the employee directors in the process. The board size would also inevitably complicate the transaction of board business at a time when the company needs to become sharper and quicker to respond to an increasingly competitive market. The solution to the board restructuring in Telecom Éireann does not by-pass the employee directors or shuttle the representational interests of the staff into a meaningless cul-de-sac. Employees will continue to have a strong role at the key decision making forum of the company.
Senator Cassidy raised the problems with the 087 telephone network. While the matter is not directly pertinent to the debate, I will ensure that the Senator's comments are passed on to Telecom Éireann to deal with the matter.
The order made yesterday by the Minister for Transport, Energy and Communications, Deputy Dukes, to which I referred during the debate, will have the effect of reducing the basket of goods which are priced in Telecom Éireann by 30 per cent over a five year period, a 6 per cent reduction per annum. The order contains a requirement that small users may not be increased. This gives Telecom Éireann a flexibility it does not have at present. Up to now the Minister decided the price of everything, but the capping order will give Telecom Éireann flexibility. This only applies to areas where there is no competition. If competition exists, the order will not apply; competition will set the price. The order will only apply to areas in which Telecom Éireann still has a monopoly, such as domestic telephones, etc.
The stakeholder's position is important and the employee shareholding concept within the company is a positive step in that direction; Senator Quinn raised this point. There is a figure of 5 per cent in the Bill already available to Telecom Éireann employees as shares for their benefit and they have made a bid for a further share of 14 per cent. This bid is being examined and will be the subject of detailed negotiations with the employees.
Senator Magner raised the difficult issue of the relationship between the Minister, the shareholder and the persons he appoints to the board. There is much room for improvement in that area. Many appointees do a good job, but do not tell the Minister, who is the shareholder, how they are doing it. There is no reporting back to the current shareholder but this does not take from the good work done by appointees. Occasionally, some people are appointed in the public and private sectors who are not up to the job. I appreciate they might not last as long in the private sector as they would in the public sector but in some instances the private sector companies which are badly structured will go to the wall and their competitors will take them out if they are not capable of doing their job.
Training worker directors is taken in hand to a degree by ICTU. The unions do some of that work, but there should be an in house system which ensures that the best available would be drawn from the worker and other directors on the basis of information in a form which is best suited to them.
Senator Cassidy asked if I was happy with the deal. I could go into great detail about it but I will not do so in this debate because this aspect was covered in the debate on the Bill. I am happy with the deal, the bottom line is a minimum of £500 million because the company has an option to take up another 35 per cent share in Telecom Éireann. The company will be valued after three years and 60 per cent of any increase in valuation of the share held by the new consortium in that period will revert to the State, the company and the shareholder. Taking all these factors into account, it is a good deal.
The Minister is happy.
It was the best deal available in the marketplace. The market dictated what was available. We could have received twice as much for just the shareholding, but we could not attract the expertise and 85 separate agreements on its use, which is contained in the deal, and get double the money. While the money was important because of what is being done with it in the company, the expertise brought in was probably more important.
I thank Senators for a very positive response to the debate. The House should again ponder what we have decided to do. First, we agreed to the Maastricht Treaty. I am probably the only Member of the Oireachtas who voted against it as I felt there were flaws in it from Ireland's point of view but an overwhelming majority accepted Maastricht. Liberalisation and competition are requirements of Maastricht. Monopolies must be broken up and there must be direct competition. We can no longer be the shareholder and the regulator.
We are in a quandary. Which is the most valuable thing for a democratic organisation, through the Minister and the Oireachtas, to hold? Is it regulation or shareholding? I would win the argument that the power base regulation is more important from the democratic point of view than shareholding because somebody else will decide what happens to the investment one makes by being a regulator but that person will have no accountability to the democratic institutions like this House. Of necessity, he will have to be independent. It is desirable for him to be independent from the shareholder but it may not be desirable for him to be independent of the democratic institutions of the State because he will essentially be a policy maker by his implementation of regulations. However, the people decided what way we were to go. We must now live with that decision and make it work to the advantage of those who voted for it. This order implements one part of the Telecom Bill. Yesterday my colleague implemented an order on prices that did not require the approval of the House but this part does. I ask for the approval of the House.
Question put and agreed to.
Sitting suspended at 3.45 p.m. and resumed at 5 p.m.