Wanted: One thick-skinned chief exec for Network Rail

Abrasive Iain Coucher is leaving the platform – and the search is on for an outsider to totally rethink the much criticised infrastructure firm. By Mark Leftl
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The Independent Online

The Iain Coucher era is coming to an end. For three years the Lamborghini and Aston Martin-driving former missile designer has ruled Network Rail in his abrasive, can-do style. In that time, he has established Network Rail, the publicly funded body that took over the operation and maintenance of the railways in 2002, as a model of cost-cutting and passenger safety.

Yet there are plenty of people who will be glad to see the back of Coucher (right). This summer alone, he was criticised for Network Rail's bonus culture, which saw executives take home an extra £2.4m last year; the under-reporting of worker safety; and even an internal inquiry – in which Coucher was vindicated – into his expenses, including claims that he was given £20,000 a year for renting a central-London property.

Chairman Rick Haythornthwaite is interviewing the last handful of remaining candidates for Coucher's replacement and hopes to make an announcement by the end of this month. Coucher will leave at the end of October, when he will go in search of a big FTSE 100 chief-executive role.

The new chief executive will be quite different. Haythornthwaite intends to foster a more collegiate atmosphere and wants someone who is prepared to rethink how the entire organisation works. He will not bring in an industry insider – Coucher was previously chief executive at the now defunct London Underground contractor Tube Lines – and there is a strong rumour that the new boss will be from the safety-conscious world of oil & gas. Haythornthwaite knows the best and brightest in that sector, having worked at BP for 18 years [see box] and as president of PSA Energy. There is also speculation that Network Rail is interested in bringing in someone from overseas.

Network Rail is going to be completely overhauled. The organisation is around 40 per cent less efficient than similar maintenance companies in Europe, claims the Office of Rail Regulation. Fares continue to rise, with train operating companies heavily charged for Network Rail's maintenance work. Timetabling is often chaotic. Some rail figures even argue that capital works have not been sufficiently prioritised.

The Department for Transport, Haythornthwaite and the new chief executive have several options to consider as they look to change the culture, structure and maybe even the rationale of one of the country's most heavily scrutinised companies.

The most dramatic option is both the most popular in government circles and the most unlikely. Privatising Network Rail would raise about £12bn for the Treasury coffers and with it bring the supposed benefits of business expertise: "The Government is taking privatisation seriously because it's a lot of money and it would kill Labour's creation," says a source close to Whitehall. "The Conservatives hate Network Rail, which should be trying to please its customers [train operating firms] by giving them a low price."

But, such a move could kill the coalition too. As pro-privatisation as some Tories might be, Prime Minister David Cameron is unlikely to put his deputy, Nick Clegg, in the position of having to defend a sale to sceptical Liberal Democrats.

One senior Liberal Democrat says that the Conservatives would not dare to make such a move, but warns that his own party is no softie on Network Rail's performance: "It is perfectly plain that government is putting pressure on individuals within the group and they know what it means for them personally if things don't improve."

Earlier this month, Haythornthwaite told senior managers and executives at a board meeting in Cardiff that they had to improve its service to train operators and passengers. There is speculation that there was even a series of one-to-ones making even clearer his warnings, but sources within the organisation have denied this.

If they hadn't been ruled out already by the job specification given to headhunter Egon Zehnder, which demanded a shortlist crammed with people experienced in running international companies, the talk ended the chief executive ambitions of any internal candidates.

One sector boss proposes breaking up the company into a project delivery organisation, which would look after major capital programmes, and a body that runs the operational aspects of Britain's rail infrastructure.

"They are two different skill sets," he argues. "Where there comes a conflict in resources day-to-day issues get priority. Major capital works end up going nowhere. It's the same with the London Underground."

This could even involve privatising one half of the divided body, although more likely it would be run in partnership with big business. Projects delivery organisations are usually run in collaboration with the private sector. The Olympic delivery partner for the 2012 games, for example, is CLM, a consortium of Laing O'Rourke, Mace and US group CHM Hill International.

A prominent infrastructure expert takes a similar, slightly more subtle view. He suggests breaking up Network Rail into an operations and timetabling unit, and then privatising the regions. There could be a regulated asset base (RAB), which under Network Rail is where it finances investment from borrowing against what it owns, then repays over the lifetime of a project.

"The RAB regime could apply to each region, but the important thing is that competitive comparison would put management [of each area] on their toes," says the source. "The performance of each region needs to be measured robustly."

Also in for criticism is the Office of Rail Regulation, to which Network Rail is accountable. "They haven't held Network Rail to account properly," argues an industry source. "They should be telling them to shape up or ship out."

What no one is advocating is leaving Network Rail as it is. Even officials privately admit that Network Rail has to deal with its train operators in a friendlier manner. "It's not like we're not trying to change the culture of the organisation," sighs one insider, clearly fed up with the intense scrutiny Network Rail has been under.

Whoever succeeds Coucher will need a thick skin: that pressure from the media, that criticism from the industry, those frustrations of the passengers will surely persist however Network Rail is restructured.

What is Network Rail?

Network Rail is the body that replaced Railtrack, the London Stock Exchange-listed company that owned and ran the vast majority of British railway infrastructure until 2002.

With maintenance costs spiralling and safety a huge issue after the Hatfield crash in 2000, the Government created Network Rail to buy the assets for £500m. Although it is run at arm's length from the Government and claims to be a private company, it is 60 per cent funded by the taxpayer.

Its activities are overseen by the Office of the Rail Regulator. The business does not have shareholders, but is answerable to its members. They have been drawn from the public or are companies from the rail industry, such as operating companies. The Department for Transport has special membership rights, some of which are related to changes to Network Rail's constitution. There are about 100 members at any one time.

Network Rail claims that 90 per cent of trains run on time now, up from 78.6 per cent when it took over Between 2007 and 2009 it spent £2.44bn on infrastructure improvements.

Haythornthwaite’s journey

By Lydia Benatia

Rick Haythornthwaite is one of the best-connected men in British business, bringing experience in energy markets, consumer finance and culture to Network Rail.

But he spent the first 18 years of his career at just one company, the oil giant BP, where the Kent-born son of an RAF officer worked his way up to be president of the group's lucrative Venezuelan operations.

After two years as corporate and commercial director at Premier Oil, he snaffled his first chief executive role at Blue Circle, the cement company, which he turned around.

The engineering conglomerate Invensys appointed him chief executive in 2001. In his four years there, he sold 17 businesses, but the share price and profits both fell during his time in charge.

On to government – Haythornthwaite became the first chairman of the Risk and Regulation Advisory Council in 2007.

He has built up a business philosophy that encourages managers to take responsibility. He also knows how to learn from his mistakes: "It's not only understanding the risk, but also being comfortable with failure, as long as you know why you've failed and think about where it takes you next."

Haythornthwaite, who is married with two children, also has experience in the arts. He is chairman of the Southbank Centre, was chairman of the Corporate Advisory Group at the Tate and on the board of the British Council. He was also a trustee of the UK National Museum of Science and Industry, and a chairman of the British American Arts Association.

He is currently non-executive chairman of MasterCard, a senior adviser to STAR Capital Partners, and president of PSA Energy.