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Mr. Deputy Speaker: I apologise to the hon. Gentleman. I got his name right earlier, so there is no excuse for getting it wrong now. I call Mr. Jim Cousins.

Mr. Cousins: As long as you do not compare me with our famous mouse, Mr. Deputy Speaker.

I shall be very brief in urging Ministers to resist these strange amendments. Their ostensible purpose is to ensure greater accountability to the markets and an independent voice in the FSA. However, the means that they adopt to achieve that objective would increase the Treasury's power of appointment. That cannot be sensible. It cannot

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be right that the post of chief executive should be set up as a Government appointment on the FSA; nor is it right, as one amendment suggests, that the members of the non-executive committee, which has the scrutiny role, should also be appointed by the Treasury.

It is absurd that the Opposition should move an amendment that increases the Treasury's power of appointment over the FSA. If their objective is--I can see why it might be and I have some sympathy with it--to strengthen the FSA's accountability to the markets, then the amendments are wholly misconceived.

Sir Nicholas Lyell (North-East Bedfordshire): I ask the Government to think again on the amendments. They are not about personalities. Howard Davies is widely respected; much is hoped from him and will, no doubt, be delivered. However, history is littered with errors made under the aegis of distinguished, able and well-thought-of people; what is important is to get the structure right in the first place.

The Greenbury report stated that large commercial organisations should have both a chairman and chief executive. There are fundamentally good reasons to have two people at the top, one with the executive role and the other with the non-executive role of chairman. The post of chief executive carries enormous power and responsibility; it is therefore a function that one is happy to see Howard Davies performing. However, where there is both a chairman and a chief executive, the latter has the opportunity to consult the former.

In addition, there are greater opportunities for the world at large and those who are regulated to approach the chairman. It is difficult to make suggestions directly to someone who is doing his best as chief executive at a time when the going is rough and the climate hot. When the chief executive is embroiled in controversy, it is difficult for him to listen as open-mindedly as a chairman can. The chairman has the advantage of being one step back, as well as one rung above. That is a valuable structure, recognised by Greenbury, from which the FSA would benefit.

The same reasoning underlies our amendments dealing with the role of the non-executive directors. A problem at which I hinted during our debate on the order of consideration is that the Bill is inclined to be far too restrictive in terms of the accountability and the opportunity for supervision of the FSA, and of the accountability through the FSA of the Government of the day for the general good management of our financial services industry. Those elements will be strengthened if the role of non-executive directors includes the power to give an independent overall perspective on the running of that enormous institution.

Liz Blackman: Would not the proposals create duplication? Is not what the right hon. and learned Gentleman describes the board's job? Are not non- executive directors members of the board?

Sir Nicholas Lyell: I am not sure whether duplication would result. However, reading the parts of the Bill that our amendments would amend, especially schedule 1, it is striking that the functions of the non-executive directors are deliberately boxed in, largely confined to matters of financial efficiency. I want their role to extend beyond such matters, to that of providing an overall perspective.

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I cannot imagine that there will be any objection in principle to the amendments. This debate offers the Government an opportunity to change their mind here and now, or to set the scene for the debate in another place, where such matters will be carefully scrutinised. Our proposals in respect of the chairmanship and the role of non-executive directors are thoroughly sensible and constructive. I hope that they will find favour.

Mr. Tim Loughton (East Worthing and Shoreham): I echo the comments of my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell). The amendments in respect of the role of the board, especially the chief executive and chairman, are in no way personal to Howard Davies. Everyone who has followed the Bill and dealt with the FSA will have great respect for the job that he is doing and the amount of work that he is putting into it. It could be said that he is already doing the jobs of two men--or two women--and I calculate that he is being paid the equivalent of the combined salaries of the Treasury Ministers now present to do them. We are not arguing with the person now in the job. However, the point of principle goes to the heart of our problems with the thrust of the Bill. That is why we laboured it greatly and, I think, usefully in Committee.

As we know, Howard Davies's contract comes to an end in July 2002. Before or after that date, we may or may not be dealing with a different head of the Financial Services Authority. That is one of the reasons why the report of the Burns committee clearly and unequivocally, and with no objection, as I recall, from the members, recommended that the post of chairman and chief executive be separated and that a non-executive chairman be appointed. That is clear in black and white and there was no dispute about the recommendation at the time.

2 pm

I hark back to the comparison with good corporate governance, which my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) mentioned, and the terms under the Cadbury recommendations that there should be


We are dealing with an immensely powerful body--some of us might say too powerful--the head of which, inevitably, can wield a substantial degree of power. The FSA annual report boasts that the FSA, as a structure, complies with Cadbury. That is rather curious given that we have two roles embodied in one person. I gather that in its defence the FSA has complained that having dual heads would complicate matters with the FSA and might compromise the position of the head of the organisation when dealing with overseas counterparts.

I do not see why the FSA should be any different from other organisations, be they companies or Government agencies, which comfortably deal with foreign counterparts with a split of roles at the top. There may be a case for saying that it was justified to have one supremo during a period of turbulence and reorganisation, but not when that period came to an end.

When the Bill is enacted and becomes law, we would like the roles to be split. We would very much welcome Howard Davies staying on in the key role. We are concerned that having one head at the top affects

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relationships between that head and the members of the non-executive board. It has implications also for the setting of agendas for board meetings if that is down to one individual.

Mr. Nigel Beard (Bexleyheath and Crayford): Does the hon. Gentleman agree that the flaw in the argument that he and his colleagues are advancing, is that they are making an analogy between a normal commercial company and the Financial Services Authority? If a chairman and a chief executive of the FSA had to consider a major investigation, there would be every incentive for investigators at all levels to try to drive a wedge between them. If there were not one authority at the top, there would be a standing invitation to do just that. The circumstances are quite different from those of a commercial organisation. The FSA is far nearer being in the position of an army in the field. No sensible person would consider that the commander of an army in the field should have a chairman above him.

Mr. Loughton: That is an interesting point. I sense a slight change of tack since the hon. Gentleman debated this issue in Committee. I recall that he said then that, unlike the case with commercial companies, the head of a regulatory organisation needs to be able to act swiftly, overnight or whatever. I disputed that. A regulatory organisation is no different from a large multinational company, which needs to act quickly in a takeover. However, the hon. Gentleman now takes the tack that there may be division between the two people at the top.

If the FSA does its job properly, it will be able to agree cabinet and committee responsibility, and the chairman and the chief executive should be singing from the same song sheet. If there were two roles, there would be two views, at least behind the closed doors of the FSA, in the committee meetings to decide policy. Those views could provoke a proper, full debate, and a single resolution, which would become the FSA's policy.

Mr. Cousins: The hon. Gentleman has already drawn attention to the chairman's appointment by the Treasury and made a point of mentioning his substantial salary. The amendment suggests that a chief executive should be appointed by the Treasury, also on a substantial salary. He suggests that in public, the chief executive and the chairman should agree, but that they should be allowed to disagree privately. If a Labour-controlled Much Binding in the Marsh district council did that, the hon. Gentleman's view would be different.


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