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Lord Faulkner of Worcester: I thank the noble Lord for giving way. In the case of other countries, how many international regulatory organisations are represented by more than one individual? Is it not the case that, for example, the international, European and world bodies are represented by full-time executive chairmen in exactly the same way as is ours?

Lord Newby: I believe that that is the case. However, the FSA is a unique creature and has greater powers and scope than virtually any other similar regulatory body. That is at the heart of our reason for proposing the amendment.

The non-executive directors argue that the model that we are proposing is inappropriate because it is different from that of the Director-General of Fair Trading and various other regulatory bodies. However, the core of what we are saying is that this body has greater and broader powers. Therefore, again we do not believe that that is a strong argument.

The non-executives also argue that the essence of the role is to lead the organisation as a whole; if the role were split, there would be a lack of leadership. Again, I simply do not believe that. Therefore, having given considerable consideration to the arguments that they have made, I do not find those arguments compelling.

The final argument which they make--it is often made in the corridors, as it were, but rarely made formally--is that Howard Davies would vehemently oppose a move to a different model, and that that in itself is a strong argument for not doing so. I believe that on these Benches we share the view of everyone who has spoken at all stages of the discussions on this issue; namely, that so far Howard Davies has done an

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extraordinary job with the FSA and that he is a highly impressive chief executive and chairman. Many of the doubts that people, including ourselves, express about these powers do not flow from a view about how Howard Davies would exercise them. However, this is not a piece of ad hominem legislation. It is a piece of legislation that must last for a considerable period and see through a number of generations of leading members of the FSA executive. Again, I do not find that a convincing argument against the model which we propose. Having considered all the models, we are not persuaded by those arguments. Therefore, we retain our belief that a body with the powers and role of the FSA, as proposed in the Bill, requires both a chairman and a chief executive. I beg to move.

Lord Borrie: Perhaps I may ask a question on this matter. It seems rather curious that the noble Lord, Lord Newby, did not refer to the governing body. The governing body of the authority is provided for in Schedule 1, which states that the majority of members will be non-executive members. It follows logically that the minority will be executive members. Presumably, if we take that as the plural, one of them could be regarded as the chief executive.

In other words, I suggest that the provision in Schedule 1, which at the moment provides for a governing body as well as for a chairman, is sufficiently flexible to take into account all kinds of possibilities that might develop in the future, to which the noble Lord, Lord Newby, referred. In years to come, it may be desirable for there to be a chairman and, separately, a chief executive. Another possibility is that one person should hold both roles. That is provided for in Schedule 1. Therefore, why do we need this amendment?

Lord Newby: Because we believe that there should be a chairman and a chief executive and because, as is evidently the case, the Bill as drafted does not envisage that that will happen, although that may change at some point in the future. That has been made clear throughout the discussions on this matter by the Government and by the FSA. Therefore, we believe that if it is wished that the two roles remain separate, that should be specified in the legislation. Unless it is, it simply will not happen, in the short term at least.

Lord Kingsland: I rise not to respond to this group of amendments on behalf of the Opposition--that will be the task of my noble friend Lord Saatchi--but to speak to my own amendment in this group, Amendment No. 9A. That I can do very briefly.

Amendment No. 9A requires that the appointments of the chairman, the chief executive and the non-executive deputy chairman shall not take effect until they are confirmed by the House of Commons Treasury Select Committee following a public hearing. The reasons for tabling this amendment flow from my earlier intervention in this debate. As the Minister conceded, the authority will have legislative powers to make rules which are binding on certain persons. Your Lordships' House and another place will not have the

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opportunity to be consulted on these rules. Therefore, the leaders of the FSA will be in an extremely powerful position. In those circumstances, I believe it only right that their appointment should be confirmed by your Lordships' House and another place.

Lord Stewartby: When the noble Lord, Lord Newby, introduced his amendment, he said that he believed that everyone at Second Reading had been in support of the proposition which he was putting forward. I must say that I clearly recall having expressed some reservations about this matter myself. I should like to explain again why I believe that it is not at all self-evident that his proposed solution is the right one. I do not believe that one can necessarily transfer the format of corporate governance from the private sector to a public sector body of this most unusual kind.

The Financial Services Authority will have huge powers which will impact not only on a very large number of practitioners and professionals in the markets which are regulated, but also in relation to consumer interests over a wide front. Under those circumstances, I believe that the authority must have the structure which is most suitable to it. Equally, I do not believe that that is necessarily to be determined by reference to the Bank of England. I agree with the noble Lord, Lord Newby, about that. It seems to me that the functions and powers of the two bodies are so different that one cannot suggest automatically transferring from one to the other.

I believe that a large part of the problem has arisen because of the sloppy use of the term "chief executive" in the private sector. Many public companies and other large organisations have a chairman and a chief executive. However, in many of them from time to time the role of the chairman will undoubtedly impinge on executive matters. In my view, the implication is that there is no higher executive authority within a body than the person who is described as "chief executive".

Therefore, let us suppose that in the statute in relation to a particular organisation such as this authority, one says that "A" will be the chairman and "B" the chief executive. I am not a lawyer so I cannot judge what the legal force would be. However, the natural interpretation of the language would be that there would be at least an implication that the executive authority stops with "B" and that "A" is not authorised to determine matters of policy, strategy or other executive decisions and certainly would not be the best person to answer for them in the wider forum in which the head of this body must perform.

Therefore, I am doubtful about the proposal of the noble Lord, Lord Newby. I do not know whether he is considering pressing it to a Division, but I would have considerable reservations about whether or not to support him. I believe that there is an essential truth in what he says, which is that those who are chairmen of bodies--whether they are companies or public bodies of this kind--and those who are the principal executives have separate functions. However, normally those functions are worked out between the

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two individuals concerned in the light of the structure, role and functions of that body. There is no hard and fast dividing line between the two. There is likely to be an overlap, and therefore it would be misleading to have someone described as chief executive, with the implication that the chairman was not able to become involved in executive matters.

There is another aspect whereby the functioning of the board could be affected by a decision of this kind. It points rather in the other direction. It is difficult for the chairman of any board, particularly of a public body of such importance, to have to chair it as well as being the principal proponent of its policies. It is always easier for the chairman to be more detached from direct involvement in managerial decisions.

When my noble friend, Lord Alexander, and I were members of the board, mostly in its previous guise as the Securities and Investments Board, the non-executive directors, I am glad to say, were robust in their comments. We often questioned and challenged the executives. Occasionally, that might cause them discomfort, as it might the chairman, the person most fully responsible for the board's actions. However, it is not an insuperable problem.

We must look at the problem pragmatically. We are to establish one of the most powerful bodies in the land outside the system of government. It will have a very important influence internally, within our economy, markets and society, and it will have an important role internationally.

I do not see--here I am perhaps picking up something that the non-executive directors of the authority have said--that the chairman could act effectively as chairman, bearing in mind his accountability for that body's overall presentation and performance, in a completely non-executive role. Therefore, although I think this goes back to a problem of language, I have some reservations about the amendment.

4 p.m.

Baroness O'Cathain: I feel quite confused after the intervention of my noble friend Lord Stewartby. On the one hand, he said that the chairman and chief executive were as one and that--to put it in my own words--in normal corporate parlance, this was the way it was and it was extremely difficult for them to be separate. On the other hand, he said that the chairman was the person who had to monitor the role of the chief executive. How can the chairman monitor himself if he is chairman and chief executive combined?

I have no experience at all of public bodies, but my experience within public limited companies has been that the separation of roles gives a great deal of confidence to the shareholders. They can be confident that the chairman is really looking after their interests in so far as he or she can and does, together with the board, appoint the chief executive, monitor the chief executive and make sure that everything the chief executive does is in accordance with the policies of the company as a whole.

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I have examined, in anticipation of this set of amendments, what I would call semi-public bodies. I reiterate that I have no experience of dealing with public bodies. I was going through the last annual report of the Personal Investment Authority ombudsman council. I see the noble Baroness, Lady Turner, in her place. She used to be the non-executive chairman of that body. It had a deputy chairman, a council of five members and a clerk. The ombudsman--that is, the person who ran the ombudsman function--reported in, as I understand it. I should have thought that that gave the ombudsman some feeling of security, knowing that if he or she made a bit of a mistake about something there was a strong non-executive chairman with a strong council to say "Do you really think this is the way to do this?".

The real purpose of setting up the Financial Services Authority is to try to make the general public confident about the workings of their investments and enable them to feel assured that they will not be sold a bad bill of goods on investments and pensions where there was all the mis-selling. And now we are talking about mortgages.

Most of the population is pretty financially illiterate. A great deal of confidence would be built up if the public knew that all the power in running this body was not vested in one man. If there are on the board a chairman and chief executive in combined roles, plus other, non-executive, directors, one can bet one's bottom dollar that the power will be vested in one man, and the people around him will not spend a lot of time trying to second-guess or query him. I am afraid that that is the way life works.

Therefore, I have grave doubts. My doubts are not at all about Howard Davies. He is a spectacularly brilliant person. I have been very impressed by the presentations he has given. We are not talking about Howard Davies; we are talking about the future of the Financial Services Authority. God forbid that he should ever fall under the proverbial No. 11 bus. There might be a real problem if we then had someone who was nothing like as brilliant, and perhaps did not have the same level of integrity, if the roles were combined. Therefore, we must give the matter a great deal more thought.

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