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Lord Sharman: I register our opposition in regard to the amendment. We are getting into a terrible tangle over the governance and management of the new body. The Bill states that it is a body corporate with a board. It is proposed that the chairman and chief executive should have unbridled power in all matters operational. I completely lack understanding as to how one can justify such a system or how it meets any kind of sensible approach to corporate governance. Surely what we must seek here is a sensible balance in a board adequately representative of the interests which it oversees and composed of executive and non-executive members who can provide the necessary checks and balances. To imbue the chairman and chief executive with the authority to make all operational decisions after having made such consultations as he thinks fit leaves me breathless with disbelief.
5.45 p.m.
Lord Kingsland: I believe that I can help the Minister to some extent. Under paragraph 11 of Schedule 1 there is a section entitled Performance of functions. There it seems to me clear that,
- "Anything authorised or required to be done by the OFT . . . may be done by—
- (a) any member or employee of the OFT . . . or . . .
- (b) any committee of the OFT".
What I think is more worrying is the fact that the board itself seems to have a structural power imbalance in that there is a full-time chief executive and chairman who is an acknowledged expert in the field flanked by non-executive directors who, however distinguished, will be there only for 30 days a year. In my submission the issue is not so much whether or not the Bill contains powers to provide effective operational decision-making—I believe that it does—but rather that superficially the OFT is a board but in fact one member of that board is so strong that it is almost a misrepresentation to call it board management.
There is a further concern. The noble Lord, Lord Sharman, is one of the great experts in the United Kingdom on non-executive directorships, not, I hasten to add, because he has a large number of them but because it is a function that he has studied in some depth. It is well known that although non-executive directors do not have intimate involvement with day-to-day management of companies, they have in law equivalent responsibility to other directors who have full executive responsibility.
I endorse the approach of the Government to having a board for the OFT. I think that that is the right route down which to go, but I wonder whether the board in terms of the powers of its members other than the director-general is sufficiently well balanced in terms of its power structure. To say that I should be wary is perhaps putting it too strongly. However, if I were considering applying to be a member of the board, I should want more guarantees about my capacity to influence its strategy than appear to be on the face of the Bill.
This is not meant to be a cynical observation but the section of Schedule 1 entitled, Terms of appointment, remuneration, pensions amounts to 31 lines whereas the section entitled Performance of functions—a crucial part of the schedule—amounts to seven lines. I do not suggest for a moment that that disproportionality is necessarily unjustified, but I think that the noble Lord, Lord Borrie, has put his finger on a very important issue which in my submission merits further consideration by the Government in everyone's interest. I hope that the Minister will accept that I am not making in any way a party political point. I make the point because I believe that we all want the system that the Government seek to devise to work properly. It merits some further reflection.
Lord Sainsbury of Turville: The amendment seeks to ensure that the OFT board will not automatically have a role in operational decisions. It would specify that, unless the circumstances were exceptional, these decisions would be taken by the chairman of the OFT following such consultation with the other members of the OFT as he thought appropriate.
At Second Reading, my noble friend Lord Borrie explained his concern that the board could intervene in routine decision making with regard to mergers, cartels or market investigations and that by doing so it could slow down the decision-making process. He has sought reassurance that the board will be concerned only with strategy and broad principles.
I can offer my noble friend this reassurance. It has always been the intention that the board should focus on strategic issues, not on day-to-day decisions. However, at the same time it is important that the possibility of the board taking a role in case decisions of strategic significance is maintained. That will be the case with most corporate bodies. Most boards are concerned with strategic decisions, but there will be operational decisions of strategic importance with which the board will want to be involved.
The board is being introduced in order to widen the input into consumer and competition decisions—to depersonalise this important area of regulatory activity. To say that the board should not as a matter of principle play a role in these decisions would undermine this move. For that reason, I do not believe that it is wise to set out on the face of the Bill the detailed role of the board. However, I offer my noble friend my reassurance that it is not the intention that the board should slow down routine decisions.
I turn to my noble friend's particular concerns about the potential for the OFT board to slow down decisions leading to feebleness and delay. On some mergers, where decision making is time critical, the timetables are very tight. This would severely limit the ability of the board to become involved. On markets, the speed of decision making is less critical and the decision to investigate a market can be a strategic decision—and one which would benefit from board involvement. On cartels, the board could be involved in decisions relating to cases of strategic significance. However, one would always want those to be of strategic significance for the board. It would not be involved in decisions relating to the issue of intrusive surveillance powers as such decisions are reserved for the chairman and may involve timing considerations. But, as with markets, there is no reason to prevent board involvement in the strategic decision of whether to begin an investigation in the first place.
I hope that that clarifies the way in which we see the role of the board, which is clearly a strategic one. I am happy to be able to offer that reassurance to my noble friend and I in view of those arguments I invite him to withdraw his amendment.
Lord Borrie: I am most grateful to Members of the Committee who have spoken in the debate, even including the noble Lord, Lord Peyton of Yeovil. He
was undoubtedly right in noticing a subjective element from my past in tabling the amendment. I would call it an element of nostalgia, which I hope he will accept.I am grateful to the noble Lords, Lord Sharman and Lord Kingsland, because this is an important matter. I do not share their collective view that there is a great read-across between corporate governance in the private world and that of public authorities. Directors of boards of companies do not have statutory powers which need to be exercised in the public interest with reasonable promptitude. They do not have statutory functions of any kind and one has to look at each public authority separately—not even collectively—to see how best they ought to be run.
My noble friend the Minister described the board of the Office of Fair Trading working on a day-to-day, week-by-week, month-by-month basis and he gave me reassurance on that matter. However, a great deal needs to be done in terms of the different types of decisions which the public authority will have to make. He has given me reassurances and I am happy to beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Clause 2 [The Director General of Fair Trading]:
Lord Hunt of Wirral moved Amendment No. 15:
- Page 2, line 2, after first "The" insert "position, power and the"
The second area I want to probe with the Minister is the difficulty—I found it virtually impossible—of finding a document in which all the functions, property rights, liabilities and powers of the Director-General of Fair Trading are to be found. There is the opportunity of ploughing through the 46 pages of Schedule 25 which, although described as minor and transitional provisions, contain a number of the powers.
I wonder whether the Minister could make available to us a document setting out the functions which are now being transferred. Clause 2(1) states that they are being transferred but it does not detail exactly what is being transferred. It seeks to do so generically. I do not know whether it is possible to express it more clearly, but it would be easier for us to make progress in the Committee if they were set out more clearly in a separate document.
Thirdly, I return to the words of Miss Melanie Johnson about it being no longer appropriate for all the powers to be vested in one individual; namely, the Director-General of Fair Trading. If it is no longer appropriate for all those powers to be vested in one individual, why do we need to abolish the office? Why cannot those powers be made subject to the board, and the statutory board be put in charge of those powers? The director-general would carry on exercising his powers, which it is proposed should be transferred from a person to a body. That gives rise to the confusion about who will exercise the powers. We have had an interesting discussion about that.
I hope that the amendment will give the Minister an opportunity to justify why the position of director-general is being abolished. Whether or not he and his colleagues considered the matter prior to their announcement, might it not be possible to continue with the post? That would enable us to do away with a substantial part of the schedules to the Bill and would enable a board to be set up in the new body which will oversee the work of the director-general and his staff. I am probing the Minister to share with us a little more of the background to the decision and I beg to move.
6 p.m.
Lord Sainsbury of Turville: The second of these amendments, Amendment No. 16, would retain the post of Director-General of Fair Trading. The first amendment would transfer the position, powers and functions of that post to the OFT board.
The Government are quite clear that we should abolish the post of Director-General of Fair Trading and transfer his property, rights, liabilities and functions—which include his powers—to a new statutory authority, the OFT. The OFT will consist of a board headed by a chairman. This will broaden the decision-making base and de-personalise this important area of regulatory enforcement.
I cannot see that this is a very difficult exercise. We are transferring those functions and powers to the new organisation, and it is clear that they should be set out on the basis of what the new organisation will do. To transfer to the OFT the functions of a post that we are clearly changing seems to me to be a recipe for confusion. The way to do this is to abolish one post, to transfer all the functions to the new body, and then to set out, as we hope we have done, how that new body will operate and what its powers and responsibilities will be.
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