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The noble Lord said: My Lords, we return to a subject which we have debated on many occasions; namely, good corporate governance. I want to speak to a number of amendments which are set out on the Marshalled List. Amendment No. 1, which is at page 1, line 5 of the Enterprise Bill, inserts after the word "corporate" the words "with both a chairman and a chief executive". Clause 1(1) will therefore read as follows:
Amendments Nos. 4 and 5 would insert the words "a chief executive" and "and the chief executive" on page 195, lines 5 and 7. I shall not go in detail into the remaining amendments in this group. Suffice it to say that they insert the words "the chief executive" after
I recall that when we debated this issue before, we had a look at the Cadbury report. This is a good opportunity to remind ourselves of that groundbreaking report which set out a number of aspects of corporate governance that have since been adopted almost completely. I think that the Cadbury report did a great deal of good in setting out some of the basic principles of good corporate governance. Paragraph 4.7 of the report, on page 21, addresses the whole issue of the chairman and envisages the chairman's role as follows. It states:
So that was Hampel. In order to persuade the Minister that this is the bang-up-to-date view, I wanted to submit two further pieces of evidence. The Chartered Institute of Management Accountants produced a reporta guide to corporate governancein which, on page 9, it made it absolutely clear that it endorses that position on chairman and chief executive. It states:
The second piece of evidence is from the National Association of Pension Funds, which only last week produced a report in which it criticised the failure of a number of companies to observe the code. In an article in the Evening Standard entitled, "Drop those dual roles at the top says NAPF", it criticised companies which were still seeking to combine the roles of chairman and chief executive here, a decade after corporate governance pioneer Sir Adrian Cadbury criticised the practice. NAPF is described as the City's most powerful shareholder group, and it made it clear that it regarded that as unacceptable behaviour.
The Minister may seek once again to persuade us that the new Office of Fair Trading is unique in the world of corporate governance orI refer to subsection (1) of Clause 1in the world of bodies corporate. It is to be a body corporate. Therefore, I believe that the Government should pay more heed to the principles of good corporate governance.
Some would say that the principles of control freakery run so deep in this Government and in the institutions they create that that could constitute an explanation. However, it would be a brave Minister who would justify the matter in such terms before the House on Report. I hope, therefore, that the Minister might considerif he wishes to intervene I may be able to cut short an otherwise long explanation in dealing with the other amendmentssaying at the Dispatch Box, "Don't worry, we will observe the principles of good corporate governance and have a chairman and a chief executive". However, he shows no sign of leaping to his feet. Therefore, I shall now say why I thought that he would not do so.
In seeking to persuade people to apply, the advertisement states that the OFT has wide-ranging enforcement powers and will in future carry out some cartel investigations under the criminal law regime. The new director-general will have more wide-ranging powers than the existing director-general. But where is the strong independent element? The advertisement is for non-executive directors. What kind of commitment will they give? Will it be for most of the week or most of the month? No, non-executive directors will need to commit 30 days a year. If one divides that by 12, it is about two-and-a-half days a month. However, the advertisement states that that commitment will be dependent on their involvement in committee work. So, board members may well not commit as many as 30 days per year if they are involved in various OFT committees.
To compound our concernthis may appear a rather unnecessarily aggressive comment for this House when we have yet to decide the matterapparently the Government have already decided not only that the new chairman will also be chief executive but alsoas we discussed at earlier stagesthat John Vickers, the Director-General of Fair Trading, will be the full-time chairman and the full-time chief executive of the board. But where is the independent element that is so necessary in a board which is to have these wide-ranging powers? The Minister may well come to the Dispatch Box and say, "Ah, we have a similar situation to the Financial Services and Markets Act in that we have someone who will not take the post unless he is chairman and chief executive". That was the argument used with Sir Howard Davies which carried a great deal of weight with the House as we all considerably respect Sir Howard. He has done an outstanding job as chairman and chief executive of the Financial Services Authority.
However, when we debated the then Financial Services and Markets Bill I recall that the Liberal Democrats commented that they detected that although the Government were not prepared to move on the issue at that moment, they were prepared to consider appointing a chairman and a separate chief executive of the Financial Services Authority when Sir Howard Davies retired. I recall that the noble Lord, Lord McIntosh of Haringey, did not seek to contradict that assumption from the Liberal Democrat Benches. Therefore, I hope that during the course of this debate or elsewhere, the Minister will indicate whether that is still the Government's intention.
After having done an outstanding job in setting up the Financial Services Authority, Sir Howard Davies has indicated that he wishes to retire. I challenge the Minister and his ministerial colleagues to consider
I return to the new Office of Fair Trading. It seems to fly in the face of all the speeches that were made during the course of the then Financial Services and Markets Bill for the Government to insist that the chairman and chief executive should be the same person. I know John Vickers who has been an exceedingly good director-general, but I am sureas I believe Sir Howard Davies will have foundthat it is very helpful indeed to have a non-executive chairman to assist one in handling the extensive responsibilities not only of the Financial Services Authority but also of the new Office of Fair Trading. It would be a good move if the Government were able to accept the amendments we are discussing.
Finally, I hope that the Minister will listen to noble Lords on all sides of the House who seek in some way to entrench in a new and exceedingly powerful body the principles that I have outlined. There is a feeling in the Houses of Parliament and outside them that the question of who regulates the regulators must be addressed. A number of regulators have sprung up. I take full responsibility for the creation of a number of such posts, having been a junior Minister at the Department of Energy and having held various other
I need hardly refer to Amendment No. 3 because the noble Lord, Lord Hunt of Wirral, has already indicated that he does not expect it to be agreed to. That is right because it would be wholly undesirable, in this Bill and in relation to this particular post, if a broad change of that kind were made; it would involve making the appointment acceptable to a House of Commons Select Committee although no other appointment would be made on that basis. A much broader discussion across the general world of public appointments is needed before agreeing to that substantial change of principle, which I am sure fascinates all of us. We should consider the example of the United States, where Senate approval is needed. However, to introduce that concept in relation to one official in this country on this one occasion would be very odd; we should discuss the proposal on a much broader basis.
I turn to the main amendment. All of the noble Lord's points related to public limited companies. A discussion of corporate governance has been through all of the splendid committees to which he referred, including Cadbury, Hampel and Turnbull; all of them were concerned with the governance of public limited companies. There is no necessary read- across from the governance of public limited companies to government agencies, whether we are discussing the Office of Fair Trading or others. One must consider what is required of each of them. The noble Lord surely cannot argue that Cadbury, Hampel and the rest of them were thinking of bodies such as the OFT, the Office of Gas and Electricity Markets or the Financial Services Authority when it contemplated the problem of the governance of private and public limited companies.
In any case, the noble Lord completely omitted the point that there is no statutory requirement for public limited companies to have the posts of chairmanship and chief executive in separate hands. That is laid down as a recommendation in the combined code that followed Hampel. I have for some years been a sort of serial non-executive director of various companies and I fully agree with those proposals and with the idea that, normally speaking, companies should have a non-executive chairman and a chief executive and that those posts should be held by different persons. However, there is no statutory requirement, and rightly so. The noble Lord wants to introduce a statutory requirement that, irrespective of the particular needs of the momentor, for that matter, the longer-term needs of the country in relation to the
The Bill as it stands does not have any rigid requirements to the contrary. It does not require that the posts of chief executive and chairman should be held by one person. The board is described in Schedule 1 and the advertisement for non-executives is part of the process of getting the other members of the board together. The Bill allows for the possibility of those two posts to be held by one person. As the noble Lord, Lord Hunt, accurately pointed out, the Government have indicated that they have it in mind that the first chairman should be not only chairman but also chief executive, and that it should be Mr John Vickers, the current Director-General of Fair Trading. The Bill leaves open the possibility that two persons should hold those two posts, as and when circumstances suggest that that would be better. That flexibility is much more desirable than the rigid requirement for which the noble Lord, Lord Hunt of Wirral, is asking in the amendment; that is, that once the Bill is enacted and without any question, two persons should hold those two separate posts.
Of course there are practical arguments for suggesting that the roles are different. That is shown by examples of the corporate governance of public limited companies. It could be desirable for the chairman to have someone else to take the full burden of administrative and managerial responsibility. There is nothing in the Bill to prevent a deputy from being appointed. The noble Lord will remember that the Minister said in Committee that one or more of the members of the board might be executive members of the board. One of those executives could be a deputy who could be given charge of administrative and managerial responsibilities, and the chairman and chief executive could take the broader role. That seems perfectly sensible.
In order to distinguish the OFT from public limited companies, in relation to which the principles of corporate governance suggest that normally speaking the two roles should be in separate hands, I point out that decision-making under the Billwe will discuss such matters laterand, for that matter, decision-making under the Competition Act 1998, should be speedy and effective. I believe that the Government have indicated that it is likely that the board will need to delegate to the chairman many executive decisions about mergers and whether there should be an investigation of a particular industry; I support that. I should not like to see diffusion or confusion between two persons of equal authority. One can have a person in charge, of whom it can be said, "the buck stops here", and a deputy, but at this early stage, when the Bill will be beginning its operations, it is desirable, as the Government suggest, that the posts of chief executive and chairman should be held by one person.
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