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Lord Marsh: My Lords, like many noble Lords, I have held a number of chairmanships. I have also held the post of chairman/chief executive and of full-time chairman with a chief executive. Moreover, I held that
post of chairman with a chief executive in a non-public company. I am strongly of the view that the separation of the two posts should be maintained wherever possible.The job to which I refer in particular was that of the chairmanship for some six years of the British Railways Board. There was a full-time chairman and a full-time chief executive and both of us would have claimed to be fully occupied, although I am sure that that was not always the view of the staff.
The two posts carry two clearly separate sets of responsibilities. A full-time chairman has a very close relationship with the board. That does not mean that he does not have a relationship with the executives; it means that he does not become involved in the detail of the business. He is basically concerned with strategy and the monitoring of progress. The chief executive has responsibility for the mechanics and motivation of the business. As a chief executive, he will spend his time in the guts of the organisation, ensuring that it is running properly. Of course, he will also be directly responsible to the board, but that is a different responsibility from that of the chairman.
Perhaps I may give a classic example of why I feel so strongly about this issue. Over the years, I have been involved with the removal of four chief executives or chairmen. In each case, the pattern was the same. Two or three of the non-executive directors talked to the chairmen, who then talked to the institutions or, in hard times, the bank. If the chief executive is also the chairman, there is no way that the executive directors will put their head on the line because their future employment will be in the hands of the chief executive. They will have nowhere else to go.
I do not believe that this is a deeply philosophical matter; it is an organisational and structural issue. Large companies do not necessarily have available to them supermen, and I include in that some of the signatories to some of the studies quoted. I believe that, wherever possible, the line should be clear, as should the responsibilities. Key organisations, such as institutions, should be able, for example, to talk freely and in confidence with the chairman without involving the chief executive.
Lord Clinton-Davis: My Lords, the noble Lord referred to the situation that is desirable "wherever possible". What would happen if it were undesirable? Would the noble Lord make an exception? Does he not recognise that in the amendment moved by the noble Lord, Lord Hunt, a chairman and chief executive should be appointed in all cases?
Lord Marsh: My Lords, I am bound to say that I start from the point that I cannot think of a strong argument against the proposition. I have seen it working. There is a long history of companies which do amazingly well, then suddenly a fashionable gladiator of the day begins to emerge and things begin to go wrong. We have seen that occur in some very well-known companies and very often when that situation arises, it does so where the chairman is also
chief executive. There is no one else to talk to if one is an outsider. I find it difficult to envisage that a serious organisation would find that the ideal way to administer a company.3.45 p.m.
Lord Razzall: My Lords, I rise in support of the amendment moved by the noble Lord, Lord Hunt. I do not want to repeat the arguments that he made so eloquently and with which I entirely agree.
I turn to the remarks of the noble Lord, Lord Borrie. It is always difficult to argue with someone who has held with such distinction the position—or the equivalent position—that we are discussing. Indeed, I believe it is axiomatic among noble Lords that, were the noble Lord, Lord Borrie, in post and were it possible for him to be in post in perpetuity, the noble Lord, Lord Hunt, would not have tabled the amendment and I would not be supporting it. I do not want that to be taken as a criticism of John Vickers, but of course we are not talking about the experience of personalities. Indeed, we all recognise the enormous contribution that the noble Lord, Lord Borrie, made to the post without a separate chairman being in place.
I agree with part of the noble Lord's fundamental analysis, although I disagree with his conclusion. Those of us who argued this point during both the passage of this Bill and that of the previous Bill establishing the Financial Services Authority may perhaps have made a slight error in trying to establish a cross-over from Cadbury—from corporate governance—into this area. It is obvious that there is no exact parallel between the private sector and what we are discussing today in relation to government bodies and government regulators.
One fundamental reason for the current desired structure for chairmen and chief executives in publicly-owned companies is that the chairmen and non-executive directors have responsibility for the shareholders. In this case, no one is suggesting that there is a cross-over and no one is asking who the shareholders are of the Office of Fair Trading—whether they are the public or the Government. No one is suggesting that and I am not supporting the amendment of the noble Lord, Lord Hunt, in some strange quasi-shareholder way.
A fundamental point was made by the noble Lord, Lord Hunt, and it behoves the Minister to answer it. Let us forget the comparison with Cadbury. I believe that, to an extent, it has been a red herring that has led us down paths that have agitated the noble Lord, Lord Borrie, and we would always want his support on an issue such as this. The fundamental question raised by the noble Lord, Lord Hunt, is that of control of the regulators. Contrary to the concerns that existed in the days when the noble Lord, Lord Borrie, performed this function, a serious concern now exists as to the amount of power given to Sir Howard Davies and the Financial Services Authority and to John Vickers as Director-General of Fair Trading. There is a significant issue here which the Government must address. I hope that when the Minister responds, he
does not simply demolish the Cadbury argument. Let us take it as accepted that this is not a cross-over from Cadbury into the Office of Fair Trading. I hope that the Minister examines the matter in the context to which I refer; that is, the control of the regulators.When this issue was discussed in Committee, my noble friend Lord Sharman, who unfortunately cannot be here today, referred to the long-standing fight that the Conservative and Liberal Democrat opposition put up in relation to the creation of the Financial Services Authority. They tried to build into the legislation the split between chairman and chief executive but failed.
In Committee, my noble friend drew your Lordships' attention to the annual report of the Financial Services Authority. The report justified the combining of the titles of chairman and chief executive, now vested in Sir Howard Davies, by reference to the fact that executive responsibility is divided among other members of the board, including those who are managing directors. Contrary to the point that I have just made, the report of the Financial Services Authority went on to say that, as verified by the independent auditors of that body, it was in compliance with the Cadbury code, which recommends the division of those separate responsibilities.
The FSA report recognised the need for a division of those responsibilities. I suspect that the noble Lord, Lord Hunt, is leading the Minister to indicate that as and when Sir Howard Davies stands down, there might be a split in the FSA. The real issue is that to satisfy the Conservative and Liberal Democrat oppositions, the Bill must do that which the FSA requires—divide responsibility among other members of the board. We see no evidence of that in the Bill and if its structure does not provide for responsibility to be divided among other members, we would press the point that there needs to be a separate chairman and chief executive.
Let us accept that Cadbury does not apply—we are not considering a commercial enterprise. Take the BBC as an example. How would your Lordships feel if the suggestion were made in revising the BBC charter that Greg Dyke should run the lot—with no chairman of the governors—and that separation of the roles in a quasi-public body should not exist? Answer: your Lordships would be horrified. That is a fair analogy. When the Minister responds, he should not demolish the Cadbury argument because we can move on from that—but he ought to deal with the BBC argument. What is the difference, on this issue, between the Office of Fair Trading and the BBC?
Lord Hodgson of Astley Abbotts: My Lords, I am surprised that the Government have taken the position they have. We had an interesting debate in the summer, introduced by the noble Lord, Lord Brennan, on the Government Benches, on the subject of corporate governance. The emphasis placed by the Government on the Higgs committee as being the development of corporate governance makes a striking comparison with their proposals.
It is not just a question of public confidence, which requires that best practice is not just followed but seen to be followed. The noble Lord, Lord Borrie, said that there is not necessarily a read-across to public organisations from PLCs. He is absolutely right—but that does not mean that there cannot be a read-across. On this issue there is a read-across on the arguments powerfully made by the noble Lord, Lord Marsh, about the twin pressures at the top of an organisation or company. They are the strategy, which is the setting of the overarching approach that the organisation or company will follow, and the day-to-day implementation that requires the strategy to be carried through in the detail. Those are not separate roles but strategy and implementation do overlap,
It is easy within an organisation or company for one or the other to predominate. Either the company or organisation becomes obsessed with strategy and the big picture, without thinking about the detail, or the company becomes immersed in the detail and loses sight of the wood for the trees. My noble friend is right that each function needs its own champion. The structure of a board, whether of a company or of the OFT, demands two different people.
It might be unfair to say this but the suggestion originally that the two roles should be split was not in Hampel or Cadbury but in Greenbury. The chairman of that committee was of course the chairman and chief executive of Marks and Spencer. When Mr. Greenbury was asked the reason for making that recommendation when he held both roles, he replied, "This is a special case"—rather like the noble Lord, Lord Borrie, saying that this is a special case. The history of Marks and Spencer may have nothing to do with the combination but it is a warning that the Minister should bear in mind.
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