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Baroness Noakes: I thank the Minister for his reply. I am extremely surprised at his denigration of what has been happening in the corporate sector, trying to blame it on problems in corporate boardrooms. He described the Higgs report as not accepted by chairmen. It is now part of the combined code issued by the Financial Reporting Council and is therefore obligatory for companies. In my many years' experience of working across the public and private sector divide, ideas were transferred between the sectors regularly. In areas such as the appointment of executives, the difference between the two sectors has never been particularly great. Ideas have been transferred across the sectors.
The Minister seems to be saying that we are developing a new silo called NHS foundation trusts. In the world that will exist within the NHS foundation trust silo, all the developments that go on outside will be completely irrelevant, as the rules are being designed solely for foundation trusts.
Lord Warner: That is the exact opposite of what I have been saying consistently throughout the Committee stage. I have been saying that we are using references and experience from a variety of organisations, and we are allowing people who are setting up new NHS foundation trusts to do just that. Without in any way denigrating the appropriateness of the Higgs proposals for the private sector, I was trying to make clear that they are not the be-all and end-all as a benchmark for judging the appropriateness of the governance arrangements in NHS foundation trusts.
Baroness Noakes: The Minister protests too much about the Higgs report. The NHS Confederation, which does know a lot about NHS organisation, thinks that the Higgs report is rather a good starting point for considering the Government's arrangements for NHS trusts. The Minister is virtually ignoring it because he is developing rules that are just for NHS foundation trusts in this silo where flexibility reigns over thinking anything through. There is no point in pursuing this matter further today, but we will return to it later. I beg leave to withdraw the amendment.
We know what a general meeting of a company is in the private sectorthe meeting of the company's members. However, it is clear that members are not part of a general meeting of a board of governors, although they will of course be entitled to attend. Will the Minister also explain how often these general meetings will take place? That is particularly important in the context of the appointment of directors because the general meeting has to appoint or remove both executive and non-executive directors, including the chief executive. What happens if the chief executive resigns or diesor, more likely, if one of the executive members of the board moves on to pastures new? How long does the board of directors have to wait for the general meeting to take place for the vacancy to be filled?
Under company law in the private sectorthe framework rejected by the Ministerthe board of directors can fill casual vacancies with the following annual general meeting confirming the appointments. I can see no process in Schedule 1 that would give that flexibility. Indeed, as drafted, the appointment provisions are the very antithesis of flexibility.
Finally, will the Minister explain why the provisions of paragraph 16(1), 16(4), and 17(1) are constructed differently? Paragraph 16 (1) refers to the approval of three-quarters of the members of the board. Paragraph 16 (4) refers to the majority of the board voting, and paragraph 17(1) refers to the board of governors deciding. Will voting take place in paragraph 16(1) and 17(1) decisions? How will it be known what the board has decided under paragraph 17(1)? No percentage is specified, so does it require all the governors to agree?
Those may seem technical questions, but we will need certainty to go forward, especially in the delicate area of the appointment of directors. These are probing amendments and I look forward to the Minister's explanations. I beg to move.
Lord Hunt of Kings Heath: I have considerable sympathy with the amendment and I hope that my noble friend will consider it between Committee and Report. There will be a real problem for the chairs of the foundation trusts who have to organise approvals or removals of the chief executive or executive directors under paragraph 16 (4), as specified. As I
Imagine that there is a meeting cycle. We know that some chairs attend a board of governors meeting once a quarter. Even if the board met once every two months it would not fit in to the kind of decisions that must be made in relation to executive and non-executive directors. Removing the words "at a general meeting" would give much more flexibility to the board of governors to decide how to make decisions successfully. I do not think that the provision is very practical as it is currently constructed.
Lord Warner: In view of the opinions expressed, I would like to read and carefully consider the points that have been made. I will be in touch with the noble Baroness, Lady Noakes, and noble Lords before the next stage.
The noble Lord said: In view of what the Minister said about the last amendment, it may be that this amendment, which was designed to simplify the process similarly, is not worthy of consideration for too long. However, the motives behind it are very similar to the motives in the last set of amendments. This is really the other side of the coin. It is strange that the non-executives have the right to remove the chief executive under the schedule as presently drafted, but must have the approval of the board of governors at a general meetingor not at a general meeting. Why does one not go straight to the original electoral collegethe board of governors? Why are they not the people to take the decision?
I know that the Minister is resolutely refusing to trade models, but I think that this is within the model that he proposes. It is not really putting an alternative. It would be better to go straight to the board of governors. They should have the power of appointment and dismissal of the chief executive in the circumstances. After all, the board of governors has a broader range of interests and representation than the board of non-executives who are, after all, potentially smaller in number and have been drawn from members appointed by the board of governors. It would seem entirely logical for the board of governors to have that power. I beg to move.
Baroness Cumberlege: I find it hard to support this amendment. We have heard this afternoon and in the course of this Committee that the board of governors could number 50 or more people. To give 50 or more people the power of decision to appoint or fire a chief executive is extremely difficult and I am not quite sure that that process would work. Taking a decision to ease somebody out of a job, as I know to my cost, is extremely difficult. Getting the mechanics to work is difficult. Therefore, to put the board of governors in that position is not very practical.
Lord Hunt of Kings Heath: I speak to my Amendment No. 54. In the light of my noble friend's comments, I hesitate to mention the Higgs report yet again. I fully accept what he says, but we should remember why Higgs was set up in the first place and the problems in certain private companies that led to it. However, on the other hand, it does contain some good. I also acknowledge that not all chairs of private sector companies have particularly welcomed Higgs, but it has elements of good practice.
Paragraph 16(4) of Schedule 1 specifies how hard it is for the chief executive to appoint or remove executive directors. That is not good practice. I do not think that the power to appoint the executive directors should reside solely in the chief executive. That is not, as I understand it, current practice in the NHS. It has always been a corporate decision, involving, probably, the chair and the non-executive directors. From my discussions with applicant foundation trusts, particularly the chairs of those trusts, I sense that there is a general view that the responsibility should be discharged collectively by the chief executive, the chair and the non-executive directors. That is good corporate governance.
Amendment No. 54 would establish the fact that the responsibility should rest with a committee consisting of the chair, the chief executive and the other non-executive directors. Of course, the chief executive will have a critical role to play in that appointment, but it should be a corporate responsibility.
Baroness Noakes: I shall speak to Amendment No. 55, but, before I do, I shall echo the words of my noble friend Lady Cumberlege, who did not agree with Amendment No. 53, moved by the noble Lord, Lord Clement-Jones. I can see no direct role for the board in the appointment of the chief executive. The appointment should properly be put formally to it for approval but should originate with the trust. That is one of the few bits of the Bill that the Government have got right.
The suggestion made by the noble Lord, Lord Hunt of Kings Heath, is attractive, but it may be onerous. It would require all the non-executives to be a part of the committee. It may be more practical to require only
With the noble Lord, Lord Hunt of Kings Heath, we believe that the chief executive should never have an unfettered hand to appoint any member of the management board. He can appoint his management team below board level, but he should not be able to foist members on the rest of the board. The scheme in the Bill is a bit odd: it has non-executives parachuted in by the governors and executives parachuted in by the chief executive. If there was ever a recipe for a dysfunctional board, that is it.
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