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Lord Oakeshott of Seagrove Bay: Perhaps I can help the noble Baroness, because I think that she has moved on a tack concerning reputation. The kind of situation one can envisage is that where the regulator said to a struggling company, "You have to put much more money into your pension fund quickly". The Minister has talked about the regulator acting reasonably and carrying out his obligations, and that is fine. But the question is whether there is any kind of remedy for a company which genuinely believes that the regulator has been acting unreasonably because it is being pushed into bankruptcy. Does it have absolutely no power to pursue damages?
Baroness Hollis of Heigham: If the regulator failed to act in those circumstances, presumably he would be liable to a claim for damages brought by the scheme members.
Lord Oakeshott of Seagrove Bay: Yes, although I do not think that they would be able to pursue it.
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Baroness Hollis of Heigham: That is exactly the situation we have established; that there is in a sense a stand-off. If we go down that route, any decision that is unfavourable to one party—and by definition that will often be the case—will mean that on paper, the regulator could be exposed to a claim for damages. I should have thought that that was not the route we wanted to take.
Lord Higgins: I do not think that we should prolong the debate because the problems have been set out quite clearly. We need to consider two points. The first is what the possible damages that might be incurred are. The noble Baroness gave one example and the noble Lord, Lord Oakeshott, another. But all kinds of things could arise, such as the wrongful disclosure of information which results in a loss. The difficulty with the clause as it stands is that it is complete in its scope. Anything done by the regulator would be exempted or protected.
The second point to consider is where we think the balance should lie as to who actually pays if some damage has been done and loss incurred. We can all brood on these issues. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Lord Brougham and Vaux): When they wish to speak, noble Lords at the back of the room should move forward to the table so that Hansard can record their remarks.
On Question, Whether Schedule 1 shall be agreed to?
Lord Higgins: I indicated earlier that we have discussed the schedule exhaustively. I do not wish to say anything further.
Clause 4 [Regulator's functions]:
Lord Skelmersdale moved Amendment No. 29:
The noble Lord said: I am afraid that this is not going to be one of my short, snappy question-and-answer sessions. I am told that we must settle into this particular amendment.
As I said in my contribution to Amendment No. 1, moved by the noble Baroness, Lady Turner, the Bill sets up a most peculiar form of corporate governance. I do not claim to have any expertise on the matter, but the advice I have received from my noble friend Lady Noakes, who most definitely has, is that the only place that she knows of where such a scheme exists is in the Bank of England Act 1998.
The Explanatory Notes make great play of relying on the Higgs report on corporate governance for the regulator's governance performance, yet there is no recommendation in that report or in the Combined Code on Corporate Governance, which now implements it, for a non-executive committee in the form and shape envisaged by the Bill. To make matters worse, under the Bank of England Act there is in the
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Bank a sub-committee of non-executive members of the Court. The non-executives massively exceed the executives, by 16 to three. We have had that discussion, but I wanted to make the point for future reference.
Paragraph 28 of the Explanatory Notes quotes the Higgs review as recommending a balance between executive and non-executive members including—I underline the point—independent non-executives. The Bill makes no reference to independent non-executives, who are key to the Combined Code recommendations on audit committees and remuneration committees. Under Higgs and the Combined Code the chairman, even if non-executive as is currently the case in the Bill, is not independent except at appointment. Hence, the chairman of a public limited company is not a member of an audit or remuneration committee, but in the Bill he actually chairs the non-executive committee, which seems to cover at least the audit committee territory and some of the remuneration committee territory.
A non-executive committee is objectionable because it potentially undermines the unitary nature of the board/regulator overall. The functions of the non-executive committee ascribed in Clause 9(3) are only loosely derived from the Higgs report and the Combined Code, but the important point is that under Higgs they are not functions of the non-executives acting as a separate group. Rather they are a definition of the contribution of the non-executives to the unitary board as a whole.
Technically, as we have discussed, in Clause 8 the Bill creates the non-executive committee as a sub-committee of the regulator's board, which means that it derives its authority from the board and must report to it. This seems strange because in essence it would be reporting to itself.
I have some questions to put to the Minister. If Higgs is the model, why is there no differentiation between independent and non-independent non-executives and why, in particular, is it appropriate for the chairman to chair the non-executives? Do the Government believe that the Bill creates a new unitary board for the regulator? How do they reconcile their provisions with the first Higgs principle, that:
"The Board is collectively responsible for promoting the success of the company by leading and directing the company's affairs".
Why are the non-executives' roles spelt out in the Bill but not the role of the whole board? Why have the Government chosen to set up a non-executive committee at all? Higgs said that non-executives should meet without the executives present and at least once a year without the chairman present. Clearly, the Bill provides otherwise.
There is nothing equivalent to Clause 9 in the combined code. It also says that the non-executives should meet once a year without the chairman to discuss the chairman's performance. Why is that not in the Bill? Why does Clause 9(4) require a separate report in the annual report from the non-executives? I understand that there is no parallel in commercial or any other practice, except in the Bank of England Act.
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Lastly, why is there no recommendation for a remuneration report in the Bill? That is required under Higgs and in the DTI regulations for Plcs. I apologise for firing a great list of questions at the Minister but I would like some answers so that I can think on it more thoroughly. I beg to move.
Baroness Hollis of Heigham: As the noble Lord accepts, those are technical questions, and if he wants a serious answer to appear in Hansard it is helpful to have notification of questions that are not on policy and are therefore open to general debate. I shall write to the noble Lord and make sure that your Lordships have copies of the answers to all of the questions. I may be able to answer eight or 10 of them as we go along but I doubt whether I have the answers to all of them here today.
This amendment removes Clause(4)(1)(a), and I ought to respond to it as it is set out in the Marshalled List. Clause 4 sets out the functions of the regulator and makes provision for the exercise of some of those functions. The transfer of OPRA's functions to the Pensions Regulator is achieved by Clause 7(1), which transfers to the regulator all OPRA's functions conferred by the Pension Schemes Act 1993, the Pensions Act 1995 and the Welfare Reform and Pensions Act 2000.
I am sorry, I am responding on Amendment No. 29.
Lord Skelmersdale: I shall give the Minister a little time and perhaps help on this occasion. I am very grateful to her for saying that she is happy to write to me to answer the very detailed and technical questions that I asked her. I am very happy with that response. I should perhaps have said when I began that the amendment in the Marshalled List is merely a peg on which to hang the questions. I know exactly what the effect of leaving out Clause 4(1)(a) would be.
Baroness Hollis of Heigham: Clause 9 sets out the functions exercisable by the regulator's non-executive committee. The noble Lord was pressing me on why, given Higgs and the like, this particular structure has been chosen. We have looked at the Higgs report and have had the best advice, and it seems to us to be appropriate to make the distinction between the non-executive directors and the executive members of the regulatory body and to have the chairman of the regulatory body chairing the committee. I agree that there may be an issue about whether he does that more than once a year.
Clause 9 sets out the functions of the regulator's non-executive committee, which is to separate the day-to-day running of the organisation, undertaken by the executive directors, from the responsibility of ensuring efficiency, effectiveness and transparency, which is discharged by the non-executive committee. As the noble Lord acknowledged, this separation of accountabilities is the recommended arrangement promoted by Cadbury and the Higgs report. Ofcom and the FSA, as new regulators, have non-executive committees, as does the Bank of England, as the noble Lord accepted. In addition, all public limited
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companies are encouraged to develop governance arrangements that include a chair, non-executive directors and committees.
I am a little puzzled that the noble Lord, Lord Skelmersdale, thought he was aware of only the similar example of the Bank of England. From the advice that I have been given, it seems as though the practice is fairly common in most non-departmental public bodies following Cadbury and Higgs.
The clause spells out what the non-executive committee does. It will: keep under review the strategic direction of the regulator; scrutinise the performance of the chief executive; monitor the extent to which the regulator meets its objectives and targets, which is the subject of other opposition amendments; monitor the regulator's reporting of the activities to the Secretary of State; review whether the regulator's internal financial controls are in order; and, subject to the approval of the Secretary of State, determine the terms, conditions and remuneration of the chief executive.
Those functions are for any non-executive committee and are consistent with those of the Court of Directors of the Bank of England and with the Financial Services Authority. They allow the separation of the day-to-day running of the organisation from the checks-and-balances accountability that we need for the regulator to remain efficient, effective and accountable.
I shall see whether there are any questions that I have not answered, but most of those asked were covered by the Higgs report on corporate governance. The only one with which we were slightly at odds was on whether the chairman of the regulatory body was also the chairman of the non-executive committee. That was the only one on which we had some divergence, so I shall come back on it.
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