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Lord Lucas: I entirely agree with what my noble friend said. This is not a Higgs arrangement. In England, we do not have supervisory boards in the general run of corporations, which are what the Bill is moving towards creating. Non-executive directors act as part of the board; we have a single board and non-executive directors work through that. There will be committees of the board and there will be functions that will be operated separately, but the responsibilities belong to the board. That is, by and large, the structure that Higgs addresses in his report.

We obviously want to be informed by what my former colleague says about the way in which companies should be run. I hope that we will produce something in line with current thinking. But if we are
 
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producing a structure that is as far from the basic structure that Higgs addresses in his report as the one we are now contemplating—which is much closer to a continental model of how a board should be run than to a UK model— then we must review matters from the base upwards. Higgs cannot be applied as if it is the current best practice because it does not address this kind of situation. Either we have to go to something that more closely reflects the way in which a best-practice company operates or we must review the conclusions that Higgs reached to see whether they apply to the rather strange model in front of us.

I have not heard any arguments advanced about why this is the right way to do things. Why do we have to invent our own way of doing things just for pensions? Why is the existing model, as it works with companies and corporate boards, not the one to follow? What is wrong with the unitary board? Why do we need to create this second tier? If we are creating a second tier, we need to be much more precise about what it is and what the relationship between it and the executives is. On the continent, there is a structure and a tradition that governs the way in which the two parts work together and the relationship between them. It is quite different in concept. Although one uses the same words when talking about it, it is quite different in concept from the way in which non-executives work with boards in this country. It may be the best way of doing things, but I want to hear the arguments about why we should follow the Dutch model rather than the English one.

Baroness Hollis of Heigham: I am slightly puzzled by this. Obviously, this has been discussed and consulted on. We have had either silence or support for these proposals. I do not quite understand why we are trying to reinvent either Higgs or Cadbury when, as I understand it, we are proposing to extract from Higgs the appropriate bit that fits a non-departmental public body. That is what we are doing. That separation is in the Bill in Clause 9 and other clauses, clearly laying out the functions of the non-executive committee—a strategic review function that needs to be set aside from the daily running. One reason why the chairman is an appropriate member of that body is that his salary is determined by the Secretary of State rather than by the rest of the board, which is perhaps different from private companies.

Lord Higgins: Would the noble Baroness say that sentence again? I did not quite catch it.

Baroness Hollis of Heigham: The chairman's pay is set by the Secretary of State. Therefore, it is not subject to review by the rest of the non-executive members. I was being pressed on why the chairman was a member, and that is one distinction from a non-departmental board, because it comes within the guidelines of the Cabinet Office.
 
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So I am a bit puzzled about why people are puzzled by this structure. It seems to me consistent and congruent with developing good practice, following Cadbury and Higgs—and following abuses in the City—as applied to non-departmental public bodies in the light of the review of OPRA and other consultation exercises we have had. As I understand it, until today we have had no dissent from anywhere about this structure.

I am perfectly willing to believe that your Lordships have concerns that have not been picked up outside. However, I am a little surprised by this. I am very happy to write back more fully on the detail of how we expect this to operate. If there are still concerns, then your Lordships will no doubt want to revisit them. My understanding, however, is that across the industry there has been either silence or consent to this structure as the appropriate way forward given the responsibilities that we are asking this body to carry. So I am a little taken aback by the assault on this structure as somehow un-British. If British structures have led to some of the problems we have seen in the past, perhaps it is time we moved on.

Baroness Turner of Camden: Did the noble Baroness say that the FSA had been consulted on this and had approved?

Baroness Hollis of Heigham: I did not say that any particular body had been consulted. However, two or three weeks ago when I myself had discussions on this and other matters with senior FSA members, they seemed entirely comfortable with the structure. I was interested in exploring whether we shared some of the concepts of risk, analysis of the structure and ideas on the roles of the regulator and the appropriateness of the division of responsibility between the two bodies. I was given full reassurance on all those points.

Lord Higgins: Will the noble Baroness tell us which bodies have been consulted? It seemed to us apparent that the claim in the Explanatory Notes about Higgs was not well founded. It was a fashionable thing to say, "This is in conformity with Higgs", but when you begin to look at it, it turns out that it is not. For example, the point I made earlier about whether the non-executives will meet at least once a year without the chairman present does not seem to appear at all. There are real issues here. Although the noble Baroness apparently has not had representations on them, these issues are important. Can she tell us who has been consulted on this specific aspect of the Bill?

Baroness Hollis of Heigham: It is not like that. We are proposing this structure as a result of Cadbury, Higgs and the like. The structure is known and has been exposed and is in the Bill. I had a meeting a fortnight or 10 days ago with the senior players, including the chairman, from NAPF. Of all the concerns they could have raised with me, one that they did not raise was this structure. Obviously we have consulted with OPRA members about their experience, but both myself and my colleagues in the other place have had a series of meetings with
 
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interested and very powerful parties, including NAPF and the FSA, at which we discussed a whole agenda of issues of mutual concern. This could have been raised by them if they thought it inappropriate. In all the meetings that I have had, no one has mentioned at any stage that this is not the appropriate way forward.

As far as I am aware, we seem to have narrowed this down to one issue—we discussed it previously with the noble Lord, Lord Skelmersdale—and that is whether the chairman of the regulatory authority should chair the non-executive committee, which is not a Higgs recommendation. One of the distinctions I made was that a non-departmental government body chairman has his or her salary or pay determined by the Secretary of State. That is why there may not be a parallel with private companies, which may wish the non-executive directors to consider that role. It is not appropriate here.

Apart from that, I have not heard anything from Members opposite to suggest that the structures we have in place are in no sense appropriate or, indeed, are inappropriate. I have been asked why we have developed them in this way; I have gone through the history of the corporate governance structure we have pursued. It has been exposed in the form of the Bill and through numerous meetings with important players, who have not shown any concern about the structure.

I am a little puzzled why Members of the Committee opposite seem to be labouring the point. Let me put a question back to the noble Lord. Has he had representations from any bodies or professional groups indicating that they have worries about the structure, in particular the role of the chairman, that he feels we should have addressed but have not done so? If he has, I shall be very happy to take them away and consider them, but I have not heard him or any noble Lords opposite put such an argument. Obviously we can argue about particular words, but does the noble Lord have any evidence that this is a concern to other bodies?

Lord Higgins: The arguments put forward by my noble friend Lord Skelmersdale spell out very clearly where the concerns exist. The Higgs report is the basis on which the Government have promoted their view. It is not the case, as the noble Baroness said, that there is only one outstanding item. When she reads Hansard she will find that there are a number of areas where we have expressed concern.

But let us not delay the Committee longer at this stage. These are important points. We need to ensure that the regulator, which will have a much more active role than OPRA, is itself operating in terms of best governance. It is something that we should all be concerned about.

Clause 4 agreed to.

Clause 5 [Regulator's objectives]:

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