Auditors: Market concentration and their role - Economic Affairs Committee Contents

Examination of Witnesses (Questions 466-488)

Lord Myners

18 JANUARY 2011

  Q466The Chairman: Lord Myners, thank you very much for coming. We are very grateful to you for being with us, because as you know, we had a discussion in particular with the Big Four auditors about the auditing of banks during the 2007 and 2008 financial years, and reference was made to meetings with you particularly in relation to the latter. It is very helpful indeed to have your input as to exactly what happened then. We will, if we may, divide the session into two parts. One is, first of all, to get your view about what happened with the banks during the financial crisis and to have the facts clear from your point of view. As you know, this is a much wider inquiry as well. From your long-standing position in the City, and in business and in government, it would be helpful to have your views on some of the issues that we're investigating, such as the position of the Big Four and the lack of competition in the audit industry. So could I start with the questions on the banks? I think you've seen the transcript. Clearly, the going concern of banks was prominent in the minds of the Big Four when they were auditing the banks and asking to meet Ministers towards the end of 2008. Clearly, what must have transpired—and I think they gave an indication of this—allayed the auditors' concerns so they were able to testify to going concern. Could you please describe exactly what happened, as far as you can, and the nature of the assurances that you and your colleagues gave the Big Four, which enabled them to take the view that they did on the 2008 year-end audits?

  Lord Myners: Thank you very much, Chairman. I was the Financial Services Secretary in Her Majesty's Treasury from 2 October 2008 until 13 May 2010. You already have, in the papers that have been submitted to the committee, a letter that the accounting profession sent through Mr Griffith-Jones of KPMG on 11 November 2008 to the Chancellor of the Exchequer. The Chancellor of the Exchequer passed that letter to my office and I handled the response from the Treasury. I went to the Treasury to re-examine the papers yesterday morning. I told the Treasury that I thought the papers it showed me were incomplete. It contacted me this morning to say that they were incomplete and that it had failed to show me some other papers that are relevant to this matter. If, after giving evidence and reading the transcript, I find that there is something that those papers cover that I would have given a slightly different or qualified answer to had I been reminded of it, I will of course write to the committee. I doubt whether that will be necessary. I met the accountants—that is, representatives of KPMG, Deloitte, PricewaterhouseCoopers and Ernst & Young—at 8.00 am on 16 December, and I was accompanied at that meeting by two officials. I noted that going concern was a matter that ultimately required judgment by the board of directors and review by the auditors. I asked them whether the issues that they were raising with me, which are summarised in the letter from the accountants to the Chancellor, had been raised by them in other jurisdictions. They said that that was the case, although discussions were not as far advanced in other jurisdictions as they were in the UK, which I found somewhat surprising as they didn't seem to be very advanced in the UK as this was the first meeting that I or anybody from the Treasury had had on this subject. They gave no examples of other jurisdictions. I reminded the four accounting firms of the statements that had previously been made by the Chancellor of the Exchequer and the Prime Minister to the effect that the Government were committed to taking whatever action they regarded as necessary to maintain financial stability. I went on to say that I would like to maintain a regular dialogue with them on this issue relating to the preparation and completion of year-end accounts, and suggested that we have a further meeting at the end of January to review progress. I added that I would be available to meet them between the middle of December and the end of January should the matter become more urgent. They did not seek an additional meeting. I closed the meeting that we held on 16 December by restating that it was most important that the accounts that were produced were clear, fair and honest. I then wrote to the accountants on 17 December 2008. You have a copy of that letter, so I won't repeat it. I think the only thing that I would emphasise is that I included in that letter a statement to the effect that the Government remain committed to taking whatever action is necessary to maintain financial stability and to protect depositors and the taxpayer. That was the end of the contact and correspondence that I had with the accounting profession on this point. I did, however, in view of this discussion, decide that it would be sensible for me to meet the chairs of the audit committees of the major banks. You might wish to ask me about that in a moment, but you might prefer to stay with the accountants for a little longer, Chairman.

  Q467  The Chairman: Yes, I think we would quite like to come on to that. Thank you for that description. Could I just ask you whether you think it's good practice or, indeed, reasonable for auditors to sign off on commercial enterprises as going concerns only on the basis, pretty well, that a commitment from government that government support will be forthcoming? There is a wider question, I think, about dialogue between auditors, regulators and government which I'll just couple with that. We are obviously very interested in that, and I think there's a lot of support for that idea, but do you see any difficulties from the point of view of non-disclosure to institutional investors or others in having those private dialogues?

  Lord Myners: A particular issue with the auditing and accounting for banks is that there has to be an underlying assumption of continued confidence, because you have maturity transformation, which is evidence in illiquid longer-maturity assets being funded by quite liquid, short-term liabilities, although an assumption is required to support a bank's audit that confidence will continue to exist in the depositor and interbank market. I think that's inherent in the accounting for banks. Whether the directors or auditors should have included some comment in the 2008 accounts to the effect that they had had regard to the crisis in financial markets and had drawn comfort from the existence of committed lines of credit and other sources of funding—including the Special Liquidity Scheme that the Bank of England had set in place and the Credit Guarantee Scheme that the Treasury was operating as part of the package of measures that we announced on 8 October 2008—must be a matter for the judgment of directors and the auditors.

  Q468  The Chairman: Do you have a view on the wider question of discussions between auditors—particularly in the financial sector in years like 2008—regulators, and now the Bank of England, on issues of liquidity and all the issues that are involved, because both have an interest in that dialogue?

  Lord Myners: My knowledge of what happens is based on hearsay. I have not been present at any discussions between the auditors, the regulator or the Bank of England. It would seem, however, that such discussions should take place and should be part of a two-way dialogue. To put it simply, it would seem sensible for the regulators, the banks, insurance companies and other financial sector companies to talk to the auditors about the conditions that they see as prevalent in the market place and the concerns that they have. For instance, talking about the valuation of mark-to-model assets, the reliability of market valuations that are struck on the basis of illiquid and infrequently traded instruments that are then applied to a larger pool of assets, and assumptions about the fragility of funding are the sort of things that the regulators should alert the auditors about. The auditors in turn should have a private dialogue with the regulators about any issues of concern that they have, either about the sector as a whole or about specific companies, although if they had concerns about a specific company it would probably be preferable that they expressed those views in the presence of the chairman of the audit committee of the company about which they were expressing concerns. I think that this is a case where more dialogue, more discussion and more exchange of views could only be helpful.

  Q469  Lord Forsyth of Drumlean: It is a pretty rough position, two months into your job, to be faced with this dilemma. Clearly, the last thing you want is for the auditors not to be able to sign off the accounts for reasons of confidence, but were you not concerned about the position of the shareholders who were in the dark about these discussions?

  Lord Myners: It's quite interesting. I read some of the evidence that the committee has already taken, in which there's been a lot of focus upon the utility of the accounts to shareholders. I think there are others who rely upon the accounts as well: creditors, customers, depositors, funders, so one is concerned at all times about the strength of confidence that one can draw from the accounts. I think, Lord Forsyth, it was a matter for the judgment of the board of directors, who have ultimate responsibility for preparing the accounts, and the auditors for reviewing the core assumptions, as to whether something was a matter that should be disclosed. I personally was not of the view that some generic statement to the effect that all banks were at the moment exposed to a degree of systemic risk and contagion would either be particularly damaging or particularly alarming to people who could evidently see this with their own eyes. So for me, this was a matter for the judgment of the auditors. I think if they had wanted to put a statement to that effect in their audit report, providing it had been done across the sector—and it seemed to me this was not an idiosyncratic risk but a systemic risk—then I didn't think that that would necessarily give rise to a further decline in confidence, but it wasn't for me to put that view to them. That would be seeking to direct them in their professional work.

  Q470  Lord Forsyth of Drumlean: Even if that was in the interests of all the stakeholders whom you've identified, including the shareholders?

  Lord Myners: I do not think, Lord Forsyth, it would be for me to alone draw that conclusion. I was meeting knowledgeable and informed people and, as I said, I subsequently met the chairmen of the audit committees because I wanted to make sure that they were focused on the importance of the year-end accounts, because these were critical documents towards restoring confidence in the financial sector.

  Q471  Lord Hollick: At the meeting with the auditors, did they say or did they imply that the assurance that you were giving about taking "whatever action"—I think those were the words you used—to ensure financial stability, to protect depositors and to protect taxpayers was sufficient to enable them to sign off on a going concern basis? As Lord Forsyth has pointed out, you carefully did not talk about shareholders or bond holders, two groups that would look to the accounts to see whether their interests were, indeed, safe. Did you have the sense that they had gone away from that meeting comforted and in a position then to give that unqualified going concern, which they subsequently did?

  Lord Myners: I hope they left the meeting better informed. It was not my task to give them comfort, and I very carefully in my letter to them did not seek to give them comfort that went beyond what we had already said. That is why I particularly reread that sentence, because, as Lord Hollick has quite correctly picked up, I was quite clear as to the people whom government felt were the focus of the protection of government action: depositors, taxpayers and enhancing general financial stability. This was one of the reasons why I left this meeting very open-ended, with a clear message that I would not have been surprised if they had sought further meetings, either as a group or individually. I did not want them to go away thinking, "That's it. The weight of responsibility has been removed. We can rely upon the statements given by the Minister".

  Q472  Lord Levene of Portsoken: Lord Myners, just to continue a little bit on that theme, did the Big Four indicate to you that they considered that a letter was essential prior to their signing off the audit reports for the 2008 year-end.

  Lord Myners: Not to the best of my recollection. I was clearly positioning my discussion with them on the basis that I did not want to give them anything that they judged essential, because I was very clear where the responsibility lay.

  Q473  Lord Best: You did not have a subsequent meeting in January, but had there been a meeting prior to this one to look at the year-end accounts for 2007, and was there one afterwards to look at the year-end results from 2009, or was this event an absolute one-off?

  Lord Myners: I obviously was not in office in 2007. One of the notes that I have not seen is the briefing note prepared by officials before my meeting with the accountants, but to the very best of my recollection—and I have a fairly high degree of confidence in this recollection—there had been no meeting in respect of 2007. And to the very best of my knowledge, there was no meeting in respect of 2009—certainly no meeting in which I was involved—and I'm sure that if this matter had been raised again with the Chancellor, he would have again very nimbly passed the file to me.

  The Chairman: Are there any other questions on these events? Lord Forsyth.

  Q474  Lord Forsyth of Drumlean: Had the Big Four left your meeting and you thought that they were not going to sign off the accounts, that would have been a disaster, wouldn't it? So you must have had a degree of confidence as a result of that meeting that they were going to sign off the accounts.

  Lord Myners: I think we would have waited to see, Lord Forsyth, and I think they would have come back. There was a very clear message, "If you're having further difficulties and if there are further issues, if you feel you'd like to have a further discussion you know where to find me". So I was acknowledging that there might be a continued difficulty, but they didn't leave me with a sense that I had kept them in a position of an impossible dilemma.

  Q475  The Chairman: Yet I think they made it clear to us that it was the words you had said to them at that meeting that gave them the comfort, one of the comforts, for signing off the accounts as a going concern.

  Lord Myners: I would just remind the Committee that I repeated public statements. I drew their attention very clearly to the comments made by the Chancellor of the Exchequer and the Prime Minister. I think it may well have been the fact that I didn't say we're at the end of our tether, the end of our resource. They had a concern, for instance, that we had indicated that we had earmarked up to £50 billion of government funds for the recapitalisation of banks through primary equity, and they had some concern that that pool of money might be exhausted on a first come first served basis, but I don't have a recollection that they pushed me particularly hard on that point. I think they saw in my eyes and heard repeated the comments by my more senior colleagues in government, that the Government were committed to taking action to ensure financial stability, on which basis I think they could draw some conclusions about continued funding to protect the interests of depositors and the taxpayer.

  Q476  Lord Smith of Clifton: Lord Myners, as usual this is all very delphic, is it not? It's all about nods, winks, intimations and eyebrows raised, or even not, and we all come away with what we want. I, on the part of the Government, have gone some way to intimate that if the worst came to the worst we would be in there. They come away saying, "Well, we've got the assurances", but actually you would need an English literature or linguistic person to deconstruct this conversation. We have gone beyond accountants, economists and business anthropologists. It has become a very elaborate—if I can mix my metaphors—minuet, where we all know what we're doing, but nothing is so substantive that future historians can do much more than try and feel their way through this and what's happening. You are a past master of this, I'm sure, and so are those at the meeting in general, but it is terribly difficult to get a handle on what actually happened.

  Lord Myners: I am sorry if that's the case, Lord Smith. As Lord Forsyth said, this is quite a tricky situation for me, still fairly early into my ministerial mini-career. The one thing I was absolutely clear that I was not going to do—they didn't press me to do it, but if they had done—was to have given some all-embracing guarantee that, come what may, the banks' shareholders and accounts would be protected. We, as a Government, had been very disappointed when the Irish Government had introduced blanket guarantees to depositors, and the German Government had done something similar. We were very concerned to ensure that the medicine we administered was appropriate to the patient in the form of equity, access to liquidity and assurance to support the taking of deposits. It was focused upon each individual bank according to that bank's particular needs, I was not giving some across-the-sector guarantee or assurance. I met the senior partners, or close to senior partners, of our major four accounting firms. I think that if they had found me too Sir Humphrey-like, or too delphic, it was incumbent on them to press me. And if they thought that my letter was in some way more conditional than the one they had expected, it was very clear that they could come back to me, and they didn't do so.

  Lord Smith of Clifton: Thank you very much.

  Q477  Lord Forsyth of Drumlean: Just to summarise, you were doing what you had to do to get those accounts signed off?

  Lord Myners: I was ensuring, at all times, that we protected the interests of the taxpayer.

  Q478  The Chairman: And you didn't have individual talks with individual banks? I thought you—

  Lord Myners: I did.

  The Chairman: You did.

  Lord Myners: They talked about how difficult it was to produce the accounts. This was aside from the issue about whether the Government would do whatever they thought might be necessary in hypothetical circumstances of further deterioration, but they talked about the general difficulty of valuing assets and the trouble their clients were having in this respect. They were always very clear that the primary responsibility lay with the client, so I thought it would be quite helpful and interesting to meet the chairs of the audit committees of our major banks. I invited them all in—I can't remember if they all came—and I invited them to come on their own with a note-taker. They were all, without exception, quite alarmed about that and wanted to bring with them their CFO, their external auditors, their internal auditors and probably their legal advisers. I said, "No, this is just a chat over coffee". I was, I have to say, Chairman, pretty disappointed with what I heard when I met these fellows—because they were all male, with one exception. When I started asking them about their understanding of the valuation models, the sensitivities of model assumptions, the CDOs; what a CDO2 was; and about the limitations of VAR as a concept of risk, on the whole I got some pretty cloudy expressions. When I said, "How do you form a view on whether the assumptions that are being used in your valuation models are appropriate?", I can best summarise the reaction as, "We're pretty wise and experienced fellows. We look the executives in the eye and can tell whether they're trying to pull the wool over us". I wasn't terribly impressed. There was one exception, but I am not going to name names.

  Q479  The Chairman: Were these one to one discussions?

  Lord Myners: Yes, they were. Each chairman of audit came with a note-taker, and I was accompanied at the meeting by one of my officials. In the case of one of the banks, both the incumbent chair of the audit committee and the person who was just about to take the chair came, but in all other cases it was simply one executive and a note-taker, a nice cup of coffee and Treasury biscuit in my small office. I'm sure they enjoyed the meeting, Chairman.

  Q480  The Chairman: This is slightly going off on a different point, but do you think that this reflected the fact—and we have discussed this in the committee before with various witnesses—that non-executive directors, and very often, I suspect, senior executives, didn't understand the complexity of some of the instruments with which the bank was dealing?

  Lord Myners: I think that's a conclusion that many people hold. Indeed I think it was one of the directions of thought in Sir David Walker's rather good report on the governance of banks and financial institutions. It leads me to believe that this is not a task that can easily be done by a lay-person. I, for instance, am a strong believer that bank audit committees should consider appointing a professional adviser to guide the committee through the language and concepts to help the chairman of the committee to understand the issues on which they should be focused. I say this with the experience of having sat on the audit committee of a major American bank and a number of other financial institutions. My impression is that more can be done and that too much reliance is still placed on the fact that we look them in the eye and try to tell whether they are telling us everything that we should know, and then we look to the external auditors to see whether their eyebrows have gone up. I grossly oversimplify, but I think that that was at the heart of many of the processes that were being followed.

  Q481  The Chairman: And the external adviser could either be someone from another audit firm or not from the audit side of the firms all together?

  Lord Myners: It could be a retired CFO from another financial services organisation or it could be someone with an accounting qualification or regulatory experience. It seems to me that it would be helpful for lay members of an audit committee, who may well be men and women of considerable experience in the commercial and other sectors. Nevertheless, when you come to value a CDO2 with multiple algorithms in support, this is going beyond the reach of a lay person and I think a professional guide could be quite helpful in that situation.

  The Chairman: Well, that perhaps leads us to the second part of what we'd like to talk to you about, which is the inquiry more generally. I ask Lord Forsyth to kick off.

  Q482  Lord Forsyth of Drumlean: What are your views on the scope, value and quality of the annual audit?

  Lord Myners: I think there's a danger—and here I'm picking up on listening to the end of the evidence given by your previous witnesses—of believing that accounts can convey a spurious accuracy. At best they are an indication of health, but they are critically dependant on a number of assumptions, many of which are qualitative in nature and allow scope for considerable movement within a fair and reasonable band of outcomes. I read the evidence given by the institutional investors, who I have to say were rather an unusual group of institutional investors. You selected the cre"me de la cre"me when it came to institutional investors who were interested in these subjects. It would have been very difficult to have assembled a group of similar size of other fund managers with a similar degree of knowledge and commitment to some of the issues that you were discussing. They obviously said that the accounts were important, and they clearly are. I would say that one should always read accounts in the knowledge that there is a high degree of judgment involved, particularly for banks and financial institutions, including insurance companies and insurance syndicates. The pursuit of accuracy to the last penny may well give people a greater sense of comfort in accounts than accounts can possibly ever give.

  Q483  Lord Moonie: Lord Myners, do you consider that the financial crisis reveals a failure of audit?

  Lord Myners: I think the financial crisis revealed the failure of just about everybody. At the heart of the financial crisis were failures of credit judgment, which were compounded by the fact that credit judgment was increasingly concealed within opaque instruments that were being bought and traded by people with a poor understanding. Central banks failed to see the build up of the asset bubble; Governments failed to give central banks and regulators the appropriate instruments to deal with asset bubbles and asset inflation; and regulators—and I'm not talking here specifically about the UK, although I am not excluding the UK—really weren't up to speed with what was going on. You're hearing in a moment from the credit rating agencies, and I suspect that you'll have some questions as to whether they fell short of the expectations of some, although I'm sure they will tell you that those expectations were falsely assumed. As far as auditors are concerned, I think it's quite interesting that the accounting profession has got off quite lightly. It's quite striking that Bear Stearns collapsed within six weeks of getting an audit sign-off, and Lehman collapsed within five or six weeks of an interim statement that had an auditors' light form report, so I think the auditing profession, the accounting profession, cannot be excluded from those who must share responsibility and, more importantly, seek to learn lessons.

  Q484  Lord Tugendhat: Lord Myers, you have almost answered the question I was going to ask you because you said it was a failure on the part of everyone, with which I completely agree—and you went through it in a manner with which I completely agree—and in relation to everybody else conclusions are being drawn. Some of the conclusions, no doubt, you do not entirely agree with, but conclusions have been drawn in relation to regulators and the behaviour of the banks and boards and everything else. The one area in which conclusions do not seem to have been drawn is the auditors. Here we are conducting this inquiry, but so far no very tangible conclusion has been drawn, or change recommended, or anything else. They just sail serenely on.

  Lord Myners: I agree entirely with the noble Lord. In America, Ernst and Young has been exposed to the consequences of Repo 105, but we've had nothing similar here. In a moment I think you are going to come to the issue of the concentration of the auditing profession, and I think there's a factor at work there. I put a Written Question to the Government two or three weeks ago, asking about the reports that the Financial Services Authority commissions when a regulatory firm or individual gets into difficulty. I believe, from recollection, that they're called section 166 reports. I asked the Government, who passed the letter on to the FSA, for a reply as to what percentage of those reports had been commissioned from the Big Four. And it's an extraordinarily high number. In some years 100% of these reports had been commissioned from the Big Four in terms of fees paid, and I think the lowest percentage in recent years was of the order of 50% of the fees went to the Big Four. So I wonder whether one of the reasons why the auditing profession has not being subject to more scrutiny is because part of the scrutiny exercise has been in the hands of the auditing profession. As we know, the report that has been done for the FSA on RBS—which has not been published and will not be published—was commissioned by the FSA from PwC. I would like to see the FSA broaden the range of people that it commissions, I would like to see it less dependent on external input, and I certainly would like to see it much less dependent on the Big Four than it has become in recent years.

  Q485  Lord Tugendhat: Could I add a supplementary to what I said. In the case of regulators, for instance, it lies within the power of government—this Government or any other Government—to change the regulatory system. If that is what it wants to do, it can do it. In the case of the bank boards, you can set up a report by Sir David Walker and he will come up with suggestions for altering bank boards that are very interesting. The problem with the auditors is there they are—the three of them, in effect, with banks—and it's very difficult for anybody to think of an alternative. That is one reason why suggestions are not made.

  Lord Myners: I think your observation may well be correct. The entire auditing accounting and governance structure is also out with direct government intervention, rather like the Basel III regulatory process, which is also one that is out with direct government involvement.

  The Chairman: Well, I think that leads to the last question that we would like to explore with you. Lord Hollick.

  Q486  Lord Hollick: You have already touched upon the issue of dominance. Lord Tugendhat says it's the Big Three in the case of financial institutions rather than the Big Four. This clearly worries us and clearly worries a lot of witnesses. What measures do you feel could be taken to reduce the dominant position of the Big Three? How can we bring in other firms, other expertise, to deal with what you have quite rightly described as an extremely complex issue?

  Lord Myners: The standard measure of economic concentration in business is the Herfindahl Index, and the Herfindahl Index for auditing is very high and for auditing of banks it is extremely high. The choice available to a bank is very limited by virtue of the fact that in some cases a firm is already auditing a major competitor, and that competitor will not allow the audit firm to take on the audit for another business with a very similar profile. The industry has become very concentrated because it has suited the accountants. They have combined and combined and combined because it has made good economic sense for them to do so to a point where, I think, there is a degree of systemic risk. Can we cope if the Big Four goes to the Big Three, or the Big Two plus one? I think there is a point, Lord Hollick, at which one has gone too far. We may already have passed that point, so what can we do? Enlightened self-interest should be the response. When the investors came to see you they spoke about their encouragement to the tier-A firms, but my sense is that that encouragement has been pretty insipid. The shareholders own the businesses; if they think there's a risk here of concentration, then they should begin to say to companies, "We want you to put your audit out to tender, and we want you to ensure that, as part of that tender process, you give serious consideration to taking a non-Big Four firm. And by the way, we will draw no adverse conclusions from the fact that it's a BDO audit rather than a PwC audit". Government can also do something here. When I was on the audit committee of the Bank of England and we were changing the auditors there, I made a strong case for us to include the tier-A firms in those who pitched for the business, although from recollection it went to another Big Four firm. Government as a major commissioner of auditing and accounting services—and conceivably even more with some of the coalition Government's programme—can be doing much more to reach out to the next-tier firms and giving them greater opportunity. If that doesn't work, then one has to consider whether there should be an OFT reference and whether—as in the words of Lord Lawson of Blaby when he was at an earlier meeting of the committee—there should be some action to "trust bust". I, personally, would hope that would not be necessary, and enlightened self-interest should be the first step. But there's a paradox that everybody believes that it will be good to have more choice but nobody seems to be willing to be the first mover, evidencing a willingness to make that choice and encourage more optionality.

  The Chairman: Various inquiries over the last 10 years that have looked at this have come up with recommendations that have made very little difference to the actual situation in relation to the monopoly of the Big Four.

  Lord Myners: Which is why I am delighted that your Committee is looking at this matter, because I am sure your recommendations will have an effect.

  Q487  The Chairman: What would be the ones that you would most recommend to us?

  Lord Myners: I'm going to side-step that one, Chairman, because I think the issues here are so complex that there isn't a single solution. There are a whole range of issues that will need to be addressed if we are to have a better understanding of the health of companies—particularly of financial service companies—can place greater reliance upon the accounts, and believe that those accounts have been prepared objectively, fairly and through a process that focuses on the end user of the accounts rather than the dominance of the executives, and includes a strengthened role for investors and a strengthened and more effective involvement for the audit committee. I should add one final comment. I believe I asked all the chairmen of the audit committees had they had any meetings with their shareholders because there was a lot of discussion in the press. One bank in particular was being regularly referred to as overvaluing assets, valuing them at a higher level than other banks that were holding the same assets. There was much talk in the financial sector about this, so I asked the audit committee chairmen, "Have your shareholders been to see you? Have they been asking the sort of questions that I'm asking?" Not a single one of them said that they had had a meeting with a shareholder, and I would venture to suggest that if you were to call them all in tomorrow, you would again find that not a single one of them had had a meeting in connection with their year-end accounts with their shareholders.

  Q488  The Chairman: But isn't that one of the weaknesses of the present situation? You rightly said that the investors we had before us last week were a particular pick of those who were most interested in this issue, but even they did not feel that there was a great deal of action that they could take.

  Lord Myners: I think the good news for the Committee is that I'm overrunning on my time because I'm about to go on to my favourite subject of the "Ownerless Corporation". I believe that most of our large companies have such distributed ownership, through diversified portfolio management, that they don't have anyone who thinks and behaves as an economic model would assume an owner would do. To put it in the words of Rupert Pennant-Rea, "The average institutional investor has about as much interest in the companies in which it has invested its client's funds, as somebody buying a betting ticket on a 2.30 horse at Plumpton. Passionately interested in what happens for the next three minutes, but not much interested in what happens to the horse thereafter".

  The Chairman: Any other questions? Well on that note, Lord Myners, we thank you very much indeed, particularly for the evidence you have given us on your meetings with the banks. You have left us with a clear feeling that it is a very important topic we're discussing, but I don't think we have had any clear guidelines from you as to major recommendations to make.

  Lord Myners: That was my intention. Thank you, Chairman.

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