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30 Oct 2002 : Column 903—continued

5.30 pm

The Government seem to believe that this new approach to competition will radically raise the productivity of the United Kingdom economy. If that is to happen, this post must have enormous powers. The underlying trend in growth of productivity has remained pretty much unchanged since the Napoleonic wars. We are talking about revolutionary changes in the way in which the British economy functions. The person who drives that must have a great deal of power.

There are analogies with other appointments. Reference has been made to the Financial Services Authority. When the FSA legislation went through, the Opposition had legitimate concerns that Howard Davies would have unfettered powers. He is also an admirable public servant, but he has a great deal of power. There is some qualification in his case, because he is working alongside managing directors, so there is divided responsibility. Some heavy hints have been dropped that, when he moves on, a chairman will be appointed alongside the head of the FSA, so that problem is perhaps on the way to being resolved. The Office of Communications presents many of the same problems as this legislation.

The approach that I have advocated is to follow in the footsteps of the Chancellor of the Exchequer when he introduced the Monetary Policy Committee. It would be

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possible for the Minister to deal with this problem at any point through a statement, so no provision would have to be built into legislation. As we know, the Chancellor has boundless intellectual and political self-confidence. He obviously felt able to submit his appointments to the scrutiny of Parliament, and has done so. The process of confirmatory hearings has done an enormous amount to strengthen the credibility of the Bank of England's Monetary Policy Committee and the Chancellor. It has been a great success story. I do not understand why other Ministers have not had the self-confidence to do the same.

As regards the approach taken in this legislation, which I think is weaker but none the less a positive step and an improvement, the argument for using the corporate governance approach is partly based on the analogy with what has happened in industry. Post-Maxwell, there has been a considerable improvement in corporate governance. The system of split responsibility prevents megalomaniacs from dominating institutions. That lesson has been widely learned.

It is not merely a question of using a business model. One of my more illustrious constituents is Mr. Greg Dyke. I suspect that, whatever people think about him, there would be considerable apprehension if he were to have unfettered executive authority over the BBC. The BBC is not a plc, and has a chairman as well as a chief executive. Split responsibility provides a balance of power: there are checks and balances in the BBC. That public agency is in some ways analogous to the Office of Fair Trading.

We are not arguing that we should adopt this approach because it works well in plcs in the private sector, although that is a useful source of inspiration. Split responsibility is a sensible way of dealing with over-powerful, public officials who are not sufficiently accountable. I commend the Lords amendments, and will support them.

Mr. Jonathan Djanogly (Huntingdon): At the start of the Bill, the Office of Fair Trading is described, separately from its current constitution, as a body corporate. As such, I fully support hon. Members' suggestion that it should be subject to, and have regard for, the principles of good corporate governance.

For a listed company, it is accepted practice, as set out clearly in the combined codes of corporate governance, that the role of chief executive and chairman should be separated. The chief executive is at the coalface and the chairman has a detached role. The chairman can stand back, whereas the chief executive may not be able to do so. The chairman can review the wider picture, resolve conflicts within the board, act as a public interface and ensure a good balance of representation on the board.

Having heard hon. Members' comments, I have a sneaking suspicion that the Government wish to keep the chairman's role for themselves. As the Minister would doubtless be the first to say, that is not the intention behind the Bill, but it appears to be the implication of, for example, the Governments retaining the role of selecting the chairman. The principle of separation would certainly be enhanced by separating the roles of chairman and chief executive.

Yesterday, the Trade and Industry Committee held an inquiry into corporate governance in relation to the White Paper on the new companies legislation.

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We looked carefully at corporate governance and the way in which this rapidly advancing area of regulation has moved forward. In the context of that discussion, today's debate sounds very regressive. If institutional shareholders are to make a recommendation to shareholders in circumstances in which there is no split between a company's chief executive and chairman, they will almost automatically vote against, or recommend that shareholders abstain. If that is good enough for companies, why is it not good enough for public bodies?

The Government's amendment (a) contains certain irregularities. According to subsection (a), the OFT can make up whatever guidance it wants, but despite that fact, subsection (b) implies that some note should be taken of corporate governance best practice. However, the Government are not saying that corporate governance best practice should apply in the private sector. They use the phrase Xapplicable . . . generally", which presumably could imply the same level of best practice that applies in the Post Office, for instance. Furthermore, we know that that principle will not extend to the splitting of the roles of chairman and chief executive, because the Government oppose that.

This is not an esoteric element of corporate governance; in fact, it is one of the primary elements that institutions would consider, and which the combined code deals with in the private sector. It would therefore be appropriate to head for best practice by, for instance, splitting the roles of chairman and chief executive. Moreover, if it is the Government's intention that what constitutes best practice be decided on the hoof by the OFT, they should instead adopt a more open approach and set out what constitutes best practice.

The combined code itself is not a compulsory document; it is a very fluid document, and if companies do not wish to adhere to any aspects of it, they need not do so. What they must do is to say how they derogate from best practice. Such items need to be set out in their annual accounts—a perfectly proper approach, which should be followed by the OFT. In other words, its principles of best practice and good governance should be set out, and if it derogates from them, that derogation should be explained in its annual report. In that way, people could tell whether it had moved away from best practice in a perhaps appropriate context at a given time.

If the Government are going to let the OFT go its own way and pick and choose particular elements of best practice and corporate governance, will the Minister please explain what such practice is likely to consist of? We have heard precious little about it so far, and the Government's amendment looks like a reaction to the Lords proposal rather than a clearly thought-out provision.

In considering the future of corporate governance, we should take note of Lords amendment No. 188, which states that the OFT should

That is loosely worded and is—I should have thought—an acceptable way in which to proceed. If it is not acceptable, it would be appropriate for the Minister to comment on the procedure that the OFT is likely to

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follow when dealing with conflicts of interest for its members or those of its committees. That does not appear to have been dealt with previously.

Mr. Mark Field (Cities of London and Westminster): I, too, wish to endorse the words of my hon. Friend the Member for Blaby (Mr. Robathan). We should seek to divide the role of chairman from that of chief executive as an integral part of good corporate governance. My concerns include the potential power of the regulator, which could be immense, especially given the criminal sanctions against individuals for cartel offences. That point was discussed at great length in Committee.

I also endorse the words of Lord Hunt of Wirral, who did splendid work in the other place on this issue, and of the hon. Member for Twickenham (Dr. Cable), who said that the crux of the matter was who regulates the regulator. More importantly, how will that regulation operate? We have discussed that issue on several occasions, and the Cadbury code recommends separation. That is especially important for the OFT, given the sensitive and political nature of what it will do. It is staggering that Lord Sainsbury was complacent enough to say, in the other place:

We have similar grounds of dispute on Lords amendment No. 2, and I wished to tease out of the Minister what the Government amendment means when it says:

The Government appear to be saying that what is good for the Government is not so good for business. That appears to be breathtakingly complacent, in the aftermath of the disgraceful behaviour over the Penrose inquiry into Equitable Life. The inquiry's delay has meant that tens of thousands of our constituents have not had an opportunity to take their cases to the ombudsman. Because it is a Government inquiry, it is also taking place under a veil of secrecy.

We see parallels with the distinction between the requirements for the OFT and those for bodies in the private sector, in respect of the divide between the roles of chief executive and chairman. Given the recent scandals in both the public and the private sectors, the Minister will understand why the OFT and all other public bodies must be beyond reproach. How can the Government exhort business to get its act together if they are not willing to do so themselves?

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