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Lord Phillips of Sudbury: I should like to say a few words in support of the amendment moved by my noble friend Lord Newby, particularly in relation to public confidence, a matter touched on by the noble Baroness, Lady O'Cathain. Public confidence will be absolutely crucial to the Financial Services Authority. Even more important than general public confidence is the confidence of the sector over which it will have total--some might say totalitarian--powers under the Bill. That confidence is more likely to be achieved by having a chairman and chief executive. If the chief executive's title is director general, I do not mind.

One can only speculate about these things, but I am sure that there will be much more likelihood of general confidence in the carrying out of the FSA's difficult

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tasks if the roles are split. It is a quasi-judicial body. It is not one that requires the supreme brilliance to which the noble Baroness referred; it needs steadiness, fairness, balance and prudence. I believe that they will all be better delivered if the amendment is passed, together with the amendment in the name of the noble Lord, Lord Kingsland.

Lord Boardman: I have some sympathy with the amendment. I am reminded from time to time that what we are discussing is outside the Cadbury rules which apply to commercial companies. I believe it appropriate that the rules that guided Cadbury should also guide this body, which will be a very significant organisation.

It is very important that there should be a separation between the chief executive and the chairman. I like the suggestion in a later amendment, Amendment No. 12, that the chief executive should be called the director general, which would be fitting.

The chairman's role is quite distinct from that of the chief executive in any organisation. The chief executive is the hands-on man, and the chairman, whether or not he is called non-executive--I imagine it will be a whole-time job in any case--has to deal with other issues: shareholders, the public purse, which is paying, and so on. It would be most unfortunate if these two roles were combined. There is also the position of the non-executive directors, who have to form the majority of the board. Under the Bill, it is rightly intended that they should have very considerable powers in looking after things, seeing what is happening and eventually giving guidance. The non-executive directors would be able from time to time to discuss with the chairman their satisfaction or any worries they might have about the running of the business. That would be a very difficult task for them to fulfil if the chairman was also the active chief executive.

When the noble Lord, Lord Newby, read out the views of the independent directors to a combination role, I found his criticism of them quite valid. A very weak case was put forward for combining the two roles. I know that there is concern about the position of the chairman/chief executive, Howard Davies, who has done brilliantly. It is generally acknowledged that he has done a first-class job. However, I believe that he would be helped if there were a chairman to deal with external matters while he continued his magnificent job with a title, however it may be described. Therefore, this amendment has some attractions to.

Baroness Turner of Camden: The noble Baroness opposite referred to my role as chairman of the PIA Ombudsman Council. That was a very different sort of body from the FSA and I do not believe that one can make a relevant or appropriate comparison.

One must take on board the fact that the present FSA non-executive directors feel very strongly--and I have met them and had discussions with them--that the present arrangements work extremely well. If the set-up is working well, particularly if arrangements are made so that the structure is flexible enough to be

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amended in the future if it needs to be, it would be very disturbing and not a good idea at all to alter the structure now in the way that is proposed this afternoon. There is a need to look very carefully before one starts disturbing a structure where everybody is happy with it and feels that it is working extremely well.

The non-executive directors say--and I agree with them--that the analogy with company governance is not appropriate. There the objective is to represent the interests of shareholders, as the noble Baroness said, rather than, as here, accountability through government to Parliament in the public interest. We must bear that in mind. Therefore, I am not in favour of the amendment which has been moved this afternoon.

4.15 p.m.

Lord Alexander of Weedon: I share the view of the noble Baroness that, so far, the Financial Services Authority has done a remarkable job, not least because it has done it without any statutory underpinning whatever. But I feel that when we are giving it statutory underpinning which should last well into the future, we should address the matter not merely as a matter of whether it has worked under a remarkable chairman but we should consider also what is the right form of governance as it goes ahead.

What concerns me about this issue principally is that it is a very strong body. It has a rule-making power which is not to be subject to control by Parliament. As has been said, it is the financial services authority with the most wide-ranging responsibility and powers of any such body in any country in the world. As such, I believe that it should have both a chairman and chief executive in normal circumstances.

I accept entirely that there should be flexibility for situations when the roles are held by the same person. With my noble friend Lord Stewartby, I sat on the board of the Securities and Investments Board, and for three years I was its deputy chairman. The Securities and Investments Board then had a chairman and a chief executive. The chairman was responsible for strategy, its external role, key on-going issues and overseeing the activities of the chief executive. I totally share the view that the role of the chairman of a financial services authority cannot sensibly be non-executive. Such a chairman, if non-executive, would not be in a position to have enough influence within, nor, indeed, knowledge of the working of, the authority. Nor, in my view, would such a chairman have the ability to represent the organisation in international organisations with effective standing.

I know that it is easy to jest about the issue of the precise standing of a person in those international gatherings, but in those gatherings people accumulate, almost osmotically, a particular influence which goes with, to a considerable extent, the power of their role in their organisation. I have no doubt that the chairman of the FSA should be executive and should have the authority to represent the FSA abroad.

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But at the SIB I saw two things. First, undoubtedly a chief executive was necessary to carry out those functions which even the most tireless chairman could not sensibly carry out across the board--as my noble friend Lord Boardman said, to be responsible principally for operational issues within the organisation itself. I believe that it is somewhat esoteric to suggest that where one has a combined chairman and chief executive, the non-executives can easily act as a total counterpoise to a strong person holding that authority.

I believe also that the organisation should have, among the non-executives, a vice-chairman. I have no doubt that those organisations which have pressures on them in relation to their standing and authority need, as well as their fully internal officers, outside non-executives with the stature and the clout to stand back from the issues in order to avoid the organisation being in too much danger of internalising or looking to its own position. He can stand somewhat at a distance to comment on what the organisation does. That is not in any sense to multiply employment. I believe that the FSA, as such a powerful body, should have what many large companies have--a separate executive chairman, chief executive (called "director-general", if you will, if there is some semantic reason for doing so) and an independent vice-chairman leading the non-executives. I really should like to see a combination along those lines in the Bill.

On Second Reading, the Minister said that the Bill did not preclude the appointment of a separate chief executive. The noble Lord, Lord Borrie, in his intervention, somewhat teased--I hope I know him well enough to put it that way--the noble Lord, Lord Newby, along those lines. He said that this is an unnecessary amendment. I do not believe that that is right. It is not enough to say that the Bill does not preclude the appointment of a separate chief executive. The need for a separate chief executive, granted that the posts may occasionally be held by the same person, should be made explicit so that it should be seen as the norm. I strongly support a package of amendments which would, as the noble Lord, Lord Phillips, said, give very considerable confidence and comfort to the balance of powers in this very important organisation.

Lord Eatwell: The noble Lords, Lord Newby and Lord Alexander, have made speeches which I found very convincing. They convinced me that they were both wrong.

I want to leave aside the issues of the particular characteristics of corporate governance and even the issue of the significant powers which the Financial Services Authority will have because the main issue is the characteristics of this organisation as a financial regulator.

The key role of financial regulation is the management of risk--risk which can escalate in a matter of minutes or hours, not over days or weeks. Such risks can pose great dangers to the financial system of this country and, therefore, to the economy

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as a whole. In those circumstances, there is a peculiar need for extreme clarity in the positions taken by the leadership of the financial regulator.

The noble Lord, Lord Newby, referred to a committee meeting; the committee consisting of the Chancellor of the Exchequer, the Governor of the Bank of England and someone representing the Financial Services Authority. One presumes that he had in mind the memorandum of understanding between the three organisations which establishes the relationship between them for the management of the economy when it is in extreme peril. But the noble Lord, Lord Newby, would not leave our three leading figures to manage the economy in a period of extreme difficulty. He would happily dilute that committee. He would include the chairman and the chief executive. He would have the Chancellor of the Exchequer bring along someone else to back him up.

It is in precisely those circumstances that a decision-making body needs to be clearly defined as having the real authority to make crucial decisions at the time. That cannot be a chairman who has only a strategic role; nor a chief executive who has only an operational role. It must be someone who has strategic and operational roles at the same time and who can make decisions in times of extreme difficulty; the decisions which the committee comprising the Chancellor, the Governor of the Bank of England and the chairman or chief executive of the FSA will have to make.


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