Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Newby: I hope that the noble Lord will excuse me for intervening. Is he really saying that in a time of extreme difficulty, the Chancellor will take a political decision and execute it, without the Permanent Secretary of the Treasury being in the room? Is he saying that decisions--including those relating to how decisions may be executed--will be taken literally by the three people he mentioned and that no one else with expertise in how such decisions are carried out will be present when the decisions are taken?

Lord Eatwell: The noble Lord should take a lesson from a statement made by the noble Baroness, Lady Thatcher, when she was Prime Minister. She pointed out that advisers advise and politicians decide. At such times, it is vital that the leaders make the decisions. They may have people around them with the skill to advise them, but that is not the point. We need someone who understands the strategy and the operating characteristics of the FSA to be making decisions in times of financial turbulence.

I have been extremely puzzled by the reluctance of the noble Lords advancing the amendment to apply it to the current regime. They have said that they do not want the Bill to be ad hominem, but in fact they do wish it to be ad hominem, because it is not to apply to Mr Davies. If they really believe in what they are arguing, they should argue that there should be a separation now of the chairman and chief executive roles. It is clear that they do not believe in their argument. They are putting forward the amendment as a general attempt to make mischief with the Bill. If

16 Mar 2000 : Column 1698

they really believed in what they were saying, they would present the argument in relation to the current circumstances.

Lord Alexander of Weedon: Is the noble Lord aware of the situation which exists within corporate governance, where it is the norm in the majority of cases for a company to have a chairman and a chief executive, but in some cases, those roles can be held by the same person? If he is aware of that situation, why does he believe that those who take the view that it should apply to the FSA are simply making mischief?

Lord Eatwell: If he really wishes to persist in the position which he has taken so far, the noble Lord will have to answer the following question: can he identify a major financial regulator in the world which is organised in the way he proposes?

Baroness O'Cathain: Those of us who have experience of operating at a fairly high level in corporate governance would find the situation extraordinary. The FSA is now in a strange position. It is actually operating although it has not been given the power to operate. That has been agreed to try to ensure that there is a safeguard for investors and that there is financial regulation. The reality is that the FSA is up and running, despite the fact that it does not have the power to be up and running. Therefore, to cause a problem now may not necessarily be the best thing. I do not believe for one moment that the combined roles should be operating now. I said that there could perhaps be a problem in the future. I believe that I used the phrase, "The spectacular success of Howard Davies". It is quite wrong to keep those roles together.

Lord Jenkin of Roding: The noble Lord, Lord Eatwell, has taken part in many previous proceedings of this House. It is perhaps a little unfortunate that he should describe simply as "making mischief" an idea which has been debated at great length in another place and put forward here with considerable force from the Liberal Democrat Benches. I hope that he may perhaps feel able to withdraw that comment.

Lord Eatwell: Yes, I shall gladly withdraw that comment. It was just a frivolous comment at the end of what I hoped was a series of serious remarks. I hope that it does not devalue the serious remarks I made earlier. I thank the noble Lord for giving me the opportunity to withdraw the comment.

Lord Jenkin of Roding: I am sure that your Lordships will forgive the noble Lord his frivolity.

I find this a quite difficult issue. I have read a number of the papers written on the subject by the authority itself and by others and some of the comments in the newspapers. I have listened with great care to the speeches so far. It seems to me that one begins from the proposition that, although this is a private company, in the sense that it is not a statutory corporation, it is in fact a hybrid. It is that curious hybrid: a private

16 Mar 2000 : Column 1699

company exercising public functions. There are other examples, but nothing with the power, scope and authority that the FSA will have.

The FSA will be the most powerful institution created in peacetime Britain. It is in many respects legislator, investigator, prosecutor, judge, jury and executioner. If one begins with that proposition, one must then examine how one can hold such a body accountable for its actions. How can it operate effectively? I accept the case which has been made that there will be times when that body will have to act swiftly and perhaps quite condignly, if it is to maintain stability. We shall debate later the issue of how to maintain stability in the financial system. I begin from the proposition that one cannot consider the head of the body in isolation. That is only one aspect.

There are a number of later amendments on the Marshalled List relating to the question of a deputy chairman, as my noble friend Lord Alexander mentioned; and to the question of a strong non-executive committee. In my early days, when I moved from politics into one or two commercial posts, I was brought up to believe that the phrase "non-executive" was not liked. One was either a full-time director or a part-time director. Nevertheless, I accept that it has become so much a part of the language of the Bill that I shall use the phrase "non-executive directors". I must say that I like the phrase "director-general"; there is an amendment which deals with that point. It is not just semantics, as we shall see. I like the idea of a powerful committee of non-executive directors, headed by someone--call him the "deputy chairman" if you like--as a body whose authority must oversee the whole of the activities of the FSA. That is not provided for in the Bill as it is worded at present. They are the housekeeping committee, if I may put it bluntly. With the greatest respect to the Front Bench opposite, I do not think we can let that pass. What is the point of having an authoritative, powerful body of non-executive directors if it looks only to see whether it is getting value for money and at matters of that sort? It must have a responsibility across all the functional roles of the authority. We shall come to that. My point is that the chairman and chief executive argument must be fitted into that; it is not a separate, single issue on its own.

I shall listen to my noble friends on the Front Bench and the Minister. However, in looking at the Bill I had come to the provisional view that in the end this must be a split responsibility. Like other noble Lords, I heard with great interest the demolition by the noble Lord, Lord Newby, of the case made by the existing non-executive directors. When a body has such a wide sweep of authority and power to ruin individuals and destroy companies, it must be held firmly to account.

To my mind, splitting the function of chief executive (or director-general) and having perhaps a part-time or "most time" chairman who reports to the board seems the best solution. However, having said that, I side with those who say, "It will be sufficient if the Bill makes that possible". I could not take part in the Second Reading debate but I have read it. I understand the noble Lord on the Front Bench said that the Bill

16 Mar 2000 : Column 1700

does just that. Perhaps I may say that it does so silently, by implication. It is not express. There should in my view be an amendment which makes express the fact that that will be an option.

Another factor is the question of review. When one sets up a body with such a huge scope of powers--it is not only the Bill which is immense but the powers--it should be subject to fairly early review. I believe an amendment on the Marshalled List states that that should be considered externally after three years. Whether three years is right, I do not know. One could embark on one form of governance; that is a single chairman and chief executive. I yield to none in my admiration of Mr Davies; I know his personal view on the matter. One has to take account of that. With the greatest respect to the noble Lord, Lord Eatwell, we are not legislating ad hominem; we are dealing with a body in medias res. I am told that the legal opinions to justify setting up the FSA using existing legislation--the 1986 Acts and others--stand as a high pile indeed. Clearly, a great deal of legal confidence was required before that could be done. However, the FSA is doing its job and working. It has an outstanding leader in Mr Davies.

I therefore tend to the view that the right answer is for the combined post to be allowed to continue. It should be subject to review. Whether that is after three, four, or five years is obviously a matter for argument. The Bill should make express provision that the job can later be split. We shall need to look carefully at the powers of the non-executive directors. As I indicated, I believe they are much too circumscribed as they stand in the Bill. We need to consider also the question of procedures for enforcement and the independent investigator. One of the problems of the present structure is that although there may be an investigator, he is still far too much under the thumb of the authority. The whole range of institutions and the features of this institution need to be balanced.

I shall reserve my position until I have heard further speeches. In the end I shall probably come down in favour of keeping Mr Davies as chairman and chief executive, having a much stronger executive board, separating out the investigative function and having a full review by an independent reviewing body, whether or not that is the Comptroller and Auditor General. I believe and support my noble friend in the idea that appointments should be subject to more parliamentary scrutiny, and we shall consider that. The Bill should have an express provision that the function should be split later. One cannot write into a Bill--or it would be difficult--the presumption that it would be split later. We simply cannot guarantee that we would have somebody with the remarkable talents of Mr Davies to take his place.

That would be a balanced package which I would support. I hope that that may commend itself to the Committee.

16 Mar 2000 : Column 1701

4.30 p.m.

Lord Grabiner: There are those who subscribe to the view that there is no such thing as a free lunch. I should, perhaps, disclose the fact that I was entertained to lunch by the FSA in February. As far as I was concerned, it was a free lunch.

This is a classic debate about form versus substance. I believe that substance is invariably the more important of the two. In relation to the question of form, I make five bullet points. I intend to be brief. First, the Cadbury approach would no doubt be more appropriate if the FSA was a public company with a body of shareholders. It is not a company but a statutory corporate body. It has no shareholders. The Cadbury analogy is completely irrelevant.

Secondly, the FSA is structured in a way which will ensure a clear line of responsibility and accountability from the FSA chairman to the Treasury. That is unlike any public or private company structure that we ordinarily find in our law. The mischief aimed at by the Cadbury code is simply not appropriate in these circumstances.

Thirdly, Schedule 1 to the Bill provides that the majority of the members of the governing body must be non-executive. The schedule also provides for a committee of non-executives. They will have a chairman appointed by the Treasury. My understanding is that the chairman of the non-executive group will be the vice-chairman of the FSA; and, indeed, he is a distinguished Queen's Counsel experienced in commercial matters. It goes without saying that the chairman and his vice-chairman will inevitably consult together on a regular basis. The idea that this whole enterprise will be run by Mr Howard Davies as some sort of private fiefdom is ridiculous.

Next Section Back to Table of Contents Lords Hansard Home Page