House of Lords: Domestic Committees

Earl of Kinnoull Excerpts

Monday 9th May 2016 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Doocey. It is the sign of a good debate when one’s speaking notes are a morass of changes and notes, because everyone has made some good points already. I, too, congratulate warmly the noble Baroness, Lady Shephard, and her whole committee, on what I found a very clear and brief report that was full of wisdom.

In my 25 years at Hiscox, which is a FTSE 250 company, I spent, inter alia, a decent period as the group company secretary. Hiscox at the time operated in more than 10 countries, with regulated entities in all those countries and with independent non-executive directors, both at the senior board level and on a number of operating levels. I can assure noble Lords that the organigram of the group was at least as complicated as that of our committee structure here in the House. Things similar to that marvellous story about the printing ink probably happened—I have a nasty feeling that I might have been part of that story as well, but that is for another time. On top of that, the senior independent director at the time was also the dean of the Cass Business School, so we were doing things properly. I therefore thought it would be helpful to the House to look at the report with the eyes of FTSE corporate governance. I accept entirely what the noble Baroness, Lady Shephard, said. It is only persuasive authority and we cannot follow corporate governance slavishly, but I thought it would be instructive. I came up with four points.

The first point is to do with evolution, which a number of noble Lords have mentioned. I note that the corporate governance code in Britain started with the Cadbury committee in 1992, and the current corporate governance code, which came into force in September 2014, is the fifth iteration. That just goes to show how we should view this as an iterative step on our own journey to corporate governance over what will be many years.

My second point is to do with the number of independent non-executive directors that the senior committee will have. I feel that two is not enough, for three reasons. First, we will need a balance of skills on this committee; we need to pick carefully, and not all the skills needed will necessarily easily be found in only two people. Secondly—and speaking as someone who is a non-executive when occasionally there are not many other non-executives around—you need to have at least two non-executives along to each meeting. There is a danger that there would be only one because someone could not make it. Thirdly, non-executives take a very long time to train up. At Hiscox we felt that it took about two years for a non-executive to understand the entity, and I dare say that it would take at least that here. Accordingly, our experience bank would be pretty overdrawn if we lost either of the non-executives at any one time. Therefore I recommend that that number is increased to three or four.

My third point concerns board evaluation. This process was coming in as I was the company secretary, and I was initially quite a sceptic. However, I am now a comprehensive convert, and I believe that board evaluation would be extremely valuable on at least the senior committee and a number of the other committees as well. The second main principle of the UK Corporate Governance Code of September 2014 is effectiveness. It says:

“The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors”.

That is a very good way of attempting to deal with known problems or allowing unknown problems to surface. I am not necessarily in favour of a huge, very time-consuming exercise. It is quite possible to do such an evaluation on an internal basis, with each member of a committee spending only an hour or so on it. Obviously the chairman would have to spend more time on it, as would someone whom I call the governance secretary, about which more in a second.

Paragraph 48 of the report worried me. It says:

“We conclude that relationships between members and staff could be improved”.

That is a Gypsy’s warning, and a board evaluation process is one part of trying to deal with that. I strongly urge that a board evaluation process is considered.

My final point concerns the creation of a governance secretary. The governance bit of a company secretary’s work is only part of the role but it is very important. To me, it was the most interesting part. There are a number of things that the governance secretary would have to do. First, for instance, there would need to be an induction programme for every member to find out about the committee, even if it involved only providing some documents. Secondly, there would need to be some sort of search process for replacements on the committee. Thirdly, there is the board evaluation, which I have just mentioned. So such a person would be needed for a number of reasons. He or she would also be needed as a “go to” person. If the chairman had a question about governance, he would need to ask someone for help. The same would go for any of the members of the committees, and indeed for anybody who was interested in the work of the committees from a governance point of view. I think that it is a part-time role—I am sure that it could be folded into the work of the Clerk of the Parliaments’ busy staff—but it would be greatly to the benefit of governance improvement.

All those points notwithstanding, on our iterative road of evolution, I think that the report is truly excellent and I hope that the changes it seeks will be implemented rapidly.

Strathclyde Review

Earl of Kinnoull Excerpts

Wednesday 13th January 2016 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I begin by joining in congratulating the noble Baroness, Lady Bowles, and the noble Lord, Lord Darling, on their engaging maiden speeches. As a Perthshire resident I also echo the thanks of the noble and learned Lord, Lord Hope, to the noble Lord, Lord Darling. I do not thank that he has ever really been thanked enough for his efforts. In very trying circumstances he was immensely dignified and effective. We should also thank the noble Lord, Lord Strathclyde, for his review. It is much more difficult to write a short letter than a long one. The review is short, well written and readable. Really, it contains everything that one might want to have on the topic.

I will confine myself to three areas or themes that came out of the review. The first is that of clarity. I notice that the word appears on the first page and the last, and it appeared in the speech of noble Lord, Lord Strathclyde, earlier on. As a relatively new Member of the House, I found it interesting to be asking on 26 October quite a lot of more experienced Members of the House about the conventional position. There was a total lack of clarity among the membership of the House, particularly among the more junior Members, as to what the position was. So I thought that I would do a bit of research on this, because, as a newish Member, I had recently been handed all the relevant bits and pieces of paper—and that was difficult.

My first suggestion, on which it will be very interesting to hear a comment, is that there could be in some place some recording of what the conventions might be. I say very carefully here that I have read the relevant parts of the Joint Committee on Conventions report of 2006 and I agree that it is fresh—a word used by the noble Lord, Lord Strathclyde. I agree with it all. I am not suggesting that anything should be codified in any way. I am merely suggesting recording it, so that there is at least somewhere to which people like me can go in order to form a view on what the conventions are.

My second point is about skeleton Bills. In my mind these have been rebranded by the noble Lord, Lord Cormack, as Christmas tree Bills. That is a better way of thinking about them. I will read out again the relevant bit that appears twice in the review, about the Government taking,

“steps to ensure that Bills contain an appropriate level of detail and that too much is not left for implementation by statutory instrument”.

As a quid pro quo that is good news if the third option is taken. However, it deals with future Bills and not with the problem of Christmas tree Bills already on the statute book. In six minutes it is not possible to develop that, but it occurs to me, considering this point further, that one has to deal with old Christmas tree Bills and old provisions for statutory instruments as well.

I will make some more general points, and my next comment is on timing. As has often been observed today, there was another choice for those tabling legislation for the Government as to the route that they took. There was a certain route and even if that was a bit clunky, the Government have the ability to conduct their business. As we grapple with the issues that have been raised in this debate, I do not therefore feel that this House or the other place should be in any rush; it is important to get it right.

Building on that, of course the functions, powers and composition of this House are interrelated. If you are going to tinker with those functions and powers, then, as the noble Lord, Lord Norton, said, there are quite a few difficulties that, as you scratch the surface, you come across. A number of people have suggested that a Joint Committee of the two Houses would be appropriate, and I would support that. But anyway, the document is pithy and would be very valuable were such a Joint Committee to be formed in the future. However, I do not feel that the document is a good basis today for piecemeal constitutional meddling.