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Banking Bill

I have been advised that it is procedurally proper for me to move the amendment even though my noble friend Lady Turner spoke most persuasively to it in moving Amendment 38, as did my noble friend Lord Borrie and, with some qualification, the noble Lord, Lord Newby, who adverted to it favourably. Indeed, the Minister said that he spoke against it with some qualification, and even mentioned that other members of the Front Bench were not unfavourably disposed towards it. I add—without breaching the normal conventions of the Committee—that Members of the House of Lords on all sides have mentioned to me how favourably they see the merits of the amendment, which would give the Treasury the power to appoint a person to the remuneration committee which normally provides the proposals for remuneration, in the broadest sense, of directors of banks and companies. The history of this matter was not adverted to during previous discussion on the amendment, when I was unable to be in Committee for medical reasons. We are not discussing cardboard figures. We are discussing directors and top executives, who have the genes of their predecessors, because of the errors that were made in irresponsible business models, and the outlook and behaviour that has been so scandalous in the continual rise of top executives’ pay in companies and banks throughout the system. When I wrote on this matter in 2003, I was amazed to find the multiples by which directors’ pay had exceeded the pay of others employed by banks and other companies. That fact deserves to be mentioned in the Bill. It is a Bill about banks, but banks do not do anything; bankers do things. Banks are an abstraction. If nothing is said in the Bill about the way in which the remuneration of top executives has exceeded the most depressed feelings of commentators, it will be noticed by those who look to this House and the other place to defend their interests. The matter has been mentioned in the most authoritative textbook on company law, by Professor Gower, edited by Mr Davies. It states that the remuneration committees represent, "““a classic case where the risk of mutual backscratching arises: directors may not scrutinise too closely the remuneration of a fellow director in the expectation of similar treatment when their cases are considered””." The key to that is that directors sit as non-executive directors on a multiplicity of companies, which gives rise to that phenomenon. It is no answer to the simple proposition I mentioned to invoke the plea that my noble friend Lady Ford invoked on the previous occasion at col. 1270 of Hansard, when she said that she refused to recognise the description of the noble Lord, Lord Newby, of the ““charmed circle”” that constitutes the membership of these committees being the basic reason for the phenomenon. Unless something is said in the Bill, it will be presumed that this House and another place do not care about that phenomenon, and that a Banking Bill can be put through without bothering about that history. The Minister said that he thought it was not necessary to add anything to the Bill to bring about the result I am discussing. My noble friend Lord Borrie, who supported the amendment, said that it was a ““modest”” amendment in the context of what had happened. The noble Lord, Lord Newby, said that there was a ““general problem”” of directors paying themselves excessively, even when the relevant enterprise underperformed. He is right. Therefore, I ask the Minister to accept that some noble Lords on the Front Bench were right to agree that this amendment is needed. The Bill needs to say something explicit about the phenomenon and what is to be done about it. If there is no intervention of the public interest voice in remuneration committee proposals, there is no way—this has been shown clearly—of preventing this phenomenon building and feeding upon itself and entering the same old spiral next time round. My noble friend Lord Borrie said that it was a most modest amendment in the light of the scandalous behaviour that had taken place. The aim of my noble friends in government—in the face of what might be called industrial action by bankers in not lending even to one another in an excess of modesty and not lending to enterprises of small, medium and even large business, when that is the normal function of banking—must be to point out that the record in the rapacious activity of top executives of banks and of other companies is such that the Bill must explicitly make a point of pointing the way to prevention rather than cure. Once the remuneration committee has proposed the requirements which in the Companies Act are required for a quoted company—the amendment would apply whether or not a company was quoted—it is impossible for anyone to intervene to prevent the spiral getting started again. Even in quoted companies, the shareholder’s vote is merely advisory. I formally move Amendment 145, in the hope that the Minister can give us some more beneficial advice on the matter.