Public Limited Companies (Financial Regulation)

Part of the debate – in Westminster Hall at 3:37 pm on 13th March 2003.

Alert me about debates like this

Photo of David Ruffley David Ruffley Conservative, Bury St Edmunds 3:37 pm, 13th March 2003

I always enjoy that quotation when I hear it, but I am not entirely sure that it is appropriate to my point. This is not some self-interested defence by a company chairman; we will get to that in a minute. It is from the head of the UK listings authority, a paid official from the FSA who polices the listing requirements of public limited listed companies. I quoted him for the reason that he is likely to be more dispassionate than the average company chairman.

There is a point with which I am sure that the hon. Member for Bexleyheath and Crayford will agree. Miss Farnish of the National Association of Pension Funds expressed a countervailing view that the Higgs review will be seen to be pretty much like the Cadbury, Greenbury and Hampel reports—in other words, they will be seen as a bit controversial at the time but will soon effortlessly become an orthodoxy and down the road we will wonder what all the fuss was about. However, I am not so sure about that, for reasons that I will describe.

Sir Nigel Rudd, chairman of Pilkington plc and a very experienced industrialist, described the proposals as "absolutely barmy". An interesting survey conducted by the CBI reported that 82 per cent. of FTSE 100 chairmen believe that one of the key proposals in Higgs, that a senior independent director—or SID—would undercut the authority of the chairman, was not to be welcomed and could lead to confusion. For that reason Mr. Digby Jones, director general of the CBI, said that a

"one-size-fits-all approach will not be good for British business or British wealth creation."

Mr. Jones went on to say that the proposed code was too prescriptive and that there was a danger that the "explain" element of Higgs would be forgotten over time. That is that the benchmarking of corporate governance relating to SIDs and their ability to head nominations committees for the appointment of new members to boards would, although voluntary at the outset, lead to a "comply or else" philosophy rather than, as Higgs now asserts, a "comply and explain if you do not comply" philosophy.

These views of the CBI should be taken seriously. The CBI's approach is not a headbangers' approach. It talks about the fear of the application of the law of unintended consequences. Higgs is not trying to do in British business, but is acting from the best motives. However, the problem, in the words of the CBI, is that it could

"stifle the creativity and drive that characterises so much of what is good about UK business".