The proposals about which I spoke in my opening remarks are sensible and should be taken on board. I agree with the hon. Gentleman, who spoke about the necessity for clear indications from the Government about the next companies Bill, the primary legislation that will flow from it, and in which Session it will be introduced. I therefore agree with the hon. Gentleman to that extent. However, I have a problem with Higgs. As Mr. Jones of the CBI says:
"Chairmen have got to be able to run an effective, unified board. The senior independent director should not open up a separate and potentially divisive channel of communication with shareholders or have responsibility for reporting back to the other non-executives on an exclusive basis."
That is the crux of the issue. These proposals seem to have caused the most difficulty in corporate Britain.
The first part of the proposal is that the senior independent director should have an exclusive channel of communication with shareholders. That is not too offensive. In a sense, he would not differ much from the investor relations office: reporting to the chairman of the board and having a chat with the shareholders and the institutional investors. There is no great difference between that and an SID talking to institutional shareholders.
The problem arises in the second part of the proposal. According to Higgs, the non-executives will be able to get into a huddle and chew over what the shareholders are saying and thinking. They should have regular meetings—a claque, as it were—of non-executives. That seems to be a recipe for disaster and for the disunity that the CBI hinted at in its analysis. Even if one accepts, as one will probably have to, that chairman and chief executive roles should be split as a matter of course, there appear to be at least two competing centres of authority already in Higgs's proposal. If one were to add a third centre of authority—the SID—one can imagine him corralling a group of his fellow non-executives. Incidentally, Higgs suggests that half the board should comprise non-executives. That could be a third fount of power, which would not make for especially efficient management decisions. In that sense, corporate Britain has a legitimate gripe in saying that it is not happy with that proposal.
Let me say one or two things about Higgs, which the Financial Reporting Council can address. Before mid-April, the FRC is allowed to tweak the Higgs proposal in some ways. I hope that it will take some of my points on board. First, Higgs believes that the advantages of introducing the proposal that a non-executive director should head the nominations committee were marginal. He did not think that it was a deal-break; he did not think that it was make or break. The overwhelming body of opinion, and the responses, suggest that it is odd for a non-executive who is unfamiliar with the sector to decide what the shape and architecture of a board should be. That person would have the power of life and death over nominees to the board, which is more properly the province of somebody other than a non-executive director. If what I read in the press is accurate, it would be useful if the FRC were to take that criticism on board and not implement the proposal. It was the most unpopular measure in the CBI survey. Nearly 90 per cent. said that it was bad news, or words to that effect.
Higgs should not promise too much. There is a danger that that will happen, because Higgs has asked Laura Tyson, the dean of The London business school, to provide a list of 100 top-notch non-executives, drawn from the public sector, charities and professional services. I fear that we are in danger of political correctness creep. I am not convinced—marvellously qualified in charities law and dedicated to the public services for which they work so diligently though they might be—that some of those individuals can necessarily read a balance sheet very well or go in to bat with some slick city auditor who is trying to pull the wool over their eyes. I urge Higgs and the FRC, when they are putting together the combined code, not to be seduced by the idea that the quality of non-executives in corporate Britain can be improved by such tinkering. A pool of 100 drawn from the public sector is a start, but it is not going to prevent Enrons from happening.