Banking: Parliamentary Commission on Banking Standards

Lord Brooke of Sutton Mandeville Excerpts

Thursday 5th December 2013 Lords Chamber

[Lord Brooke of Sutton Mandeville (Con)]

My Lords, it is a privilege to be the first participant in this important debate to congratulate the most reverend Primate the Archbishop of Canterbury on having secured it, and for the manner in which he introduced it. His qualifications for it are enviable. Having read his mini-biography in wonderment at where he found the time to achieve so much, I hope he will forgive my language if I say that I think he is playing a blinder. I thank him, too, for having arranged the packaged provision of relevant papers in the Printed Paper Office.

My own participation in this debate is for three reasons. The oldest of these is that when, long ago, I spent two years at Harvard Business School acquiring an MBA, my highest marks were in a course titled “Business Responsibilities in American Society”, which I supposed played some part in determining my subsequent career. My second reason is that for 24 years I was the third longest serving Member of Parliament for the City of London since 1283. Those years included the paradigm shift of Big Bang, from personal contact to largely screen and telephone business. Although the dramatis personae of that era are not an interest to declare, Sir Nicholas Goodison, the chairman of the Stock Exchange who negotiated and navigated Big Bang so well, was and is my oldest friend. My third reason is the debate on banking standards during Report stage of the Financial Services (Banking Reform) Bill on 26 November 2013, not least the most reverend Primate’s comments.

I must allude to a longstanding friendship with the honourable gentleman the Member for Chichester in the other place, who chaired the Parliamentary Commission on Banking Standards—henceforth referred to as the PCBS—and who has been a mentor to me on this, as he was earlier on the development of the euro. I say “mentor” because during the four years that I was a Treasury Minister under my noble friend Lord Lawson of Blaby, I was the only one of eight Ministers in the department in that period who had never worked in the City of London. Thus my responsibilities were concentrated on what Sir Douglas Wass once defined to me as the housekeeping end of the Treasury—a more fascinating portfolio than it sounds.

After leaving government, I was briefly a director of an investment bank but my comments hereafter reflect the views of the City of London Corporation. When the issues of this debate were discussed on Report for the banking reform Bill, your Lordships’ House heard, as we have heard again today, informed talk of standards, ethics and culture—not, I have to say, unknown at the Harvard Business School. One institution that spans this arena is the City Values corporate forum, a collaborative project supported by the Lord Mayor and the City Corporation. It draws on learning from the professions, academia and, happily on this particular occasion, clergy-based as well as secular sources. A report recently published by the forum provides a guide to help chairmen and boards to calibrate their approach to the oversight of values. Its goal is the achievement of ethical behaviour in the financial and business services sector.

We learnt from the PCBS that some banks tried to encapsulate values in their businesses by creating human resources handbooks running to in excess of 1,000 pages. I share the PCBS’s scepticism about mechanistic expressions of values. If we had consulted the Delphic oracle, I suspect that it would have found a discreet way of conveying a conclusion based on the criticism faced by the Financial Services Authority for just such a modus operandi.

The forum’s preference was for half a dozen building blocks that cumulatively would help institutions to build and maintain values. As an example, one building block would seek to cause a board to develop ways of measuring values, behaviour and culture and to deploy internal audit to renew and enforce them. The board would receive regular misdemeanour reports. This process would lead in due course to the board agreeing its values with its customers and employees as well. Finally, there would be an annual values report to the board for wider publication.

All this will need to go further than discussion in your Lordships’ House but I hope that the process that I have described, and other initiatives like it, will stimulate the debate. Existing mechanisms can also be deployed more prominently. For example, the rights and duties of shareholders also have an important part to play in influencing board behaviour. As other noble Lords have pointed out in numerous debates on governance in this House, they are frequently underused controls. The All-Party Parliamentary Corporate Governance Group, of which I am a member, now has four or five years of informed debate in this area literally under its breakfast belt. The rights and duties of shareholders are frequently underused controls.

In conclusion, I shall borrow some words from the forum’s report to which I referred earlier:

“Governing values well is a prerequisite for a truly sustainable business … The need for the board of any financial services business to govern values is now central to its agenda—not an ‘optional extra’”.

I owe to the Harvard Business School the wise observation that if you do not know where you are trying to get to, any road will get you there. From 18 years of running an international business outside the financial sector before I entered Mrs Thatcher’s first administration as its absolutely most junior member, I can confirm the virtue of that corporate satnav.

The participation in this debate is nicely balanced around the Chamber. In particular, I wish my noble friend Lord Carrington of Fulham well in his maiden speech, to which I look forward