Water (Special Measures) Bill [HL]

Lord Sikka Excerpts

Committee stage
Monday 28th October 2024 Lords Chamber

[Lord Remnant (Con)]

My Lords, I will speak to Amendment 3 in my name and I apologise for the typo. I had noticed it, but only recently, and only a moment or two before the noble Duke, the Duke of Wellington, brought it to the Committee’s notice.

As we know, Clause 1 contains rules about remuneration and governance. Most importantly, it contains provisions giving Ofwat the power to block the payment of bonuses to senior executives of water companies. My amendment clarifies that Ofwat’s powers under this clause cannot be exercised in a way which conflicts with its general duties with respect to the water industry and emphasises that the industry’s capital and human resources needs are of critical importance. I declare an interest as having been a non-executive director of Severn Trent, the largest of the listed water companies, for eight years, between 2014 and 2022, chairing the board’s remuneration committee for that time.

Why is it that these clarifications are required? Essentially, it is because we are giving extremely wide powers to Ofwat to draft rules in a very complex area, seemingly at its discretion and without further scrutiny by this House, which may have many unintended and harmful consequences. There is no clarity in the Bill on the appropriate targets and performance standards, how they will be measured, when relevant triggers occur and which remuneration, in which year, will be affected. This will all be for Ofwat to determine—yes, Ofwat.

I have huge sympathy for regulators—I was one myself for a period, running the Takeover Panel—and know that they attract only criticism and never praise. Having said that, I thought the mood of your Lordships at Second Reading was especially stark in expressing views about Ofwat’s past performance, and some of those views have already been reiterated in the short time we have had today. That was as regards its role as an economic regulator—its core competence. We are now effectively extending Ofwat’s remit into difficult areas of fine judgment best left to company boards and for which Ofwat is totally unsuited. Can we be so reassured by the integrity of the ensuing process and the safeguards built in that my concerns can be assuaged by leaving this clause unamended? I fear not.

First, it offends the principles of natural justice, as there is no distinction between the legislative process and the judicial one. The powers will lie with one body, Ofwat. It will make the rules and then judge companies and individuals under them. Secondly, the Minister may refer me to the consultation process which Ofwat will undertake, to which she drew the attention of your Lordships in her helpful letter dated 25 October. I welcome that, although it would be a heroic achievement for Ofwat to decide definitively on such a wide range of questions and responsibilities that this Bill, if enacted, will impose on it. Yet we all know that consultation is no panacea. The responses will contain many conflicting views and the conclusions that Ofwat will reach will be influenced by the weight it gives to particular views and to some preconceived ideas that it will inevitably hold.

Thirdly, there will be no opportunity for your Lordships to scrutinise the rules promulgated by Ofwat. For this reason, I support the thrust of Amendment 27 in the names of my noble friends Lord Roborough and Lord Blencathra and Amendment 25 from the noble Lord, Lord Sikka, which are designed to achieve such scrutiny. I will leave those noble Lords to talk to them in more detail.

But is this enough? I suggest not, because the scrutiny so achieved would be after the rules had been made by Ofwat. There is a need to influence Ofwat’s thinking much earlier in the process. That is what my amendment is designed to achieve. It is drafted with an eye to the wider objectives to which this Bill should aim: the need for more innovation, the recruitment of new talent and, above all else, the greater investment required to raise standards.

The amendment is in two parts. First, it is designed to ensure that Ofwat does not exercise its powers in a way that conflicts with its general duties under Section 2 of the Water Industry Act 1991. Such duties include a consumer objective, a duty to have regard to principles of best regulatory practice and a growth duty. Indeed, Ofwat refers to such duties in its consultation document when it says that one of its desired outcomes is that the rules should be proportionate. That is to be welcomed.

The Minister may be tempted to say that existing duties in the Water Industry Act and Ofwat’s acknowledgement of them should satisfy me and render this part of my amendment redundant. Were she to do so, I would say that that might hold good if the Bill imposed some constraints on Ofwat rather than adopting a blanket “Over to you, Ofwat” line. In the same section of its consultation document, it appears to qualify its commitment to proportionality by saying that

“we will be bound by statute”—

presumably as a result of this Bill—

“to introduce rules with the requisite effect”.

It is therefore critical that there is not just implicit recognition of Ofwat’s duties under the Water Industry Act of over 30 years ago but explicit recognition of those obligations on the face of the Bill, linked directly to this new and additional power that we will be giving to the regulator.

The second part of my amendment requires Ofwat to have regard to two further considerations in exercising its powers under this clause: namely,

“the need for a relevant undertaker”—

the water company—

“to … attract the investment required for its capital programme, and … attract, motivate and retain persons holding senior roles”.

I can find no reference to these considerations in Ofwat’s consultation document generally, nor in the specific questions it proposes, yet the scale of the investment in the industry that is required is such that we cannot afford to deter that investment, or experienced executives from working in it. Unlike in the past, much of that investment will have to come from equity investors, who assume a higher level of risk than debt investors and have more of a vested interest in, and so take a more critical attitude to, the prospects of a company, its financial plans and, importantly, the quality of the management tasked with delivery.

There is a limited number of appropriately qualified and skilled candidates to take on the most senior roles in water companies, and one of the successes of privatisation has been the ability of such companies to attract successful individuals from outside the utilities sector. In a competitive world for talent, Ofwat should not introduce rules that put water companies at a significant disadvantage when recruiting and seeking to retain such staff.

When launching the independent review of the water sector last week, the Secretary of State was at pains to stress the importance of attracting the investment needed to clean up our waterways and rebuild our broken water infrastructure—and, specifically, facilitating a regulatory environment that attracts investment. The least we can do is play our part in supporting the Secretary of State in this noble endeavour. I should have thought that this amendment would be music to the Minister’s ears, so I look forward to her response with a great deal of hope and expectation, and indeed no little optimism.

[Lord Sikka (Lab)]

I will speak to Amendment 25. This amendment seeks to strengthen Parliament’s role in crafting and approving regulations for the water industry. The Bill as it stands asks people and Parliament to trust regulators, which the Bill calls “authority”—currently they include Ofwat and the Environment Agency—to make rules. Well, that trust has already been severely eroded.

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Moved by

[Lord Sikka (Lab)]

4: Clause 1, page 1, line 14, leave out “persons holding senior roles” and insert “all executive and non-executive members of the board of directors”
Member's explanatory statement
This amendment seeks to confirm that all members of the board are held to account, in a way consistent with company law, and to remove any ambiguity in the Bill about what constitutes a senior role.

[Lord Sikka (Lab)]

My Lords, Amendment 4 seeks clarity as to what the Bill is getting at. The Bill’s intention appears to apply penalties to only selected directors and not the entire board of directors, even though decisions are made collectively. The Explanatory Notes say it commits to

“ban bonuses for persons holding senior roles”,

and the Bill defines a “senior role” as a person who

“is a chief executive of the undertaker”—

a somewhat unfortunate phrase—

“is a director of the undertaker, or … holds such other description of role with the undertaker”.

The tone of the Bill suggests that references may all be to executive directors, but we know that water companies also have non-executive directors, and under the Companies Act non-executive directors have exactly the same liability and responsibility as executive directors. The Bill does not mention non-executive directors.

Amendment 4 seeks clarity and asks the Minister to confirm that the prohibitions and penalties will apply to not only non-executive directors but legal persons who may be acting as directors, because natural persons can be directors as well as legal persons. I beg to move.

[Lord Remnant (Con)]

My Lords, I must admit to having experienced a degree of trepidation on discovering that I was to share a group of amendments with the noble Lord, Lord Sikka, and with him alone. Having listened to his views on the Bill in general, so eloquently expressed at Second Reading, I feared that we would find little common ground when debating particular aspects of it. Imagine my surprise, therefore, when I compared his Amendment 4, to which he has just spoken, with my Amendment 18, to which I am about to speak, to discover that we might have more in common than I had thought.

I think that some of the rationale behind Amendment 4 is misplaced. While I agree with the noble Lord that all members of the board under company law are held to account, performance-related pay is in practice paid only to executives, while non-executives are remunerated by way of fixed fee. Given that the provision to which Amendment 4 relates is in respect of performance-related pay, the inclusion of non-executive directors is of no practical importance. Notwithstanding this, Amendments 4 and 18 effectively would achieve the same practical impact in respect of the individuals to whom these remuneration rules apply. Amendment 4 would remove the reference to senior roles and replace it with a reference to directors of the company, while Amendment 18 would retain the concept of senior roles but effectively define them as directors of the company.

I do not believe that it is right for Ofwat to extend the rules to

“such other description of role”

as it specifies. Not only would such an extension be wider in scope than the current disclosure requirements of Section 35A of the Water Industry Act 1991 but it would be difficult to implement in practice, as different water companies will have individuals described differently by title and role. Nor would such an extension be consistent with the general remuneration and corporate governance rules for listed companies, which do not extend to individuals below board level.

I hope the Minister agrees that, through the adoption of my amendment, this additional power conferred on Ofwat by the Bill should be removed. If we wish to attract and support the next generation of leaders in this vital industry from middle management, this will not be achieved by extending these restrictive remuneration practices to them.

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[Baroness Hayman of Ullock (Lab)]

I thank noble Lords for their interest in the rules relating to performance-related pay. The public have been clear that they expect to see change in the performance of the water industry and, where performance is poor, that executives should not receive bonuses.

I turn to the amendments in this group: Amendment 4 from my noble friend Lord Sikka and Amendment 18 from the noble Lord, Lord Remnant. I thank them for their introductions and their unexpected agreement. I also thank the noble Baroness, Lady Pinnock, for sharing her experience of working with Yorkshire Water; these shared experiences are important as we develop the legislation going forward.

In line with the general principles of regulatory independence, Ofwat will rightly be responsible for developing and enforcing the rules on remuneration in governance, including determining the individuals in scope. As I mentioned in the previous group, Ofwat published its policy consultation on 22 October, and this will run through to 19 November. This consultation is to design the rules that are outlined in the Bill.

In response to the noble Lord, Lord Roborough, I will say that the consultation sets out Ofwat’s intention to apply rules on performance-related pay only to executive directors who are members of the regulated company board and receive performance-related pay. Ofwat has also stated in its policy consultation that it intends for the rules relating to fitness and propriety to apply in the first instance to chief executives and individuals appointed as directors to the board, and that would include both executive and non-executive directors. But Ofwat may consider extending the rules to other senior management roles in the future.

Allowing Ofwat to set out in the rules the performance metrics to be applied will also enable those standards to be more easily amended, subject to the relevant procedural requirements, where or when it is appropriate to do so in the future. Ofwat will of course need to consult with the relevant persons, and this will include the Secretary of State, Welsh Ministers, the Consumer Council for Water and other stakeholders, before these rules are finalised.

In conclusion, the Government will therefore not be accepting these amendments, because we need to ensure that Ofwat can retain the flexibility to expand the group of persons covered by the rules in future if appropriate.

[Lord Sikka (Lab)]

My Lords, I thank all noble Lords for their contributions to this debate and I am sure that some of the issues will return. Perhaps I may just clarify a point. The Bill also holds out the possibility of criminal sanctions against directors. Are we to assume that non-executive directors will never be charged with anything? The Post Office scandal shows that non-executive directors were culpable, so there appears to be a case for including them in some of these considerations. I am sure I will read Hansard with considerable interest and possibly return next time. For the time being, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

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Moved by

[Lord Sikka]

5: Clause 1, page 1, line 15, leave out “performance-related pay” and insert “total remuneration”
Member’s explanatory statement
The amendment seeks to strengthen the Bill by focusing on total remuneration, regardless of the form.

[Lord Sikka (Lab)]

Gosh—my turn again. This amendment seeks to replace the words “performance-related pay” with “total remuneration”. At Second Reading, I raised the question of how the ban on bonus payments was actually to be implemented. At the time, the Minister did not reply and, to my mind, the question still stands. Over the years, I have written many executive remuneration contracts and seen many others; some of them contain many odd bits. For example, so-called performance-related pay may come in the form of cash, shares, share options, chauffeur-driven cars, even gardeners, rent-free accommodation, children’s school fees and much more.

Published company accounts never really make it clear what the complete components are and the executive remuneration contracts are never filed at Companies House for anyone to see what exactly they are getting paid for. The value of some of these payments may not be known until some time in the future. For example, the value of a share option granted today and exercisable after a certain number of months or years would not be known until the date of the exercise. So how will the regulator decide whether any bonus payment is materially significant and deserving of a possible ban? Somebody might simply say, “This does not appear to be significant at the moment, but it could be significant by the time it is exercised”.

Companies can also shift the basis of bonus plans to retain or attract executives. If Ofwat or any other regulator were to impose a ban, it might change the weight attached to the part of the performance that may be considered by the regulator, and thereby defeat the whole objective of imposing any ban. The company can also easily bypass any restriction on bonus payments by adjusting the bonus pay. It can simply say to directors, “Your basic pay will increase and your bonus pay is down”. As many water companies are part of giant conglomerates, directors can be offered seats on other company boards so that their total remuneration is no less, even if a bonus is banned.

So it is not clear to me how this ban is going to be implemented. It looks good on paper, but in practice I have yet to hear the details, so what I am suggesting is that the attention needs to focus on total pay, not just bonuses, because bonuses can easily be bypassed. That is why this amendment seeks to substitute “performance-related pay” with “total remuneration”. I beg to move.

[Earl Russell (LD)]

My Lords, I have two amendments in this group. Amendment 6, tabled in the name of my noble friend Lady Bakewell, to which I have added my name, would mean a water company could not give performance-related pay to persons holding a senior role if the company had failed to prevent all sewage discharges, spills or leaks. This definition also includes legal spills. We have included legal spills as this practice also needs to stop, and the only way to ensure that it does is by working to put pressure on private water companies to apply the appropriate and necessary levels of investment in infrastructure. Only then will these companies be operating as intended, and only then should they potentially be free to think about remuneration above and beyond basic salaries to their top executives.

I have also added my name to Amendment 28, also in the name of my noble friend Lady Bakewell. This amendment creates a new section in the Water Industry Act 1991 to require Ofwat to ban bonuses for water company bosses if they fail to prevent sewage discharges, spills or leaks. Taken together, these amendments seek to help tackle head-on one of the main issues that I am sure many of your Lordships had raised with them, with passion, on the doorsteps at the last general election: the sheer hypocrisy of water companies continuously and seemingly endlessly failing to protect our environment. It is outrageous that they are continuing to get away with unabated sewage spills in our much-loved rivers and lakes, all the while paying themselves massive bonuses and dividends and racking up huge amounts of debt.

We are not able to go to the beach or to wild swim, while they get rich off the back of failure after failure. All of this has been done while failing to adequately invest in the infrastructure that is so desperately needed to end this seemingly endless cycle of scandal. My party has tirelessly campaigned on this issue and we will continue to do so. No other issue has cut through to the electorate on such a scale and with such a level of arguable clarity as this one has. Indeed, the promise to scrap CEO bonuses was a core manifesto pledge we stood on at the last general election. The electorate are outraged and rightly so. No one feels good when they are overcharged for the privilege of receiving an appalling service. To be clear, this is exactly what bill payers are getting with a proposed 40% increase in bills and no end in sight to the pollution of our environment. Our rivers, streams and lakes have been polluted to the point of collapse. My party has led a campaign on these issues that cut through on all sides of the political spectrum.

The broken system has seen those who have a duty to protect polluting with no consequences, and time and again they have rewarded themselves lavishly for the privilege. Instead of the “polluter pays” principle ever being applied, we have the “polluter awards themselves a pay increase” principle applied every time. In 2023 alone there were some 3.6 million hours of untreated sewage discharges in England, up a staggering 105% on the year before. How many fines have been levelled against water companies in the previous few years? I have really struggled to find that information. Meanwhile, water companies have paid at least £78 billion in dividends while failing to invest.

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I once again thank noble Lords for their suggestions and their input to this discussion on matters for consideration in performance-related pay rules.

[Lord Sikka (Lab)]

My Lords, I thank all noble Lords who participated in this debate, giving us much food for thought. I thank the Minister for her response and I withdraw my amendment for the time being.

Amendment 5 withdrawn.

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[Lord Remnant (Con)]

My Lords, as the noble Earl, Lord Russell, indicated, this group of amendments deals with a common theme of representation on water company boards but has several different facets.

Amendment 22 in my name would ensure that it is for the boards of water companies, rather than Ofwat, to decide in which forum—board, committee or panel—the views of consumers should be represented. As we have heard, Clause 1 includes provisions intended to establish consumer involvement in corporate decision-making. New subsection (6) provides that this

“may include a requirement for persons representing the views of consumers to be members of a board, committee or panel of”

the water company. While I support the principle of strengthening the voice of consumers, this should not be through a highly prescriptive, one-size-fits-all approach.

In this country we do not have different categories of director, as the noble Lord, Lord Sikka, reminded us earlier. Non-executive directors may have specialisations, but they are chosen for their wider skills and ability to make a comprehensive contribution. The noble Duke, the Duke of Wellington, just made a similar point. Those representing consumer interests may not wish or be equipped to sit on corporate boards, with all the responsibilities and liabilities that entails. It should not be for Ofwat to require that such people sit on the boards of water companies but should be left to the companies to decide which forum best suits their requirements, whether that be board, committee or panel.

Providing similar flexibility was effective when companies enacted the workforce engagement mechanism under the UK Corporate Governance Code’s requirements. A very small number of companies appointed a director from the workforce, largely for the considerations I have mentioned. Some established a formal workforce advisory panel, and a greater number appointed a designated non-executive director for workforce engagement. Each company chose the mechanism best suited to its circumstances, and the system has worked well.

Amendment 9 in the name of the noble Earl, Lord Russell, and Amendment 21 in the name of the noble Duke, the Duke of Wellington, extend the provisions of this clause to environmental experts. It will be for your Lordships to decide how widely to draw the categories of relevant interest, however represented, but the principle in the latter amendment of representation other than at board level is very much in line with the rationale behind my amendment. I shall listen with interest to the arguments put by the noble Lord, Lord Sikka, and the noble Baroness, Lady Jones of Moulsecoomb, for their Amendments 82 and 100 respectively. However, they would represent a radical departure from accepted standards of corporate governance and company law, so I would hesitate to support them.

My earlier dose of optimism is becoming somewhat jaded. A recurring theme seems to be emerging in the Minister’s replies: everything is for Ofwat to decide. That displays a touching and, if I may venture, possibly naive belief in Ofwat deciding wisely on many matters that are not within its competence as an economic regulator. Concerns have been expressed on all sides about its past record. Surely it should be the role of this House to take more responsibility on itself and give much more direction and guidance to Ofwat on how it should exercise the significant additional powers this Bill gives it—or, as in this case, remove the key choice from Ofwat and give it to the companies, within a defined framework imposed by us.

[Lord Sikka (Lab)]

My Lords, my Amendment 82 addresses a major question that the Bill does not address: why do water regulators fail? After all, they have been at it for many years—at least 35 years, some of them—yet they continue to fail. No proposal in the Bill addresses that. They continue to fail because they are isolated from the lives of the people affected by sewage spills, high customer bills, low investment and water simply leaking away.

The regulatory bodies are generally made up of former Ministers and executives. Someone who has done a stint at a water company disappears to Ofwat; Ofwat’s former chief executive is now director of a water company. There is a revolving door. These people have a world of their own which does not connect with that of the people directly affected by their activities. For any regulatory system to be effective, it must represent a plurality of interests, but our regulatory system and bodies are closely aligned with corporate interests. They are, in essence, captured. If this capture is not there—and is not the reason for their failures—then someone will have to explain why the water industry is in a mess and why the guiding hand of regulators has not been able to put it on a path to recovery, good practices or good behaviour.

The Bill seems to propose consumer panels, which are, in essence, toothless: they have no social constituency to report to because they are not really elected by anyone but simply co-opted on the basis that someone knows somebody and brings them in; they are not required to report to any constituencies; they cannot easily object to the practices of the regulatory bodies; and they can simply be bludgeoned into silence and just go along because that is the norm. We have heard that these amendments somehow propose something unusual and therefore we have to be bludgeoned into silence and simply go along, because tradition is oppressive and that is what we have to do.

My amendment calls for direct representation of elected representatives of employees and stakeholders on the board of the regulatory authority and to give them power to vote on executive remuneration. That would be the ultimate sanction when they disapprove of how the regulatory body is safeguarding or protecting the public interest. If they cannot vote on executive remuneration, they will simply be a shadow. The amendment seeks, in essence, to democratise regulation. I know that democracy is not very fashionable these days, so if the Minister opposes this democratisation of regulation, it would be helpful to know how the Government will check cognitive capture of regulatory bodies, because no other solution is being offered by anybody. If we were to expand on this, in the next group I could lay out a complete framework of what else needs to be done, but this is simply to test and, I hope, elicit a response from the Government.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I will speak to my Amendment 100. The issues of water pollution and the supply of clean water to everybody are ones I clearly care a lot about. But this Bill is just papering over the cracks. If we are going to paper over cracks, we could at least try a radical departure; perhaps we could try to bring some democracy into the regime.

I take issue with the noble Duke, the Duke of Wellington, and the noble Lord, Lord Remnant. I have chaired a board and it was extremely successful. Part of that was because I invited people who thought very differently on to the board. We had 20 members or so. It was called London Food and we were tasked with writing a report for the Mayor of London on a sustainable food strategy for the city. It was successful, I would argue, partly because of my charm—obviously —but also because we had extremely good reports from every single aspect of food and food supply for London. We had a member from the City who was obviously a Conservative, we had an organic farmer and so on. We had a huge range of people, but we agreed on the strategy and we came to some very useful conclusions. This is what we need: we need some democracy in the systems that try to keep us safe.

Honestly, given the scale of the challenge that the water industry faces at the moment, in trying to make a system work that has proved not to work, we need to ensure that there are some new voices that can represent other parts of society that use the water system and care very deeply about it. We should also involve the people who actually do the work. My amendment brings in people from the workforce.

At the moment, the CEOs and senior staff are more focused on delivering dividends than they are on delivering a quality service, so having worker representatives on the board would provide a constant voice for those whose job it is to provide a service. The regulators have been captured by the industry they are meant to be keeping an eye on, so they are almost useless. This system should not be a national scheme but one based on the geography of the water systems themselves.

I am a believer in democracy and this would be an extremely useful way of making sure that a crucial industry for our society has some resonance with people out there. I am sure that this would be welcomed by the majority of people, just as I am sure that the Minister is aware that polls suggest a majority of people would prefer public ownership. Failing that, however, let us get the public in there, talking and being listened to.

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[Earl Russell (LD)]

My Lords, this has been one of the really interesting groups in the Bill. I am not certain that any of us—from any party, in any amendment—has the complete solution. There are questions about whether a one-size solution fits all. In any case, there is a lot for all of us to go away and think about. These are crucial issues that go to the heart of what we do, how water companies operate, how they are accountable and how people who are impacted by them can feed in to and influence what they do and how they operate.

I thank the noble Lord, Lord Cromwell, for his contribution. I fully support him on the role of civil society. It is particularly important that we all acknowledge, as he did, that we would not be here without the role of civil society. I have an amendment in a later group to encourage the Government to work more with civil society in monitoring the environment.

I also thank the noble Duke, the Duke of Wellington, for his comments on the need for environmental representation. I am not quite certain where I agree on that debate; I will go away and think about it some more. I have also been on a board, and to be honest, it was one of the most difficult things I have done in my life. That was even on a good, well-functioning board. Sometimes, if you are in a difficult situation, even with good people who work together, things can be very difficult.

I also thank the noble Lord, Lord Remnant, for tabling his amendment. The board should decide on its own make-up and we should not dictate to it. Perhaps there is some kind of compromise here between the Government setting guidelines for what needs to happen, while perhaps allowing some freedom within the way that it is organised and monitoring the outputs that come from it. Maybe there is something we can all work on there.

I also thank the noble Lord, Lord Sikka, for his contribution. It is a bold move, indeed, and I am not entirely certain that I agree with that kind of prescriptive democracy. I think that it is better to allow things to be inclusive, as opposed to dictating that they must be in their make-up, but again, I will think about that.

The noble Baroness, Lady Jones, spoke about bringing some democracy into the regime. I certainly think we need that, and that the environment needs a proper, formal voice. I take up the point from the noble Lord, Lord Deben, about the need to watch the environment. If we do not do that, and if nobody has that responsibility or role, then that protective piece that needs to happen will not be there.

I think our areas of agreement were the need to broaden representation to include the environment and community, the need for diversity, the need for boards to work well, the need for constructive challenge to operate and to be brought to these companies at the highest level, and the view what we have now is not working, so we need to go away and find something else.

[Lord Sikka (Lab)]

My Lords, I have added my name to Amendment 100. The water authorities in Berlin and Paris are publicly owned and have stakeholder-elected directors. In most European countries, large companies have stakeholder-elected directors in them, as either a substantial proportion of the unitary board or a German-style two-tier board where one board is supervisory, and the other is executive. On the supervisory board, directors are directly elected. There are plenty of precedents for stakeholder-elected directors on company boards, and in many ways the UK is an outlier.

[Lord Roborough (Con)]

My Lords, I thank the noble Earl, Lord Russell, for moving the amendment. I want to speak in support of Amendment 22, from my noble friend Lord Remnant, as well as Amendments 21 and 23 tabled by the noble Duke, the Duke of Wellington.

My noble friend is right to note that the decision whether to be on a board, panel or committee is the job of the company rather than any kind of external regulator. By allowing the company to make that decision, it can decide based on its own business needs. If this was left to Ofwat, not only could it lead to a situation where the board, panel or committee did not fit well into the company structure but it might harm relationships between those forums and the board of the company.

It seems unlikely that a regulator would ever have access to all the information needed to make decisions on how a company’s decision-making systems should be structured, and it is surely the responsibility of the company itself to ensure that it has the right processes in place to make the correct decisions according to its needs. Indeed, as we have heard from many noble Lords, it is clear that the regulator has failed to get important decisions right in the past, to the detriment not only of companies but of the environment. Yes, of course, the regulator should have its role in holding companies to account for their decisions, but the moment regulators are involved in decision-making, it surely takes some responsibility for those choices too.

We are concerned that having consumer representatives on the board or their being involved in any decision-making within the company creates a blurring of responsibility. There is already the risk of some confusion, given the role of regulators, but they are at least experts in the industry and well informed about their roles, acting within well-defined parameters.

I agree with the noble Duke, the Duke of Wellington, on sectional interests and the effective working of a board. Consumer representatives on a board lay themselves open to the responsibilities of being a company director and in some cases a director of a listed company. Do the Government really want such consumer directors to be open to fines or prosecution for failing to deliver accounts on time, trading while insolvent or even insider dealing? It is not clear to me as the Bill is drafted that those consumer representatives could not also be subject to fines or prosecution by the regulator. If a consumer representative proposed an action that led to penalties from the regulator, how could they not be responsible?

Turning this around to the perspective of the existing board and management, if consumers are part of decision-making, then it is conceivable that they could cause or prevent an action by the company that created regulatory breaches and punitive action. How would this coexist with the responsibilities and liabilities of professional managers and board directors? How could this not create liability for the consumer representative?

My comments about consumer representation apply equally, if not more, to the environmental experts proposed in Amendment 9 by the noble Earl, Lord Russell. I understand and applaud the sentiment behind the amendment, of environmental representatives representing the stakeholder that has no natural voice, the environment. However, environmental campaigners already have a strong voice. There are obligations already present for companies, and others may be imposed through amendments to the Bill. I also agree with the noble Duke, the Duke of Wellington, that environmental representatives, alongside consumer representatives, should be limited to panels.

Allowing the company to decide the forum in which such representatives take part would benefit both sides of the agreement. If the company has taken this decision, then it becomes clear that the company, its managers and employees remain jointly responsible for decisions. I am not clear from the Bill exactly how the Government intend that its proposals should work. Both my noble friend Lord Remnant’s Amendment 22 and Amendments 21 and 23 from the noble Duke, the Duke of Wellington, have considerable merit. While there is a contradiction inherent between them, both are good solutions to creating the involvement of consumers that the Government want.

I thank all noble Lords for their involvement in this spirited debate. I ask the Minister to explain exactly how she sees consumer involvement working in practice under the Bill. I also ask that she give serious thought before Report to the amendments that I have addressed.