| Standards of Conduct in the House of Lords | |||||||||
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2.1 One of the key aims of the First Report was "to rebuild public confidence" in holders of public office.1 Another was "to restore some clarity and direction wherever moral uncertainty had crept in".2 The Committee felt that these aims would be assisted by a restatement of the general principles of conduct which underpin public life. They drew up the Seven Principles of Public Life: selflessness, integrity, objectivity, accountability, openness, honesty and leadership. (We set them out fully on the inside front page of this Report.) 2.2 The Seven Principles were designed to ensure that everyone in public life knew what was expected of them. They also served to tell the public how they could expect public office holders to behave. To reinforce the Principles and to ensure that they were applied in practice, the Committee also proposed three mechanisms or 'Common Threads':3
2.3 The Seven Principles and the Common Threads were formulated as being relevant to all sectors of public life. However, the Committee recognised that, when applied to different organisations, some adaptations might be necessary to make them fit the individual organisation's circumstances and culture. In the context of public appointments to quangos, the Committee proposed an additional test of 'proportionality'.4 This was primarily a reflection of the very different sizes and levels of responsibility within quangos. However, having regard to developments since the First Report, the Committee now sees proportionality as a test to be kept constantly in mind by any body drawing up rules for conduct. Such rules will command more respect and adherence if they are comprehensible, simple and proportionate. 2.4 The Seven Principles have come to be widely regarded as the touchstone for ethical standards in public life and have continued to inform every aspect of the Committee's thinking. Reports of the Committee have led to their being adopted, in complete or modified form, by the following public sector organisations:
There are also proposals for model codes of conduct for councillors and senior local government employees which will build on the Seven Principles. 2.5 In addition, the devolved institutions - the Scottish Parliament, the Welsh Assembly and the Northern Ireland Assembly - have chosen to incorporate the Seven Principles into their Codes of Conduct, sometimes with additions or modifications related to their own requirements. Developments in other sectors 2.6 As several of our witnesses pointed out, there have been similar developments in the setting of ethical standards in other sectors. Lord Simon of Highbury referred to his membership of the Hampel and Greenbury Committees and his involvement over the past seven or eight years with issues of standards and declaration in the private sector.5 Lord Chadlington said: "Up until very recently, it depended on how you felt you should behave: there was no compliance role. A series of initiatives over the past 10 years have come up with the notion of telling the chairman or director of a public company how to behave." 6 2.7 The developments to which Lord Simon and Lord Chadlington referred arose from the growth of interest in corporate governance throughout the 1990s. The Cadbury Committee on 'The Financial Aspects of Corporate Governance' was set up in May 1991 because of "the perceived low level of confidence both in financial reporting and in the ability of auditors to provide the safeguards which users of company reports sought and expected." 7 Such concerns had been "heightened by some unexpected failures of major companies and by criticisms of the lack of effective board accountability for such matters as directors' pay." 8 The Cadbury Committee's Report, which was published in December 1992 was, in some senses, similar to our First Report in that it was commissioned as a response to several scandals and made recommendations which, had they been in place earlier, might have prevented such scandals occurring.9 The principal recommendation was for a non-statutory Code of Best Practice on financial governance for all listed companies.10 2.8 The Cadbury Report was followed by another report in July 1995 by the Study Group on Directors' Remuneration chaired by Sir Richard Greenbury. Again the Study Group was set up in response to immediate concerns about "unjustified compensation packages in the privatised utilities".11 Its principal recommendation was for a Code of Best Practice based on the fundamental principles of accountability, transparency and linkage of rewards to performance.12 2.9 Both the Cadbury Committee and the Greenbury Group had called for their recommendations to be reviewed after a number of years. This task was carried out by the Hampel Committee which was established in November 1995 and reported in January 1998.13 In reviewing the implementation of the prior two reports, the Hampel Committee also wanted to take a fresh look at the issues. Indeed the Committee saw its approach as being from a somewhat different perspective. It noted that the Cadbury and Greenbury reports "were responses to things which were perceived to have gone wrong ... We are equally concerned with the positive contribution which good corporate governance can make".14 With this in mind, the report emphasised that accountability to stakeholders was as much an objective as the prevention of malpractice and fraud. 2.10 The report also stated the need for principles as well as guidelines: the Committee felt that the Cadbury and Greenbury codes had been treated too often as "sets of prescriptive rules", leading to the practice of "box ticking", i.e. an observance of the letter, rather than the spirit, of the rules. In the Committee's view, box ticking could be "seized upon as an easier option than the diligent pursuit of corporate governance objectives".15 The Hampel Committee therefore recommended a set of principles and a code of practice which embraced the work of the Cadbury and Greenbury Committees as well as its own.16 This Combined Code on Corporate Governance was published in June 1998 and is non-statutory, although some of the Greenbury recommendations on the disclosure of individual directors' remuneration have been implemented as formal requirements in the Stock Exchange's Listing Rules.17 2.11 We have gone into some detail in order to draw attention to some of the parallels with our Committee's work in the public sector. We particularly note the emphasis on principles such as accountability and transparency and the view that principles are required as well as guidelines. We also note that the Hampel Report was a review of conduct and disclosure requirements that did not arise from immediate instances of misconduct but from a wish to make a positive virtue of good governance. 2.12 There have been similar developments in professional bodies. For example, the preamble to the Royal Institution of Chartered Surveyors' rules of conduct and disciplinary procedures requires its members to "adopt personal and professional standards ... by demonstrating the qualities of integrity, honesty, objectivity, openness and accountability". The rules "provide a positive statement of professional values and standards of conduct against which members are accountable to the institution, to their clients and to the general public." 18 Other examples can be cited. Members of the legislature 2.13 These developments in public, professional and corporate life have led to a reinforcement of public expectations that holders of public office should set for themselves the highest possible standards of conduct. Nowhere is this more true than in connection with members of the legislature. As a submission from a member of the public put it:
2.14 In our Terms of Reference set out in Chapter 1 above, Members of Parliament are included within the definition of 'holders of public office'. The then Prime Minister, the Rt Hon John Major MP, made it clear that all members of the Westminster Parliament were included. In response to a Written Question, he stated:
2.15 This view was also expressed when the issue was raised in the House of Lords in 1994. Following the statement announcing the Committee, the Rt Hon Lord Richard, the then Leader of the Opposition in the House of Lords, indicated that he assumed that members of the House of Lords fell within the Committee's terms of reference. In reply, the Rt Hon Viscount Cranborne, then Lord Privy Seal and Leader of the House of Lords, said:
No dissent was expressed from that view. 2.16 Nevertheless, when our enquiry was announced, some qualifications were expressed. The Rt Hon Lord Strathclyde, the Leader of the Opposition, in his written evidence, quoted the remark in our consultation paper that the Committee's remit "applies to the House of Lords as to other bodies in public life". He continued: "This is a profound misconception. The Houses of Parliament are unlike other bodies. The Crown in Parliament is sovereign and has authority over all other bodies." 22 In oral evidence to us, he drew a further distinction between the House of Lords specifically, as contrasted with the House of Commons and other public bodies which we have studied. Alluding to those studies, he said: "it may look unusual but the House of Lords is an unusual body. Even in its current state, shorn of its hereditary peers, it is a very unusual body".23 2.17 It is certainly true that in many ways, even amongst other second chambers, the House of Lords is a unique body in terms of its composition and powers.24 We draw attention to its unusual characteristics in Chapter 3. This point is of great relevance when considering the scope and detail of any rules that the House may wish to adopt. But we do not accept that the unusual nature of the House of Lords leads to the conclusion that it should be exempt from the general principles that should apply to public bodies, and particularly to the legislature. 2.18 The constitutional rights and privileges of members of the House of Lords are very considerable. The right to participate in the enactment of legislation by debating, amending and voting is one of the most important rights available to a public office holder. Peers also have a duty to hold the Executive to account, which they may do through membership of House of Lords Select Committees and by such procedures as tabling motions and Parliamentary Questions. As the Rt Hon Baroness Jay of Paddington, Leader of the House, said in a debate in the House: "Let us not forget that ... this place is a working House of Parliament ... it is not a private club. We are parliamentarians: we have influence over matters of national and international importance".25 2.19 In the House of Commons, the duty upon Members of Parliament to act in the public interest is reinforced partly by electoral accountability and partly by a system of self-regulation which was significantly tightened following the recommendations in this Committee's First Report. 2.20 In the House of Lords, although electoral accountability does not apply, there is a proud tradition of self-regulation based on the central tenet of 'acting always on personal honour'. The origin of the principle of honour is so far back in time that the 1994 edition of the House's procedural guide referred to it simply as "a long-standing custom".26 2.21 We were left in no doubt by our witnesses that the principle of honour is considered of fundamental importance by members of the House of Lords. The Rt Hon Lord Mayhew of Twysden, in quoting the evidence of the Rt Hon Lord Carr of Hadley to an earlier enquiry, suggested that there was "no code of discipline that was more demanding or stringent than the code of personal honour".27 The Rt Hon Earl Ferrers said that the House of Lords "has always worked on the basis that a person's honour is sacrosanct".28 Honour has been described as being "the kernel" of the House's procedures.29 We describe more fully in Chapter 4 how honour is woven into the procedural rules governing disclosure of interests. 2.22 We share our witnesses' respect for the principle of 'acting always on personal honour'. The critical issue is whether the concept of honour on its own is sufficient today to maintain public confidence. In our view it would be a highly desirable development if the House of Lords were to build on the foundation of honour. Any resulting system of standards should be readily understood by the public and reflect the position of the House of Lords as one of the most important of public institutions. We set out in detail in Chapter 4 the case for this, but focus at this point on the concept of 'acting in the public interest' which is at the heart of the duty of any public office holder. 2.23 The phrase, 'public interest',
recurs throughout the Seven Principles of Public Life. It may be useful
to rehearse how the Seven Principles might be seen to apply to the House
of Lords.
2.24 These principles already
underlie the approach behind the House of Lords' regime for disclosure
of interests. However, as we explore further in the chapters below,
there are aspects of the procedural system that may require review in
order to ensure that they provide a thorough safeguard.
2.25 Many witnesses suggested that openness - or transparency - about the personal position and interests of the legislator was the key ethical requirement in the legislature. The importance of this principle is held to be so paramount when relevant to parliamentary proceedings that it outweighs arguments based on personal privacy.
2.26 The decisions and actions
taken by peers when acting as legislators are of the highest importance
to the public. It is important that the public has access to information
that enables them to understand the interests, financial and non-financial,
that may inform those decisions and actions.
2.27 Members of the legislature are amongst the holders of the highest form of public office. It is therefore all the more important that they operate at the highest level of ethical probity as currently perceived and indeed set an example throughout the public sector. 2.28 We now turn to examine
in detail the present position in the House of Lords. 1 Committee on Standards in Public Life, Standards in Public Life, Cm 2850 (May 1995), para 7. Referred to hereafter as the 'First Report'. 2 Ibid. 3 Ibid., paras 13-17. 4 In the public appointments context, we have defined 'proportionality' as "the principle that the length and complexity of an appointment procedure should be commensurate to the nature and responsibilities of the post being filled" (Committee on Standards in Public Life, Reinforcing Standards, Cm 4557 (January 2000), para 9.3). referred to hereafter as 'Reinforcing Standards'. 5 Day 6 (pm). 6 Day 4. 7Report of the Committee on the Financial Aspects of Corporate Governance (the Cadbury Committee), 1 December 1992, para 2.1. 8 Ibid., para 2.2. 9 Ibid., para 1.9. 10 Ibid., chap 7 for summary of recommendations. 11 Quoted by the Committee on Corporate Governance, Final Report (the Hampel Report), January 1998, para 1.7. 12Report of the Study Group on Directors' Remuneration (Greenbury Group) (July 1995). 13 The Hampel Report, see fn.11. 14 Ibid., para 1.7. 15 Ibid., paras 1.12-1.14. 16 Ibid., chap 7. 17For the latest developments and proposals see the DTI Company Law Review Consultation Paper "Developing the Framework", March 2000. 18Professional Conduct - Rules of Conduct and Disciplinary Procedures, Royal Institution of Chartered Surveyors, 2nd edn, 1998, p.vii. 19 Written evidence of Edward J Armstrong (19/93) 20 Hansard (HC) 31 October 1994, WA 913. 21Hansard (HL) 25 October 1994, col 471. 22 Written evidence (19/68). 23 Day 5 (pm). 24See oral evidence of Professor Robert Hazell and Meg Russell (Day 1 (am)). 25 Hansard (HL) 10 May 2000, col 1709. 26 Companion to the Standing Orders and Guide to the Proceedings of the House of Lords (1994), p 69. This edition has recently been superseded by the 18th edition (October 2000) and the phrase no longer appears. 29 Unpublished Report of the Select Committee on Procedure of the House Sub-Committee on Registration of Interests (1974), para 28(5). The 1974 Report is more fully discussed in Chapter 4.
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