THE ANDREW DAVIDSON INTERVIEW: SIR HOWARD DAVIES

THE ANDREW DAVIDSON INTERVIEW: SIR HOWARD DAVIES - It's an impressive CV: special adviser to Chancellor Lawson, controller of the Audit Commission, head of the CBI, deputy governor at the Bank of England and founding boss of the FSA. His City watchdog is

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Last Updated: 31 Aug 2010

It's an impressive CV: special adviser to Chancellor Lawson, controller of the Audit Commission, head of the CBI, deputy governor at the Bank of England and founding boss of the FSA. His City watchdog is now snapping at a multitude of heels, but is he happy?

The last time I met Sir Howard Davies he was on his way out of the CBI to pick up a plum job at the Bank of England: deputy governor. He was short, sharp, funny, terrifically bright, very ambitious but not, I thought, a man always at ease with himself or his surroundings.

He didn't want to be a civil servant, didn't want to be a management consultant, didn't really enjoy being a lobbyist for business interests - hated his cramped, brown office at Centrepoint - and, anyway, had never properly worked in business, wasn't sure he'd like reporting to Eddie George at the BoE either. Lighten up, Howard! What he really needed was his own vehicle.

Wish granted. Seven years later, aged 50, he sits atop the most powerful financial regulator in the world, the Financial Services Authority. It's a body he created in a building he's organised - nice artwork, no brown walls - with 2,000 staff that he's chosen, dealing with a host of problems that just might be difficult enough to interest a brain as pernickety and easily bored as his.

And is he happy?

Hmm. I can't really tell. He needs a new pair of shoes, though. Feet up at his desk, spinning in his chair as he talks, you can see his black loafers have worn through on both soles. I doubt he cares. Nearly pounds 300,000 a year in salary, but he isn't going to spend it on personal flamboyance, that's for sure. Likewise the knighthood. He accepted it but doesn't like using it and gets rather tetchy when I bring it up. But more of that later.

We meet one sunny winter lunchtime, just days before the FSA's full legislative powers were due to kick in (1 December). Light streams through the floor-to-ceiling windows of the organisation's glass-and-steel HQ in London's Canary Wharf. Up in the lift, out on the seventh floor, I can see Davies' distinctive bald pate off in the distance, bobbing over some papers at his desk, hemmed into the corner by a sea of pods in the vast open-plan office. Partitions are low, everyone is visible, everything audible. To work, you really have to focus beyond the hubbub.

Just like a newspaper office, really. I remember Davies telling me he'd always wanted to be journalist. He set up the pupil newspaper at Manchester Grammar School and, after Oxford, applied to join the BBC but was sidetracked into the Foreign Office. It looks like he's now going partway to fulfilling that fantasy, designing himself into the corner as editor.

He smiles ruefully. 'There is some truth in that,' he says. But, he continues, there is also a very good reason for the layout. 'The key supposed advantage of a single regulator is better flows of information and communication.

The way to signal that is with an open-plan office. It's about approachability of management. People haven't got an excuse: if they want to see me or any of my MDs, they can't say: 'We couldn't find you.''

Gosh, and I thought it just looked nice. That's Davies' style too, of course; he loves to banter, enjoys the off-beat, as you would expect from a man who is much more widely read and has a broader breadth of reference than most big organisation chiefs. But behind that, everything is thought out, every response logical.

And he is making a good point with the demotic design. One of the most frequent complaints in past City scandals (Robert Maxwell, BCCI) was that the previous, varied, financial service regulators - nine of them - just didn't talk to each other. They operated too much in their own closed worlds. Hence Davies was summoned by the new Labour government in 1997 to pull everything together into one streamlined organisation. He's chairman, he has three MDs and a chief operating officer splitting responsibilties beneath him. With a single base, a free flow of information, fast response to crises, few crossed wires (and a budget of pounds 166 million a year), there is no excuse for fouling up.

Or is there? Davies is quick to point out that having an efficient single regulator does not eliminate crime. 'You don't ask the chief constable of the Met: 'Are you going to prevent all crime?', do you? There will always be people who hope to circumvent the rules and you just hope you find them before they do too much damage to the markets.' I get the feeling that dampening down the expectancy level is one of Davies's main priorities right now.

It has certainly been a long haul. Legislatively, agrees Davies, it has been very difficult. But five years! He nods. 'If you had told me in May 1997 that I would still be sitting here in November 2001 without the legislation in place, then I am not so sure I would have said yes quite so enthusiastically. The four-and-a-half-year interregnum has been quite tricky.'

And that's putting it mildly. A series of high-profile corporate foul-ups have raised awkward questions about just how responsive Davies' new organisation will be. The problems at Equitable Life, the failure of Independent Insurance, the investigation into Marconi, the row over Railtrack ...

By last autumn, Davies' new organisation was under attack, even though it was still in the process of assuming all its powers. Politicians sniped that it was missing too much, bankers queried how the regulatory strategy was being implemented, journalists were enjoying Davies' increasingly uncomfortable performances in front of parliamentary committees. After the Treasury Select Committee laid into the FSA's inability to spot Equitable's problems last year, one broadsheet tagged Davies 'A Very Impotent Person'.

Bonuses at the organisation were cut. Tories called for Davies to split his role with a chief executive. It all got rather nasty.

Davies doesn't show it, but I would guess he has had his fill of this.

Much, he says, is misconstrued. 'I don't think the failure of Equitable Life has got anything to do with regulation ... What you have to try and distinguish between is corporate failure and regulatory failure, and I am afraid there is a temptation to think that every corporate failure is a regulatory failure. You can't have open and competitive markets in which everyone gets a prize; there will be winners and losers. The issue is whether the regulatory regime is calibrated to produce the optimum balance between competition and complete safety. You have to have risk to make money.'

This is not the place to run through the finer points of the Equitable debacle. Some accuse the FSA of faffing in its initial investigations, when it first became clear that the insurance company was struggling to pay guaranteed returns to policy holders. Suffice to say, the FSA is now 'more sensitive' to the risks being taken by insurance companies. 'It was a problem that was deep-rooted and we have been able to analyse it,' says Davies. 'That doesn't mean to say, however, that there couldn't be a failure of another insurance company ...'

Really? What else is lurking out there? Probably, he says, more than a few insurance products that are 'unsustainable', given the changes in mortality rates. In other words, projections of what you will get back for what you pay now will prove unrealistic. Hasn't it always been so?

A lot of it comes down to judgment, and the FSA intends to be more active than past regulators in ensuring that fewer people are misled. The body has already studied just what sort of problems are thrown up by a low-inflation economy; annuities that can't be paid, high-yield promises broken.

'The aim is to head off problems before they arise,' he says.

With financial crime, it's more about speed of detection. 'That should improve, because we are able to make more linkages between the markets, and the response should be more co-ordinated than in the past. People shouldn't expect regulators to prevent another Maxwell or BCCI, but they should expect a prompt response, for regulators to get their hands round the problems quickly, to sort out compensation where due, then shoot the people who need to be shot and to tidy everything up.'

Davies likes these kind of muscular abbreviations of intention. That's how he talks - one moment intensely and in deep detail, the next slightly removed, sardonic and weary, but always somehow agitated, his small hands plucking at papers, his dark eyes darting this way and that. At times, it's like sitting in tuition with an elfin don, patchy bald brown pate, tufts of white hair framing each large ear, waiting for the next bit of mischief to spout forth.

But it's his intellectual reach, combined with his experience at myriad organisations from the Treasury to the Audit Commission to the CBI and the Bank of England, that made him an obvious choice for the almost Sisyphean task of rolling the regulators together. Says one former FTSE boss: 'He has a really rare understanding of the functioning of civil government in Britain, in the formulation of policy and how we govern ourselves. He is in the premier league for people who could do this.'

What's odd is that, according to others, Davies is neither particularly comfortable among politicians, resenting token gesturism and ill-informed criticism, nor particularly at ease as an instigator of new systems and structures. 'Howard is interested in individuals,' chuckles one ex-colleague, 'more than he is in the setting up of systems and processes.'

He is also almost perversely egalitarian, preferring to ingratiate himself with those who least need to be charmed and prickle against others who expect emollience - as a few journalists and business worthies have found out. Some in the City, noting his disdain for status and material flounce, find him rather unclubbable.

That's probably how it should be, although it raises doubts as to how long Davies would want to stay and run the FSA if he becomes a target.

'What's attractive about Howard,' says another old friend, 'is that, unlike many clever, confident, powerful people, he is not arrogant.' But he is, adds the source, much shyer and more sensitive than people would expect behind the high-achieving front. If he is going to get regular kickings from politicians trying to score easy publicity points, he will look elsewhere for his living.

That personality make-up may stem from his childhood, the only child of two only children, growing up in the blue half of Manchester. His dad trained as an architect and worked as a brewery estate manager, his mum looked after little Howard. Yet despite all that attention, being a star at Manchester Grammar School, setting up the school newspaper, getting into Oxford early - the first in his family to go to university - Davies, as he tells it, was never idolised by his parents like some only kids.

'My mother,' laughs Davies, 'is not the kind of mum who tells you everything you do is wonderful. She's a loving mum, but she is quite critical.' It didn't dent his confidence - Manchester Grammar School was a competitive environment, he points out, and you had to be confident to get along there - but it may have made him more self-questioning, less at ease with his achievements.

That, by the way, is my speculation: he is having none of it, nor of my theory of the effect of being an only child born to two only children - which, you might think, would be a rather turbulent combination. 'I've no idea what influences that brings to bear,' he says, dismissing it with a flick of the hand.

Did his parents want him to stay in Manchester? No, he says. 'They knew you left for London, that's what happened if you went to Manchester Grammar School.' He lives in affluent London now (Ravenscourt Park) and weekends in his Dorset cottage, but still heads north a lot to visit his mum. He'd been there that week, taken his teenage sons to see Manchester City followed by Hedda Gabler at the Guardian Royal Exchange. Footie and theatre are very much in the Davies mix, along with lots of reading - he loves reviewing books - and a wide appreciation of the arts.

Maybe that is why he has always seemed so unsettled in his career. He started in the Foreign Office, hated it, moved to the Treasury, got out of there to McKinsey's, only to be eventually rented back to the Treasury after the Brighton bombing in 1984. MP Sir Anthony Berry was killed; Michael Portillo, assistant to the chancellor of the exchequer Nigel Lawson, fought the resultant by-election, Lawson needed a replacement - send for Davies, whom he'd run across before. It was just a 12-month role, but it pushed Davies close to the heart of power and kick-started the rest of his career.

Funny how these quirks of fate can prove so crucial.

'It was interesting,' concedes Davies, waggling those feet, 'and it certainly innoculated me against any political career - I'd already been innoculated against the civil service, of course.' But after that, he was offered control of the Audit Commission, the body that reviews public spending in government offices. In five successful years there, Davies broadened that remit to include the national health service and, according to one ex-colleague, 'discovered himself as a manager'.

He moved on to head the CBI between 1992 and 1995, greatly increasing its clout and political presence, before sliding into the Bank of England when deputy governor Rupert Pennant-Rae was forced to fall on his quill following a prolonged indiscretion with a financial journalist. It was presumed Davies was next in line for Sir Edward George's job as governor when he was offered the FSA role. In fact, with George stepping down this year, it is still presumed that Davies is man-most-likely.

But the Audit Commission remains his key position: when I ask him where he has been happiest in his career, he says there; and when I ask what on his CV most influenced how he set up the FSA, he cites the commission again. It engaged him, it seems, on every level. 'Partly it fitted my talents and partly the range of subject matter was quite broad and intriguing, from health service management to education and police work - social policy issues are inherently very interesting. Behind all this stuff,' he gestures round the airy vastness of the FSA's offices, 'is the making of money on the turn of markets, which is inherently not interesting.'

Really? Yes, not interesting at all, he says. Anyway, it's the Audit Commission model he now draws on. 'Not a one-to-one painting over of the model onto here; more in terms of the culture of the place and the shift we have made recently to doing thematic work - not just looking at things firm by firm, but examining issues across sectors. It's a big switch you are going to see more of.'

It's that intellectual complexity, pushing beyond the boundaries of doing what's obvious and trying to do what's clever, that clearly excites him.

Those who have worked for him say that, because of this, he can be a terrific boss, stimulating and supportive, though you have to move at his speed.

Others find the rapid shifts in tone hard to handle. The downside of Davies' preference for individuals over processes means that, according to one former colleague, he has a weakness for favourites, particularly bright, good-looking women. That can put the noses of others out of joint.

Davies admits he has a real problem holding onto the best staff at the FSA - they are constantly being poached by high-spending City firms, often by the very outfits they are involved in regulating. 'It seems,' says Davies darkly, 'that if a company gets into difficulty with us or has client problems and they want to solve them, they feel they can just come and poach someone - and almost whatever they pay, it is a cheap solution.' There is nothing he can do about it, he adds. And the more successful the FSA is, the worse it is going to become.

But maybe it's also a sign of respect, like the knighthood he reluctantly took in 2000. There's been lots of joshing in the press about how he won't let it be used by colleagues, keeps a swear-box in his office to fine people who mention it ... So why accept it in the first place? Just say no.

He accepted it, he says, for his people. Ah.

'Because these things are important signals of the importance of the institution. And I think ... you know ... the difficulty is, you risk letting down a lot of people and risk diminishing the institution for personal indulgence reasons if you don't take the knighthood. It is a regrettable feature of British life but, factually, there is a pecking order among institutions, and after a lot of agonising, I agreed to accept it. But I don't like it, and don't use it if I can avoid it.'

Would he accept a peerage for the same reasons?

'Absolutely not.'

Even if it came with an interesting job in the House of Lords?

'Well, who knows - but frankly, I don't see why I have to answer these questions about what I may or may not do in the future.' He spells it out for me slowly: 'I have no idea.'

Right. And now he has stopped spinning in his chair and looks rather thunderous, like one of those malignant pixies in a fairy book. I had wanted to ask him about his politics, but I don't dare.

For I remember someone saying to me that the funny thing about Davies was, you could never work out who he voted for. I am presuming he must lean towards New Labour, if only because when I ask for the names of others whom he knows well in business, he cites Bob Ayling, ex-BA boss, Lord Birt, the former BBC boss, and Gavyn Davies, the current BBC chairman - all New Labour fellow-travellers. And his liberal, BBC links are strong too: his wife Pru Keely works at Radio 4, editing The World Tonight. But then another ex-colleague says, no, no, Howard is pro-market, Thatcherite right-wing, isn't he?

Anyway, his politics are his own business, of course. Later, as Davies is having his photograph taken in the FSA's foyer, I realise he is sitting in front of a giant canvas painted by an artist who used to live with a friend of mine. The work depicts in huge words the lyrics of Bob Dylan's Positively 4th Street, one of those vitriolic, mid-tempo laments for a broken relationship that the singer churned out in the '60s. Ten years ago, I cannot imagine the same painter would have accepted that one of her works should hang in a corporate hall for the pinstripes to walk past.

But here it is now, an acquired icon for affluent, informed capitalism.

So people change, we all move on, make difficult choices. In the apt sneer of the song, 'You just want to be on/The side that's winning'. I wonder if Davies feels he is winning now? By the time I go, he still looks rather grumpy. This summer, his five-year deal at the FSA ends. He may leave to head the BoE. He may stay on (look after his people, polish his corporate art). Who knows? He's not telling me. He does say, though, that he is still interested in going into the private sector.

'I've just not been tempted sufficiently to do it yet, but I don't think it is too late.'

Winning offers to H Davies, 25 The North Colonnade, Canary Wharf. Best not to use the 'Sir', probably.

< davies="" in="" a="" minute="" 1951="" born="" 12="" february,="" cheshire.="" educated="" at="" manchester="" grammar="" school="" and="" merton="" college,="" oxford="" 1973="" graduate="" trainee,="" foreign="" office="" 1976="" moves="" to="" treasury="" 1979="" harkness="" scholarship="" to="" stanford="" business="" school="" 1982="" joins="" mckinsey="" &="" co="" 1985="" becomes="" special="" adviser="" to="" chancellor="" of="" the="" exchequer,="" nigel="" lawson="" 1987="" appointed="" controller="" of="" the="" audit="" commission="" 1992="" takes="" over="" as="" director="" general="" of="" the="" cbi="" 1995="" appointed="" deputy="" governor="" of="" the="" bank="" of="" england="" 1997="" invited="" to="" set="" up="" financial="" services="" authority,="" becomes="" chairman="" 2000="" knighted="">

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