The Business Of Lords - How The UK House Of Lords Mixes Politics And Business

WSJ: Michael Howard wears many hats. Last year he traveled to Abu Dhabi for a policy forum and spent a week at sea as a lecturer on the cruise ship Quest for Adventure. He advised mining, energy, finance and waste-management firms. He flew to Somalia for the oil company of which he is chairman.
And he spent 28 afternoons in the U.K.’s House of Lords working as a lawmaker. He holds the title Baron Howard of Lympne.

Lord Howard’s roles as businessman and politician sometimes overlap. Lord Howard said he met with senior foreign-office officials earlier this year to be sure that the activities of the company whose board he heads, Soma Oil & Gas, were acceptable.
When Soma later became concerned that its plan to bring armed guards into Somali waters could violate a United Nations arms embargo, the company’s chief executive mentioned Lord Howard’s name in writing to the U.K. business minister. That minister then wrote a letter to Soma saying its guard boats could carry weapons despite the embargo, according to documents reviewed by The Wall Street Journal.

Mr. Howard’s dual political and business pursuits aren’t unique. For centuries, the upper chamber of the British Parliament was filled largely by the landed gentry.
But in 1999, then-Prime Minister Tony Blair ’s government replaced most of the hereditary lords with business people, civic leaders and politicians appointed for life. 

Mr. Blair said the shift would “end the feudal domination of one half of our legislature.” Opponents said he was turning the House of Lords into a den of patronage—a “House of Cronies” to be occupied by a lord of “Lobbygate” and lord of “Offshore Funds,” said then-Conservative Party leader William Hague.
In the 15 years since, the House of Lords has struggled with the boundaries between public and private service. A code of conduct meant to separate the two has repeatedly been altered.
Much as Mr. Hague had predicted, many lords now have ties to organizations that engage in lobbying, including one lord who agreed to be a lobbyist for an offshore-fund haven. Sixty-eight others give advice on government affairs to companies, trade groups or other organizations, or work for companies that specialize in government relations, according to a Wall Street Journal analysis of financial disclosures as of early August.

One hundred and thirteen draw paychecks from financial-services firms. Twenty-six are paid by resource-extraction companies. Twenty work for foreign governments, in capacities that include advising officials on policy and consulting for government-controlled companies.
Some of those jobs materialized after they joined the House of Lords.
Lords regularly weigh in on legislative debates in which their employers have an interest, disclosure records and Parliament transcripts show. Behind the scenes, they sometimes arrange meetings, host functions and—as Lord Howard did—reach out to others in government on their employers’ behalf, according to documents reviewed by the Journal and interviews with lords.
Parliament’s two houses—Lords and Commons—aren’t equal. Though both can introduce bills and laws pass through both, a determined House of Commons, whose members are elected, can override a Lords veto. But lords use the threat of amendments and delay to steer legislation.
The 786 members of the House of Lords receive no salary, just £300 ($476) a day for attending. They may have outside jobs, and many do. That is by design, says Lords spokesman Owen Williams —peers are supposed to have expertise outside government.
Conduct is governed by a code that requires peers to act honorably. It forbids exercising “parliamentary influence” in return for money and says lords “must not seek to profit from membership of the House” by taking payment for providing “parliamentary advice or services.” If debate in the chamber turns to an area in peers’ financial interest, they must preface remarks with a disclosure.
A guide to the code’s provisions published by a standards committee says lords are forbidden from “making use of their position to lobby, or to help others to lobby, members of either House, ministers or officials, by whatever means.”

The code and the guide are frequently revised, especially with respect to advice and lobbying. An amendment earlier this year, for instance, clarified the advocacy rules by explicitly forbidding lords from accepting money to help others to lobby, and by noting that the lobbying prohibitions extend beyond Parliament to other government officials. The guide says “public policy and current affairs” advice is permitted, and allows lords to work for lobbying groups so long as they don’t do any lobbying or provide any advice themselves. In 2010, the Lords named a former police chief as ethics commissioner to investigate alleged conduct-code violations.
The rules are far different than those governing U.S. Congress, where questions about the influence of money tend to revolve around campaign financing. The outside pay of members of Congress is capped at $27,225 a year, and they can’t be paid by entities that provide professional services “involving a fiduciary relationship,” ruling out banks, law firms and much else.
The U.S. Constitution forbids members of Congress, whose salaries are $174,000, from receiving an “emolument” of “any kind whatever” from a foreign state—a provision so strictly interpreted that fees for appearing on a British Broadcasting Corp. show are banned because the BBC is considered a state entity.

The House of Lords dates back to the 14th century, when noblemen and clergy began sitting separately from commoners. For much of its existence, it could veto legislation. But after lords blocked the government’s 1909 budget, they lost the power to block budget bills. Over the years, Commons acquired power to pass bills without Lords’ assent, though it does so only rarely. In 1958, Parliament formally created peers who sit for life but don’t pass the seat to relatives.
Mr. Blair’s replacement of hundreds of hereditary peers with these life peers “gave the place a real boost,” says Meg Russell, a Lords authority at University College London. The House of Lords rarely rejects government bills entirely. Rather, it negotiates changes—and members’ experience enhance its leverage, Dr. Russell says.
Lords’ outside work “can be seen as a weakness of the place, in a sense,” Dr. Russell says. “But it can also be seen as a strength.” Many are associated with universities or charities. “Business is part of that,” she says.
In 1992, Anthony Gueterbock became the 18th Lord Berkeley upon the death of an aunt who had held the peerage. He had worked on transportation projects in the private sector, and five years after entering Parliament, he was hired to head the Rail Freight Group, an industry body whose aim is to “influence policy makers within Government,” according to its website.
Lord Berkeley is a regular speaker in rail debates, during which he discloses his outside role. His expertise benefits both the chamber and his group’s members, he says.
In a 2007 letter on House of Lords stationery, Lord Berkeley successfully urged the U.K.’s then-rail minister to let an RFG member manage part of a large government-funded rail project. Lord Berkeley says he was offering expertise on behalf of his organization, not lobbying.

“I have a complete right to write ministers on that,” he says. “We can have an argument about what lobbying means. You shouldn’t be paid by outside interests to influence policy, and I certainly haven’t done that.”
Facebook Inc.’s European policy director is Richard Allan —Lord Allan of Hallam. “I work for Facebook,” he said during a 2013 debate on Internet speech. One proposed measure would have required companies such as Facebook to post notices alongside alleged defamation or risk legal consequences. Lord Allan argued against it. It died. He offered an amendment that could make it harder to force website operators to take material down.
Lord Allan says in disclosure forms that he doesn’t lobby Parliament. He entered the Lords a year after joining Facebook. He didn’t return calls seeking comment.

Lord Allan of Hallam appeared before the House of Lords, disclosing his connection to Facebook. Video: House of Lords

Companies and trade groups aren’t the only organizations paying lords. In 2012, the Joseph Rowntree Reform Trust Ltd.—identified on its website as a lobbying group “rooted in liberalism and Quakerism”—paid about $24,000 to Paul Tyler, a lord, to cover expenses associated with drafting a bill. On his own website, Lord Tyler said his bill aimed to “take big money out of politics.”
The bill would cap political donations. It hasn’t passed. Mr. Tyler said in an email the Rowntree money was used to pay for drafting assistance and gave “no financial benefit at all to me personally.” The Rowntree Trust said in an email that it awarded Mr. Tyler the money after he applied for a grant.
The code of conduct prohibits lords from acting as a “paid advocate” for an outside entity “in any proceeding of the House,” including, according to the code’s guide, “speaking in debate.”

During a debate on cybersecurity, Baroness Wheatcroft spoke about Huawei. Video: House of Lords

In 2011, Parliament’s intelligence-oversight committee was examining whether a telecommunications-equipment contract awarded to China’s Huawei Technologies Co. exposed the U.K. to hacking. That fall, Huawei hired Patience Wheatcroft, who joined the House of Lords the year before. In announcing her hiring, it said she would join a board “advising the company on building a positive reputation and improved public profile.”
In a 2013 debate on cybersecurity, another lord noted that the intelligence committee had “criticized the system of regulation in place to oversee Huawei’s operation here and its equipment that is now part of our digital network.”
After disclosing her Huawei role, Baroness Wheatcroft said the company “is playing a major role in the infrastructure of this country and is one of the fastest-growing companies in the world.” She added: “Huawei is demonstrating ably how the U.K. and China can cooperate.”
Baroness Wheatcroft, a former editor of The Wall Street Journal Europe, said her role at Huawei ended in August. She declined to detail her duties there and said her comments in the debate didn't violate the prohibition on speaking on behalf of a private entity because she was “not speaking on their behalf. I was speaking on my own behalf.”
Charles Powell —Lord Powell of Bayswater—is an adviser or director for four defense contractors, a gold miner, luxury-goods maker LVMH Moët Hennessy Louis Vuitton and a subsidiary of conglomerate Jardine Matheson Holdings Ltd.
“I find I have so many interests it’s almost better to speak very little in debates,” he says. “You spend two minutes declaring your interests, and it takes the flourish away from what you are going to say.”
Lord Powell says he wouldn’t lobby government for any company. “That is absolutely prohibited in my view, to lobby on your own financial behalf or on the behalf of those who approach you,” he says.
“Can I talk to government on behalf of Jardine Matheson?” he asks. “That is perfectly appropriate,” he said, in cases where he feels a foreign government might be treating one of his companies unfairly and a U.K. official might be able to intervene.

Outside ties sometimes come up in debates about rules governing financial services. In an Oct. 14 debate, Howard Flight, a lord, decried as “completely out of control” anti-money-laundering rules requiring banks to monitor transactions of “politically exposed persons,” or PEPs, for possible corruption. Lord Flight is a director of at least eight financial-services firms. “Wearing a hat as a banker,” he said during the debate, “I would add that, worst of all, banks are required to look at every transaction in the account of a PEP, both in and out.”
The House of Lords has grappled before with questions about paid advocacy. The Sunday Times in 2009 reported four lords appeared willing to be hired to influence legislation by undercover reporters posing as lobbyists. Two were suspended, and the new ethics commissioner was appointed.
That ethics cop periodically sanctions members for code violations, although penalties can be light.
After David Maclean became Lord Blencathra in 2011, he signed a £12,000-per-month contract to be a Cayman Islands’ lobbyist. A report by the nonprofit Bureau of Investigative Journalism triggered an inquiry. Lord Blencathra told the ethics commissioner he didn’t intend to lobby. The commissioner determined he broke the rules.
The sanction: an apology.

Lord Blencathra apologized before the House of Lords for signing a lobbying contract with the Cayman Islands. Video: House of Lords

“My lords,” Lord Blencathra told his fellow lawmakers this July, “although I never actually provided nor intended to provide parliamentary services to the Cayman Islands government in return for payment, I acknowledge and I deeply regret that I entered into a written contract under which I was apparently committed to provide such services.”
Lord Howard, the chairman of Soma Oil & Gas, is one of several lords working for companies active in Somalia, whose natural resources are drawing prospectors following years of violence. He got involved with Somalia after a long political career. He held cabinet positions under Margaret Thatcher and John Major, and when he retired from Parliament after the 2010 election, new Conservative Prime Minister David Cameron named Mr. Howard a lord.
Three years later, a London investor and party donor named Basil Shiblaq started a company to explore for oil in Somalia. He asked Lord Howard to become the chairman. Mr. Shiblaq said he hired Lord Howard for his high profile.

Lord Howard’s stature helped sway the Somali government to sign a deal with Soma, says Abdirizak Omar Mohamed, then Somalia resources minister and now a government adviser to Somalia’s president. “It increases the credibility of the company when you have someone who was a leader of the Conservatives,” says Mr. Mohamed.
The deal between Soma and the Somali government—a no-bid contract with undisclosed financial terms—drew criticism from U.N. officials. Somalia’s auditor general, Nur Farah, said in an interview he is concerned because Soma has no prior experience searching for oil. Soma’s CEO said the contract is fair and transparent.

It increases the credibility of the company when you have someone who was a leader of the Conservatives
—Abdirizak Omar Mohamed, adviser to Somalia’s president

Lord Howard, who has a stake in Soma, said he sought assurances from U.K. officials that Britain, a former colonial power in Somalia, would support the deal. He briefed the U.K.’s Africa minister on Soma’s plans, and had the U.K. foreign office’s acting Africa director brief him, according to U.K. government documents reviewed by the Journal. The U.K. publicly neither supported the deal nor declined to support it.
But the U.N. arms embargo loomed. Sea Bird Exploration, a company Soma hired to do a survey offshore, demanded armed guards for its vessels, says Sea Bird CEO Dag Reynolds. He says Soma told him it would find a way to comply with the embargo.
In January, Soma’s security contractors asked the U.N. for an embargo exemption. Oh Joon, chairman of the U.N. sanctions committee, wrote in a letter to the contractors that Soma’s armed-guards plan would be “a violation of the current sanctions regime.”
Soma’s chief executive had sought advice from then-U.K. business minister Michael Fallon, now U.K. defense secretary, who responded in a letter that if weapons are “securely stored on the vessel and under the master’s control” in Somali waters, “it is our view that the United Nations (UN) arms embargo does not apply.”
Soma followed his advice. It also hired a Somali company whose guards held the weapons while in territorial waters. This spring two exploration vessels and eight armed boats gathered seafloor data for Soma. A U.N. official says that by hiring the local company, Soma may have found a “loophole” in the embargo and the security council won’t seek sanctions against it.
Mr. Fallon wrote a second letter to Soma, after the armed boats had been deployed, saying the company should follow the U.N.’s advice. His spokesman says Mr. Fallon’s advice hadn’t changed and had been misinterpreted by Soma.

Lord Howard says he doesn’t “quite remember” if he discussed Soma with Mr. Fallon. Mr. Fallon’s spokesman said they didn’t. In a May letter reviewed by the Journal, Lord Howard wrote to Mr. Fallon on Soma letterhead asking that he meet with the Somali official overseeing Soma’s exploration work.
“I’m afraid,” Lord Howard wrote, “this is yet another request for a favour.”
A lawyer for Soma said the earlier favor was unrelated to the company.

-Alexis Flynn contributed to this article.

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