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I want to follow the remarks of the hon. Member for Beaconsfield (Mr. Smith), who, as I understand it, argued that Sir Ronald Dearing's remit should be extended beyond an examination of accountancy practices and
Column 956standards to the wider question of financial reporting of company accounts and the form that those accounts take when they are presented at annual general meetings.
In an intervention, I raised the case of a company that was reported in the Financial Times on 26 May. I wish to comment on the article because I believe that it goes to the heart of the debate. It shows deficiencies in how accounts are presented at annual general meetings. I should like a ministerial assurance that these matters will be dealt with by Sir Ronald Dearing when he takes over his new role. The article refers to a settlement for
"Mr. George and Mrs. Liz Davies, the husband-and-wife team ousted last December from their positions of chairman and product director at Next",
which I understand is a retail group that sells clothes-- [Interruption.] Some of us do not spend our time shopping in the west end-- [Interruption.] Next has not made my patch yet, although I am sure that it will come in time-- [Interruption.] I am prepared to take interventions if hon. Members wish to intervene and formalise matters for the Official Report. The article continues : "Mr. Murray Gordon, executive chairman of Combined English Stores until its takeover by Next and now chairman of Era Group, asked about the amount"--
the amount of compensation paid to Mr. and Mrs.Davies--
"to be told that a settlement had indeed been made but would not be disclosed as it was subject to a confidentiality agreement. Furthermore, shareholders were told that no provisions would be made"--
this answers the point that the Minister was making about matters not having to be reported in the current financial year--
"in the 1989, 1990 or 1991 group accounts in respect of any settlement."
Obviously, there was no intention to publish information about the compensation paid, which runs to quite a substantial sum of money. The article continues :
"Mr. Robin Adshouse, an analyst at Kitkat and Aitken, suggested that Next had settled with Mr. Davies within his contract of employment, and that that kind of non-disclosure was the thin end of the wedge for shareholders' democracy'.
Mr. Gordon and Mr. Pat Hammond-Turner, one-time assistant managing director of CES, both voted against the re-election of the directors."
It is significant that the journalist draws attention to that, because earlier this evening I argued that voting against the re-election of directors did not meet the concerns being expressed by my hon. Friends. In the case of Next, such voting does not appear to have had any effect.
If Sir Ronald Dearing's remit can be extended in the way that the hon. Member for Beaconsfield suggested, will it be possible to ensure that such information is published in the accounts that are presented at annual general meetings? Shareholders at annual general meetings are entitled to know what large sums of money are being paid in what, in effect, are golden handshakes to departing directors. In the case I mentioned, the directors may have been required to leave or left for perfectly decent and honourable reasons, but there are occasions on which people leave companies or are required to leave for what I can only describe as dishonourable reasons. They may have had their hands in the till and the shareholders or the directors want rid of them. Clearly, that did not happen in this case. I should like to be assured that shareholders have the right to know the facts.
Mr. Redwood : I might be able to speed up proceedings by pointing out to the hon. Gentleman that in the Companies Act 1985 there is a clear requirement to show the aggregate amount of any compensation to directors or past directors in respect of loss of office. If the hon. Gentleman thinks that any accounting violation has occurred in reports and accounts filed for the relevant year in which that happened, he should let me know at my office and we will obviously see what the facts are.
Mr. Campbell-Savours : In the light of what the Minister has said, perhaps it will be noted by the shareholders of that company that I have raised this matter on the Floor of the House tonight. Perhaps they will note also that the Minister has replied to me and expressed an interest in so far as if it is true that the directors of the company have made it clear that they do not intend to reveal the information in the years 1989, 1990 and 1991 they would have a case to draw to the attention of the Department and may have the basis for a legal action.
Mr. Hanley : We had a discussion about this matter in Committee. I raised the point that if benefits in kind, such as occupation of property and so on, form part of compensation, there is a current loophole in the law. The then Minister said that he would plug that loophole. The Government have done so in an amendment which we hope that we will be able to discuss one day. That applies to compensation in benefits in kind other than money. The clause is not only already tight and prescribed in the existing statute, it is made even tighter by our discussions on this Bill. I am sure that the newspaper report must be wrong, and, if not, action should be taken.
"The conflict between the two sides"--
that being clearly the representatives of the shareholders, that is to say the board of the company, and the two departing directors-- "has been resolved but neither side has any intention of disclosing the details of the settlement and have sworn each other to secrecy as a condition of the deal."
From what the Minister is saying, that is not possible, and he is being backed by his hon. Friend the Member for Richmond and Barnes (Mr. Hanley). The article goes on to state :
"The Companies Act 1985 states clearly that it is unlawful for a company to make to a director any payment by way of compensation for loss of office without disclosing information on the proposed payment including its amount to shareholders.
Michael Stoddard, the new chairman of Next, told shareholders at the annual general meeting on Thursday that no provision in connection with the settlement of the Davies affair had been made in the accounts for the year ended 31 January and none was required for the current year.
If Slaughter and May, advising Next, have discovered some way around the provisions of company legislation--assuming something of value is changing hands which seems likely"--
which is what the hon. Member for Richmond and Barnes was coming to--
"then Next shareholders are right to be unimpressed by such a display of legal ingenuity. And they should be concerned about the quality of information they are receiving."
I am trying to establish that Sir Ronald Dearing, whose experience is eminent and impressive, will make it clear to all companies that that conduct is quite unacceptable. When shareholders demand that kind of information, they
Column 958should receive it. They should not be misled at annual general meetings. They are entitled to know what is happening. The money being paid out is, in effect, theirs--unless it should otherwise have been paid to the work force for some reason. In effect, the money is the property of the company. The Minister has clarified the position tonight. I hope that Sir Ronald Dearing impresses that principle upon the auditors and the accounting profession generally to ensure that reports like those to which I have referred do not appear in national newspapers and cause great concern to shareholders.
Mr. Bob Cryer (Bradford, South) : I want to comment on this appointment. No doubt Ron Dearing has what is generally regarded to be an eminent record. I am not sure whether eminent people should be members of scrutiny bodies. Eminent people have been members of councils throughout the land. We hear that Ron Dearing is OK and that he has done a good job at the Post Office. He was a senior civil servant at the Department of Trade and Industry for several years when Sir Keith Joseph was at that Department. Sir Keith is now an eminent Member of the other place and he appointed Ron Dearing as chairman of the Post Office.
I am not sure whether people who spend their lives among the councils and behind the closed doors of Whitehall will scour out information and cause a fuss when things go wrong. Their lives have not been like that. They are more used to saying to Ministers, "Look Minister, there's going to be a bit of trouble here unless you take evasive action". I am not overwhelmed by the notion that Sir Ron Dearing will bring some fire and brimstone to this office following the repeated scandals that have erupted in the City of London week in week out over the past few years.
I believe that Ron Dearing would be better than someone like Sir Peter Carey who was permanent secretary at the DTI when Ron Dearing was there. As soon as Sir Peter Carey left the DTI, he cleared off to as many boards as he could lay his hands on. At least Ron Dearing has kept some sense of public service, unlike many other senior civil servants who clear off to as many boards as possible in a way that raises questions as to what they were doing before they were appointed to those boards. Questions have been raised about that. Before the Government came to office in 1979, they said that they would end the quangos. I believe that if we are to have those quangos, they should comprise people who will pay attention to irregularities where they happen. The members of the Financial Reporting Council have not yet been appointed. They are the Secretary of State's appointees and they are not likely to be radical members of our community. Indeed, they are produced by the Civil Service in any case from a list of the great and the good. When I was a Minister, I tried to get hold of that list and held inquiries with civil servants to find out where they got the names from and I came up against a blank wall. It was impossible to define how people received that patronage. The patrons are the senior civil servants who suggest things to Ministers and they make the appointments.
Why not advertise for applicants for those jobs? What is wrong with that? By all means there could be a board within the Civil Service with the Minister present to make a judgment. All the other high quality jobs elsewhere in the
Column 959giant corporations are advertised and interviews are held. If we are appointing national bodies, even if they are quangos, we should adopt a different technique from the civil servants simply suggesting names to the Minister.
The company report published by Private Eye could provide the advice needed. In issue after issue that magazine publishes information of great value. In 1973-74, when the Poulson scandal was bubbling, it was Private Eye that dared to set it all out although other papers tried to take the credit. That magazine has a good track record of exposing the seamier side of the City and it could be of great help.
What about Paul Foot of the Daily Mirror?
Mr. Cryer : Of course "Thank you very much". We want someone at whom Tory Members will raise their eyebrows. We want them to say, "Oh. Isn't it a shocking affair appointing someone like that." But like what? Paul Foot exposes scandals in the Daily Mirror and I should have thought that that was a good background for the job. Concern for the public good is his motivating force.
What about Norman Atkinson who was a distinguished Member of this House for many years? He has a good track record of questioning and probing Ministers and has the public concern at heart.
Mr. Cryer : He is not a suitable person. I know that he is resting at the moment--he has been deselected--but he has been too close to the Establishment. I mentioned Norman Atkinson on the basis that he was a Back Bencher who spent his life probing and cross-examining. Perhaps the Minister will be able to tell us who is up for consideration. They are likely to be pillars of the Establishment who will opt for a quiet life. If they cause a few ripples, that will upset the Establishment of which they are a part. If I have suggested a few names that have raised eyebrows that is all well and good.
Mr. Cash : Does the hon. Gentleman acknowledge that just lurking in the background, behind the pillars of the establishment of the Labour party, there is a degree of patronage in the recommendation of Norman Atkinson rather than Eric Varley? Are their credentials determined by the degree to which they move leftwards towards Marxism?
Mr. Cryer : That is a legitimate question and I shall not make a judgment. The Secretary of State, however, will make such a judgment behind closed doors in Whitehall. In what sense will the right hon. Gentleman be accountable to the House and to the public?
Anyone who feels that he is able to do the job and has the qualifications needed should apply. If Eric Varley or Norman Atkinson want to apply, so be it. I suggested the sort of people who would be overlooked and ignored because of their background of challenging the Establishment.
Mr. Cryer : After the next election the hon. Gentleman will be looking for a job and he may want to apply. The hon. Gentleman displays an anti-Establishment attitude, which is certainly not confined to the Labour Benches, but
Column 960I like to think that there are many more people who hold anti-Establishment attitudes on the Labour Benches. The parliamentary Labour party has as its driving force the public good.
The Secretary of State will make the appointments and no doubt he will receive a report, but there will be no statutory obligation on the right hon. Gentleman to make a report to the House. However, there should be such a report so that we can have an opportunity to debate it, because that in itself is an element of accountability. We often push to one side and forget that Parliament is an important element in public accountability. The fact that there is a requirement to produce a report will be at the back of the council's mind and it will be speeded on in its task by the knowledge that its work will be subject to dissidence in the House of Commons. That will help it to ensure that it is doing its job, which is no bad thing. Indeed, it is part of the job that this place is supposed to carry out.
I hope that the Minister will be able to say that the reporting council will report to the Secretary of State and that those reports will be placed before us for proper scrutiny, debate and examination.
Mr. Redwood : I am glad that with only one dissenting voice the House has accepted that Sir Ronald Dearing is a good choice for this post. I am sure that he will be delighted to read later this week that he has received the acclaim of the Government, Conservative Back Benchers and the official Opposition. Sir Ronald commands great respect for the work that he has done in the past. I am sure that he will bring to this task a great deal of energy, objectivity and independence of mind. My memory may be playing tricks, but I believe that he started in the Civil Service with a humble role as a clerical officer and worked his way up. I hope that in all ways his credentials will meet with approval from Opposition Members. The House has welcomed the Government's move towards the position identified in Committee by Opposition and Conservative Back-Bench Members in wanting to state the reasons for any departures from accounting standards. I offer that because the Commitee produced some good points and the case was well argued. That is the purpose of this amendment.
However, I hope that the House will understand my belief that quantifying the departures would be going too far as it would give legal form to standards, which we do not wish to do, and would make departures from standards impossible. What would be the point of ever departing from standards if one had to quantify the exact consequence of so doing?
The safeguard for the shareholders and others who are interested in the matter are that the reasons for departing will have to be stated. That means that the matter will be highlighted and come out in debate at the annual general meeting before the approval of the accounts if people feel that is a matter of concern. Of course, it would also be a matter for debate between analysts in the company and the large investors and the company if it is felt that the company is beginning to depart too far from those agreed standards.
I turn now to the point made by my hon. Friend the Member for Richmond and Barnes (Mr. Hanley) about comparisons being difficult if some companies choose to depart from the standards. It is a matter of degree rather than a black and white issue. The application of standards
Column 961is already difficult. Many areas require the exercise of judgment, as many hon. Members with accounting experience will know. The valuation of stock is always difficult. Provisions on long-term contracts in particular are hazardous to get right and funding pension rates can be difficult to get right actuarially in the light of changing market circumstances. There are a number of areas in which there are standards, but where it is difficult to make judgments. Therefore, it is always tricky to compare one company with another because some companies are more prudent and others less prudent in their calculations of profit or balance sheet values, which is quite permissible even in the framework of standards. I should be reluctant to delegate law-amending powers to the FRC. It would be unprecedented to give a private body the power to amend legislation. That should remain a matter for debate between the Government and Opposition in the House and it should be for the Government to propose any changes in the legislative framework affecting accounts that may be deemed necessary in future. Ferranti has been mentioned several times. I do not think that that is a standards issue, or that it relates to this debate. I agree with the views expressed by the hon. Member for Norwich, South (Mr. Garrett).
I turn finally to the issue of Next, which was raised by the hon. Member for Workington (Mr. Campbell-Savours). I was surprised that he had never seen a Next shop as Next was one of the most successful chains of stores in the early and middle '80s and can be seen in most high streets. I stand by what I said to him earlier. If the hon. Gentleman thinks that a problem has arisen in the accounts, as published, in the light of the nature of the statute concerning the requirements, he should write to my office and we will look into it. Mr. Campbell-Savours rose --
Question put, That the amendment be made :--
The House divided : Ayes 137, Noes 27.
Division No. 345] [10.59 pm
Alison, Rt Hon Michael
Arnold, Jacques (Gravesham)
Ashdown, Rt Hon Paddy
Baker, Nicholas (Dorset N)
Beith, A. J.
Bennett, Nicholas (Pembroke)
Biffen, Rt Hon John
Brown, Michael (Brigg & Cl't's)
Bruce, Malcolm (Gordon)
Buck, Sir Antony
Campbell, Menzies (Fife NE)
Carlile, Alex (Mont'g)
Carlisle, John, (Luton N)
Carlisle, Kenneth (Lincoln)
Clark, Dr Michael (Rochford)
Clarke, Rt Hon K. (Rushcliffe)
Coombs, Anthony (Wyre F'rest)
Coombs, Simon (Swindon)
Currie, Mrs Edwina
Davis, David (Boothferry)
Douglas-Hamilton, Lord James