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Mr. Eric Forth (Bromley and Chislehurst) (Con): Will the hon. Gentleman allow me to intervene?
Andy King: Very briefly, please.
Mr. Forth: I am grateful to the hon. Gentleman, and I apologise for not being present for the start of his remarks. I have searched in vain for references in his Bill to Ministers. Although they appear in the title, they are not in the Bill. Why is he letting the Government off the hook while banging on about companies?
Andy King: I am glad the right hon. Gentleman spotted that minor omission. I have decided to make the Bill more modest—
Andy King: —in order to make progress. However, I agree with the right hon. Gentleman as regards the principle of the Bill. That explains the reference to the Government in the title.
It is not fair to anyone if reporting is not standardised. Many of the companies that produce reports do not provide a full picture of their impacts. Many of the reports are glossy and PR-led, but do not provide information that enables investors to compare the performance of different companies or to track the performance of a single company year on year. We need mandatory reporting and cannot rely on a voluntary scheme—too many will opt out. Mandatory reports will prevent companies with high brand recognition from being undercut by companies less exposed to public attention. Requiring all companies to report will level the playing field.
The first requirement of my Bill in clause 1 is for the annual publication of an operating and financial review, or OFR, to include reports on a company's social, environmental and economic impacts and performance. Clause 1(3) defines the objective of the OFR as allowing an "informed assessment" of the company's operations, financial position, future plans and its impact on the environment and on the communities in which it operates. Clauses 2 and 3 set out the matters that must be included in the OFR, and the matters that need to be included only if they are necessary to allow an "informed assessment".
Clause 4 sets out the process for signing off the review. Clauses 5, 6 and 7 define which companies are "major" and therefore must publish an OFR. I understand that the conditions would capture about 1,000 of the largest companies, although clause 5(7) and (8) would allow Ministers, following a review, to include more companies as reporting methods develop.
The Bill would amend the basic duties on company directors by adding to the duty to return maximum profit to the shareholders further duties to consider social and environmental impacts. Because maximising return to shareholders is legally required of company directors, profit is the ultimate measure of all corporate decisions. A sole duty to profit enables companies to put profit before community well-being, worker safety, public health and environmental preservation. The Bill would change that.
Clause 8 sets out the key duty that directors must act in accordance with the company's constitution. Clause 9 requires a director to promote the success of the company and, in subsection (1)(b), requires that he consider all material factors. Material factors are further defined in the clause to include, among other matters, impacts on communities and the environment. The clause also requires directors to reduce as far as possible damaging impacts on the environment and communities. Such impacts were highlighted in a recent report by Christian Aid, "Behind the mask: The real face of corporate social responsibility". What some of the largest companies are doing in the UK and across the world is appalling and must end.
Clause 10 sets restrictions to prevent directors delegating their duties to others, except in certain well-defined circumstances. Clause 11 determines the standards of care and diligence that will be expected of directors.
I acknowledge that much of the work on those clauses was done not by me, but by the Government. As much as 95 per cent. of the Bill is taken from the White Paper "Modernising Company Law", which included a set of draft clauses. I have altered those proposals—modestly—to increase the extent to which environmental and social matters are included in the reports. I have also allowed the OFR rules to extend to smaller companies in time.
However strongly I recommend the changes to the Minister, even more important is that there is a change in gear in implementing the proposals. It is three years since the Prime Minister issued his challenge, yet it has largely not been met. The company law review, having begun in March 1998, is now almost into its sixth year, yet we still have no requirement for reporting. In 1994, the Labour party published its environment policy, "In Trust for Tomorrow", which promised
- "a requirement on larger companies to report on environmental performance and strategy, helping to optimise resource use, reduce pollution and disseminate best practice."
An advance in this field is vital to every Member of Parliament and everyone across the country. The proposals in the Bill will benefit us all. I hope that the Minister will recognise the pressure for change and redouble the efforts of his Department and others to get the measures introduced and operating as soon as possible. I commend the Bill to the House.
2.2 pm
Angela Watkinson (Upminster) (Con): There is no doubt that corporate social responsibility is highly desirable, and the Opposition support fully the idea that the business activities of Government Departments and of UK companies both at home and in the underdeveloped world should have a positive effect on the economies and the environments in which they work. More important, their impact should not be negative.
The question is whether legislation is the best way to achieve those ends. The Bill is well intentioned, but it might prove to be counter-productive. Business is already overburdened with red tape, and there is a danger that yet more red tape and regulation would discourage those companies that feel that they are already doing a good job by helping to create wealth and employment. The hon. Member for Rugby and Kenilworth (Andy King) referred to companies with a good reputation. Legislation could have precisely the opposite effect to the one intended by eroding existing good will. On the principle that one volunteer is worth 10 pressed men, encouragement is likely to bear more fruit than compulsion.
The main provisions of the Bill are to require large companies—those employing more than 500 people and with a turnover in excess of £50 million a year—to report on their impacts on the environment and on society, and to expand the duties of directors to incorporate a duty of care for the environment.
I draw the attention of the House to clause 9, which details the promotion of company's objectives. Subsection (1) states:
- "A director of a company must in any given case . . .
(c) take all reasonable steps to minimise the impact of the company's impact on the communities it affects and on the environment."
The proposal for company reports, exactly what they should report on, to whom and how that information should made available, what measures would be used to assess their findings, against what standards those findings would be judged, and in particular what sanctions might flow from such reports if they were deemed to be unsatisfactory or to fall short of those agreed standards, are all important details that are absent from the Bill. It is expressed in general terms and open to wide interpretation, and those are some of the many matters that could be thrashed out in Committee. That is why the Opposition would be happy for the Bill to proceed to Committee stage if that is the will of the House.
Similarly, the proposal to extend the duties of company directors to include a duty of care for the environment and the community requires clarification as to exactly what those duties are. The term "duty of care" could be interpreted in many ways, but it needs to be specific if sanctions are to apply following failure to fulfil those duties.
- "The directors must comply with any rules about the manner in which the operating and financial review is to be prepared."
- "Rules under this section may be made by regulations made by the Secretary of State."
Various interest groups have contacted me, and, I dare say, every other Member, in support of the Bill and the introduction of mandatory international measures to oblige companies in law to fulfil their corporate social responsibilities. The hon. Gentleman has circulated a list of supporting companies and other bodies, including many retail and other types of companies, which illustrates that there are examples of good practice, and that business per se is not all bad.
Christian Aid has contacted me and it takes rather a pessimistic view of the activities of business and concentrates its remarks on bad practice rather than good. The other side of that coin is that to burden all businesses because of the bad practice of some could be counter-productive when some are operating very responsibly.The corporate responsibility coalition, which incorporates Friends of the Earth, the WWF, Unison, Amnesty International and many other well-known organisations, also takes that view.
But there is a third-party view from an organisation that champions corporate social responsibility in the business sector, Business in the Community, which has hit back at claims that corporate social responsibility has turned into what others might call a dangerous public relations exercise and a vehicle for opposing regulation. Mallen Baker, the development director of Business in the Community, has said:
- "Corporate social responsibility is about best practice. Responsibility is inherently voluntary, so it has to be about the choices that a company makes within its set business environment. Simply complying with the law is not CSR."
It is clear that there is a great deal to be debated, but I am aware of the shortness of time and that other hon. Members might want to speak. I shall therefore curtail what was to be a very long speech in order to allow others to make their remarks. If it is the will of the House, we shall be happy to allow the Bill to go into Committee.
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