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2.10 pm
The Minister for Trade and Investment (Mr. Mike O'Brien): I begin by expressing my thanks to my hon. Friend the Member for Rugby and Kenilworth (Andy King) for entering into substantial discussions with my right hon. Friend the Minister for Industry and the Regions, who has responsibility for these matters, on developing the key proposals of this private Member's Bill.
As that consultation will have confirmed, the Government fully appreciate and support the general objectives that lie behind my hon. Friend's Bill. I believe that we all want business to make a full, positive and constructive contribution to Britain's society. Business is not just about jobs, wealth creation and delivering the goods and services that we expect—important though they all are; it is also critical to achieving our environmental and social objectives.
This Government set up the first major review of company law for more than a generation. I pay tribute to the members of the independent steering group, to those who were involved in the CORE coalition and to the hundreds of people who took part in the work of examining company law. We are working hard to bring forward a Bill, building on the review's recommendations. In the interim, the Companies (Audit, Investigations and Community Enterprise) Bill is in the other place. That is as tightly focused as its title suggests. It is designed chiefly to implement the recommendations of the post-Enron reviews, to allow for the creation of community interest companies and to improve the company investigation regime.
The first seven clauses of my hon. Friend's Bill deal with the operating and financial review—the OFR. The company law review rightly criticised the fact that company accounting and reporting remain essentially backward-looking and based on financial indicators. There are few statutory requirements to report on the main qualitative factors that underlie past and especially future performance, such as business strategies, a skilled work force or successful brands. The review recommended that companies of significant economic size should be required to publish an OFR as part of their annual report and accounts.
Mr. Forth : I would be very interested in the Minister's and the Government's view on how practical it would be under clause 3 to expect any company to measure the impact of its policies on the environment. I would be even more interested in the Minister's definition of social and community issues in the context of company impacts. What on earth has the business of the law to do with a company's reputation? Is this not just nonsense?
Mr. O'Brien: I am pleased that the right hon. Gentleman is interested in the Government's view. I assure him that I will explain at some length the Government's view on each of those factors.
As my hon. Friend said, in July 2002 the Government published a White Paper, "Modernising Company Law", which contained some illustrative clauses on the OFR that were designed for discussion. The draft clauses form the basis of clauses 1 to 7 of the Bill. The initial clauses that we drafted were essentially to provide the opportunity for the public, various company directors, non-governmental organisations and others to give feedback on what they thought such a Bill might look like. We published the White Paper as part of our overall reform of company law. However, we have since decided to take forward the OFR in regulations, not in primary legislation. On 10 July last year, my right hon. Friend the Minister for Industry and the Regions
announced, in a written statement on company law, that we would publish draft regulations for consultation in due course.We have now had the benefit of considering more than 250 responses to the White Paper regarding the OFR. They are mostly supportive of the principle of a statutory OFR, although a wide range of views is expressed on the detail. We have continued to develop the policy and to draft detailed legislation on matters such as the role of auditors and enforcement, which are somewhat sketchy in the White Paper. One of the objectives of the revised proposal was to ensure that we do not impose unnecessary burdens on companies by requiring them to comply separately with the requirements of the OFR and the EU modernisation directive, which was adopted last year. Understandably, my hon. Friend's Bill takes no account of that directive, part of which requires additional reporting by companies, including on information relating to environmental and employee matters. As that comes into force at the beginning of 2005, it makes sense to deal with it and the OFR in a single, coherent piece of legislation to avoid companies having to make two separate but overlapping reports, which would be duplicative and bureaucratic. We want to place this on a much more rational and sensible basis.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD) rose—
Mr. Edward Leigh (Gainsborough) (Con) rose—
Mr. O'Brien: I just want to make the following point, then I will give way with pleasure.
I ask my hon. Friend and other supporters of the Bill to be patient for a little longer. The Government will soon publish revised proposals on the OFR, which will be a significant improvement on the illustrative clauses that were published in the White Paper and are largely reproduced in the Bill. We will publish with the draft regulations a document setting out our policies and the reasons for them.
Mr. Andrew Dismore (Hendon) (Lab): Will my hon. Friend give way?
Mr. O'Brien: I shall first give way to the hon. Members for Gainsborough (Mr. Leigh) and for West Aberdeenshire and Kincardine (Sir Robert Smith).
Mr. Leigh: Have the Government made an assessment of the Bill's regulatory impact on companies? Will such an assessment be made available to the House?
Mr. O'Brien: Not at this stage. The detailed proposals in the Bill were published only recently and, obviously, have only just reached Second Reading. If they were likely to become law, we would make a full regulatory impact assessment—not only of the Bill's effects on companies and their employees, but of all the environmental and social consequences that would flow from it. In developing this strategy, we want to publish some further proposals and to gather some ideas about potential effects from the various organisations involved.
Sir Robert Smith: The Minister suggested that hon. Members should be patient. Witnesses who appeared before the Select Committee on Trade and Industry were attracted by the White Paper's vision of company law finally being brought together in one overarching Bill and the burden on smaller businesses being reduced by the nature of its structure. The Minister says that the Government are working hard on the Bill. Can he give the House some idea of when it will be produced and put before us, so that we can see that the promises in the White Paper are being delivered?
Mr. O'Brien: To some extent, that will depend on the way in which the continuing work results in outside organisations expressing concerns that we have to take into account. I cannot therefore give a clear timetable. We are working reasonably quickly, but when we consider introducing complex legislation that will have a significant impact on many companies we are required to take full account of the views of a range of companies, the trade unions and various non-governmental organisations that have contributed so far. We want to ensure that they get the opportunity for a further say on, for example, any Government proposals on regulation, the Bill and the formal statutory legislation that we want to introduce in due course.
Mr. Dismore : As my hon. Friend knows, I am a sponsor of the Bill and I feel strongly about the issues that it covers. I want to raise a similar point to that made by the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith). My hon. Friend mentioned that the Government would produce draft regulations soon. How soon is that? Does he anticipate a further round of consultation on the draft regulations or will they be laid before Parliament and processed relatively quickly?
Mr. O'Brien: On the timetable for producing and consulting on the draft regulations, it would probably be best if I got some details from my right hon. Friend the Minister for Industry and the Regions. I shall write to my hon. Friend the Member for Hendon (Mr. Dismore), the Liberal Democrats and the Opposition so that they have some idea of when we shall introduce the regulations. We have the Bill and the regulations, so many issues still require consultation.
My hon. Friend the Member for Rugby and Kenilworth kindly noted that the provisions on directors' duties relate closely to the clauses in the review. We are grateful to those in the CORE coalition, who commented on the drafts. That has led us to conclude that several essentially technical improvements should be made. We shall consult on them in due course. The clauses also help to answer one of the most important questions in company law: in whose interests a company should be run.
The company law review considered the matter in detail and consulted on it on several occasions. It recognised, as I do, that many argue that a company should be required to serve a wider range of interests beyond simply those of the shareholders. Such a
pluralist approach inevitably involves balancing potentially conflicting interests. The right hon. Member for Bromley and Chislehurst (Mr. Forth) mentioned that and the way in which the various balancing interests would need to be resolved by a company director answering the question that the measure proposes. We need more detailed examination of how a director could consider all those issues. The right hon. Gentleman appears to be itching to jump out of his seat. I should hate to disappoint him by allowing him to do that. However, it might be helpful if I gave him an example of the approach and perhaps he could intervene subsequently.Let us suppose that a group of directors is considering which of two factories to expand. I hope that we all agree that they should take a wide range of factors into account. They could include the availability of a work force for each site, which site would best meet the customers' needs, the impact on the two different communities and on the environment and so on. Let us suppose that the group's evaluation shows that expanding on site A would produce 100 additional jobs in an area of high unemployment, when there is essentially full employment at site B. However, let us further suppose that the impact on suppliers of expanding on site A is slightly greater than that of expanding on site B. How do the directors decide whether creating 100 additional jobs in an area of high unemployment is worth the marginally greater impact on their suppliers? They would need some form of common measure to enable them to strike a balance, as the right hon. Member for Bromley and Chislehurst suggested earlier. I should like to make it clear that the Government reject any suggestion that this should involve the view only of the directors looking after the short-term interests of shareholders' profits. There needs to be a wider test. We need a more practical and inclusive solution, involving what the company law review described as enlightened shareholder value. And on the issue of enlightened shareholder values, I give way to the right hon. Member for Bromley and Chislehurst.
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