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I am sure that the Secretary of State will not fall foul of the usual channels on his side, because he is held in such high esteem by them. There are already 925 clauses for the Committee to scrutinise. Consolidation will mean hundreds more, which outside practitioners in particular will want to scrutinise and which will not have been scrutinised in the other place.
May I present a simple proposal to the usual channels, through the Secretary of State? I suggest that the Committee stage be split into two parts, the first between now and the summer recess to deal with the 925 clauses, and the second during the wash-up period. When we return after the recess, we shall have benefited from examining the earlier clauses and will then be able to deal properly with the new clauses for codification.
Mr. Darling: Wherever discussions between the usual channels may be held, it is probably best that they do not take place across the Floor of the House. However, I understand what the hon. Gentleman has said. That approach will work only in relation to the clauses that involve merely a restatement rather than substantive changes. One of the advantages of the Bills long gestation has been widespread consultation and, although not everyone will be happy at the end of the day because there are some strong views on the legislation, it has benefited from a degree of consensus that I should like to maintain. Nevertheless, I will pass on the hon. Gentlemans suggestion.
Mr. Alan Duncan (Rutland and Melton) (Con): Members on both sides of the House genuinely want to maintain the consensus. In view of that, and given what the Secretary of State said, may I invite him not to move the programme motion? That would enable us to decide how to proceed with the Bill in a mature, grown-up way.
Mr. Darling: I am not in a position to give that assurance. Even if the programme motion is moved, if it turns out that other arrangements would be more appropriate we can still have discussions. We do not want to find ourselves with no timetable for the Bill. However, I will pass on what has been said to those who negotiate these matters on behalf of all the political parties and we will see what we can do. That is about as far as I can go.
Mr. O'Brien: My point arises from the discussion that has just taken place. Clearly, consideration in the other place benefited hugely from not being curtailed by a programme motion: there was an enormous amount of helpful debate.
The Secretary of State spoke of incorporating parts of the Companies Act 1985 in the Bill. Until a recent concession, that was not going to happen. One of the problems initially identified was that so much interpretation in the courts had been based on phrases in the 1985 Act. Importing some of that precedent into consolidated legislation that would also apply was seen as one of the main difficulties. Is the Secretary of State taking enough advice to ensure that it will be catered for?
Mr. Darling: As I have said, we want, where possible, simply to restate the law in what we hope will be the 2006 Act. We do not seek to change the law, which would require not a consolidation measure but a new measure. I think that Members on both sides of the House would consider that substantially different. I am anxious to do as much as possible on the basis of consensus. What we are asking the House to acceptthe incorporation of a large amount of earlier legislation into a new Bill to consolidate itis unusual, but I hope that we shall be able to be as accommodating as possible. I repeat that such matters as the timetable are best dealt with through the usual channels.
Let me return to the Bill. It has a number of broad themes, to which I shall return shortly. It deals with better regulation, shareholder engagement and a long-term investment culture, which is particularly important. It also provides for some flexibility in the future.
At the heart of the Bill is a new approach to directors duties and what is known as narrative reporting. The Bill recognises that to achieve sustainable success for the benefit of shareholders, directors must have regard to a wide range of factors. For the first time, the Bill includes a statutory statement of directors general duties. It provides a code of conduct that sets out how directors are expected to behave. That enshrines in statute what the law review called enlightened shareholder value. It recognises that directors will be more likely to achieve long-term sustainable success for the benefit of their shareholders if their companies pay attention to a wider range of matters, which are set out in clause 158.
Directors will be required to promote the success of the company in the collective best interests of their shareholders, but in doing so they will have to have regard to a wider range of factors, including the interests of employees and the environment. That is extremely important. It has been recognised by successful companies for a long time, but the Government believe that it is important that all companies recognise their wider obligations. Under the Bill, they will have to have regard to those in reaching their decisions.
That is a major step forward. I recognise that it is controversial. It was opposed in another place, certainly in the earlier stages, by the Conservatives, but I hope that, during the passage of the Bill, we can reach some unanimity on that matter because it is a major step forward in corporate governance.
Mr. Jim McGovern (Dundee, West) (Lab): The Secretary of State mentioned the new codification of the responsibilities of a director. Can he tell us why he has decided on the have regard to formulation rather than the duty to formulation, which was suggested by many members of the Trade Justice Movement?
We decided on that after a great deal of consultation. We are trying to put into statute something that is workable and that makes it clear that directors have to have regard to a wide range of issues, which are set out in the Bill. However, we want to do it in a way that does not open directors up to a range of claims or litigation. It has to be workable. We need to bear it in mind that companies do not have to incorporate in this country. By reaching a degree of consensus, which I think would not have been possible a few years ago, we
have legislation that could put a duty on directorsit is not stated at the momentand that enables them to take into account a wide range of matters, about which many people, including the Trade Justice Movement, feel strongly. We are doing it in a way that allows regard to be had to all those things. We should not get ourselves into a situation where the legislation is over-complex and wide open to litigation, which could result in it not having any effect at all, with companies choosing not to act.
Mr. Philip Hollobone (Kettering) (Con): On the point of the world Trade Justice Movement, I, along with many other hon. Members, have received lots of postcards from Christian Aid, Traidcraft, War on Want and the World Development Movement, which are clearly not satisfied that the Bill addresses the concerns that constituents have. What discussions has the Secretary of State had with the Secretary of State for International Development about the impact of the Bill on international development issues?
Mr. Darling: There have been wide-ranging discussions both within Government and between Government and many of the organisations that the hon. Gentleman mentioned. Indeed, my right hon. Friend the Member for Cardiff, South and Penarth had many such discussions in past weeks. Like every other hon. Member, I have had many letters and cards from constituents. I have also seen the letter written on behalf of all those groups that was sent to the Prime Minister today. They make three demands. The first is that companies be
legally required to report on their social and environmental impacts.
In relation to the second demand that those groups make, it is true that they want to go further. We say that directors should have regard to the wide range of measures that are set out in the Bill, whereas the campaign talks about a legal duty. I am concerned that we do not get ourselves into a situation where, whenever a company takes an individual decision, it has to go through legal hoops and a great deal of red tape, and establish almost an audit trail to examine each and every possibility to ensure that it is covered.
The third element is that those groups want people in other countries who believe they have been harmed by a UK company to have the right to take legal action in a UK court, and to have access to legal aid in order to do so. We would have some difficulty in accepting that proposition. I understand that many people want to go further, but the hon. Member for Kettering (Mr. Hollobone) will recognise that many in his party in another place opposed this measure, and do not even want what is in the Bill. We are trying to steer a sensible middle course.
Alun Michael (Cardiff, South and Penarth) (Lab/Co-op):
If I am successful in catching your eye later, Mr. Speaker, I should like to develop the following point. Does my right hon. Friend agree that the consequence of giving in to the suggestions from the
Trade Justice Movement would be to reduce the clarity of the accountability that it seeks, which would not help it to achieve its ends? As someone who has been involved in the Trade Justice Movement for many years, it seems to me that it is barking up the wrong tree.
Mr. Darling: I should say at the outset that the broad objectives of the Trade Justice Movement, particularly the Make Poverty History campaign, are supported widely throughout the country. Members of this House, including many Opposition Members, also support those aims. However, we must recognise that company law has a specific purpose, and has its limitations. There are many different ways in which we will make poverty history, and in which we can meet environmental concerns and concerns about what companies do in different parts of the world, but it is not possible to do all that in a companies Bill.
The second point that my right hon. Friend the Member for Cardiff, South and Penarth made is also important. It is vital that we in this House make it clear to whom a director is responsible. We do not want a director to be responsible to everybody in theory, but in fact to nobody. That would result in good directorspeople acting in the best of faith and with the best will in the worldbeing unclear what they are supposed to do and to whom they are answerable. Bad directorsif I might use that term looselycould easily play one side off against the other.
Those who actually have to operate the lawall Members present must have received letters on this issueget extremely fed up when Parliament puts on the statute book a measure that is not clear. The main knock-down point is that such a provision would not achieve the very things that many people behind the Trade Justice Movement want to achieve. I do not want a British company to look at British law and say, If that is the case, I shall incorporate in France, where perhaps there are not quite so many restraints. The Bill strikes a sensible balance that meets peoples legitimate concern that directors should have an explicit duty to consider all such issues, but at the same time, it is clear and workable.
Mr. John Gummer (Suffolk, Coastal) (Con): The Secretary of State is of course right to say that directors have a duty primarily to their shareholders. Why, therefore, does he think it necessary to ensure that when they are dealing with financial risks, they give very clear reportage to their shareholders, whereas when they are dealing with equally important non-financial risksparticularly of an environmental and social kindthere is not the same legal requirement? It is that distinction that many of us find difficult to take.
If the right hon. Gentleman looks at clause 399, which deals with the reporting requirements, he will see that it makes clear that directors have to
report on a range of matters, and have to draw attention to the fact that they are not reporting on a particular matter. If any ambiguities come to light that can be resolved when these measures are examined line by line in Committee, obviously the Government will consider them. I am anxious to ensure that when the Bill leaves this House and is put on the statute book, it is clear and understandable and does not provide huge scope for litigation, from whichever angle it might come.
Jim Sheridan (Paisley and Renfrewshire, North) (Lab): May I bring my right hon. Friend back to the environment? It is somewhat ironic that taking place today is the annual general meeting of the all-party group on Nigeria, of which I am a member. When I visited Nigeria, and in particular the Niger delta, I witnessed at first hand young children being choked almost to death by the gas flaring of major oil companies, including Shell. Where in the Bill will protection be provided for those people?
Mr. Darling: I am not sure that I would quite share my hon. Friends view, but when he has a chance to look at the Bill he will see that it sets out clearly the matters to which the directors have to have regard. However, as I said a few moments ago, we also have to ensurewhether through international agreements and treaties or local legislationthat environmental and other concerns are met. While we can achieve a lot through company law, it is not possible for the Bill to deal with all the problems that might concern us. While I do not wish to labour the point, it is important that the duties imposed on directors are clear, and that they know to whom they are accountable and what they are supposed to take into account. The more complex the requirements become and the more wide-ranging the duties imposed, the more difficult it will be in practice to achieve what we actually want. The Government have sought to put before the House a Bill that is workable, represents a major step forward and will deliver what most of us want.
Mr. John Redwood (Wokingham) (Con): I am with the Secretary of State on what he is trying to do to strike the right balance. I am a company director, but not of the kind of business about which I wish to ask. Clause 158 states that directors must
have regard...to...the impact of the companys operations on the community and the environment.
Would that provision give people living near a quarry, a coal mine or a nuclear power station the right to take the company in question to court because they did not like the activity, even though it was legal and had all the health and safety permissions?
No, it would not. The requirement is for the director, in reaching a decision, to have regard to all such matters, including the impact on the community. We cannot have a situation in which, essentially, two groups of people are running a companyone being
the directors and the other being people who like or do not like what the company is doing and ask the courts to second-guess the companys decisions. If we as a society decide that we do not want quarries, the best way to achieve that outcome is to pass legislation forbidding them. If quarries are legal, and provided that all planning permissions are obtained and other legal obligations are met, directors are entitled to reach that decision, because their duty is to the company. However, they do have to have regard to what they are doing. This is an important step forward and many in the other place were deeply opposed to it, but I hope that the House will support it.
Mr. Mike Weir (Angus) (SNP): To return to the point made by the hon. Member for Paisley and Renfrewshire, North (Jim Sheridan), is there not an argument that allowing legal action to be taken in the UK against UK companies by people abroad would provide them with an avenue not otherwise available? In many foreign countries where British companies operate, it is almost impossible to take legal action in the local courts. It is right that if a company is causing environmental degradationthe hon. Gentleman mentioned Shell and the Niger deltait should be held responsible for that in the UK courts.
Mr. Darling: I would be very reluctant to encourage widespread litigation in the UK courts simply because remedies might not be easily available in some countries. There are many problems in various countries, but they cannot be resolved by simply opening up the jurisdiction of UK courts. The duties that we will impose on directors and the greater openness and transparencyso that people can see what is happeningwill put more pressure on companies. Directors will be in no doubt about their duties, but the demand that we should open up the UK courts and, for good measure, provide legal aid to people bringing cases is not one to which the Government can accede. It would lead to substantial difficulties for British companies, and it would not be long before many decided to decamp to a jurisdiction more amenable to what they wanted to do. Belonging to the party that he does, the hon. Gentleman sometimes has difficulty with the concept that we live in a global economy, but he should be aware that companies can come and go very easily.
David Howarth (Cambridge) (LD): I accept much of what the right hon. Gentleman has just said, but I want to return to the contents of the business review, as set out in clause 399. Many people are worried that that clause is too narrow, and subsection (2) states:
The purpose the business review is to inform members of the company and help them assess how the directors have performed their duty.
Is not another legitimate public purpose of the review to allow potential investors in the company to know whether it has been acting ethically? Does he agree that it is important for this House to try to make a better and more stable market for ethical investment?
A business review produced under clause 399 by an oil company working in Nigeria, for example, would contain a formal report from the directors to company members, but it would also be available to the public. As I said a moment ago, the fact
that companies will have to set out what they are doing and the effect that that is having will focus public attention on their activities. That is very important.
Ms Dawn Butler (Brent, South) (Lab): I want to ask another question about the business review outlined in clause 399. The transparency requirement means that company directors will have to make clear any negative social or environmental impact that their companies might cause, in the UK or overseas, but what will happen if the directors deliberately omit from the review matters that might be of concern?
Mr. Darling: Clause 399 will legally oblige directors to say why they are omitting information. When the Committee comes to consider that clause, I hope that it will accept that we have tried to draft it in a way that requires companies to report what they are doing, yet at the same ensures that people who might otherwise be tempted not say what is happening must explain what is going on.
Mr. Darling: I have dealt with only two of the Bills 950 clauses, and must move on. However, first I shall give way to the hon. Members for Richmond Park (Susan Kramer) and for East Dunbartonshire (Jo Swinson).
Susan Kramer: A moment ago the Secretary of State said that the information in the business review would be a valuable guide for investors. However, Lord Sainsbury of Turville said in the other place that the purpose of the review was to inform members of the company. He said:
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