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I want to focus on a concern that is peripheral to the Bill, but is likely, as we saw from earlier interventions on the Secretary of State, to prove an irritation as our debates on the legislation develop. The long-standing effort to achieve consensus has been largely successful, as illustrated by the Opposition’s response, but there is a risk of our debate being hijacked by a mistaken attempt by the Trade Justice Movement to introduce an inappropriate burden on directors of companies registered in the UK. As I have told people in that movement, of which I have long been a part, I am particularly sad about that.
If we were to place in company law a burden in respect of environmental and social issues, when the Bill is about the vehicle of the company rather than the activities of companies, it would have two effects. First, large international companies, which see Britain as a good place to be located and to do business—in an environment, incidentally, where good business practice and responsibility on environmental and social issues is encouraged—will move to Paris, New York or Tokyo. The burden of the legislation would then fall on small and medium-sized businesses, which generally do not have that choice.
Secondly, accountability will be diminished rather than increased. The Bill is clearly focused on the vehicle—the company—and how to simplify and make more effective accountability to shareholders. That is what enlightened shareholder value is all about. The Bill makes it clear that directors have to consider the interests of employees and the environment in carrying out their duties to shareholders, but it would be a mistake—I underline the fact that it would be a mistake from the point of view of those who care about trade justice as well as shareholders—to dilute that clarity.
Let us remember that we are all shareholders now—by our pension funds, if not directly—and participating in the practice of enlightened shareholder value is the way to work as citizens. Creating confusion about who directors are accountable to—as my right hon. Friend the Secretary of State rightly said earlier, being responsible to everyone is being responsible to no one—will not help the interests of trade justice. Securing international agreement and making progress on the Doha round are the right ways for the Government to move.
I am particularly disappointed by today’s letter because the point has been explained to campaigning organisations. Indeed, I had the unique experience of participating in a debate in St. Mary le Bow, a church with two pulpits. I am not sure what happens when sermons are given—perhaps two approaches are debated—but I had the opportunity of speaking from one pulpit while the Trade Justice Movement spoke from the other. The key point is that it is like muddling up a piece of legislation about a vehicle such as a car—or in this case, a company—with legislation about a journey, the map, the purpose and where one wants to get to by using that vehicle.
To put it another way, a company and its directors have responsibilities to employees. They fall, in general terms, within the range of responsibilities that they have to consider as directors, but placing specific responsibilities on them should not be done through a companies Bill, but through employment law or health and safety at work legislation. To take another example that the
voluntary organisations should well understand, enacting a charities Bill is a way of dealing with the vehicle and trying to ensure its roadworthiness. If requirements about child protection, animal welfare or cancer research were built into such a charities Bill, everyone would understand that that meant losing all sense of the distinction between legislation about the vehicle and legislation about a series of specific policy issues—the sort of destination a charity might wish to pursue and would specify in its constitution, but not something that should be placed in charities law. With respect to those in the Trade Justice Movement, such an approach is neither sensible nor democratic, because the Bill is designed to ensure that there is accountability to company shareholders.
The Bill introduces a major reform of company law: it makes it clear that the company’s directors must consider its long-term viability—the future interest of shareholders—rather being under an imperative just to make a quick buck. In running the company for the long-term benefit of the shareholders, the directors must have regard to factors such as the impact on employees, the environment and so on and report on the wider context of the business review. I believe very strongly that that is the right approach to take.
Trade justice issues are so important to me that the only campaign event that I organised during the period before last general election was on trade justice, under the title “Poverty is Political”, but I have always stressed that there are three ways in which citizens can campaign for trade justice: first, by pressing MPs and Ministers, as electors and constituents. Indeed, the Trade Justice Movement has been very grown up and effective in the way that it has done that in recent years, and it has affected and strengthened Britain’s hand in the world as a result.
Secondly, people can influence companies as shareholders. The Bill will help to provide the right environment by creating a long-term context for a company’s decisions and enabling shareholders to play a greater role in holding directors to account. Thirdly, people can influence companies by buying fairly traded products and influencing the thinking of companies as consumers. Incidentally, in that context, I commend the House authorities for the way in which fairly traded products are made available in our canteens. Those in the Trade Justice Movement should welcome the Bill without amendment. They should certainly raise the issues that they are raising in a mature way but not pursue the amendments that would weaken the cause of trade justice.
The Government have rightly sought to promote business, and that means promoting enterprise, so we need to make it easier for people to set up a company. Let us consider the statistics. We are told that, if we had the same number of women running companies in this country as in the United States of America, we would have 750,000 more companies than we have at present. Let us consider the need to promote youth enterprise. Great success has been achieved with enterprise week and a number of other recent initiatives. Let us consider social enterprise, which has a developing place in our economy and makes extremely constructive social and business contributions.
I very much welcome the changes made in another place to protect companies and their shareholders against spurious derivative actions, while ensuring that genuine challenges on good grounds by shareholders can proceed. The Bill is about nurturing good practice and enabling Britain to go on being the best place to do business and increasingly the best place to set up a company. The Bill will provide good practice and a sound basis for the future, and I commend it to the House.
5.8 pm
Mr. Edward Davey (Kingston and Surbiton) (LD): It is good to follow the right hon. Member for Cardiff, South and Penarth (Alun Michael). The House and the people who will have to use the law owe him a debt for the work that he did on it during his time at the Department of Trade and Industry. I half agree with the points that he made about trade justice. With respect to directors’ duties, he is right: the idea proposed by some campaigners that directors should have two, three or four duties to wrestle with at the same time would be a mistake. It would be like asking directors to speak from both the pulpits that he mentioned at the same time and therefore not to lead their companies correctly. However, he is wrong about the financial reporting of companies, particularly the narrative reporting of companies—a point that he did not cover with respect to the Bill and what the Trade Justice Movement wants.
I enjoyed our exchange during a Statutory Instrument Committee on 16 March, when we talked about how the Government had got themselves into a bit of a tizz when the Chancellor suddenly did a volte-face on their previous position on operating financial reviews at the CBI conference at the end of November last year. The right hon. Gentleman, who was the Minister, had a wry smile during that debate, and I had hoped that he might feel liberated on the Back Benches and say a little more about what he really felt about the Chancellor’s move.
Mr. Davey: I shall give him a chance to do so now.
Alun Michael: I think that my wry smile of amusement must have been prompted by the hon. Gentleman’s speech rather than anything else. My position remains the same: I approve of the simplification that has taken place, and I favour a proper discussion about the way in which the business review should develop. I do not think it sensible for there to be two vehicles.
Mr. Davey: The right hon. Gentleman’s ultra-loyalism has been tested and has met the test, not for the first time.
Mr. Gummer: The right hon. Member for Cardiff, South and Penarth (Alun Michael) may think that, but do not most progressive business men take exactly the opposite view? They had prepared for the operating and financial review and were ready to carry it through, and found themselves entirely disadvantaged—to the benefit of those who were not doing the job properly—by the Chancellor’s very peculiar action.
Mr. Davey: The right hon. Gentleman is absolutely right. I did not mean to make light of the point. I think that the anger expressed by the right hon. Gentleman was felt throughout the country by people who paid attention, in the commercial sector, the trade unions and the campaigning movements. It was a hugely retrograde step. I shall say more about it, as, I am sure, will my colleagues.
In my interventions on the Secretary of State thus far, I have been remiss in not welcoming him to his position and congratulating him. Some say that his new post is a preparation for another that he will occupy in due course. We enjoyed hearing the emollient tones for which he became famous in his previous Department. When he was Chief Secretary to the Treasury and I shadowed him, he was slightly less emollient, but I am sure that he was pleased to begin his new job by presenting a Bill that commands a great deal of consensus.
On behalf of the Liberal Democrats, I can give the Bill a warm welcome. The enlightened shareholder value that is at its heart represents exactly the right approach. The deregulatory aspects are incredibly welcome; the concept “think small first” is incredibly important, taking company law to a new generation and recognising that modern companies are normally relatively small. The simplicity is also incredibly important. Even non-lawyers such as me can read some of the Bill and understand it. I doubt that I would have been able to understand the earlier Companies Acts.
Some have criticised the process adopted by the Government for being lengthy, but I think that that probably resulted in the quality of the legislation. The procedures here and in the other place have shown both Houses working at their best. There is no doubt that the Bill deserves the support of the whole House tonight.
On occasions such as this, however, we have to highlight a few of the differences between us. I want to discuss two, relating to the environmental, community and social aspects. We have one difference with the Chancellor, and another with the right hon. Member for Witney (Mr. Cameron). In the context of two key aspects of the Bill, those would-be emperors have no clothes.
In relation to corporate accountability reporting, the Chancellor was originally fully clothed, but at the CBI conference that I mentioned earlier he performed a very unsightly striptease. To please the crowd, he threw off an election promise to make firms report properly on their activities and their impact on the environment. That was a huge disappointment, and I think that the Chancellor will rue the day. He often likes to portray himself as the champion of poorer nations and of the environment, but in this important instance he was found lacking. I consider the Government’s U-turn on OFRs to be not just a retrograde step but a huge missed opportunity. I welcome some of the moves in the other place to strengthen the business reviews that we were already going to have as a result of the European Union directive on modernisation of accounts, but the strengthening has not gone far enough. We want the OFRs back, as they were originally proposed by the Government, and that is what we shall argue for.
As for the Leader of the Opposition, some of us doubt whether he ever had any clothes when it came to corporate accountability and the environment, but the Tory peers have left him stark naked by voting to oppose the requirement for directors to have regard to the impact of companies’ operations on the community and the environment. That was astonishing.
Mr. Djanogly: Has the hon. Gentleman given any thought to the fact that a responsible attitude towards the environment and the community can be encouraged other than through regulation?
Mr. Davey: Of course that is the case. There are many ways of pursuing environmental policy. This one has the support of many people in business and it has support among environmentalists. The Conservatives in the other place sought to oppose it. I find that astonishing. The hon. Gentleman will have to do rather better if he is going to persuade us that the Conservatives have not recently been rather dishonestly sporting new green credentials. If, in this place and in the other House, they vote in exactly the opposite way, their claims to be the new environmentalists will lack any substance.
It is possible that Tory Members will reject the views of their colleagues in another place. So far, judging by the remarks of the hon. Member for Rutland and Melton (Mr. Duncan), it does not seem that they will. However, perhaps we will see a U-turn. Perhaps he will become his leader’s new chauffeur, driving behind him carrying a spare set of clothes to hide his leader’s embarrassment. We will wait and see, but the Conservatives better be on notice that the people looking at this debate and the attempts by the Conservatives to rechristen themselves as the new environmentalists will not be impressed.
I want to deal with those points and other disagreements later, but it is important in the bulk of my remarks to focus on what unites the House on these matters. I have talked about the process already. Can the Minister say how the Bill’s benefits will be communicated to small business? She will be right to say that small businesses are major beneficiaries of the Bill. They need to know that. Large corporates will have their sections briefing their chief executives and boards on the implications of the Bill, but it may pass small businesses by. They are not tuning in to today’s debate.
The process on the Bill has been excellent up to now, both prior to the Bill coming to the House and during its passage through the other place and here. I hope that the Government will reflect carefully on my intervention on the Secretary of State about making sufficient time available for consideration of the draft new clauses that the Government will have to table on full codification. That is an important point. If we are going to continue the excellent process that we have had to date, that needs to be taken forward.
Another positive point that has not yet emerged in our debates but which is important is the Bill’s move on dematerialisation. Under the Bill, documents such as registration certificates will be acceptable electronically. It will be easier to set up a business because one will be able to do it online. That process will lead to huge savings for business, which is incredibly welcome. In
many ways, it is not before time. That is not meant as a criticism of the Government, because this is a step forward.
As the hon. Member for Rutland and Melton said, the Bill’s further protections against extremists, particularly animal rights activists, are welcome. As I said to the Secretary of State, they could be stronger, particularly with respect to shareholders. The Government have made it an offence—I think that it is in clause 118—for people who have access to the shareholder register to use that information for illegal purposes. I do not think that that is much of a deterrent for the sort of people we are talking about. The Government need to look at that again to see if the protections can be stronger.
I put forward one option. I cannot say that we have thought it through in terms of the legalese, but it may be possible to allow firms to keep their register of shareholders confidential, as long as there are safeguards for the public interest. One option would be to alter the threshold at which a shareholder can require the company to circulate information to other shareholders. That will strike a balance between protection against animal rights extremists and the public interest, ensuring, for example, in the case of a takeover, that all the shareholders can understand the terms of that offer.
There are a number of areas where the Government made concessions on the original Bill and where there is now wide cross-party support. It is worth flagging those up, too. The tightening of the political donations measures had cross-party support. Under the original proposals, the Government intended to bring in super-affirmative procedures to fast-track company law changes. They have been taken away because, as the Lords rightly said, such changes were constitutional and should not be included in company law itself. Again, progress has been made.
The tighter rules on derivative claims, which have already been debated, are also welcome. The restrictions on auditors’ liability, which can now be expressed in non-monetary terms, is a very important measure that came about because my noble Friend Lord Sharman proposed it and the Government were willing to listen. There has been much progress and agreement.
Where do disagreements remain? The Secretary of State flagged up one: the idea that we and Conservatives in the other place were concerned about the Government’s proposal to require certain institutional investors to disclose how they voted. The Secretary of State made a lot of that in the press, but I think that he has pressed his case too far. I have spoken to my colleagues in the Lords and their concern was not so much the principle of disclosure, which they agree with, but how greater disclosure should be brought about. Let me flesh out where we agree and where there is room for compromise, because it is important that we engage in that spirit.
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