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We need the OFR. The Government say that they cannot demonstrate leadership in that respect because companies will go elsewhere. I want to say something tough to the Minister, which will not be loved by all members of my party. One of the things we ought to be doing is taking a lead in the European Union. I have not heard the Government say they want an OFR—but a more detailed one—for every part of the EU. What
about us setting in Europe the same standards as the United States seems able to do in the Sarbanes-Oxley Act? That is enforced throughout the world, whether we like it or not. The United States does not say, “Oh dear, we can’t do that. It would be very embarrassing.” Of course not. It has, admittedly, an unpleasant imperialistic way of doing it, but it says, “This is what we’re going to do,” and it does it because it thinks that is right for the United States.
The OFR is right for Britain. I happen to think it is right for Europe. I would like the whole of Europe to have a sensible policy towards corporate social responsibility, and I would like it to be possible to understand how companies throughout the European Union operate, in order that when people wish to invest their own money, their pension money or other people’s money, they can do so with the safety of knowing that the company knows not just about its financial risks, but about its non-financial risks.
That leads me to the attitude of business. I took the opportunity of intervening on my hon. Friend the Member for Rutland and Melton (Mr. Duncan) on the subject of the IOD. There is a difference between the business leaders who have understood that issues of corporate social responsibility, particularly environmental and social attitudes, are part of the future and necessary for our competitiveness, and those who are still stuck in the past.
My hon. Friend is a wise man and in his discussions will, I know, distinguish between those two groups. I shall merely tell him of my experience when I was Secretary of State for the Environment and was approached by the paint industry about some rules that we wanted to introduce to protect people’s safety. One of the things I discovered was that the good companies that had already sought to get that right supported the rules that we proposed. The noise that was coming from the so-called representatives of industry was not on their behalf, but on behalf of the less good companies, which did not want to make the change, had not made the change and wanted to have the advantages, temporary and short-lived though they were, of continuing as they had been doing. It is important to bear in mind the distinction between those who were in No. 10 earlier today and those who sometimes speak as the representatives of the whole of industry, although they are not. Very often, those who speak in that tone are talking about people who do not want change.
My hon. Friend the Member for Rutland and Melton, being a very busy man, was no doubt unable to hear this morning’s discussion on Radio 4 involving Adrian Wilkes, representing the Aldersgate group. I declare an interest as a sponsor of the group, which has very sensible views, shared by my hon. Friend, about how the requirements on companies as regards environmental and social progress are a necessary part of our ability to compete. There are whole areas of new business to be got for Britain if we are seen as leaders in this respect. We have a remarkable opportunity—a business opportunity. I come from business—my whole history is in running businesses. I do not oppose business, but I know that it will shoot itself in the foot unless it puts itself in a position to compete on
the highest level, particularly given the British circumstance. We cannot compete on cheap labour or on long runs—we can do so only if we can be at the cutting edge not only of technology, but of meeting the environmental demands of a world that is increasingly concerned about them.
I hope that in his discussions with business, my hon. Friend the Member for Rutland and Melton will right the wrong that this Government have done. They have, I am afraid, taken the view of the reactionaries in business against the view of its leadership. It is increasingly embarrassing to hear what real leaders of industry say when they talk about the Government. They feel genuinely let down. They think that the Government promised so much but have gone back on their word at almost every step. The Minister will not have to live much longer before his children, leave alone his grandchildren, if he has any, will be asking him what he was doing about climate change—not what he was talking about, what his attitude was, or what his Government vaguely thought about it, but what he actually did about it. For example, did he do the simple thing of saying that every business ought to tell its shareholders how it is exposed to the risk of climate change? A company can get its listing on the stock exchange as a major mining company without mentioning the risks of climate change. It can be a huge user of water in a water-stressed area, and nobody asks it to reveal that that is an issue. It does not have to do it, and the shareholders do not know.
My problem is that to start with, I believed you. [ Interruption. ] I beg your pardon, Madam Deputy Speaker—I meant the Government. I have always believed you and continue to do so. I believed the Government to start with. I thought that it might be bad enough to have a Labour Government, but at least they believe in this. Yet here we are, nine years later, and in every single area they have failed to act. They have talked, brilliantly sometimes, less brilliantly at other times. They have suggested, discussed and consulted—they have done everything bar action.
In that, they are exactly parallel with the CBI spokesman on today’s radio programme. He said how much he wants to help with reducing emissions, that the CBI is supporting the Government’s goal of achieving a 60 per cent. reduction in carbon dioxide emissions, and that that is not at odds with the business leaders who submitted their letter to the Prime Minister today. When the interviewer asked whether the CBI wanted targets for reduction to be set closer to 8 million tonnes instead of the 3 million tonnes that is the bottom level, he replied:
“Targets need to be challenging but fair. The existing work undertaken by companies needs to be taken into consideration along with the activity undertaken at a European level. Responsibility needs to be shared between business and the community and between the UK and the rest of the world.”
In other words: “We are doing absolutely nothing but saying all the right things.” It is like trying to get agreement on fishing. Fishermen will agree to every conservation measure that does not work. I am afraid that that is a truth that we cannot gainsay. Our big problem is to bring home to the whole of this society that all businesses, big and small, have to play their part
in changing our ways of thinking and living with risk, because the risk that we face with climate change is far too great to ignore.
I am so pleased that the Leader of the House has entered the Chamber. I hope that he will not leave for the moment, because I would like him, in his new position, to hear my last words. He understands the situation because as Foreign Secretary he fought hard for the whole world to recognise the reality of climate change. But while he was out there fighting on the beachheads, dealing with the Americans in the difficult times that he had, back home his Government, without telling him—but then they did not tell the DTI or DEFRA either—were doing everything to undermine what he was saying elsewhere. They could tell the Foreign Secretary to tell the world that the Prime Minister was going to make climate change the key issue of his presidency of the European Union, while at the same time intending to ask the EU to increase the levels of emissions that we should be allowed and say that if it did not we would sue. How does one run a Government like that? Of course, people are now beginning to understand that that is how this Government are run. They are the same Government who promise that we will be safe on the streets but release on to the streets everyone who makes them unsafe. That was another job that the Leader of the House had.
Madam Deputy Speaker (Sylvia Heal): Order. I think that the right hon. Gentleman is going rather wide of this Second Reading debate. Perhaps he could relate his remaining remarks to the Bill.
Mr. Gummer: You are absolutely right, Madam Deputy Speaker, but it was fun, was it not?
Before the Leader of the House goes, I should like to say that I hope that he will find plenty of time for the Bill to be discussed and will lean on the usual channels to make that possible. I also hope that he recognises that he will be pressed again and again to ensure that in the dying days of this Government we have the action that they promised on these issues. That needs to be started here. He is too intelligent and sensible to allow the Government to put the Bill through without the OFR element. If he can change that, he will have done something more important than anything else that he has done as a Minister. As this is so important, that is not insulting.
The Leader of the House of Commons (Mr. Jack Straw): I am grateful to the right hon. Gentleman for his flattery, which was laid on so thick that even I could notice it, and therefore was all the less convincing. I am not fully up to speed on every detail of the Bill. However, I chaired the Cabinet Committee that had to make the decisions about increasing the allowances that he mentioned. Our decisions in Europe and our speeches to the Americans were entirely consistent on the issue of climate change, one way or another, and no Government have said or done more in respect of climate change than this one. With that, I hope that he will excuse me.
Mr. Gummer:
Of course the Leader of the House can leave. I shall not detain him longer, but I cannot understand how he believes that it was credible to tell the United States that it ought to join in on the issues
to which the OFR and the Bill apply while asking the rest of Europe to allow us off the hook.
Different hon. Members will place a different emphasis on the Bill. Different people feel the issues more or less sharply. Conservative Members are right to insist that the Bill be clear and simple. My hon. Friend the Member for Rutland and Melton was right to say that the way in which the Government phrased the provisions that are supposed to replace the OFR are less than clear and may restrict rather than enable. Having said that, I hope that my hon. Friend will agree that we need to find an alternative that enshrines the simplicity and efficacy of the OFR and the effect that it would have produced. If we can get that back in the Bill, we may be able to make the changes that some of my noble Friends in the House of Lords tried to secure because of the inconsistency of the language, and also achieve the purpose that we share with the hon. Member for Kingston and Surbiton. That is more embarrassing for me than anything else.
As my hon. Friends know, agreeing with the Liberal Democrats presents a genuine difficulty for me because I have to ask myself whether my argument is right if they agree with me. On this occasion, by accident, they appear to have arrived in the same place as me and, therefore, for a brief moment, I shall accept their support.
Together, we must force the Government to act. They have shown themselves to be incompetent. They must show that they can do something right. The Bill is the chance to redeem themselves at least a little. Can we help the Government to do something that they should do and that, in their heart of hearts, they know that they must achieve?
6.32 pm
Emily Thornberry (Islington, South and Finsbury) (Lab): I welcome the Bill, which is a major step towards establishing a fair, modern and effective framework for company law. However, I wonder whether it can go a little further than it does.
Last year, when steering the G8, my Government identified the two biggest challenges that face the world today: climate change and the increasing division between rich and poor. We all know from the public’s reaction that they agreed with us. Although the public agree that those issues are important and frequently appreciate the efforts of national Governments, not least ours, and international institutions to tackle the problems, that is simply not enough. A major player is missing. We need consistent and concerted effort from business.
Many believe—and I agree—that international capital is insufficiently controlled. That applies especially to democratic control. A recommendation on page 146 of the report of the Prime Minister’s Commission for Africa states:
“Developed country governments, company shareholders and consumers should put pressure on companies to be more transparent in their activities in developing countries, and to adhere to international codes and standards for behaviour.”
My constituents agree that more should be done and that companies have responsibility. They believe that companies do not do enough. We have a chance to
ensure that companies take their social and environmental responsibilities more seriously.
I had received 255 letters, e-mails and postcards on the subject at the last count. [Interruption.] After a while, one begins to give up counting. More people have written to me on that subject than about anything else. People feel strongly that the major problems in the world cannot simply be addressed by national Governments and international institutions. International capital must work consistently and coherently with us to ensure that we address those major issues.
That is not to say that the Bill is not a step in the right direction. I especially welcome clause 158, which clarifies directors’ duties, although it might only enshrine in statute that which is already established in common law. I agree with many who would go further and I urge the Minister for Industry and the Regions to consider whether it is appropriate to take a more pluralist approach. If my right hon. Friend, having reconsidered the matter, believes that the only path is one of enlightened shareholder value—in other words, that directors should run the companies in the interests of shareholders while recognising that, in the long term, that means taking account of a wider range of factors that may affect the business, such as the impact on employees, the environment and communities—we can improve that approach.
I ask my right hon. Friend to consider two matters in particular. The first is ensuring that directors report properly to their shareholders and, secondly, that all shareholders—I mean all—can hold those directors to account.
Let me consider part 15 chapter 5. I greatly welcome the new duty for directors of our biggest companies to report on the environment, the welfare of employees, the social impact of their companies, their policies and how effective they have been. However, I am concerned that there is a get-out clause. As Mercutio said in “Romeo and Juliet”, it is
“not so deep as a well , nor so wide as a church door; but ’tis enough, ’twill serve”.
The report that directors make needs to include information only to
“the extent necessary for an understanding of the development performance or position of the company’s business”.
I do not understand what that means. I am worried that the get-out clause is so big that it makes the Bill ineffective in some ways.
Even if that problem were resolved, “Fine words butter no parsnips”, as my nan used to say. The best written report in the world is not enough in itself. I am sure that many fine equal opportunities policies are in place in City institutions, yet consider the way in which they treat their women employees. Directors need to be held to account so that it is not simply a matter of writing the right things in a report or getting some bright young thing to write something that sounds good and ticks the right boxes. Once the report is written, shareholders must hold directors to account. If my right hon. Friend is resolutely of the view that shareholders are the only people who can hold directors to account, we should allow all of them to do that.
Conservative Members repeat that we are all shareholders now. Let me present them with some inner-city common sense and reality: not all the people on my estates are shareholders. However, one fifth of the population—nearly 12 million people—hold shares. Of those, almost 4 million—one third—have no voting rights because they hold their shares in pension funds. Why is that? I do not follow the logic or the fairness of that and I am not alone.
Yesterday, I read something that appeared pretty sound. It stated about clause 136:
“The truth is, and the companies know it, that this simple clause has the power to force companies to treat all private shareholders with the respect they deserve. It might even enliven increasingly dull and predictable annual meetings. Overnight, the board would be far less certain of winning key votes like those on directors’ remuneration—very rarely voted down because of backroom deals with City institutions...
As private companies control increasingly large chunks of our daily lives through the march of the Government’s private finance initiative, the notion of a shareholder democracy has never been more important. History tells us democracy only flourishes when people look after it.
Our shareholder democracy is no different. For years, it has been ignored. This has got to change. The battle starts here.”
That call to the barricades is from the City section of The Daily Telegraph. If the City section of The Daily Telegraph is asking for all shareholders to have a voice and to be allowed to hold directors to account, I must urge my right hon. Friend to consider whether we can achieve that. Furthermore, I would ask that, at the very least, it be made mandatory that fundholders publicly declare how they vote. I was amazed to hear from the TUC that fundholders are allowed to vote as they wish and then decline to be accountable. I certainly hope that the Bill will be able to stop that happening.
I strongly want this country to be an excellent place in which to do business, and the Bill will ensure that it is. However, if it were to be beefed up a little, this would continue to be an excellent place for ethical and responsible business to thrive. I am confident that I speak on behalf of the majority of my constituents when I urge the Government to consider that point.
6.40 pm
Mr. Quentin Davies (Grantham and Stamford) (Con): I should like to start by declaring my interests. I am a director of a small private underwriting company called Sumac, of which no one will ever have heard. I am also a member of the council of Lloyd’s, which is the governing body of one of the biggest insurance and reinsurance groups in the world. I am also a director of Vinci and of Vinci’s UK subsidiary, which used to be called Norwest Holst. I have in the past been a director, and an executive director, of other institutions before I joined the House.
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