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7.49 pm

Mr. Martin Caton (Gower) (Lab): Notwithstanding what has been said from the Front Benches so far, I should like briefly to urge the Government to think again and respond more positively to the calls from the Trade Justice Movement and the Corporate Responsibility Coalition to use the Bill to ensure that companies can be held responsible for how their practices and policies affect people and the environment.

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It has been suggested that that could be done, first, by requiring corporations to report on their social and environmental impacts in the same way as they have to make financial reports. I heard what the Secretary of State said about clause 399, but I share the scepticism of others about the robustness of business reviews. It would be much more sanguine if operating and financial reviews were still on the agenda.

Secondly, companies could be held responsible by obliging directors to minimise damage to communities and the environment rather than just to have regard to them. The obligation is the clearest way of going forward. I do not believe that it would cut across the accountability of directors to shareholders. Thirdly, we should allow people from overseas who are harmed by the activities of a UK company to take action against them in UK courts if they cannot secure justice at home. I understand the Government’s reluctance, but if we do not make this sort of change, we shall effectively condemn victims in the poorest parts of the world to no or at best inadequate redress. We have only to think back to Bhopal and the years after it and the fact that the victims of that tragedy have still not been compensated properly to realise what such a change would mean.

I appreciate the fact that in some ways the calls go against the grain of the Bill, which is essentially deregulatory. Much of the simplification and clarification of the Bill is good and welcome. However, unlike the hon. Member for Eddisbury (Mr. O'Brien), I do not subscribe to the view that regulation is always bad and deregulation is always good. Sometimes we need regulation in order to move forward and in particular to provide a level playing field so that those who want to do the right thing do not find themselves unable to compete with those who are prepared to sacrifice planet and people in the scramble for profits.

My right hon. Friend the Member for Cardiff, South and Penarth (Alun Michael) and the right hon. Member for Suffolk, Coastal (Mr. Gummer) mentioned the delegation of prominent business leaders who went to see the Prime Minister earlier today to talk about the threat of climate change. From the news coverage that I heard, it seems that they told him that companies needed more than encouragement and fine words; they need a stronger steer and in some areas of policy stronger and tighter regulation. That argument transfers over to the subject of this legislation. I do not believe that we will get the level of transparency, responsibility and accountability that is needed across the board on the basis of the neo-voluntary approach that the Government appear to advocate. While the concept of enlightened shareholder value, including social and environmental values alongside financial ones, is admirable in its way, I am not convinced that without regulation it will make a significant change in current practice. Current practice, of course, is what has led the coalition of environmental groups, charities, unions and Churches to mount the campaign that they have over the past months to seek to improve the Bill in the way that I have described.

One of the business leaders who met the Prime Minister today to discuss climate change was apparently the UK chair of Shell. Shell is lauded by some as a company that willingly embraces corporate social responsibility. In particular, it is claimed that Shell adheres to the
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Organisation for Economic Co-operation and Development guidelines for multinational enterprises—a set of international voluntary guidelines. Yet Friends of the Earth, local groups and others have provided example after example of where Shell has behaved anything but responsibly and has cheerfully ignored those very OECD guidelines.

I cite, for instance, the impact of its underwater liquefied gas terminal on the local fishing industry in Louisiana; the damage to wild salmon spawning areas and the last western pacific grey whales that will be caused by work on the Sakhalin II project in Russia; oil spills and air pollution from illegal flaming in the Niger delta in Nigeria; and emissions of massive quantities of toxins damaging to the human cardiovascular and respiratory systems from Shell’s joint venture Motiva refinery in Port Arthur in South Africa. Shell workers are subject to toxic pesticides and oil waste at São Paulo in Brazil. The company still does not guarantee medical treatment for affected employees. There are many, many more examples from around the world. There is strong evidence that this acclaimed corporate leader in the international community is not delivering what it promises using the voluntary approach.

Shell is not alone, of course. Our supermarkets, in their rush to push down prices, are trampling on the rights of workers in the developing world. Women workers picking fruit in South Africa exclusively supplying Tesco report dangerous exposure to pesticide, lack of protective equipment, poverty wages, long hours and increased insecurity. Similarly, research in south-east Asia shows that palm oil plantations are replacing natural forests at a horrifying rate, destroying orang-utan habitats and leading to violent conflict and human rights abuse. Palm oil is used in one in 10 supermarket products, but few of our very profitable supermarket chains have responded positively to the call for them to ensure that palm oil comes from sustainable, non-destructive sources.

Tobacco farmers in Brazil and Kenya have suffered health problems linked to the use of harmful pesticides sold to them by British American Tobacco. Those are the sorts of abuses that the changes for which we are calling could help deal with by introducing a legal right to information, legal responsibility and legal redress. Other countries such as Sweden, Finland and Denmark have higher levels of business regulation and are still ranked in the top five in the national competitive index.

One fact supplied by members of the World Development Movement who lobbied me on this issue recently really convinced me that the voluntary road would not take us very far at all. Out of 61,000 multinational corporations, fewer than 2,000 produce annual reports on their social and environmental impacts. When we remember that two thirds of global trade is carried out by multinationals and that some of those who produce social and environmental impact reports do so as a cynical public relations exercise, we have to conclude that we need, and more importantly, the most vulnerable people and places on this planet need, good robust regulation. I hope that Ministers will think on that as the Bill proceeds through the House.

7.57 pm

Hywel Williams (Caernarfon) (PC): I wish to say at the outset that we in Plaid Cymru subscribe to the
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principles promoted by the Trade Justice Movement and the Corporate Responsibility Coalition. To echo the hon. Member for Gower (Mr. Caton), we also believe that companies should adopt ethical and responsible corporate behaviour and that they should adhere to the three principles reported in the newspapers today. They should report on the social and environmental impacts of their activities. People overseas harmed by a UK company who are denied justice in their own country should have the right to take legal action in the UK. I was disappointed with the response that my hon. Friend the Member for Angus (Mr. Weir) received on that point from the Secretary of State earlier. My hon. Friend talked about globalisation and the Secretary of State responded that somehow as a Scottish nationalist my hon. Friend was not entitled to make internationalist points. My hon. Friend and I believe that the need for responsible behaviour by British companies overseas is a fundamental principle and would provide a clear signal to companies everywhere that globalisation does not give us the right to dump our problems overseas.

Mr. Weir: We hear all about how people are working for low wages in the third world, but the flip side of globalisation is that we can export best practice. In this Bill we can make UK companies responsible and ensure that rights that cannot be exercised in other countries can be exercised in UK courts.

Hywel Williams: I agree with my hon. Friend, and, indeed, that will be the burden of some of my later remarks.

Looking at the third principle, that directors should be obliged to take steps to minimise the harm that companies may cause in local communities and environments, we can see that good practice established in the UK is an example for companies working overseas as well.

The point, of course, is that those principles apply to companies working in the UK as well as to companies working in the developing world. Much of the debate has been focused on companies working in that context, but today I would like to address that last point with particular reference to a company working in my constituency: Friction Dynamex. The company has been in dispute with its workers since before I was elected in 2001. It is the longest running dispute in Welsh industrial history.

I want to refer briefly to the review of company law instituted by the Government and to points made in the research paper provided by the House of Commons Library. The paper notes that there is a view that the interests of a company are to be equated exclusively with the interests of its members and that that can lead to a focus on the short-term financial bottom line rather than to enlightened shareholders building a long-term relationship based on trust. There are those two contrasting views. The steering group states that:

and that directors are currently obliged by law

As the law stands, directors should not be looking to focus solely on the ruthless pursuit of short-term gains.
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That is what the steering group says, but as the House of Commons Library notes

That is to say that the attitude that we want to promote is not deep rooted in the mainstream of company life.

I would argue that that is perfectly illustrated by the case of Friction Dynamex in my constituency. I do not intend to go into any detailed history, given that time is short. I will say only that what began as short strike—as a last resort taken by workers in the face of an unreasonable management and intransigent employer—became a lockout and, more, an assault on the whole community and an offence to the community. The Friction Dynamex workers were reluctant to strike. Many of them had been employed since the ’60s. They did not strike to improve their wages or conditions, but to defend those wages and conditions in the face of an employer who wanted to reduce their wages. Initially, he wanted to freeze their wages and for four years they put up with that. Then he wanted to cut their pay. They would not relent on that point. He wanted a change in working practices and to divide and rule the work force. He wanted to choose whom he could dismiss. He dismissed people very carefully to his own advantage. That was a determined attempt on his part to squeeze whatever value he could get out of the plant and its workers. The workers wanted to negotiate, but he did not want to negotiate with them. As I said, he eventually locked them out.

After two years of waiting, the workers won an industrial tribunal. The employer was proved to have acted unfairly. He appealed, but withdrew his appeal. In the meantime, he reorganised his business and suddenly found that Friction Dynamex had to be put in the hands of the administrator because, apparently, it suddenly had £8 million of debts. The employer has subsequently—let me use the term “reorganised” again—reorganised his business a number of times. He has shed the name and adopted new names, but has not succeeded in shedding his liabilities. He remains, in effect, in charge of the business and, a couple of months ago, he sacked his current work force and recruited a new lot. When the strike started 130 people worked at the company; he is now down to 24. It is interesting that, under clause 364, that company would be defined as a small company and that it would not be subject to the provisions in clause 399 about doing a business review in the first place.

The point about the unpleasant and, in terms of the employer’s behaviour, quite squalid case of Friction Dynamex is that the broader view of the responsibilities of directors has not prevailed as the law stands now. As a consequence, a number of things have happened. The taxpayer has lost the £1 million of public investment that went into the company initially. The local community has seen the loss of about 100 good jobs—jobs that are not usually available locally. A site uniquely placed on the banks of the Menai straits, which could be redeveloped into a site for new businesses, is tied up in an enterprise that, to be kind, has now run its course.

There are, of course, consequences for the workers in the case. They have been locked out and they have lost
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their jobs. They won their case at the tribunal, but they still have not been compensated after five years of disputes. They have seen their employer take on other workers from the jobcentre to take the jobs that they wanted to do and were perfectly willing to do until they were locked out. Hon. Members should remember that this was not a dispute about higher pay. They have had their morale stretched to the extreme limits. Unsurprisingly, many of them who supported Labour in the election in 1997 no longer do so.

I have gone into the case in some detail because it is a case that calls out eloquently for justice for this group of workers, who have conducted themselves with dignity in what we can rightly call a heroic struggle. They have been supported by people locally in Caernarfon and Bangor in Wales and in the UK, and by people throughout the world who understand the meaning of justice for workers. However, that is not all. Most UK companies take a serious and responsible view of their environmental and social responsibilities, but the case of Friction Dynamex shows us clearly why company law must be changed so that Mr. Smith, the owner, and his like can no longer put their own narrow short-term interests first, middle and last. That is the intention of clause 158, but I fear that Mr. Smith would laugh at clause 158. He would laugh at the voluntary approach. He would agree with it in its entirety and he would tick the boxes. Would he be caught by clause 158? I have my doubts and, for that reason, I think that the Bill needs to be amended.

8.6 pm

Sarah McCarthy-Fry (Portsmouth, North) (Lab): I welcome the Bill. It has been a long time in its gestation, but that is its strength. It covers many aspects of company law, but I want to concentrate on just two clauses: clause 158 on the duties of directors and clause 399 on the business review, to which many hon. Members have alluded. The Bill addresses a fundamental premise. Should a company operate only in the interests of its members—its shareholders—or should it have a wider remit and operate in the interests of stakeholders? If we accept that wider remit, how should that be managed: by legislation, regulation or voluntary code?

The old narrow view of the responsibilities of company directors has moved on now that we are in the 21st century. Historically, the legal responsibility of the directors of a company is to maximise shareholder value, usually either by a return in the form of a dividend or by capital growth, or by a combination of both. But should financial profit be the only motivating factor in doing business? In my view, there is a wider responsibility to consider the interests of employees, the impacts—both social and environmental—of doing business on the local environment, and the impacts of a company’s operations on the economy of the whole country and globally. That is the essence of what has been referred to before as corporate social responsibility.

It makes good business sense for organisations not just to accept corporate social responsibility but to make it central to their strategic decision making. The Bill will encourage them to do that. The Labour Government are committed to promoting responsible business behaviour as a key part of their sustainable
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development strategy involving both the public and the private sectors. As a Labour and Co-operative MP, I represent the co-operative movement and corporate social responsibility is fundamental to co-operative principles. My aim as a Co-op parliamentarian is to encourage all organisations, not just co-operatives and social enterprises, to take on corporate social responsibility, in the interests of us all, to enable businesses to grow in a sustainable way.

Corporate responsibility can encompass many things: community involvement in the form of charitable gifts, community investment, commercial initiatives in the community, or even just allowing employees time off to do community volunteering projects. It looks at the benefits to the wider community and environment from day-to-day business operations, job creation, investment in a region, taxes paid, goods and services provided and general wealth creation in our economy. Increasingly, it is about responsibilities to the whole value chain. For example, where are raw materials being sourced and to whom are goods and services being sold?

Corporate responsibility is about business having a positive impact on society and the environment through its operations, products, or services. One might ask why businesses should sign up to that and what is in it for them. More and more, businesses are recognising that corporate social responsibility can bring them a competitive advantage, especially in the consumer retail sector.

Corporate value is increasingly measured against non-tangible assets as well as tangible assets. What price is a company’s brand or reputation worth, and how quickly can that be lost if it is seen to be adversely damaging its local environment, or ruthlessly exploiting child labour overseas? In The Times last week, there was an article about the clothing chain Zara being dogged by child labour allegations following reports that Portuguese children as young as 11 were being paid just €20 a day to make shoes. Inditex, Zara’s parent company, has recognised the negative effect that that could have on its business. It has a code of conduct that bans the use of child labour by its subcontractors. It has pledged to investigate the allegations and, if they are true, cancel the contract. Child labour accusations can be seriously damaging to retailers as more shoppers become ethically aware. Both Nike and Gap have faced consumer backlashes following claims that they had used child labour.

The argument is not about just consumers. In the past, investors have been either people with large amounts of disposable wealth, or pension funds in which individuals have had little control over how their money is invested. Now, however, we have a whole new population of potential investors. In the pensions White Paper that was published a couple of weeks ago, there were proposals for increased levels of personal savings and choices about personal pension plans. All new-born babies now have a child trust fund, and parents who had never before considered investment now have funds to invest and can exercise choices. If financial returns on products are broadly similar, people will consider other criteria when making choices, such as the ethical background of investment opportunities.

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