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Mr. Djanogly: I totally agree with my right hon. Friend. This country should take the lead. He explained earlier how the Government are not taking
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the lead in the way that they should be. I thought that he made an excellent contribution. It is important to point out that companies in this country are leading the world on corporate social responsibility. As we discussed earlier, the Government are not paying enough attention to the good that exists. Encouraging that good has not been a priority in the way that it should be or that it would be under a Conservative Government.

Mr. Davey: Will the hon. Gentleman make it clear to the House whether, tonight, Conservative Front-Bench Members are in favour of operating and financial reviews being put into the Bill—as they were—or not?

Mr. Djanogly: I will —[ Interruption. ] The question is quite simple. Essentially, we feel that, following the huge mess and the total shambles of what the Government created in relation to the OFR—as the hon. Gentleman explained in his speech and as my right hon. Friend the Member for Suffolk, Coastal also explained very well in his speech—when it comes to the question of the business review, although the Government stumbled into it blindly, we would say that what is now in the Bill is roughly in the right position, subject to review in Committee.

Mr. Davey: I think that that was clear. My interpretation of what the hon. Gentleman has said is that he is no longer in favour of the OFR as it was originally put in the Bill and is happy with the Government’s compromise. Is that his position?

Mr. Djanogly: The hon. Gentleman starts from the wrong point— [Laughter.] He does. As my hon. Friend the Member for Eddisbury pointed out, the stance of the Conservative party was against the OFR from day one. The premise of the comments of the hon. Member for Kingston and Surbiton is thus wrong.

Mr. Davey rose—

Mr. Djanogly: The hon. Gentleman has made his point, but I will give way one more time.

Mr. Davey: I thought it was important that the hon. Gentleman allowed me to intervene one more time, because on 16 March, in the Eleventh Standing Committee on Delegated Legislation, which considered the Government’s measure to repeal the OFR, he voted with the Liberal Democrats to try to oppose the repeal. Has his position shifted since 16 March?

Mr. Djanogly: The hon. Gentleman totally misconstrues what Conservative Members did in that Committee. As the record will show, we were voting against the total mess of a process produced by the Government on the OFR—and he knows it. He got it wrong from the start and in the middle, and now he has got it wrong again at the end. We will proceed from the position of what is right for British business.

When the proposed directors’ duties provisions are added to the provisions on derivative claims and the new business review reporting arrangements, all of which, admittedly, were improved in the Lords
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Committee, we must still listen to those who say that the Bill could increase the possible liabilities for company directors. We will wish to review the matter in Committee.

There is a growing fear in the business community and among Conservative Members that if the regulatory environment is made too harsh and the fear of litigation becomes too great, the best people will not wish to be company directors in the UK and many of our companies will repatriate or re-list overseas. The stakes are high, and we will keep that in mind throughout the passage of the Bill.

9.37 pm

The Minister for Industry and the Regions (Margaret Hodge): As other hon. Members have done, I remind the House that I have a registrable shareholding that is set out in the Register of Members’ Interests.

We have had a good-hearted debate, even in the past few minutes. The Bill is highly significant and I am grateful to all who spoke. We all recognise that company law is an important building block that helps us to sustain and strengthen our growth and prosperity. The world is an increasingly open place in which to do business and the business world itself is changing with the advent of new technologies and working practices. In that context, a flexible and modern system of company law that is accessible to all sizes of business is crucial to the UK’s success. Many hon. Members on both sides of the House have recognised that that is what the Bill provides.

Historically, company law has been a UK strength. We were one of the first countries to put in place a legal framework to regulate the organisation and management of companies. That framework has generally stood the test of time well and has been recognised as a model for other countries throughout the world. However, over time, law with such historical roots can become out of date.

In the 1990s, a consensus emerged that our system of company law needed improvement. The Government thus established the company law review to provide an expert and independent analysis of the areas in which the law needed updating and to come up with recommendations for change. In very large part, the Bill follows the route map that the review provided.

The company law review established the principle that policy in this area is best determined through as inclusive a process as possible. Again, many hon. Members have acknowledged the inclusive nature of the policy. We have attempted to follow that principle when possible, and the final provisions of the Bill reflect a thorough process of consultation. As others have said, the process has been a model of the sort of way in which we should legislate. That is one reason why, whatever differences remain on specific proposals, the Bill has such large support, not only in the House but from business organisations and other stakeholders with an interest in company law. The Bill is rightly seen as a landmark that will bring real improvements to the way in which companies operate in the UK.

I shall say a few “thank-yous”. I pay tribute to the members of the company law review steering group and to all its working parties, and to all those who contributed to the review’s work. I am grateful to the many businesses
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and other organisations and individuals who contributed through formal or informal consultation. I pay particular tribute to my predecessor, my right hon. Friend the Member for Cardiff, South and Penarth (Alun Michael), for all his efforts, which I am picking up quickly in bringing this major piece of legislation to this stage in its consideration.

I mention also the extensive scrutiny that the Bill has received in another place. Unlike Opposition Members, I acknowledge Members on both sides of the House of Lords who participated in consideration of this measure in that place. As for Government peers, Lord Sainsbury of Turville did an excellent job, supported by Lord Goldsmith and Lord MacKenzie of Luton. Conservative Members failed to mention the contribution of Labour peers, but I acknowledge the contributions of Lord Hodgson of Astley Abbotts, Lord Freeman and Baroness Noakes, and for the Liberal Democrats, Lord Razzall and Lord Sharman. I think we all agree that there have been contributions that have improved the Bill.

In developing the Bill, we have followed a consistent set of principles. We want to ensure that the new law is as clear as possible, that it is as simple as possible, that it is modern and fit for today’s business purposes and that it does the maximum possible to get rid of any unnecessary burdens of regulation. I think that the Bill achieves those aims. The comments from stakeholders suggest that the Bill is already set out in ways that will make it much more simple for its users than previous legislation—particularly businesses—to understand the provisions that apply to them. I expect the measure to be further enhanced after we have had many hours of consideration in Committee of this very large Bill.

Some specific areas of the Bill have been raised during the debate. I shall go through as many of those as time allows. The principal area, on which most of the debate has concentrated, has been directors’ duties and clause 158, associated with clause 399. Those matters were raised by Opposition spokespersons and in an excellent exposé of the concept of enlightened shareholder value by my right hon. Friend the Member for Cardiff, South and Penarth. They were mentioned in a good contribution by my hon. Friend the Member for Islington, South and Finsbury (Emily Thornberry), who, together with my hon. Friends the Members for Gower (Mr. Caton) and for South Swindon (Anne Snelgrove) asked us to beef up the provisions. The issue was raised in an interesting way by Opposition Members, who appeared to disagree with one another.

The hon. Member for Grantham and Stamford (Mr. Davies) fundamentally disagreed with the hon. Member for Rutland and Melton (Mr. Duncan), who was not in his place to hear the contribution of his hon. Friend. The hon. Member for Grantham and Stamford wanted the certainty that his hon. Friend does not want. The hon. Member for Clwyd, West (Mr. Jones) disagreed with the right hon. Member for Suffolk, Coastal (Mr. Gummer), who thought that the approach was too timid. The hon. Member for Richmond Park (Susan Kramer) asked that we strengthen the business review.

Enlightened shareholder value is a radical aspect of the Bill. In the past, we always believed that community
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aspirations and business success were seen as competing objectives. At the heart of the Bill—it is what it is all about—is our belief that that is wrong. Business success in the interests of its members and community aspirations, whether they be aspirations for employees, suppliers, the community, the environment or sustainable development, are interlinked ambitions, not competing objectives. We want business to prosper, and business will do that best when it acts in an enlightened way, recognising the part that it plays in strengthening and sustaining our communities. That is why we have developed the proposed legislation, which is based on the concept of enlightened shareholder value.

Long-term prosperity for a business is about recognising the role that business plays at the centre of a community, rather than in conflict with community objectives. The legislation allows us to bring the behaviour of all businesses up to the best standard. Good businesses recognise the importance of good regulation and they want a clear, well-defined level playing field so that they are not at a commercial disadvantage if they do the right thing.

The hon. Member for Rutland and Melton discussed inflexibility and confusion. He has got it wrong: a clear set of directors’ duties is incorporated in clause 158, but we have also provided the necessary flexibility so that companies can respond to a fast-changing environment. The list is not exhaustive, and we do not pretend that it is. He said that he wished to add 165 criteria—I hope that that is right—to the list. The hon. Member for Huntingdon (Mr. Djanogly), on the other hand, was worried about our having any criteria, although he was happy to reinstate section 309 from the Companies Act 1985. Our discussion of clause 158 and associated clauses showed that Opposition spokesmen are reluctant to change as the Leader of the Opposition wishes. Anyone can talk the talk, as the Leader of the Opposition does, but government is about walking the walk. That is the toughest lesson that the Notting Hill set must learn if it is ever to consider a role in government.

Mr. Gummer: Does the right hon. Lady accept that a Government who ditched the OFR, who produced a Bill without the OFR, who make cheap remarks about the Opposition while failing to introduce a policy that they said was at the heart of their programme, cannot possibly pretend that they are on the side of the environment?

Margaret Hodge: I hope that the right hon. Gentleman whose party, as we have seen in tonight’s debate, voted against the OFR, will help us to consider the components of the business review so that we can meet the objectives of enhanced shareholder value.

Some people, including the right hon. Gentleman, believe that we should have adopted a more pluralist approach instead of one based on enlightened shareholder value. We all share the goals of marrying commercial prosperity with long-term sustainability. The real debate on the Bill concerns how we can best achieve those goals. The provisions on directors’ duties, together with the provisions on narrative reporting, will give a huge boost to our corporate social responsibility agenda. If we went further, we would damage our success in attracting companies to incorporate in
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Britain, along with the economic growth and jobs that that brings. In a global economic environment with global markets, companies can choose where they wish to incorporate their business, so company law must focus on its core purpose to create the right environment for business success.

Company directors require clarity about their duties. While we accept that long-term business success partly depends on employee interests, communities and the environment, we must accept, too, that company law is not the best vehicle to address wider social and environmental objectives. We can address those objectives, as some Government Members have said, through domestic legislation, health and safety measures and environmental protection, on which we have made progress. We can drive our agenda forward through the EU. Organisation for Economic Co-operation and Development guidelines for multinational companies, the extractive industry transparency initiative, which the Prime Minister launched in 2002, the partnerships that have developed on natural habitat loss, and the round table on sustainable palm oil are all examples of initiatives that ensure sustainable best practice in the global environment. Finally, we should remember that, as consumers, we all have power to change cultures. Laws are not always the best way for us to achieve cultural change.

My hon. Friend the Member for South Swindon asked whether we would strengthen our commitment to corporate social responsibility. Guidance will be developed on the quality and coverage of the business review and all UK companies will be accountable in that they will have to fulfil their duties under both clauses. They will therefore have to report clearly on how the action that they have taken impacts on issues such as the environment. If they fail to include that in their report, they will have to explain why.

Colin Challen (Morley and Rothwell) (Lab): If the round table on sustainable palm oil does not succeed in its objectives—I hope that it does—should they not be put on a statutory footing so that sanctions will be available to the Government to ensure that standards are maintained?

Margaret Hodge: I reiterate what I said a little earlier: I do not think that that is an issue for the Bill.

I shall deal quickly with other issues that were raised. The hon. Member for Eddisbury (Mr. O'Brien) made an impassioned defence of the role of the company secretary. I think that he recognises that we are not scrapping that role for small and medium-sized businesses. We are making it a voluntary facility, rather than an essential requirement. If he remembers that 96 per cent. of SMEs have five or fewer members of staff, I hope that he will accept that, in that context, this is a sensible deregulatory measure. The issues that he raises in relation to authorised signatories are valid, and I hope we can discuss them further in Committee.

Mr. Stephen O'Brien: When the right hon. Lady considers the matter again, I hope that she will not skate over it. If a company secretary is an optional appointment, there must be an empowerment of that role, which comes from statutory enshrinement, not by making it another job title.

Margaret Hodge: That is one of the aspects that we will consider when we examine the Bill clause by clause in Committee.


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I look forward to the participation of the hon. Member for Caernarfon (Hywel Williams) in Committee so that he may develop a better understanding of the provisions of the Bill with respect to the business review and other topics. The hon. Member for Grantham and Stamford raised the issue of derivative claims and the possibility that pressure groups will bring actions and open the floodgates to vexatious litigation. My right hon. Friend the Secretary of State dealt with that, and I shall add two comments. Even if the action is successful, the damages will be paid not to the individual, but to the company. The Bill also provides that the court may make any consequential order that it considers appropriate, so that pressure groups that make claims that are not intended to promote the success of the company, which is the core function, could find that they have to pay heavy costs.

We had an extensive discussion of animal rights, which I know is of particular concern to the hon. Member for Huntingdon. The measure is not a knee-jerk reaction to a particular instance. Perhaps he missed the Serious Organised Crime and Police Act 2005, which was entirely—

Mr. Djanogly: I served on the Committee that considered that Bill.

Margaret Hodge: If the hon. Gentleman served on the Committee, he did not understand the Bill. It would deal with the cases exemplified by the attempted harassment of GlaxoSmithKline shareholders. We believe that we have got the balance right.

The hon. Member for Kingston and Surbiton (Mr. Davey) suggested that there might be occasions where no names need to be revealed. There is a clause that enables companies to go to court and seek exemption from including the names of shareholders, but that is a matter that we can discuss further.

I want to deal briefly with consolidation, which was mentioned by several hon. Members. Clearly, we want to move forward in a consensual manner. We have said that we will not bring into the consolidation provisions anything that goes wider than companies, such as investigations, regulation of auditors, or self-contained provisions on community interest companies. We have also said that we will take power in relation to capital maintenance and charges. The purpose of the consolidation is simply to make the Bill, when enacted, more comprehensive—it is not in any way about substantive change. I understand that hon. Members will want to debate these issues, and we will consider further how we can ensure proper consideration.

The only other issue that I wanted to deal with was that of auditors’ offences, which was raised by the hon. Member for Putney (Justine Greening) from her own experience. She will accept that the introduction of the new offence is balanced with the introduction of new clauses that will limit liabilities for auditors. No doubt we will have an interesting discussion about recklessness and carelessness in Committee, but we believe that recklessness is a high hurdle that would have to be overcome were a prosecution to be successful.

This is a large Bill—

Mr. Duncan: The biggest ever.


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Margaret Hodge: Indeed. It is also an important Bill that comes to us after a long process of thought and reflection on how to achieve a modern framework for company law that is clear, accessible and flexible. It has benefited from the inclusive process, drawing on input from all stakeholders and interested parties. After tonight’s Second Reading, we will have ample opportunity in Committee to consider its clauses in detail.

The Bill has the broad objective of ensuring better regulation. That means appropriate regulation with a focus on the needs of small businesses as well as large quoted companies, appropriate deregulation with savings to businesses both large and small, the encouragement of a long-term investment culture, and stronger shareholder engagement and involvement where shareholders seek such engagement. All those objectives feature in the Bill, which we believe will strengthen and promote Britain’s position as the best country in which to establish and to run a business. For that reason, I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.


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