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For a sole trader, it is hardly likely to come to that. Many of those duties are already observed by good companies, but the argument about the level playing field is important because we must move forward.
Today, we have learned in a report that we must cut our emissions by 90 per cent. if we are to stop climate change and have a planet on which to live. We cannot do that as individuals, no matter how many low-voltage light-bulbs we use, and no matter whether we have windmills on our roofs. That will not bring about changes in emissions. Companies must be part of the process, and to ensure that that is the case, we must change the culture of companies. Neither clause 173 nor new clause 4 goes far enough, but they are a step in the right direction. I must tell the Minister that although the provisions do not go far enough, they are an improvement. They will make companies start to think about what they have to do. I prefer new clause 4 because it goes slightly further, but there is more to do, and companies should take that on board.
Margaret Hodge: This has been an extremely good debate. I thank Labour Members, especially my hon. Friends the Members for Bedford (Patrick Hall), for Portsmouth, North (Sarah McCarthy-Fry) and for Newcastle upon Tyne, Central (Jim Cousins), for their generous welcome of the provision, and I note their wish that it went a little further. I also appreciate the welcome that the hon. Member for Angus (Mr. Weir) gave the measures. It is a shame that I must once again draw the Houses attention to the fact that, although Opposition Members said that they wished to debate the issues in detail, for most of the debate the right hon. Member for Suffolk, Coastal (Mr. Gummer)I welcome his contributionhas been the only Opposition Member present in the Chamber. There have been more Members from the minority parties than from the Conservative party, even though it was Conservative Members who resisted the programme motion so vigorously.
Clause 173 heralds and articulates a radical, historic and vital cultural change in the way in which companies conduct their businessa change that the Government enthusiastically promote in the Bill. In the past, business success in the interests of shareholders has been thought to be in conflict with societys aspirations for people who work in the company or in supply chain companies, the long-term well-being of the community and the protection of the environment. The Government challenge that view. We think that the two purposes are complementary, not contradictory.
We believe that businesses perform better, and are more sustainable in the long term, when they have regard to a wider group of issues in pursuing success. That was the premise behind the contribution made by my hon. Friend the Member for Portsmouth, North. We are not alone in holding that view: a number of Members have said that the best British companies conduct their business responsibly because, having exercised reasonable care and skill, they judge in good faith that that is the best way to promote business success.
We are backing Britains businesses, which regard the Bill as the future. Good businesses understand the purpose of good lawand the Bill is good law. We are setting out in legislation a directors duty to her or his company. We are laying out the issues that we expect quoted companies to cover in their business review, and we are ensuring that quoted companies will be held to better account by their shareholdersparticularly indirect shareholders, such as those of us who have investments in pension funds or personal equity plans. We are making information more readily available, we are making it easier for indirect shareholders to exercise a vote, and we are ensuring that directors can be held to account for their actions. In doing all those things, we are setting in place a frameworknot rigid prescriptive actionthat will support companies and enable them to be both successful in business and responsible to their communities and work force. Our new framework is not burdensome, as Opposition Members have suggested, nor is it destructive. It will help to stimulate changes in market behaviour.
Clause 173 sets out the first part of the framework, codifying in law a directors duties to his or her company. That is simply a common-sense approach that reflects a modern view of the way in which businesses operate in the real world: they interact with customers and suppliers; they make sure that employees are motivated and properly rewarded; and they think about their impact on communities and the environment. They do so at least partly because it makes good business sense.
Directors duties evolve as times change and as societal norms are transformed. When I first became involved with concepts of corporate social responsibility some 25 years ago, our main concern was to encourage companies to employ people who suffered discrimination in the labour market on the grounds of their race, gender or sexuality. Today, it is customers who increasingly care about whether employees have been mistreated or whether the environment has been damaged. That is why the sale of Fairtrade and organic products has increased so sharply in recent years.
I entirely understand and appreciate that some Members want us to go further, but I encourage them to be patient. We have all seen corporate social responsibility develop and evolve over time. Many practices that are initially controversial quickly become common and then widespread. The relationship between business interests and the wider world is changing all the timeI believe for the better. The best way of achieving lasting cultural change is to go with the tide and the broad consensus of opinion.
New clause 4 would amend the subsection by inserting endeavour to in place of have regard to and, I am afraid, it would paint the list of factors in more pluralist colours. One of our key aims in the clause is to make the law clearer and more accessible. Directors must be clear about their objective, but the wording of the new clause would point directors towards two different goals. Directors are still required to promote the success of the company for the benefit of its members as a whole, but the new clause would require them to endeavour to promote the interests of the companys employees, too, and to minimise any adverse impact of the companys operations on the community and the environment.
The Government believe that our enlightened shareholder value approach will be mutually beneficial to business and society. We do not, however, claim that the interests of the company and of its employees will always be identical; regrettably, it will sometimes be necessary, for example, to lay off staff. The drafting of the clause must therefore clearly point directors towards their overarching objective. We have made it clear that clause 173 will make a difference, and a very important difference.
To help my hon. Friend the Member for Bedford (Patrick Hall) I must explain that the words have regard tomean think about; they are absolutely not about just ticking boxes. If thinking about leads to the conclusion, as we believe it will in many cases, that the proper course is to act positively to achieve the objectives in the clause, that will be what the directors duty is. In other words have regard to means give proper consideration to. I hope that comforts my hon. Friend.
Consideration of the factors will be an integral part of the duty to promote the success of the company for the benefit of its members as a whole. The clause makes it clear that a director is to have regard to the factors in fulfilling that duty. The decisions taken by a director and the weight given to the factors will continue to be a matter for his good faith judgment. I hope that, on that basis, my hon. Friend will agree to withdraw his new clause.
Many of the Oppositions amendments were discussed in Committee. In my view, I am afraid that they row back from the good progress that we have made in marrying success for enterprise and business with sustainability and social justice. A lot of people have said, Stop talking, start acting. The time has come for the Opposition to say whether they mean what they say and to show that in their votes. They do not dare, quite, to oppose us lock, stock and barrelwe will see what happens tonightbecause that would unmask their continuing true hostility to the socially and environmentally responsible agenda that we are laying out and that most people in Britain today want. But they are trying in their amendments, which were discussed in Committee, to weaken and neutralise the impact of our proposals on the way in which businesses conduct their activities. I would have greater respect for the Opposition if they were honest about their principles. Do they want untrammelled, short-term, laissez-faire business behaviour that damages society or not? If not, they should vote with us.
I know that hon. Members wish to talk about other issues tonight, so I will not deal with all the Opposition amendments in detail. Those hon. Members who are interested in the amendments can look at the record of our Committee proceedings, because most of the issues were dealt with then. I will just say that I do not believe from tonights debate that Opposition Front Benchers believe in enlightened shareholder value, whereas we do. Everything that they have said continues to suggest that they see business prosperity, caring for the environment and looking after employees as pointing in different directions. We emphatically do not see it that way. Successful businesses do not see it that way. Successful businesses know that the world has changed and that they need to change with it. They know that
the world will change furtherand so will they. I hope that, on that basis, the House will agree that clause 173 as it stands is right and should be supported without any of the amendments that we have discussed this afternoon.
Patrick Hall: We have had an instructive debate on some important matters, and I am pleased that some finely balanced judgments have been placed on record. I listened carefully to the carefully chosen words of my right hon. Friend the Minister for Industry and the Regions. All that I want to see is that the secondary duties in clause 173 are taken seriously and cannot lightly be dismissed. I think that she has gone as far as she reasonably can today. Progress is being made, in my judgment, and I do not wish, by calling a vote on these matters now, to risk provoking the Conservatives in another place into reintroducing the damaging position that they took last May. Therefore, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
Mr. Djanogly: I beg to move amendment No. 389, in page 78, line 23, leave out subsection (3).
Mr. Deputy Speaker (Sir Michael Lord): With this it will be convenient to discuss the following amendments:
No. 390, in page 78, line 24, leave out from directors to end of line 25.
No. 391, line 26, leave out subsection (4).
No. 399, in page 79, line 36, clause 176, after must, insert take all reasonable steps to.
No. 400, line 37, leave out , or possibly may conflict,.
No. 401, line 38, at end insert
at the time when he seeks authorisation pursuant to subsection (5) below..
No. 402, in page 80, line 4, leave out paragraph (a) and insert
(a) if the director reasonably and in good faith believes the situation is not likely to give rise to a conflict of interest; or.
No. 403, line 14, at end insert
(5A) The authorisation may, in either case, be given by them (unconditionally, or subject to such conditions or limitations as they may specify), either in relation to a particular matter or generally, following receipt by them of a general notice in accordance with section 183..
No. 404, line 22, at end insert
(8) Where a conflict or potential conflict arises because of multiple directorships, the duty is not infringed if the director ensures there is no disadvantage to the interests of the company..
Mr. Djanogly:
Given the lack of time, due not least to the way in which today has been arranged, I will
simply say that we will seek to press amendment No. 402 to a Division and move directly to speak to it.
The amendment allows directors to exercise their subjective judgment about whether a situation is likely to give rise to a conflict. We should be showing UK company directors that we have faith in their judgmenta course that the Government do not seem keen to follow in this instance. The Government said in Committee that the amendment watered down the obligations on directors and endangered members, but it should be seen as a flexible, forward-looking approach that benefits companies.
David Howarth: Does the hon. Gentleman accept that one of the advantages of amendment No. 402, and one of the reasons why I support it, is that it reintroduces into the law the concept of good faith and honesty, which is surprisingly missing from the Governments present draft?
Mr. Djanogly: The hon. Gentleman makes an important point, which I accept. The Law Society, among others, has pointed out that there is a significant difference between the common-law rule on conflicts of interest and the wording of the clause. Notably, the common- law rule maintains a negative position, whereas the clause imposes a positive duty. While the Government deny that that is so, it seems to be a widely held belief among stakeholders. The fact that the clause now gives rise to a positive duty is a key concern that many stakeholders have raised. The fear is that that positive duty might impact on a directors ability to assume multiple directorships, which are a feature of the UK company system and provide a number of benefits to companies of all sizes.
We believe that it will be more difficult for directors to hold multiple directorships, which could affect the pool of non-executive directors. That is of particular concern to the private equity and venture capital industries.
The Solicitor-General (Mr. Mike O'Brien): The amendment does deal with directors conflicts of interest. Our aim is that directors should seek to avoid conflicts of interest, which do arise and need to be dealt with in a reasonable and balanced way. If they arise, the interests of the company must come first. The current law is strict. We want to put in place a statutory structure that enables the interests of the company to be closely balanced with those of the director so that people may have, in particular circumstances, multiple directorships. But it has to be clear that the interests of the various companies of which they are directors are taken into account.
Through the amendmentsparticularly amendment No. 402the Conservatives are starting to water down the balanced safeguards that we have provided for shareholders.
David Howarth: Will the Solicitor-General give way?
The Solicitor-General: I regret that I cannot give way because of the time. I apologise.
We have provided for shareholders and companies to be able to look after their interests. If directors have created a conflictin some cases they will not be aware that the conflict is about to arise, but in the case of multiple directorships it is possible that they will be awarethey must resolve that conflict and the companys interests must come first. It is important that, in order to give greater protection and to safeguard the interests of shareholders, investors and the companies themselves, we do not give discretion to directors to the extent that the Conservatives propose. We have to constrain it; we have to ensure a balance. We believe that we have got that balance right; we believe that we should stick to it.
David Howarth: The point that I wanted to make was that amendment No. 402 tightens the law by adding the requirement of honesty. That is what is missing from the present draft. However, if the Conservatives were to press their amendment on multiple directorships, I would vote with the Government and oppose it.
It being Seven oclock, Mr. Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that hour, pursuant to Order [this day].
Amendment proposed: No. 402, in page 80, line 4, leave out paragraph (a) and insert
(a) if the director reasonably and in good faith believes the situation is not likely to give rise to a conflict of interest; or. [Mr. Djanogly.]
Question put, That the amendment be made:
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