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“but to stand up to big business when it’s in the interest of Britain and the world.”
There was an understanding that a form of regulation for misbehaving companies was needed, and I began to think that the Conservative party might become part of a progressive consensus on corporate regulation. I was thus disappointed to read several of the speeches made, and amendments tabled, by Conservative Members.
The right hon. Member for Witney said in a speech on 9 May:
“I’ve never believed that we can leave everything to market forces”.
He was quoted in The Sunday Times on 7 May 2005 as saying that the regulation of companies
“clearly has an important role in ensuring competition and setting minimum acceptable standards”.
It was therefore assumed that the Conservatives would join in a consensus on light-touch regulation of business. That is precisely the type of regulatory framework that the Bill—the largest ever to have come before the House—would incorporate into law.
At the centre of the Bill is the concept of enlightened shareholder value. Again, I should have thought that there would be a consensus across the House that if the aim is to ensure that the corporate sector operates in a socially responsible fashion, enlightened shareholder value could be at the core of any legislative framework that we introduce. I should have thought that it would be apparent to everyone that if shareholders are to have the capacity to act in an enlightened way, information, particularly information on the way in which the company is being managed by its directors, is key. That brings us to the heart of the provisions: the business review.
The Bill as a whole is intellectually coherent. It proposes the concept of enlightened shareholder value, and an instrument—the business review—that will enable shareholders to act in ways that secure the best interests of the company, applying a definition that goes beyond narrow financial considerations, and encompasses the environment, both social and ecological, in which the company operates. I would argue that the business review is the core of the Bill’s intellectual underpinning. The Bill is a good measure, containing much that is to be welcomed. However, it seems to me—this is why I proposed new clause 1—that some of the detailed provisions on the business review could be extended. I note that the Government have been persuaded to table an amendment to new clause 1, to which I shall refer shortly.
The business review requirement might be extended in relation to those categories of company that will be required to produce a review. There must always be boundaries around any legislation, and it is for the House to define where those boundaries fall. The Bill therefore states which classes of company should produce business reviews. The Government have drawn the boundary around larger companies—by definition, those that are listed on the stock exchange. That will cover about 1,300 companies, which are among the largest in the UK. It is welcome that the Government have done that, but there are 4 million companies in the UK, and many are larger and have a greater impact on life in the UK and in the rest of the world than the companies that fall within that category.
In new clause 1, I propose a modest—I might even say timid—extension to the category of companies that will be required to produce a business review.
Jim Cousins (Newcastle upon Tyne, Central) (Lab):
In the course of his compelling speech, my hon. Friend has mentioned Tesco, which is a quoted company and would therefore be covered by the business review
requirement, as would Sainsbury. Asda, however, as a subsidiary of Wal-Mart, is not quoted on the stock exchange and is not covered by that requirement. New clause 1 is an attempt to correct that.
Jon Trickett: My hon. Friend is right. Asda is part of the Wal-Mart group, which, it is alleged, employs teams based at its headquarters in the United States to break trade unions. Such activities cannot be justified. We have seen little of that in the United Kingdom, but it is part of Wal-Mart’s corporate strategy. Even more worrying is the allegation that the Wal-Mart group of companies receives supplies from thousands of factories in the People’s Republic of China that pay workers 13 cents an hour, when the minimum wage in China is 31 cents an hour. It is probable that many of those commodities are entering the United Kingdom via Asda. It has been put to me that, as part of an American corporation, Asda cannot be covered by the legislation, but I have checked and found that Asda’s corporate headquarters remain registered in the United Kingdom. I suggest to the Minister that Asda may well be covered by UK legislation.
As my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins) has illustrated, many companies that have a huge impact on our social and ecological environment will be excluded from the Bill. This morning, I obtained a list of the top 10 private companies. John Lewis Partnership is owned by its employees. It is a model company that reports regularly on its social impact, but although it employs 63,000 people in the UK and has a turnover of £5 billion, the company will not be required to report under the Bill if new clause 1 is not added. If I was in charge of Tesco or another retailer and I was told that my company, because it is listed, will have to report, but my competitors—John Lewis Partnership or Asda—will not, because they are private companies or wholly owned subsidiaries, I would say that the playing field is not level.
No logical intellectual case can be made for excluding larger private companies or subsidiaries that are registered in the UK. Littlewoods, which has 29,000 employees, will be excluded, as will another private company, John Swire and Sons, which has 76,000 employees. The case for requiring those companies to produce a business review is overwhelming. I understand that the Government had to draw a boundary somewhere, but I believe that we could extend the requirement beyond the 1,300 listed companies. The new clause would do that.
In new clause 1, I suggest that medium-sized companies should also be included. Why should such companies be excluded? A medium-sized company is, by definition, quite a large operation: it may have a turnover of tens of millions of pounds and 250 or more employees. Such companies are significant players. I would like to hear the Minister’s explanation of why the boundary was drawn where it was. If the Government accept new clause 1, the number of companies covered by the requirement to produce business reviews will increase from 1,300 to 36,000. That is a modest extension, given the fact that there are 4 million companies in the UK.
The new clause would also correct some of the anomalies that will be thrown up by the Bill. We have discussed the retail sector and the anomaly that some retailers will
have to produce business reviews but other, perhaps larger, companies will not. It is anomalous that Virgin will not have to produce a business review. The company claims to be environmentally sound—that is what Richard Branson regularly tells us and it is part of the image that he projects for his company, and I have no reason to doubt it. However, Virgin will not have to produce a business review, whereas British Airways will. How can it be right to have such an uneven playing field for the two companies, simply because of the definition set out in the Bill? Another excluded group of companies consists of those listed on the alternative investment market. Many companies with an AIM listing have a significant impact on our society and on the environment. It cannot be right that companies listed on the London stock exchange will have to produce a business review, but those on AIM will not.
The second proposal in new clause 1 deals with supplier issues. There will probably be further debate about that, because the Minister has tabled her own amendment. I notice the expressions of what I regard as phoney outrage by the CBI in this morning’s newspapers. That is unfortunate because the proposal is modest. If a corporation is to produce a business review that comments on those aspects of its activities that have an impact on the rest of society and on the environment, to exclude the supply chain would vastly diminish the amount of reporting required of the company. We are strongly in favour of the supply chain being included.
1 pm
It is often said that some of the supermarkets operating in the UK, which are increasingly dominant on the high street and elsewhere, use methods that have an oppressive effect on the agricultural sector in the UK and beyond. It is regularly argued that workers are being brought in from eastern Europe to produce agricultural products—strawberries, potatoes and so on—under the most appalling conditions. They are employed not by Asda, Tesco or other supermarkets directly, but by suppliers. If the supply chain were brought within the remit of the Bill, it is arguable that horrific arrangements such as that of the cockle pickers and the gangmasters would be exposed at a much earlier stage, rather than in the tragic way in which that situation emerged. Supply issues are important, and it is good to see that the Government have reflected on the matter.
Andrew George (St. Ives) (LD): I strongly support any effort to ensure that supplier relationships are incorporated in the Bill. Can the hon. Gentleman expand on the challenges that that presents? Suppliers are complaining, anonymously of course, that there are overriders, lack of written contracts, many short-term changes and return of goods on rather questionable bases. Many of those suppliers fear the consequences of having such matters too publicly and transparently debated. Will the hon. Gentleman explain how suppliers would be protected by the measure?
Jon Trickett:
I thank the hon. Gentleman for raising that important point. The dominant market position that certain companies secure in their own sector could be used to the disadvantage of those further down the
supply chain, often smaller companies living hand to mouth. Anyone who, like me, seems unable to sleep the night through and listens to “Farming Today”, an excellent programme at 5.45 am on the BBC, will regularly hear farmers speaking anonymously. I never thought I would be an advocate for the farming community, but it is interesting to hear people further down the supply chain objecting to the techniques being used by the retail sector—by the large supermarkets—to drive down the conditions in which their suppliers are working.
We know that many companies are moving their production overseas. Several clothing factories have closed in my constituency. The company that owned the factory remains and continues to supply retailers, but the production has moved overseas, largely to take advantage of what the company would regard as favourable labour conditions overseas, which probably means poverty wages and extremely poor contractual standards in respect of employment law.
If we were to secure a more balanced relationship in the supply chain, with longer-term relationships and more balanced ones too, that would benefit not only the rest of society and the work force, but the larger companies, which would reveal the suppliers of materials to them. In the long term business should operate through secure relationships down the supply chain. That would obviously create a good business environment.
I said earlier that the cries of outrage in many of the newspapers this morning sounded somewhat phoney. I notice that the much lamented operating and financial review, which some months ago got lost somewhere along the line, included supply chain issues. Many companies that belong to the CBI and are part of the corporate world had already begun to include supply chain issues—stronger issues than my right hon. Friend the Minister is proposing. The CBI should not be expressing outrage at such a modest proposal. Many in the corporate sector had already adapted to it, and it would create more harmonious economic relationships down the supply chain.
There is a third issue in the new clause—materiality, which I shall try to explain. The business review requires directors to report to shareholders on matters that are directly material to the company’s narrow financial health. It is accepted that companies seek to maximise the return to their shareholders, and that that is how the system works. However, it is possible to take a slightly longer-term view than the return of profit in the here and now. A company’s actions in the medium to longer term could be damaging to the company itself.
An example is oil production in the Niger delta, which I mentioned a few moments ago. In the end, if the company continues to break Nigerian law, damage the local environment and exploit local people, it will not be in the company’s interests. Eventually, Nigeria will turn against the company. New clause 1 suggests a more relaxed version of materiality—what is material to the company’s operation—than the version in the Bill. It will be interesting to hear the Government’s arguments for suggesting such a narrow definition, rather than a slightly wider one.
I have tried to provide a philosophical explanation of the current position and the Bill, which I warmly welcome, and to suggest how, without changing the world fundamentally, the Government might move the business review forward. Shareholders are unable to judge what is in the interests of the company if the business review is not made available to them. I would argue for a wider definition of that group.
I began my comments by referring to the right hon. Member for Witney and quoting some of his comments, which I found amusing. I shall conclude with his remarks to The Sunday Times on 7 May. He said:
“I’m not prepared to turn a blind eye if the system sometimes leaves casualties in its wake.”
“Unless shortcomings are addressed, the entire system risks falling into disrepute.”
I rather think he is speaking about capitalism. It is not a word or a concept that we often use in this place. For the moment at least, we are not challenging the entire capitalist system.
Colin Burgon (Elmet) (Lab): Why not?
Jon Trickett: That is a debate for later—in the bar, probably.
I simply say that it is clear that if the corporate sector fails to move with the times, if private power insists on remaining secretive and lacking in transparency, when danger occurs, individual companies, and perhaps even the entire system, will fall into disrepute.
Justine Greening (Putney) (Con): It is a great pleasure to be at the Dispatch Box for the first time, although, I have to accept, after today, possibly the last. I am pleased to speak for the Opposition on this part of the Bill, although it is not exactly as I had expected. My understanding was that an Opposition spokesman generally moves amendments to improve and change Government Bills, whereas I have no amendments to move because we are happy with the business review as it appears in the Bill. Instead, it is the Government and their Back Benchers who are trying to change their legislation. The situation is perverse, but I have no doubt that we will soldier on and have an interesting debate. I should say, however, that the Government have been particularly late in tabling their amendments.
Adam Price (Carmarthen, East and Dinefwr) (PC): Is it not a sad indictment of the official Opposition that the real opposition does not come from the Conservative party?
Justine Greening: There was I thinking that we had seen the end of Punch and Judy politics for the sake of it. We are an Opposition that have for some time now said that, when we are happy with legislation, we will not oppose it just for the sake of it. We saw no reason to change that with the business review, because we support increasing and enhancing the corporate social responsibility framework in this country.
We are well aware that the business review started life as the operating and financial review many years ago. Eight years ago, children now in university were in
primary school when the operating and financial review was first developed and work on the Bill started, but we have finally reached the stage where we have a business review in the Bill, which Conservative Members support.
We recognise the importance of the role of businesses in creating jobs and prosperity, but we also recognise the broader impact of businesses not only on the environment but on the local and international communities in which they operate. There is no inherent contradiction between companies striving for long-term financial success and demonstrating strong corporate responsibility. In fact, the Minister herself correctly described those two issues as being interlinked and interwoven.
At the heart of any successful company is an in-depth understanding of what its customers want and value. Perhaps more than at any time in the past, customers place a value not just on what they are purchasing from companies, but on the way in which companies have carried out their business in order to provide those products or services. Companies can therefore be at the forefront of the push to tackle environmental and ethical issues. They do not have to be at the back of that argument.
The business review as set out in the Bill will be an important part of that developing corporate social responsibility agenda. As we approach the Queen’s Speech, which Conservative Members very much hope will contain a climate change Bill, it is possible to see the emergence of a real corporate social responsibility reporting framework in the UK. The business review could play a vital role in that, and we certainly hope that it does, but new business legislation often involves additional costs and burdens on those businesses that it affects.
The Opposition recognise the importance of establishing for the first time a formal narrative of a company’s development risks and uncertainties and the wider impact of its relationship with the environment, its employees and the community. However, those of us who have worked in business—I should declare that I am a chartered accountant—also know how careful Government need to be before adding any unnecessary burden on business. As the Minister said on Second Reading, we should ensure that the new law is as clear, simple and modern as possible, that it is fit for today’s business purposes, and that it does the maximum possible to get rid of any unnecessary burdens of regulation.
Jim Cousins: Much of what the hon. Lady says is welcome, but has she spotted that the business review that she supports would not cover, to take a significant climate change issue, Thames Water, a company in which her constituents will have a great interest?
Justine Greening: The business review clearly sets out the need for directors to have a narrative on social and community issues, and also environmental issues.
Mr. Jonathan Djanogly (Huntingdon) (Con): My hon. Friend makes an excellent point, but the point made by the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) was wrong. Thames Water and other companies may be foreign-owned, but they have nothing to do with the Bill. He has just demonstrated one of the weaknesses of using the Bill to advance corporate social responsibility.
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