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18 Oct 2006 : Column 890
1.15 pm

Justine Greening: Throughout the Bill, the Government have been clear about what the business review is intended to do, and it is to be a narrative for the members of the company. I am sure that the Minister will want to deal with whether the Bill should have a much wider application to any company that is operating within UK jurisdiction. We need to strike the right balance with this legislation. That has been difficult to achieve and later we will debate whether we have achieved it. That has obviously partly been because it fits so clearly into a broader and important debate on the environment, but also because company law is necessarily limited in the extent to which it can be used as a vehicle to address such concerns.

I fully recognise the concerns that the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) raised, but the question is what is the best way to address them. I agree with Lord Sainsbury and many others both from the Lords and in this place, including Ministers and Opposition Members, that company law is one way to pursue the need for companies to review more carefully the effect of their operations on the environment, but it is not the only route by which that can take place, so we need to be careful.

As the Minister said, company law is not the best vehicle for addressing wider social and environmental concerns. We can address those objectives, as some Government Members have said, through domestic legislation, health and safety measures and environmental protection, on which progress has been made.

Andrew George: I am following the logic of what the hon. Lady describes. Bearing it in mind that Conservatives appear to support the Government on this issue with not quite the same enthusiasm as they supported military action in Iraq, but just a little less than that, which aspects of the relationship between supermarkets and suppliers does she feel will be best served by elements within the Bill? Given that she wants to avoid unnecessary burdens on businesses, does she accept that one of the biggest burdens on the many suppliers in the supply chain, particularly to supermarkets, is their relationship with the supermarket, and that it is that burden that they need to have lifted and made more transparent?

Justine Greening: We will come to that, but I was not aware that this was a Bill solely structured to deal with supermarkets. We need a Bill that will work for the whole of our business environment, not just one sector in it. There is a wealth of difference between measuring directors’ effectiveness in performing their duties, which is what the narrative is there to do, and taking steps to change company culture.

Whether in the other place, in this Chamber, in Committee or even outside the House, the problem of where to strike the balance has been keenly debated. In fact, it has had eight years of debate, with much money being wasted by companies on the operating and financial review preparation, which was subsequently dumped by the Government. The Opposition believe that balance has been achieved, which is why we support the business review in the Bill.

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Lembit Öpik (Montgomeryshire) (LD): I must declare an interest, because I work with the Chartered Institute of Marketing. The Bill does not explicitly require the reports to cover the marketing performance of a company. The Chartered Institute of Marketing feels that that is an omission and that shareholders should have the right to know the strategic and tactical operations of the marketing conducted by companies.

Justine Greening: We are in danger of making the business review far too prescriptive, particularly given that we know that more environmental legislation is likely to be enacted. What is needed is a narrative that has a good enough framework for the outcomes that we want, which includes information for members on environmental issues and the impact on people, employees and communities. However, it should not be so prescriptive that it closes down the debate and potentially gives directors the chance not to disclose something, because it is not on the list that they have been given. I have no doubt that companies that care about corporate social responsibility reporting will want to give a full and useful report in the business narrative, which will allow members to see which companies take that responsibility seriously. We feel that the Government have got the balance right, which is why it is so perplexing that they seem unhappy with the business review.

I will discuss new clause 1 shortly, but first I shall touch on amendments Nos. 821 and 822. I was surprised when the Minister tabled those amendments at such a late stage, because on Second Reading she said:

Earlier this week, the Minister lost sight of that core purpose. Yesterday, the debate involved the point that directors have an overall duty to promote the success of their company. Do DTI Ministers not have the same duty to promote the success of British business? I am amazed that I am having to remind the Minister of the core purpose of her job.

When did the Minister decide to table amendments Nos. 821 and 822? They appeared after the main body of amendments was published, so they were presumably tabled this week, but when did she take the decision and why has she tabled them? I have no doubt that we will receive an explanation, but perhaps she will cover who or what changed her mind on the business review, which the Government have supported since they ditched the operating and financial review. The Government have had the whole summer since the Bill was in Committee, so why were the amendments tabled so late? Why could the amendments not have been tabled last week?

What steps did the Minister take to consult business on the impact of the amendments before taking her decision and was the advice from business given to
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Ministers? My understanding from the CBI is that the Minister conducted no consultation with business whatsoever. The CBI has said that the amendments will place an extra burden on businesses due to the costs of compliance and legal advice. The Institute of Directors has also expressed its concern about amendments Nos. 821 and 822, saying:

The Minister for Industry and the Regions (Margaret Hodge): I welcome the hon. Lady to her Front-Bench position and wish her well. The issues that she has raised are entirely procedural.

Justine Greening: Procedural?

Margaret Hodge: Yes, procedural. How I did it and when I did it are procedural issues, but I want to hear the hon. Lady’s comments on the substance of the amendments. Does she agree with the right hon. Member for Witney (Mr. Cameron) that she should stand up for not only the interests of business, but for the interests of Britain?

Justine Greening: I am interested to hear the Minister’s comments. I shall discuss the substance of the amendments, but the way in which the Government tabled them at such a late stage is disgraceful. It is not acceptable for her to say that I cannot question how the amendments were tabled. I am trying to stand up for the British economy and the jobs that depend on its success, and it worries me that a DTI Minister takes that matter so glibly.

Margaret Hodge: Is the hon. Lady seriously suggesting that the amendments, which were subject to wide consultation when we consulted on the business review, will damage British business and British jobs?

Justine Greening: It is not my suggestion, although I happen to agree with it; it is the right hon. Lady’s suggestion.

Margaret Hodge: The hon. Lady needs to substantiate that claim. I cannot understand how the amendments, which will give greater depth to the narrative reporting, will damage British business. Will she explain how they will damage British business?

Justine Greening: On Second Reading, the Minister said:

That is why I am asking whether the Government have assessed whether the amendments will damage British competitiveness.

The Solicitor-General (Mr. Mike O'Brien): How will the amendments damage competitiveness?

Justine Greening: I had hoped that Ministers would have addressed that question themselves before tabling amendments. If the Minister for Industry and the Regions has not consulted business, will she agree
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today to meet all the key stakeholders who will be affected by the amendments? [ Interruption. ] Ministers are still quizzical about how the amendments will affect British business, which is deeply concerning and justifies my raising the following issues.

Whether or not consultation was carried out, there has clearly been no assessment of the impact of the amendments on Britain’s economic competitiveness. How will the amendments affect our flagship companies? Will the Minister assess the number of jobs that she believes will be affected by companies not relocating here or by companies that are already here relocating elsewhere? On Second Reading, she said that to go further would cost jobs. Which is it?

Margaret Hodge: I am fascinated by the hon. Lady’s speech, although she has still not answered my question. However, I will answer her question—none.

Justine Greening: “None” was obviously a response to my question about the assessment of the impact of the amendments.

Margaret Hodge rose—

Justine Greening: The Minister will have the chance to respond later in the debate.

Margaret Hodge: On a point of order, Mr. Speaker. I will not interrupt the hon. Lady again unless she provokes me, but she was misrepresenting me. When I said, “none”, I meant, “no jobs.”

Mr. Speaker: That is a rebuttal for a later stage. Misrepresentation is a very strong term. The Minister could always say that the hon. Lady was mistaken, which is nicer.

1.30 pm

Justine Greening: It is obviously difficult being in this position, as I have asked lots of questions about the amendment and had only one answered. That is why I had to make my best guess at working out which one the word, “none”, related to.

Perhaps I may continue with my list of questions. What specific information does the Minister hope to elucidate from directors regarding corporate social responsibility that she did not believe would be disclosed in the business review as it stands? Whatever that information, how has she reached the conclusion that the value of that information outweighs the impact on our economy? The Minister seems to have made this decision with all too little understanding of its real costs and benefits. The best decisions are generally taken with facts and data, but this one was taken so late in the day that there cannot possibly have been a robust assessment of the reasonableness of the amendment or the impact of the decision on our economy and its businesses. If the Minister will not consult business about the impact of the amendment, I can assure her that we will. In betraying the sensible arguments made to support the business review made not only by herself previously but by Lord Sainsbury and by her boss, the Secretary of State, she has done British business, and all those who work for it, a true disservice.

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Let me turn to the detail of amendment No. 821, which is a blunt instrument that largely replicates part of new clause 1. It asks directors to provide in the business review

Most companies will believe that all aspects of their operations are essential; otherwise, they would not waste money and resources carrying them out. A whole host of arrangements could be deemed essential—from suppliers to utility, IT and telephony providers, from leasing arrangements for buildings to agreements with local authorities. Do the Government intend that the amendment be so widely couched? Presumably, it would even include financing from banks or arrangements with auditors or the Inland Revenue that are vital for the company’s operation. The term, “contractual arrangements”, requires clarification. It could even be considered to cover customers. For example, Homebase has its “Spend and Save” scheme, with 4 million cardholders collectively accounting for 40 per cent. of its sales. That arrangement is clearly essential to Homebase, so would it need to be disclosed in the business review? If so, I do not see how that would further the aim of the business review, which I understood was intended to put in place, for the first time, a robust corporate social responsibility framework.

Will the Minister provide some guidance on the type of information that the Government are trying to bring to the surface? Is it names and addresses? Is it length of contracts, assuming that it is the supplier relationship that the Government are driving at? What is intended to be disclosed by directors? How will members judge whether enough has been disclosed? If it is largely environmental information that is required by members so that they can assess whether the company in which they hold shares has behaved ethically, would not that be part of the existing “environmental matters” narrative?

Based on what was reported in the papers today and yesterday, it seems that the amendment is aimed at the supplier side of the business, but that is not how it is phrased. That is worrying for business, and for us. Surely important supplier relationships that had an effect on the company’s environmental impact, or an effect in relation to the local community, would be included in the “environmental matters” or “social and community issues” aspect of the report, so why introduce the amendment at this late stage? The business review as structured already provides a mechanism for catching such important aspects of business operations, but the Government, in tabling the amendment, are casting doubt on that. As a result, they are, at the very last moment, managing to snatch defeat from the jaws of victory.

The amendment will add costs to companies in terms of compliance and related legal advice and guidance. That is not my assessment, but that of the CBI.

David Howarth (Cambridge) (LD): Does the hon. Lady accept that new clause 2, which would restore the reporting standards part of the original operating and financial review, would answer all her questions?

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Justine Greening: We cannot support new clause 2, because it would relegate the business review to a tick-box exercise, with the unacceptably high risk that it would be of poor quality.

Worst of all, the amendment could put some companies at risk, because the information that they are required to disclose, while having no relevance whatsoever to corporate social responsibility reporting, may give out vital commercial information. I am surprised about that, given the example of Huntingdon Life Sciences. Companies working with or supplying that company, and its customers, have been targeted through no fault of their own having carried out perfectly legal operations. Other companies will be worried by the danger in which the amendment puts them. That potentially negative impact cannot be in the interests of the members of the company for whom the report is ultimately intended, nor in the interests of the company’s employees. Surely that is not what the Government intend. Leaving aside the atrocious way in which they have introduced the amendment, even worse is how it weakens the business review by detracting from its focus on corporate social responsibility and its main function as a report to the members of the company so that it becomes a much broader report for a much broader audience. Until now, the Minister had always said that that was a dangerous road to take.

Let me turn to the issues raised by the hon. Member for Hemsworth (Jon Trickett). I fully appreciate what hon. Members are trying to achieve in new clauses 1, 2 and 75, but I have some concerns. Widening the purpose of the business review to expand its remit so that it is not only for existing members but for potential investors and customers would weaken, not strengthen, it. The review is designed to be a core narrative on the company, which may include a warts and all assessment by directors in which they consider difficult challenges that lie ahead. Many companies are in industries which, by their nature, have a big impact on the environment—for example, aircraft operators. Surely the most valuable business review for members will be one in which directors can set out not only their successes but their failures and future challenges regarding corporate social responsibility. It is vital to cover aspects where things are not going well if we are to see an overall improvement in this field.

The danger of widening the business review’s purpose from being a narrative for members to one for potential investors and customers is that it will stop being a narrative and start to become a sales brochure in which, like it or not, positives will be accentuated and negatives may risk being downplayed. Directors may ultimately face a conflict of interest between producing the best business review for their members and the best business review for a broader audience. The review exists to enable members to hold directors to account. It is a powerful tool and we should not weaken it, which amendment No.821 and the new clause risk doing.

Jim Cousins: I remind the hon. Lady that every British company that is listed on the American stock exchanges must, according to American legal requirements, produce a 20F statement, in which it sets out all the legal, regulatory and statutory challenges that it faces. Would not it be reasonable for us to require that of British companies?

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