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The Conservative Party is trying to bring itself up to date and get closer to non-governmental organisations in civil society and real people. It would be making a great mistake if it did not recognise the direction that many international companies—large and small—are taking towards ethical responsibility worldwide for their own economic as well as moral and public relations advantages. This amendment is only one detail in that process. Will the Minister confirm that there will be a full consultation on the reporting standards generally in two years’ time, as I think a Minister in another place has suggested, and that there will be a full review of those arrangements?

Baroness Cohen of Pimlico: My Lords, I need to make a declaration of interest before I offer my support to the government amendment. I am a director of the London Stock Exchange, which is a signatory to the letter sent to the Minister by the CBI, the QCA and the London Stock Exchange.

It is wrong to underestimate the anxiety that this clause causes among the business community. The purpose of this Companies Bill is, as has been stated many times, to give better information to shareholders and to increase, but not damage, the competitiveness of UK companies. Suddenly being asked to disclose all your suppliers is something that gives natural anxiety to quoted companies, particularly to smaller quoted companies which may well be dependent on only one or two suppliers. I speak as somebody with a long career as a director of the smaller quoted company. Nor, as the noble Lord, Lord Razzall, suggested, were we all on side and clearly enthusiastic about the OFR. Most smaller quoted companies were viewing it with real doubt and anxiety, and rather thankfully stopped having to think about it at the point it was suddenly withdrawn. Although I do not think it was withdrawn through any lobbying of ours, we had merely been anxious as opposed to lobbying.

However, having got over our shock at the requirement, I think that we can all accept Amendment No. 245 and can pull ourselves together to provide suitable disclosures about our suppliers. In this context, I welcome the assurance given by the Minister in his opening speech that the new clause was intended to require the disclosure of information at a high level. It was not intended to require companies to produce long lists of the names of their suppliers, but to illustrate the principal risks and uncertainties facing the company. We can indeed be asked to do that and should be, provided we are not risking our suppliers or our businesses by disclosing more than is commercially sensible. But it is entirely right to disclose the principal risks which the company faces and the loss of a small number of suppliers may well be one of the commercial risks which we face.

Against that background, I am able to support the amendment. However, I think that those who advocate the interests of the NGOs forget that small

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companies also have difficulties and interests that must be taken into account.

Lord Judd: My Lords, I have spent most of my professional life dealing with the front-line issues of the Third World and deprived parts of the global community, and it is good to see the Government, having listened to argument, move in response to it. The Government often get criticised for not listening to informed argument. On this occasion they have. I agree, I must say, with the Liberal Democrat Benches that it would have been good to see them move further, but they have moved positively and they should be commended for that.

I make just one observation. This is not just about social responsibility in the way in which we normally think about it. Having been involved in the front line with social issues in the Third World, I know that that has a great deal to do with world security. The amount of animosity and alienation that derives from irresponsible business behaviour should not be underestimated. It can have a very detrimental effect on global security and play into the hands of extremists. On those grounds, as well, what the Government have been able to do needs to be strongly supported. In the spirit of goodwill and support which the Government are enjoying from so many people, I urge my noble friend seriously to consider the Liberal amendment which, it seems to me, puts a bit more beef into the methodology that will be available to fulfil the purpose.

3 pm

Lord Young of Norwood Green: My Lords, I support the government amendments and oppose Amendment No. 245C. I must declare an interest. I am the vice-chair of the Ethical Trading Initiative, but today I am speaking in a personal capacity. I welcome the government amendments as an acknowledgement that there are issues of labour standards, environmental, social and human rights that impact down company supply chains. I listened with interest to those who have expressed concern about that. In their annual reports, most companies declare themselves committed to corporate social responsibility. I welcome that. Of course, they should be judged by the level of commitment that they apply in practice. It is interesting that some companies declare quite a surprising amount of detail about their supply chain. Somehow they manage to survive the competitive risk.

It is a well known fact that in the global environment in which companies operate today, many of them share the same suppliers. They may not publicly admit that, but they do. I commend those who have said that what the Government are doing is a worthwhile but modest step in the right direction. I do not share the foreboding of Cassandra, alias the noble Lord, Lord Patten, on the terrible effects that the provision may have. It is important to note that this is a modest amendment. All it does is require 1,300 quoted companies to do what responsible companies were doing in the 1990s. According to the Minister's statement on Report, it will remain the directors’ judgment what is relevant in the supply

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chain for them to report on and will not require companies to list their suppliers.

Some NGOs were calling for the Government to go a lot further. Like many others, I do not see anything wrong with that. I am struggling to get my head round a scenario where the Institute of Directors and the CBI are not being effective in their lobbying. Some of my trade union colleagues would say that they are far too effective. I leave the House to judge where the balance of evidence lies on that front. I cannot believe that they do not have the ear of the Government.

NGOs were calling for the Government to go a lot further in strengthening the rules in the Bill on companies’ social and environmental impact, including stronger reporting requirements—several noble Lords, including the right reverend Prelate, referred to that—and a positive duty on directors to minimise negative impacts. Personally, I do not see a problem with allowing directors to withhold information that might present individuals with a risk to their privacy, safety or security from threats by animal rights or other extremist organisations. That is not a theoretical threat or risk; we know that it exists and I welcome the Government for acknowledging that.

However, I would welcome clarification about the circumstances where directors could legitimately withhold information about suppliers and examples of where that would be seriously prejudicial to a person or contrary to the public interest. I would welcome the Minister expanding on that. He gave some clarification, but it is important that that does not become a get-out clause. In particular, I am concerned that the amendment will be open to abuse by directors who want to withhold information about supply issues that should be in the public domain, as other noble Lords have said. I should like reassurance from the Government that the drafting of the provision does not leave it open to abuse in that way.

Also, I believe that the amendment could be improved by introducing a “comply or explain” principle, as under the combined code on corporate governance: that is, requiring directors to make a statement in their business review indicating that information about suppliers has been withheld under that provision.

I oppose the amendment tabled by the noble Baroness, Lady Noakes. Despite her assurances, I believe that it would seriously weaken the government amendments. With those caveats, I welcome what the Government have done.

Lord Joffe: My Lords, I must apologise for not having been in the House when the debate began. I was so busy struggling with the Bill and its surrounding papers that I lost track of the time. Because of that, I will not speak at such length as I originally planned. I speak in support of Amendments Nos. 245A, B and D and welcome the Government’s introduction of the amendment.

The amendments must be read in the context of Clause 158, which deals with the duty to promote the

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success of the company. I underline Clause 158(1) (c), which states that one factor is the need to foster the company's business relationships with customers, suppliers and others and, perhaps even more important, Clause 158(1)(e), where it is the duty of the directors to consider the desirability of the company maintaining a reputation for high standards of business and conduct.

In the context of those requirements on directors, it is clear that the amendments partially give effect to those paragraphs. I have some difficulty understanding the opposition to the government amendment. What is proposed is very modest indeed. I do not understand what the big business lobby is afraid of. Are their supply problems so bad that the company's directors do not want even their own shareholders to find out about them? If so, surely it is only right and proper to ensure that there is sufficient transparency for investors, who demand improvements from the companies in which they are members.

It is well known that fine intentions are not sufficient. For that reason, it is important to pay careful attention and to support Amendment No. 245D, which ensures that the requirements of the Bill will have a much better chance of being implemented if companies are audited.

As I said, these are extremely modest steps forward and I support the government amendments.

Baroness Noakes: My Lords, this has been a very interesting debate and I thank all noble Lords who have spoken. In view of the time and the large number—

Lord Sainsbury of Turville: My Lords, I believe that I have the right of reply at this point to both the noble Baroness's amendment and that of the noble Lord, Lord Razzall.

In reply to those two amendments, I say to the noble Baroness, Lady Noakes, that one person’s unseemly haste is another person’s foot-dragging correction of an error. When we responded to the many queries from business, we were constantly told that this was a good thing. We were never told that this was unseemly haste. It is in keeping with what we have done in this Bill constantly to listen to what people are saying and to respond. The noble Baroness has similar concerns to us about the practicality of this but, if the amendment were accepted, companies would be excused from disclosing any information that the directors viewed as seriously prejudicial to the interests of the company, to the reporting company, or to the other company or person, or contrary to the public interest. This is going far too far towards giving companies a let-out from reporting information that would otherwise be required. It says in effect that any bad news should not have to be reported. That is not an accounting principle that I understand. Some bad news will be prejudicial to the reporting company, and it should be. That is not the problem with which we are trying to deal; we are trying to deal with extremist groups who want to use relationships between companies as a way of

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attacking them. The amendment would be a Trojan horse, which is why we oppose it.

Our Amendment No. 245B is not a Trojan horse. It is clear what it is; it is about prejudice to the other company, and there is a public interest test which it is perfectly reasonable and practical to have. It is not unusual for directors to have to waive public interest. The only alternative would be some authority having to do that, which is not a route we want to go down.

As I explained earlier, we are conscious that information could be damaging to a reporting company if it was known that it was in a relationship with a company engaged in animal testing. In very many cases, that will not need to be disclosed as it will not be essential to the reporting company’s business, but if it were, the prejudice would be not only to the reporting company but to the company itself because it would lose the business if the reporting company had to withdraw. Alternatively, the threat might be that the other company would be boycotted if it continued a relationship. Again, that would prejudice the other company. In effect, it would force the other company to choose between the reporting company and its other companies.

For those reasons, we cannot agree to the noble Baroness’s amendment. If Conservative noble Lords think that it is right to oppose this rather modest clause—it is modest because we must be realistic—they should not start making speeches either about corporate responsibility or a duty to shareholders, because this is a very clear example of a proposal that is in the interests of shareholders as well as sensible corporate responsibility.

I am grateful to the noble Lord, Lord Razzall, for tabling his amendment. As I mentioned in my opening speech, several interest groups have lobbied throughout the course of the Bill for a strengthening of the various provisions relating to the business review. One theme has been standards with statutory backing. It has been very clear—this was emphasised again in the meetings which the Minister and I had earlier this week with representatives of the CBI and others—that business groups do not want statutory standards. We agreed that they would not necessarily be helpful to what we are trying to achieve. We want to encourage directors to think about the issues on which they are reporting; we do not want to encourage a box-ticking culture. We think that Clause 399 provides a framework for reporting with sufficient flexibility to enable the directors to determine what information it is necessary to include. This will vary from company to company, depending on their size, the complexity of the businesses and their particular circumstances. A requirement that any part of the business review must comply with statutory standards would take away the directors’ judgment about what information it is relevant to include. Companies would have to follow a statutory standard when reporting key relationships.

As we made clear, the Accounting Standards Board has said that it will update its existing reporting statement to cover the business review. This will provide helpful guidance to companies on the business review as a whole and will be useful to

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investors. The ASB’s existing reporting statement covers the reporting of key relationships, and I am sure that it will continue to do so. It is also for a company’s shareholders to hold the directors to account. If the shareholders want the review to be produced in accordance with particular guidance or standards, it is for them to challenge the directors.

3.15 pm

I should say to those who have rather emphasised the modest quality of our proposal that we want something that is realistic to which directors can be held. We do not want something that simply sounds nice but is totally impractical. People should focus on the fact that many large businesses today will have 2,000 or 3,000 suppliers spread across the globe. The idea that it is sensible or practical to ask those companies to give definitive answers on all the social aspects of those suppliers’ businesses is simply unrealistic. We can demand it, but no one should think that it is sensible and realistic and will further the cause of social responsibility.

I ask the noble Baroness and the noble Lord not to press their amendments. Both of them come from different angles and neither is helpful to Amendment No. 245, which we have proposed, or to Amendment No. 245B, which makes a sensible amendment to Amendment No. 245 to deal with extremist groups.

Baroness Noakes: My Lords, I apologise to the Minister for seeking to deny him a response to the debate. That was not my intent: as I am sure he will be aware, we are as keen to get to the end of our consideration of Commons amendments as he is.

I think I was saying that I was not going to take too much of the time of the House to respond to individual points made in the debate, but I want to make our position clear. We are not against socially responsible disclosures, and I would not want anyone to seek to paint my amendment in that way. I do not believe that the Government’s amendments will require very much disclosure on the part of the companies from whom most of the NGOs want disclosure. That is a consequence of the Government’s wording. I do believe, however, as I tried to set out, that harm may well be done to smaller quoted companies by having to disclose matters that might involve either violent protesters or commercial harm. That was the basis on which I judged it right to table an amendment to narrow those disclosures for those smaller companies that could be seriously affected by this.

The Financial Reporting Review Panel is there to police any disclosures. Although people talk about a Trojan horse approach and companies trying to evade proper disclosure, arrangements are already in place to ensure that it takes place. There is also a power to amend the disclosure requirements should it become necessary later. We do not think that our amendments are unreasonable. Although they offer important protection to a relatively small number of companies, they are ones that deserve protection.

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3.19 pm

On Question, Whether Amendment No. 245C, as an amendment to Amendment No. 245B, shall be agreed to?

Their Lordships divided: Contents, 76; Not-Contents, 137.

Division No. 1


Anelay of St Johns, B.
Ashcroft, L.
Blaker, L.
Bridgeman, V.
Brougham and Vaux, L.
Byford, B.
Campbell of Alloway, L.
Colwyn, L.
Cope of Berkeley, L. [Teller]
Craigavon, V.
Crathorne, L.
De Mauley, L.
Dean of Harptree, L.
Dixon-Smith, L.
Eccles, V.
Eden of Winton, L.
Elliott of Morpeth, L.
Elton, L.
Erroll, E.
Feldman, L.
Ferrers, E.
Fookes, B.
Geddes, L.
Glenarthur, L.
Glentoran, L.
Goodlad, L.
Hamilton of Epsom, L.
Hayhoe, L.
Hodgson of Astley Abbotts, L.
Howard of Rising, L.
Howe, E.
Howe of Aberavon, L.
Hunt of Wirral, L.
Kingsland, L.
Kirkham, L.
Lang of Monkton, L.
Liverpool, E.
Lucas, L.
Luke, L.
McColl of Dulwich, L.
MacGregor of Pulham Market, L.
Mackay of Clashfern, L.
Masham of Ilton, B.
Mawhinney, L.
Mayhew of Twysden, L.
Miller of Hendon, B.
Monson, L.
Montrose, D.
Moore of Lower Marsh, L.
Morris of Bolton, B.
Murton of Lindisfarne, L.
Naseby, L.
Noakes, B.
Northbrook, L.
Norton of Louth, L.
O'Cathain, B.
Oppenheim-Barnes, B.
Patten, L.
Plummer of St. Marylebone, L.
Rawlings, B.
Reay, L.
Rogan, L.
Seccombe, B. [Teller]
Selsdon, L.
Shaw of Northstead, L.
Shephard of Northwold, B.
Skelmersdale, L.
Soulsby of Swaffham Prior, L.
Strathclyde, L.
Taylor of Holbeach, L.
Thatcher, B.
Trimble, L.
Trumpington, B.
Ullswater, V.
Verma, B.
Wakeham, L.


Acton, L.
Adams of Craigielea, B.
Adonis, L.
Ahmed, L.
Amos, B. [Lord President.]
Ampthill, L.
Anderson of Swansea, L.
Andrews, B.
Ashton of Upholland, B.
Bassam of Brighton, L.
Bhattacharyya, L.
Bilston, L.
Boyd of Duncansby, L.
Bradley, L.
Bradshaw, L.
Bragg, L.
Bridges, L.
Brooke of Alverthorpe, L.
Brookman, L.
Chorley, L.
Christopher, L.
Clark of Windermere, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Cohen of Pimlico, B.
Corbett of Castle Vale, L.
Crawley, B.
Cunningham of Felling, L.
Darcy de Knayth, B.
Davies of Oldham, L.
Desai, L.
Dholakia, L.
Donoughue, L.
Drayson, L.
D'Souza, B.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Evans of Watford, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Finlay of Llandaff, B.
Ford, B.

2 Nov 2006 : Column 472

Foster of Bishop Auckland, L.
Foulkes of Cumnock, L.
Gale, B.
Gibson of Market Rasen, B.
Goldsmith, L.
Gordon of Strathblane, L.
Goudie, B.
Gould of Brookwood, L.
Grabiner, L.
Graham of Edmonton, L.
Greengross, B.
Grocott, L. [Teller]
Hannay of Chiswick, L.
Harries of Pentregarth, L.
Harris of Haringey, L.
Harrison, L.
Hart of Chilton, L.
Haskel, L.
Haworth, L.
Henig, B.
Hollis of Heigham, B.
Howarth of Breckland, B.
Howarth of Newport, L.
Howe of Idlicote, B.
Howells of St. Davids, B.
Howie of Troon, L.
Hughes of Woodside, L.
Hunt of Chesterton, L.
Hunt of Kings Heath, L.
Joffe, L.
Jones of Whitchurch, B.
Judd, L.
King of West Bromwich, L.
Lea of Crondall, L.
McDonagh, B.
McIntosh of Haringey, L.
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Maginnis of Drumglass, L.
Marsh, L.
Massey of Darwen, B.
Maxton, L.
Mitchell, L.
Morgan of Drefelin, B.
Morris of Aberavon, L.
Morris of Yardley, B.
Northover, B.
Pendry, L.
Pitkeathley, B.
Plant of Highfield, L.
Prosser, B.
Puttnam, L.
Quin, B.
Rea, L.
Rendell of Babergh, B.
Richard, L.
Roberts of Llandudno, L.
Rooker, L.
Royall of Blaisdon, B. [Teller]
Russell-Johnston, L.
Sainsbury of Turville, L.
St. John of Bletso, L.
Sandwich, E.
Sawyer, L.
Scotland of Asthal, B.
Slim, V.
Smith of Finsbury, L.
Soley, L.
Stone of Blackheath, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Bolton, B.
Thornton, B.
Truscott, L.
Tunnicliffe, L.
Turner of Camden, B.
Uddin, B.
Warner, L.
Watson of Invergowrie, L.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Wilkins, B.
Williams of Crosby, B.
Williams of Elvel, L.
Williamson of Horton, L.
Wilson of Tillyorn, L.
Winchester, Bp.
Woolmer of Leeds, L.
Young of Norwood Green, L.
Young of Old Scone, B.

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