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Lord Skelmersdale: My Lords, I am again most grateful to the Minister. I am the first to agree that consultation is necessary when an employer proposes a change to a pension scheme. Such changes, as the Minister has said, may involve a move from a defined benefits scheme to a money purchase scheme. I note that full consultation is to be phased in, so that, in the first instance, a requirement to consult applies only to firms employing more than 150 staff from April this year. From April 2007 it will be firms with 100 to 150 staff; and from April 2008, it will be firms with 50 or more—unless, as the Minister said in his introduction, they are exempted. That rather confused me. Just who may be exempted, and why?
It is good employer practice to consult, and I recognise the list of consultees that the Minister gave us. My problem, however, is that the employer may choose from recognised trade union representatives, elected or appointed information and consultation representatives, those under any pre-existing consultation arrangements or representatives of the pension scheme—I stress "or". Why is the department allowing employers to "perm" one from five, to use a football pools analogy? Pension scheme representatives should always be consulted, and at least one other—either trade union, or elected or appointed information and consultation representatives.
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I shall change track slightly. Consultations are all very well, but they must be real—by which I mean that the employer must be prepared to change his mind, either in general or particular, otherwise there is no point in consultation at all. I note that these regulations attempt to make these consultations real, and the Minister has explained how this is to be done. Being of a suspicious nature, however, I had asked him how this is to be policed. Are there to be arrangements for an appeal to the Pensions Regulator if the consultees feel that they have been ignored, or what?
The original information and consultation of employees regulations—the so-called ICE regulations—were an important step forward in employer/employee relations. They established the right of employees to be consulted on an ongoing basis about matters which affect them. It seems obvious that changes to pension schemes would indeed affect employees, and would therefore be covered by the ICE regulations. It would be regulation gone mad, however, if employers had to consult about listed pension scheme changes under both that and the first of these two sets of regulations.
Today's second lot of regulations requires that as long as the employer tells his employees' representatives under which regulations he is consulting them, he has to do so under only one regulation. That is common sense, and I am delighted to see the Information and Consultation of Employees (Amendment) Regulations 2006. I am even more delighted to see that the Government have taken note of their consultation, and that that consultation, at least, was real.
Lord Oakeshott of Seagrove Bay: My Lords, I congratulate the noble Lord, Lord Skelmersdale, on his diligence in inquiring into this. He has left no stone unturned, and I therefore do not intend to try to turn any. I look forward to the Minister's reply with interest.
Lord Evans of Temple Guiting: My Lords, I am grateful to both noble Lords for their contribution. Our congratulations to the noble Lord, Lord Skelmersdale, on spotting the slight difference between these two sets of regulations. An example would have been that, as he said, from April 2008, under these regulations an employer with exactly 50 employees would not have to consult on pension changes, whereas under the Information and Consultation of Employees Regulations 2004, an employer with 50 would. The difference is one employee.
We accept that this is a very unsatisfactory situation, and will take action to remedy it at the earliest opportunity. It is our intention to make the necessary amendment in time for it to come into force at the same time as these regulations.
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The noble Lord, Lord Skelmersdale, asked about the reason for exempting small employers. As I explained, the exemption for small employers will be phased in over the next two years so that, from April 2008, only employers with fewer than 50 employees will be exempt from the requirement to consult about pension changes. This is consistent with the wider consultation arrangements under the Information and Consultation of Employees Regulations. We would encourage all employers, irrespective of size, to consult their employees as a matter of good practice, but it would not be proportionate to impose an additional burden on small businesses.
The noble Lord also suggested that an employer should consult the pension representative and at least one other set of representatives. Our intention is to promote meaningful consultation in ways best suited to individual companies. We do not wish to disturb existing consultation arrangements that are working, nor do we want to prescribe a one-size-fits-all approach.
The regulations provide that the employer who is required to consult must make arrangements to ensure that, as far as is reasonably practicable, he consults all the affected members of the pension scheme. The employer may choose from the consultation arrangements that he has already agreed with his employees or elected pension representatives in deciding how he achieves this. Provided that the employer makes arrangements to consult all the affected members or their representatives, we believe this to be sufficient. Requiring employers to consult pension representatives and other representatives could be cumbersome and inefficient, as well as placing an additional, unnecessary burden on employers.
The noble Lord asked me to explain the arrangements for policing these regulations. The Pensions Regulator will oversee compliance with the regulations. If the consultation requirement is breached, affected employees may complain to the regulator, who will consider action against the employer which could ultimately lead to a financial penalty.
I am sure that all noble Lords will join me in supporting the aims of the regulations on consultation by employers. They will provide information and an opportunity for discussion to affected members of an employer's pension scheme when a significant change is proposed. It is important that individuals are fully aware of the implications of changes to their pensions so they can adjust their savings and retirement plans accordingly.
These two sets of regulations will allow the consultation by employers and the information and consultation of employees provisions to operate as intended.
On Question, Motion agreed to.
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Information and Consultation of Employees (Amendment) Regulations 2006
Lord Evans of Temple Guiting : My Lords, I beg to move the Motion standing in my name on the Order Paper.
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Moved, That the draft regulations laid before the House on 12 January be approved [15th Report from the Joint Committee].—(Lord Evans of Temple Guiting.)
On Question, Motion agreed to.
House adjourned at twenty-one minutes before seven o'clock.
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Thursday, 9 February 2006.
Grand Committee
The Committee met at two of the clock.
[The Deputy Chairman of Committees (LORD BROUGHAM AND VAUX) in the Chair.]
Company Law Reform Bill
Clause 159 [Duty to avoid conflicts of interest]:
Lord Wedderburn of Charlton moved Amendment No. 173A:
The noble Lord said: In moving Amendment 173A, I wish to prove how far Clause 159 follows the reasoning of the Company Law Review. This is one of the clauses that, far from making fiduciary duties more onerous—as many speakers seemed to assume in Monday's Committee, which I was unhappily unable to attend—in fact makes them less severe.
There is no clearer case of conflict of interest than a director appropriating contractual or other business opportunities that are directed to his company, and no more obvious principle than that the possibility of such conflict cannot be allowed in a fiduciary. Traditionally, the way to cure that breach of duty and absolve any secret profit has always been to have it ratified by the company in a resolution of the members—the shareholders. But the limits of shareholder ratification have been a cause of some concern in the case law as it stands. Most decisions and commentary have for decades drawn a distinction between cases of mere secret profit from such exploitation, for which the directors are personally liable to account, and misappropriation of the company's property, which is more akin to a breach of trust.
I shall read the conclusion, arrived at after a long review of the case law, to be found in Gower's Principles of Modern Company Law—the book I cited when I previously spoke in Committee—which states that,
that is, of course, by the shareholders—
"whether arising out of lack of bona fides, improper purposes, conflict of interest or negligence, provided that"—
"no dishonesty or expropriation of corporate property is involved in the transactions which are approved".
The first point to notice about Clause 159 is that it allows for exploitation by a director and subsequent—according to requirements—approval of that, whether the opportunity is corporate property or not, and whether or not the company could take advantage of it, which it expressly states. This to some extent is rather uncharted territory. When Clause 159 adopts
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this model on public companies, it speaks throughout of "the matter"—authorisation in a public company where the constitution has, under subsection (5)(b),
"provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution".
But the provision in the constitution will speak in more general terms about the "matter", permitting directors to take advantage of profit in certain situations generally described. But when—as the clause goes on—the "matter" is put to the board, that will surely be a specific transaction or opportunity.
The safeguard described by the Company Law Review was that,
The matter being proposed should obviously, in that formula, be clear and specific in its terms. That is the intention of the amendment. The CLR steering group ultimately recommended that the law should be changed in this respect and that directors not interested in the transaction should be empowered to authorise what would otherwise be a breach of duty. It is surely clear that that authorisation must be specific to the proposal; it would be a safeguard, as the final report of the CLR steering group spoke of it. It said:
"The possibility of collusion would point to preserving the requirement for such cases to be authorised by the members".
Traditional approval by members, which was its first choice, would be, it concluded after some pressure and argument from the consultees, "onerous" and inconsistent with the power of the board to make "business assessments", and it might "stifle entrepreneurial activity". Therefore, the power to absolve should, in the new law, be in the hands of directors independent of the transaction—in a public company where the constitution permits it and in a private company where the constitution does not specifically invalidate it. The group said:
"The mechanism for such authorisations should be specific approval by an independent board and . . . in the case of a public company approval should only be permitted if explicitly provided for in the constitution. This is a new proposal, though it follows logically from the development of policy in the light of consultees' views".
It offered a new balance between encouraging efficient business opportunity and,
As my noble and learned friend the Attorney-General put it, this,
He was referring to changes to the law on the subject. What is more, although Clause 164 will preserve the ability of the company in general meeting to give authority, Clause 164(1) provides that, once the directors have used their new power to approve the matter, shareholders normally lose any right, if they had it before, to have it dealt with by them. In my submission, it is therefore imperative that, in this new power for the directors, the specific matter should be set out, without ambiguity, for authorisation.
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There is, of course, the subsequent point that it is arguable that Clause 159(5)(a), which deals with private companies, should also include the word "specific", although the issue might not be so important in the case of private companies. However, the amendment does not seek perfection. It probes the Government's view on an important matter, where public companies with a dispersed shareholding release a director in a situation of conflict of interest in a new way under the new law. I beg to move.
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