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Lord Freeman: My Lords, we have had a frank debate. There is no meeting of minds. The Attorney-General has not addressed the key criterion on which we should judge both our amendment and the government amendment. Which amendment will hinder or help economic growth and the creation of jobs? The answer is clear: the preservation of the status quo. There is no intention to resile in terms of protection of employees—that was a total misrepresentation. We should now test the mood of the House.

6.45 pm

On Question, Whether the said amendment (No. 78) shall be agreed to?

Their Lordships divided: Contents, 104; Not-Contents, 156.


Division No. 2


CONTENTS

Anelay of St Johns, B.
Arran, E.
Attlee, E.
Blackwell, L.
Blaker, L.
Bowness, L.
Bridgeman, V.
Brittan of Spennithorne, L.
Brooke of Sutton Mandeville, L.
Byford, B.
Caithness, E.
Carnegy of Lour, B.
Chadlington, L.
Cope of Berkeley, L. [Teller]
Courtown, E.
Craigavon, V.
Crathorne, L.
Crickhowell, L.
De Mauley, L.
Dean of Harptree, L.
Denham, L.
Dixon-Smith, L.
Dundee, E.
Eccles, V.
Eccles of Moulton, B.
Eden of Winton, L.
Elles, B.
Elliott of Morpeth, L.
Elton, L.
Erroll, E.
Fookes, B.
Forsyth of Drumlean, L.
Fowler, L.
Freeman, L.
Gardner of Parkes, B.
Geddes, L.
Glenarthur, L.
Glentoran, L.
Goschen, V.
Greenway, L.
Griffiths of Fforestfach, L.
Hamilton of Epsom, L.
Hanham, B.
Hanningfield, L.
Hayhoe, L.
Henley, L.
Hodgson of Astley Abbotts, L.
Hogg, B.
Hooper, B.
Howe, E.
Howe of Aberavon, L.
Hunt of Wirral, L.
Inglewood, L.
Jenkin of Roding, L.
Kalms, L.
Kimball, L.
King of Bridgwater, L.
Kirkham, L.
Knight of Collingtree, B.
Liverpool, E.
Luke, L.
Lyell, L.
McAlpine of West Green, L.
McColl of Dulwich, L.
MacGregor of Pulham Market, L.
MacLaurin of Knebworth, L.
Marlesford, L.
Mawhinney, L.
Miller of Hendon, B.
Montgomery of Alamein, V.
Montrose, D.
Morris of Bolton, B.
Murphy, B.
Murton of Lindisfarne, L.
Naseby, L.
Noakes, B.
Norton of Louth, L.
Onslow, E.
Oppenheim-Barnes, B.
Parkinson, L.
Patten, L.
Peel, E.
Rawlings, B.
Reay, L.
Roberts of Conwy, L.
Saatchi, L.
St John of Fawsley, L.
Seccombe, B. [Teller]
Selsdon, L.
Sharples, B.
Shaw of Northstead, L.
Skelmersdale, L.
Stewartby, L.
Taylor of Warwick, L.
Tenby, V.
Thatcher, B.
Tugendhat, L.
Ullswater, V.
Waddington, L.
Wade of Chorlton, L.
Wakeham, L.
Wilcox, B.
Windlesham, L.
Wolfson, L.

NOT-CONTENTS

Acton, L.
Adams of Craigielea, B.
Addington, L.
Ahmed, L.
Alli, L.
Amos, B. [Lord President.]
Anderson of Swansea, L.
Archer of Sandwell, L.
Ashdown of Norton-sub-Hamdon, L.
Barker, B.
Bassam of Brighton, L.
Berkeley, L.
Bilston, L.
Bledisloe, V.
Blood, B.
Bonham-Carter of Yarnbury, B.
Borrie, L.
Brooke of Alverthorpe, L.
Brookeborough, V.
Burlison, L.
Campbell-Savours, L.
Carlile of Berriew, L.
Carter, L.
Clark of Windermere, L.
Clarke of Hampstead, L.
Clinton-Davis, L.
Corbett of Castle Vale, L.
Craig of Radley, L.
Crawley, B.
Davidson of Glen Clova, L.
Davies of Oldham, L. [Teller]
Dean of Thornton-le-Fylde, B.
Desai, L.
Dixon, L.
Donoughue, L.
Drayson, L.
Dubs, L.
Dykes, L.
Elder, L.
Evans of Parkside, L.
Evans of Temple Guiting, L.
Falkland, V.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Finlay of Llandaff, B.
Foster of Bishop Auckland, L.
Fyfe of Fairfield, L.
Gale, B.
Garden, L.
Gavron, L.
Gibson of Market Rasen, B.
Golding, B.
Goldsmith, L.
Goodhart, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Grantchester, L.
Grocott, L. [Teller]
Harris of Haringey, L.
Harris of Richmond, B.
Hart of Chilton, L.
Haskel, L.
Haworth, L.
Hayman, B.
Henig, B.
Hilton of Eggardon, B.
Hogg of Cumbernauld, L.
Hollis of Heigham, B.
Howarth of Newport, L.
Howells of St. Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Jay of Paddington, B.
Jones, L.
Judd, L.
Kennedy of The Shaws, B.
Kilclooney, L.
King of West Bromwich, L.
Kirkhill, L.
Kirkwood of Kirkhope, L.
Layard, L.
Lea of Crondall, L.
Leitch, L.
Levy, L.
Lewis of Newnham, L.
Linklater of Butterstone, B.
Lipsey, L.
Lockwood, B.
Lofthouse of Pontefract, L.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
McKenzie of Luton, L.
Mackie of Benshie, L.
Maclennan of Rogart, L.
McNally, L.
Maddock, B.
Maginnis of Drumglass, L.
Mar, C.
Masham of Ilton, B.
Massey of Darwen, B.
Maxton, L.
Mitchell, L.
Moonie, L.
Morris of Yardley, B.
Northover, B.
O'Neill of Bengarve, B.
O'Neill of Clackmannan, L.
Palmer, L.
Patel of Blackburn, L.
Pitkeathley, B.
Randall of St. Budeaux, L.
Razzall, L.
Rea, L.
Rendell of Babergh, B.
Roberts of Llandudno, L.
Rogan, L.
Roper, L.
Rosser, L.
Rowlands, L.
Royall of Blaisdon, B.
Russell-Johnston, L.
Sainsbury of Turville, L.
Sandwich, E.
Sawyer, L.
Scott of Needham Market, B.
Sewel, L.
Sharman, L.
Shutt of Greetland, L.
Simon, V.
Slim, V.
Smith of Clifton, L.
Smith of Leigh, L.
Soley, L.
Steel of Aikwood, L.
Stoddart of Swindon, L.
Taylor of Blackburn, L.
Taylor of Bolton, B.
Thomas of Walliswood, B.
Thornton, B.
Tomlinson, L.
Tordoff, L.
Truscott, L.
Tunnicliffe, L.
Turnberg, L.
Turner of Camden, B.
Wallace of Saltaire, L.
Walpole, L.
Warner, L.
Warwick of Undercliffe, B.
Whitaker, B.
Whitty, L.
Williamson of Horton, L.
Woolmer of Leeds, L.
Young of Norwood Green, L.


Resolved in the negative, and amendment disagreed to accordingly.


 
9 May 2006 : Column 845
 
6.57 pm

Lord Goldsmith moved Amendment No. 79:


(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
(2) Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes."

The noble and learned Lord said: My Lords, I hope that the House will agree that, given the substantial and, as the noble Lord, Lord Freeman, said, frank but full debate we have just had on shareholder value, it may be sufficient if I simply explain the purposes behind the amendment, while being ready to answer any questions, of course.

We believe that enlightened shareholder value is the right approach, but we have listened carefully to the concerns expressed. Some were misunderstandings, but some had to be dealt with by amendment, which is why we have tabled these amendments. We would make three changes. First, we propose to bring together subsections (1) and (3) of Clause 156 in the hope of addressing misunderstandings that have arisen from their separation. We did not intend them to be two distinct duties, so by bringing them together, we hope that our intention will be made clearer in that, while a director must have regard to the various factors, that is subordinate to the overriding duty to act in the way the director,

In the light of further discussions with business and other stakeholders, we retabled the original amendment to delete the second "must" in the amended Clause 156(1), as it was suggested that using "must" twice might imply a separate duty. We do not think that the deletion of that word affects the
 
9 May 2006 : Column 846
 
obligation to have regard to the factors, but it makes it clearer that Clause 156(1) is a single proposition, so we are content to make the change.

Secondly, we believe that it is better to delete the phrase,

which gave rise to uncertainty from almost all sides. The words were intended to operate as a limit on what was required of directors, but also to indicate that directors were required to do more than pay lip-service to the factors. On reflection, we think that the degree of uncertainty to which the words give rise is unhelpful. We want the director to give such consideration to the factors identified as is necessary for the decision that he has to take, and no more than that. We do not intend a director to be required to do more than good faith and the duty of skill and care would require, nor do we want it to be possible for a director acting in good faith to be held liable for a process failure where it could not have affected the outcome. In the light of concerns about the effect of the words,

we thought it best to delete them.

The third point is that we have included the words "amongst other matters". We want it to be clear that the list of factors is not exhaustive. I suggested in Grand Committee that it could not possibly be exhaustive. I said, for example, that there was no specific reference to the duty to have regard to the profitability that the transaction would bring, but we believe that that is implicit. Nor does the list as it stands include the short-term implications, but it is better to make what is implicit explicit by inserting the words "amongst other matters" to make that clear. We do not think that that detracts from the obligation to have regard to those other factors.

We have genuinely striven to meet concerns. The other concerns, as I have already indicated, and as the noble Lord, Lord MacGregor, noted, relate to the concept of derivative actions, but we will come on to that later. I beg to move.

7 pm


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