---

Company Law Reform Bill [HL]

My Lords, I am pleased to follow the noble Lord, Lord Sharman, with whom I have had the pleasure of conducting a certain amount of business in the past. I am also glad that the noble Lord, Lord Higgins, is here because some 22 years ago we crossed swords in the nicest possible way over the Companies Bill of the then Labour government. I am glad to say that there is not much fundamental difference between us on that score. As my noble friend the Minister has said, the Bill is incredibly long. I support what it contains, for the most part. Of course, unlike some of its predecessors, it is highly intelligible. It modernises company law and, like many others, I think that what has been achieved today is much overdue. I am sure that, for these good reasons, it will play a major role in attracting companies to this country. The Minister and all those responsible for advising him are to be congratulated on what has been accomplished, but it is a pity that company law is still to be found in so many different pieces of legislation. I am not entirely persuaded by my noble friend that there is not a case for consolidation. I think there is and the Committee will certainly wish to consider that point. After all, this Bill consolidates certain provisions already. It is not beyond the wit of man—and it would be welcomed by many practitioners—that we should seek some further consolidation in the nearer future than is envisaged. So, I await a single company law Bill. Although I generally support the aims of this Bill, almost inevitably I have some criticisms because it is so long. The Company Law Review carried out a fundamental review of company law in 1998. It concluded that companies should owe a primary duty to shareholders. But, assuredly—as the review recommended—in relation to that, companies must have regard to the interests of employees, to the communities in which the company operates, to the environment and to the company’s stakeholders. In other words, it is necessary to strike a balance between varying interests, which. I am not entirely sure that this Bill accomplishes. Personally, I would have preferred an extension of a director’s legal duties to employees and, indeed, to other stakeholders. Despite the reservations which I have articulated, the approach of this Bill is to be preferred to the present position. In parenthesis, do the Government propose another more basic review of company law? If so, do they have any intention of changing the way in which the boardroom goes about examining those matters which come before it Reference has been made to Part 10, Chapter 2, of the Bill. In my view, it would be desirable to detail the duties of directors in a more comprehensive way. Is that not the most appropriate way in which to ensure that directors behave in a way that is wholly consistent with the requirements that are imposed upon them? At the very least, if the Government refuse to go down that path, should there not be a non-statutory guide to directors’ duties as has been suggested by the Law Society? I am somewhat puzzled about the phrase that directors must act,"““so far as reasonably practicable””," in carrying out their legal duties, in so far as employees and shareholders are concerned, as set out in Clause 156(3)(a) to (f). How will that work in practice? Does it mean that the views of employees and other stakeholders must be taken into account as a question of law? What in other words does it mean? Why are the Government repealing the legal need for quoted companies to produce an Operating and Financial Review—referred to as OFR? Will not that require some legislative amendments to the Bill, or require them to undertake another enactment? The Minister must surely know that many noble Lords who are likely to participate in this debate, and the TUC, are deeply concerned that the business review is not nearly as potent as the OFR in giving shareholders and stakeholders the insight needed to ensure that the company’s operations will truly be in the interests of the company and the nation. Why are medium-sized companies exempt from the strict requirements that are imposed on larger companies with regard to non-financial information? Why should not all companies include non-financial information in their business review? Why should not relevant information on social and community issues be included in the business review, as required at present in the OFR? Under Part 31 of the Bill, the Government propose that after consultation a company law reform order may prescribe changes in company law. Will my noble friend outline more specifically than he has done the machinery as to how company law reform is to be undertaken? How can we be satisfied that public consultation and parliamentary observations will have been taken properly into account? Of course, there does need to be a fast-track procedure in this behalf but, equally, we must be satisfied that the caveats that I have mentioned are observed. In this connection, how do the Government intend to deal with the criticisms that have been launched on this procedure by the Delegated Powers and Regulatory Reform Committee? There is a real dilemma here. I prefer the way the Government have gone about this, but I think it is incumbent upon my noble friend to deal with that particular criticism. Finally, I will deal with political donations and expenditure, in Part 14 of the Bill. In general, I support these provisions, but I am concerned about the exact meaning of what is prescribed. The Law Society has iterated its anxieties in this connection. In particular, would the following represent political donations: corporate entertainment sponsored by companies offered to members of political parties; or politicians being paid for speaking at seminars and conferences? Although I am critical of certain aspects of the Bill, it is certainly a great improvement on what we have seen in the past. Despite my criticisms, the Government deserve our support.