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Company Law Reform Bill [HL]

My Lords, first, I echo the remarks made by many noble Lords in acknowledging the impressive maiden speech of the noble Baroness, Lady Bottomley of Nettlestone, who is in her place. I have been acquainted with her in the Farnham area on the Surrey/Hampshire border for more than 20 years and I very much appreciated, for example, her support in the 1980s in my role as chairman of Farnham Roads Action regarding the construction of the A331 Blackwater Valley route. That was at the time that a certain Peter Bottomley was Minister for Roads. I think that I can now say that after 20 years. The road had huge benefits for Farnham and all the surrounding areas. I am sure that the noble Baroness will agree that the road has considerably enhanced the local environment. I was also interested to hear about the upbringing of the noble Baroness, Lady Tonge. She reflected certain prejudices along the lines that companies are not made in heaven. Having spent 35 years as a trade union official, I have similar feelings. But the question is where do we go from here? We have to balance a number of considerations. That is why I welcome the fact that directors are codified for the first time in the Bill. They have to act in the interests of shareholders, but pay regard to the longer term and the interests of employees, suppliers, consumers and the environment. I hope that my noble friend the Minister will not downplay the significance of that. I will return to that point at the end of my remarks. How does that codification square with the dictum that ““companies exist for their members””? We are all aware of the rules of the Stock Exchange, but, as has just been said, in the era of hedge funds, regarding so-called members of the company who can often be speculative owners, in and out in a few weeks, when their shark-like activity has from their point of view driven the share price first down and then up again, do these members have long-term interest in the company? Clearly not. We must get behind the rhetoric. The noble Lord, Lord Hodgson, in an interesting formulation said that people must feel involved in the companies that they invest in. Although he did not use this maxim, but what about, ““people must feel involved in the companies they work in””? At that level of philosophy, I am sure the noble Lord would agree that those phrases cannot be put in any order of merit. The formulation that people must feel involved in the companies that they invest in lacks the ring of credibility in the real world for two reasons. First, ownership—for example, through pension funds—is hardly likely to mean that one identifies particularly with the company; we do not know which companies we are investing in, do we? I shall refer to that again in relation to Clause 866, because I strongly support transparency of voting by institutional and other investors. Secondly, I must try to rephrase the noble Lord’s maxim, because it suggests that it is impossible within the philosophy of Anglo-Saxon company law to do anything about this. I notice that the noble Lord, Lord Haskel, believes that the codification of the duties of directors is meaningful. I hope that it is meaningful and I hope that the Minister will say that it is meaningful and that it means something substantive; I know that he will wish to respond to that. My noble friend Lord Wedderburn of Charlton referred to the CBI in the 1970s. I echo his comments in terms of the CBI’s evidence to the Bullock Committee, of which we were both members. He made an excellent point, which I wish to reiterate. The Bill is very similar to what the CBI said it wanted in 1975 in its evidence to that committee. I do not know what that proves, but it is an interesting reflection. Maybe it has taken the CBI over 30 years to catch up with that limited thought. I echo my noble friend’s point about the tendency of the system—I will not use the ““c”” word—to produce more inequality. There seems to be an income distribution that is out of control within remuneration committees. In those countries which have a two-tier board system, or at least the remuneration committees in the successful Scandinavian model, and those countries with a GDP per head that is higher than ours and which compete in the global market—have a different philosophy about executive remuneration that is not against the interests of successful companies. They really could be said to believe in the idea of one happy family. But the idea that we have one happy family in our income distribution takes the biscuit in lacking credibility. All levels of employees should be represented on remuneration committees. The noble Lord, Lord Hodgson, who is welcome to intervene if I am wrong, asked whether some of the philosophical questions in the Bill and the whole question of directors’ duties were a change of words or a change of policy. I am on the side of this being a change of policy, not just a change of words. If that dichotomy is to mean anything, we would not be making such a meal of a change in directors’ duties if it was words without policy. That cannot possibly be the case, but I am sure that the noble Baroness, Lady Noakes, will put her own gloss on that. It will be interesting to see which way she jumps. Is it a change of words or is it a change of policy? I look forward to hearing what is in her mind.