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Company Law Reform Bill [HL]

Before the noble Lord sits down, I should like to deal with two of the points he raised so that we are not at cross purposes by the time we reach Report. He was paraphrasing what I said as if I were suggesting that at any moment in time, it is for the majority of the shareholders to decide what success means. That is not what I said at all. I said that for a commercial company, success will normally mean long-term increase in value, but the company’s constitution and decisions made under it may also lay down the appropriate success model for the company. I also said that it is essentially for the members of a company to define the objectives they wish to achieve. The normal way for that to be done—the traditional way—is that the members do it at the time the company is established. In the old style, it would have been set down in the company’s memorandum. That is changing under the Bill but the principle does not change that those who establish the company will start off by setting out what they hope to achieve. For most people who invest in companies, there is never any doubt about it—money. That is what they want. They want a long-term increase in the company. It is not a snap poll to be taken at any point in time. Secondly, the question arises of how the director knows what will be of benefit to the members as a whole when there are—and there often will be—shareholders with different interests at any point in time. That is no different from the position in which the noble Lord, Lord Sharman, finds himself at the moment. In any company, some shareholders at a particular point in time would like to see some assets realised, some would like to go for a risky strategy and some would prefer a different strategy. It is for the directors to make their good faith judgment about what will be success for the benefit of members of the company as a whole. I emphasise the words ““good faith””, because they are important. Directors will use the company’s constitution, any relevant shareholder decisions and anything else that seems relevant to reach that objective. It is not simply a case of identifying what the majority want at a particular moment. I am not saying that there may not be cases where that is so, but I wanted to explain what I was saying in the hope that it may to some extent clarify the issue for when we return to it, if we do.