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Company Law Reform Bill [HL]

moved Amendment No. 160:"Page 69, leave out lines 13 and 14 and insert ““Factors to be taken into account, in good faith, in determining the success of the company for the purposes of subsections (1) and (2) include—””" The noble Lord said: In moving this amendment I shall also speak to Amendments Nos. 161 and 164. They are the most important amendments that we shall be addressing this afternoon as far as my noble friends and I are concerned. The degree of absolutism and certainty in the words ““must . . . have regard to”” has caused much consternation. For Amendments Nos. 160 and 164, I have relied on advice from the CBI, and for Amendment No. 161 I have taken advice from the Law Society. They and others have given this matter considerable thought. For my money, Amendment No. 161 will be one that we will need to return to on Report as a result of this debate, but I will seek further advice from colleagues on that point when we have listened to the debate this afternoon. There are two key reasons why we have problems with Clause 156(3). The first is confusion between the primary duties of directors long understood to act in the best interests ultimately of the shareholders which have originally been determined by the members and by well-established law. That is a primary duty. The directors are not there to profit for themselves or do anything but promote the interests of the shareholders. Adding these worthy additional requirements in this form is confusing. There is a better way to achieve the objective of pursuing enlightened shareholder value to which I will return in a moment. My second concern is the prospect of litigation. I am sure that my noble friend Lord Hodgson will return to this matter when we come to Chapter 11, which deals with derivative actions. It is an entirely legitimate fear that a single shareholder of a company with only one share, for example, could sue an individual director—typically the chief executive—in the name of the company for failing in the judgment of that particular shareholder to have acted reasonably in relation to the impact on the community and the environment. I am sure that the noble and learned Lord the Attorney-General will say that the courts will decide whether that is a reasonable case and if it is not it will be thrown out. However, these are additional hooks, means and mechanisms for those who disagree with the direction of a company to attack the board of directors. Therefore, his comments on Amendment No. 161, which I commend to the Minister perhaps because it goes to the pith and heart of the argument, would be helpful. The clause would be amended to state that in fulfilling the duty imposed by this section, the director,"““in so far as he believes, in good faith, that they are relevant to the matter under consideration””—" that is, the consideration of the board—"““and it is reasonably practicable for him to do so, the factors to which a director should have regard include””," some perfectly legitimate factors. Approaching the matter in that way would commend itself to the organisations that I cited at the outset of proceedings this afternoon as those who offered advice on the Bill, in particular Clause 156. There would be unanimity of support from those from whom I have taken counsel if an amendment along those lines found favour. It would not put the Minister in the position of being lobbied—and he will be lobbied hard not only in this House but in another place, where I know that there are strong pressures to strengthen Clause 156. Indeed, even some members of my own party have signed the Early Day Motion calling for a strengthening of Clause 156. I have no problems even with additions to this list of requirements, but I have a basic concern to which I think we will have to return unless a reasonable way forward is discovered between Committee and Report. If the language is couched in the terms ““must have regard to””, I think that we will be on a collision course, and I want to avoid that. I shall not go on in greater detail. I look forward to hearing others contribute to this debate and perhaps I may come back a little later in the proceedings with some further and better particulars. In the mean time, I beg to move.