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Company Law Reform Bill [HL]

I speak to Amendment No. 160A and, if I may, I shall also speak to Amendments Nos. 162A, 162B, 162C, 163A and 165A. I realise that those amendments are not grouped with the one that I shall address first but they are all concerned with subsection (3). As the noble Lord, Lord Lea of Crondall, has already remarked, subsection (3) must be read as a whole and therefore my arguments concerning all these amendments will connect and overlap with one another. I listened with some trepidation to the noble and learned Lord the Attorney-General explain on an earlier amendment that the duties in Clause 156 have already been developed under common law rules and equitable principles. I hope that he was not saying that Clause 153(3) and (4) prevented the Grand Committee adding to or amending the duties in Clause 156(3) so as to conform with what I see as 21st century notions of what directors should be required to do. At one point he seemed to be saying that it was entirely the prerogative of the courts to develop any new duties that are imposed on directors. In that case, we would be wasting our time discussing any amendment to this clause. I was also feeling increasingly like someone who has stepped out of the Bateman cartoon of the ““Man Who”” questioned enlightened shareholder value. Having listened to the previous discussion, and especially after listening to the noble Lord, Lord Freeman, just now, I have to recognise that there is unanimity of approval for this principle on all sides. But I want to put an alternative point of view, which rests on the proposition that ESV fails to acknowledge the limitations of the voluntary approach to corporate responsibility. The amendments that I am addressing were tabled following discussions that we had with a consortium of NGOs under the umbrella of the Trade Justice Movement and the CORE Coalition, which between them represent more than 100 organisations and 9 million members. They believe that British business has a positive role to play in promoting best social and environmental practice in its overseas activities, and many of our leading companies agree with them. For example, Shell published a statement of its commitment to sustainable development in the document People, Planet and Profits as long ago as 1999. It engaged auditors to verify its adherence to a Statement of Business Principles, the distribution of its people survey to employees in 100 countries, and the development and distribution of its practical guide to human rights. Rio Tinto has published a social and environmental report on its activities since 2000 and has sought to engage with people in the countries in which it operates. BP has played a leading role in the Publish What You Pay initiative, under which the citizens of developing countries would know how much their governments were receiving in royalties and taxes and would be able to monitor their national accounts to ensure that the money was not being corruptly diverted, as it so often is. In John Elkington’s book, Cannibals with Forks, he argued that 21st century business should have a triple bottom line. Sustainable business could not aim exclusively at maximising short or even medium-term profits, but would have to set auditable social and environmental goals. Business also has a real and immediate interest in helping to prevent corruption and the abuses of human rights, which hold back economic advancement and create divisions in societies which are inimical to free markets. The Commission for Africa said hardly anything about the role of private investment in generating the huge amounts that are needed to solve Africa’s problems. That is because, over much of the continent, those other problems have not been satisfactorily addressed. Thus, the DRC, a country with enormous potential, has been exploited by companies that teamed up with corrupt and unscrupulous elements locally but has not yet been able to attract permanent investors who could help to provide the funds needed for their infrastructure, starting from zero in many parts of the country. The growing international awareness of corporate responsibility for wider social, environmental and human rights goals is reflected in the OECD guidelines for multinational enterprises, published as long ago as 1976. They set out a broad range of principles for companies to follow, and are backed up in each country by a mechanism known as the national contact point, whose task is to consider breaches of the guidelines. Here I declare an interest, having submitted the first complaint to our own national contact point, on 27 February 2002, about the conduct of Anglo-American plc in Zambia. It turned out not to be a satisfactory procedure, because the NCP was unconscionably slow to respond, and failed to make an initial assessment to decide whether the case was admissible, as the guidelines required. But the process has developed since those early days, and there is now an annual meeting of the NCPs, at which they discuss how to make the guidelines more effective. The last meeting was held in Paris on 14 June 2005, and was held in parallel with a ““corporate responsibility roundtable””. There is a useful summary of the discussions held there on the OECD website. That is the background to any discussion of how the directors of a 21st century company should promote its success. In Clause 156 there is already an obligation for them to have regard to,"““the impact of the company’s operations on the community and the environment””," but we suggest that it does not go nearly far enough. In subsection (1) the directors,"““must act . . . to promote the success of the company””," but subsection (3)(b) has only a ““have regard to”” requirement, so it is only secondary to the main objective. In many, if not most, cases, the success of the company is dependent on its ability to continue damaging the environment, and within a fairly distant time horizon, making large parts of the globe uninhabitable. The airlines, for example, are spewing enormous amounts of CO2 and low molecular weight hydrocarbons into the upper atmosphere, contributing to a rise in temperature which is likely to result in the melting of the polar icecaps and the raising of seal levels by 18 metres. How do British Airways, for instance, ““have regard to”” this undesirable side-effect of their normal business? The engine manufacturers may continue to develop engines with high bypass ratios and better propulsive efficiency, and turbine inlet temperatures may be increased by surface cooling and new alloys that retain their properties at higher temperatures, but these technological advances serve to reduce the unit cost of air travel—and thus, by expanding the market, paradoxically make things worse. Friends of the Earth says that, in the UK, passenger numbers are expected to grow from 200 million a year today to 500 million by 2030, with carbon emissions going up by 100 per cent in consequence. A more immediate example of a conflict between the success of the company and undesirable side effects arises from the treatment of workers and their communities supplying goods to British supermarkets. It is alleged that women workers on farms in South Africa supplying Tesco have been harmed by pesticide exposure, and are receiving poverty wages. Tesco has an active corporate social responsibility policy and is committed to the Fairtrade initiative. Tesco says that it stocks locally produced food wherever possible, and I hope that all supermarkets would aim at sourcing temperate zone perishables from UK or European suppliers rather than continuing to fly them half way across the world. But that leads me to the question of whether it is safe to rely on voluntary corporate social responsibility. We believe this is far too important and critical an area to be left to the widely varying attitudes of the boards of 61,000 multinationals, and that the legislation should require them to adopt minimum best practice, as suggested in these amendments. We are not saying that our amendments are necessarily the final answer, but if the principle was accepted that voluntary regulation was not the answer, we could collaborate with the NGOs and the Government in refining the package. We would invite the Minister to agree with the OECD that there are only a few cases where voluntary initiatives,"““have contributed to environmental improvements significantly different from what would have happened anyway””," and also with the World Bank, that voluntary standards,"““are no substitute for a benevolent, well-informed regulator””." With regard to the concern of the multinationals for the communities among which they operate, enlightened voluntary policies do sometimes achieve worthwhile goals, as with BHP Billiton’s black economic empowerment policy in southern Africa. But there is obviously a big difference between one company and another and, under this Bill, we have a single opportunity, which may not occur again for many years, to promote best practice. I believe that the UK, which already sets a good example to the rest of the world in corporate social responsibility, could do even better, and could act as a model which other states would follow. Chinese entrepreneurs, followed closely by Indians, will be expanding rapidly into the third world to obtain the resources they need for their own economic growth. This is therefore a crucial opportunity for us to help to shape world standards, by providing an example in this Bill.