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Company Law Reform Bill [HL]

I indicated at an earlier stage that in this approach to shareholder value the dichotomy between enhanced shareholder value and pluralism was likely to rear its head, and that is exactly what has happened in this debate. The noble Lord, Lord Freeman, supported by the noble Lords, Lord Sharman, Lord MacGregor and, I think, Lord Wade, is concerned about spelling out the enhanced element of shareholder value for fear of litigation. I shall come back to that point. On the other hand, in a speech I very much respect—as I do his views—the noble Lord, Lord Avebury, supported by my noble friend Lady Thornton, put the other point of view. In essence, the Government are really between those two places. We believe that we have it right in saying that it is necessary to have regard to these aspects and I now want to spell out in a little more detail what that means. I turn, first, to the concern about litigation. I was asked to explain why we do not think that this measure will lead to increased litigation. I repeat my earlier point—which has to be underlined—that the only people who can sue the directors are those who can sue for breach of the duties to the company. In the ordinary case, that means the company itself. Of course it is right that there are certain exceptional cases where a shareholder can do that—it is what is called a derivative action—but we do not believe that any change will take place as a result of Part 11, to which we shall come later, which will increase the prospects of individual shareholders bringing what will still be a claim for the company. I repeat: it will not be their individual claim; it will be a claim for the company. It has been suggested that it will be open to people who have a particular social point of view simply to buy a single share in a number of companies so that they can start actions against those companies. I do not believe that that will happen, although we will come to Part 11 and the derivative action and examine it in more detail. However, that is the first reason. We must keep very firm hold of the fact that it is the company’s claim and not an individual shareholder’s claim that some duty is owed to him. Secondly, we take the view that many of the duties are now set out more clearly in the Bill—we want them to be set out more clearly—are duties that company directors have had to obey, and yet there has not been the plethora of litigation in relation to those that the current fears suggest might occur. I gave the specific example of the need to have regard to the interests of employees in certain circumstances which has not given rise to a plethora of litigation. I respect the concern but we do not believe that these changes will have that effect. As I said, we must keep hold of the very important question of who will claim. Before turning to the amendment in the name of the noble Lord, Lord Avebury, I move on to the other issues raised by the amendments. First, Amendment No. 160 would do two or three things. It would make it clear—this may be its principal purpose—that factors which the directors could take into account were not limited to those in Clause 156(3). That is already obvious. For example, Clause 156(3) suggests that they must have regard to the likely consequences of any decision in the long term, but no one is suggesting for a moment that they are not allowed to have regard to the consequences in the short term. It would be an excellent long-term decision if only you could pay for it, but if you try to pay for it today you may go completely bust. Obviously there are many things to which it is perfectly proper for directors to have regard and Clause 156(3) does not in any sense constrain the directors from having regard to those considerations. They will have their overriding obligation under Clause 156(1)—or, where it applies, Clause 156(2)—to look to what will, in their judgment, promote the success of the company either for the benefit of the members as a whole or for the objects for which the company has been established in the case of a company under Clause 156(2). But, as the clause stands, they are not in any sense precluded from having regard to other matters. For example, absolutely nothing here would preclude them in any way from having regard to the very proper interests of pensioners, to which the noble Lord, Lord MacGregor, in my view, rightly referred. So, in so far as the amendment intends by the use of the word ““include”” to indicate that other factors can be taken into account, it is not necessary. Secondly, Amendment No. 160 appears to drop the qualifying clause,"““so far as reasonably practicable””." That may not be the position that the noble Lord, Lord Freeman, wants, but that is for him to consider when he comes to—