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Company Law Reform Bill [HL]

moved Amendment No. 305A:"Page 178, line 20, leave out ““where appropriate,””" The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 305B, 307, 316ZB and 316ZC. I thank noble Lords, particularly my noble kinsman Lady Miller of Chilthorne Domer, for their support and I convey the apologies of the noble Lord, Lord Joffe, for not being able to be with us. These amendments deal with the contents of directors’ reports, and the second two deal with the auditor’s report on the directors’ report. I add my thanks to the Corporate Responsibility Coalition and the Trade Justice Movement for their help in framing the amendments. The reason for Amendment No. 305A is that the information required to be supplied under this section is already qualified by the use of the phrase, earlier in the clause:"““to the extent necessary for an understanding of the development, performance or position of the business of the company””." Where the information is necessary for this purpose, it would always be appropriate to include it, so my amendment questions whether ““where appropriate”” is superfluous, and whether it might even serve to weaken the requirement in practice. The rationale for the more substantial Amendment No. 305B lies in Recital 9 of the introduction to the EU Accounts Modernisation Directive—with which I am sure noble Lords are completely familiar—on which the business review is based. It states:"““The information””—" that should be provided in a fair review—"““should not be restricted to the financial aspects of the company’s business. It is expected that, where appropriate, this should lead to an analysis of environmental and social aspects necessary for an understanding of the company’s development, performance or position””." Although the body of the directive refers only to environmental non-financial key performance indicators—in Articles 14 and 23—this factor is clearly put forward as a non-exhaustive illustration of what might be appropriate. The recitals demonstrate that other social aspects also fall within the scope of the directive. However, the requirement for companies to provide information on social and community issues, to the extent necessary for understanding a company’s development, position and performance—which was included in the operating financial review regulations recently repealed by the Government—is absent from the business review provisions as currently drafted in Clause 390. My understanding is that there is no requirement for companies to report on the impacts of their activities on any communities in which they operate, including on any related human rights issues. In addition, the requirements to report on environmental matters in the business review are weaker than those under the previous OFR regulations. The business review requires the provision of information on environmental matters to the extent necessary for understanding a company’s development, performance and position. However, in addition to this, the OFR required the provision of information on the impact of the business of the company on the environment to the extent necessary to allow for such an understanding. Our amendment therefore refers to the social aspects to which explicit reference should be made, and to the impact of the company’s activities on the environment. These aspects were included in the OFR following a lengthy period of consultation, but are absent from the business review. In relation to the proposed amendment, the requirement to include information on the company’s policies in the above areas and the extent to which these policies have been successfully implemented, we—the movers of this amendment and the organisations to which I have referred—believe that it may be easy for companies to introduce policies which address these issues for PR purposes only. Given recent heightened consumer pressure in the area, it seems that that may be possible. This section, also in the OFR, is vital to ensure that companies cannot pay lip service to such policies without any serious intention to implement them. On Amendment No. 307, Clause 390(7) refers to ““medium-sized”” companies. Where medium-sized companies impact on the factors referred to in subsection (4), we believe that they should be required to report upon them. Subsection (3) already provides that companies should report on these issues in a manner consistent with the size and complexity of the business. This is sufficient to ensure that medium-sized companies are not overburdened. Amendments Nos. 316ZB and 316ZC are found, for ease of reference, on page 28 of the Marshalled List—I praise the Clerks for the way in which they have managed to sort out the mass of amendments to this Bill. In terms of audit requirements, the operating and financial review required both a consistency check—a check by the auditor that information provided in the OFR corresponded with available evidence—and consideration by the auditor of whether any other matters inconsistent with the information provided have come to their attention. In its response to the public consultation on the OFR regulations, the Government asserted that this second check was necessary to provide the level of assurance required to satisfy investors and other users that the information included in the OFR was complete and trustworthy; this is contained in the DTI’s Operating and financial review and directors’ report regulations—Government response to public consultation of December 2004. However, as far as we can see, this second check has not been included in the business review provisions as drafted in the Bill. The amendments therefore introduce this second audit requirement. I beg to move.