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Company Law Reform Bill [HL]

I am delighted to have this opportunity to speak. I felt that perhaps the Government were not to be allowed to take part in this private conversation. Of course Clause 156 makes a difference. While it is clear that the duty is now, and will continue to be, directed at the shareholders and not at any wider interests, it follows that, in exercising that duty, a director must consider a number of specific factors which are relevant to the success of a company. As my noble friend Lord Lea of Crondall has rightly said, the intention of the Company Law Review was that their responsibility was to be carried through to the reporting requirement. In short: yes, we are codifying, but it will also make a difference. As the Committee may be aware, the Government decided in November 2005 to repeal the mandatory requirement on quoted companies to prepare an operating and financial review, but to require companies still to prepare a business review as part of the directors’ report. This decision was made in the light of the Government’s policy of not imposing unnecessary burdens on UK companies. The business review alone marks a major advance on the previous narrative reporting requirements for companies. While the requirement to produce a business review, in compliance with EU legislation, is to remain in place for the coming financial year, the Government invited views on, first, whether any particular requirements of the business review needed to be clarified to achieve the Government’s objectives more effectively; and, secondly, what else Ministers should consider in deciding how to frame suitable amendments for the Bill on these matters. In February, Alun Michael, Minister for Industry and the Regions in another place, announced that the Government would widen this consultation. This was to allow more time for respondents to give their views and to invite views on the full range of options for narrative reporting requirements that might follow. We have made it clear that we are seeking views on the whole range of options and will take a decision on whether or not to make changes to the Bill’s provisions in the light of consultation. We will also consider, in the light of responses, whether existing business reporting requirements in the Companies Act 1985 should be amended by regulations as an interim measure before the Bill comes into force. The consultation closes on 24 March and we hope to bring forward amendments as appropriate to reflect the outcome of the consultation as soon as practicable after then. Depending on when Report is scheduled, it may well be possible to bring forward appropriate amendments by then. It is important to note that there has been quite a degree of overlap between the business review and the OFR, although the former is expressed somewhat differently and in a less prescriptive form. The depth of analysis required is proportionate to the size and complexity of the business. A small company need provide no such review. Both the business review and OFR require reporting on forward-looking elements, such as the principal risks and uncertainties facing the business. For both, auditors would have to state in their report whether, in their opinion, the information given in the OFR or business review was consistent with the company’s accounts. However, the business review does not have the additional audit requirements which had been specified for the OFR. By producing a statutory OFR, quoted companies would have fulfilled the business review requirements. They can therefore use much of the work that they have done on a statutory OFR to produce their business review. My noble friend Lady Thornton has proposed amendments which seek, first, to strengthen the reporting requirements of the business review; and, secondly, to add a requirement to the auditor’s report on the business review. We shall certainly take careful note of her amendments. She also asked why the provisions from the modernisation directive were not included in the business review provisions. As she said, the references to environmental and social impacts are in the recitals of the directive, and it is not generally right to reflect recital provisions in implementing legislation. However, they do have an effect for the purposes of interpretation. The amendments proposed by my noble friend Lord Lea, in the absence of my noble friend Lord Wedderburn, are similarly significant. Amendment No. 306 seeks to include past and forward-looking accounts of the company’s industrial relations policies, as well as the impact of the company’s operations on the environment and local communities. The effect of Amendment No. 307 is that medium-sized companies would not be exempt from disclosing non-financial key performance indicators. I have listened carefully to what the noble Lord said in putting forward his amendments and we shall certainly take his views into account in our consideration of future reporting requirements. We shall certainly pay regard to and consider carefully all noble Lords’ amendments and their comments made in Committee today. I hope, therefore, that in the light of this noble Lords will agree that their amendments should not be pressed.