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Company Law Reform Bill [Lords]

Of course that is the case. There are many ways of pursuing environmental policy. This one has the support of many people in business and it has support among environmentalists. The Conservatives in the other place sought to oppose it. I find that astonishing. The hon. Gentleman will have to do rather better if he is going to persuade us that the Conservatives have not recently been rather dishonestly sporting new green credentials. If, in this place and in the other House, they vote in exactly the opposite way, their claims to be the new environmentalists will lack any substance. It is possible that Tory Members will reject the views of their colleagues in another place. So far, judging by the remarks of the hon. Member for Rutland and Melton (Mr. Duncan), it does not seem that they will. However, perhaps we will see a Uturn. Perhaps he will become his leader’s new chauffeur, driving behind him carrying a spare set of clothes to hide his leader’s embarrassment. We will wait and see, but the Conservatives better be on notice that the people looking at this debate and the attempts by the Conservatives to rechristen themselves as the new environmentalists will not be impressed. I want to deal with those points and other disagreements later, but it is important in the bulk of my remarks to focus on what unites the House on these matters. I have talked about the process already. Can the Minister say how the Bill’s benefits will be communicated to small business? She will be right to say that small businesses are major beneficiaries of the Bill. They need to know that. Large corporates will have their sections briefing their chief executives and boards on the implications of the Bill, but it may pass small businesses by. They are not tuning in to today’s debate. The process on the Bill has been excellent up to now, both prior to the Bill coming to the House and during its passage through the other place and here. I hope that the Government will reflect carefully on my intervention on the Secretary of State about making sufficient time available for consideration of the draft new clauses that the Government will have to table on full codification. That is an important point. If we are going to continue the excellent process that we have had to date, that needs to be taken forward. Another positive point that has not yet emerged in our debates but which is important is the Bill’s move on dematerialisation. Under the Bill, documents such as registration certificates will be acceptable electronically. It will be easier to set up a business because one will be able to do it online. That process will lead to huge savings for business, which is incredibly welcome. In many ways, it is not before time. That is not meant as a criticism of the Government, because this is a step forward. As the hon. Member for Rutland and Melton said, the Bill’s further protections against extremists, particularly animal rights activists, are welcome. As I said to the Secretary of State, they could be stronger, particularly with respect to shareholders. The Government have made it an offence—I think that it is in clause 118—for people who have access to the shareholder register to use that information for illegal purposes. I do not think that that is much of a deterrent for the sort of people we are talking about. The Government need to look at that again to see if the protections can be stronger. I put forward one option. I cannot say that we have thought it through in terms of the legalese, but it may be possible to allow firms to keep their register of shareholders confidential, as long as there are safeguards for the public interest. One option would be to alter the threshold at which a shareholder can require the company to circulate information to other shareholders. That will strike a balance between protection against animal rights extremists and the public interest, ensuring, for example, in the case of a takeover, that all the shareholders can understand the terms of that offer. There are a number of areas where the Government made concessions on the original Bill and where there is now wide cross-party support. It is worth flagging those up, too. The tightening of the political donations measures had cross-party support. Under the original proposals, the Government intended to bring in super-affirmative procedures to fast-track company law changes. They have been taken away because, as the Lords rightly said, such changes were constitutional and should not be included in company law itself. Again, progress has been made. The tighter rules on derivative claims, which have already been debated, are also welcome. The restrictions on auditors’ liability, which can now be expressed in non-monetary terms, is a very important measure that came about because my noble Friend Lord Sharman proposed it and the Government were willing to listen. There has been much progress and agreement. Where do disagreements remain? The Secretary of State flagged up one: the idea that we and Conservatives in the other place were concerned about the Government’s proposal to require certain institutional investors to disclose how they voted. The Secretary of State made a lot of that in the press, but I think he has pressed his case too far. I have spoken to my colleagues in the Lords and their concern was not so much the principle of disclosure, which they agree with, but how greater disclosure should be brought about. Let me flesh out where we agree and where there is room for compromise, because it is important that we engage in that spirit. We agree with the Government that we should take the voluntary approach first for disclosure of how institutional investors vote. I think that we also agree that the Government should take only a reserve power to force disclosure if the voluntary process does not work and that Ministers would have to return to this House before taking up that reserve power. Our concern is whether the one-size-fits-all approach that seemed to be in the original drafting would in fact work. We want to avoid over-prescription and to ensure that business is fully consulted about how a flexible regime for disclosure might be introduced, building on the best practice learned from voluntary disclosure. I say on the record that we are keen to discuss with the Government how we can take that forward. There are public interest cases for regulating institutional investors in this way so that they do disclose. The Government are therefore, in principle, broadly right. As my hon. Friend the Member for Cambridge (David Howarth) said, there is a case for boosting the market for ethical investment, and disclosure is important for that. There is also a general point about transparency and accountability. It is important that people can be held to account for the way they vote on behalf of citizens—in some cases, millions of citizens. It is ironic that some of the investment institutions that do not want such disclosure are demanding extra disclosure and transparency in respect of corporates—the ones that they invest in—but they are not prepared to have the same principles of transparency applied to themselves. They are in danger of double standards in that respect. There is a third public interest reason why we should at least have this reserve power: the confidence of investors and savers. They should be able to know what they are investing in, and to look at the track record of how that investment institution has voted and behaved in the past. I say to the Secretary of State that we may need to meet to thrash out that issue and to see how we can make progress on disclosure. I do not think that the difference between us is very great. Where there is a difference—given the Secretary of State’s remarks today, there might be room for compromise—is on the enfranchisement of shareholders who hold shares through nominee accounts. The Liberal Democrats and the Conservatives in the other place tabled an amendment that would require the compulsory enfranchisement of shareholders where they hold their shares in that way. It is important to understand the benefits of that approach. First, it would enable shareholders to receive all the information—annual reports, notice of meetings, resolutions—that other shareholders currently receive. Surely they should have that right. It would give them the right to attend, speak at and vote at general meetings, and to vote on resolutions. Why should they not have that right? It would give them the right to be treated equally with shareholders who hold their shareholdings directly during corporate restructuring. We saw in the cases of O2 and Shell that shareholders who held their investments through nominee accounts were not given the same priority and benefits as other shareholders. There was also the case involving P&O, which gave shareholders various perks that did not go to shareholders holding their shares through nominee accounts. There are a lot of reasons why we should enfranchise this group of shareholders. Key principles are at stake—this is about shareholder democracy. If the Secretary of State changes the Government’s position, he could enfranchise more shareholders than Baroness Thatcher. I am sure that he would like that to be one of his many epitaphs. He says, in his rhetoric, that he is in favour of shareholder engagement and accountability, and that is the way to do it. We must also consider the key practical benefits for business of that approach. Often, when the institutional investors are giving guidance or making their voices heard at a general or other meeting, they have conflicts of interest because they are employees of very large institutions. They do not always talk common sense. It is often the individual shareholder who says what needs to be said. On issues such as the remuneration of directors, it was not the institutional investors who chased the so-called fat cats, but the individual shareholders who asked why directors were paying themselves so much. The voices of individual shareholders are important, and that is why the Government should embrace that change. The arguments about cost do not stack up, because we live in an e-world, and costs can be minimised. The companies are already making savings to the tune of £100 million thanks to the dematerialisation of documents and they could share that with some of the shareholders who put money into their companies. Ministers need to engage with that issue and not say that they will overturn the Lords amendments at all costs. I hope that the Secretary of State will consider the issue in a spirit of co-operation. We can deal with some of the practical difficulties that have been outlined. For example, we could put more of the burden on the people operating the nominee accounts, so the costs could be shared between the businesses and the people who are the nominees. We could try to make the Lords amendment less prescriptive, because there must be room for debate. We could also consider difficult cases, such as employee share ownership schemes. Whatever practical problems are raised by those who oppose such enfranchisement, we can deal with them, if we have the will. It is up to us all to do so, because we must end shareholder apartheid. It is wrong to have second-class shareholders and it would do the country a real service to change that. More than 50 per cent. of shareholders hold their shares in that way, and that percentage is likely to grow in the next few years. We need to act now. I mentioned two more major disagreements earlier. The first is the OFRs, on which I fear we have less room for negotiation. Let us be clear about how we got here. Just a few months ago, the Government were very much in favour of OFRs. They dreamed them up and consulted on them, and worked with business and the accounting standards boards. The OFRs had been thought through perfectly. Indeed, the 2004 annual report of the DTI said that OFRs were at the heart of the Government’s policy to improve corporate governance. Suddenly something changed, but what was it? Thanks to the excellent work of Friends of the Earth, we know what changed. A senior official at the Treasury’s enterprise unit met a fund manager from Hermes last summer. They had a general chat about how the Government were doing and what they could usefully do. The fund manager suggested that if the Government wanted a quick win, they could get rid of the OFRs. It would, he suggested, be a good deregulatory measure that would go down well in the City. The official worked up the issue and sent a memo to the Chancellor, who ticked the right box, so other officials were told to work it up further. The officials then sent another memo to the Chancellor, dated 29 September—I have a copy if the Secretary of State wants it—suggesting that he talk to colleagues in the DTI before going ahead with any announcement at the CBI conference. The Chancellor did not engage with the DTI. He received another memo, dated 23 November that stated:"““Urgent. Action required this week…It is anticipated that a number of Ministers will have concerns about this proposal, given their departments’ specific interests in the initiative.””" The Chancellor made his speech five days later, on 28 November, and it is clear that there was a shambles in the Government. The Chancellor of the Exchequer took a unilateral decision and went against all other Cabinet Ministers without informing any of them. Most Ministers do not believe in the business review: their hearts are not in it, because they believe in the original proposal. Our aim is to give the Secretary of State a way to save the Chancellor’s face and return to the Government’s original position.