---

Companies Bill [Lords]

With respect, the hon. Member for Bedford was not supporting my point. The hon. Member for Cambridge (David Howarth) has missed the point that clause 173 must be taken with other provisions in the Bill in order for one to conclude that directors may have greater liabilities. If one puts those provisions together, one comes up with that answer, which does not allay my fears. Amendment No. 394 would require directors to consider only those factors which they, in good faith, considered relevant to the matter in question. Provided that they acted in good faith, their decision on the relevance of a particular factor could not be called into question by the courts, except to the extent that the directors acted in breach of their duty to exercise reasonable care, skill and diligence. Concerns have also been raised that the list does not make clear the ranking of the factors. That is why we have tabled amendment No. 396, which states that no one duty should take precedence over another. The fundamental problem with clause 173 is that it clouds the paramount duty of directors to consider the best interest of the company—I do not think that the hon. Member for Bedford was saying that that should not be the paramount duty. This is the kernel of the issue: as I have said, the other duties are all important, but the ultimate responsibility of a director is to the best interest of their company, and from that fundamental duty all other responsibilities spring. By clouding that duty, the Government will do a great disservice to company law and company directors for a long time to come. That is why we have tabled amendment No. 397, which states that"““The duty to promote the success of the company shall be paramount.””" The hon. Member for Bedford promoted his concept of corporate social responsibility. Let me spend a little time addressing his concerns. CSR is now taken more or less seriously by all the larger companies based in this country; it is generally agreed that it is only good business sense to do so. My party, too, has shown how highly it values CSR. We in the Conservative party support social responsibility in companies. We believe that companies, in preference to the state, can and should be a positive driver of environmental and social change. In fact, we have placed increased corporate responsibility at the top of our agenda, even in being what my right hon. Friend the Member for Witney (Mr. Cameron) called a ““critical friend”” to big business when necessary. No Member, certainly no Conservative Member, would dispute that increased CSR is a good thing and a developing area. However, we argue that this Bill is not the place in which to place unnecessary non-specific mandatory burdens on company directors of all UK companies. That will not only lead to uncertainty and the fear of litigation but set back an agenda that my party supports. The environmental agenda, which was mentioned by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), is of prime importance to Conservatives; that is why we say that we need a climate change Bill. However, that is different from making broad statements in a very precise Bill, which will lead to more tick-box exercises by companies with little gain to the environment. There are many campaigns to improve corporate environmental and social involvement across the world—indeed, sometimes across companies. The problem is that very few of the companies involved will be affected by the Bill, because most such multinational companies are non-UK companies. Let me be frank: we can make our company law regime as rigid as we wish, but it will not matter a jot to most of the companies that hon. Members probably have in mind and will therefore not go far in helping to further their individual campaigns. Most major multinational companies that are UK-listed already take CSR very seriously and spend considerable amounts of time and money on it. We can all too easily ignore the fact that many publicly listed companies sell themselves on their CSR reputation. Furthermore, increasing numbers of shareholders are realising that they can exert a positive influence on the companies that they ultimately control, and we wish to encourage that. The rise of ““green”” and ““ethical”” investment funds operated by most of the major fund managers has made them clearly aware of CSR, and it is now simply bad business for a major PLC to ignore it. The vast majority of companies affected by the Bill—perhaps 99 per cent.—are small and medium-sized companies. Those companies, which are rarely the target of environmental or social campaigns, already have enough troubles without being asked to jump through a series of statutory hoops. Because the Bill deals with UK companies, it does not have the framework to deal with the issues on which activists have been campaigning. It treats the corner shop in the same way as the multinational. It is the wrong place to be dealing with these issues, important as they may be. That is why we tabled amendment No. 392, which proposes that duties shall be appropriate to the size of the company, and amendment No. 788, which would exclude small and medium-sized companies from the provisions. Many organisations have taken an active interest in the Bill, and I have met several of them. In Committee, the hon. Member for Bedford stated that a voluntary approach would not work and referred to examples of corporate, social and environmental abuse. He hoped that providing legislation on that would raise the bar for CSR. However, the Bill as drafted will merely provide vague language to govern directors and serve to confuse businesses, particularly small and medium-sized companies. That is why we tabled an amendment that would limit it to larger companies. That said, we believe that the UK should be the world leader in promoting good CSR. Where UK companies lead, Conservatives believe that other companies will follow. However, the answer to leading the way in CSR is not to impose a heavy regulatory burden on our companies but to encourage investors to take into account a company’s record on CSR and to encourage all the companies in the UK to understand that being socially responsible is in the best interests of the company. Governments certainly have a role to play in this; indeed, we often forget the need to use carrots for best practice as much as threatening the stick of regulation. I have no doubt that CSR will also be moved ahead by market forces. Informed consumers voting with their feet will always be a more effective way of getting companies to take up their CSR responsibility than regulation will ever be.