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Companies Bill [Lords]

There are often examples, which we have discussed on the Floor of the House, of a company that thinks that the way to maximise profits is to close down one part of its operation. The hon. Gentleman’s point is not therefore an objection. I thought that he was going to say that his new clause uses the words ““endeavour to minimise””. I have been thinking about that point over the past few months. Technically, it is possible, I suppose, to endeavour to minimise the adverse impact on both the environment and the community, to fail to do both, but then to argue that one has not breached the duty because one has tried to minimise both but failed. That seems a terrible way to draft a duty of directors—it is saying that if they apparently fail to fulfil that duty, they will be let off, because they only have to try to fulfil it. The better, more positive and encouraging way to do it seems to be as the Government have proposed—to say that the director must ““have regard”” to both the environment and the impact on the community. I am therefore still worried about the contradictory duties point. My second objection to new clause 4, which is the reason I prefer the Government’s approach, is that it raises false expectations. We have already heard two very different points of view from the hon. Member for Bedford (Patrick Hall) and the hon. Member for Portsmouth, North (Sarah McCarthy-Fry) with regard to whether the new clause promoted a pluralist view of company law or was sticking to the Government line of enlightened shareholder value. The hon. Gentleman was correct that the new clause does not abandon the Government’s basic stance of enlightened shareholder value. The hon. Lady, perhaps talking directly to the campaign groups, was saying that it was an attempt to move the pluralist view on. It cannot do both. An underlying problem is what company directors’ duties are under the enlightened shareholder value system. It is important to remind ourselves that as long as that system is in place—and the new clause does not challenge that system—the directors’ duties are to the company, not to anyone else. The hon. Member for Bedford used that point to reinforce his argument, which I think is correct, that there is not much risk of litigation under the new clause, or under clause 173. Who can sue as the company in such a situation? Normally, the board of directors represents the company, and decides whether to sue. If not the board, in some cases, a majority of shareholders—usually, a super majority of 75 per cent.—can order the company to sue. As he said, rare derivative actions will occasionally occur, which we shall discuss later. The scope for using such derivative actions, however, is limited. More likely, as the hon. Member for Huntingdon mentioned, is action by takeover bidders, administrators or liquidators on behalf of creditors after the company has gone insolvent. Those are the only people likely to be using directors’ duties litigiously. Are those people—institutional investors, commercial creditors and boards of directors—likely to put forward, and implement through litigation, a strategy based on pluralism, which is more concerned with the environment and the community than with the company’s profits? I dare to suggest that they will not enforce those directors’ duties in that direction. Finally, there is a danger that new clause 4 works against the interests of existing directors who are concerned with corporate social responsibility. The reason for that is that, in practice, those who are vulnerable to being sued for breach of directors’ duties are not those who act only according to the narrow interests of the company—its profits. Instead, they are those who attempt to look more broadly, taking into account the environment and the wider community of employees. On a takeover or liquidation, there is a danger that those who act for the creditors or new owners will sue the old directors for failing to make enough money, and for taking other interests into account. In a way, that is an answer to the question asked by the right hon. Member for Wokingham (Mr. Redwood). Clause 173 achieves extra protection for directors who have had regard to environmental matters and the community, and puts them in a position where they cannot be sued. We all have experience of that. The existing law mentions the interests of employees, and there have been examples of directors being sued for taking into account the interests of employees, failing to sell the business to the highest bidder, and instead selling it to a bidder whom they thought would carry on the business to the benefit of employees’ jobs, not asset-strip the company. That is a practical matter, and whereas clause 173 offers extra protection, I fear that the new clause reduces that protection.