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Companies Bill [Lords]

This has been an extremely good debate. I thank Labour Members, especially my hon. Friends the Member for Bedford (Patrick Hall), for Portsmouth, North (Sarah McCarthy-Fry) and for Newcastle upon Tyne, Central (Jim Cousins), for their generous welcome of the provision, and I note their wish that it went a little further. I also appreciate the welcome that the hon. Member for Angus (Mr. Weir) gave the measures. It is a shame that I must once again draw the House’s attention to the fact that, although Opposition Members said that they wished to debate the issues in detail, for most of the debate the right hon. Member for Suffolk, Coastal (Mr. Gummer)—I welcome his contribution—has been the only Opposition Member present in the Chamber. There have been more Members from the minority parties than from the Conservative party, even though it was Conservative Members who resisted the programme motion so vigorously. Clause 173 heralds and articulates a radical, historic and vital cultural change in the way in which companies conduct their business—a change that the Government enthusiastically promote in the Bill. In the past, business success in the interests of shareholders has been thought to be in conflict with society’s aspirations for people who work in the company or in supply chain companies, the long-term well-being of the community and the protection of the environment. The Government challenge that view. We think that the two purposes are complementary, not contradictory. We believe that businesses perform better, and are more sustainable in the long term, when they have regard to a wider group of issues in pursuing success. That was the premise behind the contribution made by my hon. Friend the Member for Portsmouth, North. We are not alone in holding that view: a number of Members have said that the best British companies conduct their business responsibly because, having exercised reasonable care and skill, they judge in good faith that that is the best way to promote business success. We are backing Britain’s businesses, which regard the Bill as the future. Good businesses understand the purpose of good law—and the Bill is good law. We are setting out in legislation a director’s duty to her or his company. We are laying out the issues that we expect quoted companies to cover in their business review, and we are ensuring that quoted companies will be held to better account by their shareholders—particularly indirect shareholders, such as those of us who have investments in pension funds or personal equity plans. We are making information more readily available, we are making it easier for indirect shareholders to exercise a vote, and we are ensuring that directors can be held to account for their actions. In doing all those things, we are setting in place a framework—not rigid prescriptive action—that will support companies and enable them to be both successful in business and responsible to their communities and work force. Our new framework is not burdensome, as Opposition Members have suggested, nor is it destructive. It will help to stimulate changes in market behaviour. Clause 173 sets out the first part of the framework, codifying in law a director’s duties to his or her company. That is simply a common-sense approach that reflects a modern view of the way in which businesses operate in the real world: they interact with customers and suppliers; they make sure that employees are motivated and properly rewarded; and they think about their impact on communities and the environment. They do so at least partly because it makes good business sense. Directors’ duties evolve as times change and as societal norms are transformed. When I first became involved with concepts of corporate social responsibility some 25 years ago, our main concern was to encourage companies to employ people who suffered discrimination in the labour market on the grounds of their race, gender or sexuality. Today, it is customers who increasingly care about whether employees have been mistreated or whether the environment has been damaged. That is why the sale of Fairtrade and organic products has increased so sharply in recent years. I entirely understand and appreciate that some Members want us to go further, but I encourage them to be patient. We have all seen corporate social responsibility develop and evolve over time. Many practices that are initially controversial quickly become common and then widespread. The relationship between business interests and the wider world is changing all the time—I believe for the better. The best way of achieving lasting cultural change is to go with the tide and the broad consensus of opinion. New clause 4 would amend the subsection by inserting ““endeavour to”” in place of ““have regard to”” and, I am afraid, it would paint the list of factors in more pluralist colours. One of our key aims in the clause is to make the law clearer and more accessible. Directors must be clear about their objective, but the wording of the new clause would point directors towards two different goals. Directors are still required to promote the success of the company for the benefit of its members as a whole, but the new clause would require them to endeavour to promote the interests of the company’s employees, too, and to minimise any adverse impact of the company’s operations on the community and the environment. The Government believe that our enlightened shareholder value approach will be mutually beneficial to business and society. We do not, however, claim that the interests of the company and of its employees will always be identical; regrettably, it will sometimes be necessary, for example, to lay off staff. The drafting of the clause must therefore clearly point directors towards their overarching objective. We have made it clear that clause 173 will make a difference, and a very important difference. The words ““have regard to””—to help my hon. Friend the Member for Bedford (Patrick Hall)—mean ““think about””; they are absolutely not about just ticking boxes. If ““thinking about”” leads to the conclusion, as we believe it will in many cases, that the proper course is to act positively to achieve the objectives in the clause, that will be what the director’s duty is. In other words ““have regard to”” means ““give proper consideration to””. I hope that comforts my hon. Friend. Consideration of the factors will be an integral part of the duty to promote the success of the company for the benefit of its members as a whole. The clause makes it clear that a director is to have regard to the factors in fulfilling that duty. The decisions taken by a director and the weight given to the factors will continue to be a matter for his good faith judgment. I hope that, on that basis, my hon. Friend will agree to withdraw his new clause. Many of the Opposition’s amendments were discussed in Committee. In my view, I am afraid that they row back from the good progress that we have made in marrying success for enterprise and business with sustainability and social justice. A lot of people have said, ““Stop talking, start acting.”” The time has come for the Opposition to say whether they mean what they say and to show that in their votes. They do not dare, quite, to oppose us lock, stock and barrel—we will see what happens tonight—because that would unmask their continuing true hostility to the socially and environmentally responsible agenda that we are laying out and that most people in Britain today want. But they are trying in their amendments, which were discussed in Committee, to weaken and neutralise the impact of our proposals on the way in which businesses conduct their activities. I would have greater respect for the Opposition if they were honest about their principles. Do they mean untrammelled, short-term, laissez-faire business behaviour that damages society or not? If not, they should vote with us. I know that hon. Members wish to talk about other issues tonight, so I will not deal with all the Opposition amendments in detail. Those hon. Members who are interested in the amendments can look at the record of our Committee proceedings, because most of the issues were dealt with then. I will just say that I do not believe from tonight’s debate that Opposition Front Benchers believe in enlightened shareholder value, whereas we do. Everything that they have said continues to suggest that they see business prosperity, caring for the environment and looking after their employees as pointing in different directions. We emphatically do not see it that way. Successful businesses do not see it that way. Successful businesses know that the world has changed and that they need to change with it. They know that the world will change further—and so will they. I hope that, on that basis, the House will agree that clause 173 as it stands is right and should be supported without any of the amendments that we have discussed this afternoon.