---

Companies Bill [Lords]

I am sorry but I will not give way, because time is very short. I will deal briefly with new clause 1, new clause 2 and our amendments. New clause 1 was tabled by my hon. Friend the Member for Hemsworth. All companies, except small companies, will have to prepare a business review. Most companies, such as the Virgins and the Asdas, will choose of their own volition to incorporate many of the issues that we are debating when they prepare that review. However, we have exempted large private companies from having to comply with the fifth element of clause 423 for a particular reason—because there is a difference between the position of a private company and a public company. A quoted company has dispersed shareholders and operates in a regulated market for its shares, and we believe that that requires a greater degree of statutory underpinning for transparency and scrutiny than for companies that are privately held. However, all companies, including Thames Water, will have to report with a business review. My hon. Friend the Member for Hemsworth raised the issue of materiality, and we think it to wrong to remove what is described as the ““materiality”” requirement in the review, as his amendment seeks to do. The provisions were drafted carefully to avoid the review becoming a box-ticking exercise. The requirements are for the review to be"““a balanced and comprehensive analysis...consistent with the size and complexity of the business””" and for quoted companies to include specific information"““to the extent necessary for an understanding...of the company's business””." That provides flexibility in the disclosures that need to be made and enables the directors to exercise their judgment as to whether something should be included. When the directors believe information to be material to an understanding of the company’s business, we would expect them to include it in the business review. I am tight for time, so I wish to deal with issues relating to the Government amendments and then new clause 2. On the Government amendments, I say to the hon. Member for Putney that we have listened to all stakeholders, not just business stakeholders. It was in response to the representations that we had from all stakeholders that we brought forward the amendment to the business review. Of course I will meet, as I always do, the business representatives who may be concerned about this, but our slight amendment just reflects what was in the original company law review. I also wish to say something about what has appeared in the press today. It remains the director’s judgment to decide what is relevant in the supply chain for them to report on. Nothing is changed by the amendment. It does not require companies to list their suppliers and it is not about miles and miles of paperwork. As clause 423 says, a quoted company will in its business review have regard to the content of the amendment"““to the extent necessary for an understanding of the development, performance or position of the company’s business””." No more, no less. Some of the fears that the hon. Lady mentioned do not reflect what will happen in practice. I have a great deal of sympathy for the motivation of my hon. Friend the Member for Elmet in tabling new clause 2. Hon. Members want there to be consistent reporting across companies—I understand that—so that comparisons can be drawn and so that we can see the history of an individual business’s reporting against consistent criteria. We have not gone down the road of giving standards a statutory underpinning, because we think that new clause 2 would encourage a box-ticking culture rather than encourage directors to think about the issues on which they are reporting. However, guidance is prepared by the Accounting Standards Board, and it has said that it will update and revise it. I am sure that companies will have regard to that guidance. The argument is therefore between voluntary guidance and standards that are recognised in statute. I will closely monitor implementation of the clause in practice to make sure that it leads companies to provide meaningful and useful narrative reporting on issues relevant to the particular company. Specifically, I will ask my officials to conduct an assessment of whether our provisions are working in the way that we hope two years after the implementation of the business review provisions of the Bill. We will consult business, non-governmental organisations and other stakeholders as part of that process, and it will be open to us to return to the issue if the law does not work in the way we intend. We have the power in the Bill to add to the contents of the business review. Finally, it is important to say to those who have been pressing for more movement on the review now that I have seen the corporate social responsibility agenda develop over time. Provisions that are controversial today but are adopted by some, become widespread tomorrow. It is an evolving agenda as there is greater acceptance of the wider responsibilities of a company. I believe that companies will change and that their role in the community will change. It is on that basis that I ask hon. Members not to press their new clauses and amendments.