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Companies Bill [Lords]

Company law is part of the hidden wiring of the economy. Immense problems are caused if it goes wrong, but no one notices if it goes right. The limited liability company was one of the great inventions of the 19th century. In many ways, it was more important than the technological inventions of that century. However, like all inventions and advances, it brings its own problems. The corporate form helps to channel investment into specific areas, but it also brings its inherent problems, which are classically problems for creditors. The corporate form helps new enterprises to get off the ground by separating an enterprise’s assets from the personal assets of the entrepreneur, but it also provides a vehicle for the concentration of economic power and a type of organisation in which responsibility is diffuse. The fundamental principle of company law for the past 150 years—I hope that it is maintained in the Bill—has been that people should be allowed to use the tool of the corporate form as they wish, unless there is a public interest that overrides that power. We welcome the underlying themes of the Bill, especially the deregulatory and think-small-first themes. However, we remain convinced of the need for regulation in specific areas not only to restrain harmful behaviour, but—this was the theme of our contribution to the debate on the OFR and the business review—to help the creation of new markets and forms of market. However, we fully accept that the Bill is an attempt to strike the same balance that has faced Parliament for 150 years in new economic and social circumstances. I shall not go through all the areas of the Bill that the hon. Member for Rutland and Melton (Alan Duncan) mentioned. The Bill is far too long and complex for me even to attempt a summary of pros and cons at this stage, but I shall mention one aspect that he covered: directors’ duties. Our view is that the reform contained in clause 173 is a useful development. The Minister called it historic. I am not sure that it is historic, but it is an important advance. It has the effect of protecting directors who wish to follow corporate social and environmental responsibility to a greater degree than fund managers might like. It encourages a responsible attitude towards the environment and social matters, and taking a long-term view. There are worries that the clause mandates that approach in a way that would be restrictive for directors and difficult for them to deal with. We do not believe that that is the case. We believe that the reform is well balanced, but there are problems with the directors’ duties area of the Bill. The hon. Gentleman mentioned that there was insufficient time to debate certain parts of the Bill. I draw the Government’s attention to one aspect of the directors’ duties, a chapter which I fear may produce difficulties in the future. I hope that they pay some attention to it. I refer to clause 171, which we were due to debate yesterday, but it was in one of the groups that fell. The problem in the clause is that the Government have not fully made up their mind what the relationship is between the duties as they stand in the Bill and the law as it was before the Bill. It should have been possible to be clearer about which aspects of the Bill are reforms and are new, and therefore take precedence, and which areas are consolidations and codifications of existing law, in which case the previous law is highly relevant. There might be a political problem for the Government in doing that. The hon. Gentleman mentioned the difficulty of having to say slightly different things to different audiences. The cost of not being entirely clear about what is reform and what is codification will be litigation. I hope that the Government will bear that in mind in future consideration of these issues. The other matter to which I draw the attention of the House has been mentioned several times—the business review. As the right hon. Member for Suffolk, Coastal (Mr. Gummer) said, the history of this part of company law is somewhat chequered and includes an extraordinary double reversal in the past couple of years, with the Chancellor of the Exchequer looking for a symbolic gesture to show his commitment to deregulation and big business, then a subtle reversal, with the position in the Bill being halfway back to where we started, but not quite, in our view, far enough. The problems in the Bill are, first, that the coverage of the review is not broad enough. The question is, not broad enough for what? Our view all along has been that one of the purposes of the review is to help ethical investors and ethical consumers, rather than just to help members of the company—shareholders for the time being—hold directors to account for what the company is doing at present. For us, the fact that only listed companies are covered is a problem. We think that ethical investors, and especially ethical consumers, have an interest in more companies than those that are listed. Perhaps a bigger problem—it is the biggest problem with the state of the business review as it leaves the House—is to do with auditing. That is, I think, the single issue that motivated the Chancellor to remove the original operating and financial review. Ministers frequently refer to the cost of auditing the business review—previously the OFR—but the auditing requirement is central to the utility of the review, for creating and helping to develop markets for ethical consumption and investment. Only reliable information will help to create those new markets. We accept that that process will bring a cost to business, but we believe that the offsetting benefit of developing ethical investment and consumption far outweighs that cost. The Bill will leave the House in a somewhat rough state—especially for a Bill that will have gone through its Third Reading in its second Chamber. Consideration has sometimes been very rushed—at times it has been close to shambolic. However, we all must accept responsibility for that, because I fear that the origin of the problems to do with the consideration of the Bill lies in the decision to use it as a consolidation measure, and not just as a reform measure. There is evidence in all parts of the House—there are fingerprints and traces everywhere—of all parties having been involved in that decision. If it had been recognised all along that the intention was to go for consolidation, we might have started our consideration of the Bill at a different time of year and have thought about having a carry-over provision for it. We did not do that. Consolidation and codification is, indeed, a good thing, as the Minister said: having a Bill that covers as much of company law as possible in one place is a good thing. However, if we had thought about this matter better in advance, we might either have started earlier, or have done the reform first and the consolidation second at greater leisure. Nevertheless, speaking as someone who attended almost every Committee sitting and almost every debate on Report, I certainly do not want to start again at this stage, so I have no intention of opposing the Bill on Third Reading. I thank all those involved in discussions on the Bill, especially my hon. Friend the Member for Solihull (Lorely Burt), who supported me throughout in Committee and on Report, and my hon. Friend the Member for Cheadle (Mark Hunter), who also attended the Committee. I also thank the Liberal Democrat team in the House of Lords, who brought to discussions an extraordinary depth of experience of business. I pay tribute to the hon. Member for Huntingdon (Mr. Djanogly)—unfortunately, he is not present—who displayed an extraordinary degree of persistence and accuracy in his attempt to get to the technical heart of a great number of questions. I also thank the other members of the official Opposition Front-Bench team for their courtesy and good humour throughout the Bill’s extraordinary progress. However, I thank most of all the ministerial team, and especially the Minister for Industry and the Regions, who has had to pick up, and learn to master, an extraordinarily complex and difficult brief in a very short period. Those of us who have dealt for a long time with company law—in my case, a quarter of my life, and I spent 10 years teaching the subject at university—have been very impressed by what a quick and accurate learner of this area of law she has shown herself to be. The rest of the ministerial team are more legally experienced, but they have shown themselves to be able to adapt quickly and well to a new area of law. I should also like to thank the Bill team and the civil service for the very helpful way in which they dealt with Opposition Members. It is perhaps unusual at a national level—it is rather less unusual in local politics—for there to be a good relationship between the civil service and Opposition politicians. That has been genuinely helpful in our effort to make genuine progress in getting legislation through this House. At one stage in the past couple of days, the hon. Member for Huntingdon said to me that he wanted to be involved in this Bill because, for a lawyer, it is a once-in-a-generation opportunity. That is true. Company law reform of this sort comes through Parliament very rarely, but I have to say that I expect we now both hope that it is a once-in-a-lifetime experience.