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Companies Bill [HL]

My Lords, I believe that I have the right of reply at this point to both the noble Baroness's amendment and that of the noble Lord, Lord Razzall. In reply to those two amendments, I say to the noble Baroness, Lady Noakes, that one person’s unseemly haste is another person’s foot-dragging correction of an error. When we responded to the many queries from business, we were constantly told that this was a good thing. We were never told that this was unseemly haste. It is in keeping with what we have done in this Bill constantly to listen to what people are saying and to respond. The noble Baroness has similar concerns to us about the practicality of this but, if the amendment were accepted, companies would be excused from disclosing any information that the directors viewed as seriously prejudicial to the interests of the company, to the reporting company, or to the other company or person, or contrary to the public interest. This is going far too far towards giving companies a let-out from reporting information that would otherwise be required. It says in effect that any bad news should not have to be reported. That is not an accounting principle that I understand. Some bad news will be prejudicial to the reporting company, and it should be. That is not the problem with which we are trying to deal; we are trying to deal with extremist groups who want to use relationships between companies as a way of attacking them. The amendment would be a Trojan horse, which is why we oppose it. Our Amendment No. 245B is not a Trojan horse. It is clear what it is; it is about prejudice to the other company, and there is a public interest test which it is perfectly reasonable and practical to have. It is not unusual for directors to have to waiver public interest. The only alternative would be some authority having to do that, which is not a route we want to go down. As I explained earlier, we are conscious that information could be damaging to a reporting company if it was known that it was in a relationship with a company engaged in animal testing. In very many cases, that will not need to be disclosed as it will not be essential to the reporting company’s business, but if it were, the prejudice would be not only to the reporting company but to the company itself because it would lose the business if the reporting company had to withdraw. Alternatively, the threat might be that the other company would be boycotted if it continued a relationship. Again, that would prejudice the other company. In effect, it would force the other company to choose between the reporting company and its other companies. For those reasons, we cannot agree to the noble Baroness’s amendment. If Conservative noble Lords think that it is right to oppose this rather modest clause—it is modest because we must be realistic—they should not start making speeches either about corporate responsibility or a duty to shareholders, because this is a very clear example of a proposal that is in the interests of shareholders as well as sensible corporate responsibility. I am grateful to the noble Lord, Lord Razzall, for tabling his amendment. As I mentioned in my opening speech, several interest groups have lobbied throughout the course of the Bill for a strengthening of the various provisions relating to the business review. One theme has been standards with statutory backing. It has been very clear—this was emphasised again in the meetings which the Minister and I had earlier this week with representatives of the CBI and others—that business groups do not want statutory standards. We agreed that they would not necessarily be helpful to what we are trying to achieve. We want to encourage directors to think about the issues on which they are reporting; we do not want to encourage a box-ticking culture. We think that the provisions in Clause 399 provide a framework for reporting with sufficient flexibility to enable the directors to determine what information is it is necessary to include. This will vary from company to company, depending on their size, the complexity of the businesses and their particular circumstances. A requirement that any part of the business review must comply with statutory standards would take away the directors’ judgment about what information it is relevant to include. Companies would have to follow a statutory standard when reporting key relationships. As we made clear, the Accounting Standards Board has said that it will update its existing reporting statement to cover the business review. This will provide helpful guidance to companies on the business review as a whole, and will be useful to investors. The ASB’s existing reporting statement covers the reporting of key relationships, and I am sure that it will continue to do so. It is also for a company’s shareholders to hold the directors to account. If the shareholders want the review to be produced in accordance with particular guidance or standards, it is for them to challenge the directors. I should say to those who have rather emphasised the modest quality of our proposal that we want something that is realistic to which directors can be held. We do not want something that simply sounds nice but is totally impractical. People should focus on the fact that many large businesses today will have 2,000 or 3,000 suppliers spread across the globe. The idea that it is sensible or practical to ask those companies to give definitive answers on all the social aspects of those suppliers’ businesses is simply unrealistic. We can demand it, but no one should think that it is sensible and realistic and will further the cause of social responsibility. I ask the noble Baroness and the noble Lord to withdraw their amendments. Both of them come from different angles and neither is helpful to Amendment No. 245, which we have proposed, or to Amendment No. 245B, which makes a sensible amendment to Amendment No. 245 to deal with extremist groups.