New Clause 18

– in the House of Commons at 9:30 pm on 11th February 1980.

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AUDIT COMMITTEES

'The Secretary of State shall stipulate as a condition prior to its nomination under this Act that the successor company shall have included in its initial articlesand memorandum the necessary provisions to ensure that—

  1. (1) The successor Company shall designate at least three members of the Board as their Audit Committee. It shall be a requirement that the majority of the members of the Audit Committee shall be non-executive directors. It shall be their function to report to the main Board that they have examined the Accounts and the Forecast of the Company or any other results and have satisfied themselves that they represent a correct view of the Company's affairs. This report shall be at least annually or at lesser intervals.
  2. (2) Copies of this report shall be sent to the Secretary of State at the same time as to the main Board.'.—[Mr. Les Huckfield.]

Brought up, and read the First time.

Photo of Mr Leslie Huckfield Mr Leslie Huckfield , Nuneaton 10:04 pm, 11th February 1980

I beg to move, That the clause be read a Second time.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

With this we are to take new clause 19—Auditors.

Photo of Mr Leslie Huckfield Mr Leslie Huckfield , Nuneaton

I do not wish to delay the House, because—[HON. MEMBERS: "Oh."]—I detect that there is probably a majority in favour of making progress.

Photo of Mr George Thomas Mr George Thomas , Cardiff West

Order. I should like to appeal to the House not to provoke the hon. Gentleman.

Photo of Mr Leslie Huckfield Mr Leslie Huckfield , Nuneaton

Hon. Members do not have to rise to do that, Mr. Speaker. I thought that it was the other way round.

I shall be very brief on these new clauses. I certainly intend to be as brief as I possibly can in this whole—[HON. MEMBERS: "Oh."] I am touched by this small display of—I shall leave hon. Members to fill in the missing word because I am not sure what that shows—gratitude, I hope.

The point that we seek to make in the new clauses is that if this is to be a newly privatised company and if the Government are to have something of a relationship with it—although we are not happywith the relationship that they will have with the new company—we thought that it ought to be a new company which ought to set an example and some precedents in company organisation and administration. Consequently, the proposal in new clause 18 for the formation of an audit committee whereby the non-executive directors can accurately monitor the activities of the full-time directors was an idea which we thought ought to be incorporated in the articles of the new company. I think that it is well known that at full board meetings, very often those directors who would like to probe the financial affairs of the company more deeply are not afforded adequate time.

New clause 19 contains an idea which is gaining currency in some circles. I have to admit that there will be resistance to it in some of the professional organisations, but we have sought to make a provision whereby there will be a regular turnover of auditors, because, frankly, we do not want to get into the situation that arose over Rolls-Royce, where the same auditors had been doing the books of Rolls-Royce for year after year. In that kind of circumstance we feel that fresh auditors might have discovered far earlier that something was going wrong.

The fact that when the five-year period was up new auditors would be appointed would have a very salutary effect upon the efficiency and the productivity—dare I say it?—of the current auditors. That is why we seek to insert that in the articles of the new company.

I know that the Under-Secretary will probably be able to say some kind words about this new clause. We do not feel strongly enough about it to force it to a Division, but I hope that he will be able to look favourably upon it.

Photo of Mr Michael Marshall Mr Michael Marshall , Arundel

I am very happy to respond in the spirit in which the hon. Gentleman has put forward the new clauses. Indeed, like him, I share the view that it would be helpful to make progress at this stage.

In new clause 19 it is suggested that provision should be provided for the appointmentof auditors by companies at their annual general meetings. Having heard what the hon. Gentleman had to say, I understand what is in his mind now, in so far as the turnover, as it were, is related. As the clause is drafted, the objection, which he will readily recognise, is that while the Government do not in any way object to the principle of the appointment of auditors by the company—indeed, that is required now under general company law—the successor company would be having imposed upon it special requirements to which other companies are not subject under present companies law.

In that sense, in simple equity, I think that the hon. Gentleman will agree that, while I understand what he wishes to achieve, he may well feel on reflection that this needs to be a matter for general legislation rather than specifically picking out British Aerospace on this occasion.

On the question of audit committees, I can go even further in my friendliness. I have consistently supported the principle of audit committees. Some of us have previously argued that this should apply to the British Steel Corporation and we were pleased when an audit committee was set up for it. In the case of British Aerospace, I would not dispute the principle at issue. However, I should be unhappy to see that principle enshrined by statute as it would impose a requirement through the articles of association that would be unique among public limited companies. In addition, British Aerospace might appear to be treated differently from other companies under the Companies Act.

It would therefore be unduly restrictive to legislate. I agree with the hon. Gentleman that the objective is good. A good case can be made for audit committees and therefore—

Photo of Dr Maurice Miller Dr Maurice Miller , East Kilbride

I am glad that the Minister has responded in this way. If he is considering some form of restriction, would it not be better if the audits were done at shorter intervals? One of the great problems of auditing is that matters may go too far before an audit takes place.

Photo of Mr Michael Marshall Mr Michael Marshall , Arundel

I accept the hon. Gentleman's point, and I am sure that it will be considered by those who manage British Aerospace. Many people would accept that the time lag is a problem. There is therefore some merit in the hon. Gentleman's argument.

I am sure that any future British Aerospace company will have taken careful note of the suggestions that have been made. I hope, therefore, that the hon. Gentleman will feel able to withdraw his new clause.

Photo of Mr Leslie Huckfield Mr Leslie Huckfield , Nuneaton

Just as we discovered in Committee, when the Minister of State is away, we make faster progress. The Under-Secretary has been allocated the role of "good guy" in this long-running saga. His response is encouraging. I therefore beg to ask leave to withdraw the new clause.

Motion and clause, by leave, withdrawn.