'code of Practice

Orders of the Day — COMPANIES BILL [Lords] – in the House of Commons at 5:30 pm on 27th February 1980.

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1. Trade unions representing 30 per cent. or more of the employees in a company specified in subsection (1) of section (Two-tier Boards and employee directors) may require at any time a ballot of all employees as to whether they wish to elect employee directors on to a supervisory board directly responsible for the policy of the company which meets the minimum criteria of the provisions set out in this Schedule.

2. If a simple majority (representing at least one third of all eligible employees voting in the ballot), supports the proposition set out in paragraph 1 of this Schedule negotiations to give effect to the proposition within this Code of Practice shall take place.

3. In the event of negotiations proving unsuccessful after 12 months, a further ballot shall take place and in the event of the proposition receiving the requisite support as set out in paragraph 4 of this Schedule the Secretary of State shall impose a scheme which meets the minimum criteria provided for in this Schedule.

4. The ballot provided for in paragraph 3 shall not be effective unless a two thirds majority in favour of the proposition is achieved, representing at least one half of all eligible employees.

5. The minimum criteria referred to in paragraph 3 of this Schedule shall be as follows:

  1. (a) all employees shall be entitled to vote in any ballot;
  2. (b) the system adopted for employee representation on the supervisory board shall require those operating it to ensure that all significant groups of employees are adequately represented at board level;
  3. (c) the employee directors shall have not more than one half of the seats on the supervisory board;
  4. (d) the precise structure and powers of the board shall be within the scope of negotiations but shall have the following minimum powers;
    1. (i) the right and duty to initiate, approve, and veto policy decisions;
    2. (ii) access to all information relating to the company;
    3. (iii) the power to propose to general meetings changes in the financial structure, articles and dividends; and
    4. (iv) the responsibility for arranging an audit committee comprised of non-executives of the company;
  5. (e) the supervisory board of any subsidiary companies of the company shall not be able to override the decisions of the supervisory board of the parent company;
  6. (f) the management shall be free to establish a management committee to take day-to-day decisions within the policies laid down by the supervisory board;
  7. (g) the shareholders of the company shall have at least one half of the seats on the supervisory board;
  8. (h) the chairman of the supervisory board shall be elected by all the directors represented on the supervisory board and in the event of deadlock he shall have a casting vote;
  9. (i) the managers of the company (that is to say those who formulate policies) shall initially he able to choose between taking part in the elective process hereinbefore described or shall be able to select their own representative on the supervisory board, who will have the right to speak but not vote;
  10. (j) the preferred system of election of employee-directors shall be through an elected committee of all the trade unions represented in the company, which shall be responsible for ensuring a fair balance of representation.'.

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

I am not so optimistic as to believe that the Government will accept this new clause or the schedule. They have already shown their attitude to the issue of industrial democracy by their opposition to the experiment with employee-directors at the Post Office. I have, therefore, no great hopes on that score.

I believe that it is important that the issue of industrial democracy should be raised yet again. This is not the first time that I have raised it in this House. I accept that the last Labour Government, despite the publication of a good White Paper on industrial democracy, were not able to get any legislation on to the statute book. That was partly because of their minority status.

I am prepared freely to admit that there is not yet an agreed view on industrial democracy in the trade union movement. Some trade unionists support the extension of collective bargaining as the way of achieving industrial democracy. Others believe that worker-directors are fine in the public sector but that they are not so good in the private sector. Other trade unionists are wholly in favour of employee-directors where the employees want it. So, there is a difference of view within the trade union movement.

I do not believe that the system of employee-directors as set out in the schedule is of itself anything like enough. The system must be based on strong and effective collective bargaining. On the other hand I do not believe that collective bargaining by itself is sufficient.

It is true that through collective bargaining employees are enabled to make up for their lack of individual power by their collective strength when they have been able to establish joint regulation over a number of vital subjects. However, the fact is that the strategic and important managerial decisions that shape the future of a company are largely outside the control of collective bargaining. That fact has converted me to a system of employee-directors on the boards of companies.

When I was an employee of the General and Municipal Workers Union I was a collective bargainer. But when I saw the ineffectiveness of collective bargaining as, for example, when a firm made its employees redundant and I realised how little collective bargaining was able to influence major investment decisions or influence the shaping of a firm's corporate strategy, I changed my mind. I now believe strongly that something more than collective bargaining is needed and that employees need direct representation not just in the workplace or in negotiations but in the board room.

There are at least three principles on which this representation must be based. It must be based partly on collective bargaining, since it is no good introducing employee-directors where there is no collective bargaining and where there is not a strong shop floor trade union movement. Otherwise that representation becomes a kind of tokenism.

It must also be based on the power of trade unions because the unions are basically the only effective way in which workers can be represented in a company and in industry. That representation must not be merely a token. Employee representatives must be in the board rooms in strength.

As to how that representation will work, I invite hon. Members to turn to the schedule, which sets out ways to deal with the problem. The schedule may not be perfectly drafted—I admit that freely since I did not draft it myself. I also accept that there are other ways in which we can advance industrial democracy. The schedule does not rule that out. It certainly would not rule out a parallel and complementary system that would give the right to collective bargainers to discuss strategic issues, as many trade unionists prefer.

That was the pattern of the White Paper. Two options were held out. One could either do it through collective bargaining or, if employees preferred it, it could be done by way of employee representation at board level—or indeed by both. The scheme that I propose would depend on the successful outcome of a ballot. Representation would not be imposed from the top on unwilling workers. It would be based on a fairly stiff election in which certain minimum conditions would have to be fulfilled.

8 pm

The scheme is based on a two-tier board system which has a number of advantages, perhaps the major one of which is that it would establish a new basis of democratic control within companies, but would allow managements to deal with day-to-day management problems. I am borrowing from the German example, which has much to commend it.

The system is based on parity between shareholders' representatives and employee representatives. In the end, that is the position to which we shall have to move. We may have to work up to it through a lesser proportion of employee representatives, as the previous Government's White Paper recommended, but in the end we shall have to get to a 50–50 arrangement. That immediately raises the problem of what will happen in case of conflict. Obviously the role of the chairman will be vital, and I take the view that the chairman will have to be elected by both sides in order to have the confidence of both sides. I do not approve of the German example of a chairman elected by shareholders. We must have chairmen who retain the confidence of both sides. Representation should be through a committee elected by trade unions.

Photo of Mr Timothy Renton Mr Timothy Renton , Mid Sussex

The hon. Gentleman has skated over an important point that I thought he was about to deal with in more depth. What will happen if all the shareholders' representatives vote for one person as chairman and all the employee representatives vote for another?

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

I admit that my amendments do not work that out, though my Bill, to which I am pleased to refer the hon. Gentleman, proposed the use of ACAS in case of deadlock. That is probably the way to do it. In most cases the two sides would probably be able to agree on a chairman, but it may be necessary to have a neutral body to make an adjudication.

As I was saying, representation should be through a committee elected by the trade unions. Here I borrow from the Bullock committee proposal for joint representation committees. The system must be based on trade unions, and that raises the problem of what happens to non trade unionists. I accept that that is a difficult problem, which was not solved by the White Paper of the previous Government.

I am sure that the system will not work unless it is based on trade union power. In most firms trade unions should be able to feel that they can win all the elections if there is strong trade union representation, and they may feel so confident that they would be able to have nominally open ballots in the knowledge that they will be dominated by the unions. However, I appreciate that awkward problems are raised and are not wholly solved by the amendments.

There are many fears and problems involved in industrial democracy. I start with the fears and worries of managers. The old basis of authority within a company has been, at least partially, undermined by events. If we can get a new basis of democratic authority and consent it will give managers new freedom and powers. For example, in Yugoslavia, managers have considerable powers, but within a system of overall democratic control. My proposed system may help innovation in this country.

Another worry of managers is that industrial democracy could bring conflict into the board room, where there is no conflict. Of course, everyone knows that there is conflict in board rooms already. Many different points of view and interests are represented in board rooms. The presence of employee representatives would be an acknowledgement of the reality that employees have separate voices and interests that need to be represented at the level at which strategic decisions are made.

All the experience shows that in industrial democracy systems, for example in Europe and, in this country, in the British Steel Corporation and the Post Office, employee-directors have generally played a constructive role, which has been of great use to the shareholder representatives.

The other issue raised by managements is confidentiality. I do not believe that that is a serious problem. The research in, for example, West Germany and Sweden shows that it has not been a serious problem there. Given the interests of employees in the future of their firms, I do not believe that problems associated with confidentiality are likely to be serious.

There are overwhelming arguments in favour of industrial democracy. There is an argument in human terms that work should be a satisfaction to employees. If they feel that they are able to have influence over the decision-makers that will make their work more satisfactory to them.

Photo of Mr Nicholas Baker Mr Nicholas Baker , North Dorset

Do the schemes in West Germany and Sweden to which the hon. Gentleman referred put trade unions in the same position as the hon. Gentleman proposes?

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

The German one does not, though trade unions dominate the works councils and employee representation at board room level in the supervisory boards. The Swedish system is based entirely on the single-channel method.

There is a strong moral argument for more industrial democracy. All employees ought to have a bigger say in the decisions that crucially affect their lives and futures. Socially, too, there is a strong argument, because throughout society there is a questioning of the old bases of authority, whether in marriage, relationships between parents and children or the relationship between a management and employees. We need a new basis of consent within industry.

In the difficult economic situation that we face, with a world economic crisis and problems of energy supplies, it is too great a luxury to leave all the strategic decisions to managements and shareholders' representatives. They are far too important to the nation. We should call on all the resources that we can to solve the problems and to put industry on a much firmer base.

Those are the reason why I am strongly in favour of industrial democracy. It is a crucial issue for the House, and it will not go away. Whatever the Conservative Party may hope, we shall return to the issue a number of times in this Parliament, and when my party is returned to power at the next election we shall legislate on it.

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

I congratulate my hon. Friend the Member for Chester-le-Street (Mr. Radice) on introducing the debate. He recognised the shortcomings of the new clause, but they are not important. It provides an opportunity to discuss a matter which he rightly says will remain on the political agenda, whatever the Government's view. We know that they are tepid about the issue, if not hostile.

The debate provides me with an opportunity to congratulate my hon. Friend on his devotion to the subject, which resulted in a previous Bill. I served as a Minister on the Committee which considered that measure. It contained some interesting ideas, although we were not able to go along fully with them. However, the Bullock report took the matter further in public discussion, and that was followed by the previous Labour Administration's White Paper, which was the result of a great deal of thought and consultation.

It was a matter of the greatest regret to me, as it was to both my Secretaries of State, that we were not able to progress further. It is a great disadvantage to the efficiency of British industry that we are not able to move along this road far more rapidly. I do not in any way deny the considerable problems that exist, but they are there to be grappled with and overcome. I hope that the next Labour Government, in two, three or four years' time, will be able to maximise agreements and push those who have entertained suspicions about the idea in the direction of its acceptance.

Photo of Mr Nicholas Baker Mr Nicholas Baker , North Dorset

In the course of the hon. Gentleman's interesting prognostications, will he confirm his policy on trade unions in this sort of proposal? Will they be given the position that they are given in the new clause?

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

I hope that the hon. Gentleman will allow me to develop my argument. I am coming to that matter. I have only just begun my speech. The hon. Gentleman must wait on my every word and listen carefully.

The debate provides us with an opportunity to ask the Government about their attitude towards the draft fifth directive. There have been reports in the press that they are not enthusiastic about it. During a debate in the Legal Affairs Committee of the European Parliament a Conservative spokesman did his level best—I do not know whether he did it with the acquiescence of the Government—to prevent this idea emerging. As my hon. Friend said, whatever the position, there are forces within the EEC—and wider than that—who have been able to embark upon the experiment most successfully. I do not say that we should adopt exactly the examples of the Germans, the Swedes or anyone else—we have to build on our experience and collective bargaining arrangements—but it would be folly to ignore those.

I do not say that to apply principles of industrial democracy along the lines of my hon. Friend's Bill, or the previous Labour Administration's White Paper, would be to provide a panacea for our industrial relations problems, but I believe that they would offer a considerable advance. There is no doubt that on both sides of industry there are views—which I happen to believe are antediluvian, although that would be challenged by those who hold them—that it is the job of management to manage and that it is not the job of the worker to intrude. In a sense, that is mirrored on both sides of industry.

8.15 pm

I believe that one of life's most painful experiences can be to change one's mind. The more rigidly held the belief about the value of the past and those well-tried things that have happened, the more painful it may be to recognise that those things need to be changed. I should have thought that the experience of the past few years would indicate that we need to embark upon change, and to do so with some rapidity.

Industrial democracy is a controversial concept. It divides even Hackney. I know that my hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Roberts)—with whom I have an incredibly friendly relationship—takes a different view from myself. I hope that he will not feel that I have been insulting when referring to those who hold a different view. It is not intended to be personally denigratory.

It is a controversial issue, because it aims at far-reaching changes of attitude on both sides of industry about the manner in which decisions are made and about relationships between people. Such a change of mind on these matters can be a painful process. Industrial democracy is about sharing responsibility for decisions and how one encourages that. Behind all the Government's words about industrial relations—and there were many weasel words—there is a clear preference for conflict. That was illustrated last night by their refusal to consult or invite the TUC to join the committee on the reform of company law. It indicated a process of mind on their part. They would prefer not to see eye to eye with the trade unions, but to view them eyeball to eyeball. That is a thoroughly bad way in which to proceed. They prefer conflict to the consensual approach that we should try to achieve.

I believe that we must change the whole atmosphere in which we relate to each other in industry. We must give proper recognition to the most substantial investment that a worker is able to make in his working life to the industry that he serves, namely, the years of service that he gives to that industry. The purpose of the debate on industrial democracy is to reflect upon those issues. There is a democratic imperative that those who are substantially affected by decisions ought, as a matter of right, to be involved in making those decisions.

That is an argument that is accepted by the European Commission. I do not agree with the Commission on a wide variety of issues, but I agree with it on that. The idea is accepted in several countries within and without the EEC, and it was accepted by both the majority and minority Bullock reports. It is resisted by those who see industrial relations purely in historic terms, or perhaps in terms of goodies and baddies.

There is a striking contradiction between the political democracy which we cherish in our society and, all too often, the authoritarian structure which a worker meets in his day-to-day existence at work. To expand the opportunities to provide the worker with a greater sense of involvement and participation, and make him feel that he is at the centre of things, is involved in the complexities of decision-making and is actively influencing the decisions, will not only promote good industrial relations, good efficiency, job satisfaction and profitability, but will mirror what is required in society if we are to sustain and nourish the political democracy in which everybody in the House believes.

Our objective is not simply to build up new participative structures. I am not in favour of an edifice complex. I, and those who share my views, want to create something worth while for the chap on the shop floor, and for the girl on the shop floor, because we are living in that sort of age. At the same time it must produce some tangible benefits for the work force, otherwise it will not be interested in the ideas. In no sense do I say that all work forces throughout the country are clamouring for this idea—that would be totally untrue—but I believe that it is the job of Parliament and the Government to lead people towards ideas that will benefit society, and I passionately believe that this is one of those ideas.

It follows from what I have been saying that if industrial democracy is to become a worthwhile concept, and if it is to become effective, it will be largely dependent for its efficacy upon effective communication and understanding. When we were in government we recognised that the best way forward was to try to maximise agreements between employers and employees. I confess that we ran into a great deal of violent reaction to the ideas. Perhaps some of that was exaggerated. Although Bullock performed a valuable service in that it focused attention in a vivid way on these matters, it nevertheless created some anxieties, which perhaps prevailed when we came to discuss our own White Paper, and which were unjustified in the light of the White Paper.

I am anxious to see agreement maximised, and I do not believe that a minority should be able to stifle the value of the idea by imposing its own veto. In the White Paper we emphasised the need for a flexibility of approach. We said that there would have to be a statutory fallback to ensure that the laggards who wanted to contract out were not able to do so where the work force wanted to embark upon that course, but the decision was to be left to the work force concerned. It would be its decision. The scheme that was thought most appropriate to the particular enterprise would also be left to it. Therefore, we proposed a wide measure of flexibility.

We suggested that companies employing more than 500 people should be required to discuss with employee representatives all major proposals affecting the employees before decisions were made. That would cover investment plans, mergers, takeover bids, major organisational changes, and so on. We saw a joint representation committee, about which my hon. Friend spoke, as the most effective channel for discussion on these matters. We felt that it would have an interesting and useful side-effect, as it would be an important basis for producing more inter-union co-operation. Where those procedures could not be established voluntarily, we said that there would have to be a right to require the board to discuss the issue of company strategy.

My hon. Friend touched on a number of the problems, including confidentiality of information. I believe that that problem is grossly exaggerated. Of course we must have some means of safeguarding confidential information, but the risks are belied by the everyday experience of trade unions and shop stewards, in whom there is reposed a great deal of confidential information, because that is the only way in which to work out solutions. They do not go blabbering to everyone about it. It is very rare for them to do so. When I went to Germany I was told that they never had a case where insider information had been divulged by the shop stewards. Plenty of insider in-formation had been divulged by the other side, but not by the shop stewards who were engaged in that form of enterprise.

While this is a grossly exaggerated problem, I believe that there can be an agreed basis of approach to it. I agree that some topics would have to be ex- cluded. There are other problems associated with multinationals, but as has happened in Germany, I hope that the multinationals will seek to operate within the spirit of the law and to obey the law. The hon. Member for Dorset, North (Mr. Baker) finds that funny. If he would like to intervene I shall give way to him. I see that he does not.

My hon. Friend said that the direct representation of the work force at board level would add a new dimension to the board's consideration of problems; that it would bring it much more into direct contact with what the work force was thinking. That is a dimension that is singularly absent from many boardroom discussions that take place at present. At the same time, it would give the work force a voice where it really matters.

I know that there is major disagreement about that. Some argue that this is a highly esoteric area in which the workers ought not to be engaged because they do not have the equipment or the understanding to do it. That is an arrogant and patronising attitude. I heard it expressed to me when I visited a firm in Plymouth. That was exactly the view that was echoed by the managing director of, regrettably, a large multinational company with a branch there. It was an appalling way in which to approach the work force. It indicated his own view of it, and therefore reflected mostly upon him.

I agree with my hon. Friend about the two-tier board concept. I think that that is a preferable arrangement, but that it ought to be left to the decision of the local work force and the enterprise itself to work out. Perhaps they would prefer to have the operation of a unitary board, and there is nothing wrong with that. I just happen to believe that it would be better to separate the functions of a management board and a supervisory board, provided that the supervisory board did not become a meeting place once a quarter where information of not much value was presented. It must allow people to get together to discuss worthwhile decisions. Otherwise it has no value at all.

I have always believed that if we have that concept, directors must share legal duties and responsibilities. I do not think that one can segregate those. It would also be an essential ingredient for worker-directors to keep in touch with the employees and trade unions. Other wise there could be alienation, which would be most undesirable and could destroy the whole idea.

Therefore, it would really be for each company to devise the best method suited to it. If agreement cannot be reached, we propose that employees in a company employing 2,000 or more people should be able to claim a statutory right to representation. We worked out a process to require a request from the joint representation committee to organise a ballot of the whole work force. One did not have to be a member of a trade union to participate in that election. We wanted to see whether the work force wanted the idea, and if it said "No", that was the end of the matter. I sometimes suggest to my colleagues in the Labour Party and in the trade union movement that they should let the work force decide. If they do not want it, they do not have to have it. It is as simple as that.

Photo of Mr James Dempsey Mr James Dempsey , Coatbridge and Airdrie 8:30 pm, 27th February 1980

I am interested in the argument that there should be employee representation in a company which employs 2,000 or more people. Is my hon. Friend aware that there is worker participation in companies which have far fewer than 2,000 employees, and that those companies perform extremely efficiently?

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

I am aware that some enterprises have embarked upon radical measures of worker participation—for instance, Scott Bader and Glacier Metal —and that there are variations. However, I do not accept that worker participation is carried out on a wide enough scale. If there was evidence that the participative processes were working well—that was not the evidence that I received when I was a Minister—there would be no need to embark upon this idea. But that is an academic point, because the decision would be left to the local work force in the enterprise concerned.

We have taken an arbitrary figure of 2,000 because we needed to start somewhere. We are not saying that enterprises with fewer than 2,000 employees should not embark upon worker participation, but it would be a more voluntary arrangement, and we would not include that within the terms of our legislation.

If the work force wanted to go ahead, the company would be able to reconstruct the board. It would have to do that in order to adopt a two-tier system, or to maintain the unitary board system. My hon. Friend the Member for Coatbridge and Airdrie (Mr. Dempsey) touched on the numbers involved. We opted first for a one-third representation, moving up to something like 50–50. It cannot be exactly 50–50 because, ultimately, someone has to be able to determine decisions if there is a deadlock.

I recall my former colleague, Mr. Edmund Dell, saying that he had elicited the information that in Germany, if there was a 50–50 situation, the independent chairman would normally be a priest. It was felt that by being close to God he would be able to resolve some of the decisions. Curiously, however, there have been few instances of deadlock.

The matter of selection is difficult. Should every employee be involved in the right of selection, or should that right be limited to those workers who operate through the established system of collective representation? We have operated the latter system in British industry. However, we shall leave it open for further discussion. It would be bold of me to suggest that I have the answer. I do not.

My hon. Friend the Member for Chester-le-Street touched on the right of appeal and whether there is unfairness in the system. That is a matter to which we referred in the White Paper. It would be total folly for the Government to ignore that idea. They should work on it, embrace it, and consult about it. Regrettably, they appear to be disinterested in it. That is the worst of all worlds. The problem will not disappear. The Government will be forced to do something about it, whether they like it or not, in the not-too-distant future. If they do not accept the responsibility, we shall, and I hope that it will not be too long before we are able to grasp those opportunities.

Photo of Mr Reginald Eyre Mr Reginald Eyre , Birmingham, Hall Green

Following the attempts of the hon. Member for Chester-le-Street (Mr. Radice) to influence the previous 'Government, he has now produced the interesting suggestion of legislating a mandatory system of employee directors.

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

It is not a mandatory system, because employees have to take part in a ballot before they are appointed. If there is an affirmative vote, they are appointed. It is therefore not a mandatory system.

Photo of Mr Reginald Eyre Mr Reginald Eyre , Birmingham, Hall Green

The hon. Gentleman's proposals may not be mandatory, but they have a mandatory tone.

They are interesting for two reasons. First, it appears to be a solo flight, although the hon. Member for Hackney, Central (Mr. Davis) gave some indication of rather enthusiastic support. If a Division were to be called on the proposal, it would probably indicate the low degree of enthusiasm of some of his hon. Friends for this formulation.

Despite the fact that there are several differences from the ideas contained in the Bill that was before the last Parliament, and far from the hon. Gentleman's present proposals being even-handed, the balance of advantage lies with the trade unions to initiate the establishment of a supervisory board and directly to choose the employee-directors. The hon. Gentleman fairly acknowledged in his speech the difficulty of his proposal with regard to non-union employees.

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

There is no difficulty at all about non-union employees in the initial ballot to determine whether people want to advance down this road.

Photo of Mr Reginald Eyre Mr Reginald Eyre , Birmingham, Hall Green

I do not think that the hon. Gentleman has accepted the point that I made about the appointment of employee-directors under the scheme. I note, incidentally, that the hon. Gentleman is now much better at posing questions than he was at producing action when he was a Minister. On a number of matters that have come forward on Report, he has indicated quite a change of attitude from that which he adopted formerly as a Minister. He has been demanding action on a number of matters in which he was not active himself for a considerable period.

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

The hon. Gentleman cannot fairly say that. I have not shielded from the House the difficulties that we encountered. We were enthusiastically supporting industrial democracy as a qualification of the adversary relationship in industry. We wanted to see industrial democracy and we wanted to maximise consent about it. The hon. Gentleman cannot fairly say that we were not active. We produced a White Paper and we wanted to embark on legislation. It was in our election manifesto.

Photo of Mr Reginald Eyre Mr Reginald Eyre , Birmingham, Hall Green

I am glad that the hon. Gentleman acknowledges those difficulties, particularly with regard to the demands that he made in the closing stages of his speech.

I shall in a moment touch on some of the detailed problems involved in the clause and schedule, but many of them are related to wider criticisms which can be made of moves such as this to impose on companies by law some form of two-tier board structure. Those who seek to do this must answer a number of questions.

A fundamental question relates to the implied inadequacy of the administration of companies, and therefore of company law as it stands. While the corpus of company law imposes particular restraints on the activities of companies—for example, the requirement to produce audited accounts, as well as enabling them to be subjected to official investigation—its underlying rationale is to permit companies to adapt their structures and procedures in ways best suited to their own circumstances.

There is, therefore, nothing in company law to prevent companies from establishing a two-tier supervisory and management structure, dividing—for internal purposes at least—the functions between the two levels as they wish. Nor are there any obstacles to prevent the appointment of employee-directors. It is right that as many employees as possible should be involved in the development of a company. Coming from an industrial area, I agree wholeheartedly with that purpose. It is necessary so that the development of a company should move forward with as much wholehearted support as possible.

I believe that the vast majority of companies accept this and reflect this acceptance in the way that they are run. But —and this is the crucial point—companies involve their employees by many different methods, ranging from the purely informal in smaller firms to the rather more formal system in many large companies.

At a time when many boards realise the need to pursue policies designed to encourage employee involvement, we remain unconvinced of the need to impose arbitrary rules on them.

We have noted with interest the developments in Strasbourg, to which reference has been made, where the European Parliament is beginning to recognise that the rigid requirement of the Commis-mission's proposals for a fifth directive on company law is not the only way in which to meet the objective of greater employee involvement.

I turn to the details of the proposals that have been put forward. I note that there is no provision for the secret ballot of employees and that the system proposed can be triggered only by the trade unions, even though only 30 per cent. of the employees may be union members. Further, it is proposed that employee-directors shall occupy half the seats on a supervisory board, which is not consistent with the one-third suggested by the Labour Government less than two years ago.

The position of management is not so much obscured in the code of practice as reduced to that of the Victorian child who may be seen but not heard. Under these proposals the managers may have a management committee, but they cannot be represented on the audit committee, whose functions are not hinted at anywhere. If management chooses a representative on the supervisory board, he does not appear to be entitled to vote.

In these ill-considered proposals, it is curious that, while the clause itself requires the establishment of both a supervisory and a management board, the code of practice does not once refer to a management board; it refers only to a management committee. The proposals, judged all in all, are a recipe for great damage to the largest of our companies. I recommend the House to reject the clause, together with its code, both of which are in part objectionable and impracticable.

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

Is not the Minister going to deal with the principle of democracy? My hon. Friend the Member for Chester-le-Street (Mr. Radice) and I recognised that to put the whole law of industrial democracy into a schedule to the Bill is not possible. What my hon. Friend has done is to stimulate further debate on the matter. The Minister has adopted a ludicrous, appalling, narrow-minded attitude to this subject. Let him leave aside his brief and give us his attitude and his views.

Photo of Mr Reginald Eyre Mr Reginald Eyre , Birmingham, Hall Green

I have listened to the naive and muddled opinions of the hon. Member for Hackney, Central. I believe that it would be better if we passed on and dealt with the important business that follows in the Bill. I have dealt with the basic proposals that have been put forward and I have explained why they are impracticable and objectionable. I have indicated the strong desire of the Government to work to increase the involvement of employees in the work of their companies.

Photo of Mr Ernest Roberts Mr Ernest Roberts , Hackney North and Stoke Newington

I want to question the need for two-tier boards, supervisory management boards and worker-directors. This I will do on the basis of my experience as a national trade union leader and of the views of my own union and others. I want to pose some questions and also give some answers.

First, will the measures that are referred to in the new clause and the proposed schedule bring industrial democracy to working people? Let us look at the experience of existing worker-directors. There are worker-directors in the steel industry, yet we have had a nine-week strike over pay, conditions of work and mass sackings. The worker-directors in that industry are expected to help the management and the Government and to work against those whom they are supposed to represent.

What did the worker-directors in the steel industry know about the £500 million deficit that was exposed a short while ago or about the proposed closure of the Bilston plant? The union officials said that they knew nothing about them. Clearly they had not been informed of these matters by the worker-directors. What did the worker-directors at Corby report back to the workers whom they represented? On the face of it, nothing, because they are appointed.

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British Leyland is supposed to have the best-ever industrial democracy agreement, with workers' representatives on joint management councils, on joint committees concerned with running the divisions and attending conferences with the management on company problems. Yet, within a few months of signing that agreement, The Sunday Times carried the headline: Leyland men warned by management 'You will kill the Midlands'.

Photo of Mr Ernest Roberts Mr Ernest Roberts , Hackney North and Stoke Newington

When I have finished this further quotation: Leyland bosses threaten to sack 100,000 workers. That was disclosed in the national press on 5 October 1976.

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

My hon. Friend is putting forward a better argument against my clause than was posed by the Government. My hon. Friend is at least dealing with the principles of the issue. However, it is unfair to illustrate Leyland, because there was no system of worker-directors there. It was a system below board level. Many shop stewards argued that, if they were to have such a system, it should be possible to get at the top decisions. For example, many Transport and General Workers Union representatives were in favour of having worker-directors at Leyland.

Photo of Mr Ernest Roberts Mr Ernest Roberts , Hackney North and Stoke Newington

What I have disclosed makes the situation worse. Even at that lower level, the workers' representatives, who were supposed to have been sitting alongside management discussing the business and future of the company were not consulted and did not take part in discussions with the management about the running of the company. It is not conceded there and it certainly has not been conceded in British Steel.

I was going on to point out that it was said on television that an ultimatum had been issued by the management and that had done the trick. On the other hand, Mr. Eddie McGarry, the joint chairman of the British Leyland shop stewards, described the ultimatum as being stupid. To illustrate the lack of consultation with and participation by workpeople in British Leyland, the chairman of BL, on ITN on 8 January, said that there would be a cutback of 30,000 jobs. He gave the press that information, but not the shop stewards and trade unions. They said that there had been no consultation on that matter or on the closure of Speke at Liverpool. That was a management decision.

The lack of industrial democracy has been shown by a series of strikes at British Leyland, ending with the dismissal of the chairman of the shop stewards, Mr. Derek Robinson. Can that be described as an illustration of industrial democracy and proper workers' representation?

Photo of Mr Ernest Roberts Mr Ernest Roberts , Hackney North and Stoke Newington

Obviously "No", as my hon. Friend said. That is because, within the agreement, British Leyland has stated that at all levels, from the board down to the workshop floor, executive responsibility rests with the management.

The point is often made that a supervisory board has no right to interfere in the day-to-day running of a company. If industrial democracy means anything, it means that the workers should be consulted and should have a say in the decisions affecting the running of the company and day-to-day problems.

The situation in the coal industry is no better. There is representation at various levels from the top to the bottom. The coal miners have been involved in industrial conflict, closures and sackings. There have been no proper consultations or joint decisions. The National Union of Mineworkers is putting forward proposals for drastic changes in the democratic control of the pits. In the public sector there is a case for instituting real joint control of undertakings with the workpeople and managements responsible.

The Post Office is, in effect, to be wound up by the Government. There are appointed members on the board, but if we are to have democracy there must be elections. Representatives at board level, or at any level of management, who represent workpeople and trade unionists must be elected by those whom they represent. My union and the Confederation of Shipbuilding and Engineering Trade Unions, which represents about 2½ million work people in the engineering industry have gone on record against worker-directors in private industry. The TUC, which represents about 12 million workers, has voted against the mandatory imposition of supervisory boards with worker-directors and for the rights of trade unionists to negotiate on these issues with their companies. However, there may be a loophole by which a means may be found of trying out the business of worker-directors.

The fear among many trade unions and trade unionists is that worker-directors will become prisoners on the boards. If the shareholders and owners are still in majority control, it is feared that worker-directors will become Trojan horses within the unions.

There is a clear need for industrial democracy. My union, on behalf of its 1½ million members, makes certain recommendations in a booklet that has been produced in hundreds of thousands for the membership. The summary of recommendations states:

  1. "(1) In the private sector we should proceed towards Industrial Democracy through an unlimited extension of collective bargaining.
  2. (2) We should seek to establish company bargaining on broad issues without interference in traditional plant bargaining.
  3. (3) In the nationalised industries we should become involved in decision making, seeking majority Trade Union representation at board level and effective control at other levels.
  4. (4) That we"—
use— the new Procedure Agreement"— an agreement that we have established with the engineering industry— to establish, as far as possible, company bargaining.(5) Where new Workers' Co-operatives need financial support, we would consider each case on its merits. Industrial democracy concerns the lives and safety of individuals. The summary states: Where safety representatives operate in the name of this Union they should only de so as Shop Stewards. Those are a few of the proposals that my union makes for the purpose of extending democracy within industry.

In spite of all the talk—there is much of it—about the need to give workers industrial democracy, we find that they still have to take action for ordinary, basic and elementary rights. These are the rights that trade unionists had to fight for in the 1820s—for example, the right to have trade union recognition within a company. One has only to mention examples such as Grunwick, the steak houses, Automats in Manchester, Dessoutters and other companies—

Photo of Lieut-Colonel Dick Crawshaw Lieut-Colonel Dick Crawshaw , Liverpool Toxteth

Order. The hon. Gentleman has been in order, but he has begun to move outside the scope of the clause.

Photo of Mr Ernest Roberts Mr Ernest Roberts , Hackney North and Stoke Newington

The elementary democratic rights that we require as a result of making changes within industry are, first, the provision of facilities for the shop stewards to function, meet and discuss their problems and for management to provide facilities for workers. The Government could easily have given some essential democratic rights in the Bill in relation to information and disclosure. We believe that democratic rights should be given to individual workers to allow them access to the sort of information that is circulated to shareholders. They should be told the terms and conditions of their employment, including wages, hours, holidays, pensions, sick pay arrangements and so on. They should be given access to the files and the information that the company has built up about employees and employment prospects. Through the Bill, workpeople's representatives should be given information on manpower, the number of employees, job descriptions, the rate of turnover, statistics on short-time working, absenteeism, sickness, accidents, recruitment, deployment, promotion and so on.

Those are some of the ordinary elementary matters which trade unions require for the establishment of basic democratic rights within industry. Without such facilities the idea of workers having rights as worker-directors is a hollow sham. Companies should look into such matters and ensure that such specific matters shall be included in order to give workers those basic democratic rights.

Photo of Mr Donald Anderson Mr Donald Anderson , Swansea East

My hon. Friend the Member for Hackney, North and Stoke Newington (Mr. Roberts) has made a valuable contribution. He accepts the general concept of industrial democracy but he points out an alternative road to that which my hon. Friend the Member for Chester-le-Street (Mr. Radice) has outlined in his new clause. My hon. Friend the Member for Hackney, North and Stoke Newington mentioned the inadequacy of the tentative steps which are being attempted in the direction of employee participation. Of course, conflicts of interest will remain, whatever structure is devised within industry.

I congratulate my hon. Friend the Member for Chester-le-Street. He has done an immense amount of work on the subject, both in this Parliament and the previous one. If he wanted anybody to blow his trumpet, he should note the reaction of The Economist to his book "The Industrial Democrat": The value of this book"— in which he outlined something akin to his present new clause— especially since it was written by a first-rate Labour MP and former union research officer, is that it points unions in the direction of reforms, both in structure and attitude, which will be essential to successful participation. Having had such a useful start to the debate, we found it all the more disappointing to hear the Minister's response. He was stuck in the straitjacket of his brief and he gave no hint of personal or other willingness to escape from that brief and indicate whether the Government were prepared, in the lifetime of this Parliament, to make a positive contribution to the concept of industrial democracy. If one looks at the record of the Post Office, one may well imagine that the reverse will be the case. Any tentative steps towards industrial democracy may be set back by the Government.

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My hon. Friend the Member for Hackney, Central (Mr. Davis) drew attention to the decision of the Legal Affairs Committee of the European Assembly of 20 February. It rejected the fifth directive on-worker participation. It decided that the structure of company law should be left to the discretion of individual Governments within the Community. That appears to accord with the general view of the Government. It would be helpful to know whether the Government stimulated the torpedoing of that directive. The general concept of employee participation is now firmly on the agenda. Whatever the Government may say, it will not go away. We therefore require a more positive response from the Government.

As regards the new clause that stands in the name of my hon. Friend the Member for Chester-le-Street, a substantial case can be made for changing to a two-board system. However, that is not necessarily connected with employee participation. The debate about a two-board structure has become enmeshed in a debate about employee participation. The case for a two-board structure does not necessarily depend upon the view that one holds about employee participation. For example, the supervisory councils of German companies were introduced in the 1890s. They gave shareholders more effective control of the operations of management. Greater participation did not effectively begin until the 1920s. That was long after the supervisory boards had begun operation.

As my hon. Friend the Member for Hackney, North and Stoke Newington has said, a two-board structure may not be the best or only means of ensuring employee participation. However, the concept of a two-board structure implies criticism of the existing structure. I shall give brief examples of some of the advantages of a two-board structure.

First, it would give a more effective voice to shareholders in large private sector corporations. The wishes of shareholders come to light at present only if there is a public row. One could argue in favour of a formal process whereby shareholders could join together. At present, they have insufficient clout and influence in a general meeting. At a general meeting it is difficult to call management to account effectively. A two-tier structure with a supervisory board would mean continuing pressure on behalf of certain interests. We can define and add to those interests. The supervisory board would appoint a management board. It would, therefore, exercise effective discipline over the board.

Secondly, the two-tier board structure allows managerial independence at operational level, separating the amateurs from the professionals. That separation is well-nigh impossible in a unitary board structure. The combination of chairman and managing director would not be appropriate. The chairman would have a strategic role, being responsible to the interests, however defined, and responsible for the general operation of the company, whereas the chairman of the management board would have more of an operational role.

It may also provide scope for dealing with the problems of a growing family business. That may appeal to the Government. There is the traditional syndrome of a family business declining through managerial incompetence, in part because of too much responsibility being given to family members, and then a takeover occurs. In the two-board structure, family shareholders could be on a supervisory council, leaving the professionals to get on with the job of running the business. It also does away with the need to put the operational heads of the business on the main board, when they may be quite unsuited for a strategic role.

The two-tier board structure is particularly applicable to public sector corporations, where the Government want to influence but do not want to run the business. It is an ideal way of dealing with the problems of Government supervision.

The case for a two-tier board can rest on bases other than employee participation. My hon. Friend the Member for Chester-le-Street was supported by my hon. Friend the Member for Hackney, Central when he said that the case for greater employee participation had in the past been linked with discussion of the two-tier hoard. It is a basic democratic principle that the status of the employee should he no less than, and often should he be seen to be greater than, that of shareholders.

In social terms we find the role-playing irritating. People appear to lose their democratic rights and dignity when they pass through the factory gates, and are therefore, far less able to play a different role when they leave the factory. It is more appropriate that interests such as those of employees should be represented on a supervisory board and not a unitary board.

The two-tier structure also has interesting implications for the roles of financial institutions vis-a-vis companies. It preserves accountability, yet leaves management with the task of getting on with the job of running the company on an operational basis. We could well see the development of industrial banks, with greater participation by banks on a supervisory board in running a company. At present they normally stand apart and do not take a share in equity. They merely have an overall oversight of the affairs of a company.

My hon. Friend the Member for Chester-le-Street put forward an important case, which he argued well. He set the context for the debate. There must be a discussion on this important matter. I congratulate my hon. Friend. I am only sad that the Government's response has so far been negative. Although they point out deficiencies in the drafting of the new clause, they have said nothing—

Photo of Mr Clinton Davis Mr Clinton Davis , Hackney Central

They do not have an idea in their heads.

Photo of Mr Donald Anderson Mr Donald Anderson , Swansea East

They have not given us the courtesy of revealing any ideas that they may have. Do they, for example, reject out of hand a more flexible structure with employee representation on supervisory boards, beginning at a relatively small level and developing as the company wills? With the agenda for this debate set by my hon. Friend, we ought to hear some more positive response from the Government to this most important of issues.

Photo of Mr Peter Archer Mr Peter Archer , Warley West

I should like to echo the congratulations of my hon. Friend the Member for Swansea, East (Mr. Anderson) to my hon. Friend the Member for Chester-le-Street (Mr. Radice). I do not consider that this debate has been wasted. It has been a good debate on the Opposi-tion side of the Chamber.

It is unfortunate that the Under-Secretary of State has had to leave. I wanted to tell him that he must not confuse two separate matters. It is true that we in the Opposition are not wholly in agreement about the exact working out of these ideas. But the hon. Gentleman must not confuse that with a lack of interest. One can have a lively discussion on a matter without any absence of interest. One cannot have a lively discussion, as we have discovered from the Government side tonight, without a measure of interest.

Discussion in the Labour movement on this issue goes back a long way. I was reading this morning a pamphlet published by the Fabian Society in 1953, picking up the German experiment and trying to draw out lessons for this coun- try. The discussion on the Opposition Benches, encouraged or not from the Government Benches, will continue. This is part of a general discussion of what company law is about. We have always known that it was about shareholders. I have said more than once in these debates, but will perhaps be forgiven for saying again, that part of the problem we encountered at the beginning was that shareholders were members of the company. A shareholder who last week heard about the company for the first time when he picked up a bundle of shares is a member. An employee who has devoted 50 years of his life to the company is not a member. All that exists between the company and the employee is a contract of employment.

Company law was about shareholders. More recently and a little more marginally, it is about creditors. But, as international law was about nation States and individuals did not count until individuals forced themselves into international law, so company law is chiefly about shareholders and partly about creditors. Employees did not exist. Even in this Bill, the Government have been forced to accept that employees have a legitimate place in company law. If the existence of employees is recognised, one of the questions that is bound to arise is their right to participate in decisions, not just decisions about wage rates and working conditions but decisions not all of which are susceptible to collective bargaining.

The TUC, in its guide to the Bullock report, says in the introduction: Until we extend the machinery of joint regulation to cover issues such as investment and product development, trade union involvement at company level will be an illusion rather than a practical reality. Employees may have an interest in the future of the company at least as close to their hearts as that of many of the shareholders. Many of my constituents have recently known this to their cost. I echo the remarks of my hon. Friend the Member for Swansea, East. A democratic way of life includes the right of people to demonstrate that they have a measure of control over their own destiny. That control does not terminate at the factory gate. It is necessary if their role is to be more than merely demanding more and more. If we are asking them to face up to decisions and to decide what they will renounce as well as claim, they cannot be expected to exercise responsibility if they are not treated as responsible people.

However, there are problems, and we all know that. They run through the whole of company law, and I suspect that they are not confined to company law. How does one give effect to the contradiction that there is within any workplace a strong community of interest? Employers are concerned with the prosperity of the enterprise. So are the employees. There is a community of interest which may be opposed to the interests of people who are not at the enterprise. But the enterprise is not homogeneous. There is also within the enterprise a conflict of interest. That is not destructive of good relations. It is recognising the fact. Given that the gross profits are constant, the higher the employeees' remuneration the lower will be the distributable profit. So there will be conflicts of interest of that kind that will have to be resolved.

9.15 pm

We are looking for a way in which both sides can join in the resolution of the conflicts while pursuing their common interest in the prosperity of the enterprise. First, they will require a right to information, and there will be encountered difficulties of confidentiality. However, as my hon. Friend the Member for Hackney, Central (Mr. Davis) said, I suspect that they have been somewhat over-dramatised. The very fact that meaningful collective bargaining exists entails that there must be a provision of some information, some of which is confidential.

Photo of Mr James Dempsey Mr James Dempsey , Coatbridge and Airdrie

I believe that my right hon. and learned Friend is aware that employee representation has been operating in this country for the past half century. He will be aware of the example of the co-operative movement, in which employees are elected directly to the board such as the one on which I served. There is no problem of confidentiality there, no problem of questioning auditors, or of deciding whether an enterprise should go or whether it should be extended and a new edifice erected to provide more employment. Those problems do not exist. I believe that they are becoming a figment of the imagination of the Minister and some of his supporters. I am sure therefore that my right hon. and learned Friend will remember that model.

Photo of Mr Peter Archer Mr Peter Archer , Warley West

I am most grateful to my hon. Friend for pointing out that model. Of course, he is absolutely right. At risk of perhaps overdoing the commercials, may I mention another Fabian pamphlet written recently by my hon. Friend the Member for Consett (Mr. Watkins), which is most valuable on this subject?

I understand the difficulties that were alluded to by my hon. Friend the Member for Hackney, Central. All this could become a meaningless slogan, and none of us would want to participate in a merely cosmetic exercise.

The examples quoted by my hon. Friend indicate two things. First, this proposal will work only where there is cooperation from management. My hon. Friend left open the question whether there might be merit in placing management under a statutory duty to co-operate. That is something that we can discuss. Secondly, it is important in all our discussions to listen to the experience of those who have had to make industrial relations work. I hope that we shall not overlook that. I accept, as he said, that should we ever decide on having statutory recognition of employee-directors they would not operate exactly like commercial directors. In its supplementary evidence to the Bullock committee the TUC made that quite clear. It said: The objective is to find a form of representation and participation in decision-making in the private sector which provides for participation in major decisions, but leaves the lines of responsibility of the workers' representatives to their constituents. The aim must be to give legal rights to workpeople of collective participation and control over decisions which the collective bargaining and consultative process have not given them. We cannot expect employee-directors simply to operate in the best interests of the company in the old sense of that expression.

That was recognised by the TUC in its summary of the Bullock report. It says that the representatives would not in a legal sense be committing the workers or the joint representative committee to company policy. However, the representatives would carry the same responsibility as shareholder representatives in that they would be required to act in what they believed to be the best interests of the company. That would no longer be equivalent to saying—as at present—"in the best interests of the shareholders". They would obviously have different duties, functions and interests from those they have at the moment.

What was said by my hon. Friend the Member for Chester-le-Street is particularly applicable here. The whole experiment would have to grow out of the existing machinery of collective bargaining. One cannot conjure it out of mid-air. It grows out of what is happening already at the grass roots. The way in which the system will be moulded was indicated by my hon. Friend the Member for Hackney, Central. It would be left to the employees in the workplace to decide whether they wanted to try this experiment, what kind of experiment they wanted and how they would mould it to their particular problems and circumstances. It would be left to them to decide whether there would be a two-tier board.

It is not true to say that companies already have the right. Of course, shareholders can authorise an experiment of this kind, but it is not true that employees have the right to authorise it. If we make it mandatory, one of the questions that will arise will be how far we should spell out the details of what the employees would be entitled to opt for. In a document published after the Bullock report, the General and Municipal Workers Union said that it would like to leave the issue fairly open so that each workplace could fill in the gaps in accordance with its own problems.

I repeat to the Government what has been said by my hon. Friends. This question will not disappear. We can now get on with what the Minister has called the important matters in the Bill, but one day, whether he welcomes it or not, the hon. Gentleman will come to believe that this subject is important, because it will affect the future of this country and the future of this Government.

Photo of Mr Giles Radice Mr Giles Radice , Chester-le-Street

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.