I beg to move,
That leave be given to bring in a Bill to amend the law relating to public companies and the contents of the directors' reports; to make provision concerning the appointment of audit committees of the directors of certain public companies; and for connected purposes.
In every Session of Parliament since 1969, I have introduced a Bill or a measure of reform of company law with a view to giving somewhat greater powers to the shareholders in public companies.
The privilege of limited liability was a very important concession. Shareholders have a clear responsibility to ensure that their undertakings are efficiently and properly managed. Unfortunately, it can sometimes happen that the supervisory elements within the company, in particular the non-executive directors and the auditors, are not able to be as effective as they would like to be—or as they ought to be — for the good of the business. It is not always easy for the shareholders, when they suspect that something may not be quite right, to ensure that suitable changes are made.
Since 1970, in my series of proposals for reform of company law, I have sought ways to make it easier for shareholders, particularly the institutional investors, to overcome this problem without causing a major upheaval which might damage the business. In general I have sought to recommend a number of minor changes in the statutory procedures of public companies which would tend to give the non-executive directors more authority and which would give somewhat greater influence over management to the outside auditors.
My Bills have enjoyed all-party support from the beginning, and on three occasions, including last year, I have completed the Committee stage. I was encouraged by the amount of support that my Bill received last year. I think that the number of notorious cases of managerial failures and dubious practices that have lately been coming to light has convinced very many people that some changes in the law would be opportune.
In drafting my proposals for the present Session, I have consulted a number of eminent people in the profession of accountancy, and I have also received very helpful advice from a number of important institutions which are concerned with the efficiency and the rectitude of British management.
I should like to mention in particular the Bank of England, the stock exchange and the takeover panel; the CBI, the Institute of Directors and PRONED; the Institute of Chartered Accountants and the Chartered Association of Certified Accountants. I have also been assisted and encouraged by colleagues on both sides of the House and I have been helped by a number of useful hints from the Department of Trade and Industry. In so far as I could, I have taken up all the suggestions that have been made. I have also had the invaluable help of a company law specialist who is a partner in one of the most prominent firms of solicitors in the City.
My Bill this year will make two particular proposals — firstly, that the directors' reports of all pubic companies should indicate which of the directors are independent directors; and, if fewer than three such appointments have been made, what is the policy of the board in respect of such appointments.
Secondly, for major public companies, for which I include a definition which would cover some 250 or 350 of our largest public companies, it should be a regular item of business to be considered at the annual general meeting whether to require the board to appoint an audit committee of the directors. The practice of appointing an audit committee is now well established in north America and it is, in fact, part of the listing requirements of the New York stock exchange; but the practice has not yet made much progress among British companies.
It should be noted that my Bill would not require any company to set up an audit committee, but it would make it a relatively simple matter for the shareholders in very big companies to get it done if they thought it desirable.
For the convenience of companies which have decided to have such a committee, I include in my Bill a schedule of model rules for the conduct of an audit committee. In this I have sought to define procedures which will give a degree of influence to the members of the board who are nominated to serve on the committee, without weakening the collective responsibility of the directors as a whole. My schedule is something like an extension of "Table A." If a company preferred to register its own rules for the conduct of its audit committee, I have provided that it could do so by ordinary resolution.
I hope that the House will see the merit of these modest proposals and will once again give me leave to introduce my Bill.