Performance of Companies and Government Departments (Reporting) Bill

Part of the debate – in the House of Commons at 1:52 pm on 30th January 2004.

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Photo of Mr Andy King Mr Andy King Labour, Rugby and Kenilworth 1:52 pm, 30th January 2004

—in order to make progress. However, I agree with the right hon. Gentleman as regards the principle of the Bill. That explains the reference to the Government in the title.

It is not fair to anyone if reporting is not standardised. Many of the companies that produce reports do not provide a full picture of their impacts. Many of the reports are glossy and PR-led, but do not provide information that enables investors to compare the performance of different companies or to track the performance of a single company year on year. We need mandatory reporting and cannot rely on a voluntary scheme—too many will opt out. Mandatory reports will prevent companies with high brand recognition from being undercut by companies less exposed to public attention. Requiring all companies to report will level the playing field.

The first requirement of my Bill in clause 1 is for the annual publication of an operating and financial review, or OFR, to include reports on a company's social, environmental and economic impacts and performance. Clause 1(3) defines the objective of the OFR as allowing an "informed assessment" of the company's operations, financial position, future plans and its impact on the environment and on the communities in which it operates. Clauses 2 and 3 set out the matters that must be included in the OFR, and the matters that need to be included only if they are necessary to allow an "informed assessment".

Clause 4 sets out the process for signing off the review. Clauses 5, 6 and 7 define which companies are "major" and therefore must publish an OFR. I understand that the conditions would capture about 1,000 of the largest companies, although clause 5(7) and (8) would allow Ministers, following a review, to include more companies as reporting methods develop.

The Bill would amend the basic duties on company directors by adding to the duty to return maximum profit to the shareholders further duties to consider social and environmental impacts. Because maximising return to shareholders is legally required of company directors, profit is the ultimate measure of all corporate decisions. A sole duty to profit enables companies to put profit before community well-being, worker safety, public health and environmental preservation. The Bill would change that.

Clause 8 sets out the key duty that directors must act in accordance with the company's constitution. Clause 9 requires a director to promote the success of the company and, in subsection (1)(b), requires that he consider all material factors. Material factors are further defined in the clause to include, among other matters, impacts on communities and the environment. The clause also requires directors to reduce as far as possible damaging impacts on the environment and communities. Such impacts were highlighted in a recent report by Christian Aid, "Behind the mask: The real face of corporate social responsibility". What some of the largest companies are doing in the UK and across the world is appalling and must end.

Clause 10 sets restrictions to prevent directors delegating their duties to others, except in certain well-defined circumstances. Clause 11 determines the standards of care and diligence that will be expected of directors.

I acknowledge that much of the work on those clauses was done not by me, but by the Government. As much as 95 per cent. of the Bill is taken from the White Paper "Modernising Company Law", which included a set of draft clauses. I have altered those proposals—modestly—to increase the extent to which environmental and social matters are included in the reports. I have also allowed the OFR rules to extend to smaller companies in time.

However strongly I recommend the changes to the Minister, even more important is that there is a change in gear in implementing the proposals. It is three years since the Prime Minister issued his challenge, yet it has largely not been met. The company law review, having begun in March 1998, is now almost into its sixth year, yet we still have no requirement for reporting. In 1994, the Labour party published its environment policy, "In Trust for Tomorrow", which promised

"a requirement on larger companies to report on environmental performance and strategy, helping to optimise resource use, reduce pollution and disseminate best practice."

Ten years on, that commitment is just as valid.

An advance in this field is vital to every Member of Parliament and everyone across the country. The proposals in the Bill will benefit us all. I hope that the Minister will recognise the pressure for change and redouble the efforts of his Department and others to get the measures introduced and operating as soon as possible. I commend the Bill to the House.