Company Law Reform Bill [ Lords]

Part of Orders of the Day – in the House of Commons at 6:32 pm on 6 June 2006.

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Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury 6:32, 6 June 2006

I welcome the Bill, which is a major step towards establishing a fair, modern and effective framework for company law. However, I wonder whether it can go a little further than it does.

Last year, when steering the G8, my Government identified the two biggest challenges that face the world today: climate change and the increasing division between rich and poor. We all know from the public's reaction that they agreed with us. Although the public agree that those issues are important and frequently appreciate the efforts of national Governments, not least ours, and international institutions to tackle the problems, that is simply not enough. A major player is missing. We need consistent and concerted effort from business.

Many believe—and I agree—that international capital is insufficiently controlled. That applies especially to democratic control. A recommendation on page 146 of the report of the Prime Minister's Commission for Africa states:

"Developed country governments, company shareholders and consumers should put pressure on companies to be more transparent in their activities in developing countries, and to adhere to international codes and standards for behaviour."

My constituents agree that more should be done and that companies have responsibility. They believe that companies do not do enough. We have a chance to ensure that companies take their social and environmental responsibilities more seriously.

I had received 255 letters, e-mails and postcards on the subject at the last count. [Interruption.] After a while, one begins to give up counting. More people have written to me on that subject than about anything else. People feel strongly that the major problems in the world cannot simply be addressed by national Governments and international institutions. International capital must work consistently and coherently with us to ensure that we address those major issues.

That is not to say that the Bill is not a step in the right direction. I especially welcome clause 158, which clarifies directors' duties, although it might only enshrine in statute that which is already established in common law. I agree with many who would go further and I urge the Minister for Industry and the Regions to consider whether it is appropriate to take a more pluralist approach. If my right hon. Friend, having reconsidered the matter, believes that the only path is one of enlightened shareholder value—in other words, that directors should run the companies in the interests of shareholders while recognising that, in the long term, that means taking account of a wider range of factors that may affect the business, such as the impact on employees, the environment and communities—we can improve that approach.

I ask my right hon. Friend to consider two matters in particular. The first is ensuring that directors report properly to their shareholders and, secondly, that all shareholders—I mean all—can hold those directors to account.

Let me consider part 15 chapter 5. I greatly welcome the new duty for directors of our biggest companies to report on the environment, the welfare of employees, the social impact of their companies, their policies and how effective they have been. However, I am concerned that there is a get-out clause. As Mercutio said in "Romeo and Juliet", it is

"not so deep as a well , nor so wide as a church door; but 'tis enough, 'twill serve".

The report that directors make needs to include information only to

"the extent necessary for an understanding of the development performance or position of the company's business".

I do not understand what that means. I am worried that the get-out clause is so big that it makes the Bill ineffective in some ways.

Even if that problem were resolved, "Fine words butter no parsnips", as my nan used to say. The best written report in the world is not enough in itself. I am sure that many fine equal opportunities policies are in place in City institutions, yet consider the way in which they treat their women employees. Directors need to be held to account so that it is not simply a matter of writing the right things in a report or getting some bright young thing to write something that sounds good and ticks the right boxes. Once the report is written, shareholders must hold directors to account. If my right hon. Friend is resolutely of the view that shareholders are the only people who can hold directors to account, we should allow all of them to do that.

Conservative Members repeat that we are all shareholders now. Let me present them with some inner-city common sense and reality: not all the people on my estates are shareholders. However, one fifth of the population—nearly 12 million people—hold shares. Of those, almost 4 million—one third—have no voting rights because they hold their shares in pension funds. Why is that? I do not follow the logic or the fairness of that and I am not alone.

Yesterday, I read something that appeared pretty sound. It stated about clause 136:

"The truth is, and the companies know it, that this simple clause has the power to force companies to treat all private shareholders with the respect they deserve. It might even enliven increasingly dull and predictable annual meetings. Overnight, the board would be far less certain of winning key votes like those on directors' remuneration—very rarely voted down because of backroom deals with City institutions...

As private companies control increasingly large chunks of our daily lives through the march of the Government's private finance initiative, the notion of a shareholder democracy has never been more important. History tells us democracy only flourishes when people look after it.

Our shareholder democracy is no different. For years, it has been ignored. This has got to change. The battle starts here."

That call to the barricades is from the City section of The Daily Telegraph. If the City section of The Daily Telegraph is asking for all shareholders to have a voice and to be allowed to hold directors to account, I must urge my right hon. Friend to consider whether we can achieve that. Furthermore, I would ask that, at the very least, it be made mandatory that fundholders publicly declare how they vote. I was amazed to hear from the TUC that fundholders are allowed to vote as they wish and then decline to be accountable. I certainly hope that the Bill will be able to stop that happening.

I strongly want this country to be an excellent place in which to do business, and the Bill will ensure that it is. However, if it were to be beefed up a little, this would continue to be an excellent place for ethical and responsible business to thrive. I am confident that I speak on behalf of the majority of my constituents when I urge the Government to consider that point.