§ SIR WILLIAM HUTT
moved for leave to introduce a Bill for the better regulation of the accounts of joint-stock companies, including railway companies, and placing them under the supervision of the Board of Trade. He said, that his object was to bring into practical effect some important provisions of the Acts under which these bodies were incorporated, and to secure to shareholders and the public periodically a true balance-sheet of the financial affairs of companies, and a true statement of their assets and liabilities. No one could have read the Act of 1854 for the consolidation of these companies, or the Companies' Act of 1862, without being struck by the grave and imperative language in which the Acts directed that no dividend should be paid by any company unless their accounts showed that the dividend had been really earned, and could be paid out of the net profits of the company. It might be thought that the ordinary maxims of prudence and good faith, combined with the uniform practice of persons privately engaged in the transaction of commercial affairs, would have been sufficient to secure the observance of such a regulation, without the authoritative interposition of the law. Unhappily the fact was far otherwise. Directors of companies were too often tempted, in order to make things pleasant to their proprietors, and to make their shares look well in the market, to disregard all these moral and legal obligations, Railway companies uniformly produced what they called a balance-sheet, but it was frequently such as no merchants or bankers would be satisfied with. With respect to companies formed under the Limited Liability Act, the greater part of them were not in the habit of producing any balance-sheets at all, but were content with a report, whose chief purpose was that of mystifying their proprietors and the public. It was not surprising, therefore, that great concerns, often of a very complicated character, conducted, with such recklessness and irregularity, should have ended disastrously and disgracefully. He proposed that no company should pay any dividend until it had deposited with the Board of Trade a statement of its liabilities and assets in a form prescribed by that Department; that it should be 1589 signed by the officers of the company and two Directors; that it should be registered and open to inspection under certain restrictions; that the Board of Trade should be empowered on the requisition of two Directors of a company to inspect the account-book of the bankers of the company and report thereon. He also proposed to adopt the penal provisions of the Railway Securities Act, in order to carry out the objects of the Bill. The Bill introduced no new principle or machinery, but was merely an application of the Railway Securities Act and the Companies' Consolidated Act.
§ MR. STEPHEN CAVE
said, this was not the first time that this important subject had been brought before the House. In the year 1847, after disasters in the railway world, more general perhaps in proportion than those which had recently occurred, similar proposals were made. These attempts were not successful. They were resisted by both the Directors and shareholders of the great companies, and four Bills were fruitlessly discussed in the House of Commons in three years. In 1848 a Bill was sent down from the House of Lords. It proposed to enact that on the requisition of a certain number of shareholders, who were ready to deposit £200 to meet expenses, Government should appoint impartial persons as auditors. The object of the Bill was, it was said, to protect the minority, because the Directors being elected by the majority, if the majority elected the auditor too, the check would be imperfect. It was objected that there was no cry for it in the country; that there was no demand for it amongst the shareholders that the interference was sought not on behalf of the public but on behalf of private partners in private concerns; that they might just as well have an audit of the accounts of the Bank of England or any joint-stock company. In 1851 the railway companies themselves brought in an audit Bill, proposing to appoint a board of auditors elected by shareholders, having the qualification of Directors. Mr. Labouchere, who was then President of the Board of Trade, objected to the proposal, because it made people judges in their own cases, and because such tribunal would want both independence and continuity. He said that the directors in the House prevented his bringing in a better measure. On that occasion Mr. Hume among others argued that it would be better to allow the railway companies 1590 to have more power to manage their own affairs, and expressed his approval of the system of five auditors, which prevailed in Marylebone, and in the parishes under Sir John Hobhouse's Act. The last proposal made to the House was that the railway companies should elect a body of 300 persons, out of which five auditors should be chosen to hold their places during good behaviour. It was proposed that the debenture-holders should also take part in this election. No legislation sprang from these Bills. A most important question arose at the outset of this discussion—namely, what should be the scope of the audit itself. It was now generally conceded that an ordinary audit, the mere comparison of payments and vouchers, was an operation which did not give that protection which shareholders sometimes fancied it did. Were they prepared, then, to determine that auditors should report specially on the policy of Directors? Were the auditors to examine facts as well as figures? Was the House prepared for an audit of policy as well as of accounts? That was one extreme. The other extreme, perhaps, was the mere opportunity given to shareholders by the Companies Clauses Act, of inspecting the books for a fortnight before the balance, and a month afterwards. But those shareholders who most required protection were those who would find it impossible to take advantage of such a privilege as that. Several proposals had been sent in to the Board of Trade during the last few months. Though they varied much in detail the common recommendation was that an auditor should be appointed by the Board of Trade, or that there should be constituted under Government a separate railway department to register securities, and to have the general control of the finance of railway companies and to remedy—what was a common complaint and a very reasonable one—the want of uniformity in accounts. If one general scheme could be devised, then by placing the accounts of different companies side by side, it would be possible almost at a glance to compare one with another, and to see how one railway was carrying on its concerns in comparison with another. But against that it was objected, with more plausibility perhaps than force, that it was impossible to have a uniform scheme of accounts for all companies, because the circumstances of different companies were so dissimilar. They could not have an accurate comparison unless 1591 they knew what were the gradients of each line of railway, and the price of coal and coke in each instance, and other details which varied in a greater or less degree in every case. A uniform system of accounts would, however, be a very great improvement. The hon. Member for the City (Mr. Crawford) had already spoken to him on that point. In India the returns were made in a much better form and in a much more uniform shape than they were in this country. The strongest objection he had to a Government audit was the very thing which made many who were interested in railways desire it—namely, that it would have a tendency to what was called restoring public confidence. Nothing of course was better than the restoration of public confidence, provided it was done in a fair and legitimate manner. But he was afraid this would be overdone, and that the public might place too great faith in that system of Government audit. It might be represented to the public, and they might believe, that the soundness of the company's proceedings and finance was certified and even guaranteed by the Government. If that was the effect, as he feared it might be, it would cause a greater delusion and a greater amount of mischief than had already been produced. He had sometimes thought that the railways themselves might constitute a central board of audit, and that they might for that purpose make use of the existing machinery of the Railway Clearing-house, which had already added, with an excellent result, administrative functions of an important kind to those of a merely mechanical character. Such a board, under the control of the railways themselves, would be less likely to give false security than an audit under Government. He would not presume to offer any criticisms on the right hon. Gentleman's proposal till he had carefully examined it. The right hon. Gentleman would, he thought, find a far less hostile feeling among companies themselves than they manifested at the former epoch to which he had alluded. In assenting to the introduction of the Bill he could assure the right hon. Gentleman that it should have his most careful and respectful consideration.
§ MR. CRAWFORD
had not intended to say anything on the present occasion but for the reference which had been made to him by his right hon. Friend. He agreed with the Vice President of the Board of Trade (Mr. S. Cave), that there was great 1592 objection to the Government undertaking the audit of railway accounts. His right hon. Friend appeared to think that the accounts of railway companies ought to be filed and laid before the Board of Trade with their vouchers before they were permitted to declare a dividend. [" No!"] He might have misunderstood his right hon. Friend, but such was the impression left upon his mind. The Government audit would affix a kind of imprimatur on the accounts, but it would be very difficult to give satisfaction to the public. In the first place, they must clearly determine what were working expenses, and what revenue, and unless they could define that by statute there would be constant differences of opinion on the point. The public wholly misunderstood the nature of a Government audit. He agreed with the right hon. Gentleman (Mr. S. Cave) as to what an audit should be. It ought not to be an audit of the policy of a company, for the Directors must be responsible to the shareholders and to the public as to their policy. The audit should be nothing more than an accountant's audit, showing that the accounts were duly sustained by the vouchers and the requisite proofs and authorities. The right hon. Gentleman had suggested that an uniformity of audit might be obtained by means of the clearing system which obtained among the railway companies, but he did not think that any proposal of that kind could be found practically useful, owing to the want of uniformity of interest. There were many objections to the plan of Government audit. It would be impracticable. It would lead the public to form erroneous ideas as to the responsibility of the Government in the matter. His right hon. Friend had rather misrepresented what he had stated on a former occasion. The proposal he then made, as he had expressly stated, was not made out of regard to the interests of railways themselves. It proceeded on a totally different principle—that the Government might avail themselves of the then position of affairs for the purpose of securing the eventual ownership of the railways for the benefit of the State. It was the interest of the public he had in view. He certainly would not for a moment have thought of asking the State to help railways in any eleemosynary spirit. He should be glad to see the Bill of his right hon. Friend when it was introduced.
§ MR. WATKIN
said, that the speeches of his right hon. and hon. Friends had 1593 been addressed to the official audit of the accounts of railway companies. But what the right hon. Baronet proposed was not an official audit. He proposed to introduce a Bill for the better regulation and supervision, by the Board of Trade, of the accounts of railway and other—he supposed all other—joint-stock companies, regulating the accounts, and therefore fixing the dividends of millions of property. That was a very sweeping proposal. It was right that they should know whether the Board of Trade was prepared to take that responsibility in all its length and breadth. The country had grown great by the enforcement of a policy enlarging and deepening yearly—that of leaving private parties to manage their own affairs in their own way. Individual care of individual interests could not be supplied by the action of any Government department. The right hon. Baronet (Sir William Hutt) had, no doubt, great experience at the Board of Trade. He had endeavoured to explain his proposal in language, perhaps, not peculiarly fortunate. When he compared that language with what had fallen from the Vice President of the Board of Trade (Mr. S. Cave), and the hon. Member for the City of London (Mr. Crawford), he should like to ask one question. Did the right hon. Baronet mean to propose to the House to give him leave to introduce a Bill the effect of which would be to place under the control of the Board of Trade the regulation and supervision—totally different things—of all the accounts of all the companies constituted by Charter, established by Act of Parliament, or set on foot by the Limited Liability Act of 1862—not railways only, but every banking company, insurance company, every gas and water company, every partnership in the country consisting of more than seven partners. If that was the meaning of the right hon. Baronet he should like further to know if the Board of Trade was prepared to accept and recommend so sweeping a proposal.
§ SIR WILLIAM HUTT
said, that he certainly did not contemplate anything so extensive. The object he had in view was much more contracted. Already there were provisions in existence which had reference to this subject, but from some defect in their character they were inoperative. His purpose merely was to give them practical operation.
§ Motion agreed to.1594
§ Bill for the better regulation and supervision by the Board of Trade of the Accounts of Railway and other Joint Stock Companies, ordered to be brought in by Sir WILLIAM HUTT and Mr. ELLICE.
§ Bill presented, and read the first time. [Bill 188.]