§ Order for Second Reading read.
§ 1.20 p.m.
§ Sir John Barlow (Middleton and Prestwich)
I beg to move, "That the Bill be now read a Second time."
It is customary, and a very good custom, for hon. Members to declare any interest they may have in any topic about which they speak. I am a director of several companies, but I do not for a moment think that if this Bill were passed, providing for the issue of shares of no par value, it would in any way interest me or my companies. From that point of view, I believe myself to be entirely disinterested. Unfortunately, since this is a rather technical Bill, I do not have the advantage of being either a lawyer or an accountant. Perhaps that might work both ways, and while a lawyer or accountant would have great technical knowledge on this subject, he might not have the working experience which normally a company director has in his day-to-day business.
The purpose of this Bill is to permit the issue of shares of no par value and permits the conversion of existing stocks and shares into shares of no par value. I emphasise that it is not obligatory to do so in any way. It is purely a permissive Bill for those who wish, for various reasons, to do so. If no one 1625 wishes to take advantage of this, no one will have to do so.
This has been a somewhat difficult Bill to draft. It would have been preferable if it could have been included in the Companies Act, 1948, which is a consolidating Act. For that reason, it is impossible to re-write that Measure at the present time. I believe such company Measures are re-written every 20 or 30 years. At the time the Companies Act was passed, there was no evidence of any demand for this provision. This Bill is almost an amending Bill in respect of certain parts of the existing Companies Act, or perhaps it could be better described as a Bill grafting on a new idea to permit the issue of shares of no par value.
For that reason it has been a very difficult Bill to draft. I feel the House will agree that in the circumstances it has been very skilfully and well drawn. Owing to the difficulty of drawing it, I do not pretend for a moment that it is perfect in its present state. There are many things which could be changed and improved, but I am anxious to lay this principle before the House, because I am convinced that it would be an improvement in company law and, that there is a demand for it.
Hon. Members will recollect that much of the Companies Act, 1948, was based on the Report of the Committee presided over by Mr. Justice Cohen at that time. I quote very briefly from what that Report says on this subject:The advocates of shares of no par value recognise that if their issue were permitted, numerous safeguards would be necessary to prevent abuse, for example, provisions as to the price at which the shares might be issued and as to the extent to which the money received by the company in payment for the shares might be treated as a distributable surplus, not as capital, and used accordingly.I am fully aware that there might be abuses, and for that reason I think hon. Members will agree that this Bill has been drawn very narrowly. Perhaps in the opinion of some it is not sufficiently wide, but that was done for a very definite purpose. I quote again from the conclusions which the Committee drew in their Report:While there is, in our view, much logic in the arguments put forward in favour of shares of no par value, there is little public demand for, and considerable opposition to, the proposal.1626 They further concluded:We therefore refrain from recommending any change in this matter.
§ Mr. Glenvil Hall (Colne Valley)
Before the hon. Baronet leaves that paragraph in the Report, I wonder whether he would also call attention—which will save the rest of us doing so—to the objections which the Cohen Committee also saw to the suggestion? I am thinking particularly of their reference to the fact that it would open the door to large manipulation of a wrong kind.
§ Sir J. Barlow
Yes, I quite agree that that is there and I thought that was my first quotation. I want to be thoroughly fair in the parts which I quote and do not quote from this Report.
At that time, as will be seen, there was very little demand for this change. It will be remembered that the Committee sat during the war for about two years and issued their Report in June, 1945. During that period many people were otherwise engaged with more important matters than company law and investments. Conditions undoubtedly have changed. Since that time there has been considerable support for this idea. There has been experience of it in the United States of America and in Canada for many years. I am informed that probably half of the large industrial companies in the United States have shares of no par value. I suggest that if they have been able to prevent abuses in a reasonable way, by basing legislation on their experience, it should not be impossible for us to do the same thing here.
Since I have put forward this Bill, I have been astonished at the amount of support coming from every part of the community. Many small shareholders—I imagine they are small shareholders—have written in their private capacity from different parts of the country. They have included a professor of economics of the University of London, and there have been letters from many important bodies in the City of London. Some people who previously were against the idea, or had no distinct opinion about shares of no par value, now say that, owing to the changed circumstances, they are very much in favour of it. I emphasise that I am putting forward the principle and I should be just as anxious as anyone to stop up loopholes and prevent abuse.
1627 I think that one of the reasons for the change in the attitude of so many people to these matters is that companies are gradually getting older. They are more mature and have built up reserves and ploughed back profits in the past. It is now rather anomalous that a company which has been in existence for perhaps 50 years should be paying a dividend in inflated value on an original capital, issued perhaps 50 years ago. We get two entirely different sets of values.
As the House knows, the present company law demands that when shares are issued they shall have a nominal value, that is, the value at the time of issue, printed on the certificates. It is frequently a pound, or it may be 10s., half a crown or two shillings. It may be anything, but it has to have the value printed on each certificate. I suggest that some shares are worth their face value at the time of issue, though many are not, and that after the time of issue it is a matter of coincidence if they are ever equal to that actual amount again. They will probably ever after have a value more or less fluctuating but never identical to the figure written on the certificate.
That creates much confusion in the minds of the less experienced investors. Many people suppose that because £1 or 10s. is written on their certificates, the real value of the shares has some relation to that figure, whereas we all know that there is frequently no relation whatever. It would be much easier for the small inexperienced shareholders to realise what they are doing if shares were of no par value.
I will give two examples. A few months ago the General Electric Company issued £1 shares at 55s., and I think they pay 15 per cent. dividend. That would be a yield of about £5 9s. per cent. It is not easy for an inexperienced man quickly to estimate what the yield is on the price of the shares either at issue or at their subsequent value.
It is perhaps even more difficult in the case of a share of 12s. 6d. nominal value standing at, say, 48s. 6d. with a dividend of 37½ per cent. It is very difficult for an inexperienced man to see easily and quickly what the yield is on the present market value of the shares. When the dividend is always related to the original nominal value of the shares, it lacks reality for the ordinary small investor.
1628 Shares of no par value do not have a dividend expressed in terms of a percentage; they have a dividend expressed as a cash value, and in the second instance which I have mentioned the dividend, instead of being expressed as one of 37½ per cent., would be about 4s. 8d. per share. It is very much easier and simpler for small inexperienced investors, of whom there are millions in this country, to see and understand exactly what they were doing.
It has been suggested that this is a method for hiding the distribution of large dividends. Let us consider the case of a long-established company which in process of time has laid aside and ploughed in profits. It may have a working capital of five or 10 times the value of the original capital, and it is ridiculous to pay a dividend on the old original capital when there is a much larger amount really being used in the business. That also is difficult for inexperienced people to understand.
I want to expose the truth in every way and not to hide it. I want people to see how much the company is earning. I want them to see exactly what kind of value they are getting on the present market value of the shares. This Bill would simplify matters very much indeed. A share is the value of the assets it represents combined with its regular earning capacity, and shares of no par value are designed to show more accurately and easily the value they represent than does the present outmoded system.
I have tried to put the gist of the matter briefly, but I emphasise that people and organisations who had no real interest in this matter when the Cohen Committee sat nearly 10 years ago now have a very real interest. The House will have seen the almost universal support which this idea has received in all sections of the Press. Some people wish to see the Bill improved, as I do myself. I wish to see it strengthened to provide against any abuse, but I am most anxious that it should receive a Second Reading.
If the House does not give it that opportunity today, it will probably be another 20 or 30 years before there is another Companies Bill which will be the appropriate occasion for this proposal to be brought forward again. I very much hope that this Bill, which is urgently required in the City, and which 1629 would benefit the small investor, will receive a Second Reading today.
§ 1.37 p.m.
§ Mr. John Arbuthnot (Dover)
I beg to second the Motion.
I think the whole House will agree that the Bill has been moved by my hon. Friend the Member of Middleton and Prestwich (Sir J. Barlow) in a thoroughly fair and dispassionate manner. Those of us who are supporting the Bill in the House think it is of great importance that consideration should be given to the pros and cons, and we do not wish in any way to gloss over the difficulties that the Bill might be thought to provide. We do feel, however, that the situation is such that people can be misled by the way that dividends are paid and by the way in which shares are sometimes quoted at their par value when they are not worth anything like it.
As time is comparatively short this afternoon, and as there are a number of other Members who wish to speak, I do not propose to talk for very long, in the hope that the Minister will rise to tell us the Government view about the Bill. It is a Bill which I should have thought ought to have commanded the support of Members on all sides of the House. I well know that there have been occasions when the principle of par has caused acute embarrassment to Members on the other side of the House. For example, the right hon. Member for Bishop Auckland (Mr. Dalton) might even today have a song in his heart if there was not occasionally quoted to him the par value of Dalton bonds.
This Bill however is not concerned with them, it is very much narrower in scope. It deals with the par value of shares in ordinary companies, and the object of the Bill is solely to prevent people from being misled. What is the way in which people are liable to be misled today? It seems to me that there are two things which are misleading. The first is caused by the depreciation in the value of money. If a company had been formed in 1914 its assets, if it had retained them intact, would be very much greater in terms of the present day £ than they were in terms of the £ in 1914.
I have been trying to obtain an accurate figure of the value of the £ today as compared with 1914. The most accurate figure I can get is that the £ today 1630 is worth 5s. 9d. in relation to the £ in 1914. That is to say, the £ has depreciated in value since 1914 to very nearly a quarter.
I must admit that that figure is not particularly accurate, because the only basis on which I have been able to get it has been on the basis of consumer goods and not capital goods. But none-the-less the argument still applies. The £ today is worth, roughly, 5s. 9d. compared with its value in 1914. So if a company was founded in 1914 and kept its assets intact, the capital value of that company, the par share value of that company, ought to be very nearly £4 for every single £ share which it has. If this Bill is read a Second time it will take us a stage further towards removing the possibility of people being misled in that way.
The other way in which I believe people are being misled today is when someone says, "Here is a £1 share in such-and-such a company. You can have it for 13s. 6d." Anyone who is not initiated in these things may think, "By jove, this must be a good bargain." But the possibility is that if it is offered at 13s. 6d., not only is it not a reasonable bargain, but it is very often a bad one. The converse also applies.
It does not follow that, because a £1 share is valued on the market at £5, people are paying through the nose for it. It is to remove that type of misrepresentation that we are supporting this Bill today. Both the United States and Canada have had the no par share for a considerable time, and the misgivings which some people may feel about the introduction of the no par share into this country have been dispelled by the experience of those two countries. If they can get a no par share value without suffering any adverse effect on their people, why should we not do the same?
My hon. Friend referred to the Report of the Cohen Committee, and he was questioned about it by the right hon. Member for Colne Valley (Mr. Glenvil Hall). The right hon. Member said that the Cohen Committee suggested that manipulation of an undesirable kind was likely to take place if the no par share was introduced.
§ Mr. Arbuthnot
When the Cohen Committee was sitting it did not have the advantage of this Bill, and it did not see how tightly this Bill was drawn. It was because he specifically realised the danger to which the Cohen Committee referred that my hon. Friend has drawn his Bill as tightly as he possibly could. As he said, there has not been time to perfect this Bill. We realise its imperfections and limitations and that there is considerable room for improvement. But we believe that the principle of the Bill is right. For that reason, we hope it will get a Second Reading and will be available for improvement on Committee stage.
After all, a share in a company is not related, or is related only for a comparatively short time, to the so-called par value. A share in a company means what it says—a share—and to add anything else to that and say "This is a share valued at £1," is a misleading irrelevance. The longer a company is in being and the longer it is working, either efficiently or inefficiently, the greater becomes the disparity between the par value and the real value of the share.
I believe that the public will be able to understand more easily where they stand in these complicated matters if they know they have a share in a company and that the company is divided into so many shares. They would know what proportion of the assets of the company belonged to them. But to say that the value of a share is £1 when one knows perfectly well that though that may be so today it will not be so tomorrow, or this time next year, seems to be misleading and to require the remedy which this House can provide.
§ 1.47 p.m.
§ Mr. Norman Smith (Nottingham, South)
I beg to move, to leave out "now," and at the end of the Question to add: "upon this day six months."
This Motion is, of course, tantamount to the rejection of the Measure. The hon. Member for Dover (Mr. Arbuthnot) wanted us to believe that it is possible in this year 1952 for somebody or other in this country to be deceived by a plausible rogue flourishing a beautifully engraved share certificate and saying, "Look here, my dear, here is something which is a £1 share, it says so on the face of it. You can have it for 13s. 6d."
1632 It is all very entertaining, but I just do not believe that such a person exists anywhere in the length and breadth of this country. In novels, yes; in real life, no. One cannot sell share certificates that way, and I think that the hon. Member for Dover drew rather heavily upon his imagination.
While the hon. Member for Middleton and Prestwich (Sir J. Barlow) was moving the Motion, I was reminded of those dear days beyond recall in the 1890's when I was a boy, when there used to be current in English conversation a phrase, "Yankee notions." Those were the days when America was far away in space and time, three thousand miles and seven days; and "Yankee notions" was the phrase commonly applied to such imports from the United States as were held generally in rather low esteem on this side of the Atlantic. In that category I would make so bold as to include this Bill, the rejection of which I have the pleasure and the duty to move.
What would it all add up to, supposing the Bill were passed? It would mean in the case of a company which had taken advantage of this Bill and had converted its ordinary stock, or ordinary shareholding, into shares of no par value, that the directors would have power much more easily than is at present the case, to divide up those shares into a greater number of units. That would be the first innocent-looking consequence.
The second consequence would be that the investing people, instead of receiving a dividend warrant referring to a dividend declared and announced at so much per cent.—shall we say, 4½ per cent., or whatever it might be—would find, as I believe the hon. Member said, that their dividend would be announced as a sum of money per share.
§ Mr. Arbuthnot
Does the hon. Gentleman realise that it is perfectly possible to pay dividends in shillings and pence at the present time, so that this Bill does not affect that situation?
§ Mr. Smith
It is. I know of at least one company that does that; the Gloucester Carriage and Wagon Company pays 4½d. on a 10s. share. I know that. It would become general if companies were to convert their shares to shares of no par value. I get a certain amount of 1633 pleasure from seeing these dividend warrants of "one dollar thirty cents per share" from Canada or the United States, even when Income Tax has been taken off on both sides of the Atlantic.
This is a most innocent-looking proposal, and really, as the hon. Baronet spoke, and more so as the hon. Member for Dover spoke, butter would not have melted in their mouths. Nobody would think that they were putting across the House of Commons something that was essentially, inherently and intrinsically anti-social and unethical. Let us look into this matter a little further, and let us see what the consequences are.
Let us imagine that we have a dividend declared in the ordinary way today. Owing to the fall in the value of money, the depreciation in the value of money—which has not been going on just for the last 50 years, but since the reign of the first Elizabeth and even longer than that —it is sometimes apt to happen (and I know this is what hon. Members opposite do not like) that dividends, when declared, look as if they are unduly generous to the shareholders and proprietors.
Let us imagine that such a dividend is declared at the rate of 40 per cent. If we had what this Bill wants to do, there would be no longer any declaration of dividend at the rate of 40 per cent. It would simply be a dividend at the rate, as the hon. Gentleman mentioned, of something like 4s. 8d. per share, or whatever the amount was. The essence of my case against this Bill is that the declaration and announcement of dividends quoting a rate per cent. does tell somebody something. Does the hon. Gentleman wish to interrupt.
§ Mr. Arbuthnot
Does the hon. Member realise that it is the easiest thing in the world to provide more shares so that one can reduce the apparent dividend, so that that position is not affected by this Bill either?
§ Mr. Smith
The hon. Gentleman's interruption is most helpful, and I was coming to that point. He says that we can multiply the number of shares so as to make the proprietors' shareholding look as if it were greater in order to minimise the value of the dividend when it is announced. I propose to come to 1634 that point presently. There are a number of devices by which it can be done, such as watering the stock, bonus share and all the rest.
For the moment, however, I want to compare, favourably, as I think, to my point of view, what happens now when a 40 per cent. dividend is announced with what would happen if a dividend of 4s. 8d. per share were announced, in the event of this Bill becoming law. The hypothesis is that some company or other has announced a dividend at the rate of 40 per cent. Quite a number of people are, or ought to be, interested in that announcement, and I would divide those people into at least three categories, not all of them in the fortunate position of being proprietors of the company.
There are, in the first place, the investors, but the word "investor" covers a very widely variegated class of people. Because we say that Mr. A is an investor and Mr. B is an investor, it does not follow that Mr. A and Mr. B are people very much like each other. I would say that investors can be divided into two very unequal classes numerically.
There is the small but lively and active type of investor, who is very wide awake and who knows what is going on. He may be a little acquisitive and unduly prehensile, possibly, but he is intelligent and wide awake. He is very sensitive to what is going on in the world around him. We see him represented on the benches opposite in large numbers. I do not deny his ability; I merely question his social utility. As for this minority of investors, how do they react to the announcement of a 40 per cent. dividend? It is not really for me to say. Who am I, that I should presume to look inside intelligences far and away surpassing mine in this respect? But I suppose that some of the more lively intelligences among the active investors, seeing the announcement of that 40 per cent. dividend which this Bill seeks, in many cases, to suppress, will say "This enterprise, this business, may or may not offer lucrative opportunities to active practitioners of private enterprise. It seems to me worth while looking into this."
Now, let us consider the large majority of investors, the people who, I believe, were in the mind of the hon. Member for Dover when he made his speech. 1635 They would react quite differently to the announcement of the 40 per cent. dividend, and this, I suppose, is really the case for the Bill. They would react something like this. "Forty per cent? It seems a lot. I think I will get some of these shares—£l shares, 40 per cent., very nice."
But, when these people went to buy the £1 shares, they would be told that the current price is £10, and they would think this most unreasonable. They would be asked £10 for the £1 share. I am assuming a very low level of intelligence—but that was the point in the mind of the hon. Member for Dover when he seconded the Motion for Second Reading. The hon. Gentleman cannot have it both ways, and he cannot blame me for under-rating the intelligence of investors.
I think that is how the ordinary unintelligent investor would react to the announcement of the 40 per cent. dividend. I want to put it to the House that it is quite useless, in assessing the merits or otherwise of this Bill, to have regard to the probable effect on the minds of investors, most of whom are either very pessimistic and suspicious people or very credulous and gullible, which is quite unlike the probable reactions of other people than the investor.
If it is a case of protecting the shareholders, we do not do it in this way. The best protection for shareholders is for them to deal with a reputable firm of stockbrokers. Goodness knows, there are enough of them. I had a brother, the late Herbert Smith, who was an eminent solicitor in the City of London, specialising in company, law, and he used to tell me that English company law compared very favourably with company law across the Atlantic, because it made things much harder for swindlers and much easier for the straightforward investor. My brother was not on my side, politically, but I think he was a good judge.
I say that we have to look at the effect of the announcement of a 40 per cent. dividend on other people than shareholders and investors, whether the minority of intelligent ones or the rump of unintelligent ones. I think there are two other parties to the transaction of the announcement of the 40 per cent. 1636 dividend who have some claim to be considered. There are, first, the people who happen to be employees of the firm concerned. They see a dividend announcement at the rate of 40 per cent. on the nominal share capital, and that might or might not create an accurate picture in their minds. The point is that it does put a picture in front of them, a picture that needs explaining and which ought to be explained.
It could happen that a 40 per cent. dividend might be a completely reasonable dividend in all the circumstances. We all know that could happen. But the employee, when he sees that his firm has announced a dividend of that order, is surely entitled to have the explanation. If they had their way and this Bill were passed, there would be no picture at all in front of the employee's mind. Four and sixpence a share would not tell him a thing.
I do not deny that a 40 per cent. dividend might tell him the wrong thing. This is not the street corner, but the House of Commons. We are reasonable men getting together. The point is, let the announcement of the dividend put some picture in front of the mind of the employees, and then let them argue about it afterwards.
There is another set of people who, I think, have even more claim to be heard than the employees, considerable though their claim actually is. The third set of people who, I think, are legitimately parties to this transaction are a very numerous class without whom any economic process could have no meaning at all and in whose absence there would be no business whatsoever. I refer to customers or consumers, who very rarely enter into the picture where economic argument and discussion are concerned. The customer of the firm, noticing that it has declared a dividend expressed at the rate of 40 per cent.—this is our hypothesis—would be inclined to say to himself, "This firm is overcharging me rather considerably for the things I buy from it."
The customer gets a picture in his mind, and I have one very acute recollection of such a customer who reacted to the price of British steel in 1935, and whose name was Lord Nuffield. His reaction to the declaration of the dividend 1637 of a certain concern, taken in conjunction with the price he had paid for its products, was, "I only wish I were a younger man; I would set up in business against them." The consumer is entitled to be heard in these things, and the gravamen of my case against the hon. Baronet's Bill is that it would take away any picture whatsoever—I know what he is shaking his head about, and I will deal with that in a moment—whereas the present system, imperfect though it may be, gives a picture.
I know that the hon. Baronet would say that the case of the people who gave evidence in favour of the no par value shares before the Cohen Committee was, "If you want to know about the capital value, whether you are a customer, an investor or even a trade union official, all you have to do is to study the balance sheet which the wise company law of England compels firms to produce." I suspect that was behind the shaking of the hon. Baronet's head.
But, I put it to the House, what really is the use of saying that balance sheets afford the protection which ought to be given to the three parties concerned, the investor, the customers and the employees? Is there any hon. Member in this House at the moment who could really put his hand on his heart and say, "I can look at a balance sheet and understand it just as easily as I can read the Anglican Prayer Book and understand that"? It just does not make sense. I am not going to pretend that I am always edified by a balance sheet. I am more often mystified. Why should anybody be ashamed of that? Hon. Members on both sides of the House are mostly the same. Some are more edified than others. I remember—
§ Mr. R. Jennings (Sheffield, Hallam)
The hon. Gentleman is suggesting that the customers and the ordinary shareholders should take a balance sheet and analyse it in order to find out the true value of a share, and in the same breath he is saying that these people do not understand the breaking down of a balance sheet. If that is so, how on earth are people going to find out the true value of the share? Surely, the hon. Gentleman is defeating his own argument.
§ Mr. Smith
I entirely agree with the hon. Gentleman. I am saying that the 1638 balance sheet argument is no answer for the hon. Baronet to use against me when I say his no par value shares would take away any picture whatsoever. The hon. Baronet shakes his head, but the only thing he can have inside his head is the conception of the balance sheet.
Let us have a word on this balance-sheet point and dispose of it for good and all. About the time of the General Strike, I became interested in finance. I could see there was some catch in this class war business. Among other things I read a few years later was an autobiography of a gentleman named Leaf who had for many years been chairman of the Westminster Bank. Well, he was somebody, and he recorded a conversation he had had with the then Governor of the Bank of England, Mr. Montagu Norman as he then was. He said to Mr. Norman, "You know, many people would not understand the weekly statement which you put out from your bank." According to Leaf, Norman replied with a twinkle in his eye, "I doubt whether even you would always understand it."
If people like the late Walter Leaf cannot read a simple balance sheet like that purporting to come week by week from the Bank of England, people less important may be forgiven if they do not accept the argument of the hon. Baronet that the balance sheet is a remedy for anybody who wants a picture, a picture which his Bill is taking away.
§ Sir J. Barlow
Even if the Bill takes away that picture, it puts a clearer and a better picture in its place.
§ Mr. Smith
I submit that the picture which is superimposed goes against the principle of this thing, also that in effect it does not work. My case is that the promoters of this Bill are seeking to conceal from people entitled to know some of the goings-on, some of the operations of the firms concerned. My argument, to the extent that it goes that far, was strangely enough confirmed one day this week by no less respectable a person than the City Editor of "The Times" from whom, with permission, I will quote. It is rather a long quotation, but it will not take a moment. I submit it is very relevant to the whole of this argument and it helps the case of the hon. Baronet; it makes the case of the promoters of this Bill. It says: 1639The most potent argument in their favour really belongs to the sphere of protection against misleading propaganda and misrepresentation, and this could hardly be considered proper fare for the Cohen Committee or any other committee on company law. Par values have virtually lost all real meaning. They lend themselves in some circumstances to dividends of vast nominal percentages which bear no relation to the real dividend on either employed or subscribed capital; and this puts a savage weapon into the hands of any anti-capital propagandist—or even any anti-capital legislator—unscrupulous enough to use it. There would certainly be nothing undignified or deceitful in removing such a weapon or removing the artificiality which provides it. The introduction of the N.P.V. share would be a complete answer.I do not impute indignity or deceit to the hon. Baronet or his friends. What I do impute to them is a narrow-mindedness which in the circumstances of the case really is unpardonable. They are concerned only with the point of view of companies and not with other points of view. They have a quite unqualified belief in what they call private enterprise. For them the law of supply and demand is just as much a law as Boyle's law or Avogadro's law or Charles's law, or any other physical law we learned at school. We on this side of the House believe that private enterprise needs a good deal of restraint. And it has long been my belief that the law of supply and demand is based on the ethics of the jungle, so that wise statesmanship should consist primarily in organising economic abundance so as to render that law nugatory.
If this Bill is passed, it will have the effect of drawing a very decent veil of legal, respectable, obscurity over the operations of companies. I want to quote at this stage from the Report of the Cohen Committee on Company Law Amendment which investigated this question eight or nine years ago. The people who held that investigation were, of course, perfectly well aware of what goes on in companies. They knew all about bonus shares, about watered capital and various other devices, but this is what the Committee said apropos no par value shares:We have also had some evidence that in practice this class of share has given an opportunity to the unscrupulous to manipulate accounts which could be defeated only by a series of elaborate provisions, the substantial effect of which would be to re-introduce a capital account and, with it, most of those same complications which the no par value share was designed to avoid.1640 This Bill would take out the £ sign from the nominal capital of the company, but that £ sign would somehow or other find its way back to the balance sheet where the capital account is concerned. Let the hon. Baronet the Member for Middleton and Prestwich look at the experience of Canada. It is very significant indeed that in Clause 6 of his Bill he provides that where a company does what this Bill would enable the company to do, the authorised share capital of the company should consist of the total nominal amount so converted plus any share premiums—in other words, the total consideration received from the holders of the shares.
That tells me a great deal, because that was the provision in the original Canadian legislation of, I believe, 1924. Six years later the Canadian law was modified to give complete discretion to the directors in deciding what to do with the consideration they got from these owners of the shares—complete discretion to allocate either to capital or to surplus. The result of that was to open the door to fraud, so that four years later Canadian law had to be amended again, allowing directors discretion as to one-quarter and compelling three-quarters to be allocated to capital; the remaining one-quarter, I suppose, could be used to write off capital losses or even to pay out dividends.
The promoters of this Bill cannot claim that the experience of Canada in that respect has been a happy one, which I expect is the real reason why they have made this provision in Clause 6. It is well known, as the hon. Member for Dover intimated, that one can split up shares to make capital look more than the amount of capital subscribed by the promoters, through devices well known to us all. But there is a limit to that process, and it is because of this limit that this Bill is put forward. That limit is a pure and simple arithmetical limit.
§ Sir J. Barlow
Before the hon. Member leaves criticism of Clause 6, he will see that in lines 29 and 30 provision is made against the abuse he suggests, because it is linked up with subsection (2) of Section 56 of the principal Act of 1948.
§ Mr. Smith
That provision had to be made because experience in Canada between 1930 and 1934 revealed that this no par value device can open the door to 1641 fraud. There is a limit to the splitting and dividing of share capital under the law as it stands. The limit is imposed by what is possibly the most elementary consideration of mathematics. Under the law as it is, any company that decides to split its share capital nine times—supposing the nominal value is 10s. a share —gets down to 1s a share. There is an objection to a share of nominal value of 1s.—it sounds so insignificant. If I may use a homely illustration, it is rather like the Yorkshire Penny Bank. I have no doubt that that bank is a very solid institution of considerable importance to the economic life of the North of England, but whenever I pass one of its branches, those massive, grey, stone-built erections, I always itch to walk inside and plank a penny down on the counter. The name of the bank is not consonant with prestige.
Under the existing law, which this Bill would terminate, if one splits ten shilling shares nine times, one ends up with a 1s. share. That is insignificant and does not sound good. But under this Bill the difficulty is removed. One can split the 10s. share as much as one likes, and under the Bill a dividend of 10s. on a 10s. share would simply become a dividend of a Is a share. There being no denomination of share, everybody would be effectively deceived and that is the essence of my argument against this Bill. As the law stands, one can have a picture, as I have put it, consisting of the relation of declared dividend and Stock Exchange value to nominal value. That is a picture which may or may not be accurate, but which can be made the subject of discussion.
My last charge against the hon. Baronet the Member for Middleton and Prestwich and his hon. Friends is much more serious. It seems to me that this Bill has been drafted with an eye on what is possibly the most important characteristic of our age in all that appertains to company finance. I think it is demonstrable that there is less disposition on the part of investors to take risks and put up their money for risky enterprises than there has been for a very long time.
I believe that has nothing to do with politics but is mainly the outcome of technological developments which have been of such a character as to insist that the productive plant should be on a physically far greater scale than hereto- 1642 fore in history. No handful of enterprising men meeting in the saloon bar of a public house could decide nowadays to put up £1,000 each to start a steel works. For technological reasons, a steel works is so big that somehow or other the financing has to be done in another way. It is of the essence of the era in which we live that large-scale industry has found a method of financing developments without calling upon people to put up risk capital. The hon. Baronet's Bill would have the effect of concealing the operation of this important economic factor.
I would not say that the promoters of the Bill are concerned with the interests of shareholders. I do not believe they are. We live in the epoch of the managerial revolution. I would say that this Bill is the outcome of the managerial revolution. It is designed to conceal the operations of industrial managers and financial manipulators who proceed in this way to get the capital which they want for expanding their industry. Undistributed profits become more and more important as the years go on. Undistributed profits under this Bill could quite easily be capitalised, because the hon. Baronet was careful to put in a proviso to Clause 7 which reads:Provided that nothing in this section shall prevent the issue of common shares to members of a company in connection with the capitalization of its reserves.I think it is pertinent to ask where these reserves come from, which this Bill would enable to be capitalised, without anybody knowing, in so easy a fashion. There is in my constituency a very large, well-known and important company which makes most efficiently consumer goods. I have discovered that the finances of that company are mysteriously typical of the finances of most other companies of like size and character inasmuch as this happens: for every 13d. of realised trading surplus, that company pays 7d. to the Exchequer, leaving the directors 6d. to play with. Of the 6d. the directors pay 1¾d. to the ordinary shareholders; 4¼d. is held as undistributed profits and spent on extending the physical plant of the company. That is the important thing—spent on extending the physical plant of the company.
§ Mr. R. Maudling (Barnet)
Was not the undistributed Profits Tax introduced 1643 by the previous Government designed precisely to get companies to do that as much as possible?
§ Mr. Smith
Yes; but I think the hon. Member is omitting this. My hypothesis related to 13d. surplus available, and the surplus available is at the disposal of the directors. The 7d. goes into the Treasury anyway, and the directors have the rest of it to play with. They spend to a great extent on money which they have got, not from risk-taking investors but from consumers and customers—by over-charging consumers and customers, charging them too much for the retail goods, not in order to give a hefty distribution to the shareholders but in order to extend the physical plant. The physical plant of companies is being extended in this way at the expense of the consumers, who are overcharged and made to pay too much.
§ Mr. Jennings
Surely that is not correct, by and large? Companies have built up reserves over the years by putting back legitimate profits instead of taking them out of the company. These reserves which my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) wants to deal with in this way consists of money which has been left in the company to build up that company from small beginnings It is unfair to say that the customer has been overcharged.
§ Mr. Smith
The hon. Member for Hallam (Mr. Jennings) has certain qualities of plain speech and straight thinking which render his interventions in debate, to me at any rate, always most attractive. The difference between him and me, and between his side of the House and mine, is simply this: He regards it as legitimate that customers should be made to pay what the traffic will bear. He regards as quite legitimate the essential law of business, that the price of an article is what it will fetch. We think that is unethical and amoral. We think that the price of a thing should be related as closely as possible, other things being equal, to the cost of its production. The important point is that this Bill will make it possible to conceal this sort of thing from the public. That is what we object to.
§ Squadron Leader A. E. Cooper (Ilford, South)
I had no intention of intervening in this debate at all, but the hon. Gentle- 1644 man's argument is the most complete nonsense that I have ever heard in this House since I have been a Member of Parliament. He cited the analogy of 13d. of which 7d. goes to the Exchequer, the balance being that which he says the customer is overcharged. If 6d. is the amount overcharged, equally the 7d. which goes to the Exchequer is overcharged by the same argument. If the 7d. does not go to the Exchequer, then where is the Exchequer to get the revenue in order to provide all the social services which hon. Members on both sides of the House demands?
§ Mr. Smith
We on this side of the House think it is right that some of the products of industry should be taken and used for social purposes. What we object to is that they should be used for the private purposes of those who are running the managerial revolution—the manipulators of industry.
Before I was interrupted, I was saying that the way in which industry is being financed is a most important consideration. I do not object to industry being financed by an overcharge on consumers, provided that the consumers proceed to own the industry. That happens in the Co-operative movement which finances its very considerable capital expansions mostly out of its trading surplus. After all, its members do own the business, whereas in the case of private industry all this expansion puts added power into the hands of the managerial and financial class, which I, as a Socialist, resent.
§ Squadron Leader Cooper
I wish to say something on the point which the hon. Gentleman is now making.
§ Mr. Smith
I want to quote from the Economic Survey for 1941. The tables there given of the extent of undistributed profits show that in 1948 they amounted to £524 million; 1949, a little less, £487 million; 1950, £569 million; 1951, estimated, £780 million. This is the bare bones of the Capitalist system, and this Bill would help the capitalists to go on doing that without the public knowing what was happening. Now I will give way.
§ Squadron Leader Cooper
It is a little late, but I am obliged to the hon. Gentleman nevertheless. He has cited the case of the Co-operative societies, and said that the company was at least owned by the consumers. He went on to say that private enterprise was not owned by the consumers and was, therefore, a bad thing. I would point out that the trade unions have consistently opposed copartnership schemes in industry.
§ Mr. Smith
The hon. and gallant Member's interjection is quite irrelevant. This has nothing to do with co-partner-ship. Perhaps I can deal with that point in a moment.
I should like to put forward the sort of amendment of the Company Law which we on this side of the House would welcome, and I am not sure that we would not do a bargain with the hon. Baronet. He, too, has certain qualities which we on this side appreciate. He would keep any bargain he entered into. I give him credit for that. Could we not have a bargain something like this? If they want us to give them what we think is rather anti-social and somewhat unethical, but which might conceivably be held to have certain advantages, we might be prepared to do it in return for a consideration —
§ Mr. Smith
The hon. Baronet's Bill would have the effect of enabling directors to capitalise large sums of money held by firms as undistributed profits, actually put up not by investors but by consumers and customers who had been overcharged. I wonder whether they would agree—because this is the company law of the 1960's, and not for the first time am I letting the House into a knowledge of the future and giving a preview of the decade to come—that for every £1 that a private company uses cut of undistributed profits actually to finance the real physical expansion of its plant, there should be created £1 worth of Government debentures, held by the 1646 Treasury, so that the community could get, at any rate some return, on what customers had been overcharged?
If they would agree to an amendment of Company Law like that, we might possibly be prepared to consider doing a deal with them. Until that happens, we remain unalterably opposed to their Bill. We regard it as retrogressive and embodying one of the worst features of company law. I would remind the House of the words of de Tocqueville more than 100 years ago when he wrote of America:I know of no country where the love of money has taken stronger hold in the affections of men.I think that if he were to come to Great Britain today, he would say, "I see sinister signs on the Conservative benches that they want to introduce into this country some of the worst features of American Law."
§ 2.32 p.m.
§ Mr. F. Beswick (Uxbridge)
I beg to second the Amendment.
I hope that this Amendment will result in the still-birth of the proposal put forward by the mover and seconder of the Bill. I listened very carefully to what hon. Members opposite had to say, and I thought that they put their case over very clearly and very reasonably, but I am bound to say that I cannot find in all they said one single social reason why this Bill should be given a Second Reading. I agree with them that it makes no difference to the actual facts of company structure at the moment—it makes no real and immediate difference—but it would enable, I think, the interested people to use this change to make a very substantial difference in the material results of industry.
The hon. Member who moved this Bill said that he had had letters from all parts of the community. I was reminded of a classical remark that was uttered in this House when we were debating the Finance Bill in the last Parliament. It was being argued from the then Government Benches that a certain Amendment was designed to help the shareholders and not the community, and the classic remark was made from the Conservative benches that the shareholders were the community. If hon. and right hon. Gentlemen opposite really believe that, then I can well imagine they are also assured that this proposal has 1647 the support of all classes of their community; but it is, in my submission, a very narrow section of the community who would stand to benefit from this Bill.
The hon. Member said that he wanted to make it easier to see and to understand what is the real value of shares. I think that is quite a reasonable thing to require, and I have nothing against that, but, as I see it, what he also wants to do is to make it much more difficult to understand what was the individual shareholder's actual contribution in the first place. This is a Bill to disguise and camouflage the real contribution of the shareholder. He wants to expose the truth, but I am going on to argue that it is another truth which we should try to expose to all the interested parties of our industrial system.
This Bill is not the only way in which hon. Members opposite and their friends have in recent years attempted to disguise and camouflage the relation between what they take out of industry and what they put into industry. The agitation that there was against a tax on bonus shares was also an agitation in favour of a very effective means of disguising how much had been put into industry by the shareholders in the first place. Also in recent years there has been a practice growing up among companies, and in their reports, to try to relate profits and dividends to turnover. It is often given as a percentage of the price of an article produced by a firm. As I hope to argue, there is no necessary relation between the contribution made by the shareholder as such and the output or productivity of the company.
Why is it that these efforts are being made to camouflage the actual structure —what was put into it and what is taken out of it? The reason why these various people are endeavouring to produce this camouflage is because the shareholders are taking too much out of industry at the present time—taking too much out, or staking too big a claim of the value of industry.
I had some figures extracted of some of the reputable firms—and I make no complaint against the firms themselves, for whom I have a great regard because I think they are a very valuable part of our system—but here is company A, for example. Let us see what they have 1648 been doing. I take the figures up to 1945. A person who invested £100 in company A in 1923 will have received up to 1945 £355 by way of dividends. They will also have received another £160 by way of tax-free bonuses, and although in 1945 they were getting a reasonable 15 per cent. interest, it was 15 per cent. on a 50 per cent. increased shareholding because there had been two additional distributions of capital bonus shares. I do not propose to weary the House with more quotations of that kind, but that is not, in my submission, an unusual or extraordinary case.
§ Mr. Jennings
Is the hon. Gentleman taking 50 per cent. on the capital issue, or is he doing what is the right thing to do, and that is to find out either the initial cost of these shares or the capital employed in the business, because they are too vitally different things?
§ Mr. Beswick
I know all about it. I am going to argue later on that the nominal value of the shares—
§ Mr. Beswick
Let me put it this way. I am going to argue that the real capital value of a company at any given time does not necessarily have any relevance at all to the initial subscribed amount.
§ Mr. Beswick
The difference between hon. Members opposite and my hon. Friends on this point is that hon. Members opposite are claiming on behalf of the original subscribers the entire value of the company at the present time. The increase in the value of the company does not necessarily belong to the initial shareholders. On the narrow point asked, the 50 per cent. in my illustration was the capital distributed on the original contribution.
A classic example of extravagant extraction of wealth from industry by shareholders is contained in the most interesting figures of a certain insurance company. I gave the figure to the House recently when we were discussing the Industrial and Provident Societies (No. 1) Bill. I have worked it out that if I had invested £200 in the company at its inception towards the end of last century the capital value of that sum today would he of the order of £1,300,000.
§ Mr. Jennings
Does the hon. Member say that a £200 holding now has a value of £1 million? Where is that company? I will buy some shares if there are any available.
§ Mr. Beswick
If the hon. Member wants to know the name of it, it was the Prudential Assurance Company which, according to the Select Committee which investigated the matter, had a paid-up capital of £5,839 at the inception of the company. If the hon. Member wishes to do some arithmetic, he is welcome to work out the present value of that capital on the basis which I used in respect of the £200.
I take these figures from the findings of the Select Committee; the initial paid-up share capital in that concern was £5,839, and in the year when its affairs were investigated by the Select Committee the company distributed £400,000 in dividends after paying tax.
§ Mr. Beswick
The real capital did increase and that is what I am complaining about. If the hon. Member will allow me to proceed with my speech I will come to that point later on. The illustration I have given exposes the situation, and it suggests to me that hon. Members opposite want to bring forward a Bill of this kind to try to draw a veil over these very unpleasant facts. If hon. Members opposite do not like my quoting from the Report of a Select Committee—
§ Mr. Frederick Gough (Horsham)
In regard to the case of the Prudential Assurance Company, I have not the facts with me, but I wonder whether the hon. Gentleman has taken into the figure which he has given the amassed life funds of that company, which, of course, belong to the policy-holders and not the shareholders.
§ Mr. Beswick
I am talking about what was taken out by the shareholders. I know that an entirely different sum was paid out to the policy holders.
§ Mr. Gough
This will go into HANSARD and it is apt to be misread. The hon. Member suggested that if somebody put £200 into the Prudential Assurance Company when it was started, the holding would now be worth over £1 million. If 1650 the hon. Member will forgive my saying so, that is a complete misstatement. The figure which the hon. Member has mentioned represents the savings of poor people all over the country. Perhaps the hon. Member will also quote the Pearl Assurance Company.
§ Mr. Beswick
The hon. Member is under a complete misapprehension. My facts are absolutely accurate, and they can be verified by reference to the Beveridge Committee's Report. I know that the shareholders or their descendants were able to use capital which they had not themselves subscribed. I know that they were also able to use capital which had been contributed by other people. This does not alter the fact that they were getting these extravagant amounts of money and that all the money was coming from industry.
If hon. Members do not like my going to a Select Committee for my facts, I will go to a much more reliable source, last week's issue of the "Sunday Express." I notice that that newspaper, with which I normally disagree excepting on Commonwealth matters, and disagree very violently, had a leader on this point. It said that the shareholders in one engineering firm last year received no less a sum than 4,000 per cent. on their original capital. That type of thing is utterly and entirely wrong. It is a situation that we ought to face, and it is one which hon. Members opposite are trying to cover up.
§ Mr. Arbuthnot
I think it was a fact, which was not brought out in the newspaper, that that was before appropriations and before taxation.
§ Mr. Beswick
If the firm paid out 4,000 per cent.—[HON. MEMBERS: "No!"]. Perhaps I misread it. I understood that the shareholders received 4,000 per cent. on their original capital. If I am mistaken I retract that one example. It was a pretty big amount, and if the figure is unreliable it only confirms my original impression of that newspaper. I am sorry that I have to withdraw the one good mark that I was prepared to give it.
§ Mr. Ralph Assheton (Blackburn, West)
Will the hon. Member tell us to which Select Committee he is referring? I should like to obtain a copy of it and read it.
§ Mr. Beswick
The original Select Committee was appointed in 1889. [Laughter.] Oh yes; because a thing goes far back it does not mean to say it is the less true.
§ Mr. Beswick
We have passed that. The hon. Member's right hon. Friend is on a different point. I was saying that the original Select Committee was appointed in 1889. Subsequently there was an inquiry by the Parmoor Committee, the date of which I have not got, but I shall be glad to give it to the right hon. Gentleman.
§ Mr. Assheton
The hon. Gentleman said just now that one could see from the Select Committee's Report that the shares of this company which had orignally been worth £200 were now worth over £1 million and that the figure was to be found in the report of the Select Committee. The dates he took were 1889 and 1945. If the Select Committee reported in 1889 it cannot have gone into that point.
§ Mr. Beswick
The right hon. Gentleman misunderstood what I said. In order to get my figure of £1,300,000, I merely took the present day market value of the shares and related them to the original shareholding. I also quoted a figure of £400,000 distributed in one year, and that figure was given by the Parmoor Committee. I then gave the original shareholding of £5,839, a figure which was given by the original Select Committee of 1889.
§ Mr. Assheton
In that case, the hon. Gentleman did not inform the House what additional capital had been subscribed between the year of the foundation of the company and the date which he took.
§ Mr. Beswick
I did not inform the House because, to the best of my knowledge—I am open to correction—no other capital has been subscribed from outside. I will give hon. Members opposite some more figures about which they can get alarmed. These were compiled by the Amalgamated Engineering Union and were related to the engineering industry. They stated in a most interesting paper about two years ago that in 1948 the total profit in the engineering industry 1652 amounted to £455 million. This worked out—and it is a very interesting way of relating profits—to no less a sum than £3 per week for every man, woman and child employed in that industry. The industry made out of each worker no less a sum than £3 a week. That sort of thing is entirely wrong.
§ Squadron Leader Cooper
I am trying to understand the argument of the hon. Gentleman but am finding it rather difficult. I cannot see the relevance of the point which he is now seeking to make. Even supposing that £455 million were the profit, then at least £300 million of it was taken back into the Treasury by taxation.
§ Mr. Beswick
The reason why the hon. and gallant Member has difficulty in following my argument is that I am not being allowed to proceed with it. If he would be good enough to hear what I have to say I will show the relevance of the figures. What have we established so far? [HON. MEMBERS: "Nothing."] Yes—it is that the profits extracted from industry are very great indeed.
Let me admit that it is a good thing for industry to plough back money each year from the annual accounts. I am not arguing against that. The question which I put to hon. Gentlemen opposite is: To whom should that money so ploughed back belong? They claim that it should belong entirely and exclusively to the people who contributed the original shareholding. I hold that argument to be false. I do not believe that the shareholders as such ave a right or claim to the entire sums which are ploughed back each year into industry.
One of the things that surprises me and which causes a good deal of argument is the ability of the rentier class—I use the expression for want of a better word—to keep going. They come here each year and point to the amount of money which is taken from them by taxation, and they mention all kinds of difficulties, but simple people like myself and those who elect me know that the rentier contrives to live at a very reasonable standard of living. How is it done?
§ Mr. Beswick
I not only think, but I know. I do not confine myself to a cave but I go about in the world, and I know 1653 something about these matters. Not only do these rentiers have a reasonable standard of living, but their capital holdings in some way appreciate with the rising cost of living and the increases of commodity prices. Although my friends tell me that they cannot now save, it being impossible to save after Chancellors of the Exchequer have done their worst, whether Labour or Tory, the fact is that all these people are saving each year at a fair rate through the activities of industrial firms. Saving is being done for them.
My hon. Friend has referred to the amount put back into reserve to the credit of the shareholders. We are re-capitalising industry and giving it additional capital which is put to the credit of the original shareholders. My friends are finding saving made easy for them by the work of the companies concerned.
§ Squadron Leader Cooper
The argument of the hon. Gentleman is fallacious and is based upon the assumption that the individual who takes out a share remains the permanent owner of it. There is an institution called the Stock Exchange which exists for the transfer of shares from one owner to another. It would be interesting to find out how long one individual holds a particular share.
§ Mr. Beswick
There are publications recently which have tried to establish the same point. I know well enough that the owner of a £100 share may have had to pay £300 or £400 for it, but that often means he is paying more for it because its value has appreciated while he was holding on to another share. The total shareholding appreciates. The total shareholding of the country, the United Kingdom, tends to appreciate over the years. A reliable authority, the late Mr. Hargreaves Parkinson, gives the figure as 250 per cent. for the appreciation between the beginning of this century and the beginning of the last war. If the researches were carried up to the present moment I have no doubt he would find considerably more appreciation than 250 per cent.
§ Mr. Beswick
The hon. Gentleman did not listen to what I said earlier on or I would give way to him. I am now saying that I am wholly in favour of 1654 ploughing back into industry each year a part of the surplus amassed during the year's work. That is good, but the money should not be ploughed back as the exclusive property of the shareholder. There are other interests involved which can stake a better claim to the money. My hon. Friend has suggested that the portion ploughed back should be set aside to the credit of the nation at large. That was an eminently constructive suggestion.
§ Mr. Maudling
Would the hon. Gentleman also agree in exactly the same way that whatever he manages to save out of his Parliamentary salary should become the property of the nation?
§ Mr. Beswick
The argument is a little irrelevant, but I am prepared to answer it. If I earn a certain amount of money during the year by my labours I am entitled to invest it in any way I like and to maintain the ownership of it. My argument is that the money made by various companies is possibly made by the managing director, his colleagues and the workers, but certainly not by the absentee shareholders. I am in favour of giving the working director a fair return as an incentive, but it should be given by way of salary, commission, or similar payment for work done, rather than as an exaggerated dividend on money originally invested. I notice that one or two Members opposite appear to regard this favourably.
I have found that among many executives and managing directors there is often a great deal of reluctance to pay out each year large dividends to shareholders who have contributed absolutely nothing to the activities of a company during the year. The profits from those activities should be put back into the industry without incurring any further debt to the shareholder for the benefit of the workers employed by the company, or probably the property of the State.
My hon. Friend suggested that a proportion of this money should be ploughed back into industry but regarded as the property of the State. There is nothing violently revolutionary in that suggestion. It is certainly a more constructive proposal than a Profits Tax which just takes the money out of the industry completely.
There is one additional view in support of this proposal which I want to put 1655 forward for the consideration of the House. Over a large field of industry today the results at the end of the year flow as much from decisions made by the Government as they do from decisions made by the directors around the board room table. I have a friend who is a shareholder in an aircraft manufacturing company. He received last year a substantial bonus share. He had made no big decisions and no constructive suggestions. He had not even been near the factory. It was possible to make that distribution of share bonus largely because of decisions made in the Cabinet to expand our aircraft manufacturing industry to fit in with the re-armament programme. If the expansion comes from State decisions and national policy requires that a given industrial firm should increase its activities, all the more should we claim that the nation as a whole should have a stake in the various industries.
Therefore, I have great pleasure in seconding this Amendment. I do so because I can see no social advantages flowing from this Bill, but I can see definite disadvantages. It would help the absentee owners of industry so to confuse the minds of employees and electors that it would retard that day when we can get the kind of constructive reforms to company law for which my hon. Friend has asked.
§ 3.3 p.m.
§ Mr. R. Jennings (Sheffield, Hallam)
I listened with great interest to what was said by the mover and seconder of the Amendment and, without being disrespectful, I suggest that they have put across the Floor of the House this afternoon nothing but a tirade of Socialist policy which has nothing to do with this Bill.
I support this Bill but, if the Minister cannot accept it, I would support something of the same nature. I feel a great deal of annoyance when I see Socialist newspapers pointing out the profits of companies, as they have done for the last six years. For instance, they give great publicity to dividends of, say, 40 per cent., and tell the electors, particularly at election time, that the rich people are taking money out of the pockets of the workers. They do this to propagate Socialist policy and collect votes. In my opinion, that is completely dishonest propaganda. The 1656 only way to find the correct relationship that a dividend bears in a company is to have regard to the capital employed in it.
The hon. Member for Nottingham, South (Mr. Norman Smith), who moved the Amendment, said that he was not able to analyse a balance sheet—and neither were masses of electors—and find out the amount of capital employed. That is exactly why something in the nature of the Bill is needed. It would put a stop, particularly at election time, to lying propaganda intended to create disharmony between workers and employers because of the workers feeling that large dividends had been taken out of a company without there being any attempt whatever to show to the electors the amount of capital employed in the company.
I have had many years of experience in analysing and drawing up balance sheets. I have seen a company start from small beginnings, with, perhaps, £1,000 of capital. I have seen a family working hard in the business, taking out only very small sums in order to build up the business, and ploughing back, as it is commonly termed, the profits of their earnings, until the capital employed in the company bore no relation whatever to the original figure of £1,000.
Sometimes, over a period of 20, 30, or even 40 years, I have seen a business grow from, perhaps, £1,000 or £5,000 to a figure of £100,000, simply because those in the company have carried it on in a conservative way; they have not used up their resources, but have ploughed them back and have been able to buy more machinery and to employ a greater number of employees. If that is not a good thing for the country—and we do not all agree that it is not—then economically we can given up the ghost, if we develop that spirit.
The country has been built on that type of economic prosperity. There are thousands of companies—hundreds, at any rate, of which I know—where the issued capital bears no relation to the amount of capital employed, such as stock, plant and machinery, book debts, and so on. When a dividend is declared, there should be some means of allowing the public or the newspapers, or Members on the other side of the House, to ascertain exactly what is a correct figure 1657 of dividend on the capital employed in the company, so that the truth can be readily seen instead of, as in the last few years, complete misrepresentation being made of the dividend percentages, to which the hon. Member for Uxbridge (Mr. Beswick) referred.
The hon. Member quoted the Prudential Assurance Company. Everybody knows that that Company started from very small beginnings and is now a vast concern. It has had further capital. It has had the people's pennies and two-pences a week in the shape of investments, and all this has been turned over.
The hon. Member for Nottingham, South, suggested that in return for all this the Prudential Assurance Company should give to the Government some debentures—I believe that that was the blackmail that was offered. I am a great believer, and always have been, in the view that the less the Government have to do with industry the better. I still say that, in spite of the many changes we have seen over the last six years.
If the Minister cannot accept the Bill in its entirety, I should like him to consider whether something can be done to allow the general public to get the matter in a fair perspective and have a fair idea of what is a proper return on the capital employed in a business. There is a great deal of loose talk with regard to percentages and dividends, and a great deal of misrepresentation has taken place over the past few years.
If we could get some means of showing exactly a true and proper return, it would be in the interests of all the people in this country. That is the reason I felt I should say a few words. Knowing that there are several hon. Members who wish to speak and that there is another matter to be discussed, I will content myself with that short statement in support of the Bill.
§ 3.10 p.m.
§ Mr. Austen Albu (Edmonton)
I do not know whether the remarks of the hon. Member for Hallam (Mr. Jennings) have greatly assisted the mover and seconder of the Motion for the Second Reading of the Bill, for, while watching them during his speech, I thought they looked slightly disquieted because he was giving away entirely the real purpose 1658 of the Bill. Its purpose has been described in the Press, in the financial columns and otherwise, as a psychological one.
The Bill would not in any way assist the managers or even the accountants of industry. If that were the case, I cannot help feeling that the very eminent Committee under Lord Justice Cohen would have made such a recommendation, but they said at the time they examined the matter that there was in fact no demand for such a Measure, and that there were considerable difficulties and dangers about introducing such a Measure. Therefore they did not so recommend.
I think it was the hon. Member for Dover (Mr. Arbuthnot) who said in seconding the Motion, that the conditions have considerably changed since and that, with the fall in the value of money, the rise in prices and so on, there was now an increased reason for introducing such a Bill. My hon. Friends who have moved and seconded the Amendment have dealt partly with that matter, and I intend to deal with it myself. I hope it is not the case, as was suggested, that it will be another 20 or 30 years before we have another Companies Act. My complaint about the Bill is not that it is too narrow, but that it is not wide enough. There are many things which need to be done about companies, many changes required in company law to bring it into relation with modern social conditions, with the actual structure of industry today, and with the real position of the partners in industry.
I would not be prepared to vote for such a narrow Measure, which deals only with one small psychological factor. The hon. Member for Hallam said that he was in favour of the Bill because it would assist in presenting to the general public —I think he said the electors and I suppose he meant chiefly the workers—the truth about companies and about capital in companies. But he disclosed in his own remarks how very little he understands of the real nature of the company structure of our industry at present. The whole of his arguments were directed to that relatively small part of our economy which is still in control of private companies and family businesses. I suggest that this Bill has no relevance to those at all.
1659 It is a Bill directed towards the large public companies whose shares are freely transferable, and generally—although not always—quoted on the Stock Exchange. From the psychological point of view, there is no particular advantage in the case of the private companies. As the hon. Member knows, their accounts are not published and no one knows what are the profits they make, except for the small number of highly progressive concerns who take the precaution of explaining the figures to their own workers and getting their agreement. For instance, there are the Glacier Metal Company and companies of that sort. [Interruption.] I am sorry, the Glacier Metal Company is a public company, but there are some private companies which do that.
In general, this Bill applies to the large public companies generally with some tens, or even hundreds, of thousands of shareholders—that property-owning democracy of which we have heard so much, the 1,250,000 shareholders in this country who are so distributed that 2 per cent. of them own more than one-third of the total shareholdings.
§ Mr. F. J. Erroll (Altrincham and Sale)
The hon. Member will not forget the very extensive shareholding of the trade unions in industrial organisations, representative of many millions of shares.
§ Mr. Albu
I welcome the intervention of the Parliamentary representative of the Institute of Directors. It is a fact that the trade unions have a substantial shareholding, but I imagine that they are by statute not allowed to hold equity shares. Most of their investments are in statutory authorities, Government stock or nationalised industries, etc. There may be some cases in which they hold preference shares or debentures in private companies—I believe they used to do so in the case of the railways.
I am not denying that; it is, of course, perfectly true that a fairly large amount of the small man's savings reach the larger companies and some of the smaller companies today, through the institutional shareholders, such as the Prudential, to which my hon. Friend has referred, I suppose that is the way in which most of those companies receive their capital today.
1660 But, of course, by the way in which that capital is invested, control over the management and the efficiency of the companies and all the normal classical functions of the shareholder towards a company are exercised, not by the saver himself, but by that very small number of men at the top of the managerial society to which my hon. Friend referred, the directors of those investing bodies: the financial trusts, insurance companies, etc.
Let me return to this question of the actual structure of industry and to reply to what the hon. Member for Hallam said. I do not think it would make a great deal of difference, nor do I think that I should have any particular objection, to such a Measure being introduced if it were confined to private companies or, rather more narrowly than private companies, to those companies in which the management, directorship and shareholding are closely associated; in other words, those companies in which the direct incentive to efficiency, enterprise, etc., is the profit which the shareholder is to get. That is very different, as we all understand, from what takes place in the large public companies to which I have been referring.
In the case of private companies, this Bill does not matter because their figures are not disclosed. When they are converted from private into public companies, exactly what the hon. Member for Middleton and Prestwich (Sir J. Barlow) wants takes place at that moment, because the shares are then given the real value which the assets have reached. The shares are put on the market and sold for something which the Stock Exchange and investors feel is the true value of the business at that time, so that what the hon. Member proposes is done.
It is from that point onwards that we have to consider the position rather more closely. I think the hon. Gentleman would agree that his Bill is directed towards the affairs of public companies, those companies whose shares are quoted on the Stock Exchange, whose balance sheets and accounts are open to public inspection and which are frequently the subject of debate in this House or, as the hon. Member has said, of propaganda.
§ Mr. Albu
Yes, it would, but I think the hon. Baronet would agree that it would not make a great deal of difference in the case of private companies. We have to think very carefully about this question of the public company. We are agreed that no substantial advantage to the management, or to accountants, or indeed to investors really accrues from the introduction of this Measure. The only advantage claimed for it so far has been to throw dust in the eyes of those working in the companies or those who like to criticise. I think that is completely wrong, and I support the Amendment moved by my hon. Friends for very much the same reasons as they have adduced.
It seems to me right that we should bear in mind the very great increases in the value of the shares of people referred to by my hon. Friend the Member for Uxbridge as absentee shareholders, for the reason that they play no part in the management of the business at all. Time after time it has been pointed out by people of as great authority as the late Mr. Hargreaves Parkinson himself that there is an automatic increase in that value—or rather, as I see that the hon. Member for Barnet (Mr. Maudling) will be speaking shortly and I know he will correct me and bring me up to date—it was the case, because it is perfectly true at the present time that shares in this country do not stand very much higher than before the war.
All this has nothing to do with the management of a business. The change in the value of shares has come about entirely because of the change in the Bank Rate and the increasing stringency of the Chancellor towards the capital market. It has nothing to do with fluctuations in business profitability, the efficiency of the industry and so on. So I would warn any hon. Member that I should not consider his argument at all seriously if he says, "You cannot only talk about increases in the value of company shares; you also have to take into account the losses."
Before the days of very high profits taxation and before the time when the operations of the Chancellor of the Exchequer were of much more importance to public companies than even the efficiency of their management, it was the 1662 case that, taking it over, say, a seven-year period, the value of shares on the Stock Exchange was continuously rising. Everybody knows it, and the argument for investing in ordinary shares, particularly during an inflationary period, was that if one could hang on to them long enough they were a hedge against inflation.
We on this side of the House cannot accept the view that any investor has the right to an automatic hedge against inflation not held by those who invest in gilt-edged or fixed-interest stocks. There are in that connection two different arguments. There is the argument used by the hon. Member for Hallam about private companies and about the man who goes into business and builds up his business for himself, and so on. We all accept those arguments.
There is a different set of arguments about public companies. We support the necessity for re-investment out of profits in the public companies, but what we are not prepared to accept is that it should be made any easier for the very small number of people who do invest their money in ordinary shares in public companies to be entitled to this additional appreciation to the value of their holding which is not an advantage open to those who use their savings in other ways.
It seems to be completely out of keeping with the actual nature of industry today that the theory, if it is a theory, that all the surplus earnings should belong to the ordinary shareholders should any longer be the case. One of my hon. Friends referred to the shareholders as owning the company but they do not even do that. The position about what shareholders own is not clear. It was held by no less an authority than Lord Justice Evershed, in the case of Short Brothers during the war, that shareholders do not in fact own the assets of the business.
This argument was used in the debate on the nationalisation of the iron and steel industry, in reply to arguments put by hon. Gentlemen opposite. What it is that the shareholders own is something which I think only a lawyer can explain, and perhaps my hon. and learned Friend the Member for Kettering (Mr. Mitchison) will have an opportunity to explain it. The shareholders own shares, giving them certain rights. If they can get a large enough number of them together each year they can call a general meeting.
1663 These rights, in theory, include that of appointing and of removing directors, which, in practice, is a right which it is almost impossible to use.
As to the profits and so on, it is perfectly true that they have the right to reduce the dividends which the directors propose, though I do not think they have the right to increase them. If the company is to be wound up, they are entitled to whatever is left after the creditors are paid.
These are very unreal considerations for the type of large public company that we are now considering. They are very real considerations for private companies, but quite unreal in the case of public companies. Anybody who cares to examine the figures of forced liquidations and bankruptcies over the last 25 or 30 years will see that the risks in managing a public company, or the risk of investing money in these companies, providing it is spread out sufficiently broadly, are very unreal indeed. The shareholders are rewarded by dividends, on the one hand, and, what is more important in relation to this Bill, an increase in the value of their shares, on the other.
It is extremely important that, if we make changes in the law relating to companies, we should make changes at one time, and not make these changes only dealing with one aspect or from one point of view; that of the share-holders. We have to make changes in the structure of companies which distinguish clearly between public and private companies, between a public company with shareholders who play no part in management and have no control, and private companies, particularly the private companies where the managers and directors are themselves shareholders or are closely associated with the shareholders, and where something like the classical theories of private enterprise really operate.
If we were to do that, it would be much easier for us to accept a proposal of this sort for amending company law, but I should want to point out other changes. For instance, if the arguments put forward by my hon. Friends and myself were accepted, I should want to see some form of permanent dividend limitation in public companies, and that would have to be accompanied, in my opinion, by some way of preventing the distribution of capital of the company in the form of 1664 bonus shares. It is very important that these changes should take place, and that we should not allow ourselves to be fobbed off with something, as the hon. Member for Hallam said, for psychological reasons or propaganda reasons, purely because hon. Gentlemen opposite have guilty consciences about what takes place in these large public companies.
§ Mr. Jennings
Does not the hon. Gentleman realise that untold harm has been done by his own party in misrepresenting the whole position with regard to dividends and the return on capital, which has been going on for years?
§ Mr. Albu
I believe that a great deal of harm has been done by misrepresentation of the nature of companies, and I have been spending the last five or six years, and while I have been in this House, in trying to put it right.
There is no doubt at all that one form of misrepresentation is to try to pretend that all joint stock companies are of the same nature, and I am glad to see that the hon. Member for Hallam agrees with me. I think we should get a great deal further if we made a clear distinction between a private company, or a company in which the shareholders and managers are really much the same people, and public, managerial, bureaucratic companies, which represent something like half of the whole economy of the country. It is all very well for hon. Gentlemen opposite always to be attacking us for our nationalisation Measures, and for creating giant managerial bureaucracies, but they never say anything about those created by the large joint stock companies, with atomised shareholders who play no part in them at all.
I recommend to the hon. Gentleman that he read, for instance, a recent article on this subject by a highly intelligent French political writer, M. Bertrand de Jouvenal, in a Belgium paper called Industrie. In that article entitled Vers Une Collectivisme Pluraliste, the writer points out the true nature of these public companies today. He says, for instance, as hon. Members on both sides of the House have agreed, that the State has a very large interest in these companies and very often a larger interest than the shareholders. This applies not only in this country, but also in the United States, where the figures are almost identical.
1665 He also points out that these companies are no longer subject to control by the shareholders but by a small managerial bureaucracy. Anybody who has worked in companies of both sorts, as I have, knows the great difference in temperament, attitude, and everything else of those companies.
For all these reasons, I feel that this Bill is too narrow and that we want a very much wider Bill. In my opinion, this Measure is not worthy of the attention of a Standing Committee, because in Standing Committee we cannot do anything to enlarge the scope of a Bill. I should like to see a much wider Bill, and for these reasons I ask my hon. Friends and hon. Members opposite to support the Amendment.
§ 3.32 p.m.
§ Mr. Ralph Assheton (Blackburn, West)
I wish to intervene in this debate this afternoon in order, partly, to clear up one or two misunderstandings which I think exist between both sides of the House. I think it would be a good thing it we could have a working party consisting of hon. Members from both sides to try and get some accepted facts about these matters. Though there is a tremendous lot of common ground between us, misrepresentations are continually being made which lead to great public confusion.
If the hon. Member for Uxbridge (Mr. Beswick) will allow me, I will refer to his speech in order to illustrate my point. He referred to a great insurance company in this country, which, as he told the House, started from the small capital of £5,000 odd, and which may very well be true. He went on to say that the present value of the shares of that company amounted to many millions, which is also true. But he did not tell the House that in between the time the company started and today additional capital had been subscribed for cash by the shareholders.
§ Mr. Beswick
If I made a mistake, I made it in good faith. The point of my argument was that as far as I understand this—and I take my stand on the Beveridge Report of 1942—no other capital was in fact subscribed from outside.
§ Mr. G. R. Mitchison (Kettering)
Is it not perfectly clear that anyone who subscribed £1 to the Prudential when it 1666 began would have seen a very large increase in the value of his shareholding as the years went by? The question is whether that increase is excessive, as the Beveridge Report obviously thought it was.
§ Mr. Assheton
I was not seeking to argue that point at all, but merely to point out to the hon. and learned Gentleman that he was inaccurate. I will now refer to a book which is in the Library of this House—the Stock Exchange Official Intelligence—and it would be a good thing if hon. Members confirmed their facts by reference to it. If hon. Members will look at that book they will see, for example, that the latest issue of shares for cash in that company was an issue of 250,000 shares to shareholders at £5 a share in 1929. That means shareholders put up £1,250,000.
This illustrates the gross inaccuracy of the sort of statements which are apt to be made from the other side of the House, I am sure purely in ignorance. That is why I suggest it would be useful to have a working party together so that the facts might be established. If we know the facts we can start arguing about what is right and wrong; but it would be good to have the facts established first.
§ Mr. Assheton
No, I am sorry I cannot give way. I promised to speak for only a few minutes and other hon. Members wish to speak. I am quite willing to argue the matter with the hon. and learned Member some other time.
§ Mr. Beswick
I am prepared to accept the correction, of course, but would the right hon. Gentleman make it quite clear whether the £1,250,000 was contributed by shareholders as new capital or whether it was a capitalisation of reserves in the name of the shareholders?
§ Mr. Assheton
There is no doubt about it. It was an issue to shareholders in November, 1929, for cash, that is new money put in the business. I am not seeking to draw any argument there but am trying to point out that the hon. Member's facts are wrong and that therefore he must not base conclusions upon them.
1667 I come now to the main point of the Bill. It was rather suggested by hon. Members opposite that the proposal made by my hon. Friend the hon. Baronet the Member for Middleton and Prestwich (Sir J. Barlow) was a sort of camouflage proposal. I want to point out that this question of the nominal value of shares is very confusing to the public and particularly to small investors. If a share is issued at £1 it may be that in 10 years' time, if the company has done well and been successful and perhaps put aside a good deal of money, that the share may be worth 30s. and maybe in another 10 years worth £2.
It may equally be the case, as it was with the great railway companies, that an investment of £100 made many years ago, after the course of years was only saleable in the market for say £20 because a great deal of the money had been lost. There is something to be said for the argument that the nominal value of the share does not give investors a very effective picture of the position. When some years ago a man was able to buy London Midland and Scottish £100 stock for £25 he was apt to think that he was really buying £100 in value for that money and that one day the £75 would be added to his £25.
He was misled by the nominal value of the stock. One can be misled just as much when stock has fallen and the nominal value is higher as when the real value has risen and say, a 5s. 0d. share is worth 15s. 0d. In neither case is the investor, who is often not very expert in the matter, given a clear picture of the position by the nominal value.
If the shares of no par value are created one is not prescribing any particular value to the shares; and there is a lot to be said for it because at a given moment it would be difficult to say exactly what was the value of a share. It is not like a debenture where one lends £100 to a company and a company may be pledged to pay it back some day. This is the case of ordinary shares of a company which are constantly varying in value as the company prospers or declines.
There is something in what has been said from the benches opposite—that this Bill covers only a narrow point—and it may be that the Parliamentary Secretary to the Board of Trade may tell us that 1668 the Bill does not fit absolutely easily into the superstructure of the Companies Act and is too complicated to be accepted as it stands. Whether that is so or not, I believe a great deal of trouble has been taken in drafting it, and I hope that the Government will give very serious consideration to this matter because at the time of the Cohen Committee a great deal of consideration was not given to it. Since then considerable thought has been given to the matter, and various authorities who at that time had not considered it carefully have now come to the conclusion that there is a good deal to be said for permitting the system of no par value shares.
§ Mr. Assheton
It has been in use for many years in America, as hon. Members may know. A great number of companies in America have that particular structure, and I personally think that it is quite possible that it might provide a useful addition to our financial mechanism. I only want hon. Members opposite to give the matter another thought and ask themselves whether perhaps there is not more in this idea than at first appears.
§ 3.41 p.m.
§ Mr. Glenvil Hall (Colne Valley)
There are still one or two of my hon. Friends whom I, for one, would like to intervene in this discussion, and we have now only 20 minutes before we have definitely to conclude this debate. I realise too that the Parliamentary Secretary must say something.
I listened to the persuasive speeches of the mover and seconder of the Motion, but I must say straight away that they failed to convince me. I thought the whole tenor of what both of them had to say was lukewarm. Obviously they were anxious to forestall criticism if they could. They were, in my view, defensive throughout.
The hon. Baronet who moved the Second Reading of this Bill indicated that since the Cohen Committee's Report was issued, there has been a very great change of view on this matter, but he did not give us much evidence in support of that. He indicated that certain people had written to him, and I of course, do not question that. But quite a lot of people can write to a Member and still be a 1669 very small minority of the electorate he represents. It is interesting to remember that when the Cohen Committee's Report was issued, attention was called to the fact that the Stock Exchange, the chartered accountants and the Association of Investment Trusts were against N.P.V. and that the Federation of British Industries, a very important body, and the British Insurance Association ignored the inquiry.
Supposing that all these very influential bodies in their own sphere are today heartily and enthusiastically in favour of this change, I would ask, if they are now in favour of it where the evidence is. There are people no doubt who are anxious to get a change of this kind instituted. The hon. Baronet indicated that this Bill would be permissive anyway. I do not think that is an argument in its favour; I think it is an argument against it, because it goes to show that those who would use it would be those who would gain by it, and the people who would gain by it, in my submission, would be those who, in the words of the Cohen Committee's Report, would be enabled thereby to manipulate changes they were anxious the public should not know very much about.
§ Sir J. Barlow
The right hon. Gentleman has raised this point about the opposition to the system. I have a letter here from the Association of Investment Trusts who now give complete support, and they deny the report in "The Times" that they disliked it at the time of the Cohen Report.
§ Mr. Glenvil Hall
I accept what the hon. Baronet says, but I cannot answer too lengthy an intervention because there are others who desire to speak.
I thought that the speeches made by my hon. Friends the Members for Nottingham, South (Mr. Norman Smith) and Uxbridge (Mr. Beswick), in moving and supporting the Amendment for the rejection of this Bill, were extremely forceful and very much to the point.
My hon. Friend the Member for Nottingham, South referred us to Canada, and reminded us of what is undoubtedly true, that in Canada this thing was tried but quite soon they had to go back on it. The right hon. Gentleman the Member for Blackburn, West (Mr. Assheton) said that in the United 1670 States they had this type of issue, but, I would remind him that even in the United States the enthusiasm of many people for this is not now what it used to be; in fact, from all that I hear, companies and promoters are using this kind of procedure less and less.
I could, of course, have a good deal to say on the point, raised by many hon. Members in this debate, that all the promoters want to do is to prevent investors from being misled. I am not at all sure that we can prevent by law an investor from being misled, though I do believe that, as the years go by and people become more and more educated, it will be less easy than it was to mislead investors.
Finally, may I say that, although it has been said that the point raised by the, Bill is a narrow one, it does amount to a very substantial change in the law. I, for one, regret very much that this Bill has been introduced as a Private Member's Bill. We have such a wide field open to us when we have these discussions and introduce these Bills on a Friday that I think it would have been better, if today we had had a Bill of a different kind from the one which has been put before us. We have to remember that if we agree to this Bill today, it will go upstairs and may block the passage of a Bill to which more Members would give their support and which a larger majority—if there is a majority for this Bill—would desire to see passed. There is no urgency for this Bill, and on that ground, if on no other, I ask the House to reject it today.
§ 3.48 p.m.
§ The Parliamentary Secretary to the Board of Trade (Mr. Henry Strauss)
I am obliged to the right hon. Member for Colne Valley (Mr. Glenvil Hall) for his brevity, and I also propose to be extremely brief, especially as I wish to sit down a few minutes at least before the hour. In the short time at my disposal, I think that perhaps I had better try to distinguish between the general case that has been argued and the particular Bill to which it is sought to give a Second Reading.
On the general case which has been argued—the case for allowing shares of no par value—there is a great deal to be said for it and most respectable economists and others have been in favour of such a reform. I think that the hon. 1671 Member for Edmonton (Mr. Albu) was most unfair when he said that the object of the proposal was to throw dust in the eyes of the public. There may be a question of what is the best way of revealing the truth to the public, but it is only fair to say that very respectable advocates of this reform put it forward precisely because the compulsory nominal value of a share is, in itself, in certain cases extremely liable to mislead.
I will not repeat but merely refer to the very respectable findings of the Committee which sat under the Chairmanship of Mr. Justice Cohen as he then was. If hon. Members will examine paragraphs 17 and 18 of that Report they will know that that Committee thought that there were respectable arguments for this reform, though they rejected it at that time for the reasons which they gave.
I will remind the House of one of the respectable arguments to which they alluded:It is argued that to attach a nominal value to a share is misleading as, except perhaps immediately after the formation of the company, and not always then, the nominal value bears no relation to the real value of the share….Therefore, I will not say a word against the theoretical case for this reform, which is perfectly respectable and has received wide support from many thinkers on this subject.
Unlike the right hon. Member for Colne Valley, I thought the best arguments in favour of the reform were, perhaps, not those of my hon. Friends who moved and seconded the Bill but those of his hon. Friends who moved and seconded its rejection. I thought the hon. Member for Nottingham, South (Mr. Norman Smith), and the hon. Member for Uxbridge (Mr. Beswick) gave so many fallacious arguments that one began to think that the case for the reform was even better than it had appeared.
The hon. Member for Nottingham, South dealt with the case where money which might have been distributed to shareholders was placed to the reserve. He said that if that were done—he described it at length—the compulsory description of the share by its original par value gave a truer account of the real position than the reform advocated by my hon. Friends. But is that so? The very case which the hon. Member took, of distributable money being placed 1672 to the reserve, may afford strong support for the very reform which has been advocated.
The hon. Member for Uxbridge gave some very astonishing figures about an insurance company. Since I think that should not go out uncontradicted, I am bound to say of the assets of the Prudential Assurance Company that at least £575 million out of the £600 million is held in trust for the policy holders, and it may be substantially more. That was not the impression given by the hon. Member.
Both the hon. Member for Uxbridge and the hon. Member for Edmonton (Mr. Albu) used the astonishing phrase —the hon. Member for Edmonton had used it before—of "absentee shareholders." Presumably that means shareholders who do not live above the works. If those hon. Members will consult persons who are familiar with town planning they will find that it would not be to the advantage of anybody if all shareholders lived above the works. Let them think of the contribution that joint stock companies have been able to make to the industries of this country. The whole purpose of the invention of joint stock companies was to enable shareholders to be absentees.
So much for the reasons why so many of the arguments used against this reform simply will not do. Let me now come to the actual Bill. After saying what the theoretical case might be for such a reform Mr. Justice Cohen's Committee pointed out—rightly, I think, in the view of all hon. Members, however much we may otherwise be divided—that such a reform would need numerous safeguards since otherwise it would be capable of abuse.
There are great technical objections to the Bill. Needless to say, I do not blame my hon. Friends who tackled this extremely difficult and intricate subject —I agree with the right hon. Gentleman the Member for Colne Valley that this is not a very simple reform—for not having surmounted all the difficulties.
The technical objections are substantial. Whether or not the Stock Exchange might be in favour of the general reform that has been argued, it is certain that they would not support 'the present Bill, and it is clear that, if such a reform were to be incorporated in our law, the 1673 accounts and other provisions of the Companies Act would require to be radically amended to enable this reform to be made with safety. I will give one example, which I do not know whether hon. Gentlemen who support the Bill have detected. If the Bill became law, it would be impossible for a company which had shares of the nature now advocated to acquire in exchange for its shares the business or shares of any other company. That is a fairly substantial limitation. I could give other examples.
The fact is that before we adopted any reform of this kind the matter would have to be examined fully by experts. I do not know any case in theory against shares of no par value, but I believe that the importance of the reform has been exaggerated both by those who advocate it and those who oppose it. There is no way of ensuring that people may not be misled, whether we make this reform or do without it, though I think there is much to be said for the view of my hon. Friends that a truer picture might be given in many cases if the reform were allowed.
Like the right hon. Gentleman who spoke from the Front Bench, I have made such inquiries as I could about experience in America. They are not sufficient to enable me to say anything very confidently, but what I learned agrees with what the right hon. Gentleman said, namely, that the view is by no means unanimous there.
For these reasons—although there is much that can be said for it in theory—expert inquiry would be necessary before the reform could be embodied in an appropriate Measure. I could not advise the House to give a Second Reading to this Bill.
§ 3.58 p.m.
§ Mr. G. R. Mitchison (Kettering)
Deeply though I appreciate the unusual honour of catching your eye, Mr. Speaker, I have little time to express my gratitude fully. The Cohen Committee's Report was concerned, among other things, with ensuring that full-understanding of the operations and position of a company was afforded to shareholders and those outside the company.
In considering this particular proposal, it is extremely significant that the Cohen Committee concluded that it did not 1674 bring any of the major subjects of the inquiry nearer to solution. It follows, therefore, that they decided that this proposal would not contribute to the elucidation of the proper position of the company even among shareholders or among those outside. They rejected the proposal, not merely upon that ground but upon the further ground that it would open the door to manipulation of the balance sheets and the statements—
§ It being Four o'Clock, the debate stood adjourned.
§ Debate to be resumed upon Friday, 14th March.