§ (1) Where the share capital of a company includes a class of shares other than preference or preferred shares so described the holders of which are not entitled to vote at general meetings, the descriptive title of the shares shall include the words non voting ' and these words shall appear legibly on any share certificate, prospectus or report issued by the company.
§ (2) Where the share capital of a company include two or more classes of shares conferring substantially similar rights to share in the distributed profits or the surplus assets in a winding up of a company but which confer voting rights which are not proportionate to the equity interest so conferred, the descriptive title of the class of shares with the lesser rights 2140 shall include the words 'restrictive voting', 'reduced voting' or 'limited voting' and these words shall appear legibly on any share certificate, prospectus or report issued by the company.
§ (3) A class of shares shall not be described as `ordinary shares' or by a description of similar import without the qualification 'restricted voting', 'reduced voting' or limited voting' unless either—
- (a) the class confers on its holders the rights to cast 75 per cent. or more of the votes in a general meeting; or
- (b) the voting rights of the class are substantially proportionate to the capital subscribed or the equitable interest in the profits of the company enjoyed by that class.—[Mr. Grant.]
§ Brought up, and read the First time.
2141§ Mr. GrantI beg to move, That the Clause be read a second time.
In recent years, the practice has grown of issuing voteless shares described either as A shares or B shares or in some other vague way. In favour of this practice, it is argued that it enables family businesses to retain control within the family while, at the same time, raising fresh equity capital. It is fair to say that many great businesses—perhaps the most notable example is Marks and Spencer—have been able to develop through this means of raising capital.
It is argued also that to abolish by Statute the right to issue voteless shares would be an interference with the fundamental freedom of contract. Against this, however, it is argued that holders of voteless shares have no redress, save through ex pensive and difficult court proceedings, in the event of trouble arising in the company. Moreover, it can be argued that the practice perpetuates inefficiency. If a management is inefficient, it will be perpetuated by the system of voteless shares.
It is a fundamental belief held by many, certainly by me, that the ownership of companies should carry some responsibility for their control. A further criticism of voteless shares is that it is bad to have ownership severed from control. In recent years, we have seen too often the total indifference of shareholders; so long as they are receiving their dividends, they take no interest in the management of the company, often until it is too late. The worst offenders in this respect are not necessarily the small investors. It is sometimes the big institutional investors which act in that way.
The question of voteless shares was fully discussed in the Jenkins Committee, and all the arguments for and against were rehearsed. However, Jenkins did not come down with a positive answer. It said, in effect, that voteless shares were not very desirable but that it would be best to leave the matter to voluntary action. There was, however, a minority Report which came to a different conclusion, saying that
There should be a prohibition on the granting of a quotation for non-voting and restricted voting equity shares (save in exceptional circumstances and subject to the approval of the Board of Trade) except as regards further issues of such shares for which a 2142 quotation had already been granted prior to the publication of our Report.The matter has been debated in the City among people concerned with shares. Most notably, it has been fully discussed by the Wider Share Ownership Council, which came to the opinion that, as there was such a difference of view on whether it was good or bad to allow voteless shares, one should not statutorily abolish them but one should provide by Statute that they be clearly marked and identified as voteless shares rather than as A or B shares.3.45 p.m.
That line has been followed by the Stock Exchange since 1957, I understand that the Stock Exchange has refused to allow a quotation by companies which do not clearly and accurately describe their voteless shares as such. The matter was fully debated also in the Standing Committee. The Minister of State then expressed considerable sympathy with the view embodied in the new Clause, and he said that it might be considered as a reasonable proposition for inclusion in the Bill on Report. He gave an undertaking that, if he could do it on Report, he would.
Nothing has emerged from the Government's thinking on the matter, and this is why we seek now to improve the Bill by the new Clause. The main theme of the Bill, we are always told, is that it is concerned primarily with questions of disclosure. Whenever we try to raise other matters of company law reform, we are told that they are questions which should come within the purview of a later and greater Bill to come some time in the future. In my submission, if anything is a matter exclusively of disclosure within the meaning of the Bill, the clear and proper description of shares which are to be purchased by the public comes within that category. I hope, therefore, that the Government will not dodge the issue by shuffling it off to another Measure but will do something positive now by accepting the new Clause.
§ Mr. J. Bruce-Gardyne (South Angus)I support the new Clause. My hon. Friend the Member for Harrow, Central (Mr. Grant) has put the matter absolutely correctly. There are objections to A shares, and I endorse his view that we should discourage the divorce of ownership of companies from control. On the 2143 other hand, the abolition of A shares would present problems, particularly for the family controlled company, the company which, perhaps, has been built up under family control and which it is desirable to keep under family control, that form of control giving it the most efficient and dynamic form of leadership. Equally, if non-voting shares were abolished, one would, in effect, give a free bonus to the present holders of non-voting shares.
There are serious objections to the abolition of non-voting shares, but, on the other hand, it is vital that shareholders in public companies should know the exact nature of the shares for which they subscribe.
Fond as I am of the Minister of State, I can only describe his reply in Committee as pretty unsatisfactory. He said that he was sympathetic to the object of the new Clause, and he pointed out that the Stock Exchange had for some time maintained a stipulation that, if a company sought quotation for its shares, the fact that certain shares did not carry full voting rights should be clearly disclosed. But the right hon. Gentleman went on to say:
We take the view that the proposal in the new Clause is outside the scope of the present Bill."—[OFFICIAL REPORT, Standing Committee E, 15th June, 1967; c. 1424.]As I have said before, I cannot see that the Bill is very strong on philosophy anyway. Its edges are very blurred. There is no conceivable complication about this modest proposal, and to say that it is outside the scope of the Bill is asking the House to accept a nonsense.While the Government might legitimately say that some other suggestions we have put forward raise substantial problems and matters which should be considered in detail with outside interests, I cannot see that that applies to the Clause. It is a perfectly straightforward, sensible and modest proposition. I should not have thought that anybody could object to it on any grounds, and I therefore hope that we shall not hear from the Minister that, having given it further consideration, the Government still think that it is outside the scope of the Bill. I do not believe that they can sustain that thesis.
§ The President of the Board of Trade (Mr. Douglas Jay)I have listened to the arguments of the hon. Gentlemen opposite and read again what was said in the Committee. We are not discussing the main question of whether there should be non-voting shares, which is a familiar and important controversy, but merely whether they should be more clearly labelled and made known to the public than at present. I think that in the great majority of cases there is not much doubt at present whether or not shares carry votes, but I agree that the possibility is open to us of going further.
I agree with what my right hon. Friend said in Committee I think that there is no objection in substance or merit to the proposal. There is a very strong case, whatever we do about non-voting shares, for making absolutely explicit whether or not a given equity share carries votes.
The reason we did not insert the provision into the Bill is not primarily a matter of merit but merely that we have had to keep the Bill within reasonable bounds. It has already grow from 45 Clauses to, I think, 123. There are urgent reasons, particularly connected with motor insurance and other similar matters, for enacting the Bill. It must return to another place before it receives the Royal Assent, and for this reason we have felt bound in marginal cases to set a limitation upon the extra Clauses we introduce.
If we were to make this further move it would have been necessary to hold proper consultations with interested outside bodies, notably the Stock Exchange Council. When we considered the matter after our Committee debate it became clear that there was not time to do that adequately and put down Amendments on Report in time for hon. Members opposite to have a reasonable opportunity of examining them.
I thoroughly agree that there is a strong case for such a provision in the next instalment of company legislation. But, as I have said, the limitation both in the scope of the Bill and the time available to us unfortunately sets some bounds to what it is possible to do in the Bill before us.
§ Mr. Graham Page (Crosby)The Clause would be a very moderate reform in company law, but it is very necessary. It is necessary now and not in two, three 2145 or four years' time, when a second Bill is introduced. The President of the Board of Trade told the House clearly that he has no objection to it in principle, arid as far as I know no question has been raised about its drafting. It is a very weak reason for refusing to accept it to say that the Bill must be kept within reasonable bounds. The time involved would have been reduced if the Clause had been accepted in Committee and it will be reduced if the Minister accepts it now, because I shall certainly advise my right hon. and hon. Friends to divide unless the Government are prepared to do so.
The Government have introduced a number of new reforms at this stage, and we have no objection. The Clause does not need extensive consultations outside the House. The matter has been debated and debated ever since the Jenkins Report, and even before. I see no reason why the Clause could not be introduced into the Bill at this stage.
The basis of our company law is that the equity or risk shareholders have the ultimate control of the company. The Jenkins Report put this clearly in paragraph 126, where the Committee quotes the opponents of voteless shares as saying that:
…as a matter of public policy ownership of interests in companies should carry with it some measure of responsibility for their control, and that voteless shares tend on the contrary to establish de jure the severance of ownership from control which frequently arises de, facto from the indifference of shareholders.Of course, shareholders with certain preferential rights normally share in that control legitimately together with the ordinary shareholders, but they are sometimes excluded. However, that practice concerning preferential shareholders does not affect the general principle.If shares are held out to be ordinary shares, equity shares, they should certainly carry voting powers, or at least—and this is as far as the Clause goes—if they have no voting powers or limited powers that fact should be stated in their title, so that it is perfectly clear to members of the public that they are buying shares with no or limited voting powers.
§
Reading the Jenkins Report as a whole, I think that it is true that the Committee disapproved of voteless shares. We have not gone as far as trying to abolish them by law; indeed, Jenkins pointed out the difficulties of doing that. Paragraph 136 of the Report states:
We have found this question a difficult one, but after careful consideration of the arguments either way we have come to the conclusion that the case for abolition by law of voteless shares has not been made out.
My hon. Friend the Member for Harrow, Central (Mr. Grant) has just said that they may be very useful for family companies.
§
More unfortunate was that the Committee could not find a solution to the problem of naming the shares as being voteless. Paragraph 137 says:
In our view, therefore, this is not a matter which could be effectively provided for by legislation providing in advance for all possible types of share and specifying all occasions on which and the manner in which their voteless character should be disclosed. We do, however, feel that a considerable advance could be made by voluntary action on the part of those concerned and we make recommendations below about the form such action might take.
The Report was published in 1962. The matter has been debated, and voluntary effort has been applied and found ineffective. There are still shares which do not carry voting powers, and there is nothing to disclose that in their title. Therefore, it is clear that voluntary effort has failed over the years since the matter has been debated.
§ The Jenkins Committee could not find a solution. I am conceited enough to say that my hon. Friend the Member for Harrow, Central has found one. No one has complained about the drafting or about the principle, and this seems to be an instance where the Clause could be included in the Bill with no trouble. There is no question of extending the Bill's bounds, and no need for further consultations. I hope that the right hon. Gentleman will say that the Government are now prepared to include the Clause.
§ Question put, That the Clause be read a Second time:—
§ The House divided: Ayes 135, Noes, 193.
2149| Division No. 474.] | AYES | [3.58 p.m. |
| Allason, James (Hemel Hempstead) | Balniel, Lord | Bennett, Sir Frederic (Torquay) |
| Astor, John | Barber, Rt. Hn. Anthony | Bennett, Dr. Reginald (Cos. & Fhm) |
| Baker, W. H. K. | Bell, Ronald | Bessell, Peter |
| Biffen, John | Hawkins, Paul | Page, Graham (Crosby) |
| Birch, Rt. Hn. Nigel | Heald, Rt. Hn. Sir Lionel | Page, John (Harrow, W.) |
| Brinton, Sir Tatton | Hill, J. E. B. | Pearson, Sir Frank (Clitheroe) |
| Bromley-Davenport. Lt.-Col. Sir W alter | Hirst, Geoffrey | Peel, John |
| Brown, Sir Edward (Bath) | Holland, Philip | Pounder, Ration |
| Bruce-Cardyne, J. | Hooson, Emlyn | Powell, Rt. Hn. J. Enoch |
| Bryan, Paul | Hutchison, Michael Clark | Pym, Francis |
| Buchanan-Smith, Alick (Angus,N&M) | Irvine, Bryant Godman (Rye) | Ramsden, Rt. Hn. James |
| Bullus, Sir Eric | Johnston, Russell (Inverness) | Ridley, Hn. Nicholas |
| Burden, F. A. | Kaberry, Sir Donald | Ridsdare, Julian |
| Campbell, Cordon | King, Evelyn (Dorset, s.) | Robson Brown, Sir William |
| Carr, Rt. Hn. Robert | Kirk, Peter | Rodgers, Sir John (Sevenoaks) |
| Cary, Sir Robert | Knight, Mrs. Jill | Rossi, Hugh (Hornsey) |
| Clegg, Waiter | Lancaster, Col. C. G. | Russell, Sir Ronald |
| Cooke, Robert | Langford-Holt, Sir John | Shaw, Michael (Sc'b'gh & Whitby) |
| Corfield, F. V. | Legge-Bourke, Sir Harry | Sinclair, Sir George |
| Costain, A. P. | Lewis, Kenneth (Rutland) | Stanton, Keith |
| Crosthwaite-Eyre, Sir Oliver | Lloyd, Ian (P'tsm'th, Langstone) | Steel, David (Roxburgh) |
| Cunningham, Sir Knox | Lloyd, Rt. Hn. Selwyn (Wirral) | Stoddart-Scott, Col. Sir M. (Ripon) |
| Currie, G. B H. | Loveys, W. H. | Summers, Sir Spencer |
| Dalkeith, Earl of | Lubbock, Eric | Tapsell, Peter |
| Dance, James | McAdden, Sir Stephen | Taylor, Sir Charles (Eastbourne) |
| Davidson, James(Aberdeenshire, W.) | Maclean, Sir Fitzroy | Tavlor, Edward M (G'gow, Cathrart) |
| Dean, Paul (Somerset, N.) | McMaster, Stanley | Taylor, Frank (Moss Side) |
| Deedes, Rt. Hn. W. F. (Ashford) | Maginnis, John E. | Temple, John M. |
| Dodds-Parker, Douglas | Marten, Neil | Thatcher, Mrs. Margaret |
| Elliott, R.W.(N'c'tle-upon-Tyne,N.) | Maude, Angus | Thorpe, Rt. Hn. Jeremy |
| Errington, Sir Eric | Mawby, Ray | Turton, Rt. Hn. R. H. |
| Eyre, Reginald | Maxwell-Hyslop, R. J. | Vaughan-Morgan, Rt. Hn. Sir John |
| Fortescue, Tim | Maydon, Lt.-Cmdr. S. L. C. | Wainwright, Richard (Colne Valley) |
| Foster, Sir John | Mills, Peter (Torrington) | Walker, Peter (Worcester) |
| Gilmour, Sir John (Fife, E.) | Mitchell, David (Basingstoke) | Ward, Dame Irene |
| Glover, Sir Douglas | Monro, Hector | Weatherill, Bernard |
| Gower, Raymond | Montgomery, Fergus | Whitehlaw, Rt. Hn. William |
| Grant, Anthony | More, Jasper | Wills, Sir Gerald (Bridgwater) |
| Grant-Ferris, R. | Morrison, Charles (Devizes) | Wilson, Geoffrey (Truro) |
| Griffiths, Eldon (Bury St. Edmunds) | Munro-Lucas-Tooth, Sir Hugh | Wood, Rt. Hn. Richard |
| Grimond, Rt. Hn. J. | Nabarro, Sir Gerald | Worsley, Marcus |
| Hall-Davis, A. G. F. | Neave, Airey | Wylie, N. R. |
| Hamilton, Michael (Salisbury) | Nicholls, Sir Harmar | Younger, Hn. George |
| Harris, Frederic (Croydon, N.W.) | Nott, John | |
| Harrison, Col. Sir Harwood (Eye) | Onslow, Crarley | TELLERS FOR THE AYES: |
| Harvey, Sir Arthur Vere | Osborne, Sir Cyril (Louth) | Mr. Timothy Kitson and |
| Mr. Anthony Royle. | ||
| NOES | ||
| Allaun, Frank (Sallord, E.) | Darling, Rt. Hn. George | Hart, Mrs. Judith |
| Alldritt, Walter | Davies, Dr. Ernest (Stretford) | Haseldine, Norman |
| Allen, Scholefield | Davies, S. O. (Merthyr) | Hazell, Bert |
| Anderson, Donald | Dell, Edmund | Heifer, Eric S. |
| Archer, Peter | Dempsey, James | Herbison, Rt. Hn. Margaret |
| Armstrong, Ernest | Dickens, James | Hooley, Frank |
| Atkins, Ronald (Preston, N.) | Doig, Peter | Howie, W. |
| Atkinson, Norman (Tottenham) | Driberg, Tom | Hoy, James |
| Barnett, Joel | Dunn, James A. | Huckfield, L. |
| Baxter, William | Dunnett, Jack | Hughes, Emrys (Ayrshire, S.) |
| Beaney, Alan | Dunwoody, Mrs. Gwyneth (Exeter) | Hughes, Hector (Aberdeen, N.) |
| Bence, Cyril | Dunwoody, Dr. John (F'th & C'b'e) | Hughes, Roy (Newport) |
| Benn, Rt. Hn. Anthony Wedgwood | Edwards, Rt. Hn. Ness (Caerphilly) | Hunter, Adam |
| Bennett, James (G'gow, Bridgeton) | Edwards, Robert (Bilston) | Hynd, John |
| Blackburn, F. | Edwards, William (Merioneth) | Jackson, Colin (B'h'se & Spenh'gh) |
| Blenkinsop, Arthur | Ellis, John | Jackson, Peter M. (High Peak) |
| Boardman, H. | English, Michael | Jay, Rt. Hn, Douglas |
| Booth, Albert | Ennals, David | Johnson, Carol (Lewisham, S.) |
| Bottotmley, Rt. Hn. Arthur | Ensor, David | Jones, Dan (Burnley) |
| Bowden, Rt. Hn. Herbert | Evans, loan L. (Birm'h'm, Yardley) | Jones, Rt. Hn. Sir Elwyn (W.Ham,S.) |
| Boyden, James | Finch, Harold | Jones, J. Idwal (Wrexham) |
| Braddock, Mrs. E. M. | Fitch, Alan (Wigan) | Jones, T. Alec (Rhondda, West) |
| Kelley, Richard | ||
| Brooks, Edwin | Fletcher, Raymond (Ilkeston) | Lawson, George |
| Brown, Hugh D. (G'gow, Provan) | Foley, Maurice | Lever, L. M. (Ardwick) |
| Brown, Bob (N'c'tle-upon-Tyne,W.) | Ford, Ben | Lewis, Arthur (W. Ham, N.) |
| Brown, R. W. (Shoreditch & F'bury) | Forrester, John | Upton, Marcus |
| Buchanan, Richard (G'gow, Sp'burn) | Fraser, John (Norwood) | Lomas, Kenneth |
| Cant, R. B. | Galpem, Sir Myer | Loughiin, Charles |
| Carmichael, Neil | Gardner, Tony | Luard, Evan |
| Carter-Jones, Lewis | Garrett, W. E. | Mabon, Dr. J. Dickson |
| Coleman, Donald | Ginsburg, David | McBride, Neil |
| Concannon, J. D. | Gray, Dr. Hugh (Yarmouth) | McCarm, John |
| Craddock, George (Bradford, S.) | Gregory, Arnold | MacColl, James |
| Crosland, Rt. Hn. Anthony | Griffiths, Will (Exchange) | McGuire, Michael |
| Crossman, Rt. Hn. Richard | Hamilton, William (Fife, W.) | Mackenzie, Cregor (Rutherglen) |
| Culien, Mrs. Alice | Harper, Joseph | Mackle, John |
| MacMillan, Malcolm (Western Isles) | Page, Derek (King's Lynn) | Slater, Joseph |
| McMillan, Tom (Glasgow, C.) | Paget, R. T, | Small, William |
| McNamara, J. Kevin | Pannell, Rt. Hn. Charles | Spriggs, Leslie |
| MacPherson, Malcolm | Park, Trevor | Steele, Thomas (Dunbartonshire, w.) |
| Mahon, Peter (Preston, s.) | Parkyn, Brian (Bedford) | Strauss, Rt. Hn. G. R. |
| Mallalieu, E. L. (Brigg) | Pavitt, Laurence | Swingler, Stephen |
| Mallalieu, J. P. W. (Huddersfield, E.) | Pearson, Arthur (Pontypridd) | Symonds, J. B. |
| Manuel, Archie | Peart, Rt. Hn. Fred | Taverne, Dick |
| Mapp, Charles | Pentiand, Norman | Thornton, Ernest |
| Marquand, David | Perry, Ernest G. (Battersea, S.) | Tinn, James |
| Mason, Roy | Perry, George H. (Nottingham, S.) | Tuck, Raphael |
| Maxwell, Robert | Price, Christopher (Perry Bar) | Urwin, T. W. |
| Millan, Bruce | Price, Thomas (Westhoughton) | Wainwright, Edwin (Dearne Valley) |
| Miller, Dr. M. S. | Price, William (Rugby) | Walker, Harold (Doncaster) |
| Milne, Edward (Blyth) | Probert, Arthur | Wallace, George |
| Mitchell, R, C. (S'th'pton, Test) | Rankin, John | Watkins, Tudor (Brecon & Radnor) |
| Morgan, Elystan (Cardiganshire) | fees, Merlyn | Wellbeloved, James |
| Morris, Alfred (Wythenshawe) | Roberts, Albert (Normanton) | White, Mrs. Elrene |
| Morris, Charles R. (Openshaw) | Roberts, Goronwy (Caernarvon) | Whitlock, William |
| Moyle, Roland | Robertson, John (Paisley) | Williams, Alan (Swansea, W.) |
| Murray, Albert | Rogers, George (Kensington, N.) | Willis, George (Edinburgh, E.) |
| Newens, Stan | Rose, Paul | Wilson, William (Coventry, S.) |
| Noel-Baker, Francis (Swindon) | Ross, Rt. Hn. William | Winterbottom, R. E. |
| Norwood, Christopher | Rowlands, E. (Cardiff, N.) | Woodburn, Rt. Hn. A. |
| Ogden, Eric | Sheldon, Robert | Woof, Robert |
| Orbach, Maurice | Shinwell, Rt. Hn. E. | Yates, Victor |
| Orme, Stanley | Short, Mrs. Renée(W'hampton, N.E.) | |
| Owen, Dr. David (Plymouth, S'tn) | Silkin, Rt. Hn. John (Deptford) | TELLERS FOR THE NOES: |
| Owen, Will (Morpeth) | Silverman, Julius (Aston) | Mr. Walter Harrison and |
| Mr. Charles Grey. |