COMPANIES (Hansard, 21 May 1969)

§ Sir Brandon Rhys Williams (Kensington, South)
I beg to move, That leave be given to bring in a Bill to amend the law relating to companies so as to require that the agenda of annual general meetings shall include consideration of the appointment of shareholders' committees. In view of the lateness of the hour, I shall try to make my remarks as brief as possible. The Bill I propose may fairly be described as a very small Bill. It involves no expense to the Government. It puts no added obligations on shareholders. It gives a further, but only limited, measure of protection to minority interests in public companies. Nevertheless, I believe that it is potentially important in bringing shareholders and managements into contact and, in due course, promoting efficiency in the working of joint stock companies.
If we are thinking of playing a game of cricket, we organise ourselves into teams of 11. If our object is to get together for the creation of wealth or the conduct of business, the normal practice is to organise ourselves into joint stock companies. The joint stock company is a device which has evolved over a great many years. Lord Goodman is perfectly right in saying that it constitutes one of the glories of the common law. But, unfortunately, the joint stock company can today be a very sick organism, and it is often found to be not in the best of health. The problem is that there is no automatic corrective within the joint stock company when things begin to go slightly wrong. I think that this is due to the virtual abdication of the shareholders.
There are a number of reasons wily shareholders find it difficult to keep in touch with the management of public companies. One is the increase in the absolute number of shareholders and of public companies. Another is the growing complexity and technical content of modern business problems. There is also the managerial revolution; and the almost universal adoption of limited liability. All these things are irreversible, but it is necessary to take special measures to correct their side-effects, which amount, really and truly, to the loss of shareholder supervision of management.
457 There are a number of forces working for discipline in public companies which are of value. One is the Press. But, with the best will in the world, the Press cannot supervise everything that happens in 10,000 public companies. There are the great institutions. But, quite rightly, they are normally afraid to become too closely entangled in disputes with management. There are also the take-over bidders; but their activity is generally more that of executioner than company doctor. I feel that it is necessary to bring in the shareholders in the very early stages of decay of the joint stock company.
But, obviously, we cannot have the entire body of shareholders tramping into the board room. This is why it is necessary to encourage the growth of shareholders' committees. I believe that a Bill which requires the consideration of the appointment of a shareholders' committee once a year is a reasonable beginning on the road. However, I would like to make one further provision, to deal with the situation that would arise if the committee appointed by the shareholders and the board should come to loggerheads—as might well happen, Provided that the committee has the support of not fewer than 200 members of the company, or 10 per cent. of the voting rights, and provided that it carries the majority of those voting at the meeting, it should have power to bring in a third party to conduct what is increasingly widely described as a "management audit". I would like, however, to propose still further safeguards to protect boards from irresponsible and tearaway elements among shareholders.
In connection with my following remarks, I think it only right that I should pay tribute to the Board of Trade, which has been exceptionally helpful in the advice that it has given me, and also to a number of experts in company law and practice who have guided me to the conclusions which I would like to incorporate in the Bill.
I think that the terms of reference of the management auditor should be settled by the shareholders' committee in the light of the particular circumstances of the company. It may be that the shareholders would want the management audit to be conducted into the whole 458 management of the business or, possibly, into certain aspects only—for example, marketing, works management, research or personnel practice. The person or firm retained to carry out the management audit and the fees payable should, however, be agreed by the board. In the event of disagreement between the committee and the board in these matters, the problems should be solved by reference to arbitration or, if necessary, to the Board of Trade.
The auditor should have power to examine papers and to interrogate staff, but not in any circumstances to disclose information beyond what is called for under existing company law—except, of course, to state to the shareholders whether, in his opinion, the board is conducting the business with prudence and competence and making the best use of the assets in the circumstances.
I believe that there is no shortage of men with the maturity and knowledge in the various fields in which they might be required to carry out the type of audit that I envisage. There are also, undoubtedly, already in existence firms of accountants and of consultants which have grown up and are able to provide a professional service of the sort which I foresee being called for. In this respect, it would be proper for me to declare a personal interest. I have been employed for a number of years by Management Selection Ltd., which is among the relatively quite large number of firms of consultants which would be able to provide the sort of service which a shareholders' committee might require.
I do not envisage that in any circumstances all the 10,000 public companies with a share capital which would be affected by the Bill would immediately start to set up shareholders' committees; nor do I think that a management audit would ever be instituted except as a rare event. Nevertheless, the fact that consideration of the appointment of a shareholders' committee would be on the agenda of every public company once a year would remind the board of the existence of the shareholders and would also make every annual general meeting an event of potential significance.

§ Mr. Hector Hughes (Aberdeen, North)
rose—

§ Mr. Speaker
Order. Does the hon. and learned Member wish to oppose the Bill?

§ Mr. Hughes
May I say a word on the Bill. Mr. Speaker?

§ Mr. Speaker
Order. I have asked the hon. and learned Member a question. He may not say a word unless he wishes to oppose the Bill.

§ Mr. Hughes
No. I do not wish to oppose it, Mr. Speaker. I think that it is a step in the right direction.

§ Mr. Speaker
If the hon. and learned Member thinks that it is a step in the right direction, he must sit down and be quiet.