COMPANIES (Hansard, 9 June 1971)

§ Sir Brandon Rhys Williams (Kensington, South)

I beg to move, That leave be given to bring in a Bill to require certain companies to appoint non-executive directors; to require such directors jointly to present independent annual reports to the shareholders; and for purposes connected therewith. When I introduced a Companies Bill in 1969 the House was good enough to give it a Second Reading and it completed the Committee stage. The object of the Bill was to bring into company law for the first time the expression "management audit". Since 1969 the need for the regular conduct of managements audits has become more apparent and more urgent.

The object of the Bill I am seeking the leave of the House to introduce is to give legal expression to the phrase "nonexecutive director" and to confer upon the non-executive director a specific function. The intention of my last Bill and of this Bill is the same; namely, to give shareholders a practical means of securing competent independent supervision of the management and the way in which their assets are being employed.

My suggestion is that large companies should have not fewer than three non-executive directors. The Bill is devised to apply to the thousand or so largest public companies. It will not define precisely the nature of the report which the non-executive directors must make. My hope is that we may safely leave it to the shareholders themselves, particularly the institutional shareholders, to make known what they expect their non-executive directors to do. The Bill therefore does not seek to increase the area of Government interference in the operation of public companies.

It is topical, and indeed relevant, to point out that the concept of the European company has been receiving study by the Commission in Brussels and that after some years of study the E.E.C. Commission has decided in favour of the adoption of the German system of supervision in which there are two boards, a supervisory board and an executive board. The Commission's report in June, 1970 to 1065 the Council of Ministers specifically recommended that this two-tier system should be adopted. I do not think it is essential for us in Britain to copy the continental system exactly in this respect, but it is possible for us to learn from the way in which German companies are run.

The Bill is not a long one, but it could have useful consequences if it led to a separation of the functions of the non-executive and the executive directors, and to the non-executive directors asserting their influence slightly more positively than they do in many companies at present. If the House is so good as to give me leave to introduce the Bill, I recognise that at this time in the Session it has little chance of completing its stages. Nevertheless, I hope that shareholders, particularly institutional shareholders, and directors, particularly non-executive directors, will take note of the fact that this Bill has been introduced, and that they may follow the course I recommend whether or not there is a legal obligation upon them to do so.