§ Order for Second Reading read.
§ 3.50 p.m.
§ The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Peter Walker)
I beg to move. That the Bill be now read a Second time.
As this is the first occasion that the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) has made a major speech from the Opposition Front Bench since his illness, may I say how pleased we are to see him back? As both a Minister and a Shadow Minister he has always been a very popular Member of this House and has always made interesting and constructive contributions to our debates. We are delighted to have him back with us.
I ought perhaps to put this Bill in the general context of the Government's objectives in terms of the reform of the free enterprise system in general. This is one of the component parts of the strategy which we have tried to pursue towards the free enterprise system. It was some 12 or 15 months ago that I announced on behalf of my Department that we were endeavouring to arrange reforms to try to transform the relationship of people in our society towards the free enterprise position.
The first of the major measures of reform was a series developed and steered through this House mainly by my right hon. and learned Friend the Minister for Trade and Consumer Affairs giving a completely different rôle and position to the consumer. The Fair Trading Act is more radical than anything previously conceived. The reform of consumer credit, which is going through its stages at present, affects almost all forms of credit provision to the consumer. Finally, there is a measure which I believe has yet to register in the minds of most people. It is rather inelegantly called the Supply of Goods (Implied Terms) Act, and it radically alters the relationship between buyer and seller. These reforms have over a period of 12 months transformed the power and influence and the potential power of the consumer.
924 Our second sphere of reform upon which we embark today is the reform of company law. I believe that our proposals will make British capitalism the most open in the Western world and will ensure that employees, consumers and the public at large as well as shareholders can judge both the economic and the social performances of corporations. We want this new capitalism to be socially responsible and accountable to public opinion at large.
We are going on to develop proposals to make sure that employees have a proper opportunity to affect decisions of the companies for which they work and in which their interests are entwined. My right hon. Friend the Secretary of State for Employment will be producing a Green Paper on this topic after the many discussions and deliberations in which he has been involved.
There is a long history of company law reform in this country. The last major reform took place in 1967. I say in no sense of criticism on a party political basis that it was sad, perhaps for pressing parliamentary reasons at the time, that many of the proposals contained in the Jenkins Report of 1962 about which most informed and sensible people were agreed did not find a place in the 1967 Act.
The 1967 Act made some very important steps forward on disclosure. One interesting factor is that many of the fears expressed about the 1967 Act on disclosure have proved to be unfounded. I hope that the House will bear this in mind when, as a result of this Bill becoming an Act, Secretaries of State take advantage of the powers contained in it. The fears about disclosure in past measures have tended to be overstated and in practice the powers have been useful in being able to provide people with a better judgment as to the effectiveness of various corporations.
In November 1972 I first announced that it was the Government's intention to provide a major company law reform. This was long before certain events like Lonrho took place. Before that I considered, not on grounds of curing certain abuses which existed, but because many provisions in the Jenkins Report which were correct had not been implemented although 10 years had passed with Governments of both parties, that as part of 925 the changing position of the free enterprise system it was important to bring about a situation where much further disclosure was available.
If I were asked what I considered to be the most important potential element in this Bill I should reply that it was the power which will give future Secretaries of State, as time passes and the public consider new elements which are of great importance to their judgment, to move regulations which will enable disclosure in various forms to be available and to be provided swiftly.
The objectives of the Bill are first to see that the system itself is made more open, secondly to remove some undesirable practices which have evolved or emerged over past years, and thirdly to see that the Government's management of the corporate position is better administered and much more effective than it has been under previous Governments of all complexions.
There has been a tendency on the part of the Press and the observers to highlight matters such as inside dealing and those other matters which are to be made criminal offences under this legislation. It is right that attention should be drawn to this. But it is important to recognise that these practices which we shall endeavour to remove by this legislation are not practices which are either widespread or the general practice in the transaction of business in this country.
I think that both sides of the House will agree that the City of London plays a massive part in the effectiveness of the British economy and is one of our greatest overseas earners. One of the great benefits of the City of London as a worldwide financial centre is the quality and standard of integrity which it enjoys. It enables business in London to be done more effectively and speedily than in almost any other centre in the world. It tends to be a financial centre which has the enormous advantage that, basically, for the majority of decisions taken in the City the judgment is whether they are correct and are decisions of integrity, whereas in other financial centres the judgment is whether they comply with the law—if a clever lawyer can get round the law, it is fair play, and that is the basis upon which business is done. I much prefer the basis in the City of London.
926 The Bill contains 120 clauses and 11 schedules. It is a major piece of legislation. There are various other aspects of company reform which I have no doubt hon. Members will mention during the debate as being candidates for inclusion and which they are disappointed have not been included. But, as the Labour administration discovered, when introducing legislation of this type on an evolving position like company law there is a limit in legislative terms to the scale of reform possible.
The Bill is divided into 10 parts, and it is very much an evolving reform. If I may deal with its various parts, the first provides for the classification of companies and makes certain changes in their powers.
The first two clauses are designed to make clear, and not blurred as it has been since the suppression of the exempt private company in 1967, the distinction in status between public and private companies. This is desirable in itself, but it also has the advantage that different measures—for instance, different applications of the disclosure requirements—can be applied to companies of differing status. There will, therefore, be a distinct separation between the bodies of law applied to the two kinds of company, even though they are incorporated in one measure.
Of some importance in Part I is Clause 7, which reverses the controversial judgment in Parke v. Daily News. In future a company which ceases business and wishes to make generous provision for its ex-employees will not be at risk of successful litigation by shareholders who claim that all the proceeds should return to them. I think that this will be welcomed on both sides of the House.
§ Mr. J. Bruce-Gardyne (South Angus)
I understood my right hon. Friend to say that the definition in Part I of the different classes of company would apply to the requirements about disclosure. I understood that in Clause 69 the definition of the different categories for purposes of disclosure would be left for subsequent decision by my right hon. Friend by order. Is that correct?
§ Mr. Walker
It is correct. But in coming to a decision among other categories about disclosure there will be the category of the private as opposed to the 927 public company. There will be a different element of disclosure for major private companies as opposed to minor private companies which operate on a small scale. There will be various grades of disclosure on which future Secretaries of State will be free to decide.
Part II of the Bill is concerned with the question of share capital and the issue of securities and dealing therein. Clause 8 covers the question of minimum paid-up capital. As we have said in the White Paper, we intend to impose a minimum paid-up capital. We have suggested in the White Paper levels of £1,000 for the private company and £10,000 for the public company, and I see no reason why those figures should not be adopted.
The other parts of Part II deal with the question of insider dealing, which has received much publicity. The object of the provisions is clear—that nobody, by reason of his position in a company or his relationship with it, should be able to use inside information which he has thereby acquired in order to line his own pocket by dealing in the relevant securities. Fears have been expressed that a general provision of this kind will severely inhibit the ability of directors or senior employees to deal in the securities of their companies. I think that these fears are exaggerated.
There must be many occasions during the year when the information held even by the most senior insider is not likely to be significant in relation to the market price of the securities. But it is impossible to take effective steps against improper dealing by insiders without importing some inhibition on the freedom to deal hitherto enjoyed by insiders. That is inescapable, and, in my judgment, a price which it is right to pay in the interests of stopping an undesirable activity.
Further problems are set by the major institutional shareholder and professional investment adviser, such as a stockbroker or accountant. Such people have the best opportunities of finding out any insider information they consider relevant to their functions, and if they were to deal in the relevant securities while having that knowledge it would be a classic example of undesirable insider dealing. However, institutional investors must be 928 able to take a close interest in the management of the companies in which they invest without being totally inhibited from buying or selling those companies' securities. Professional advisers must be able to continue to give impartial professional advice without feeling that by so doing they are preventing themselves from properly managing the funds of other investment clients.
The Bill therefore provides that, although such people may have inside information, they will be able to deal unimpeded provided they can show that the inside information held by one part of their business did not "leak" sideways into the management-investment side.
There is a general problem of deciding how far the ripple effect should be allowed to go—at what point, in the widening circles of relationship or acquaintanceship, does a person cease to be an insider for these purposes? The Bill therefore provides that it will be an offence to tip off anybody if the tipper has an arrangement that the tippee will then deal or if he has good reason to believe that he will deal. But the man who receives the tip will be committing an offence only if he has some business association or some informal understanding about dealing with the man who passes on information.
Some commentators have claimed that the provisions of the Bill reverse the normal burden of proof and assume that an insider who deals is guilty until he proves himself innocent. That is a misunderstanding. No question of insider dealing can arise unless the defendant has been shown by the prosecution to be connected with the relevant company, to be in possession of price-sensitive information not generally available, and to have dealt in the securities. If the prosecution can prove those three circumstances, it is entirely conformable with the normal provisions of the law that a prima facie case should thereby be established and that the defendant should then have to show that, despite those circumstances, his activities were innocent.
§ Mr. Tam Dalyell (West Lothian)
How is it to be proved that "tippery" has taken place? I wonder whether the Secretary of State, without going into detail, would say something about the advice 929 which he has had from the departmental lawyers on identifying whether the information has been given.
§ Mr. Walker
There is considerable difficulty in obtaining evidence and proof in such circumstances. I do not deny that. However, the difficulty of obtaining evidence about a process which is considered to be undesirable should not prevent us from making it an illegal act. I concede that it is difficult to obtain such evidence. But to say that a certain process is an illegal act, a criminal offence, is to put the hallmark of the law on it, and it is not something which the majority of people would practise.
§ Sir Robert Cary (Manchester, Withington)
Take the example of an extremely large company—I have two such companies in mind—in which there are vast family holdings spread among many relatives and in-laws. Are those people to be constantly under suspicion if there is any change in their holdings?
§ Mr. Walker
If there are large family holdings there is an obligation to endeavour to show that people do not deal on insider information. I realise that there are perfectly innocent and respectable practices which will have to be changed, but I am now dealing with an undesirable practice. The majority of firms with family holdings do not deal in the shares constantly. If they are not dealing in the shares, no suspicion or problem arises.
§ Mr. Brian Harrison (Maldon)
Will my right hon. Friend explain how this can be done without nominee holdings being completely open?
§ Mr. Walker
I shall deal with the question of nominee holdings later.
Provision is made in Clause 14 whereby a defendant would have to show that his purpose in entering into the transaction was, for instance, to meet an unexpectedly large bill. Someone may enter into a transaction because he has to make substantial house repairs, and in some cases there will be no alternative but to realise shares. If that could be shown, it would be a potential defence.
An important provision of this part of the Bill relates to nominee shareholders and what is commonly known as "warehousing". Shareholders are already required by the 1967 Act to disclose to 930 the company when their holding reaches 10 per cent. or more of the share capital of the company. We now propose to reduce the figure to 5 per cent. and to shorten substantially—from 28 days to three days—the period within which notification must be given ; namely, notification to the Stock Exchange which will be put on the Stock Exchange board and become public knowledge. There is also provision to reduce the 5 per cent. still further if experience shows that to be desirable. Therefore, any future Secretary of State, if he found that undesirable practices were continuing, could reduce the 5 per cent. by regulation.
The Bill also provides that any company which suspects that it may be the potential victim of a warehousing operation may require to know who are the beneficial owners of its shares. It has been suggested that nominee shareholdings should be banned altogether as being secretive and out of date. I can perfectly well see the arguments for that case, but I ask the House to realise that there are considerable arguments again the case. One of the major arguments is that many of our financial institutions act as investment advisers to large numbers of people. For example, one of the joint stock banks might have people with small and medium sized portfolios and might purchase a bulk of securities which they may perhaps put in Barclays Bank nominees and distribute internally amongst these people.
If in every transaction it was necessary to put a name on each individual allocation it would impose considerable extra bureaucracy so far as the operation of these financial centres is concerned. I can see the desirability of people not using nominee holdings in order to gain a position in the company without its being made public. That is why I have given this particular, wide power so that a company can demand disclosure of who is behind the nominees, if it is in any way suspected that it is being used for a major take-over. Take the position of Barclays Bank nominees. A holding may be built up in that nominee, or in another. One may go to the nominee and say "We want to know who is behind it". Barclays Bank may say that it comprises 830 of its portfolio's clients and, therefore, there would be no objection. Certainly the majority of people concerned would accept that undertaking without their positions being 931 disclosed. If, on the other hand, there was a purpose relating to a take-over it would have to be disclosed and we would know exactly who was behind the nominee concerned.
There is also the question of giving investors, particularly small investors, some degree of privacy. A person may have £1,000 worth of shares in ICI and may not want his relatives, or local people, to know. It is perfectly reasonable that the privacy should be respected if the person is holding shares as a nominee for no other reason than privacy. If, however, he is holding the shares as a nominee in order to be involved in a major transaction or take-over, there are powers in the Bill to deal with this.
Part II of the Bill makes provisions regarding directors' dealings. Holdings of over 5 per cent. and any dealings which directors have in the shares of their companies will have to be notified within three days to the Stock Exchange, instead of the usual 28 days. As the White Paper promised, this part of the Bin contains provisions preventing the further issue of non-voting shares or shares with limited voting rights. We have provided that listed companies may not create any more shares with limited voting rights. Any existing private company which wishes to turn itself into a public company or acquire a listing, or any unlimited public company which wishes to be listed, must first enfranchise any non-voting shares which may exist and must ensure that any new issue carries unqualified voting rights.
§ Clauses 26 and 27 are designed to improve the position of minority shareholders who do not consent to a successful take-over, and who are then bought out by the successful bidder, and improve the rights of a minority of the shareholders to have their shares bought up by a company which has successfully acquired nine-tenths of the relevant shares. The main effect of these provisions is to ensure that the minority, where the bid has been made on alternative terms—that is, the offer has consisted of either cash or paper—can rely on getting as good terms as those available to the majority. These important modifications are part of a general policy of improving the protection given by the law to minority shareholders. Other 932 examples of the same principle will be found in Clause 20, which makes it more difficult for the directors of private companies to refuse to register a transfer of shares, and in Clause 70, to which I shall come later.
§ Part III of the Bill contains what is perhaps the most radical improvement to company legislation. The first clauses in this part extend the power of the courts to disqualify persons from acting as directors of companies. The main effects are, first, that a person convicted of any offence which necessarily involves the finding of fraud or dishonest behaviour may be disqualified by the court, even though the offence was not directly concerned with the management of a company. Secondly, a person may be disqualified if he is found guilty of reckless conduct in managing a company. Thirdly, a disqualification order may be made if a person has been persistently in breach of the obligation under the Companies Acts, which is defined to mean three or more offences within any period of five years. Fourthly, a disqualification order may begin to run after any period of imprisonment which may be involved, instead of being concurrent with it.
§ Finally, a disqualification order sought on the ground that a person has been convicted of an offence or offences involving fraud or dishonesty may be made not just at the time of conviction but at any time thereafter. It will be observed that we have followed what was said in the White Paper by not providing that disqualification shall be possible when a person has been shown to be incompetent, as opposed to being guilty of fraud, dishonesty or recklessness. We take the view that being incompetent is not a quality of which an individual ought to be self-aware—
§ Mr. Walker
—and which ought to lead him to efface himself from commercial society. If the shareholders elect an incompetent person to the board, provided that he does his honest best, however poor it may be, we do not think that it is right to ask the court—as opposed to the shareholders and his 933 fellow men—whether he is too incompetent to be allowed to be a director.
§ Clause 45 contains probably the most Draconian provision in the Bill. Briefly, it provides that no director of a company, or any member of his family, may hold shares in another company controlled by that first one. There are reasonably generous transitional arrangements to allow for the orderly unwinding of the existing position. I have no doubt that this provision will cause considerable dismay in some entirely respectable quarters, and that there will be a feeling that there should be some specific exemption provided for respectable situations. [An HON. MEMBER: "Hear, hear."] I note the "Hear, hears" of my hon. Friend, but I find it impossible to agree with this suggestion.
§ The situation described is one where a perfectly clear conflict of interests can all too easily arise, and the temptation to use one's position in one company in order to better the other company in which one has a personal interest—at the expense of the proper rights of the shareholders in the first company—is so clear that in my view the situation must be stopped. Most situations are entirely respectable and have been constructed for respectable reasons, but it is impossible to establish any distinguishing mark of respectability by which exemption might be given. Recognising the difficulties which may be caused for the genuinely respectable, I have, none the less, decided that the potential evil, and in particular cases the observed and actual evil, is so potent that the only proper course is a statutory bar.
§ Mr. David Mitchell (Basingstoke)
Does my right hon. Friend intend it to apply to private businesses and family companies where there are perfectly legitimate arrangements between father and son, and to other similar cases?
§ Mr. Walker
It will apply to all companies which possess an interest in other companies. There are transitional arrangements where it has been done for perfectly sound and respectable reasons. There is a period of time in which the transition can take place. We have discussed this at full length with professional advisers, and we are satisfied that in those cases in which this has been done for perfectly legitimate and reasonable 934 reasons, the companies can make other arrangements to continue their activities in a well-organised way. But in future there will not be this potential conflict of interest between one group of shareholders and another.
§ Clause 52 says specifically what is now implicit in statutes and in case law, that a director has the duty of utmost good faith to his company. This is not new law but a wholly desirable clarification. Clause 53 makes it clear that directors are entitled to have proper regard to the interests of the company's employees in the decisions they take. It would be a poor board if it did not do this, and any reasonably active union or staff association would soon bring to its attention the negligence involved.
§ But since it may happen that boards feel inhibited from benefiting the employees in ways which might be represented to shareholders as not directly in the shareholders' interests, we think that it is desirable to make it clear that a director who genuinely decides on measures which benefit the employees would have a complete defence against any claim that he was acting ultra vires. This is an important basic statutory provision to obtain before any legislation is begun on the basis of the Green Paper which the Secretary of State for Employment will be introducing in a few weeks time.
§ Turning to Part IV of the Bill
§ Mr. A. P. Costain (Folkestone and Hythe)
Before my right hon. Friend leaves Part III, would he say something about Clause 45? I have had some letters about this from constituents and I know something about it personally. There is concern about trustees holding shares and about whether they could be directors. Has my right hon. Friend paid due regard to the fact that in a subsidiary company which was wholly owned there could be a conflict?
§ Mr. Walker
Could I leave it to my right hon. and learned Friend the Minister for Trade and Consumer Affairs to deal with the point about trustees when he winds up?
Part IV is concerned largely with a matter which in recent years has reached the proportions of a scandal—the late filing of company accounts at Companies 935 House and the difficulties that the Registrar has in pursuing offenders. There have been many more prosecutions in recent years in this sphere. The number of prosecutions in 1973 were quadruple the number in 1970.
The problem was explained in the White Paper, and the solution which we have evolved is as follows. For the first time, there is created a specific obligation to file annual accounts within a fixed period from the end of the financial year, and the method of determining the financial year is fixed. Failure to observe the requirement will make each director of the company guilty of an offence and liable to a substantial fine—£400 plus £40 for each day of default. Further, the company will incur a civil penalty, mounting at an increasing rate during the period of default, up to a maximum of £450. By enacting these provisions, Parliament will make it clear that failure to file annual accounts on time is a serious offence. It is not a technicality. Limited liability is a privilege, and those dealing with people enjoying that privilege are entitled to prompt and accurate information about their financial state. These provisions will enable my Department to identify defaulting companies immediately default starts, to pursue them actively and thus rapidly to eliminate the backlog which now exists and to keep up to date in future.
There has been controversy about the Government's decision that part of the work previously done by Companies House will in future take place in Cardiff. This is a very important element in these provisions of the Bill. The existing buildings in London could not possibly cope with the situation beyond a further two years, and we have decided that it is correct that the main examination and bulky paper storage should be moved out of London for a number of reasons—partly the question of accommodation and the availability of suitable accommodation within that two years, and very much a question of staff.
In London over the last three years we have increased the staff at Companies House from 600 to 900. The obtaining of clerical staff in London is very difficult, and frequently Government Departments, including this one, are way under establishment. About 25 per cent. of 936 the recruitment of clerical staff in my Department is currently involved in recruitment for Companies House.
We have decided that the use of microfilm, the appropriate application of computer techniques, the fact that this Bill will assist with the penalties involved and the fact that the increased paid-up capital provisions will assist in removing from the register a range of companies which have not been used or active for many years will enable us to improve the position.
But the staff problem relates to the time scale, and the overall efficiency demands the provision of a major new office within those two years. The Department consulted the main users of the companies registration facilities before deciding on the move.
Companies House in London will remain the principal public search facility, served by a microfiche system. There will be a fiche envelope for each company on the register, which we propose should include the incorporation documents, subsequent amended memoranda and articles of association, any documents in relation to capital structure of the company, for example, conversions, reconstructions, orders of court, agreements, contracts, increases of capital, returns and repayments, appointments of liquidator or receiver, reduction of capital, the situation of the registered office and any changes in the last seven years, appointments of directors and any changes in the last seven years, annual returns including accounts, directors' reports and shareholders' particulars for the last three years filed. If further returns are filed in later years, these will be added to give a maximum of six or seven years, depending on the length.
The envelope will also include the complete mortgage register of documents relating to mortgages and charges, and for large companies with bulky lists of shareholders a microfilm copy of the register will be made available, with special readers. Where lists are shorter, they will be included with the annual returns and annexed documents in the fiche.
This means that all documents received will be micro-filmed and available both in London and in Cardiff. The only people who require to consult 937 original files in Cardiff will be those requiring information other than that retained permanently on film. These arrangements will provide all the information needed by the great majority of users of Companies House. Consultations with our financial institutions and others continue on points about which there is still concern.
One point is the importance of providing facilities in London for the lodging, examination and acceptance of all documents relating to prospectuses, other types of public issues, snares or other securities, associated reconstructions of capital, orders of court or take-overs. These representations are being carefully considered.
There are considerable advantages in the new system. One serious drawback in the present system is that only one copy of each company file is available. Therefore, if, as commonly happens, several agents, journalists or members of the public want to see the same file on the same day, their demands cannot be met. At present, users may present a list of files to Companies House in the morning and find that only perhaps half are available, so that they have to go back day after day until the file they want is free.
When the information is on microfilm, unlimited copies can be provided, so that a number of people can examine the same document at the same time, and people will be able to take away copies of information on the microfiche to examine in their offices. For major users, a contract service will be introduced, under which copies of the required information will be supplied direct to their offices and can be read there.
The Department has had a series of meetings with interested bodies to discuss their complaints and examine ways in which the new arrangements can be adapted if those complaints prove to be soundly based. But there can be no going back on the decision to move out of London. There is no other way in which an adequate service to users can continue to be provided beyond the next two years.
§ Dr. John Gilbert (Dudley)
If eventually it is intended to have seven years' accounts in London, why can we not start with seven years instead of three 938 years? The Minister will agree that one of the most important things for purposes of comparison is several years' consecutive statements.
§ Mr. Walker
This is the time scale of ensuring that all these documents are filmed. If they are to be filmed in two years' time, which is essential for the whole of the arrangement, three years' operations presents a huge task. Most inquiries would be dealt with straight away by what is now available. There will be plenty of organisations and ways by which, during the period when we build up the seven years' position, information can be obtained from Cardiff.
I should point out to critics of the situation that the alternative of staying in London in some ways would be far more incompetent and inefficient for a much longer period than what we have decided. Our decision was taken very much upon the desire of both the previous and the present Governments. Successive Governments have always failed to keep the situation up to date. I believe that the action that we are taking will mean, in the shortest possible period, that we have a good system speedily used by those who wish to use it.
The provisions relating to auditors are, I think, largely self-explanatory. The general strengthening of the position of the auditor is designed to further the general purpose of the Bill, which is to encourage the maximum degree of disclosure by companies and of informed comment upon them. The same is true of the provisions relating to the contents of accounts, directors' and auditors' reports and annual returns.
The actual contents of regulations which would be made under these powers must be decided upon in the light of what is said in the debate. I said at the beginning of my speech that I considered the whole question of disclosure was perhaps the most important provision in this legislation. It gives considerable flexibility to future Secretaries of State. The regulations that we would move, after the Bill became an Act of Parliament, would be very much affected by what is said in the debate and by representations that have already been and will be made in the months before the legislation is finally passed. I should not propose to use any such 939 powers without the fullest consultation with all concerned. However, it may be helpful to the House if I give a brief indication of how I propose to approach the subject.
Perhaps the most important list of provisions in this context is shown in Schedule 1. Hon. Members will see that a very wide range of activities and topics is covered in that schedule. For example, paragraph 12 states:The conduct of relations between the company and its subsidiaries and persons employed by them ; personnel and employment policies of the company and its subsidiaries ; arrangements for protecting the safety and health of employees of the company and its subsidiaries.(13) Arrangements for protecting the safety and health of the public.The list will also include information on the environmental policies of the company involved. That is the type of information that should be made readily available to employees, the public and local authorities involved in the area where the company is active.
This is a very wide list, and, subject to consultation about its application, my general intention would be that public companies and the largest private companies would be required to disclose on all those matters.
The smaller private companies—I have in mind particularly the specific recommendations and the general philosophy of the Bolton Report—are not under the same general obligations of wide public interest and concern. I assure hon. Members on both sides who have expressed anxiety on this topic that it would be appropriate to require a far less degree of disclosure by such companies.
At the smallest level of activity—the two-man or three-man private company—I should expect the degree of disclosure required to be minimal. I shall be particularly interested to hear the course of debate on this subject, and, in the light of the views expresed by the House, I will then undertake consultations with the interested parties before making any regulations.
I referred previously to various clauses designed to improve the protection of minorities. Clause 70 significantly eases the access to the courts of an oppressed minority shareholder. Improvements will also be found in, for instance, Clauses 940 73, 75 and 76, in addition to those clauses to which I have previously referred.
The subject of investigations by my Department is obviously one which arouses a great deal of interest and, I must reluctantly say, quite a bit of ill-informed criticism. But let me make the position clear.
The existing Acts and the Bill do not give the Department of Trade and Industry any right or duty to interfere in the internal affairs of companies. The power of investigation arises, in my view rightly, where there is reason to believe that there has been fraud, misfeasance, or some other impropriety. I believe this limitation to be right.
Admittedly, it is not always easy to judge in particular cases whether an investigation ought to be undertaken or whether there are other more suitable courses to be pursued, but some such judgment has to be made. Otherwise, the Department would virtually be committed to an investigation every time there was a complaint. I assure the House, having occupied my present position for 14 months, that it is a sad fact that many complaints made to the Department are based on either misunderstandings or wrong information, and sometimes malice.
§ Clause 71, particularly subsection (3), is of importance. It significantly widens the grounds on which inspectors may be appointed. Subsections (4) and (5) increase the powers of inspectors to demand books, papers, and other relevant information, and subsection (7) widens the provisions of the 1967 Act relating to investigations into share dealings.
§ I ought next to draw attention to two provisions in Part VII, Clauses 93 and 94. These clauses create a new category of pre-preferential debt in a winding-up or bankruptcy and provide that the payment of the final week's salary and wages, subject to a maximum of £50 for each individual, shall take precedence even over other preferential debts which themselves include wages and holiday payments.
§ The next group of subjects, contained in Part VIII, does not call for specific discussion now. It brings the statutory control over overseas companies operating here more closely into line with the obligations imposed by the Companies Acts on domestic companies, subject to 941 such modifications as are required by the very fact of their being overseas companies.
§ Nor do I need to do more at present than just mention one or two points in Part IX. Clause 102 gives power to extend the operations of the Acts to unregistered companies, because in principle it is clearly desirable that all companies should be governed by the same body of law.
§ Clause 103—I am sorry that not many Welsh Members are here to examine it—enables a company to have its registered office in Wales instead of either Scotland or England and Wales.
§ I should finally mention Clause 120, the last in the Bill. Subsection (3) gives power for the Bill to be brought into effect at a suitable future date and, if necessary, by sections rather than all together. This is a slightly unusual provision which has two main objects.
§ First, the operation of parts of the Bill depends on the issue of regulations. I shall refer to the question of regulations generally in a moment. Obviously, we need to be sure that any regulations are properly considered and do not have to be rushed simply because the Bill is about to receive Royal Assent.
§ Secondly, parts of the Bill—notably those referring to the filing of accounts—will put additional burdens on departmental administration, and it will be important not to impose those burdens simultaneously and before the necessary administrative arrangements can be made for them.
§ Before I conclude, I should draw attention to two general matters which affect many individual parts of the Bill.
§ The first is the question of penalties, which, in the existing Acts, are distinctly heterogeneous. The House will know that the existing Companies Acts contain a very wide range of penalties. The Bill introduces a number of new offences. The more significant new offences include, for instance, insider dealing, for which conviction carries a liability to imprisonment for up to seven years ; a company commencing business without the required minimum paid-up capital, for which the penalties, on indictment, are an unlimited fine and, on summary, conviction a fine not exceeding £40 for each 942 day of contravention ; acting as a director while owning shares in a subsidiary, which carries a penalty of up to two years' imprisonment ; and acting as an auditor when disqualified, for which the penalties, again on indictment, are an unlimited fine and, on summary convictions, a fine of up to £40 a day.
§ The whole range of penalties, existing and proposed, has been reviewed and updated in the last few months, and they are now categorised in Schedule 7. The penalties for the most serious offences are significantly increased, and the fines for a wide range of offences are raised substantially. It will be seen that the penalties fall into four broad categories. Within these categories there is special provision for those offences which are continuing offences as opposed, so to speak, to the one-off offence.
§ The second general matter of which I should make particular mention is that, as the House will have noticed, the Bill substantially increases the range of matters over which it is proposed to seek powers to make regulations. The House is always, I suggest rightly, suspicious about the granting of such powers. Our experience will have convinced hon. Members, just as it has convinced responsible Ministers, that there are many matters, not themselves of basic significance for the structure of the Acts or for their general philosophy, which require updating from time to time, and modification in the light of experience and current knowledge. It is undesirable that such matters, which are primarily of an administrative kind, should take up the full legislative time of Parliament. A general power to make regulations on these matters is the most appropriate way of securing that the application of the Acts is kept reasonably up to date. The kind of matters which I have in mind, on which the existing Acts have clearly fallen behind the times, include the various fees payable to the Registrar of Companies, to which Clause 113 is relevant, and the contents of the directors' report, on which Clause 69 will operate.
§ It may help the House to point out that in every case where a regulation would increase any existing burden the relevant order would be subject to the affirmative resolution procedure. I am sure that the House will agree that it is right to reserve 943 the ultimate decision, even in these quasi-administrative matters, to Parliament. It may also help the House if I give an assurance that, save in those cases where the nature of the subject matter makes it impossible—and here I obviously have in mind the fees chargeable at Companies House as an example—it will be my intention to make regulations only after the fullest consultation with the interested parties.
§ I have probably illustrated to the House the far-reaching nature of the Bill. It reforms and brings up to date in a wide range of matters the provisions of the existing Companies Acts in ways which I feel sure are bound to be welcomed by all who wish to see the management of companies and public knowledge of company affairs improved and made more efficient. It also introduces a number of radical reforms into the existing system, some of which I recognise will involve hindrance and difficulty to the normal practice of honest and innocent individuals. However, after the most careful consideration, I believe that the price, heavy though it may be for innocent people, is worth paying for the greater good of eliminating abuse.
§ I believe that the Bill will succeed in making British capitalism the most open, certainly in Western Europe and I believe also in the world. It will mean social responsibility in the economic activities of corporations, which in total means that the activities of a great part of our national life will be improved when the Bill becomes an Act.
§ 4.43 p.m.
§ Mr. Harold Lever (Manchester, Cheetham)
May I first say how touched I am at the great kindness shown me by both sides of the House on my return from an absence which would have passed unremarked a few years ago, without any extenuating circumstances of illness. My recent reincarnation as a more serious attender has caused some concern over that absence.
I speak as one whose affections have never managed to keep themselves confined within the boundaries of party political orthodoxy. I should have liked to be able to heap encomiums on the Secretary of State and his colleagues for their Bill, which is not immediately political 944 in content. I wish I could have kinder things to say, but the right hon. Gentleman will know that none of the remarks I make is activiated by any personal ill-feeling, malice or lack of appreciation of his own kindness and that of his colleagues to me.
However, I do not want it to be thought that the only kindness extended to me is from the other side of the House. I am glad to see that my dear friends, my hon. Friend the Member for Liverpool, Walton (Mr. Heffer) and my hon. Friend the Member for Salford, West (Mr. Orme) are not in their places, because now and again they appear to haunt me, more in sorrow than in anger, as spiritual reminders, as they rise in the middle of my speeches when my footsteps are deviating from their conception of the ideological straight and narrow. However, enough of this: I must turn to the important matter before the House.
The right hon. Gentleman has given us, necessarily, a rather hasty preview of the Committee stage of the Bill rather than a Second Reading speech about the general philosophy that activated bringing in the Bill. It was not clear until 3.30 this afternoon that there was to be a Second Reading, because if a General Election supervened the debate would probably not have occurred. However, if before we reached the Committee stage it was clear that there would be a General Election I assume that the Bill would be left over to the succeeding Government and Parliament.
That possibility gives the right hon. Gentleman the air of a man bursting with good intentions which are destined never to be fulfilled where the Bill is concerned. It is a pity, because the right hon. Gentleman, unlike many Ministers who when they come into office tend to have the occupational disease of hardening of the conscience, seems to find his soul in whatever Ministry he arrives at. It may be added that the right hon. Gentleman appears to find circumstances which lead one to suppose that he has it in mind that this discovery could be usefully incorporated in his party's next election manifesto. That reflects itself in some aspects of the Bill.
As for company law, we must bear in mind that, despite the Secretary of State's approach, this is not an arid exercise of 945 a legalistic character. What we are discussing is the whole legal framework which governs the operation of pretty well all our private enterprise—commerce, industry and finance. One has to see what is one's attitude to private enterprise in this day and age before one can describe the philosophy governing our reform of the legal framework within which it operates.
I should state at once that I come from a constituency in which the Royal Exchange, the Cathedral and the Manchester Guardian are all in close proximity. I have mentioned this to the House once before. The result of this close proximity is that there are few businessmen who have not some ethical imprint of spirituality and, alas, it may be that there are few clerics who have not some commercial instinct. Supervising them all is the Manchester Guardian, whose great name and instructive leading articles are there to realign the morality of either category who may have strayed in the course of their commercial or professional lives.
The fact that I am the son of a scholar-merchant leads me to say that I do not see anything inherently wicked in private enterprise, but merely that it must adapt itself to the ethics and social obligations of the period in which we live. This is where the two parties might legitimately have a different political approach to company reform.
I should also acknowledge that there are people who for one reason or another think that private enterprise should be abolished instantly and completely. I respect that point of view, but I do not share it. It is not the point of view of the Labour Party. [An HON. MEMBER: "Are you sure?"] Yes, I am entirely sure that my party takes the view that what we require is reputable private enterprise for as long a period ahead as anyone can reasonably foresee, and that it must conform to its social obligations.
In any event, those who think that the instantaneous abolition of all aspects of private enterprise is correct can hardly hope to contribute effectively to the reform of company law. One cannot espouse a passionate case for immediate and general atheism and hope to have great credibility as an enthusiast for the repair of cathedral roofs.
946 However, I make it quite clear that, althugh there are fundamentally different approaches, because of the complex ethical nature of the subject I am not concerned with either political mileage or image creation. If this is placed at the forefront of company law reform I fear that the result will be unworthy. I am not innocent of a desire for political gain, but such gain must be the by-product of an honest and earnest attempt to bring the company law up to date, and these attempts must be made on their merits.
What is the general philosophy and motivation of the Bill? Like the Secretary of State, I have to make some Committee points, but he did not refer to the philosophy that is, or should be, behind the Bill. In the past company law was virtually exclusively concerned with the protection of creditors and shareholders. What the Secretary of State has indicated today is that he is operating from the same rather narrow ideological base as his Victorian predecessors had in mind.
§ Mr. Lever
We shall come to the variants on that theme in a moment.
It seems to me that this ideological base in today's conditions is quite unsatisfactory, because it does not take into account the immense change of thinking by people at all levels as to the ethics of modern industrial, financial or commercial effort. If we are to keep our democracy functioning, there must be a continuous process of aligning the laws that we seek to enforce, governing criminal matters and civil obligations, with the ethics and standards of the majority of our people.
That is my first and most central complaint about the Bill, that it concerns itself virtually solely with narrow areas of traditional company law ; namely, the protection of creditors and shareholders. Is that the most important aspect of company law at the present time? One must evaluate whether one thinks that, for example, 10 years' incompetence in the management of a great industry is less important than a couple of small-time nefarious deals by a director. To those who think that the latter is more important, the structure of the Bill will appeal.
But the truth of the matter is that what modern company law requires in a 947 modern society is the regulation of the relationship between private rights of ownership on the one hand and the public interest and worker interest on the other. The Bill wholly evades the all-important aspects of that requirement. I know that there are odd bits in the Bill and the White Paper that preceded it about the social and moral responsibilities of companies, evaluation of customer complaints, health of employees and so on. Those references, while not enough to be important or significant, are enough to concede my point, that the Secretary of State cannot say with Victorian primness "These are not proper matters for a Companies Bill."
The answer to that defence is that the argument is both circular and pedantic. Why are they not proper matters for a Companies Bill? Answer: wholly because, as I have said, traditionally they were not proper matters. It is circular to give me that answer. It is also pedantic, because I do not care whether such a measure is called the Companies Bill, the Workers' Protection Bill, or the Industrial Efficiency Bill. I want to see it on the statute book. The answer is that the Government do not want to introduce such legislation at all.
It is not as if the Secretary of State can say: "The right hon. Member for Manchester, Cheetham wants these things incorporated in the Companies Act, which is aesthetically unattractive. We have already put it in other measures." He has not put them in other measures, and does not seem likely to do so, even if the extension of his franchise is more optimistically estimated than I would be prepared to estimate it.
The right hon. Gentleman talks a little about future legislation in the area of workers' control and so on. On the question of protection of workers and worker participation, the right hon. Gentleman reminds me of Sam Goldwyn. He has given us a definite "Maybe", and that is as far as he has gone.
§ Sir R. Cary
In saying what he has just said, has not the right hon. Gentleman overlooked the great social gesture made by Pilkington in Lancashire in 1938 when it was the first 948 business to introduce family allowances, which Governments were later to copy?
§ Mr. Lever
Everybody knows the quality and character of Lancashire, which has always led in terms of morality as well as commercial enterprise. The Pilkington family certainly showed on that occasion a very farsighted vision. One of the Government's shortcomings is that they fail to realise that they have a duty to legislate, after a suitable pause in time, to ensure that the best practices of a minority are the compelled practices of the whole of business enterprise. That is how in a society such as ours we hope to make advances. I should like to have seen a Bill which did not have a vague talk about the evaluation of consumer complaints and so on. I should like the Secretary of State, who is earnest and serious about social responsibility, to have focused some of the Bill on the means whereby we might secure the public supervision of the capital expenditure, the capital programmes, of some of our great companies in particular, and how we might maintain efficiency. I see that he has a very tolerant attitude on the question of efficiency and a very rigid attitude on the question of honesty, perhaps partly because honesty is, as he realises, very difficult to enforce, and efficiency can more readily be appraised.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
Does the right hon. Gentleman feel that public supervision of investment in the public sector has hitherto given us great encouragement as to the efficiency of the industrial investment that that process produced?
§ Mr. Lever
I do not think that the hon. Gentleman will feel he has made a very telling point, until he suggests to the House that we should abandon the scrutiny of the capital programmes of public enterprises. He does not say "It's all a waste of time. Let's not do it". He dare not say it. [An hon. Member: "He does."] Then he is even more separated from the majority of his colleagues on both sides of the House than I had imagined, because I do not think that many hon. Members take the view that the Public Accounts Committee and the Select Committee on Expenditure are wrong in scrutinising the capital expenditure of the Steel Board—and not only the Public Accounts Committee but the 949 Treasury and the Government. We make all these elaborate provisions for the scrutiny of capital programmes and expenditures of publicly-owned industry, but it is equally important to have some accountablity of the capital expenditure and economic planning of our great private enterprises, some of which are even more important in the economy than are those public companies.
I do not want to use the Opposition Front Bench as a platform to say anything unfair about particular companies. I will not name them, but I invite the hon. Member who said "Look at the results" to look at the results that must be within his knowledge, because they were common gossip in the City, when great companies, on which the livelihood of thousands of workers depended, were being handled by mediocrities and incompetents who allowed them to stagnate and languish. We all knew about it, but there was not a great deal we could do.
One of the reasons is that there is no social accountability in the case of private enterprise, although it seems altogether reasonable and essential in the case of public enterprise. I am not arguing for a sort of Aunt Matilda type of pecking at people on details in private enterprise, in small companies and the like. But the capital programmes of our vast enterprises in private hands affect the livelihood and future of their thousands of employees. Their export programmes and planning affect the fortunes and prospects of our country as a whole, because the greater part of our exporting is undertaken by those companies, much to their honour and credit. But, that being the case, we must have some form of supervision. We could argue very readily about the nature of the institution that would provide that supervision. We could argue profitably as to whether we should do it in a way which would discourage the directors or hamper them in their work. But in 1974 we cannot argue that there ought not to be supervision of that kind.
§ Mr. Bruce-Gardyne
When I intervened rudely from a sedentary position during the right hon. Gentleman's remarks to say "Look at the results", I was not in any sense suggesting that in every case the management of private 950 companies was above criticism. All that I was seeking to suggest was that the consequences of that sort of public scrutiny applied, for instance, to the capital spending projects of the nationalised industries in recent years have not been very encouraging from that point of view. If the right hon. Gentleman considers the consequences for the steel industry of the intervention of public scrutiny in the last few years and considers the reports of the Public Accounts Committee on that, surely this suggests that public scrutiny to date has not been very satisfactory in that respect.
§ Mr. Lever
If the hon. Gentleman will forgive me for saying so, that argument is as cogent as saying that we have seen a child who has been hampered by the continuous surveillance of his parents in childhood ; but that is hardly an argument for the abandonment of surveillance of children during their childhood. With great respect to the hon. Gentleman, there are many other cases, such as the gas industry and in electricity generation in which there has been very real achievement in the capital programmes of industries.
In any event, however, I do not want to turn this into a debate on the nationalised industries. If hon. Members think that the present Government, who have been in office for a number of years, are badly managing their tasks in relation to public industry, very few of us would cavil at that suggestion, certainly for the recent years. Do the Government think that there is no obligation to plan or to supervise publicly-owned industries, or do they merely say—as I gather them to be saying today—that it is being done badly at present? I am ready to give a party "Amen" to the second proposition, but not the first, which seems the only one that is relevant to the argument that I am advancing.
The problem, therefore, is that the Bill is content with the traditional rôle of seeking to achieve honesty concerning creditors and shareholders, and practically not at all with its true rôle of trying to harness the capital assets of this country efficiently in the way, broadly, that we do with publicly-owned companies. It does nothing concerning working people in the industries, although we have a vague promise about that.
951 May I tell the right hon. Gentleman the Secretary of State that I am not posturing here as a revolutionary figure who desires to see workers' councils running our great private enterprises. What I do say, however, is that in 1974 anyone who has a care for the health of our private enterprise and the welfare of our political institutions ought to realise that the time is long overdue when working people should have a say at their place of work in their own economic destiny. They should have that say not merely by exercising a vote at five-year intervals at parliamentary elections or yearly intervals at municipal elections.
I shall not be dogmatic in the way in which this could be achieved. But people need to have some say in the control of their economic destiny in the modern world. This matter involves their way of life in many cases. Their way of life is often abruptly, rudely and brutally interrupted, sometimes for what is an overall economic advantage and sometimes for a much less attractive or justifiable cause.
In any event, however, the kind of control that I urge in the way of protection of workpeople's rights can be achieved only—as with the other matters about which I have been talking—if we make an institutional advance. That means the setting up of some kind of extra-departmental body—not a Government Department—to undertake the kind of duties that I have in mind. I do not want to go into further detail on that matter, because this is an area in which neither party has finished its thinking. The only difference between us is that the Conservative Party introduces this Bill with its thinking in an unfinished state, whereas the Labour Party is not at present in Government.
§ Mr. Ridley
The right hon. Gentleman may or may not be aware that his right hon. Friend the Member for Bristol, South-East (Mr. Benn) and other members of the National Executive of the Labour Party have introduced a firm policy, saying that members of the boards of nationalised industries and other supervisors of industry in the public sector should be appointed if they are known and active Socialists, and that known and active Socialists should be brought into the management 952 of industry. Is the right hon. Gentleman suggesting that that should apply also to the private sector? Is he happy with that as an idea for the public sector?
§ Mr. Lever
Far from suggesting it for the private sector, the only suggestion that I can make to the hon. Gentleman, as he has done my colleagues the honour of reading their conclusions, is that he should read them correctly. If he is unable to do that, he might seek the assistance of those whose bias does not carry them to the point of total distortion which his, alas, has carried him.
Although I do not want to make Committee points—there may not be a Committee—I cannot resist the temptation to put down a few markers, especially as these will, perhaps, stimulate some hon. Members on both sides of the House to interesting disagreement with my point of view.
Although there is a definite difference—not in moral claims on either side—a difference in the party political approach to company law and private enterprise, there is also an area of company law which is as little party-political as the question whether we drive on the right-hand side of the road or the left—although I believe that there was once a three-line whip in the Oxford City Council on that very issue regarding roads. Therefore, I hope that my hon. Friends and my critics on the Government side of the House will forgive me when I am sometimes expressing personal views rather than claiming to speak as the official voice of my party. Although in my general remarks I am speaking as the official voice of the Labour Party on this issue, some of the detailed points are areas in which there can be legitimate differences of opinion, within even the Labour Party. I do not hesitate to say that I am sure that differences of opinion on the issues with which I shall deal will appear within the Conservative Party. They will certainly appear among many of its members outside the House who do not necessarily speak in the same language as Conservative Members of Parliament.
I hope that I am not being deviant in saying this, but I must confess that I am sometimes bewildered by the modern world. The bishops have taken to making 953 political essays, and politicians, in perhaps an unwise riposte, have taken to sermonising. This has spread to a point where so many of our company chairmen tend to maintain a sustained note of sepulchral but intendedly edifying comment rather than a concern for the actualities of their business enterprise. I make no complaint, but it is part of a vogue. They are very good at doing it. When I am faced with these sustained oratorical efforts of our company chairmen, I often applaud them but I rarely find that my appetite for investing in their company's shares has been sharpened.
I come to some Committee points. On the question of insider trading, may I say that I joined the Labour Party and bought my first shares on the Stock Exchange at the same tender year—16 years of age—in Manchester. So I have had some experience, not altogether unrewarding at times, of the stock market, and I am bound to say that I regard the comments about the evil of insider trading as being greatly exaggerated. No one must misunderstand me. I am as much against sin as any Member of this House and I deplore very much anybody taking advantage of inside information on share trading. Most of the people who do, lose money on it. Many of the comments are due to an inadequate knowledge of the subject and the belief that all that is needed is a secret tip from one of the directors and a man can make himself rich for life on a credit purchase on the account. Alas, the mechanics of the Stock Exchange are much more sophisticated than that, and the realities of share estimation are much more sophisticated, too. So half of the tips are merely the road to losing money, and the good half get nipped in the bud at a negligible point by an alert jobber who sees that odd buying is going on.
I do not want to go into technical matters but I record my view that this evil has been exaggerated in its impact. The Stock Exchange Council in a mad moment when the jobber members of it were somewhat more excited than is wise actually supported the proposal and wanted a change in the criminal law to deal with this mischief. That, of course, was the Stock Exchange Council before it thought about the matter and investigated it. After thinking about it and investigating it—and I prefer to think and 954 investigate before recommending action—it has, I believe, a somewhat different view of the proportions of this evil and the possibilities of a statutory reduction in such evil as does exist.
However little it may make me popular on either side of the House to say it, I am more frightened of the doctor than of the malady of insider trading. As I read section after section of almost incomprehensible criminal law enacted into the company law I am still very puzzled. I shall certainly vigorously examine it in Committee, if there is one. I am still not clear from the Bill who is an insider or what is insider trading.
I wish the Secretary of State's Conservative voters had heard the cavalier way in which he dismissed these anxieties in his opening today. He says that it is quite simple. Once a man has been shown to own shares and to have inside information—it is not proof of moral delinquency to have information about a company ; it is proof of moral delinquency if one does not have it as a director of the company—the Secretary of State thinks this is a good start for a prima facie charge at the Old Bailey. First, he proves that the man has shares ; then he proves that he sells the shares and then he proves that he has inside information. What could be more reasonable than that he goes to jail unless the man can satisfy the jury that he did not carry out the transaction to make a profit or avert a loss—whatever that strange confection of words may mean.
Many lawyers—and I used to practise at the bar—used to say that there is only one thing that is not much worse than being convicted and that is being acquitted. Quite a number of business people do not look forward to the notion that they can be acquitted at the Old Bailey if they are able to demonstrate that they have not entered into the transaction with any of the motives of which the Secretary of State disapproves.
I come from Lancashire by birth as well as by constituency. It is said that in Liverpool seafarers passing the Liver Building remark that the stone birds on top of it have been seen to flap their wings whenever a lady of untarnished virtue passes. We could probably erect similar birds over many areas, not necessarily only the Stock Exchange, and say that the wings would flap just as frequently in the presence of 955 so much untarnished virtue, most of which exists only in the oratory of the Secretary of State. I am not at all in favour of underhand dealings but it is a total impossibility for a man to search his conscience as a director and say "If I buy or sell shares, what will an Old Bailey jury say."
§ Mr. Peter Walker
The right hon. Gentleman has given the impression that the Stock Exchange Council has changed its mind on this. It is fair to say that it has not. It still believes with its considerable knowledge of the matter that it should be made a criminal offence. To summarise the right hon. Gentleman, is he saying that he is against taking any action on insider dealings?
§ Mr. Lever
Oh, no. I am saying that I want a decent, honest approach to a marginal mischief, not a public relations exercise which blows it up out of all proportion and hence injects into the Bill utterly indefensible criminal provisions. Since the right hon. Gentleman has had the courage to intervene, I tell him frankly that I believe that the proposal is intended not in good faith as a careful and serious attempt to mitigate a very difficult mischief but as a public relations exercise.
Until now the commerce of Britain and its stock exchanges have staggered along under this evil without it being either a civil or a criminal offence. Suddenly the right hon. Gentleman arrives on the scene and all is different. There is no careful modification of this fairly easygoing position. Instead a punishment of seven years' penal servitude, an unlimited fine and unlimited civil liability is suddenly thrust upon us as one of the necessities for honesty in British commercial life.
What an absurdity it is to suggest that what has never even been the basis of a civil claim should now be punishable in the context of the Bill with sentences falling not far short of the common penalty for killing a fellow citizen. The thing is an imposture upon our credulity. The right hon. Gentleman has produced verbiage which when examined by lawyers is even more shocking, but I will deal with that when we come to the Committee stage, if we have one. I doubt whether the proposal was intended to be brought into force in its present form. So unsatisfactory 956 are the efforts of the Government to mitigate this mischief that I cannot recommend the betting council to adopt parallel action before the next Derby day in relation to the punting on that interesting event.
I come to another problem where I may encounter opposition as to my personal views, and that is on the question of non-voting shares. Here again, what I considered to be a characteristic piece of demagogery has been injected into the Bill. Why should we not have nonvoting shares? Obviously, the immediate impact on minds not used to the Stock Exchange, shares or commerce is that this is a slightly undemocratic procedure, that surely everyone should have a vote. That happens in politics, so why not in business? This kind of equation between company structure and a Greek city State should not be incorporated into the Bill. The only valid reason for abolishing the non-voting share should be to protect the minority shareholding or to protect the public interest. With a view to protecting minorities, a vote does nothing to give that protection if the law is in other respects unsatisfactory. A majority shareholder will make the vote of a minority shareholder valueless. If the idea is to make a gesture to the modern concept of democracy, the gesture must be that everyone has the same number of votes.
§ Mr. Lever
There is a case for saying that all members should be democratically equipped with a vote, but do not let us pretend that that has any relevance when I hold one share and I am given one vote and some else happens to hold 10,000 shares. If that person is given 10,000 times my vote, the gesture is an absurdity. That does not protect the minority shareholder. If we wanted to protect him we must consider other matters.
We do not need to have any kind of argument about nominee holdings. I know that that may be against the trend. The trend is to do everything in public. I hate bringing in matters which do not seem relevant to the Bill. There is now a trend even for the display of pubic copulation. It seems that everything must be done in public. I do not wish my share 957 holdings to be known publicly. If I decide to invest in a company I do not want such matters to be open to public scrutiny unless that scrutiny is related to some sort of nefarious or semi-nefarious attempt to take over control of a company.
For example, a Member may have had a splendid career on the Front Bench in this House. He may have saved a little money. If he is forced to have all his share dealings recorded, the next thing which will happen is that hon. Members will be jeered on either side if they have mis-timed their equity purchases. The desire for privacy in what are essentially private matters is not proof of moral obloquy or inadequate moral sensitivity. Of course, we must let in the light of day in anything concerning public interest. However, if I buy a lot of shares, as long as I am not engaged in any nefarious activity or take-over, the matter is my own business. I do not see why that should be otherwise.
Pride is also involved. In the early stages of a person's operations he may be less skilful than later on. For example, I would not want to be discouraged by the jeers of hon. Members and hon. Friends who may find such information interesting for reasons which remain obscure to me.
I have dealt with the major points which will be put forward in Committee, a stage which we may or may not have. We have before us a half-baked Bill regarding social responsibility, although it contains many other valuable matters. They are matters of a non-party political nature—for example, matters which mop up Jenkins' points and the like. I shall deal with those matters in Committee.
The Labour Party adopts a sober position. We think that there needs to be a good deal of thinking about the reconciliation of public interest, worker interest, consumer interest and private ownership relating to companies. There has been a good deal of oratory, and rightly so, on the subject. Both parties are capable of that, but the thinking, the hardening and the defining is missing.
It is the Labour Party's view that we need a Royal Commission to study the matter and to come to firm conclusions. I have dealt with the kind of conclusions which we would have expected from the Government. We regret very much that 958 they have failed to take this opportunity to advance thinking on company law and to extend responsibilities beyond what was regarded as adequate in Victorian times but is no longer acceptable.
I feel that I should not conclude without a few impartial comments on certain political aspects. The Government have not only missed an opportunity but have shown an unhappy propensity to deal in scape-goatery and public relations. Although the Labour Party is critical of much that goes on in our society, it has never looked for individual scape-goats with the enthusiasm which the Conservative Party is now displaying. However uninhibited that scape-goatery may be, and whether it concerns Mr. Harry Hyams, a former member of the Conservative Cabinet with a record of considerable public service or the miners or the postmen, we are not supporters of Governments which seek scape-goats. We are supporters of Governments which grapple with society's problems and earnestly seek remedies. We always find that the attempt to find scape-goats signifies a retreat from the obligations of Government.
If that approach has been adopted when considering industrial relations, it explains why we are facing our present problems. The contrast between the last Labour Government and the present Government is that, whatever the faults of the Labour Government, they handed over to the present Government, after a normal election, a going parliamentary democracy. The contrast between that and the present situation is lamentable.
We are getting gimmicky action in all areas from the present Government. We have a pound which is wrecked by hasty gimmicks and so-called floating. Our relations with the United States are on the point of ruin. Industrial relations are in total disarray and a General Election may be held at any time on the issue of whether democracy is to continue. What an unhappy contrast, even with the lamentable result of the last General Election, that makes with the time when we left office.
I am sorry that I shall not be here to reply to the Minister for Trade and Consumer Affairs. It is safe to suppose—and I say this with no personal animosity—that the right hon. and learned Gentleman will seek to apply in company law 959 that relentless legal pedantry which has so manifestly had its results in industrial relations.
In spite of many useful pedestrian matters which are contained in the Bill, with which we shall deal at a later stage, I cannot commend the Secretary of State or his right hon. and learned Friend for the Bill which they have produced. I will not advise my right hon. and hon. Friends to vote against it because there is so much useful mechanical matter in it which needs to be discussed and enacted.
§ 5.29 p.m.
§ Mr. Michael Shaw (Scarborough and Whitby)
It is a pleasure to hear once again the voice of the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). It makes us much more reconciled to today's lack of news. The lack of that news has enabled us to be ensured of listening to him once again.
I cannot say that I agree with the right hon. Gentleman's main contention that the Bill is bad because it lacks a considerable amount of philosophy. Unlike the Bill which was introduced by the last Labour Government, this Bill has one particular virtue—namely, that it sets out to do a job and, as far as I can see, it does it. It does not set out, nor was it intended to do so, to go into the problems of wider areas which are not disclosed in the Jenkins Report. It deals only with practical matters, and other matters have been promised at a later date, particularly those to be contained in the publishing of a Green Paper. It is, I agree, concerned mainly with a series of Committee matters.
I shall not speak for long in giving the Bill my wholehearted support because I feel that the time for longer and more detailed speeches will be in Committee.
We are accused of introducing a Bill without having finished our thinking on company law. I feel that that accusation could have been levelled against the 1967 Act, which was first introduced in 1964, and then in 1966, having gone through another place, and then went into Committee in February 1967, where it remained until 15th June. It stayed there because it became quite clear that the Labour Government had not done their homework. They were undecided about 960 what they wanted, particularly with regard to the insurance provisions, and so we had a very long Bill indeed.
It ended by going back to another place with hundreds of amendments to be taken more or less within 24 hours. This is a precedent which we must avoid at all costs. We are right to confine our attention to the matters set out in the Bill. It is certainly high time that such a Bill came forward. It was promised by the last Government. In spite of the long Committee stage, time and again proposals, which were put forward, were turned down because we were assured by the right hon. Members for Battersea, North (Mr. Jay) and Sheffield, Hillsborough (Mr. Darling) that another Bill was coming along. I do not blame the two right hon. Gentleman, because they soon left their positions, but we never did get that additional Bill. In the meantime there were many aspects of Jenkins and other matters that were developing and needed to be put right. I am glad that this Bill will enact many of the things recommended by Jenkins.
I want to deal with what I regard, and what I think my right hon. Friend regards, as probably the most important aspect of the Bill—that dealing with disclosure. Clause 1 spells out the differentiation between the private and public company. It is right to have that classification because it certainly helps when we come to discuss the details of disclosure.
Private companies have certain characteristics which it is right to distinguish. They tend to be smaller. They do not offer shares to the public. The shares are usually held by a few shareholders who are probably intimately connected with the operations of the company. Finally, the transfer of shares is usually restricted, quite apart from their not being available to the public. We believed in 1967, and we believe it still, that it is right that the smaller private company—and here I draw a distinction between the smaller private company and the larger private company—should have less onerous disclosure requirements laid upon it than those laid upon other companies.
I welcome the flexibility given to the Minister in Clause 69 and Schedule 1, whereby he can control the contents of the accounts and also the contents of the directors' report for different types of 961 company. Incidentally, I am glad that the Bill gives the Secretary of State more flexibility than was given in the 1967 Act. At the moment, although the Secretary of State has some discretionary powers, he has no such powers to amend, dispense with or to adapt the requirements dealing with directors' reports. I hope that under this legislation this shortcoming will be put right.
§ Clause 69 and Schedule I are in my view valuable only if we know what my right hon. Friend's intentions are. He has gone some way to disclose his intentions: in particular, what changes he contemplates, the amount of detail he proposes to insert, what he intends to exempt for different classes of company and how speedily he intends introducing orders to implement his intentions.
§ I would like to know what are the limits of size envisaged in the term, "the smaller private company" used in Command Paper 5391. I hope that in dealing with smaller companies my right hon. Friend will remember that there is a lot of work not directly related to the production of goods and services produced by the company. We should do everything in our power to see that no unnecessary records and details have to be produced by those companies always bearing in mind that we must ensure that there is sufficient detail for the shareholders and the creditors.
§ As the company gets bigger, other interests must come into being, the interests of the work-people, the general public and so on. The smaller company is often very exposed. It cannot disguise any detail. It is probably a one-product firm and is therefore much more exposed to a take-over than many other types of companies. I hope that the Minister can tell us what he has in mind with regard to the items to be included in the accounts and directors' reports and how far he feels he can go towards furthering the exemption of disclosure to the smaller private companies.
§ I want to say a word about insider dealings. The right hon. Member for Cheetham poured great scorn on insider dealings and the mischief arising there from. To some extent I entirely agree with him. On the other hand, it would be wrong if we did not accept the fact that we all know of certain peculiar cases where there have been large profits made 962 through insider dealings and where injustices have been done. I mention that only to show that there is a problem. I doubt whether we have the final answer. I do not think there ever will be a final answer, but it is right that we should try to do something about it.
§ Mr. Harold Lever
The hon. Gentleman knows that I made it clear that there are these mischiefs. Is it not the case that the large dealings he is talking about are almost invariably connected with things like take-over bids? These circumstances could have been clearly defined in the Bill if the Government had been intent upon dealing with such mischiefs in a proper way. The circumstances could have been defined carefully but this has not been done.
§ Mr. Shaw
That is one approach, and it may be the best one, but I am not entirely happy that that is the only circumstance that should be considered. Doubtless, we shall have a fairly long argument about it in Committee, and it is right that we should, because it is an involved subject and I have yet to hear the perfect answer to the problem of insider dealings.
I should like to mention two details on Clause 17. I welcome the speeding up of the process of the giving of information by the director to the company and, where necessary, to the Stock Exchange. The speed with which information is disclosed not only to the board but to the public at large is perhaps the most important point in considering insider dealings. If the giving of information could be speeded up sufficiently other restrictions might become unnecessary. I am surprised that that provision has not been given more publicity.
I am pleased that Clause 17 provides for disclosure of information on insider dealings to the Stock Exchange and I hope that the provision is taken full advantage of by the Stock Exchange. A regular bulletin issued by the Stock Exchange giving that information would be not only compulsory but compulsive reading for many people. A close watch will be kept on the bulletin, and that of itself will go far towards curing malpractice. Although someone may get away with something, his quick discovery will be a lesson that will not lightly be 963 forgotten by others who might be tempted along those paths.
Another part of the clause may well prove to be the biggest check to malpractice in the new legislation. So far as minority interests go, it is agreed by everyone that the old law is not satisfactory and that people still get away with too much. Section 210 has proved ineffective, and I am glad to see that the recommendations of the Jenkins Committee in that respect have been followed.
I still believe that the need to reappoint auditors every year—which is mentioned in the Jenkins Report and in the Bill—is rather pedantic, but legal advisers tell me that there is substance in it, so I accept it. I welcome the provision that auditors may resign during their year of office with the safeguard that they give a proper explanation to the interested parties. At times auditors have been in an embarrassing situation.
In conclusion, I welcome the Bill. It sets out in a practical manner to legislate on matters which were discussed and recommended by the Jenkins Committee a long time ago. It is a pity that this has not been dealt with before, but none the less I welcome the Department's initiative in consulting so many people, with the result that the Bill has a wide measure of approval. I hope that it will have a friendly reception throughout its progress through the House, and I wish it well.
§ 5.45 p.m.
§ Mr. Emlyn Hooson (Montgomery)
I agree with the hon. Member for Scarborough and Whitby (Mr. Michael Shaw) in what he said about the requirements of disclosure by small private companies. It would be churlish for me not to echo what he said about the delight experienced by the House in listening to the speech made by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). It was a pleasure to hear his speech, which gave delight and illumination to the whole House, with the possible exception of the right hon. Member for Bristol, South-East (Mr. Benn), who did not appear to know how to take it. It was refreshing to hear a contribution from the Front Bench which ignored pedantic party positions and expressed what the speaker thought on many of the 964 issues contained in the Bill. I very much agree with the general philosophy which the right hon. Member for Cheetham expressed at the commencement of his remarks. If more people in his party accepted the views which he expressed today, my party would be in difficulty in maintaining its present position.
The philosophical approach to the Bill is an important matter. The debate has been clouded by the idea that the public limited company is limited in scope to companies which are of the greatest concern to the stock market and the financial interests of the country. Of course, that is of great concern because the stock market is the means whereby investors and large institutions are enabled to invest and to change their investments in large public stock companies, but we tend to forget that the main function of a public company is to run much of our large-scale industry. There is far greater social and economic concern with that other aspect of the company, the people who work in it and the purpose for which it exists ; namely, to serve not only the shareholders but the State.
The right hon. Member for Cheetham described the Secretary of State as a person who found his soul in the various Departments to which he moved. My impression is that the Bill is brought in by a poacher turned gamekeeper whose gamekeeping provisions rather belie his success in the former capacity.
The Bill, briefly, does three things. First, it deals lengthily with the outstanding Jenkins proposals, with which there is little to cavil. Secondly, in a short portion it deals with insider trading. Thirdly, it attempts, largely unsuccessfully, to deal with nominee shareholding ; that is, to counter "warehousing". The Government have failed to take the opportunity of dealing with much larger public company issues that concern the public at large. Although the Bill goes to great lengths in tinkering with shareholder protection, it ignores most of the all-important social and employee interests and contains no radical proposals to make management of companies more democratic. Yet these interests and proposals could alter totally our approach to the structure of the company in a modern society. In other words, why tinker with the ship's 965 decorations when the hull needs replacing?
Concern is felt in this House at the lack of time in which to bring about reform of company law. We have to wait many years between each piece of company legislation, and many people feel that there should be more basic and radical changes in company law. They believe that this Bill will be an excuse for delaying further reform for another lengthy period.
We should start by considering the position and responsibility of directors in present company law. The rôle of the directors of a company deserves careful consideration in the light of actual and potential changes in the operation of companies in the complex socioeconomic structure of the present and reasonably foreseeable future. Broadly, there is a separately identifiable managerial function which must be undertaken by managers, however a company is constituted, and by the board of directors as at present constituted with its separate, and potentially conflicting, responsibilities to shareholders who obviously demand a fair return, to creditors in safeguarding their claims, and to employees. There are also other social responsibilities involved—for example, consumer protection. These matters have an ill-defined function in modern company law.
I submit that it should be possible in some way to isolate the managerial function, and then to make it operate within an external framework of non-managerial factors. It is only against this background that we must consider supervisory boards and non-executive directors, the requirements of the EEC in this context, and also the relationship of the company to its employees.
I should like to deal with the question of the safeguarding of interests of employees. Clause 53 provides that directors should have regard to employees' interests, but that provision, as it stands, will add nothing to the present situation. I regard it simply as a public relations exercise. Directors are now entitled to promote the interests of the company by promoting the loyalty of staff, but in the final analysis directors are answerable to their shareholders, who alone can remove them. The clause establishes no balance of fiduciary duty 966 between shareholders and employees and may prove to be a source of friction in future labour relations.
§ Clause 53 should be amended—if the Bill ever reaches Committee—to provide for workers' councils. These councils will form a recognised body which can be consulted and which by its influence can make consultation effective. Last night on the television news I saw Mr. Campbell Adamson being interviewed on the effects of the three-day working week. Surprisingly, he said that industrial production had not fallen as expected. He estimated that production was running at between 70 and 80 per cent. of the normal production figure. When asked to account for this he said "Everybody has got together". In other words, it has needed the present crisis to make management and employees get together to use their ingenuity to overcome the present difficulties. We should have machinery to enable people to get together on a much larger scale in our public companies.
§ The works councils could have certain rights which cannot conveniently be extended to all employees of a large organisation. Report and accounts and all documents sent to members could be given to works councils. Works councils could have the right to attend, or appoint representatives to attend, general meetings, and should be entitled to receive all documents relating to bids for their company at the same time as do members. These councils should have the right, under Clause 70 of the Bill, to present a petition if the affairs of the company are being managed in a manner prejudicial to employees. Why should the clause be limited only to shareholders? Clause 70, which relates to prejudicial management, will be effective only if the court can as an alternative wind up the company ; otherwise the court may have to supervise management or give a minority permanent control. These are not practical courses.
§ It is a matter of regret that the White Paper did not include a discussion of a two-tier board—on the lines of those that exist in West Germany—as a method of joining both sides of industry in formulating policy without involving employees in day-to-day management. The Secretary of State for Trade and Industry claimed in his speech that if this Bill were passed 967 it would mean that our company law would be the most open in Europe, if not in the world. I do not think that he is factually correct, for there are many other countries, including West Germany, which have better company law provisions than our own.
§ I should like now to deal with the question of transfers. The Bill should provide for the issue of reply-paid proxy cards to be issued by public companies for all meetings. At present these are issued when the board wants the support of shareholders, but not on other occasions when the members may be more concerned, such as upon resolutions for appointing directors or ratifying contracts.
§ Clause 20 obliges directors to give reasons for refusing to register transfers. This is an improvement on the present position, but to be made fully effective the court must be given power to consider the reasons and, in its discretion, to override them.
§ Clause 55 requires the company in general meeting to approve the issue of shares, but, as this approval can be given generally, it is likely to be a meaningless formality. The clause should be amended to ensure that specific approval is required for issues which together with issues since the last approval would increase the capital as a whole or any class by 15 per cent. in nominal value.
§ I do not pretend to be an authority on insider trading, and I rather agree with the point made by the right hon. Member for Cheetham that this is probably an overestimated evil. Nevertheless, it is an important matter which needs to be dealt with. The right hon. and learned Gentleman the Minister for Trade and Consumer Affairs, who is now sitting on the Government Front Bench, knows that I am not an expert on company law, but the lawyers whom I have consulted on these provisions, expert in company law, tend to laugh at the provisions in the Bill which seek to deal with insider trading. It would appear that there is a good deal of the public relations exercise in those provisions. Nevertheless, something must be done on this score.
§ There is widespread feeling in the community that when malpractices take place in the City they are difficult to discover. People generally feel that the treatment 968 of those who commit malpractices compares badly with the treatment of other malpractices in our society. A degree of public relations enters into the matter, although there is great scope for defining much more closely and basically the conditions under which insider trading should be absolutely forbidden. It should not be left, as it is at present, to be dealt with by rather cumbersome provisions through which lawyers who deal with company law can drive a coach and horses.
I want now to say a word or two about a matter to which I adverted earlier. I refer to the provisions for disclosure for small private companies. I have had a number of representations made to me about them by people concerned with small private companies in my constituency. As the Secretary of State invited views on the matter, perhaps I might quote from a letter which I received from one of them:
Our particular concern is the question of disclosure, i.e. the filing of the annual return with accounts. From our experience, competitors, suppliers and customers can use the information to the disadvantage of the company and its employees. This year, two large public companies have made takeover approaches to us, principally on assessments made on filed accounts.
The letter goes on to suggest the great importance of distinguishing sharply between the interests of the very large public company or the large private company and those of small private companies in that kind of situation. This matter needs to be considered very carefully.
§ I want finally to re-emphasise that in my view the Government have missed a great opportunity in this Bill. The Bill should have been delayed so that the Green Paper might have been published first. Then it should have been considered in detail. There would have been the chance of a major Companies Bill to deal with aspects of company law which even five and 10 years ago caused little concern to the public at large but today are exercising the minds of people who have great experience and knowledge of these matters and are causing concern to all those who have the public interest at heart.
§ There should have been a new charter introduced to make employees members of their companies, for example, and to 969 regulate in the future the relationship of employees to directors so as to provide for a greater say in employee participation in the running of their companies. It could have been a major industrial charter. As it is, the Government have embarked upon what is largely a tidying-up operation. They are mopping up on the old Jenkins proposals which have not so far been implemented and they are otherwise indulging in what will turn out to be largely a public relations exercise.
§ 6.2 p.m.
§ Mr. David Mitchell (Basingstoke)
I join other right hon. and hon. Members in welcoming the return to the House of the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) and common sense.
I also welcome the Bill, which modernises company law and stamps out certain unacceptable practices. It will prevent the making of fortunes on the Stock Exchange by people with inside information. I agree with hon. Members who have expressed the view that this practice is not as frequent as some people imagine. However, like Caesar's wife, the people involved should not only be beyond reproach. They should also be seen to be beyond reproach.
Secondly, the Bill will prevent the underhand accumulation of secret shareholdings in preparation for a take-over bid.
Thirdly, the Bill will ensure that directors have no secret interest in their companies' contracts. As an aside, I hope we shall be told that this provision will also apply to the nationalised industries in view of certain past events.
There are certain provisions in the Bill which I feel should not be there. On the other hand, there are certain provisions not in the Bill which I feel ought to be there. I want first to consider a couple of provisions which are not there and which I feel should be included.
We live in a society in which the great need is to prevent division in order to help create a unified nation. Efforts to this end are set back by those who seek to create envy, to fan the flames of envy and even to base a political creed on envy.
One fruitful source of envy and misunderstanding lies in the way in which 970 company accounts and dividends are stated. Profits are often substantially overstated because the accounts do not take any account of inflation. I hope that the Government will consider carefully whether Clause 72 can be extended to provide for the implementation of the proposals of the Institute of Chartered Accountants contained in the "exposure draft" on inflation accounting.
There are many big and small companies which substantially overstate their profits as matters now stand. This leads to a reduction in the real capital being employed in the business. First, they pay tax on profits which do not really exist. Secondly, they often pay a dividend which in effect is paid out of capital. Thirdly, they give a hostage to misrepresentation and to envy. The rumour goes round that a company's profits are £X thousand and that the company has refused to pay a wage increase of £Y a week. The view is taken that this is desperately unfair. Yet people fail to recognise that the figure of profit which has been thrown up by the traditional old-fashioned accounting method, which fails completely to take account of inflation, is a "phoney" rate of profit and that, in any event, most of the money is needed to plough back into the business.
Secondly, I regret that the Bill has not introduced no-par-value shares, basically for the same reason. If a company started with a capital of £1,000 in the 1930s and it declares a dividend of £2,000, people say that that is a 200 per cent. dividend, that there must be enormous profiteering and how grossly unfair it is. The reality probably is that the company has something in excess of £100,000 employed in the business, and the £2,000 dividend is no more than 2 per cent. When that is expressed in the reality of the situation and not in the original format of the shareholding, one sees how much smaller it is. Here again there was an opportunity to do something which would have destroyed one of the bases of wholly erroneous envy and misunderstanding about the operations of our capitalist system.
I turn thirdly to the matters which are included in the Bill and which cause me some concern. I deal first with disclosure, and I want to look at it on grounds of principle. What the private 971 citizen does as an individual is his own affair. He is entitled to privacy. He is entitled to privacy about his income and how he earns it, whether he sells newspapers on a street corner or works in a factory and does car cleaning in the evenings and Saturday mornings for extra cash, or whether he runs a couple of shops. I have to declare an interest in that connection.
There is no public benefit and no public right involved in the disclosure of the income of that individual simply because he happens to be a limited company running a couple of shops, a petrol station or whatever it may be. Under Clause 58 of the Bill all limited companies have to file their accounts. But exactly the same activity can be conducted as a non-limited company and accounts do not have to be filed. What is the sense in making the one disclose and the other not? In the case of small businesses, what is the sense of making them disclose in either case? We have had no word from the Government to suggest any thinking or explanation on that.
I go even further. The Government have inferred to this House that if a company has limited liability, this is some tremendous privilege conferred on it by a generous Government and, having got this great privilege, the company has a duty to disclose for all these various reasons. That is nonsense. It is not a privilege. The fact is that a limited liability companyprovides the framework through which the savings of individual citizens are channelled.…It enables capital to be accumulated and invested in risk-taking enterprises, which create economic expansion, provide jobs and produce goods and services.In saying that I quote from the Government's White Paper. They are not words that I have plucked out of the air. The reality is that the Government have failed to make a case for treating the small limited company in the way they propose.
I suggest that those who invest in any company are entitled to full information from the directors. The directors' report and the annual general meeting should disclose to investors all the information available.
With any company quoted on the Stock Exchange in which the public are invited 972 to invest, the public are entitled to full disclosure. With any company, whether quoted or not, which is so large or of such a key nature that the nation or national economy is affected by its activities, the nation is entitled to disclosure. For the small business or private individual who carries on his business activities with limited liability, however, there is no case for the filing of accounts and the disclosure of information to the public which does not use that information.
What is more, there is an immense amount of unnecessary work involved in logging, controlling and chasing up the filing of accounts or the failure to file.
§ Mr. Harold Lever
Not only is there no benefit or justification in disclosure for its own sake, but harm can be done to a business man if information is made available to his rivals which is to their advantage in competition and has no other consequence from a public point of view.
§ Mr. Mitchell
I am grateful to the right hon. Gentleman. There is not only the question of privacy but the question of competition. What the right hon. Gentleman has said is profoundly true of the one-product business whose competitors are anxious to know its profit mark-up, its raw material costs and a host of other information. They are particularly interested in knowing whether the business is expanding in export markets.
We are now members of the European Economic Community. It would be grossly unfair to put British business men in such a position that they had to disclose to their continental competitors more than their continental competitors disclose to them. That is what the Bill provides, and I hope that the Government will seriously consider delaying any disclosure of that nature until other countries in the Common Market do the same.
Must we have another lawyers' paradise in this Bill? Even on page 1 of it we are referred back to the Companies Act 1948 for definitions. It would make much easier the work not only of hon. Members but of people who must interpret the law if these matters could be spelled out in one Act. [Interruption.] My hon. and learned Friend the Member for Dover (Mr. Peter Rees), a member 973 of the legal profession, says that it will reduce lawyers' fees.
§ Mr. Peter Rees (Dover)
I said nothing of the sort. My hon. Friend has referred to the Bill being a lawyers' paradise. Lawyers must construe Acts as a professional duty and we dislike referential legislation as much as my hon. Friend does. Incidentally, I do not practise in company law.
§ Mr. Mitchell
I suspect that if Acts could speak, their first complaint would be against legislators for the form in which they have drafted them.
I turn to Clauses 21 to 25. These will not permit the quotation on the Stock Exchange of a company with non-voting shares or weighted voting shares. This is yet another blockage to companies seeking to expand by quotation on the Stock Exchange and raising additional funds for expansion. Many family businesses are reaching the stage at which they need extra finance in order to expand, and seeking a Stock Exchange quotation is the way to do it, but they would be blocked from doing that because they are not prepared to lose a system of non-voting shares entrenched in the busines probably in order to ensure that members of the family not involved in the running of it do not have voting shares.
I ask the Minister to guide us on Clause 45. Does it apply to unquoted companies? It will cause absolutely chaos if it does. Many perfectly proper company relationships will become illegal as a result of the Bill. My right hon. Friend the Secretary of State said that there would be a transition period of two years during which people could get themselves out of illegal arrangements. I wonder whether he has considered the diabolical effect on such people through having to pay capital gains tax in order to get themselves into a position to trade legally. The costs will be absolutely ruinous in a considerable number of reasonable and genuine cases.
If the son of a man with an antique trading company starts a subsidiary company in porcelain, it will be illegal for the father to put money into his son's business, which is a normal, rational, reasonable way in which people conduct their business affairs. It will be illegal for a farmer to set up a farming company to tenant his farm and a subsidiary timber 974 company in which he shares. It is the economics of the madhouse for the Government to interfere in this detailed way in ordinary trading relationships.
Enormous penalties may fall on the head of a director—£400 plus £40 a day—for delay in filing the annual return of the company beyond 10 months after the end of the company's year. In some small businesses in the country areas where the auditors are well behind with their work it takes eight months for the accounts to come through, let alone their readiness for filing. In many small companies, not considered important in terms of the national economy, the company secretary is the wife of the director, who is selling or travelling abroad most of the time. Is she to be fined £400 and £40 a day because he is a month or two months late in filing the annual return?
That brings home the one major point of principle about the proposals which I want to make to the Government. What is here proposed may be right, proper and feasible for protecting the shareholder and the public in the big quoted international and national companies of this country, I do not quibble with that. But to apply it to the small family business, the shopkeeper, the farmer and the one-man business represents a degree of detailed interference in the business life of many small companies which is wholly uncalled for.
§ 6.18 p.m.
§ Mr. Ben Ford (Bradford, North)
It gives me much delight again to listen to the style of oratory of my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), his wit and guile.
I am one of those who, with the hon. Member for Scarborough and Whitby (Mr. Michael Shaw), served on the Standing Committee which considered the Companies Bill in 1967. I agree with the hon. Gentleman that it is about time that the rest of the Bill which we were promised was introduced.
Apart from the general ethical support which I give to the principle of improving company law, I should mention that I have an indirect interest in these matters both as a Member sponsored by the Amalgamated Union of Engineering Workers and through a connection with 975 the Association of International Accountants.
Speaking as a trade unionist, I think the Bill represents little advancement in disclosure of information for the purposes in which I would be interested. It goes hardly any way to meeting the demands put forward by the TUC. It appears to be a Tory attempt to correct some of the worst abuses of gambling on the Stock Exchange. These provisions are perhaps akin to the horse-racing fraternity banning the nobbling of horses or possibly an association of poker dealers banning marked cards. The need for a clean-up of the gambling rules in the city is an admission that perhaps undesirable practices have been taking place on an increasing scale.
I am pleased to note the provision in the. Bill under which directors who buy and sell shares in their own companies will have to notify the Stock Exchange of their dealings within three days instead of 14. This goes a long way to meeting the point made by the hon. Member for Scarborough and Whitby that swiftness of information will help in these matters. This provision may give shareholders a slightly better chance to run a salvage operation, as they will sec directors departing at an earlier stage than might otherwise be the case. Details of directors' management contracts will have to be filed at Companies House. Thus we should find out more about top-hat pension arrangements and top-hat profit sharing schemes which boost a directors' meagre pay and give him a disproportionate advantage over most members of management and employees. Mr. Fred Pontin of Pontins holiday camp company has a service agreement which netted him £98,251 in the year to 31st March 1973. In view of phase 3 he made a sacrifice, giving up that figure and settling for £26,507 as company chairman, plus £42,000 in dividends on the shares he owned in the company, in these days of crisis this is an example of belt-tightening which is a model to the community.
One proposal which may tend to reveal interesting irregularities in companies is that auditors will have to give reasons for their resignations. This has been a matter of concern for years and I welcome 976 the new provision. No one imagines that the new rules will completely clean up the financial world of capitalism. Rather are they perhaps an indication of some of the sharp practices which lead to economic inequality and, consequently, to social injustice.
There are three improvements in the Bill which, if enforced, will eventually help employees. The first is to make it much more expensive to set up limited companies. At present, ready-made limited companies can be bought for as little as £40, and the purchase of these is of great help to "lump" operators. Being a limited company is equivalent to having a passport to a tax exemption certificate. The Minister will now have power drastically to increase the fee. I hope he will do so and thus make the position more expensive for the "lump" operators.
Secondly, there is the proposal on the speed with which companies will have to file annual returns at Companies House. At present, through careful arrangements of dates of meetings and financial year endings, there can be delay in filing accounts for about three years, making the financial information worthless for negotiation purposes by the time it becomes available.
Companies which are not so careful ignore the law, and estimates put the number at 250,000 of the 604,000 companies registered. In 1972 the Department of Trade and Industry prosecuted 731 companies for failing to file annual returns and accounts and 448 of the prosecutions were successful. The Department of Trade and Industry argued that persuasion was better, and in any case the fines were derisory.
The new rule regarding filing of reports and accounts will be much clearer and is to be welcomed. Under the provisions of the Bill public companies, generally those quoted on the Stock Exchange, will have to file accounts within seven months of the end of their financial year, and private companies will have to do so within 10 months. The period can be extended by three months in each case if the companies have overseas interests. There are to be heavy fines for non-compliance. Directors can be fined £400 plus £40 per day for each day of non-compliance, and companies can be fined. This is to be welcomed. If the Department of Trade and Industry now starts a blitz on 977 defaulters, with larger penalties in the offing, many may be deterred from defiance of the existing company law.
At 21st November 1973 the following BLMC subsidiaries had not filed accounts for the year to 30th September 1972: British Leyland Trucks and Bus Division ; Beans Industries ; Aveling-Barford ; and West Yorkshire Foundries. I hope that this matter will be corrected. Under the Bill Lord Stokes, who is a director of two of the companies I have mentioned, could be fined £9,840 and the companies could be made to pay penalties.
Thirdly, there is the provision that public companies quoted on the Stock Exchange will have to use the suffix PLC, meaning public limited company, after their title, leaving the word "limited" to be used by other limited companies. Companies will be able to register as Welsh companies and use the suffix CCC for public limited companies and the suffix CYF for ordinary limited companies. Perhaps this change in favour of Wales is to match the transfer of Companies House to Cardiff.
Demands that employees are given the same access to financial information as shareholders and details of order books and expansion plans are all shelved to a future Green Paper, promised in the CIR Report No. 31 "Disclosure of Information", published in October 1972.
There is no indication that financial information should be provided on a factory basis, which is most essential for local negotiations, instead of as at present on a company basis with the company possibly embracing many disparate factories. The hon. and learned Member for Montgomery (Mr. Hooson) put forward what would appear to be tidy formulae for involving workers in the running of industry. I spent some years on the shop floor in industry, as a senior shop steward, or convener as such people are sometimes known. I made my own efforts in that direction and discovered that in many cases the workers were not terribly interested in being involved. In particular they were not interested in being involved in decision-making processes in industry.
The hon. and learned Gentleman is right however in one aspect. In a crisis situation workers have got together with 978 managements to make the best of the existing conditions. But I have discovered through the years that in non-crisis conditions it is extremely difficult to persuade employees to involve themselves.
I experienced a particular instance of this when I had negotiated a merit-rating scheme as well as the opportunity for worker representatives to be involved in the assessment of the scheme. The opportunity was not taken up. One must have regard to historical principles in these matters. After many years of conflict in industry, there are still echoes of conflict abounding and it will take further years of effort on all sides to persuade people that it is necessary for them to become involved, and in certain cases to accept responsibility.
The Explanatory and Financial Memorandum of the Bill states:
Clause 64 makes certain changes in the requirements relating to qualifications of auditors and makes it an offence for an unqualified person to act as auditor. Authorisation of individuals on the basis of adequate knowledge and experience will cease within a given period.
This means that more pressure will be applied to existing qualified auditors and accountants. It places upon the Secretary of State the most compelling responsibility to secure the maximum accountant capacity available consistent with proper professional standards. Even at the moment, and for many years past, there has been an absolute shortage of accountant capacity in this country and it has been very difficult for many smaller companies and firms to secure adequate professional services.
§ This is why, in Committee, I shall seek to add the name of the Association of International Accountants to Clause 64(1). This organisation, perhaps by default, was not named in Section 161 of the Companies Act 1948. Since that time it has sought recognition unsuccessfully. It has seemed at times as though a conspiracy existed within the Board of Trade, as it then was, to thwart the association's efforts to gain recognition.
§ The association is a substantial organisation, consisting of responsible individuals, many of whom are senior partners in firms employing members of the recognised bodies. This seems a rather Gilbertian situation. For some years the association has employed an 979 eminent education adviser to ensure that its examination structure and syllabus is constantly updated to provide graduates of a status likely to do credit to the profession. The association is now the only body examining for public practice that is not recognised under Section 161 of the 1948 Act. It should be noted that it is tutoring many thousands of students throughout the world. As developing countries take on more responsibilities and their investment increases, more accountants are of course needed.
§ Of these students, many thousands are under a disability because of the non-recognition of the association. During the last year 7,000 were examined, of whom about 1,000 were in the United Kingdom. Although the examination requirements are stringent, the association still supplies an opportunity for O-level entrants, taking the view that the end product is more important, as against the recognised bodies, who are moving towards degree entrance requirements, thus preventing many school leavers who may not be graduates from aspiring to the accountancy profession.
§ As things stand, I would seek in Committee to remove subsection (4) of Clause 64, which removes the old method by which members of non-recognised bodies may qualify to audit limited companies. It means that there would be an absolute monopoly of the recognised bodies, which are in an unregulated profession. Therefore the Secretary of State must in all equity seriously consider applications for recognition under Section 161 of the 1948 Act so as not to deprive a number of honourable citizens of opportunities in their profession which they deserve as a result of experience and proven good working.
§ I welcome Clause 65 governing the appointment of auditors. As I said, it provides safeguards which have been long required.
§ Over the years I have become more and more concerned at the fact that many decisions may be taken by departmental sections for which the Minister takes ultimate responsibility but from which there is no appeal. I would wish to see included in the Bill a provision giving a right of appeal to an independent judicial tribunal or to the High Court on decisions 980 made under the Companies Acts. Like my right hon. Friend the Member for Cheetham, I hope that we may be able to press these points in Committee. Otherwise, I am glad to give a general welcome to the intention of the Bill.
§ I would say to the Minister that if I am not here for his winding-up speech no discourtesty is intended. It is necessary for me to proceed to Yorkshire at a weary 50 miles an hour later tonight.
§ 6.36 p.m.
§ Mr. Nicholas Ridley (Cirencester and Tewkesbury)
The hon. Member for Bradford, North (Mr. Ford) is well known for his concern on behalf of the body of accountants which he has expressed eloquently today. Indeed, I think I remember seeing him two or three times in a different capacity on that subject. I am sure that the Committee will want to look with care at his point about Clause 64.
I must express a certain parental interest in some parts of the Bill, because I had something to do with the early stages of its preparation. It is, therefore, not surprising that I welcome nearly all of it and believe that it is a good Bill which the House should support.
I am particularly glad that at last included is that material which is universally described as "the rest of Jenkins". No one knows what that consists of ; it is 50 pages or so. This is something that we should have done years ago, but we are doing it now, so all is well. But we do not talk about that.
I am also glad that the provisions for penalties for delay in the laying of accounts are much tightened up. The fact that information could be delayed for so long was one of the most debilitating weaknesses in the pursuit of company fraud and the policing activities of the Department of Trade and Industry when I was in that Department. Non-publication of accounts could allow so much time to elapse before alarms were raised. The hon. Member for West Ham, North (Mr. Arthur Lewis), who is diligent if not accurate in these matters, will, I think, be gratified that the loopholes are being stopped. I believe that that should command the universal support of the House.
That is the only point on which I disagreed with my hon. Friend the Member for Basingstoke (Mr. David Mitchell), who believed that to have to comply with 981 the regulations about the laying of accounts was onerous for small companies. It may be, but it is one of the duties which we should not waive for any company, of whatever size.
I am also glad that the powers of the auditor are increased, particularly when he resigns or, as has happened, is asked to leave his position because he discovers irregularities. This also will be a great help in tightening up the pursuit of fraudulent activities under company law.
I can give a complete welcome to the Bill where I was not able to give a complete welcome to the White Paper. It is, therefore, a good thing that the PR operation, as I call it—the White Paper—with its slightly contentious paragraphs at the end, 55–64, has given way to a very workmanlike Bill.
There are some exceptions, to which I will refer—notably the provisions relating to insider dealing and disclosure. Otherwise the Bill seems to be as good as the White Paper was dubious.
This brings me to all those difficult matters raised by the hon. and learned Member for Montgomery (Mr. Hooson) and to some extent by other hon. Gentlemen opposite on whether they can subvert the limited liability company, which has been the foundation of our prosperity, to become an agent for the expression of their political will.
This side of the White Paper worries me. To say that a company has social obligations that it must perform in the interests of the workpeople and that it must take account of exports or of the desire to create employment in a particularly difficult area, is acceptable politically and absolutely correct, but it is not the duty of the limited liability company to do those things. If we as politicians want them done, we must seek to get them done through policies external to company law—regional policies, subsidies, aid to exports or whatever it may be—that apply to all companies. To lay upon directors duties where the efficiency of the company conflicts with the social obligations that we place upon them does not seem the right way forward.
All this has been comprised by my right hon. and hon. Friends in something that is described as the new or the democratic capitalism.
§ Mr. Ridley
I will when I have finished this point. The Opposition go much further. They believe that the point of a manufacturing company is to provide jobs and other things that they find politically desirable. My right hon. Friends have tried to find a slightly middle position from which to get the best of both worlds.
§ Mr. Benn
I am listening attentively to the hon. Gentleman. I hope that before he finishes this section of his speech on the particular rôle of workers he will take the opportunity of withdrawing what he said to my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) about the attitude of the Labour Party towards the matter of workers' representation on the boards of companies, because he implied that there was to be found, which there is not, reference on the part of the Opposition to the idea that the boards of companies should be filled by nominees who are politically sympathetic to the Labour Party. The hon. Gentleman knows that we have not completed our consideration of this matter, any more than the TUC or the Government have done. At no time have we said anything of that kind, though we have argued that workers might have the right—I shall be dealing with this point in my speech later—to elect people to the boards of companies. Perhaps the hon. Gentleman will take the opportunity of withdrawing what he said.
§ Mr. Ridley
The right hon. Gentleman has not raised a point that is relevant to what I am saying. However, as he has raised it, I must respond. I seem to remember something called the National Enterprise Board and a document which suggested that many industries were to be taken into public ownership, and that the people who were to be put on the boards would not be so much efficient industrial managers as Socialists whose main purpose was the creation of Socialism. If the right hon. Gentleman denies that. I will endeavour to find the reference before he makes his wind-up speech and quote it to him at that stage
§ Mr. Ridley
Perhaps I might now continue with the point I was trying to make. I was referring to the new capitalism that my right hon. Friends have brought forward in the White Paper, though happily not in the Bill.
First, there is the difficult problem of propriety. In effect, Clause 45 provides that a director must not have a double trading relationship. Again, the insider dealing provisions mean that a director must not take advantage of inside knowledge to make unfair gains.
Hitherto directors have been placed on their honour not to abuse their position in these matters. Now, by seeking to legislate upon them, we say that anybody who is scrupulously honest with the law will not do these things, but anyone who is not absolutely clear about his obligations to the law will be able to do these things and only run the risk of being caught.
I do not like this change. I preferred the time when, as a director of a company, a man was bound to behave in a certain way, and if he did not it was at the risk of his personal reputation rather than being brought before the court. If that situation must be changed, I will accept it. I merely express the view that it is a pity that we should legislate on what amounts to moral questions in the exercise of a director's responsibility.
I wonder whether insider dealing, which we shall examine in Committee, is such an abuse as is supposed by many right hon. and hon. Gentlemen. It could have some beneficial effects. If a company were to continue to conceal some catastrophe which has overtaken its affairs, or some great turn-up for the books made it a great deal of money, and this news was suddenly released, the change in the share price would be dramatic. But if there is some half knowledge of this event and buying and selling takes place, the change in the value of the shares will be moderate, 984 with possibly beneficial consequences. I do not put that forward as a strong argument, but it could be used for saying that a little knowledge of the affairs of companies leaking out is a good thing.
That brings me to the question of disclosure. I am a little worried about three items in Schedule 1, Paragraphs 10, 12 and 13, relating to the average number of persons employed, the conduct of relations between a company and its subsidiaries, and arrangements for protecting the safety and health of the public.
Any good director knows that he must have first-class relationships with his employers and customers and that he must follow the national interest as far as it is in his ability to do so if his company is to prosper. Anyone who says "Let us grind the workers into the dirt, let us swindle our customers, let us pour chemicals into the river" may make a short term profit out of this activity, but he will have strikes, customer resistance, criticism and publicity of the worst kind which will damage his business.
If it is necessary to start listing and legislating on all matters that are in the interest of companies, we shall have to pass laws on the best way for technical development, research or market exploitation to be carried out by firms. These are matters which directors who are worth their salt take into account. To require statutory obligations of that kind seems to miss the point. The point is that good management will do all these things. It will make such declarations and disclosures as are helpful, while bad management will not be improved by being forced to do things which it would not otherwise have done. That seems to be going in the wrong direction.
Of course I accept the idea of worker involvement or participation. I am a great admirer of the works councils, and it is important to have them, but it does not solve the problem by legislating that we must have them or that managements must declare information of the sort I have mentioned, which in no sense improves management.
This brings me to the reform of board structure. In our debates we have often confused the two issues of worker participation and the two-tier board. I have 985 given my view. I think that it is in the interests of companies to involve as many workpeople in their management as possible.
The other question I should like to say something about is whether the structure of the board is right in this country. It is a single-tier structure, and there are no rules as to the number of executive or non-executive directors who may or should serve upon it. It is not perhaps the time to put such rules in the Bill, but it seems to me to be by far the most important matter concerning the whole of the future of the joint stock question, because that is where we can provide opportunities for good management to get into the saddle and for bad management to be got out of the saddle.
We can do it by the two-tier board structure, the theory of which is that the top board appoints or dismisses members of the managerial board. Alternatively it can be done by having requirements about a majority of non-executive directors on the board, whereby the managers, who are in the minority, are not able to perpetuate their existence when they are not doing well, because they do not have a majority.
That is the way in which we should direct our thinking about the future because, whatever the rules about disclosure, whatever duties are placed upon directors, however far we go to try to subvert companies to pursue the interests of politicians rather than efficient manufacture, the only way in which we shall improve the efficiency of our industrial performance is through better industrial management. That is why I hope we shall soon have a Bill on the Government's proposals about the reform of board structure and why, although I understand why it is not in the Bill, I believe that it must follow closely upon it. I intend entirely to support the Bill.
§ 6.53 p.m.
§ Mr. Michael Meacher (Oldham, West)
The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) modestly claimed some parentage of the Bill, and rightly drew attention to the fact that in the important respect of social responsibility the Bill is a great deal weaker than the White Paper might have led innocent readers to expect.
986 But in introducing the Bill the Secretary of State certainly presented it as a fundamental review of the institution of the limited liability company, when in fact it is only a series of highly specific and technical attempts to check some of the more unsavory City practices which have been well publicised recently, plus a batch of overdue technical changes gleaned from the fairly cautious Jenkins Committee's report of 1962, plus certain gestures to the Government's European aspirations. But over the whole range of topics the Bill has the unmistakable flavour that action is being taken because it is expedient at this time for the Government to be seen to be taking some action at least.
What the Bill is certainly not, however, is a thought-out attempt to escape from the archaic and now, I believe, ill-advised corporate structure of Victorian times. The effort to forge a brand new social contract between companies and their employees and the community at large has certainly been virtually abandoned pending yet another Green Paper. Even taking the Bill at its limited face value, one has little confidence that it will effectively check those abuses which it is apparently designed to control.
First, the new insider trading regulations are greatly weakened by the unwillingness to ban anonymous nominee holdings. What the Secretary of State does not seem to realise is that it is often in the interests of companies themselves to conceal the identity of owners, as for example in the notorious case of the ownership of Midland Cold Storage, by the international Vestey empire, at the time of the recent picketing. One is obliged to ask again, despite the Secretary of State's rather weak defence of the refusal to open up nominee shareholdings, why all holders of the equity should not be forced to identify themselves, whether the company makes such a request or not. Moreover, I still believe that the information ought to be made available centrally, which means being made available at Companies House in London—not in Cardiff, and certainly not at company headquarters, probably far distant.
Without these changes, I believe the provisions to try to check warehousing, which is widely agreed to be an unacceptable practice, are likely to be gravely weakened. The insider checks are also 987 greatly weakened by the fact that any investigation would have to be carried out through the Stock Exchange. At present the Stock Exchange carries out about 20 or 30 investigations a year. It has no power now to question non-members. It does not normally publish its results in full, and it is still waiting for a legal ruling to make sure that it would have qualified privilege against libel if it were to publish some of its reports. The Stock Exchange is clearly a body that may well be suited to applying cosmetics to the "ugly and unaccptable face", but it is not a body capable of carrying out much plastic surgery.
A third weakness is that the Bill requires that all contracts that directors have with their companies must be notified to the Companies Registrar. But this is flawed by the fact that a contract which goes through a foreign subsidiary can still, under the Bill, go undisclosed. The information need not appear on any balance sheet. Even if this part of the Bill were to be breached, the fine is only of £400 on summary conviction, which happens to be precisely the fine to which companies are now liable if they should burn too many electric lights.
The new provision is clearly aimed at stopping abuses, as we saw so plentifully during the Lonrho affair, but it is unlikely to have much effect on the smokescreen manœuvres such as those put up in that affair by the establishment by Rowland's company, Yeoman Investments, in the Bahamas, of Borma, named after the three initial letters of Ball, Ogilvy and Rowland, and registered in the well-known tax haven of Switzerland, with its sole investment in HCC Investments in South Africa, which had interests in certain Rhodesian copper and other mining companies. When confronted with that kind of corporate manœuvre, this attempt to prevent contracts by directors going undisclosed is likely to be very unsuccessful. One fears that that was perhaps half the intention.
But the central defects of the Bill lie in the extremely limited framework within which it has been conceived regarding community and employee interests and rights in private assets. Partly, the structure of supervision is lamentably inadequate because it is so traditional. Amazingly, the Government 988 seem to think that the new laws on insider trading and nominees are likely to be self-policing, or certainly that those problems might be dealt with by the police.
Little action is required by the Department. Recently its investigation department had a staff of 15, at a time when there were more than 100 investigations on hand. The Bill proposes an increase in manpower of about 55 persons, and hardly any monitoring is to be undertaken by the Department. Even within the Department, responsibilities are notoriously disseminated. That has always been the main argument in favour of an American-type of SEC—I do not say precisely its form of organisation. It certainly does not replace the law, but it can take civil proceedings on its own initiative and can act via injunctions and consent decrees to stop undesirable activities before the money has left the country. It is a major omission of the Bill that there is no mention of a separate companies commission, armed with such powers, which can regulate corporate activities quickly and flexibly without requiring, as has been the case since the war, a new law virtually every decade.
Another important area where responsibilities show little sign of being properly enforced is the activities of multinational companies. Why should disclosure be any less rigorous than it is for wholly United Kingdom-owned companies? Yet there is no requirement in the Bill that the subsidiaries of foreign parent companies in the United Kingdom should be obliged to lodge the accounts of the parent company with the Company Registrar, in accordance with United Kingdom accounting conventions, nor is it expressly required that all transactions with affiliates in other countries, whether on revenue or capital account, should be separately set out in the annual accounts. It is not even required that all companies should set out in their accounts their global employment, country by country.
Without those requirements, how will the exploitation of the British taxpayer and consumer be prevented, exploitation such as was recently revealed by the Monopolies Commission? I quote one case, though I am very conscious that there might have been many more, the case of Hoffmann-La Roche, the international drugs firm, which sold ingredients to its English subsidiary for 989 sale as National Health Service tranquillizers at a price 40 times higher than their cost in Italy.
Nor will the Bill require disclosure of the payment of sub-poverty wages by British multi-nationals, as has been so well revealed by my hon. Friend the Member for Stockton-on-Tees (Mr. William Rodgers) in his chairmanship of the Trade and Industry Sub-Committee of the Expenditure Committee. It was only a recent strike by Turkish chemical workers that revealed that its Turkish employees were paid by Hoffmann-La Roche at only a third of the rate at which it paid its Swiss employees, and only one-ninth the rate at which it paid its American employees. One wonders how many such practices could be found among British multi-nationals operating abroad in such places as Hong Kong. As a result of the Bill we are likely to find out very little about international corporate behaviour in an economy which is increasingly and relentlessly becoming more international.
While the Bill seeks to be strong in dealing with abuse, it is undeniably weak on responsibilities. It is at its weakest on responsibilities to employees. Clause 53, which has been mentioned in this regard, bears all the signs, for anyone who looks at it in the context of the Bill, of being a mere appendage of convenience. It contains three and a half lines out of a Bill 152 pages long, and is about as weak and ineffective as they come. It simply says that directors are entitled to have regard to the interests of their employees in the exercise of their powers. That is feeble in the extreme, and is no doubt intended to be. Otherwise, I cannot believe that the draftsmanship could have been so weak.
The only other relevant part of the Bill in this regard is Schedule 1, which indicates that company accounts may in future have to contain information on such non-financial matters as safety, health, consumer protection and employee relations. Again, compared with the large parts of the Bill concerned with regulation in respect of shareholders' rights, the schedule is unspecific and undetailed.
It is clearly not intended or expected to be a source of detailed probing on such crucial questions of corporate social responsibility 990 as possible racial discrimination in employment, accident rates at each and every plant of the company, exposure to harmful processes and products, expenditure at each plant on training programmes, the number of consumer complaints received, their nature and how they were dealt with, the levels of pollutant emissions from each plant into the neighbourhood, and a mass of other similar precise environmental and welfare details. None of that is found in the Bill.
What we are offered is not a social audit, and certainly not an inventory of community responsibilities. It is merely a facade. To take one important recent example, how will the Bill stop, or assist in obtaining redress from, Shell, which deceived Parliament over the Anglesey Marine Terminal Bill in order to unload oil from huge tankers at single-buoy moorings, by insisting to Parliament that there had never been a pollution incident since the buoys first went into service about 10 years ago? It later emerged that there had been no fewer than 150 oil spillages from Shell single-buoy moorings, and some of them, particularly those at Durban in South Africa, were disastrous.
What redress was available to inhabitants living on the coast of North Wales? More important, what redress would be available to them now under the Bill if it were passed? I believe that it is fair to ask the Minister who is to wind up to answer that question if he is serious about companies' social responsibilities.
But the supreme weakness of the Bill is that it is still rooted in the Victorian class structure and contains no glimmer apart from the passing, patronising reference in Clause 53, to the essential need for experiments in power sharing. There is no safeguard of employee interests against undesired take-overs, no mention of any development of the worker-director concept, and no suggestion of a trade union-appointed auditor to look after employees' interests in that respect. There is no vision of industrial democracy.
This is a little Bill that is concerned with mitigating certain abuses within the existing system while retaining that system although it is increasingly discredited. One thing that is certain about the Bill is its early replacement by a far more wide-ranging and visionary measure.
§ 7.10 p.m.
§ Mr. T. H. H. Skeet (Bedford)
The hon. Member for Oldham, West (Mr. Meacher) and the right hon. Member for Manchester, Cheetham (Mr. Harold Lever) have made a basic mistake in suggesting that there is no philosophy behind this legislation.
The hon. Member for Oldham, West referred rather disparagingly to Clause 53. It may be assumed by many that one has to have 10 lines of print in order to get a point across. But reading the terminology of the clause, which states:their powers shall include the interests of the company's employees generally as well as the interests of its membersI find that it is very concise. It will be through this that the document likely to be published towards the end of the year on employee participation will be able to be brought in in full force, and radical innovations in the future will be able to be introduced through the heading of this clause. I should have thought that the clause is rather significant and that, if it is taken in conjunction with Clauses 7 and 93, quite a substantial revolution has been made.
It is naturally assumed by hon. Members of the Opposition that this is a piece of Victorian architecture which goes on, from the 1948 Act to the 1957 Act—which, apparently, was Victorian, too, and no changes were made—and again in the Bill. But I do not see it like that. There are three factors: ownership, public responsibility and the position of employees. Ownership is catered for by all three Acts. Public responsibility has been significantly covered by Clauses 5, 12 to 14, 69, and many more. I have dealt with the question of the employee.
But we are now members of the Community. We shall be called upon very shortly to take active responsibilities for the Fifth Directive. The Fifth Directive will probably apply to the multi-national company much more than to other companies in domestic spheres. If that is so, and unless we have a constructive approach to all this, I should have thought that the supervisory and management boards will be extending, through the multi-national companies in the first instance, probably to all of Europe, and that ultimately it will form a precedent for public companies in the United Kingdom. 992 Therefore, steps are being taken in the right direction.
I should have thought that this is consistent, too, with the Government's general philosophy. It has been mentioned this evening that we have looked carefully at consumers in the Fair Trading Act and in the Consumer Credit Bill, the Unit Pricing Bill, and so on. We have also looked at policy-holders in the Insurance Companies (Amendment) Act 1973. We have had a look at tenants and now at employees and at major matters which are affecting companies.
May I support those hon. Members who have spoken in the hope that an attempt will be made fairly shortly—I hope within the next five years—at the consolidation of this legislation, which is already extremely complicated. It is not much good trying to find one's way through three Bills. Has my right hon. and learned Friend the Minister agreed this measure with Europe, only in the sense that it has been referred to? Has he found out whether it is in conformity with European thinking? We all like to consider ourselves British and proud of being British. But we recognise that we have certain responsibilities to Europe, and this point should be borne in mind.
Regarding Clause 93, in Section 319 of the 1948 Act the limit of preferential debts in a winding up was £200. How is it that this figure has been pared down for employees to £50? It would seem that the banks are in a position to advance less. This may have unfortunate repercussions on the workers involved. The Minister may have some particular argument for that. I should like to hear what he has to say about it.
Regarding Clause 45, apparently the Secretary of State indicated that there will be a complete ban on a director having a directorship in a holding company and in the parent company. This is a well known and established practice. It has been customary in the evolution of family businesses. It is well known in France and Italy, where one has numerous interlocking companies. Apparently, it will cease to have any effect from now on in the United Kingdom. The concept will have limited application to foreign subsidiaries. What is the reason for this change?
Obviously, if one brings together family groupings it is probably better if the 993 person who is put on the main board retains a certain participation in the lower company, because if he has a participation there he will probably strive to make it more successful. A case in point is Furness Withy, which took a controlling interest in Manchester Liners. It has over 50 per cent. interest. Its director was lifted on to the board. I believe that he continues to hold a fair stake in Manchester Liners. Under this legislation he will have to give up his shares.
When considering the insider trading rules, because of the difficulties there we find an exemption clause has been provided under Clause 14. Accordingly I should have thought that where one has interlocking directorships under Clause 45 one should make a similar provision for exemptions if it proved a bona fide commercial transaction. That is the right way of handling the matter.
The other way of considering the matter is that Sir Arnold Weinstock rose right through a number of smaller companies to become the head of GEC. If it is possible that directors cannot have any shareholdings in the lower companies in a structure, it may be that men such as Weinstock will never rise to be captains of British industry. That is particularly discouraging. In order for the director to put himself in the right, if the legislation is passed in its present form, he would have to divest himself of the shares. If it was a small company, the parent company probably, through shortage of liquidity, would have to sell them to an outsider.
Further, the person who will derive a profit from the transaction would come up against Section 460 of the Income and Corporation Taxes Act 1970. That is a cancellation of the tax advantage. He would have to pay not merely capital gains tax, which he did not invite, but substantial money back to the Inland Revenue because under the Companies Bill he is put in an unfortunate position.
I should like to give a parallel case. If I own a portion of land and the local authority says that it wants to acquire it compulsorily, I may not want to sell it but I have to pay heavy tax for the privilege of someone taking it over. Here, a director in a lower company and also on the parent board will find that he has to give up the lower board in order to 994 remain on the owner company board. According to Clause 45 he would have to liquidate that interest and his profits would be chargeable to very substantial taxation under Section 460. I should have thought that this was grossly unfair. I hope that some steps will be taken in Committee to bring about some modifications.
Regarding Clause 69, this is rather important in the matter of disclosure, if it comes. The shipbuilding industry obtained concessions under the 1957 Act. That was realistic, and I hope that the industry will have those continued. When one reads in conjunction with Clause 69, paragraph 10 of Schedule 1, where companies are being invited to indicate the turnover of personnel, I cannot see that the result will be very realistic. I should have thought that certain matters in shipping could be confidential and if handed over to competitors would be rather injurious to the companies concerned. I hope that the Minister will bear that point in mind, along with the various factors that have already been put forward this evening affecting small companies.
On the question of insider dealings, while I have no time for this form of abuse, I feel that the Bill will catch very few. Although the recommendations have been put forward that a civil liability will lie, will it follow that there will be a civil liability even though a person has not been caught by a criminal charge? Would it not be better to have a fund against which outsiders could apply. If it is intended to spot the man who may be liable for having taken excessive profits, I would have thought that the years will pass without a single prosecution. My right hon. Friend has indicated that nominee shareholdings are not to go completely because they cannot be outlawed. However, there is a good reason for keeping some of them. On the other hand, if it is possible to have nominee shareholdings in Switzerland and elsewhere it may be that people will be able to carry on their nefarious transactions by utilising such nominees abroad.
On the civil liabilities side the Bill is likely to prove impractical, and on the criminal side I am amazed at the severity of the sentences. Fortunately, Clause 14 995 exists and the courts must act to see that people are not convicted unless the case is taken well beyond reasonable doubt. Will my right hon. Friend cover the point about employees' shares? Obviously if an employee is in the company he will know a great deal about it. Will he be able to sell his shares at a profit, or will he have to await publication of the annual accounts before getting rid of them? Obviously he is informed, he is in the company and he has the shares. He qualifies all along the line, and he could be in difficulties. The director of a pensions fund may also be in some other enterprise. Is he covered by Clause 14(2)(e)? There may be circumstances in which he would not escape liability either.
I turn to the particulars of directors provided for in Clause 56. These must now appear on the notepaper. The old arrangement was for an exemption which is now to be removed. Every time there is a change of director a typist will have to get to work and put in the new name. Alternatively, the old notepaper will have to be scrapped and a new issue printed. As there will now be a new system with Bush House operating in London and a companies office in Cardiff anyone who wants to find out who the directors are and where they are has an obvious remedy. It is the reputation of the company, not of those who are in it, that matters.
In Clause 34 there is provision for the conversion of shares into stock, and I think there will be a lot of difficulty here and that modifications could be made to ease it through, particularly to cover existing stocks. I have a final point concerning the acquisition of minority interests following take-over in Clause 26. We have been successful in the past in getting about 99½5 per cent. of the total shares. The last 0½5 per cent. have caused the principal difficulty. If there is any way in which my right hon. Friend can deal with that final 0½5 per cent. it would substantially assist companies.
May I mention the rectification of the register? This was attempted on 15th June 1957 when the previous Bill was in Committee. The proposal was turned down. The procedure which must be adopted on this occasion is to take it to court, and I should have thought that a 996 simple amendment in Committee could lead to an easier solution.
This is a good Bill which will have to be taken in conjunction with legislation which may possibly come towards the end of the year. We may have supervisory and management boards in companies, or there may be some variations of the European theme. I do not know what they will be but they are steps to be taken which will indicate that the Government have been sensitive to change. It will show they have been prepared to move away from the archaic Victorian methods with which they have been taunted by the Opposition, and to say that as people are educated they are entitled to take a responsibility in the companies in which they work. I call that true democracy, and I hope to see these changes brought about shortly.
We have to protect the shareholders because they own the concern ; we have to protect the worker and give him participation because he is in the enterprise and spends most of his life there and is entitled to some say ; we have to protect the public because they are dealing with these companies. In this sense, therefore, all companies have three dimensions. The Bill makes a start in that direction, and for that reason I welcome it and hope it gets a Second Reading.
§ 7.26 p.m.
§ Mr. William Rodgers (Stockton-on-Tees)
There are two ways of looking at this unreal occasion—and I call it unreal because of the preoccupation of hon. Members with events elsewhere. There are at the moment 11 or 12 hon. Members in the Chamber, which even for the House of Commons is a small number for 7.25 in the evening. Either we are debating, almost in a bipartisan manner—though I would exempt the speech of my hon. Friend the Member for Oldham, West (Mr. Meacher)—the details of a long overdue reform in company law, or we are considering the rôle and future of an important sector of public activity against the wider economic and social background.
Here I feel a dangerous radical in the atmosphere this evening, for I am far from happy about the Bill, as I shall show. The speech of the Secretary of State was hugely complacent, and I particularly regret that my right hon. Friends 997 have decided not to divide the House on questions of broader principle. If I could find from among my hon. Friends—and this would be almost impossible—one other person who was prepared to act as a Teller I would rejoice in what would perhaps be the last Division of this Parliament.
I say only that this harsh tone is modified into a mood of forgiveness by the pleasure and delight I have in seeing my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) back here with us. The danger with my right hon. Friend is that when one disagrees with him it is so difficult to say so, and I am now screwing myself up to make a few comments which are perhaps out of tune with his remarks today.
The fact is that the excesses and exclusiveness of much of what goes on in and around what is loosely called "the City" is offensive to a good many ordinary people. It can contribute dangerously towards the social divisions in this country that lie at the heart of our problems. Over 10 years I have remained a consistent believer in a prices and incomes policy, conceding the need from time to time for statutory powers. I have not always been popular with my hon. Friends for such consistency, and, like my right hon. Friend the Member for Cheetham, I do not regard private enterprise as an evil, though his generosity in this, as in other things, has a far larger quality than mine.
However, there is no chance of rational decisions being made about the future of our society, about a prices and incomes policy, for example, as long as the style and performance of an important sector of commercial life is so remote from the experience and understanding of the vast majority of men and women. I feel strongly about this, and I only wish that more of my hon. Friends were here perhaps to express that view as well. When I speak of "the City" I mean mainly those who live perfectly legitimately by making money out of money. This includes the clearing banks, the merchant banks, the finance houses, the discount houses, the money brokers, the large institutional investors who manage pension funds, unit and investment trusts and those involved regularly at some level in share dealing.
998 The City identifies itself not only through those who make a virtue of saying that they work there but by a corporate morality, well-established conventions and distinct coolness towards outsiders. It comprises those who believe that after the Queen the Governor of the Bank of England counts for most.
There is great talent in the City. There is also high integrity. There are men of principle, and some of them are positively anxious for change. I pay special tribute to the former Governor, Lord O'Brien as he now is, who is a man with special qualities. I believe that his successor, Mr. Gordon Richardson, can make an unusual contribution to his task. To endorse the quality of them both in one speech may be unfashionable. The fact remains that in and around the City there are too many people whose lives appear to be marked more by conspicuous consumption than conspicuous achievement.
It is still the case—I was trying to seek an analogy—that, ever since Parliament ceased to vote large gratuities to indifferent generals for obscure victories in unnecessary wars, it has been easier for a reasonably stupid man to get rich quick in the City than anywhere else.
In discussing the Bill and the wider context in which it should be seen, we cannot be indifferent to how matters will look from outside. To almost all the constituents of every hon. Member it is incredible that on, for example, a Monday an investor can sell 10,000 shares which he did not own, being able to pay for them with money which he need not show, and end up, perhaps, with a profit of several thousands pounds.
The obvious analogy can be taken. A person selling shares in that manner can, as a result of two telephone calls, make more money than the best paid miner will earn in a year. My right hon. Friend the Member for Cheetham might say that the answer to many of these problems lies in taxation. I do not wish to see a proliferation of administrative bureaucracy. The answer is that regulations should be more effective.
The Bill should be part of a much wider social strategy. That is not the case. It genuflects towards reform. It is a public relations exercise, as my right hon. Friend the Member for Cheetham said, or, to use 999 the words of others of my hon. Friends, a clean-up operation. The Bill has no social philosophy, however much Ministers may dress it up.
Apart from sharing a general scepticism, I was interested in the remarks of the hon. Member for Bedford (Mr. Skeet) about the effectiveness of the insider dealing provisions. I lean more to feeling that they are abuses that should be stopped than towards the generosity, well informed though it is, of my right hon. Friend. I do not understand why Clause 14 leaves a pension fund manager free to make a lot of money for his fund from insider dealing. Either we do not want such dealings or the clause should be relaxed.
§ Mr. Harold Lever
I thought at one stage that my hon. Friend's hatred at disagreeing with me would be completely effective, because with one exception I agree with everything he has said. However, when he says that I was generous to insider dealing, he misunderstood my argument. I object to lashing about under the guise of stopping insider dealing and abandoning the correct legal and moral principles which should guide us when remedying mischief, especially by the criminal courts. I join with my hon. Friend and anybody else who favours effective and just measures to tighten up such dealings. There was no generosity on my part towards insider dealings.
§ Mr. Rodgers
My right hon. Friend is more fastidious than I am. Sometimes we must take the rough with the smooth. Society can never be perfect. In this instance the balance should be pushed slightly the other way. In Clause 18 I do not like the figure of 5 per cent. relating to warehousing, especially when paragraph 23 of the White Paper led us to believe that the Bill would reduce the notification figureto at most that level".It appears that as a result of their preoccupations elsewhere the Minister for Trade and Consumer Affairs and the Secretary of State for Trade and Industry have not found it possible to be here during the greater part of the debate. They have a continuing duty to the House until the debate comes to an end. It is a form of neglect which should earn the contempt of those who remain. I am particularly 1000 surprised that the Minister for Trade and Consumer Affairs, for whom I have great respect, should on this occasion be so extraordinarily cavalier in his behaviour.
§ The Under-Secretary of State for Trade and Industry (Mr. Anthony Grant)
That is less than generous. Having been a Minister, the hon. Gentleman will realise the pressures that are on Ministers. My right hon. and learned Friend has been here for a substantial part of the debate. I am here to assist him. I have listened carefully to what the hon. Gentleman has said. I shall be participating in the debates in Committee. I think that the hon. Gentleman is being unfair.
§ Mr. Rodgers
I do not wish to be unfair to the right hon. and learned Gentleman, but not only is he absent now but he was absent for a considerable time earlier in the evening. On one occasion the Parliamentary Private Secretary to the Prime Minister came behind the Chair and summoned the Secretary of State for Trade and Industry out of the Chamber. Ministers must decide where their duties lie. Their duty still lies to the House and not in the shenanigans of a divided Cabinet. We all know of the huge split which exists.
§ Mr. Deputy Speaker (Sir Robert Grant-Ferris)
Order. I do not think that this is strictly germane to the Second Reading of the Companies Bill.
§ Mr. Rodgers
I was saying, Mr. Deputy Speaker, that there is a huge split in the Cabinet which makes it doubtful whether we shall reach the Committee stage. I understand that the Prime Minister would prefer not to reach that stage by going to the country now, while the Secretary of State for Employment and the Secretary of State for Home Affairs would welcome a Committee stage by postponing the dissolution of Parliament.
It is fair to say that there has been neglect of duty of a severe kind by the absence of the right hon. and learned Gentleman. I assume, in view of what the Under-Secretary of State has said, that the points I make which are related to the Bill will have a full and exhaustive answer from his right hon. and learned Friend when the time comes. If I do not receive such an answer, I shall have reason to complain again.
1001 Clause 19 of the Bill seems to be full of loopholes. I do not understand the significance of the wording in sub-section 1(b).'to indicate so far as he can".I am unhappy about buying from abroad. I am puzzled by the reference in Clause 19(7) to frivolous or vexatious requirements. I shall expect a fully reply on those matters.
I was interested in the Secretary of State's explanation of Clause 53. However, I share the views of my hon. Friend the Member for Oldham, West (Mr. Meacher) rather than the views of the Secretary of State or the hon. Member for Bedford. I am far from sure that the list in Schedule I which is attached to Clause 69 is comprehensive. I agree with my hon. Friend the Member for Oldham, West that it is not specific enough. It also seems to allow great scope for latitude.
The Secretary of State referred favourably to paragraph 12 of the schedule. I have turned my attention to it and I have drafted what might be required in an annual report using only as many words as the paragraph uses. My draft reads:The directors of your company maintain the most harmonious relations with their employees at home and abroad, marked by generous remuneration and benefits, including provision for health and safety, and by the loyal service which has long characterised our work force.If more than that is required by Clause 12, I should like to know what it is. On the face of it, it is platitudes precisely on those lines which a large part of Schedule I requires.
I am not clear that Clauses 73 to 77 which relate to company meetings significantly advance matters. As we all know, many company meetings are called at 11.30 a.m. in the determination that they will be over in good time for lunch. They are controlled by a chairman who makes Mr. Speaker's treatment of points of order in this House look positively gentle. I could go on. These are not just Committee points. They are major matters. They leave me far from happy and would be sufficient reason for my voting against the Bill if I could find someone else to act as Teller for me.
I revert to the wider issue of strategy I mentioned earlier. Can we be content 1002 with the tinkering with aspects of the system which makes up the Bill? It may be that the City—I defined it earlier. I hope, in terms which the City would find satisfactory—can reform and regulate itself. Maybe it should. Unless there is an effective spur from outside, it is doubtful whether it will.
The Government must accept a wider responsibility. The City has a way of embracing all that it impeccable and of claiming that moral turpitude is itself an indication that the error is outside its gates. This is much too easy. Of course it may seem unfair that the sort of rough house which we have witnessed in Lonrho or Pergamon should be laid at the doors of the City. The City would prefer to wash its hands of such vulgarity. But this policy of aloofness is unrealistic.
Neither the banks nor the institutional investors can be indifferent to the public face and standards of behaviour of those from whom they happily collect their fees or dividends. If the small investor comes unstuck with London and County or Cedar Holdings, he can reasonably complain if he has followed where the respectable and experienced have led. The City has a fairly appalling record of not seeing through "con" men. It should do far more to identify and expose the bucket shops and the buccaneers. If it will not do so, the rôle of the Government is plain.
One area in need of closer regulation is secondary banking. Despite the rôle of the institutions and the extent to which they have led others into paths which they should not follow, I confess that I am not too bothered on behalf of depositors who are prepared to acknowledge that they are taking high risks to get high interest rates. But it is still much too easy to set up as a bank. Existing rules relating to liquidity are inadequate in both their scope and the manner in which they are enforced. It seems wrong that loans of four or five years' duration should be financed out of money borrowed for perhaps only a week.
There is much to be said for the publication of the loan portfolio of secondary banks and of information relating to the length of deposits. I hope that the Governor—this is an important point which will be significant to those who have experience of many operations 1003 in the City—will look into the functioning of the Discount Office of the Bank of England and ask whether it is adequate for its tasks. I ask my right hon. Friend the Member for Cheetham to pay attention to this.
Then there is the Takeover Panel. Often this seems like a bad joke. I have no doubt that it has some influence but it is least effective where it matters most, among those who pay only lip service to the moral community of which they claim to be part.
One of the doubtful pleasures of life is to see how the City columns in the newspapers bring the whole exciting game to our breakfast tables. Let me take an example from the Sunday Telegraph which caught my eye, on my birthday as it happens, 28th October. The breathless headline reads:What a week for Grendon.It said:What a week it has been for everybody concerned with Grendon Trust shares! Last Sunday I asked: ' Will Mr. Selmes have to raise his bid? ' By 11 a.m. he was assuring me that I was wrong (one of these days I'll go ex-directory like so many of the people I try to ring, like, come to think of it, Mr. Selmes himself). Fortunately by Tuesday night he had raised his bid by 315p. Oh, dear, had I cost Mr. Selmes another £1 million? It rather looks as if I did.So it goes on, in a style half way between July Cooper and Marjorie Proops.
Let me make it clear that some financial journalists have become watchdogs of the public interest, and this I totally commend. There are others who are not so critical and some who are bought by the City. The story, and this is the point I am trying to make, vividly tells of the sort of course of events which is not reassuring to the public and least of all to those faced with rising prices and having to manage on a three-day week. When the Takeover Panel finally reports everyone escapes, not only with his money but with his character unscathed. We all think of the Duke of St. Albans. It seems to be a hideous charade.
The City and much of what revolves round it must be looked at in three ways. The first is in terms of safeguards against abuse such as are dealt with, however inadequately, in the Bill. The second is in the light of the social impact, of ostentatious money-making and the failure of 1004 self-regulation. I emphasise again that this must be considered not in isolation but to the extent to which it contributes to the social climate of our times and a divided nation. Thirdly, the issue must be looked at in terms simply of efficiency. The defence offered in the first two cases is sometimes that we must pay the price for being the financial centre of the world.
Is the City half as efficient as it makes out? In some areas, and we all remember the collapse of Rolls-Royce and how it caught companies, bankers and professional advisers unaware, it palpably is not. There is a great deal in the Cabinet Office report, too little referred to by the Inter-Bank Research Organisation, that deserves further examination and debate.
I am sceptical about Royal Commissions. They take such a long time. They are usually made up of the worthy and the distinguished and the old, and very little do they change the course of events. There is a strong case for a Select Committee inquiry into the City. I should like to see a Minister much more closely involved in City affairs. The Chancellor's rôle is quite inappropriate as a means to reform and I should add that the Secretary of State for Trade and Industry, who is still known in the City as the biggest inside dealer of them all, would be inappropriate in his personal capacity.
The City has lived much too long by secrecy. I welcome the Bill in so far as it puts a new emphasis on openness. Where there is abuse it should be ended. Where the City has a case it should be prepared to state it clearly and undergo proper scrutiny. If the Bill dies very shortly, as I think we all expect it will, I hope that a future Government will seek a far more radical approach to this area of national affairs. If a future Government produces a Bill like this, I will certainly take the opportunity on the next occasion to vote against it.
§ 7.49 p.m.
§ Mr. Peter Rees (Dover)
In contrast to the hon. Member for Stockton-on-Tees (Mr. William Rodgers), I congratulate my right hon. and right hon. and learned Friends on the substantial measure of company reform embodied in the Bill.
1005 it is not, as the hon. Member for Oldham, West (Mr. Meacher) described it, a small Bill ; it is a substantial Bill, as anyone who is privileged to take part in the Committee stage will soon discover. It will repay close study and scrutiny. Whether it will get that remains to be seen.
I was sorry to hear the contribution of the hon. Member for Stockton-on-Tees, who usually brings a great intelligence to bear on our debates. On this occasion he criticised the style and performance of the City. His style and performance in this debate were not worthy of him, and I can only assume that he has been so infected by the election fever that he affects to detect on the Government side of the House that he has fallen far below his normal standards.
The hon. Gentleman made a crude attack upon my right hon. and right hon. and learned Friends who are noted for their assiduity in this sphere. From his own ministeral experence he must recognise that there are occasions when a Minister has to leave the Front Bench. I also regret his crude attack on the City. It shows a total lack of understanding of the function which the City performs. I can only conclude that his considerable intellect is in this field clouded by prejudice.
I contrast the speech made by the hon. Member for Stockton-on-Tees with the witty, refreshing and understanding speech made by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). Although I am a relative newcomer to the House, I welcome his return to it. He spoke with real understanding and experience. I regret his peroration, but these are difficult times. The body of his speech made a worthwhile contribution and advanced the debate, by contrast with the contribution made by the hon. Member for Stockton-on-Tees.
I will follow the lead given by the right hon. Member for Cheetham and philosophise for a moment on company law. I agree with his analysis that company law is the framework within which private enterprise must operate. I prefer to put it another way. We are here attempting to strike a balance between the claims of five—not necessarily conflicting—groups—the entrepreneur or management, the investor, the creditor, the employee and the public at large.
1006 Over the years, the entrepreneur may well have had the best of the deal. That was the Victorian philosophy. But there are few sops for him in the Bill. It may be found with the advantage of hindsight that the balance has swung away from him. It is right that the investor should be protected. On that basis I welcome Clause 70, although it will be necessary to see how it works in practice. It would be wrong to give every dissident investor the opportunity of bringing the company in which he invests to a grinding halt. It will be necessary to look at that more closely in Committee and probably later with the advantage of such cases as are thrown up in the years to come. The more rigorous conditions for the filing and production of accounts should strengthen the creditor's position. The duties imposed by Schedule 1 on directors in the compilation of their reports adequately discharge the debt due to the public at large.
I am glad that my right hon. Friend has had second thoughts on the proposals embodied in the White Paper for a code of conduct. It would have been so woolly as to have been meaningless or might have provided an alibi for directors who are incapable of managing their companies efficiently.
The position of employees is a crucial and fundamental question which we are bound to have to explore at length—not necessarily under the Bill. Clause 51 makes a major affirmation of principle, and it will be interesting to see to what practical situations it can be applied. My right hon. Friend said that it overturned one decision of the Government and it may have wider effects than that. This is an area which we must explore far more profoundly. My right hon. Friend said that we are to expect a Green Paper on employee participation, which I hope will provide a real step forward in this direction. The sophisticated working force commanded by industry and commerce must be taken far more into the confidence of management, and their interests must be recognised. If their interests are to be recognised—I say this advisedly—they too, must recognise their responsibilities and be prepared to accept slightly more of the risk than they do at present.
I appreciate that when a company is liquidated employees may find themselves 1007 in an extremely difficult position. They cannot expect to be in the same position as debenture holders, having a secured wage and a secured share of the company's profits. If they are to be partners they too, must carry rather more of the risk than they do at present.
I move from the philosophic plane to some of the individual provisions. Inevitably, we must look at a Bill of this kind in a certain amount of detail. We all applaud the general principle behind the provisions covering insider dealing. It will be necessary to scrutinise those provisions in Committee and to study the definitions to see who will be found to be an insider and how far he may legitimately operate. I suspect that the definitions may have been drawn a little too tightly, and that that might inhibit genuine investment. It might also inhibit people from associating themselves too closely with the management of companies. I am thinking particularly of institutions, which are being encouraged to take a closer look at the affairs of the companies in which they invest.
The right hon. Member for Cheetham has demolished fairly effectively the principle underlying Clause 19. I go a stage further because he, perhaps, made an exception for nefarious take-over bids. It is too easy to describe a take-over bid which one is attempting to resist as nefarious and unattractive, but if one believes in the discipline of the market one must accept that there will be take-over bids and there must be people on the prowl.
§ Mr. Harold Lever
I am sorry if the informal discursiveness of my comments should have led the hon. and learned Gentleman to believe that I thought that all take-over bids were nefarious. What I said was that one should avoid nefarious take-over bids ; that is to say, those where secret and semi-conspiratorial manoeuvres precede the bid. A take-over bid is an offer by somebody to buy something. If that is done honourably and openly it is no more to be criticised than an offer by me to buy the hon. and learned Gentleman's spectacles if they happen to be of appropriate focus for my failing eyesight.
§ Mr. Rees
Which I doubt. I am glad to have given the right hon. Gentleman 1008 the opportunity to clarify that. It is easy to describe a take-over bid as nefarious because conspiratorial tactics are involved, but if on occasions conspiratorial tactics have to be employed that is possibly because the prey is so difficult to stalk that it cannot be approached in any other way. Although that method of approach may not be unduly appreciated in the City, it may have its commercial uses. I would not be too hasty, therefore to condemn the conspiratorial approach. In any event I do not fundamentally disagree with the right hon. Gentleman in his demolition of the principle underlying the clause.
I go on to ask two further questions. Will the clause work in practice? It is not for me to suggest detailed ways by which it could be circumvented. I can see a take-over bidder entering into an option with a man of straw who will buy shares for him. I am certain that in practice the provision will be found to be ineffective. If it were to be found effective, I would regard prosecutions under it as unattractive. This is not an area with which the criminal courts should unduly concern themselves ; it is essentially a domestic area. I prophesy that Department of Trade and Industry will be reluctant to prosecute. It may find itself being asked to prosecute, for example, a take-over bidder when he is in the saddle of the company which he has taken over. The clause could be jettisoned on those three grounds.
I welcome Clause 38 in regard to the disclosures of directors who have proved themselves manifestly incapable of managing other people's money. I wonder whether this should be limited to cases where palpable offences have been committed and to cases that arise on a winding-up. The Pergamon case—I am reluctant to mention individual cases but this one comes to mind—demonstrates that there may be cases outside these narrow bounds where a person might be declared unfit, as the inspectors did on that occasion, of managing a public or indeed a private company.
I shall leave the detailed provisions of the Bill because I hope that there will be time to scrutinise them in Committee.
I turn to one major omission from the Bill. In the last decade we have been over-concerned with amalgamations and 1009 the formation of larger and larger groups. It has never been self-evident to me that these larger groups necessarily perform more efficiently. The problem to which we should address our minds is whether we have made it easy enough to break up large groups, to hive-off profitable and unprofitable sectors of these leviathans.
This is a legacy of the tenure of ministerial office by the right hon. Member for Bristol, South-East (Mr. Benn). I mention this matter because I see the right hon. Gentleman present on the Opposition Front Bench. This has meant that there are now in existence a number of unwieldy leviathans labouring in difficult waters which are quite unassailable in the national market. They may be taken over by multi-national companies, but I am sure that that would not be welcome to the right hon. Gentleman or to his right hon. Friends. I should like to see the Government consider closely whether fiscal and other company measures could be devised to enable people to hive-off part of their businesses, and to enable take-over bidders to make bids, for example, not for the whole of BMC but for part of it. This would create a more healthy atmosphere. However, I regret that I find none of this philosophy embodied in the Bill, but this is a small criticism of what I regard as a worthwhile measure.
I wish to make one general observation in my concluding remarks. There is another side to the ugly and unacceptable face of capitalism. I regret to use that phrase, and, indeed, I congratulate other contributors to the debate for having eschewed it so far. The other side of that face is some of the less attractive features of trade unionism. I concede that the one may have been the product of the other. What is noticeable is that whereas since the war we have now had three essays at company reform, we have had only one substantial attempt to the reform of industrial relations. I believe the reform of both should proceed hand in hand. I hope that this Bill will be a prelude not only to measures to increase employee participation but to a further reform of industrial relations in the light of the experience we have gained in the three years since the Industrial Relations Act became law.
§ 8.5 p.m.
§ Mr. Tam Dalyell (West Lothian)
Thousands of my constituents who work for British Leyland at Bathgate would be interested to hear the hon. and learned Member for Dover (Mr. Peter Rees) say that there should be take-over bids for half of the British Leyland motor holdings. That may be a view held in financial circles but it makes industrial nonsense. Part of the divide we have to contend with lies between managements in manufacturing industry and those who produce things. The day-to-day decisions that are taken in the weird and arcane world of finance lead to people talking, as did the hon. and learned Gentleman, about taking over half of British Leyland. In terms of day-to-day relations with the motor industry that statement is meaningless.
§ Mr. Peter Rees
The hon. Gentleman clearly did not follow the tenor of my remarks. I merely cited that company as one of the largest, and, therefore, probably unassailable, companies in our domestic capital market. I said that there might be a case for somebody making a bid for one particular part of it. I did not say half ; I did not specify any particular part. I cited it as an example of a very large company which is indigestible to the normal operator in the capital market.
§ Mr. Dalyell
I understood the tenor of the hon. and learned Gentleman's remarks only too clearly. This was a City view.
§ Mr. Dalyell
Very well, the hon. and learned Gentleman speaks for himself, but what he said was that a substantial proportion of British Leyland should be taken over. When seen on the ground at Bathgate or elsewhere, this proposal is meaningless.
There is one matter on which I agree with the hon. and learned Gentleman. I believe that there should be generous provisions for ex-employees, and, therefore, I welcome Clause 7.
1011 I wish to concentrate particularly on the question of insider trading. It is all very well to say that this is exaggerated. I enjoyed listening to the speech made by my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), who is always interesting and entertaining. It is a great pleasure to have him back in the House. I enjoyed his marvellous description of this evening as an evening of "definite maybe"—a phrase borrowed from Sam Goldwyn. We must seek to understand not only the importance of insider trading but how matters look from outside.
My hon. Friend the Member for Stirling and Falkirk Burghs (Mr. Ewing) and I recently went down the Kinneil Colliery. Surprisingly perhaps to some people, we were questioned about the goings on in the London art market. One might think that this was not an appropriate question to be asked at the coal face. But what must be understood is that this is regarded as a live issue. When the miners and others see enormous wealth in certain areas and pictures, which may have not a great deal of artistic merit, changing hands for £300,000, when they see the land speculators of the sort we have in this country, this creates an atmosphere in which it is impossible to get the sort of industrial co-operation that is needed. This is what several Conservative Members fail to understand.
§ Mr. Piers Dixon (Truro)
The hon. Member for West Lothian (Mr. Dalyell) mentioned the international art market and implied that the whole question derived from activities of citizens in this country. The art market and London is an international market, and surely the implication of what he said was that we should bring these activities to an end. But if Sotheby's and Christie's were instructed to go out of business, the equivalent value of business would go to Parke-Bernet in New York, or to Paris.
§ Mr. Dalyell
All I am saying is that the discrepancies of wealth are such—and this is particularly reflected in the art world—and are so obvious that it is difficult to operate any kind of policy, and this is quite understandable.
The provisions in the Bill on insider trading require further explanation. Part 1012 of the package on insider trading is mostly ineffective. Perhaps the only question is whether the Government believe sincerely that their insider trading measures are effective, in which case perhaps the charge is one of naivety, or whether they know as well as many hon. Members on the back benches how ludicrously inadequate and incomplete are the insider trading provisions, in which case the charge is at best that of being party to a somewhat simple form of electoral window dressing.
One has to ask who is an insider? I agree that it is not necessarily proof of moral delinquency to possess inside knowledge. But the definitions in the Bill are very loose. Throughout the relevant provisions on insider trading there seems to lie the assumption that the root of the trouble is that an employee or a professional adviser of a company makes use of confidential information for his own ends or those of family, friends and clients. This has happened. It does happen. Doubtless it will happen in the future. But a scenario which is both more common and more difficult to do anything about is altogether less simple.
Supposing that Mr. Smith is a broker and Mr. Brown is one of his favoured clients. The client Brown phones the broker Smith and says "I see in today's financial Press that the price of Company X is moving upwards. This is rather interesting since it is against the trend of the market."Then the conversation might go along lines such as" You act for company X, don't you? Give me the low-down, old boy."I give a specific example because it is the best way of illustrating a somewhat complex argument.
The broker Smith is put into an awkward position. Either he can play the high and mighty prude with a favoured client and be what the poet Burns called "unca guid" or, more likely he will act like many brokers and reply "Yes, I have a pretty good idea that a bid may come. I cannot say any more. But I consider that you would not be far out if you thought that the shares justified the price of, let us say, 80p."
The client Brown takes the hint and acts accordingly, issuing instructions on the basis of this kind of phone call. The House should know that the instructions 1013 may be given to a broker other than Smith who conveyed the vital information.
It can hardly be said that confidential information has been exchanged in such a case. Moreover, in such a case it would be very difficult to get a jury in a court of law to reach a verdict of guilty on this kind of exchange between two people, especially in an epoch when so much is done on the telephone and goes unrecorded. The verification of information passed between parties would surely be extraordinarily difficult.
This was the point on which I interrupted the Secretary of State. I thought that his reply was partially fair but inadequate. He said that the hallmark of the law in this country would matter and would be effective. I am not sure that the hallmark of the law in this kind of case, which is very near reality, would be effective.
With a certain modicum of good will towards the Bill I do not see that it is any more successful in achieving the objectives that most people want than the investigations by the Stock Exchange or the Take-over Panel. For that reason I ask what it is in the Bill which will be more effective than the various investigations of the Stock Exchange and the Take-over Panel. Such cases as are brought will linger round the courts for years and provide a lawyers' paradise. Dickens' circumlocution office in Dombey and Son would be a model of expedition compared with some of the possible cases created by the Bill.
The Minister argued that the definitions had been widely drawn. So they have—families, friends, outsiders with privileged information. Uncle Tom Cobley and all could conceivably be considered insiders. But my difficulty is that given the way that information gets round as opposed to how it gets round theoretically—over the telephone, at the seventeenth tee, in a restaurant, or simply when two people travel together in an aircraft—and given the human propensity to gossip, I beg leave to doubt whether all this stuff on insider trading makes very much difference.
The interesting question is whether the Government genuinely believe in their proposed action on insider trading or whether they put it forward somewhat 1014 cynically as a piece of short-term electoral window dressing to persuade a public who find difficulty in fully comprehending such complexities that they are doing something about what they know that people instinctively dislike.
I have a dark suspicion that the Government know as well as I do that the clauses on insider trading are, to use a picturesque but accurate term, so much window dressing. I shall listen to what the Minister has to say in winding up to see whether I can be persuaded that my detailed suspicions are groundless, the point being that the operation of law, whatever the good will or the motives may be, is likely to be ineffectual and will be a lawyers' paradise.
Instinctively I do not like the idea of prison sentences, especially for first offences. In terms of the Criminal Justice Act the Minister will know that there have been a number of pioneering schemes in South-East England for service instead of prison. Rather than talking about sending offenders to prison, at any rate on the first occasion, would not it be better to think in terms of the kind of service which has been developed as a result of certain sections of the Criminal Justice Act?
In any event, on the detailed and important issue of insider trading, I look forward to hearing the reflections of the Minister.
§ 8.18 p.m.
§ Mr. J. Bruce-Gardyne (South Angus)
I have some sympathy with the anxieties of the hon. Member for West Lothian (Mr. Dalyell) about the effectiveness of the provisions relating to insider trading. I cannot help feeling that the real answer to the case of his friends, Messrs. Smith and Brown, was provided by the right hon. Member for Manchester, Cheetham (Mr. Harold Lever), who pointed out that very often the sort of information which Mr. Brown received from his broker was likely to turn out to be false, with the end result that Mr. Brown acted upon what he believed to be inside information and actually made a loss. In any event I have considerable reservations about the insider trading provisions, to which I shall return in a moment.
Before doing so, perhaps I might say a word or two about the philosophy behind the Bill. I am delighted that we 1015 have at long last seen the Bill. Before the last election the reform of company law was placed fairly high in our priorities. It seems to be the fate of company legislation, because it tends to lack political sex appeal, to be pushed further and further back down the legislative pipeline. There are pieces of legislation for which the Department of Trade and Industry has been responsible in this Parliament which I believe should have been given considerably lower priority. I have in mind measures like the Industry Act, for example. However, I am delighted that we have the Bill. I hope and pray that nothing will supervene to prevent its going on to the statute book. In general I extend a very enthusiastic welcome to the Bill.
In the matter of philosophy, the essential purpose of reforming company legislation is to ensure the efficient working of the capitalist system by protecting the rights and interests of the small investor in particular. The right hon. Member for Cheetham, in his typically charming and enjoyable speech—and I join in the expressions of delight on his return to our counsels—said, in effect, that it was no good being an atheist and trying to reform cathedral rituals. Nobody would dream of accusing the right hon. Gentleman of being an atheist.
I thought that the right hon. Member for Bristol, South-East (Mr. Benn) would open the debate. If he is not an atheist in this connection, one might describe him as a very pronounced agnostic. We shall be fascinated to observe the contrast between the speech with which the right hon. Member for Cheetham opened the debate and the speech with which the right hon. Member for Bristol, South-East will conclude it. I could not help feeling, although I could not see his face, that there must have been several sections of the speech of the right hon. Member for Cheetham which the right hon. Member for Bristol, South-East welcomed with less than his usual exuberant enthusiasm.
§ Mr. Harold Lever
I am grateful not only for the hon. Gentleman's kind words about me but for his kind references to my party, emphasising that we are a party of rich contrasts and stimulating differences of emphasis.
§ Mr. Bruce-Gardyne
I entirely accept the right hon. Gentleman's point in the spirit in which it is offered.
Also on the aspect of the philosophy behind the Bill, it is right and proper—this goes very much along the lines of the speech of the right hon. Member for Cheetham—that a Government, in introducing legislation to reform company law, should seek to give the evolution of the corporate structure a certain bias of its own necessarily political choosing.
Like other hon. Members, I clearly recall the attitude which we, in opposition, adopted to the Labour Government's Companies Bill in 1967. Our posture very broadly was that the provisions for disclosure in particular which were imposed by the Bill on publicly-quoted companies did not go nearly far enough, particularly the failure to implement many parts of the Jenkins Report. On the other hand, we took the view that the provisions about disclosure as applied to the unquoted private company went much too far. I thought at the time that that was precisely the right and sensible posture.
It has always seemed to me that there is an essential difference between the company whose shares are quoted on the Stock Exchange and which seeks the investment of the small investor in emotive terms—the widows and children—and the unquoted company which by definition cannot do that and which is essentially reliant on equity investment by participators drawn from a very narrow circle, usually either relatives of the descandants of the founding families of the company or institutions which took an active part in the supervision of the management.
It is evident that in drafting the Bill we have not drawn the dividing lines according to requirements for disclosure along those lines. Indeed we have not drawn them at all, because in Clause 69 we leave it to the Secretary of State subsequently to decide where the dividing lines should fall. We have not done anything to reverse the additional burden of disclosure imposed on the unquoted company by the 1967 Act. I accept that perhaps, as my right hon. Friend the Secretary of State said, some of the fears about additional disclosure expressed at the time of the passing of 1017 the 1967 Act have not been borne out in practice, but perhaps we underestimate the additional and quite unnecessary administrative burden imposed particularly on the small companies by some of the provisions of the 1967 Act. I wish that we had been able to do something about that matter.
However, the more important question is the way in which my right hon. Friend the Secretary of State has decided to reserve judgment about where, under Clause 69, the line of demarcation for disclosure should be placed. My right hon. Friend indicated that he would be inclined to differentiate between, on the one hand, the publicly-quoted company and the large unquoted company and, on the other hand, the rest of the unquoted sector.
The trouble about that is, first, that the one clear point at which we can draw a demarcation is at the point of quotation, and the position of publicly-quoted and unquoted companies is different. But, secondly, whatever dividing lines one marks within the unquoted sector will inevitably be eroded by inflation, which, judged on the present rate, will be very fast, so that all the time we shall be moving the marginal point down. We need to think carefully about that matter before we approve the discretionary powers given to the Secretary of State in Clause 69.
I turn to the aspect of the Bill dealing with the rights of existing management. There is a contradiction in our attitudes. On the one hand we lower the point at which it is obligatory for the ownership of an equity share in a company to be disclosed and make" it possible for the management of a company to ascertain where the ownership of packets of equity lies, and on the other hand we decide that the future issue of limited voting shares or no-voting-rights shares by publicly-quoted companies should be banned. The second matter—the issue of limited or no-voting-rights shares—is an important way of safeguarding the identity between the ownership and management of companies.
I make no bones about the view that closer identity of ownership and management is often conducive to the more effective operation of the capitalist system. It is no coincidence that many of the outstanding company performances in 1018 recent years have been by such companies as Marks and Spencer, Inchcape and Collins, the publishers, where there is a close identification between management and ownership. In so far as the existence of non-voting shares and limited value shares helps to offer a degree of protection to the owner and managers of a company which may have been driven into the public sector by the fiscal system, I welcome it.
Although there are substantial objections in some quarters to non-voting shares and limited voting shares, it is worth recalling that the Jenkins Committee, by a very large majority, recommended that they should be retained. We need a clear explanation why the Government decided to override this. I welcome the arrangements which have been made to tackle such trendy problems of the take-over situation as warehousing and concert parties. Almost the only point on which I was in some disagreement with the right hon. Gentleman was when he seemed to think that these provisions were designed to find out about his own investment performance. There is nothing in the Bill which goes nearly as far as that. Broadly speaking, these provisions are to be welcomed.
I hope that in our general approach to the Bill my right hon. Friends will recognise that the cult of bigness, which was so much in vogue in the days when the right hon. Member for Bristol, South-East dealt with these affairs, has receded into the background and that we now have these matters more in proportion.
It is becoming more and more evident that the entrepreneurial company, where ownership and management are broadly combined, has advantages of management enthusiasm, personnel relations, consumer choice and perhaps above all, if I dare say it, freedom to tell Whitehall to go to hell, which the large institutionalised company does not have. Therefore, we should be careful about any changes in our company law which erode the position of these companies.
I turn briefly to the provisions regarding the power and answerability of directors. I particularly welcome Clause 55, which seems to be designed to put a limit on the propensity of boards of directors, particularly in institutionalised companies, to go empire-building with company paper. I share the anxieties of my 1019 hon. Friend the Member for Basingstoke (Mr. David Mitchell) about the impact of the new rules governing the risk that some irresponsible, ill-disposed directors may funnel business from public companies to private companies under their control. But these rules are, broadly speaking, a move in the right direction.
I am not quite as certain as my right hon. Friend appears to be that we were right to reject the suggestion of the Jenkins Committee that incompetence should be a ground for disqualification. I realise that incompetence is extremely difficult to define, as perhaps is "insider". The unacceptable face of capitalism, to use the well-worn phrase, is more obvious in the personality of someone with the record of a Sir Denning Pearson than in the record of a Mr. "Tiny" Rowland. There is much more to be said for top management of a company which seeks to maximise the profitability of the concern than there is for top management which bankrupts the shareholders of the company in pursuit of some imagined project of prestige.
§ Mr. Dalyell
Surely this is the difference between us, that some of us think that British industry has to be managed by engineering excellence, such as that of Sir Denning Pearson. He did many things of great initiative and was applauded by this country. The fact that one of those things went wrong should not lead to a complete judgment of him.
§ Mr. Bruce-Gardyne
In its declining years the old Rolls-Royce company was a model of how a company should not be run. I am not suggesting that the entire responsibility should rest on the board of directors, because the right hon. Member for Bristol, South-East had a lot to answer for in that respect. We have dismissed the concept of incompetence suggested by the Jenkins Committee and I am not sure what the concept of recklessness, which we have included instead, is designed to cover.
The subject of insider dealings has attracted a good deal of attention. I have a great deal of sympathy with the view of the right hon. Member for Cheetham. It has always seemed to me that the most effective way of dealing with this problem is by publication. I still believe that we should achieve much more by requiring 1020 the Stock Exchange, for example, to publish the sort of monthly report on dealings, not only by the directors as required by Clause 14 but also by the officers of public companies, that is published by the Securities and Exchange Commission in the United States.
I can assure my right hon. Friend, from the investigations that we made at the time of the last Companies Act, that that is not a complex or onerous procedure. I hope that it will be carefully reconsidered. I have exchanged correspondence with my right hon. Friend on the matter and I am not entirely convinced by the answers I have received.
What alarms me most about the insider trading provisions of the Bill is that it seems inevitable that they will positively discourage institutional involvement in improving the management of public companies. We have all too often seen how the institutions are inclined to vote with their feet to leave the management of public companies in which they have invested severely alone until things get into such a mess that they get out and leave the small private shareholders to "carry the baby". Under the insider trading provisions of the Bill, it seems that they will have no other choice than to do that. This is a retrograde step and it is this more than any other aspect of the provisions that concerns me.
Perhaps inevitably one tends to mention one's reservations about the Bill, but I should like to make it clear in conclusion that I wholeheartedly welcome it. It will go a considerable way towards further improving the climate in which capitalism operates in this country. If that were the only reason—I can think of others—I hope and pray that the good progress of the Bill will not now be interrupted by other matters of wider concern.
§ 8.38 p.m.
§ Mr. Edward Milne (Blyth)
I should like first to apologise for not having followed the debate as closely as I should have liked. I was fortunate enough to hear the two opening speeches, particularly that of my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), whom we are glad to see is almost back to his old lively self. His command of the English language and the clarity with which he conveys his views helped me to understand the 1021 Bill much more clearly than I had done after a good deal of reading on the matter.
The hon. Member for South Angus (Mr. Bruce-Gardyne) talked about cleaning up the unacceptable face of capitalism. Although I do not share his hopes for the Bill, I look upon it as a document—if it ever reaches its final stages in this Parliament—which, though not bad, would certainly not be good for dealing with our present situation. I have always believed—I was brought up in that way—that the wealth of this nation is produced not within the square mile of the City of London but by the application of human labour power to land and raw materials. All the other machinations in the City and similar institutions are possible only against the background of that method of wealth production.
Two aspects of the Bill can be of decided advantage if its provisions are applied as I have understood them. There is the question of amendments to the law of bankruptcy and the question of winding up and insolvency. In these matters we run up against possibly the widest evasions of responsibility to the public by a considerable number of firms.
As the House will know, I have over a number of years been asking in the House for the registration of the travel trade and for closer examination of the tour operating industry. Although I am pleased to say that in recent years there have been improvements, too often in the past we have been faced with a situation, not confined to the tourist industry or to tour operators, of fly-by-night firms winding up and being declared insolvent and going through the bankruptcy procedures, and yet cropping up again under other names and guises and appearing to flourish just as before. It may be said that one is a little unfair in singling out this trade because one could give illustrations from so many others.
Much has been made of Jenkins and of how much of the Jenkins Report has found its way into this Bill. The real test will come in Committee on the Bill and at its subsequent stages.
The basic weakness of the Bill is its almost complete failure—I would like to hear the Minister on this matter when he winds up—to deal with take-over bids, mergers and amalgamations, monopolies, 1022 combines and trusts. The Bill at the moment appears to be ill equipped to deal with the jungle of the international and multi-national combines, interlocking companies of great size. We have only to look at the experience of other countries to see how these companies operate.
Take America as an example. There is a multi-national company affecting not only decisions taken in that country but major decisions taken within Britain. Anthony Sampson, in his excellent book "The Sovereign State", showed the broad ramifications of the International Telegraph and Telecommunications Company, an international business, and a business with which this Bill appears to be singularly ill equipped to deal.
From my own experience, of dealing with matters in my constituency, I can well recollect the circumstances some six months ago when miners there embarked on a claim for higher wages ; they did so along with the National Union of Mineworkers. At that time, when phase 3 and so many other factors were being quoted to them, we were greeted by the front pages of the national Press carrying photographs of jubilant members of the Stock Exchange rushing through the Exchange, papers in their hands, celebrating the fact that there had been an upward turn for the £. In the present economic position of the country there have not been all that many occasions for them to do that.
We come back to the point that the real wealth of this country is produced by the brains, skill and muscle of its working people at all levels of activity, but that too much of it is creamed off by the City buccaneers who move around the companies that they possess and control like pawns in a game and often make in one afternoon more than one of my mining constituents could possibly hope to achieve in a lifetime.
If the Bill is to be given strong application, we ought to look more closely at the insider dealing clauses and at the procedures relating to take-over bids.
Public companies are obliged to advise the Stock Exchange Council of significant events concerning them, such as bids and deals, profits, the appointment of new directors, and so on. The business columns of the national dailies keep us well informed of those matters. A great deal of Press advertising in this country 1023 springs from the publication of the annual returns and reports of the great companies that dominate our economy. Within the framework of the information that we receive as a result of that background, the newspapers, in dealing with the future of the economy and industry, are naturally sympathetic to that situation. Public relations and many other matters fall within their scope.
On two occasions in this House, I have referred to major take-over bids which I think still need examination. This matter is possibly outside the scope of the Bill, but I am sure it could be brought within its framework.
The first of the take-over bids to which I drew attention concerned Beecham, Glaxo and Boots. The matter was referred to the Monopolies Commission, which decided that the merger should not go ahead. This is not the time to go into detail on that aspect.
A similar situation arose affecting firms in my constituency and members of my union within the distributive trade. I refer to the Boots, Harrods and House of Fraser tie-up.
If the Bill is to be the instrument that we want and that the Minister described it as likely to be, we must look at some of these examples—certainly at the latest one that I have quoted—to see precisely how the interests not only of the workers within those industries but of certain firms can be protected from the activities of each other in the take-over jungle that prevails in the national and international business set-up. It is not only the British people who are complaining about the jungle that we have briefly described, but many leading firms themselves have expressed concern and their opposition to the methods adopted by some of their less scrupulous competitors or associates in the battle for power that goes on within British industry.
As to public companies being obliged to report matters to the Stock Exchange Council, the Bill could well deal with the advisability of their reporting to an outside rather than an inside body, one that could deal with the Stock Exchange much more impartially.
I turn to the methods adopted in the proposed Boots-House of Fraser deal. Many clauses in the Bill could well have 1024 applied to it. There is no doubt that some papers knew about the proposal before others. Some were obviously alerted by telephone, and later in the evening of that day received a formal statement. Then there was the question of what one paper described as a mass of House of Fraser share buying from Scotland the afternoon before the deal was announced. One can read much into the situation, but it is obvious that there has to be a considerable tightening-up before we can say that we are even moving a short step forward towards the City putting its own house in order.
One City financial information company wrote to the Minister about the handling of the announcement. I hope that he may be able to touch on that matter tonight. There were strong protests from newspapers in my area in the north-east of England at the handling of the Boots-House of Fraser bid and the methods used in its announcement to the Press.
From the evidence at our disposal it is clear that certain newspapers were given preferential treatment over the telephone several hours before a general announcement was made, and that many people in the journalistic world felt strongly about what was described as the complete and apparently intentional mishandling of the announcement. How can we commend the Bill to the House on the strength of the impact it can make on such a situation, unless we have assurances that the proposed legislation will be used to the maximum extent?
I do not expect that the Minister or the Secretary of State will join me in the hope that out of our present crisis a new order of society may emerge so that we move into a saner economic, commercial and financial system. The Government have taken the first lame, halting steps in that direction. The Bill does not go far enough. We can accept it as it stands, but it can only be a foundation for much stronger and more stringent legislation in the months ahead.
§ 8.55 p.m.
§ Mr. Piers Dixon (Truro)
I should declare an interest as a member of the London Stock Exchange, or possibly as a City buccaneer, which seems to be the fashionable phrase.
1025 I am happy with the Bill, although I have one or two reservations. I am slightly concerned that it gives a little too much discretion to the Secretary of State to act by way of statutory instrument under certain clauses. In the White Paper there were lower limits of £1,000 and £10,000 on private companies. I do not see why they should not be written into the Bill. I do not see why it is necessary for the Secretary of State to have that discretion.
With regard to Clause 31, on prospectuses, and Clause 69, on accounts, in my experience the Stock Exchange and the Take-over Panel demand precisely the sort of information which is required to make sure that the City operates fairly and judiciously. The problem in the City has been not so much that they have not demanded the right information as that when they discover malpractices—being in the City, I am the first to acknowledge that there have been malpractices—there is little they can say. They are not covered by privilege. I should like the Bill to contain a provision allowing the Stock Exchange and the Take-over Panel to name people when wrong-doings take place, without the danger of their being subject to action in the civil courts.
I am also somewhat concerned about the position of directors. It seems to me that it will now be virtually impossible for a director ever to deal within any period in the shares of his own company. Might not it be possible to have a period such as 28 days after the publication of interim accounts and 28 days after the publication of the final accounts when directors could deal in their own shares without the burden of proof being on them to show that they were doing it only for certain specific reasons? During those periods a director should feel that the burden of proof was on the authorities to show that he had acted improperly.
I believe that the position of the jobbers in the London Stock Exchange will be artificially and unnecessarily restricted by the requirements of Clause 18 on the disclosure of interests in shares. In practice jobbers are not used for warehousing purposes, and it is unrealistic to think that they are. They must be able to conduct their business with confidentiality. I have every reason to believe that the Stock Exchange and its jobbing members would be happy if jobbers were required 1026 to reveal to the Take-over Panel a holding of more than 5 per cent. What would completely ruin not only the confidentiality but also the effectiveness of their business, however, would be if they had constantly to reveal to the dealing public that they had such-and-such a holding and, indeed, had to divulge every change which took place in the book on a particular day.
Finally, the provision affecting directors who have connections with subsidiaries are a little harsh, particularly for the family company which we are trying to encourage in Britain. As long as the information is disclosed and everyone knows perfectly well that someone is the director of a company which controls a subsidiary, and as long as the shareholdings in subsidiaries are all subject to public knowledge, that should more than adequately cover the point.
§ 9.0 p.m.
§ Mr. Anthony Wedgwood Benn (Bristol, South-East)
I am sure that I shall carry the whole House with me—if on nothing else—in welcoming back my right hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) to speak on behalf of the Opposition in dealing with the Bill. My right hon. Friend's return was widely welcomed on both sides of the Chamber. If I could retain my views and enjoy his popularity, I should be a very happy man. But at any rate, I have had the good fortune to work closely with my right hon. Friend. We were both Cabinet Ministers in the same Department—double banked like the two right hon. Members on the Government Front Bench. If they are as happy together as my right hon. Friend and I were, theirs must be a very happy Department.
When we come to discuss the Companies Bill, there is a slight air of unreality because today's announcement—which I understand is being made at present by Lord Carrington in another place, and not in this place—of a return to full fuel supplies for the steel industry for a full five-day week, with the prospect of a four-day week and, perhaps, more for the rest of industry, means an awful lot more to companies large and small in Britain, to workers, to the community and to all those interests with which we are concerned, allegedly, 1027 in the Bill than the provision of the Bill itself.
My right hon. Friend the Leader of the Opposition will be tabling a Private Notice Question tomorrow to find out why this extraordinary confirmation of all that the Opposition have been saying about the three-day week was not made in the Chamber of the House of Commons, where we have electoral responsibility to our constituents. It certainly confirms the suspicion which we expressed that the three-day week was never necessary and was only part of a poltical stategy that remains concealed while the Prime Minister broods at his Camp David over his next attempt to get out of his difficulties.
§ Mr. Benn
If the hon. Gentleman had listened to me he would have heard me say that the measures that the Government have taken have done more damage to companies, to workers and to the community than any good that could be done by the Bill. I said that the whole debate had an air of unreality when the real action was taking place in another place.
As to the Bill, as my right hon. Friend the Member for Cheetham said, we shall not vote against it because it implements some technical improvements recommended by the Jenkins Committee. But we reject the idea that the Bill goes anything like far enough. We are seeking a new framework for industry, and not just a public relations facelift for capitalism.
In introducing the Bill the Secretary of State produced his phrase, which we have read about in the Press release, "the new capitalism". The plain truth is that, apart from the long-term pressure from the Department of Trade and Industry to get the Jenkins Committee recommendations implemented, the Government have had to move, and move quite quickly, because of the many aspects of business and City practice which have been brought to light over the last year or so and have been acutely embarrassing to those hon. Members on the Government side of the House who have espoused with ideological fervour the moral cause of capitalism.
1028 Lonrho was a very embarrassing situation. It was embarrassing because it brought to light practices and remuneration of a kind that made clear to the public what happened at that end of the business scale ; and it was embarrassing to the Government because, compared with what the miners are asking for, some of those involved in the Lonrho case were getting rewards out of all proportion to any contribution they might have made.
Distillers and the thalidomide case brought to light another aspect of business practice, and there were other events which I shall not go into in detail—Sime Darby, Sir Denys Lowson's case, London and County, Hoffmann-La Roche and the drug prices, and the treatment of the workers at Triumph Motor Cycles at Meriden, who later managed to develop their own enterprise of a kind.
Every constituency Member will have cases as I have. Take the case of Breckman, Dolman and Rodgers, which I raised in the House in an Adjournment debate. The company has been taken over twice, its assets have been stripped and its workers sacked. That type of episode has been particularly embarrassing for the Government. The harm that is done to workers and to the community by the abuse of business power is now getting home to a wider public and is seen by people to have a bearing on the prices they pay in the shops, the rent they pay for their accommodation and the cost of their housing generally. This is a much greater threat to democracy in Britain than the alleged threat from the trade unions.
§ Mr. Bruce-Gardyne
The right hon. Member for Manchester, Cheetham (Mr. Harold Lever) in his opening remarks said it was no part of the Opposition's strategy to pillory individuals in discussing matters of this kind. In the light of what the right hon. Gentleman has said, will he explain exactly what is the posture of the Labour Party in this respect?
§ Mr. Benn
I hope the hon. Member for South Angus (Mr. Bruce-Gardyne) is not trying to drive a wedge between myself and my right hon. Friend—[HON. MEMBERS: "Wedgie Benn."]—because we are of two minds on this matter and the Labour Party has been broad enough to contain, as I think my right hon. Friend said, a considerable debate within 1029 the party about the nature of these problems. Nothing I have said has sought to blame individuals, only to draw attention to the state of the law and practice which alerted the people to the consequences of the present situation.
Far from this anxiety being confined to workers, as large a number of managers in industry are quite as alarmed about take-overs and asset stripping as manual or skilled workers. One of the most remarkable things about the events of the past five years is that when a firm is taken over, and its assets are sold and the men declared redundant ; and when deputations come to meet the local MP, the managers are always on the side of the workers because their interests are affected. I have here from the Investor's Review of 12th January last year what is called the Slater Walker calendar for 1972. It points out that in the year 1972 Slater Walker made 29 acquisitions. Those who think that fear among managers of public enterprise is anything like as great as the fear of acquisition in circumstances such as we have seen in the past misunderstand the nature of that feeling.
There is another aspect of business power which in the present political situation we ought perhaps to devote more attention to—the political power of business. This has a considerable bearing on our posture or approach—and here I answer the hon. Member for South Angus. There is not necessarily as wide a divergence between both sides of the House over the political power of business as may appear from an elementary study of current political argument. The power of Henry Ford and the Ford empire, or IBM or, notably, of the oil companies, or even ITT threatens the independence of a nation State, including the United Kingdom. [Interruption.] I intend to draw a parallel between the power of business and the power of the trade unions if the hon. Member will allow me to continue.
The decisions which these companies take, the movement of their funds and their investment decisions can endanger a British Government's position regardless of which party is in power. Henry Ford makes his £60 million profit at Dagenham and then takes it to Spain, where trade unions are illegal, to undercut 1030 the Dagenham workers by producing cars in Spain where wages are lower. Henry Ford, of course, spends as much money——
§ Sir John Rodgers (Sevenoaks)
It is wrong to draw the parallel of Spain and low wages. In vast industrial countries such as Germany, wages are higher than in Britain. If we continue with our present attitudes transfers will be made to such places. It is not low wages but the right hon. Gentleman's policies that cause such transfers.
§ Mr. Benn
The hon. Gentleman is completely wrong. There were examples of multi-national companies, which, when the last Labour Government were struggling, like the present Government, to maintain and develop exports, were running, through internal transfer payments, a balance of payments deficit within their own companies. The extent to which the oil companies control the movement of oil, apart from the movement of funds, is an example of the point which I am making. Such actions bear upon national sovereignty as well as everything else.
I now turn to the use of business money for political purposes, and to the revelations which have now emerged about President Nixon's election campaign. The inquiries now being conducted by the Senate committee demonstrate that substantial sums were paid by business companies to support President Nixon's election campaign.
§ Mr. Benn
I will return to Britain in a moment. Substantial sums of money were paid to the Committee for the Reelection of the President, to finance the "dirty tricks" that we read of, and now the charge is seriously being sustained in 1031 the United States that President Nixon's energy policy is being affected by the contributions which have been made to his campaign by the oil companies. That is a corrupt element in American politics. As Aims of Industry now begins its own campaign we see the same sinister forces at work. Aims of Industry—[Interruption.] Of course, Conservative hon. Members do not like it. It is their secret weapon. "Aims of Industry" has announced that it is its intention to spend £500,000 on a campaign against the Labour Party in 1974. It began with the publication of a fraudulent journal called the Labour Advertiser, which was issued at the party conferences and contained photographs of people with false names purporting to be officials responsible for public ownership under a future Government. Aims of Industry has now begun a big campaign about free enterprise and its desire to protect it.
If the political democratic process in Britain falls into the hands of that type of campaigning, as it has done in America, it will undermine parliamentary democracy. There is a contrast to be drawn with the trades unions. Every trades unionist is in a position to contract out from paying his political levy, whereas Aims of Industry raises its money without consulting the shareholders, the workers or the consumers. This money is raised by a little group of people running the company. They put this money into a political campaign. Why? Because investment by big business in the Conservative Party gives to that firm a lower rate of corporate taxation. [Interruption.] This should be in the Bill. This is the point we are dealing with. It puts its money into the Conservative Party. The Conservative Party obligingly cuts corporate taxation, allows big business to raise its prices, introduces legislation that keeps the wages of the workers down and then the companies get back a bigger return for their investment. When this subject is brought to light the reply is given that anyone who criticises Aims of Industry is a militant, an extremist or a Communist.
§ Mr. Costain
On a point of order, Mr. Deputy Speaker. If we are to debate Aims of Industry, would it be possible to 1032 have an extra hours extension so that we may be able to deal with it properly?
§ Mr. Deputy Speaker (Mr. E. L. Mallalieu)
Nothing that has been said so far has been out of order, and plainly what the right hon. Gentleman is saying is of interest to the House. The trouble is that it is a little difficult to hear.
§ Mr. Benn
I am not surprised that the hon. Member for Folkestone and Hythe (Mr. Costain) rose to his feet earlier and then sat down again. I am not surprised that he does not want to discuss Aims of Industry, because it is acutely embarrassing to him. He rose as if about to address the Chair, to preserve a place for another hon. Member temporarily out of the Chamber. I can understand his embarrassment.
I turn now to the actual framework of free enterprise which the Bill is supposed to preserve. No Government in British history have controlled capitalism more tightly than the present one. There has been the Industry Act, Rolls-Royce nationalisation, the Industrial Relations Act, the Fuel and Electricity Control Act, the Insurance Companies (Amendment) Act, the Counter-Inflation Act, the Price Commission, the Pay Board, the emergency powers. All of these have given Ministers greater powers over business decisions at every level and of every kind than they have ever had, even in war time. The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) has been known to utter words not very dissimilar from those. The control exercised by Ministers over the British economy is very great indeed.
There are many Committee points which we will raise if the Committee stage is held—which only a few Members believe will be the case. When we come to nominee holdings, insider dealings and the rights of workers, there will be a substantial number of amendments moved. What we are saying is that in our view the philosophical concept, the framework, within which the Bill has been placed, is, as my right hon. Friend the Member for Manchester, Cheetham said, totally unsatisfactory because it is still based, and I quoted his telling phrase, on Victorian concepts of the rôle of industry.
1033 One of the things which are becoming increasingly apparent, and this is why I spoke as I did earlier, is that the political and economic power of business now far exceeds that ever dreamed of by Adam Smith when he first wrote down his economic theories. Workers are realising that shareholders can move their money much more easily than the worker can transfer his skill. A far different framework is required if we are to make real progress.
In opening the debate my right hon. Friend advocated further consideration of the regulatory procedure. There is certainly a strong argument for an examination of the idea of a Companies and City Commission which might have some parallel with the SEC in the United States, and better staffed than the Department of Trade and Industry, which has been notably inadequate, maybe under all Governments, in dealing with this subject, at any rate to supervise the self-regulating bodies which must no doubt continue but which have not shown themselves to be capable of dealing with abuse. We want to explore that aspect in Committee.
I come now to the rôle of the worker in industry, of which there has been some discussion, although not much. The Government hinted that they would come forward with proposals and they are under a requirement to respond to the fifth directive of the EEC. Anyone who has followed this extremely important debate will have seen the various proposals that have come forward. One of the earliest was the Labour Party proposal of 1968 for single-channel bargaining, under which wage bargaining and consultation would be brought into the same ambit. That would in effect drive back the area of management prerogative. That was as far as we went at that time.
The Liberals have been in favour of workers' councils elected on an assembly basis separate from the trade unions. That, we believe, would be inadequate, because the trade unions represent an important part of existing worker power and to separate the one from the other would have no meaning. Others have advocated the presence of a worker on the board, but that is widely seen to be a piece of window-dressing. Others find the answer in co-ownership, but that has some dangers. If a worker invests his money in 1034 the firm in which he works and the firm goes bust, he can lose his pension, his savings and his job all at the same time.
The TUC has come out with a proposal for 50 per cent. worker representation on a supervisory board, which goes beyond co-determination on the German model. That is being discussed in the trade union movement. The Opposition are examining this problem and we shall come out with our own conclusions.
To speak of involvement or participation in the language of a good industrial relations officer who says "I want to involve my men, I want participation, I want consultation" is, in our judgment, simply not enough. In the twentieth century we are discussing nothing less than industrial enfranchisement with which a parallel can be drawn with nineteenth century political enfranchisement. The Opposition are discussing this not only with trade union leaders but also with shop stewards, who are an important part of the representative process in industry. We are asking them for their views and we are anxious to come forward with proposals that achieve a fundamental shift in power in the workshop.
§ Sir J. Rodgers rose——
§ Mr. Benn
The hon. Gentleman has been in the House as long as I have, if not longer. He knows as well as I do that according to Erskine May it is in order, in a Second Reading debate, to say what should be in the Bill.
Without some such change there will, among other things, be no satisfactory solution to the industrial relations problem. It is no use hon. Members and editors saying that they want responsibility in industry if power is not shared with the workers upon whose skill that industry depends. Even seen from a management point of view—which is not the viewpoint which primarily motivates everyone in this discussion—if we are to see an end to trench warfare in industry 1035 there must be an extension of the franchise in industry on the basis of a considerable reduction in management's rôle and a corresponding increase in the workers' rôle. That is the spirit in which we shall approach the problem.
If we look at the reality of the transfer of power, it is not by any means only the question of workers on the board that raises the whole question of disclosure. The House will recall that in both the temporary and the permanent legislation on counter-inflation we tabled amendments calling for massive disclosure by industry to its own workers. This related to labour turnover, manpower plans, details of absenteeism, sickness, accidents, accident-prevention plans, training schemes, recruitment, promotion, redundancy, distribution, sales, administration and production costs. We called for more details about profits, Government allowances, grants, unit costs, output per man, return on capital employed, and also more details concerning the worth of a company, the state of order books, trend of orders, proposed changes in location, work and labour requirements, trading plans, investment, research and purchasing policy.
In our view, one of the things that could be and must be done—and this would be more effective in rapidly changing the balance of power—would be a greater disclosure to workers and the public, but notably to workers.
§ Mr. Ridley
The right hon. Gentleman asked me to come back and justify my assertion about Socialist intentions for filling posts in public industry. I should like to quote from" The National Enterprise Board. Labour's Holding Company. Report of a Labour Party Study Group":An additional advantage of a full-blooded pursuit of industrial democracy is that it meets the need to ensure key influence to socialists who believe in the job that NEB is trying to do, and avoids total reliance on an existing managerial structure—a mistake made in the first excursions into nationalisation.That is the text, and I should be grateful if the right hon. Gentleman would defend it.
§ Mr. Benn
The hon. Gentleman provides me with that text, and I was on the committee that drafted it. In reading it he will notice that it wholly repudiates 1036 the point which he made earlier—namely, that the object of the exercise was for the Labour Government to place in power people who shared their view. [Interruption.] I hope that the House will allow me to make my point. I have been asked a fair question. We take the view that if the worker has greater power to decide about his own management, he will be more likely to get people who have an interest with him to join in the success of that management. That is what we said, and it is right.
I conclude by inviting the House to take a broader look at the industrial system so that we can set against it the provisions of the Bill. Some hon. Members have referred to the degree of concentration which has taken place in industry. The hon. and learned Member for Dover (Mr. Peter Rees), who is not now in the Chamber, referred to mergers and the tendency to monopoly. He rebuked the Labour Government for the part we played in some of these mergers. It is true that in Britain and elsewhere there is a tendency to a much more rapid concentration of industrial power. In 1900 the top 100 companies produced 15 per cent. of our output and by 1950 the figure had increased to 20 per cent., now, in 1974, the figure is 50 per cent. in terms of the top 100 companies, and by 1980 the figure will be 66 per cent.
§ Mr. Benn
It is a world movement which directly threatens the democratic process because the powers exercised by these companies are so great as to undermine the authority of Government. For this reason, among others, we have put forward proposals in our programme for powers under an Industry Act. Not one power in our legislation cannot find its parentage in legislation enacted by the present Conservative Government.
When I said earlier that the powers taken by the present Government provided a precedent for us, I meant that every one of the powers in the Industry Bill which we shall introduce come from, or can be connected convincingly and properly to, the legislation introduced by the present Government. We shall also introduce a system of planning agreements to acquire for the Government the knowledge of the corporate strategy of 1037 those companies, and we shall extend public ownership through the National Enterprise Board.
In talking about the top 100 companies of many hundreds of thousands, it leaves in a mixed economy a provision for an enormous majority—99 per cent. or more of the total number of companies—which would be remaining within the private sector. For these companies we want proper companies legislation which gives to the workers in those firms and to the community legitimate rights which are not guaranteed by this Bill. Therefore, though we shall not oppose it on Second Reading, we shall examine the Bill criticially, if this Parliament lasts more than another few days, and the incoming Labour Government will introduce legislation to deal with it properly.
§ 9.31 p.m.
§ The Minister for Trade and Consumer Affairs (Sir Geoffrey Howe)rose——
§ Mr. Milne
On a point of order, Mr. Deputy Speaker. I am sorry to delay the Minister, but in another place about 15 minutes ago the Minister responsible for the energy industries made a statement which greatly affects the people of this country. Cannot we have the same statement made in this House by the appropriate Minister?
§ Mr. Deputy Speaker
That is not a point of order for me. I cannot tell Ministers what statements to make.
§ Mr. William Rodgers
Further to that point of order, Mr. Deputy Speaker. Perhaps my hon. Friend the Member for Blyth (Mr. Milne) will tell the House what the issue is. That will enable us to known how to pursue it.
§ Sir G. Howe
I join all those hon. Members who have welcomed back the right hon. Member for Manchester, Cheetham (Mr. Harold Lever). I was touched, almost moved, by what the right hon. Member for Bristol, South-East (Mr. Benn) said about the domestic harmony and tranquillity which used to reign between them——
§ Sir G. Howe
—when they worked together in the Ministry of Technology. I 1038 can assure the right hon. Gentleman that my right hon. Friends and I share a comparable harmony, but that it still reigns between us.
One of the more candid and interesting observations in the debate came in the speech of the right hon. Member for Cheetham, who said that the House would have noticed that there can be differences of opinion even within the Labour Party. I thought that the word "even" was a graceful addition to the proposition.
The right hon. Member for Bristol, South-East then urged one of my hon. Friends not to drive a wedge between himself and the right hon. Member for Cheetham——
§ Sir G. Howe
The only explanation of the right hon. Gentleman's anxiety is that there is no wedge in the world wide enough to fit between the two of them.
The right hon. Member for Cheetham said that from his point of view there was nothing inherently wrong with private enterprise. In that approach he was supported by the hon. Member for Stockton-on-Tees (Mr. William Rodgers)——
§ Mr. William Rodgers
If the right hon. and learned Gentleman refers to my speech, he will find that I was highly critical of the Bill and expressed the view that the Opposition ought to divide the House against it.
§ Sir G. Howe
I appreciate that. But the fact remains that the hon. Member for Stockton-on-Tees joined the right hon. Member for Cheetham in accepting that private enterprise had a valuable rôle to play.
Let us contrast that approach with that of the right hon. Member for Bristol, South-East. Last autumn a document emerged from a group of authors in Bristol who were encouraged in their task by the right hon. Gentleman. It was entitled "A New Approach to Public Ownership". The Western Daily Press on 27th September last year reported thatMr. Benn told a Bristol Press conference yesterday that the plan was the most important idea to come out of the city in years.Considering the ideas that the right hon. Gentleman has generated from that 1039 hapless city, plainly it must be a remarkable document. Perhaps I might quote one paragraph from a summary of the text of it given in the Press:The idea would be to run the aircraft industry on the basic lines of a local authority.The short summary of the text of "A New Approach to Public Ownership" states:We reject Private Ownership—we reject the existing system of nationalisation—we reject the TUC proposals for the Public Sector. We reject Worker Directors, the essence of our system is that management is hired by the workers to run the industry".We now see why the biggest wedge in the world is needed between the two right hon. Members.
§ Mr. Benn
I am glad that the Minister has read the document because, as I said in the Western Daily Press, it is one of the most important to come out of Bristol for many years. However, he must acquit me of responsibility for it, because I did not attend the meetings at which it was drafted. The idea that the people hire and fire their management is the principle on which this House is founded. Even if there was a failure in 1970, it does not shake our confidence in the desirability of those with power being elected by those to whom they are responsible.
§ Sir G. Howe
The right hon. Gentleman's attitude to the document is curious. He started by disclaiming responsibility for authorship of it and ended by claiming credit for the ideas. His face shines out bright and clear from the Bristol evening newspapers, together with the authors, and he there appears to be accepting some responsibility for it.
There is a contrast between the one wing of the Labour Party which takes a benevolent, sensible view of private enterprise and the other wing which takes the view, which the right hon. Member for Bristol, South-East takes, aptly described in a different context by my right hon. Friend on Monday as being more absurd every day. One tries to analyse the thought processes which bring the right hon. Gentleman to this situation. His approach to the debate for the first half was almost paranoid. He looked and saw this 1040 American corporation—Ford, IBM, the oil companies and all organisations which apparently he would seek to drive away. Is he suffering from some sort of paranoia or perhaps from a different mental ailment?
In another passage in his speech, the right hon. Gentleman suggested that we were dominated by the sinister forces—the "Aims of Industry"—dedicated to extreme capitalism, and in the next breath he said that we were operating the most Socialist dirigiste administration which the country had seen. Which way does he want to face on that?
§ Mr. Dalyell
As we are being cosy and candid and talking about wings, on whose wing was the right hon. and learned Gentleman this morning—the Prime Minister's or Willie's?
§ Sir G. Howe
The hon. Gentleman must reserve his inquiries about that matter for another occasion.
The right hon. Member for Bristol, South-East suggested that managers in industry were more worried even than the workers about the way in which modern capitalism was working. There are many more managers in industry—many more workers, too—who lay awake more restlessly at night at the thought of being stalked by the right hon. Gentleman than by any number of take-over bids. We now have an insight into what makes the right hon. Gentleman tick. He is becoming increasingly restless at the thought that he may be stalked electorally in the not far distant future by a representative of the Democratic Labour Party in a seat which we are told is becoming increasingly insecure. We see at once an explanation for his somewhat frenzied approach tonight.
§ Sir G. Howe
Contrast the right hon. Gentleman's approach to the subject with 1041 ours—a coherent, philosophic approach outlined by my right hon. Friend the Secretary of State, founded on the central proposition that capitalism is and has been the best engine for prosperity for the people of this country, and that the limited liability company, for all its Victorian origins, is and has been an essential feature of, and the key to, the success of that system. It has fired the process of economic growth not only in this country but around the world. It is still as effective an agency now as it ever was.
It is part of the belief of our party, however, that that institution, like any other, needs continuous modernisation and improvement. That is what the Bill is about. It amounts in no sense, as was suggested by the hon. Member for Bradford, North (Mr. Ford), to an admission of guilt. For heaven's sake, if everything which the Labour Party held dear and sought to reform was suddenly to be tainted with guilt because the Labour Party had some ideas about it, we should be living in a strange society.
No more is it a Bill designed to give a superficial face-wash to capitalism. It is designed to make purposive and important reforms to that institution. It is part one of the programme for the reform of the agencies of capitalism, which has been welcomed by almost all hon. Members who have spoken, from both sides, and certainly by my hon. Friends. It has been described by my hon. Friends the Members for Bedford (Mr. Skeet) and for Basingstoke (Mr. David Mitchell) as an important piece of consolidation on these central institutions. Part of it has been aptly described by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) as "the rest of Jenkins." Much of it owes, as my hon. Friend said, a lot to his own paternity, and he is a good legislative father for an instrument of this kind. It contains, as well as the rest of Jenkins, major improvements in the administration of the machine which supervises companies. It improves our arrangements for returns and it raises penalties. It contains proposals for dealing with specific situations and specific abuses.
The Bill will help to make our capitalist system the most open in the Western world. Several hon. Members have spoken about the case for more fundamental reforms in the institutions 1042 of capitalism. The hon. and learned Member for Montgomery (Mr. Hooson) and others spoke of reforms which might be undertaken, regarding the relationship between employers and employees, in the context of company law. My hon. Friend the Member for Cirencester and Tewkesbury spoke of reforms which might be undertaken in relation to improving the management efficiency of companies. A number of my hon. Friends referred to the approaches which we might be making to the rôle of a two-tier board and the rôle of non-executive directors, and drew attention to the fact that those were not necessarily instruments for employee participation, although they have almost the same importance.
It is with all those that the Green Paper promised for later in the year will seek to deal. As my hon. and learned Friend the Member for Dover (Mr. Peter Rees) suggested, it could do much to improve the foundations of industrial relations in the wider sense.
One matter on which the debate has centred has been the subject of disclosure. The extent of the matters to be covered in that way are set out in Schedule 1. I cannot agree with my hon. Friend the Member for Cirencester and Tewkesbury that the proposals that are capable of being made under that schedule go too far for the largest corporate organisations in this country. Nor would I agree with the hon. Member for Oldham, West (Mr. Meacher) that the disclosure provisions of company law should seek to cover all the responsibilities—social, criminal and everything else—of corporate organisations. The scope which is provided for in the Bill is about right. It would not be sensible to accept the invitation of the hon. Member for Oldham, West, to go much further in pursuit of the multinational giants with which he is so concerned.
Paragraph 14 of the White Paper set out our reasons for believing that legislative provisions in relation to international enterprises should march reasonably hand in hand with comparable changes in other countries and set out how we were tryingto secure improvements in both the quality and the comparability of information available in all member countries of the EEC and of the OECD about the activities of international enterprises.1043 But to go further in some wild Socialistic impulse would only be to threaten the continued presence of these companies in our country.
A number of my hon. Friends suggested that the disclosure provisions might go too far for the smaller companies. They invited me to say where the line would be drawn, both as to the size of the small and large organisations and as to what would have to be disclosed. It would be wrong at this stage to be too precise either about what might be included in the disclosure regulations—we want to consult widely and reflect on what hon. Members say today and in Committee—and it would equally be wrong to be too precise and take a decision now on the criteria by which one would distinguish the large from the small—whether one rested primarily on number of employees or on turnover or on some other feature. But we shall be listening to the views expressed by hon. Members now and hereafter, both on what should be disclosed and by whom.
I hope that my hon. Friend will be comforted to know that we are most conscious of the need not to place unduly heavy burdens on the small private company. The closing sentence of paragraph 12 of the White Paper said:For smaller private companies the same levels of disclosure are not appropriate because there is no element of investment by the general public and the public interest is not involved to the same extent. For such companies also the burden of disclosure is greater and the commercial dangers may be greater.We certainly have very much in mind the points that my hon. Friends have made about that.
My hon. Friend the Member for Bedford asked whether there would be any change in the exemption for shipping companies and others with special problems. We are having discussions with interests of that kind and we are considering proposals. We recognise the special international character of shipping companies' operations and will certainly take that into account.
I hope, having made those important observations about our recognition of the points made by my hon. Friends, that they will agree that it would not be right to exempt the small private company from disclosure obligations altogether. After 1044 all, creditors, apart from anyone else, are interested in them. There are about 8,000 windings-up a year and about 3,000 companies find themselves unable to meet their liabilities in full.
Although I certainly recognise the value of the small company—as my hon. Friend the Member for Croydon, North-East (Mr. Weatherill) pointed out in a book some years back, called, if I remember correctly, "Acorns Into Oaks"—we must recognise that it enjoys a real privilege in the concept of limited liability.
§ Mr. David Mitchell
Is my right hon. and learned Friend really suggesting that, where a small company's accounts are filed perhaps 10 months after the end of the financial year, this has any reference at all to its financial ability to satisfy its creditors?
§ Sir G. Howe
The provisions placed upon small private companies are of value not only to creditors but to those who have to supervise and deal with them. Sad though it might be, one must recognise that small private companies are sometimes the seed beds not only of success but of failure and worse. That is why it would be wrong to exempt them altogether from provisions like this. However, I appreciate the force of my hon. Friend's point.
I also appreciate but cannot agree with my hon. Friend's point about the penalties being too severe for non-compliance with the account-filing obligations. I was grateful for the support of my hon. Friend the Member for Cirencester and Tewkesbury when he said that that was right. In the present situation, about half the companies on the register are out of compliance, partly because the law has not been clear. The Bill will now make the law clear. It is important to have those provisions and the law properly respected and to have the obligations regarded as serious ; that is what the Bill intends to make clear.
Of course I appreciate that directors will need to defend themselves in legitimate circumstances. I remind my hon. Friend that Clause 60 gives a defence for directors who have taken all reasonable steps to secure compliance, so it is intended to reach a balance of obligations.
My hon. Friend also mentioned inflation accounting. My right hon. Friend not 1045 long ago appointed a committee under the chairmanship of Mr. Francis Sandilands to look at that important question, and it will be proceeding urgently.
My hon. Friend also protested at the omission of no-par-value shares. We considered whether or not any provisions about them should be made, but it appears that public demand for that change is now much less than it was. It would involve complex provisions, and, even so, would not prevent the manipulation of deceptive percentages by reference to the issue price of no-par-value shares.
A number of hon. Members spoke about our posture in relation to nonvoting shares. My hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) and the right hon. Member for Manchester, Cheetham took the same view and tended to think that they were all right and should not be—[Interruption.] Jenkins was divided about it. We took the view that we should not lightly interfere in share structure, but we concluded that when one is dealing with companies proposing to make fresh issues a compromise made sense and that listed companies should not be able to issue new non-voting shares but existing ones should remain and that unlisted companies would have to enfranchise non-voting shareholders before they issued prospectuses inviting subscriptions from the public. That seems a reasonable compromise.
Another area which has caused a lot of discussion this evening has been in relation to insiders. The right hon. Member for Manchester, Cheetham tended not to like the proposals in relation to that ; he thought there might be an element of public relations about them. The hon. Member for West Lothian (Mr. Dalyell) and the hon. Member for Oldham, West and the right hon. Member for Bristol, South-East, I think, suggested they were too weak and did not go far enough. Some of my hon. Friends had anxieties about their going too far. We believe that in responding to the recommendations of many outside bodies, as we have done, we have reached about a right judgment. The Take-over Panel, the Stock Exchange and the City of London solicitors also thought so. Jenkins recommended a civil liability only, but that was some time ago.
§ Mr. Harold Lever
Would the right hon. and learned Gentleman tell me, in applauding his line of demarcation in this matter, whether he thinks seven years' penal servitude is a proper sentence or liability for any known case in this country of insider trading which has emerged so far?
§ Sir G. Howe
Who are the Victorians now? Penal servitude went out quite a long time ago. The penalty is a maximum penalty. The offence is also summarily triable and can only be brought before the court with the consent of the Secretary of State or the Director of Public Prosecutions. By way of parallel, obtaining property by deception, which can be a very modest offence, but is comparable to insider dealings, carries a maximum penalty of 10 years. So it is not out of the way, and it demonstrates our determination to deal with some of the people it has been thought we should deal with.
My hon. Friend the Member for Bedford asked whether employees' shares would be caught by this. The anwer is that employees will be so caught only if they fall within all the provisions ; they must have had inside knowledge and have used it in breach of the statute. He also asked if a civil claim could be brought even if no conviction were registered. The answer is "Yes", if the facts can be proved.
The hon. Member for Oldham, West suggested that the provisions were weak because they involved reliance on the Stock Exchange. That is not the position. Clause 15(5) allows us to appoint inspectors to inquire into cases of this kind, and Clause 71 gives the inspectors power to require anybody to produce papers before any such inquiry.
The hon. Member for Stockton-on-Tees asked a question about pension fund managers. A pension fund manager is exempt only if he deals bona fide for purposes of the pension fund, and there is no general loophole there.
The hon. Member for Oldham, West suggested that the nominee shareholding provisions could frustrate them, but I would contrast his views with that of the right hon. Member for Cheetham who thought that there was a good deal to be said for nominee shareholders and found 1047 himself in a somewhat odd agreement with my hon. and learned Friend the Member for Dover whose general support I welcomed. Once again we have the contrast between the two right hon. Members on the Opposition Front Bench.
A number of my hon. Friends particularly will welcome our provisions in relation to directors' interests. They recognise that they have to be very carefully considered. My hon. Friend the Member for South Angus gave these provisions a particular welcome, but a number of hon. Members drew attention to the extent to which they might go further than was ultimately necessary. I agree that these provisions need to be carefully considered.
My right hon. Friend the Secretary of State justified Clause 45, but, clearly, we shall be prepared to consider whether any kind of exemption for legitimate transactions of the kind mentioned by my hon. Friend the Member for Bedford can be devised. It might not be easy. We shall also consider the point about capital gains tax that was made by my hon. Friend the Member for Basingstoke.
My hon. Friend the Member for Bedford referred to giving particulars of directors on business notepaper. The new position will not be any more onerous than the present one. Almost all the exemptions now granted are for subsidiaries or companies formed for useful objects licensed and allowed to omit "limited" from their names or companies formed for charitable purposes. Under Clause 56(2) they will secure automatic exemption, with less administration, which is an important point.
The hon. Member for Bradford, North (Mr. Ford) referred to a matter that he has raised on previous occasions, about the Association of International Accountants. We believe that it is important to have highly qualified people for the tasks to which he referred. There is no lack of qualified auditors who are members of the bodies listed in Clause 64. We have power to add to those bodies by order.
I hope that I have dealt with most, if not all, of the points of detail that have been raised in the debate. I now come back to more general points.
1048 First, there is the suggestion by hon. Gentlemen opposite that we should have something in the nature of a Securities and Exchange Commission to supervise corporate activity in this country. Advocates of that approach have not shown how a totally different system would diminish the ingenuity of the fraudsmen whom we are hoping to catch. The present liberal and open system, supported by substantial powers, is likely to be more effective and in keeping with the British tradition than the establishment of a costly independent enforcement agency. If we tried to set up an SEC, its powers would need to be closely defined. They might not be as effective or flexible as those of the City and would, therefore, weaken the feeling of responsibility which the City and the professions have for their own institutions as well as perhaps weakening the responsibility of Ministers in such matters.
I turn now to the wider suggestion, following the proposals made by the right hon. Members for Cheetham and Bristol, South-East, for a National Enterprise Board. I cannot believe that that would represent a solution to this problem. Looking at the problems that all Governments have faced with the power of supervising the public sector, and having witnessed the difficulty of supervising even the investment plans of the small number of industries in public ownership in line with plain statutory provisions using public money, one shrinks with horror from the idea of a comparable organisation being set up to undertake detailed supervisory activity over the whole of the private sector. The Bill makes the changes that are necessary to secure the health of that sector.
The affairs of the overwhelming majority of companies are run honestly, conscientiously and effectively. Those companies perform a vital and irreplaceable rôle in our commercial and social fabric. The Bill will enable them to continue to do so and to be seen to do so.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee pursuant to Standing Order No. 40 (Committal of Bills).