§ 3.54 p.m.
§ Sir Brandon Rhys Williams (Kensington)I beg to move,
That leave be given to bring in a Bill to make provision for the responsibilities and duties of directors; to require certain companies to appoint non-executive directors; to require such directors to make an annual statement to the shareholders; and for purposes connected therewith.
This is the eighth occasion on which I have sought leave to bring in a Bill to reform company law, and on each occasion I have enjoyed support in all parts of the House.
Inside the House, and also outside it, there is a growing body of opinion in favour of reform of the British version of the joint stock company. I worked on a salary for 20 years before I had the honour to be elected to Parliament, and I still have a clear idea of the frustrations and the problems of many of the people who work in joint stock companies in Britain.
I have always believed and still maintain that there is nothing essentially wrong with British management or with the British work force, but there are serious difficulties arising from the way they are organised. I do not believe that the British version of the joint stock company is by any means ideal.
People studying this subject are concentrating increasingly on two particular lines of approach. One is to make better arrangements for participation at works level, which I entirely support, although it is quite outside the scope of the Bill which I am seeking to introduce today. The other line of advance is in favour of more effective supervision of top management. With every day that passes, it becomes more obvious how necessary this is.
The Bill which I seek to introduce would apply to about 1,000 of the largest quoted companies—that is to say, employing at least 1,500 people or with assets of not less than £5 million. It would not, therefore, be a vexatious measures which would harass very small businesses and private companies. On the other hand, these large companies are not all within reach of the observation of the Press or of the institutions or of their own shareholders, and it seems clear 391 that there is a gap in the supervisory structure.
My Bill would require all these companies to have at least three non-executive directors. That is not a very big step forward, because surveys have shown that for the most part they have at least one as things are, and the majority probably have two or three non-executive directors already.
What makes the Bill somewhat controversial is my second provision, which is that the non-executive directors must have a specific function. I do not greatly care what that specific function is, provided that it enables them to exercise rights in the board room and to force the attention of management to their inquiries and anxieties. The specific function which I have incorporated in the Bill in earlier years, and which I believe is the best and easiest to define, is simply that the non-executive directors must confirm their confidence in the company's management and the use of the assets annually in the balance sheet. Should a non-executive director feel any anxiety, he would need only to express his intention to withhold his signature from that formal note of approval. I am certain that at that point his colleagues on the board or in the senior management would wish to pay attention to what he had to say.
Lately there has been a good deal of criticism—whether justified or not I would not like to say—of the performance of non-executive directors in companies which have run into serious difficulties. This seems to me the best reason of all for giving them more status by a change in company law. I should like to expand the rôle of the non-executive directors so as to constitute an effective management audit. A hundred years ago, when the idea of the audit was brought in—that is to say, the introduction of experts in financial affairs to report over the heads of the management directly to the shareholders—company law reform on the Continent took a slightly different turn. This was particularly the case in Germany, where there was the development of the idea of the supervisory board. I am not convinced that we are ready to go straight to the supervisory board in this country: I do not think we yet have enough people 392 who quite understand the etiquette of the operation of the supervisory board. But I think that we can fruitfully build on what we have in the non-executive directors of our larger companies.
Three objections have been raised on previous occasions to the idea of my Bill, and I should like to deal briefly with them. The first objection is that it would split the board into executive and non-executive elements, which would be bad for the unity and continuity of management. I would not mind if there were a tendency to divide the board into executive and non-executive rôles. I believe that it is a necessary transition and would certainly not be harmful.
Objection has also been raised that, non-executive directors having no power, to put more responsibility upon them is anomalous because they have no way of carrying out their functions. I do not agree with that. I am sure that if non-executive directors were exposed more openly to criticism when they failed, they would see to it that they did have the power to investigate the way in which the company was operated.
The third objection is that not enough of the right people are available. I would strongly deny that view. British industry produces every year a large surplus of experienced and highly-qualified people in their forties and fifties who, because of the structure of their companies or through reasons of social or technical change, find that they can go no further in their firms. If such people were to be encouraged to see themselves continuing their career in a supervisory rôle, they could prepare themselves for it and would soon be able to carry it out effectively.
I have said on many occasions in the past that the British version of the joint stock company can be a sick organism. It behoves us in this House not to leave companies in their difficulties by discussing this subject year after year in a desultory way but at the same time taking no action over the situation.
I do not think that the Government have the intention of introducing a Companies Bill of their own in the present Session, and I trust that they will give serious consideration to the ideas I am proposing in my Bill. I hope that there will be no objection from the Government Front Bench to my Bill receiving 393 a Second Reading if I obtain leave to introduce it today. I believe that it would be fruitful for hon. Members with experience and a serious interest in company law to hold a Committee stage to discuss the subject of the supervision of top management and that my Bill would provide a useful vehicle for such a Committee. I therefore ask the Government not to oppose the matter on principle at this stage. Even though my humble suggestions may not be ideal, the problem is real and as a House we should be working actively to solve it.
§ Question put and agreed to.
§ Bill ordered to be brought in by Sir Brandon Rhys Williams, Mr. Sydney Bid well, Mr. John Cope, Mr. David Crouch, Mr. Hugh Dykes, Mr. Robert Edwards, Mr. R. A. McCrindle, Mr. Tom Normanton, Mr. John Pardoe, Mr. David Price, Mr. Tim Rathbone and Sir John Rodgers.