§ Mr. Bob Cryer: (Keighley)
I welcome this opportunity to initiate again a debate about a Department of Trade report. I express my thanks to my hon. Friend the Under-Secretary of State for Trade, who is here in the early hours of the morning to discuss the issue.
When the Department produces such reports, some of which are extremely good, Parliament should take the trouble to debate them. I want to refer to one such report, in addition to the one that is the subject matter of this debate. Such debates as this should be initiated by the Government. These matters should not be left to be raised on the Consolidated Fund Bill. The last time there was a debate on a Department of Trade report was on 4 August 1976, when I initiated a similar debate on the Lonrho report.
I am sorry that some of those hon. Members who expressed concern when the Peachey report came out are not here tonight. I understand that they have many, no doubt pressing, commitments, but these issues must be faced and debated. The House should seek a more general opportunity than the Consolidated Fund Bill debate.
The Peachey report is rather mild. Even the authors anticipated, in paragraph 26, its being called a whitewash. The only person who is criticised is Sir Eric Miller. In paragraph 32 we read that he wasguilty, at the very least, of most grave wrongdoing.Unfortunately, Sir Eric Miller is conveniently dead. His death is extremely convenient for many people, because it appears that he is the only person who is to any degree culpable within the Peachey company. Nor does the report shed much light on how the whole system operated-The inspectors take the view—their analysis is not particularly penetrating—that everybody was subordinate to the whiz-kid Sir Eric Miller.
The directors are all acquitted of any responsibility. The report is careful to point out that the non-executive directors were rubbing along on only £4,000 a year in 1976, plus a company car. It is worth 934 making a comparison here with people who are making claims for much smaller sums but who are exercising important responsibilities.
Having said that the directors were not responsible for the misdeeds, the inspectors point out that the people lower down the ladder were not responsible for any misdeeds. In paragraph 77 they refer to a Mr. H. T. James and say that he wasin his own words, ' quite well down the ladder ', and we do not criticise him for falling in with a system which was known to and tacitly approved by directors and other senior employees, but personally operated by the chairman, and chief executive ".But if the directors did not have some measure of responsibility, who did in this company? It seems that every employee can simply shrug off the degree of responsibility which should be ascribed to him.
One of the features of the Peachey report and the reason why it attracted such wide publicity was that it revealed a lavish life-style which only surfaces now and again in the gossip columns of the daily newspapers. It affronted people because they saw two standards.
Of course, it may be argued, and no doubt is argued in many places—notably in and about the cocktail bars of May-fair—that if all the Miller and the Peachey wealth were distributed it would mean just a tiny amount to all those who are concerned and grumbling about it. That is not the issue. The issue is one of justice and fairness. If, for example, ordinary working people are asked to undertake three years of wage restraint, the whole of society should make the sacrifice, not just the ordinary workers, with exemptions for the high-living elite of society who can ignore the general sacrifices which have to be made in a difficult economic situation.
When ambulance men, nurses and lorry drivers make claims, they do so in the knowledge that unless and until they press their claims their worth in society will be ignored, because we live in a society in which a tiny inward-looking elite group look at themselves and say"In our view we are worth x thousands of pounds a year "—£20,000, £30,000 or £40,000. I shall come to specific examples of that covered by the Peachey report.
935 That attitude is understood and seems to be accepted in certain quarters. Many people talk about the executive market place, saying that talent and ability are available only at so many thousands of pounds a year, because ability and greed go hand in hand and a person has no commitment to exercise that talent and ability except on the basis of financial gain. That is why lorry drivers say that they have to demonstrate their importance to society through strike action.
That is what has happened. It has happened with the ambulance men. It has happened with the Health Service workers. It has happened with the local authority workers. Happily, in many of those areas settlements have been achieved, but in the background the stark contrast between a tiny group in society and ordinary working men and women is felt bitterly and grievously, and the Peachey report emphasised the position of these two strata of society.
The report states that these relatively highly paid people—the executive and non-executive directors—were overwhelmed by Sir Eric Miller's personality and were not to blame. One of the characteristics of a hierarchical society such as this is that the higher one goes the more responsibility one has. This is reflected in the amount of money one receives. The report states that Mr. Whitehill, a financial consultant, received a retainer of £20,000 per annum. From June 1975 this was increased to not less than £27,000 per annum. He was then told by the chairman to have nothing further to do with the accounts and to stay away. I find it extraordinary that a person should receive a pay increase of that astronomical size and be told to have nothing further to do with the accounts. But the conclusion of the investigators is that he had no duty to reveal any doubts that he had about the probity of some of the chairman's actions.
The company secretary, Mr. Wall, received a similar sum. He, too, is not exactly criticised in depth by the report. Paragraph 510 states that Mr. Whitehillprobably owed no duty in law to disclose his suspicions or beliefs ".That is an example of the nation's double standards.
936 When Liverpool gravediggers want to demonstrate their importance and their right to earn £45 or £50 a week and they stay away from work, a different standard is adopted by the House. I can remember the serried ranks of Conservatives—and one or two of my hon. Friends, unfortunately—standing up in total condemnation of ordinary workers who were demonstrating their importance to society. There was no question but that there was a degree of duty in law to put the bodies in the graves. That was said repeatedly. The Opposition are talking of taking legal action against certain trade unionists, but the Leader of the Opposition has not requested legal remedies for the deficiencies revealed in the Peachey report.
It is extraordinary that a man should be paid £27,000 in one year—a sum which the ordinary worker would take 10 years to earn. It is not surprising that people feel deeply outraged that an official report says that for this money no significant responsibility accrues and that there is no duty in law for that man to disclose his suspicions or beliefs.
Paragraph 513 states:Mr. Wall was in a strange position: others might have acted differently ".That is hardly a critical comment about a company secretary when the chairman was busy using the company funds as if they were in his own private bank.
What about the auditors? Under our system, nationally known auditing partnerships investigate a company's books. They are supposed to reveal deficiencies of the type which occurred. The auditors also come off pretty lightly. The report says in paragraph 80:At the outset we feel that we must dispose of a matter concerning PPC and PW which was given prominence in the Press. This was the acquisition by PW of the offices which they presently occupy, Southwark Towers, London Bridge Street, London, SE1. This property stands on property owned by British Rail, a long lease of which was negotiated by Peachey in 1972. It was the original intention that Peachey should retain a share in the main lease although this was later changed so that their share was bought out by PW who now own the whole lease. PW were independently advised throughout by an independent firm of estate agents and we are satisfied that the transaction was concluded on an arm's length basis so that there could be no possibility of any element of bounty or kindness of PPC to PW. Peachey have no continuing interest in the building.It would have been useful if the inspectors had obtained a statement from the estate agents and incorporated it in the 937 appendices, or some further evidence, to show why they were satisfied about the nature of the transaction and the conclusion. They could have obtained further evidence which showed why they were satisfied with the nature of the transaction. Price Waterhouse signed accounts when three items of the banking subsidiary of Peachey, Anthony Hutley and Partners, had not been verified. They were not insignificant sums. They were the Lewis Altman loan of £70,000, the Keyser Ullmann deposit of £30,000 and the Asprey necklace of £65,000. These totalled £265,000, which was just under half the profit which had accrued to the company in 1976.
That is not an insignificant sum which the auditors could ignore. Paragraph 519 says:A purist might criticise him "—that is the Price Waterhouse auditor who signed the accounts.As realists, we do not.If auditors are to fulfil their function, I would have thought that significant sums such as this would not be ignored. It seems that £250,000 is a reasonably significant sum, even within the turnover of the Peachey Property Corporation. When it was drawn to the attention of the auditor that there was no verification of these items, something should have been done.
I find the report disappointing in that it does not react strongly enough to that omission by the auditors. If we are to have sound company accounting, we have to rely on auditors acting with complete, utter and ruthless probity. The fact that auditors behaved in that way would be an important deterrent to the Eric Millers of this world. It would help to prevent them from altering accounts and presenting one account as if it was part of a company account when in reality it was a private account. That is the sort of conclusion that the report ought to have reached but unfortunately did not.
Distinguished people were not to be blamed for anything, either. Tommy Trinder got a loan of £10,000, the source of which was never questioned. I have at the back of my mind the thought that when a man receives a packet of nylon stockings, nylon tights or whatever, and says"I got them from a man in a pub and I cannot remember his name ", by 938 and large that sort of explanation is not accepted. We view the matter somewhat more critically. I would have thought that when people are in receipt of £10,000 there ought to be a shade more scrutiny over the receipt of that money.
Other people who should have known a good deal better got involved with this rather grubby little man, the late Sir Eric Miller. The 1976 resignation honours list is something that we all prefer to forget—as Interpol scours the world for some of its recipients. In my view it would be better for the Labour movement to distance itself from that sort of thing and get rid of the lords and the knights, so that it cannot be said that such baubles are handed out to this, or any, type of person.
As a general rule, the Labour Party should say that no Labour Member of Parliament should accept gifts of any sort worth more than £30. I would accept the same rule for Back Benchers as that by which Ministers have to abide. We ought to say clearly that Labour Members of Parliament should not have directorships. I do not lay down these rules for the Conservatives because presumably they make their own, and I expect them to be greedy in any case. That is part of their philosophy. The Labour Party should say that no directorships or parliamentary advisory posts should be undertaken by Labour Members. We are sent here by working people to represent the values of the Labour movement, which is an idealistic movement. The people expect us to behave with some degree of idealism at least. As a general rule, we should keep our distance from the world of conspicuous consumption that is outlined in the Peachey report, whether it is champagne, cars or such like.
What were the directors who were not to blame—the company secretary and the company financial consultant—approving in a rubber stamp fashion? The words"rubber stamp"are used in the report. Between January 1973 and September 1976, £26,860 went on Miller's personal hotel accommodation. Between 1970 and1977, at the Churchill hotel, Miller's guests cost £35,521. On page 95, one wit ness, the financial consultant, Mr White- hill, spoke of £100,000 spent at the Churchill hotel. Between 1971 and 1973 the company approved a total of £72,741 for yacht hire for a summer family holiday. The yacht holidays provided for the 939 chairman in the Mediterranean were approved by the company on the pretext that they enhanced the company's business. The report is very weak when it suggests that the company should spend this sort of money—there are slight words of criticism in the report—without pointing firmly at the directors who approved that sort of expenditure. It was clearly a gift horse to Sir Eric Miller to spend a total of £72,000 with the very dubious and vague possibility that one or two potential customers or contacts might be dropping in for"drinkies"on a yacht in the Mediterranean.
The life-style which that denotes is vigorously repudiated by many of us and resented by many working people who are having to eke out a difficult livelihood, particularly the low paid, on wages of £40 or £50 a week.
Appendix C of the report shows, between 1966 and 1976, gifts and gratuities amounting to £310,975. Paragraph 272 makes some mild criticism of these sorts of activities. Sir Eric Miller was using Peachey as a private bank and was involved in a number of subterfuges in order to disguise this from his directors. The combination of inertia by the directors and lack of zest by the auditors allowed him to get away with it for a considerable time. It is an interesting speculation whether, had Sir Eric Miller lived, charges of conspiracy could have been brought against him and other people involved in the company as a result of the expenditure of these moneys, some of which were not authorised by the company and some of which were.
The suspicion is that the directors and the consultants were living too well and too comfortably to disturb things and that this was really the reason why they were not prepared to put up a fight. I am not saying that they were directly benefiting from some of the payments that were made. But there were benefits. The consultants were receiving a substantial remuneration of £27,000 a year. Perhaps there was a feeling that this should go on and that it was wrong to rock the boat and disturb the situation.
On the question of gifts, Miller splashed around a good deal. I raised a question with the Minister of State, Civil Service Department, because a silver chess set was given to the wife of a Minister, the 940 late Mr. Reginald Maudling. In reply my right hon. Friend said:It is a well-established and recognised rule that no Minister or civil servant should accept gifts or services which would, or might appear to, place him under an obligation to any member of the public or organisation with whom he is brought into contact. Although the guidance given to Ministers, unlike the rules for civil servants, does not explicitly mention gifts to a Minister's family, the same principles apply in both cases to gifts to wives."—[Official Report, 8 February 1979; Vol. 962, c.244.]It might be prudent in the circumstances to pass the silver chess set, which is worth about £3,000 to an organisation such as the Child Poverty Action Group, where the money would come in extremely useful.
It would be helpful if my hon. Friend would consider placing a limit on company gifts in much the same way as a Minister is limited by gifts. The general rule currently is that a gift of £30 is the limit. If a gift is worth more, the Minister has to pay the balance or pass the gift on to the Department. That sort of limit, with the sanction to impose it, would be helpful in getting rid of a sleazy, shady area that keeps bubbling up in the various company reports that the Department of Trade produces.
Gifts are provided not because of a sense of charity on the part of company directors but because people want to place others under an obligation. That is why there is a rule limiting Ministers' gifts. That rule was introduced because of the Poulson scandal, when it was discovered that Poulson was in the habit of passing gifts around lavishly and on a wide basis. To avoid any breath of suspicion, it might as well be useful to consider the possibility of imposing that sort of limitation. When the activities within a company such as Peachey come bubbling to the surface, the question is asked"How many other board rooms are tainted?"
Gifts were lavishly scattered around by the recipients of the Crown Agents' largess. It was difficult to prove that that resulted in loans being advanced by the Crown Agents, but by some strange chance the gifts that were made were always from the recipients of considerable advances from the Crown Agents. It would be beneficial to consider the action that I have suggested and to consider introducing legislation.
941 The Peachey report should produce results. It should not merely be debated. I hope my hon. Friend will be able to confirm that action will be taken to tighten up auditing and the relationship between companies and directors. In answer to a question on 12 March, my right hon. Friend the Secretary of State for Trade stated:In the light of the inspectors' report into earlier events in that company, I have concluded that it would be desirable further to strengthen the law on financial transactions between companies and their directors. Appropriate amendments will be tabled to the Companies Bill."—[Official Report, 12 March 1979; Vol. 964, c.30.]I understand that the Department of Prices and Consumer Protection has made a recent announcement that is in today's Financial Times. The effect of it is that it is examining the credit that is being provided by companies to their directors. Perhaps my hon. Friend will be able to clarify the precise proposals that are to be introduced.
Although I am critical of the Peachey report, I am by no means critical of departmental reports in general because they perform a valuable function. However, we must not let such reports gather dust. If they are to have any value, some action must be taken.
Peachey showed a sordid side of capitalism. In my view, the Peachey report is a poor one. I wish to make a brief comparison with the Lonrho report, which was a classic of its type. We debated the matter on 4 August 1976. The Lonrho report also threw up a story of deceit, falsification and concealing information from shareholders. Information which should have been included by law was excluded from circulars.
Let me remind the House of what transpired in that debate. I said:So there were people engaged in concealing from the company accounts a payment of £130,000.Tiny himself, the anti-hero of our drama, was questioned in paragraph 7.47, as follows:' Therefore, you are committing the company to a six-year contract at £50,000 a year but not telling anybody about it? ' He replied:' Well I plead guilty to that one because at that stage I was so keen to get Mr. Sandys as Chairman that I agree that I would have done everything possible—this is what I said to him,"I will do everything possible, Duncan, to let this agreement go for the full five or six years on condition, firstly, I am still at 942 Lonhro in this position and, secondly, that you continue to work for the company effectively." ' ".I pointed out that there were three prominent people who were busily engaged in concealing information from shareholders. The Lonrho report pointed out the adept way in which those people used tax havens in the Channel Islands to their advantage. I hope that the Minister will say that something will be done to stop up these havens. I know that representatives from the Labour Party have been to the Channel Islands to examine the position there. Because such abuse is now so regular and apparent, I believe that now that we have the Peachey report before us, two-and-a-half years after publication of the Lonrho report, we should be told that some action is contemplated to stop up the tax dodges in the Channel Islands operated by nefarious persons.
Other examples of breaches of the law were mentioned in that debate. Page 519 of the Lonrho report contained the following passage:It is our view that the explanation finally incorporated in the directors' report did not give shareholders a fair explanation of what had happened. In particular the omission of the last sentence of the draft left shareholders unaware of the manner in which Mr. Rowland's unlawful loan account had been expunged.I told the House in that debate:That is the extraordinary story of this shabby and sorry saga. I hope that my hon. Friend will bear in mind that what is needed is for the DPP to take a close look at this—in fact, I know that that is happening. He should not be intimidated by the fact that some of these people are in important positions. The Director should undertake prosecutions as and where necessary, because that is in the interests of justice."—[Official Report, 4 August 1976; Vol, 916, c. 2027–34.]I know that this is not a matter for my hon. Friend, but I find it quite extraordinary that the Attorney-General should study the matter for more than two years and yet not take any action. That is why I look forward eagerly to hearing the Under-Secretary's reply about the consequences of the Peachey report. It is dispiriting to initiate a debate and find two and a half years later that absolutely nothing has been done about Lonrho and that people in very high places appear to have got off scot free.
I want to be able to answer criticisms that there is one rule for the high and mighty in the land and another for the 943 ordinary person. The ABC trial initiated by the Attorney-General was a complete fiasco and a waste of taxpayers' money. I should have thought that he would have done better to turn his attention to the Lonrho report than to take action against two journalists and a social worker.
The background of this is very important. Only today we read that Lonrho has made a bid for SUITS, and that the Monopolies and Mergers Commission has reported that the bid is not against the public interest. I am concerned about this.
In our debate two years ago, a number of serious matters were brought to light—not only the breaches of company legislation, which are bad enough, but the fact that the principal of Lonrho, Mr. Rowland, made threats against a Member of this House and against a Department of Trade inspector. I quote from page 655 of the report when Mr. Heyman, one of the inspectors who did a good job on this report, was questioning Rowland. Mr. Rowland said:It is not a bad company. I am not suggesting you should buy shares in it, but it is not a bad company. It has a super future, unless you want to kill it. I can see things that this company can do that you cannot perhaps see. You see, Mr Heyman, the past, and I have got an idea what the future could be depending on whether you want to kill it. But, by God, it has got one thing, and that is it has got a protector, and that is me. In other words anybody who wants to kill that company has got to have a sub-machine gun, mortars, guns, all sorts of ammunition, because I am going to protect it to the bitter end. Believe me, Mr Heyman, in me you have got somebody you have got to fight when it comes to Lonrho.That was a curious mixture of similes used by Mr Rowland, coupled with his very aggressive manner throughout the whole report and aggressive attitude to a number of people, described vividly by the inspectors.
I wonder whether this collection of people who have been shown to be lawbreakers, with certainly a tendency towards violence, should be allowed loose in Scotland. They will be in a position of considerable commercial involvement, and will have ownership of a significant proportion of the press there. We should have a very careful examination of the sort of people involved to see whether they are fit and proper to extend their influence.
944 The two reports I have mentioned demonstrate clearly that capitalism is a powerful force for the encouragement of greed and corruption unless it is extremely carefully monitored and controlled. A Labour Government must be seen to act against such people and activities.
I want to see a tightening of company legislation. I have already raised this matter. I hope that the Minister will outline where the amendments to the current company legislation will be made. Prosecutions should be undertaken where necessary.
We must ensure that none of this undesirable activity goes on in our mammoth corporations, which have more economic power than many small Governments. That is where the arrogance of people such as Tiny Rowland develops. We must institute planning agreements to ensure that corporations work in conformity with the national interest and not in their own narrow interest or what they see as the shareholders' interest. An example of this is provided by the way in which Thorn works. I do not associate Thorn with Peachey or Lonrho.
We know very little about what goes on in company board rooms, which are closed to the outside. We get inside only as observers, either as members of the public or as public representatives, when a crisis develops. Thorn makes vast profits. It closes down factories arbitrarily, as it did in Bradford, and appears to behave in an economic way which is entirely against the interests of the nation. Yet it is not called to account. We must call these companies to account—but not only in a crisis where, as a result of a court action or a revelation leaked to a newspaper, board room corruption is revealed.
We should introduce industrial democracy as a matter of urgency. It is for my hon. Friend, in conjunction with the Department of Industry, to ensure that the books are opened to workers. Workers employed by Peachey and Lonrho—in the Peachey report the inspectors gave examples of many who had given much loyal service to their companies—are deeply offended by the malpractices that take place. It is important to open the books to the workers. The intimidation that appears to have been generated by Sir Eric Miller resulted in a craven bunch of inert directors and 945 people who were simply not prepared to stand up and argue against the chairman on the certain facts. That situation would not occur if the books were opened to inspection. The activities revealed in the Peachey report were possible because the world of the board room is closed and is not subject to scrutiny, except auditing scrutiny. In any case, the report points out that the auditing scrutiny is not always satisfactory.
It is an old cliché that the workers of the world create the wealth. They have a right to know what is going on within the board room. We understand that there are questions of commercial confidence. That problem must be solved. But it is not impossible of solution if the will is there. That opportunity, if given to the workers, will act as an important check against malpractice. We must go forward. The check must be available as a right and not at the discretion of the board.
The tightening up of auditing procedure is important. The auditors get off almost scot free in this report. That is not good enough. Companies, the people who work for them, the Government and the national interest depend heavily on the probity, efficiency and effectiveness of auditors.
We must ensure a full sense of responsibility on the part of company directors and consultants. I cannot accept that people earning £27,000 a year have no area of responsibility. We must look into that. I hope that my hon. Friend will bring these comments to the attention of the Department of Employment. We must, either under the company legislation or the Employment Protection Act, ensure that there is an obligation on consultants to work in the fullest and best interests of the community as a whole, including the companies. We should introduce limits on gifts to and from company directors.
In my view, we ought to ensure that senior civil servants are kept well away from company board rooms, because that is an area where the influence brought about by accepting the values of capitalism can become all too persuasive and all too pervasive. The blame can very easily be put on the backs of trade unionists when the real problem is that the attitudes of the board room prevail within the circles of senior civil servants.
946 One can point to the example of Sir Anthony Part. When he left the Department of Industry he leapt eagerly into a number of board rooms, including that of Lucas Aerospace. The workers there feel very resentful that this should have happened, because they would claim, with some justification, that the Department was not the most enthusiastic supporter of the trade unionists' combine development plan. They feel that there may well be a connection between the two things.
In order to ensure complete impartiality and the removal of the suspicion that a permanent secretary can prepare the way for his retirement with two or three comfortable directorships, our Labour Government must make clear that the transition from retired civil servant to board room is at an end. We ought to extend the boundaries of public ownership so that the commanding heights of the economy are brought into public ownership. That is one of the important answers to the over-mighty corporations which look inwardly and where the tiny groups of people in control owe no responsibility to the community at large. They must be brought into public ownership under workers' control, so that the behind-closed-doors secrecy and the lining of pockets through the abuse of funds, which occurred in Peachey and in Lonrho, are ended. This is an evolving position. I am not suggesting that companies such as Peachey are necessarily on the commanding heights, but clearly Lonrho is assuming a commanding position, and it should therefore be a candidate for public ownership so that we can ensure that it acts in the public interest.
We ought seriously to consider having regular debates in the House on issues of this sort. When the Peachey report came out, I was asked repeatedly by the media"Will you press for a further inquiry?"There is not much point in having a further inquiry without debating the inquiry that we have had already. The House of Commons is the most important assembly in the country. If we do not take action, why should there be pressure for further inquiries, further action and further legislation arising out of the reports which have been presented to Parliament? My answer at that stage was that Parliament itself is a protection, 947 by virtue of the publicity, by virtue of the analysis and by virtue of the pressure on the Ministers and on the Government to get something done when omissions and inefficiencies are revealed.
I have not noted that the Public Accounts Committee has been pressing for debates on this important matter or urging that there should be a wide-ranging examination of the probity and conduct of important public and private companies. There should be further regular debates. These matters should not be left simply to Back Benchers who manage to get the fourteenth place in the Consolidated Fund debate.
I hope that my hon. Friend the Minister will send a copy of the report to the Lord President of the Council, with the message that, no matter who may be involved in reports of this kind, whether they are members of the Conservative Party or members of the Labour Party, we are concerned not with doing a little bit of smearing but with finding out the cause of the wrong, analysing the position, and seeking remedies so that we can ensure that decent standards apply in the board room. When the senses of ordinary men and women are outraged about matters of this sort, people ought to be able to look to Parliament and to know that Parliament is taking action, so that the tiny, wealthy elite who are the cause of these reports are made to act decently and honourably on behalf of the nation rather than acting purely on their own behalf.
§ 4 am
§ The Under-Secretary of State for Trade (Mr. Clinton Davis)
I congratulate my hon. Friend the Member for Keighley (Mr. Cryer) on initiating important debates on the last two Consolidated Fund Bills and I share his regret that they have taken place at inconvenient hours. He rose to speak at 8.6 a.m. on the last occasion, and this debate is taking place at an even more inconvenient time.
It is not for me to decide how the business of the House should be arranged, but there have been many reports published in the past five years and it would be taxing our business managers a little hard if we expected to debate each of those reports. However, I am a little surprised that there has not been more pressure for debates on some of them.
948 I do not complain about the wide-ranging nature of my hon. Friend's speech, but it is not within my fairly confined responsibilities to explore all the avenues that he opened up. The question of tax havens and some of the other interesting matters that he dealt with do not fall within my departmental responsibilities.
My hon. Friend was right to say that industrial democracy is an important facet of the work of my Department. It will be a matter of supreme importance in our legislative programme for the next Parliament. I think that my hon. Friend would agree that the reasons that he gave for the introduction of industrial democracy would not be at the top of his list of priorities. The idea that we should open the doors of board rooms in order to enable a ray of light to shine on the activities of those behind the doors is important, but there is no doubt that the main basis of industrial democracy goes much wider than preventing fraud.
My hon. Friend has been critical of our society and has drawn certain conclusions from the Peachey report and others. I do not complain about that, because we are in the Labour movement not to accept the existing tenets of society but radically to transform society. That is the purpose of a Labour Government. However, I do not believe that it is right to conclude that, because some reports have revealed murky, seedy and meretricious behaviour, all companies behave in that way. My hon. Friend contrasted the behaviour of those involved in the cases that he mentioned with that of ordinary working people going about their daily lives. However, there is also a contrast between some of the murky affairs that have gone on and the way in which the overwhelming majority of companies conduct their business where standards are high and where people do not descend to the depths which were revealed not only in the Lonrho report and the Peachey report but in many others.
My hon. Friend went on to be critical of the way in which this report was drawn. I cannot agree with him on that criticism. Nor do I accept the view that the inspectors here were uncritical or tremendously tepid in the criticism that they offered. There are a number of instances where, particularly in relation to the 949 board itself, operating as a whole, the inspectors stated their criticisms in no uncertain terms. In paragraph 69 they said:We have tended to exonerate each member of the board from any heavy responsibility, though we must later make some individual criticisms. It is not inconsistent for us to criticise the board as a whole as being unduly compliant, uncritical and gullible at certain times and in certain respects.My main response to my hon. Friend is that the purpose of any inspector's report, based upon section 165 of the Companies Act 1948, is to look into a company's affairs where it has been found necessary to establish an investigation and to examine the facts. In a sense, the opinions that he may draw from those facts are much less important.
The report on the Peachey Property Corporation has provided quite definite conclusions on the facts. My hon. Friend joins issue with the inspectors on the matters of opinion that relate to their conclusions. That is a perfectly reasonable thing for him to do. People are able to reflect in a variety of ways upon those opinions. But there are certain ineluctable facts which emerge. I believe that the inspectors were absolutely right in confining their report within a reasonable limit.
Inspectors face a classic dilemma. How far should they pry into a company's affairs in order to arrive at a reasonable report? Is it necessary to limit their inquiries, or should they pursue every avenue and then perhaps enter a large number of cul-de-sacs? Should they do that at the cost of prolonging the inquiry interminably? It is only right to point out that the report was produced in about 18 months. Many reports take far longer. Should these inspectors have spent five years on their inquiries? Would that have been doing the House of Commons and the community a service? Would the conclusions have been any more valuable?
By looking at the matter in the way that they did—the scope of the inquiry—they made the right judgment. They put it in this way in paragraph 15:We have had frequent occasion to remind ourselves of our terms of reference, and in particular to direct ourselves that we were investigating the affairs of the Company, and not the affairs of the nation.950 It would have been quite wrong of them to have extended the ambit of their inquiry in order to cover the affairs of the nation. People are entitled to draw their conclusions from the facts they have disclosed.
What the Peachey report demonstrates is what can happen when one man with a charismatic personality exercises autocratic control over a public company. It has not happened for the first time. Here the inspectors were satisfied beyond reasonable doubt that the late Sir Eric Miller, when chairman and chief executive, misappropriated large sums of money from the company. That arose through a combination, as the inspectors put it, of a lax system of internal control, whereby personal expenditure was charged to the company's profit and loss account, and acts of deliberate fraud, lying, forgery and theft.
The conduct of company directors is already governed by statute and common law, backed up by the powers of the Department of Trade to investigate under section 109 of the Companies Act 1967 and sections 164 and 165 of the Companies Act 1948. It was section 165 which was invoked in this case.
Due to the influence which Sir Eric exercised over his co-directors, employees and others who are criticised in the report, the action of the natural safeguards against misuse of the company's funds was delayed.
Before the report was received, proposals to strengthen the law were published in the White Paper"The Conduct of Company Directors ", and they form part of the Companies Bill which is currently in Standing Committee.
We are able to derive lessons from many of these reports that we have had and we are deriving lessons from this report because, in the light of it, we introduced this morning amendments to the Companies Bill which are aimed at strengthening the law of financial transactions between companies and their directors.
My hon. Friend the Under-Secretary of State for Prices and Consumer Protection, who, because I have been involved in work on the Merchant Shipping Bill, very kindly substituted for me on the Companies Bill, made a speech on this issue this morning. He said that what 951 we are proposing to do as a result of this particular report is to add to the provisions relating to loans to directors, dealt with in clauses 49 to 51, a new set of similar provisions dealing with credit transactions between a director and the company of which he is a director or any of its subsidiary companies. He went on to say that a number of amendments have been tabled in anticipation of new clauses which will define credit transactions and the nature of the controls which will be exercised over such transactions.
The purpose of this is that the term"credit transaction"will include all transactions involving the sale of goods or services on credit, or on an instalment or deferred credit basis, including hire purchase and the use of credit cards. It will also include the practice, highlighted in this report, in which the company makes payments for goods and services which are not bona fide for the purposes of the company but from which a director benefits personally and in respect of which he is liable subsequently to reimburse the company. This is a matter which will be deployed more fully during the debates on the Companies Bill. I hope that that, to some extent at least, reassures my hon. Friend the Member for Keighley.
However, I have to counsel some caution here. It is impossible to close every gap. Company directors should examine whether they are meeting all their responsibilities within the existing legal framework and, in particular, take steps to ensure that internal financial control systems are adequate. The inspectors have comments to make about the impact of the auditors' report on the 1975 accounts, which did not have its intended effect to alert those concerned. The accountancy bodies are currently reviewing auditing practice. We are seeking their views on this point. Indeed, in parenthesis, I add that on 19 March we shall be discussing audit qualifications with the audit practices committee of the Consultative Committee of Accountancy Bodies.
The wide public comment which the report has engendered should foster discussion at all levels of the business community about financial control, and it should add to a number of current debates—for example, the risks involved in combining 952 the offices of chairman and chief executive and the introduction of audit committees, about which I had a good deal to say not long ago.
Following the death of Sir Eric Miller, I am advised by the Director of Public Prosecutions that no criminal proceedings are contemplated against any person mentioned in the report. Certain civil proceedings are being taken by the company itself, including claims against the estate of the late Sir Eric Miller. My personal view is that, by the normal standards to be expected of people occupying positions of responsibility in business organisations, a number of people named in the report do not appear to emerge with much credit.
The inspectors—this is perhaps a concession—say:We doubt that we have detected every defalcation or act of wrongdoing on the part of Sir Eric Miller. To have examined the myriad of small items passing through the records of the company would have been counter-productive both as to the cost of so doing and as to the delay which would have resulted in the production of this report.As I have indicated before, I believe that approach to be sensible.
It must be remembered that the inspectors were appointed to investigate the affairs of the company, not the personal affairs of Sir Eric Miller, save in so far as they impinged on those of the company. The report raises questions about gifts and favours by companies to those in public life. There can be no doubt but that, in that respect, it serves as a reminder of the kind of conduct of such persons. My hon. Friend said a good deal about that, and I do not blame him, but it is not for me to make comments about that matter in this debate.
I was interested to read the report. I was also interested to read some of the criticisms which went far wider than those made by my hon. Friend. He did not say that this was a whitewash job. He said that the inspectors had said that they might lay themselves open to the accusation that they had done a whitewash job. I think they took that on board, but they made criticisms of the Peachey board.
We must not forget that the late Sir Eric Miller had a charismatic and dominating personality. I can tell my hon. Friend, from many years as an advocate 953 in the courts dealing with criminal matters, that the powers of influence and persuasion of a confidence trickster are quite remarkable. Such people beguile ordinary citizens into doing the most stupid things. That factor represents part of the backcloth to this kind of case. My hon. Friend did not refer to it, but I am convinced that this matter must be taken into account. The inspectors had the benefit of seeing many of these people, and they took it into account.
§ Mr. Cryer
I made the point that what was needed to counter the charismatic personality, who would force weaker-minded people on a board to acquiesce in malpractices, was some degree of openness. I suggested that the right of examination of the books by the employees, for example, would enable the other members of the board, because they would have some sharp definition of responsibility, to argue against a very strong-minded chairman that they had this outside responsibility because it would be laid down. That was my comment about one narrow aspect of industrial democracy. That was one point that I made in answer to the companies where that occurs. I am sure that my hon. Friend agrees that this is not universal and that we hope we are dealing with a very small number of such companies.
§ Mr. Davis
Yes, but I think that my hon. Friend is being a little naive. I do not deny that one of the by-products of greater disclosure of an involvement by the work force in the board can have a beneficial effect far more important than all this. But one cannot ever totally overcome the charismatic influence of an individual, although perhaps it can be mitigated. We know from our experience and daily life that this is true. This sort of influence can be damaging, but it can also be a power for good. A powerful, influential and persuasive politican, trade unionist or industrialists can be a power for good; it is the balance which must be maintained.
At the heart of the matter are the standards of morality and probity that are applied by the individual concerned. If they are abused, the fabric becomes distorted. This is the difficulty we face in any society.
My hon. Friend has been critical of the auditors. Auditors have a difficult task. 954 They can be misled, particularly if someone is determined to act furtively and to mislead them. Sometimes they err, sometimes they do not probe enough. But the inspectors here dismissed a serious allegation which was made about Price Waterhouse—that it had an improper financial connection with Peachey.
Also, at the end of the day the auditors played a substantial part in bringing matters to a head. They qualified the 1975 accounts—although in a somewhat Delphic way. That is something which, as I have said, is engaging the consideration of the Department and of the accountancy bodies. The ways in which accounts are qualified has to be seriously looked at—not simply in this case but in many others.
The auditors also carried out continuing inquiries into particular transactions, in conjunction with the growing suspicions of Lord Mais and other board members, and it was that which led to the denouement. As regards the generally lavish and extravagant standard of Sir Eric Miller's expenditure, the inspectors criticise the board rather than the auditors. I believe that that is where the criticism should lie. They argue that it is for the directors of a company to judge what is good for their company and that in the normal course the auditors should take their word for it.
I conclude as I began, by congratulating my hon. Friend on raising the issue. We should not neglect debates on these matters. I should welcome them. I congratulate him on his powers of endurance. I congratulate him less on the length of his speech—but who am I to complain? Nevertheless, this has been a valuable airing of an important topic.
§ Question put and agreed to
§ Bill accordingly read a Second time and committed to a Committee of the whole House; immediately considered in Committee, pursuant to the Order of the House this day; reported, without amendment.
§ Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 93 (Consolidated Fund Bills), and agreed to.
§ Bill accordingly read the Third time and passed.