Companies (Procedure) (Hansard, 23 January 1985)

§ Sir Brandon Rhys Williams (Kensington)

I beg to move, That leave be given to bring in a Bill to amend the law relating to the election and responsibilities of directors of companies; to require the circulation of particulars of candidates to the members and the consideration of the appointment of non-executive directors before any election of directors; to require the directors to prepare certain data and estimates; to make provision in regard to the establishment of audit committees; and to make other changes in the law relating to companies. I am seeking once again to introduce a Bill relating to company procedure. I am sure that the whole House is concerned that the British economy should function as efficiently and as fruitfully as possible. I hope that the House will also consider that there is a need to examine the provisions of company law, especially as it relates to the functioning of small and medium-sized companies.

I have introduced a Bill on this subject in every Session since 1969 and I hope that on this occasion, too, the House will consider that my Bill deserves to make progress. I know that the Government are actively and rightly concerned at this time with the protection of investors when they are setting out to make their choice of investment. The Insolvency Bill, which recently had its Second Reading in the other place, is also concerned to deal with companies that have come to the end of their days. It seems to me, however, that there is a gap in the consideration given by the Government to what might be described as the middle ground—that is, the protecting of investments that people make in companies that then do not function as efficiently and effectively as they might. I believe that this gap in our company law deserves the attention of the House. I appreciate that a monumental job is now in progress in the consolidation of existing company law, but, as any practitioner will confirm, much of our company law is completely obsolete and unworkable in practice.

In every public company there are certain supervisory elements which could work more effectively than they now do for the benefit of customers, the work force, the management and shareholders alike. At present, in all too many cases they cannot function effectively in practice because the necessary procedures and background of law are not provided for them by the House. I am thinking in particular of non-executive directors who, all too often, are weak or ineffective members of boards. I think, too, of the auditors who, all too often, are content to look backwards over a company's performance and to consider it in strictly arithmetical terms, rather than to exert themselves to give boards and senior management the advice that they could well be providing as to the future direction of the company. I think, too, of the major institutional sources of finance, which all too often find themselves acting like absentee landlords instead of offering a really effective supervisory service to management—as they also well might and in other countries do.

I believe that quite minor changes in company law, relating mainly to the formal procedures of companies, could make a significant difference and could assist the whole economy to operate more fruitfully. I recognise the objection that the proposals that I have included in my previous Bills—and which I hope to reintroduce now— 990 are of a minor character and that companies, if they chose to do so, could very well do all the things that I recommend within the present framework of the law. That is no reason why there should not be legislation. We need to bring the less progressive companies up to the standards of the best. The House is failing the economy if it allows problems to develop such as are now developing, unnecessarily, in all too many companies.

The Bill deals with the election of directors. ensuring that competition for vacancies on boards will be more effective than it is at present in many cases. The Bill also deals with the preparation of data and estimates, to make sure that a company mobilises its own resources of information about its own likely performance in tile market against competition, so that it can judge how profitably it is likely to operate over a period of time.

The Bill also contains recommendations about setting up audit committees. On the New York Stock Exchange it is obligatory for every company that seeks to be quoted to have appointed an audit committee. In this country, the practice, though widely approved, is not often brought into effect. I believe that in our largest companies it should be generally adopted, and that smaller companies would then learn the routine and appreciate the value of setting up an audit committee. It would be desirable to stimulate such a development through legislation. There will, therefore, be a small provision in my Bill to encourage companies to set up audit committees and I intend once again to reprint a schedule showing a form of model practice for the operation of an audit committee. I believe it would deserve the attention of auditors and senior management, showing how the relationship between the boards and the auditors could be improved on a routine basis.

I hope also to include a schedule showing model articles for companies operating as a result of management buyouts, or in the form of very substantial partnerships. We have not paid sufficient attention to the problems arising when shareholders who are also employees retire from service and wish to dispose of their holdings. There are various possible legislative measures that might be helpful in such circumstances, though I would hesitate to introduce any compulsory measures at this time. However, with the help of hon. Members on both sides of the House, I hope I may be able to draw up a form of model articles for such a company that would be worthy of consideration.

Those are the proposals that I hope to bring in. On two previous occasions I have had the honour of seeing my Bill complete its Committee stage. I believe that on each occasion the House succeeded in attracting attention to areas of company practice that have been neglected and that ought to be studied. I therefore trust that, once again, I shall be given the leave of the House to bring in my Bill.