Companies (Political Funds) (Hansard, 30 July 1997)

§ Mr. Roger Godsiff (Birmingham, Sparkbrook and Small Heath)

I beg to move, That leave be given to bring in a Bill to require ballots of shareholders of companies incorporated under the Companies Act 1985 in respect of proposed donations for political purposes; to define political purposes; to require political funds to be established for the payment of such donations; to specify how such political funds will be funded and the qualifications for receipt of donations; and for connected purposes. Before we move on to our buckets and spades, I should like to move this motion.

The purpose of the Bill is to correct an anomaly in company law that has existed for far too long. The Bill contains four main provisions. First, it requires publicly quoted companies incorporated under the Companies Act 1985 to establish, after approval has been sought by a ballot of shareholders, separate political funds, should that company wish to make donations for political purposes.

Secondly, the Bill clearly defines political purposes as payments to any political party or any organisation that engages in promoting or campaigning for political parties. Thirdly, it defines a percentage of dividends payable to shareholders that can be put into a company political fund. Most important, it provides the facility for those shareholders who object to payment of part of their dividend into the company political fund to have the right not to contribute, and to receive the full value of their dividend payment.

Under the Companies Act 1985, directors must state in their annual report contributions of more than £200 made for political purposes. The report, together with the company's accounts, is laid before the shareholders at the annual meeting, and approved or rejected in its totality. If, however, any shareholder or group of shareholders wish to object to payments made by the company for political purposes, they have no option but to vote against the resolution to approve the report and accounts of the company.

Shareholders are therefore placed in an extremely difficult position should they disapprove of any payments made for political purposes by that company. Were they to reject the director's report and accounts, that would amount to a rejection of the commercial management of the company. If that company were listed, such action would result in a catastrophic fall in the company's share price, and could have serious commercial repercussions.

No shareholder who invests his money in a company for commercial reasons would wish to precipitate such a situation. Under current law, the shareholder would have little alternative but to act in that way if he profoundly disagreed with donations made by the company for political purposes.

Under current law, a dissatisfied shareholder could move a resolution at the company's annual meeting to censure the board for making any political donation. Such a course of action is costly and administratively difficult. For example, the resolution would have to be circulated to all shareholders, and the company could require the proposers of it to pay for the cost of circulating it. For that and other administrative reasons, shareholder resolutions are seldom submitted at annual meetings.

361 The purpose of the Bill is to rectify that anomaly by obliging companies that wish to make donations for political purposes to establish a political fund that is entirely separate from the commercial activities and accounts of the company. Shareholders will know how much of each dividend is paid into the company's political fund and what payments are made from the fund, and, if they wished, they would have the right to opt out from contributing part of their dividend payments to such a fund.

The central issue behind the Bill is the extension of shareholder democracy. After the privatisations and building society flotations, there are now between 16 million and 18 million individual shareholders in the United Kingdom. Not only are they shareholders: they are stakeholders in our economy. Those shareholders have the right to a say about how their money is spent if it is spent for purposes other than those for which it was invested, and spent on causes to which they may be deeply opposed.

Without express separate shareholder approval, boards of directors should not spend shareholders' moneys on non-commercial purposes. As I said, the Bill is about the extension of shareholder democracy. It is needed because the current situation is wholly inadequate as the means of protecting shareholders' rights.

The question of political donations has moved high up the political agenda. I welcome the fact that the Government are committed to introducing a policy of transparency, and not before time. They are committed to dealing with donations from foreign sources. I commend the new leader of the Conservative party for announcing that his party will no longer accept foreign donations, such as those made by Mr. Asil Nadir.

It is time that publicly quoted companies operated according to clearly defined criteria which uphold the rights of their shareholders. Since 1967, companies have been obliged to disclose in their annual reports any gifts of moneys above £200 for political purposes. There has been no obligation on companies, however, to seek the prior approval of shareholders for such donations.

362 Between 1980 and 1991, 66 of the largest companies in the United Kingdom made political donations which totalled £13.6 million. I make no comment on the fact that 85 industrialists connected with those 66 companies received peerages or knighthoods during the same period.

I welcome the fact that a number of companies have of late decided to end their practice of making political donations. The fact remains, however, that, according to a limited survey of the top 300 United Kingdom companies, in 1995–96 more than £1.5 million was paid out by such companies for political purposes. The vast majority of those moneys were paid away with little or no regard to the wishes of individual shareholders.

My Bill would enhance the rights of millions of shareholders by allowing them to determine whether the companies in which they invest their money should be allowed to use part of their profits to engage in political activities. It would not deny any company the right to make a political donation, providing it has established a political fund with the approval of its shareholders. The Bill will enhance shareholder democracy, and as such I commend it to the House.