§ Mr. Dafydd Wigley (Caernarfon)
I beg to move,That leave be given to bring in a Bill to amend the law to require directors of public companies, in cases where there is a takeover, to have regard to the interests of employees as well as shareholders.As this is the first time that I have had the opportunity to address the House since your election, Mr. Speaker, may I congratulate you on it and pass on every good wish for the future?
As this may be the last time that I present a Bill to the House, may I say how important a subject I still believe greater industrial democracy to be?
I entered the House 26 years ago directly from manufacturing industry. At that time, as now, the contribution of the employee was at least as great as that of capital to the survival and success of any company.
When a business goes to the wall, a shareholder may lose £10,000, and that hurts. The employee loses his or her whole livelihood, yet the whole structure of company law gives rights to those who own the capital but virtually no rights to those who do the work.
The responsibilities of company directors are, in practice, overwhelmingly towards the so-called "members" of the company. That means the shareholders. In the final analysis, any responsibility towards the work force is tenuous and unenforceable in law. The Bill's objective is to redress the balance, particularly in circumstances arising from a company takeover.
Before I go into the detail of the Bill, I cite two instances to support the need for change. Twenty years ago, in my home town of Caernarfon, one of the two large employers in the area was a company called Bernard Wardle, which made PVC products, mainly for the motor industry. There was a takeover. Although the Caernarfon plant was both viable and profitable, it was closed and the work was moved to other factories owned by the new holding company. That work filled spare capacity in those other plants.
The work force at Caernarfon were thrown on to the industrial scrap heap at the whim of the directors of the predator company. Three hundred people were made redundant. The tragedy is that so little has changed in the past 20 years: the factory still stands largely unoccupied, and some of the work force still have not found permanent on-going employment. The structure of company law that allowed such a travesty to occur is still largely in place. That is one case from two decades ago whose shadow remains over my home town—a shadow cast by those absentee directors who cared not one jot for the work force's future.
All directors do not behave in that way. As always, a change in the law is needed to safeguard against worst practice. However, more enlightened directors who want to safeguard the position of employees need to be protected in law if they so act.
A more recent case is still in progress: the takeover of Hyder plc, the main water service provider in Wales. It has recently been subjected to a contested takeover battle. I do not pretend for one moment that the Hyder case is analogous to that of Bernard Wardle, although it could be. Hyder has substantial debts, not least because of the windfall tax and the price regime laid down by 715 the regulator. Two companies were involved in rival takeover bids for Hyder this summer. Without going into the merits of the two bids, the effect of the auction was to push up the offer to shareholders. The valuation per share went up from £2.60 to £3.65, which reflected a total cost to the buyer increasing by £160 million.
The bottom line is that that money must be recouped. The price charged for water is fixed by the regulator, so the only way of recouping the money is by cutting costs. That means a reduction in staff, a worse service to the customer, less investment in the infrastructure or the environment, or a combination of all three of those elements.
Concern was expressed by the National Assembly for Wales, across party political boundaries, that an excessively generous deal for the shareholders could lead to massive job losses in Wales and a worse service for the consumer. Indeed, the water services could be transferred from Wales, with both the customer and the work force paying the price.
I hasten to add that that has not happened yet, but it could still happen. If it does, there will be holy hell to pay in Wales. As you know, Mr. Speaker, water is quite an inflammatory subject in Wales. If our worst forebodings come to pass, the fault will lie not just with directors of the companies who might take such a decision—the very structure of company law, which has been enacted by the House, will be to blame. In our infinite wisdom, we have placed a responsibility on company directors to safeguard the well-being of the shareholder, but we have not enacted an equivalent responsibility to safeguard the well-being of the employee.
There are words in law that appear to cover that, but, in practice, they give no protection. I refer to the legislation that I wish to amend by virtue of the Bill. Section 309(1) of the Companies Act 1985 stipulates:The matters to which the directors of a company are to have regard in the performance of their functions include the interests of the company's employees in general, as well as the interests of its members.That sounds all fine and dandy, but immediately following section 309(1) is section 309(2), which states:Accordingly, the duty imposed by this section on the directors is owed by them to the company (and the company alone)."The company" means the shareholders. Thus there is no legally enforceable duty to the employees. The Government were expected to undertake a company law 716 review, which would have introduced a stakeholder law. There has been a review, but so far it has led to nothing. It is more than a year since David Wheeler resigned from the company law review because his concept of a third way was firmly crushed.
There are arguments for taking a genuinely pluralist approach to the issue, which recognises the role of all stakeholders, including workers and employees, and for what is quaintly called "enlightened shareholder value", which provides little change from the current position and is the line that the Government seem to support. When David Wheeler resigned, he said:It strikes me as faintly absurd that a company law review initiated by a modernising government should end up with such a timid and conservative approach.The time has come for the House to catch up with the reality of the 20th century and the structures of industry before we go much further into the 21st century. My Bill would amend section 309(2) of the Companies Act 1985 so that it states:The duty owed by directors is owed by them to the company and to the employees of the company.That would cut out the words "and the company alone" and would specify that responsibility must be exercised, particularly during takeover bids.
Hon. Members of all parties support the Bill, and I urge the House to allow it a First Reading, thereby conveying to all employees that the House regards them as full and equal partners in the new industrial age. I commend the Bill to the House.
§ Question put and agreed to.
§ Bill ordered to be brought in by Mr. Dafydd Wigley, Mr. Kevin Barron, Mrs. Margaret Ewing, Mr. Paul Flynn, Mr. leuan Wyn Jones, Mr. Richard Livsey, Mr. Elfyn Llwyd, Mr. Andrew Mackinlay, Mr. Lembit Öpik, Mr. Andrew Rowe, Rev. Martin Smyth and Mr. Simon Thomas.