Performance of Companies and Government Departments (Reporting) Bill (Hansard, 26 March 2004)

§ Andy King (Rugby and Kenilworth) (Lab)
rose—

§ Mr. Eric Forth (Bromley and Chislehurst) (Con)
On a point of order, Mr. Deputy Speaker. My recollection is that when the Bill was previously considered, the hon. Member for Rugby and Kenilworth (Andy King) had finished introducing it and the Minister was in the middle of his remarks. Surely the hon. Gentleman cannot speak again without the leave of the House, and, unless we hear from a Minister, should we not move on?

§ Mr. Deputy Speaker (Sir Alan Haselhurst)
I am grateful to the right hon. Gentleman for making that plain, but we had to get the ball rolling. The Bill is now before us and we are continuing an adjourned debate.

§ Mr. Andrew Dismore (Hendon) (Lab)
This is something of an unexpected treat.

§ Rob Marris (Wolverhampton, South-West) (Lab)
For all of us.

§ Mr. Dismore
For the whole House, no doubt. I had expected to speak at some length on the Bill before last, but happily I did not spend too much time preparing for it, and I have not spent much time preparing for this Bill. As will be apparent, I support it and regard it as important.
I want to draw attention to a few reports that show where companies fall short of the high standards that we expect of them. All the reports have been published since our last debate on the Bill. According to a report by the Catholic Fund for Overseas Development, labour standards in the high-tech computer sector are among the worst in the world. Systemic problems of unsafe working conditions, compulsory overtime and poor wages falling below the legal minimum are just some of the catalogue of examples found in factories in Mexico, Thailand and China.
In Brazil and Kenya, Christian Aid continues to report extreme health and safety violations of tobacco farmers who supply to major companies, such as British American Tobacco. In Nigeria, communities report ongoing problems with oil spills, emanating from Shell's operations there.

§ Mr. Barry Gardiner (Brent, North) (Lab)
Is my hon. Friend aware of the report by the Public Accounts Committee, which looked in detail at the smuggling of tobacco? It specifically mentioned Imperial Tobacco and the lack of co-operation at that time with Her Majesty's Customs and Excise in reaching a memorandum of understanding. Is he aware of any information relating to China or anywhere else which would put Imperial Tobacco in the frame in the same way as BAT is now in the frame?

§ Mr. Dismore
I am grateful to my hon. Friend, who, as a former member of the Public Accounts Committee, 1200 is well placed to make that point. I am afraid that I have not read that report, but I am sure that the management and board of directors of the companies to which he has referred will be in some trepidation when they see the contents of this Bill, if those are the sort of business practices in which they are engaged.

§ Ms Julia Drown (South Swindon) (Lab)
My constituents have written to me in support of this Bill. Does my hon. Friend agree that it is not only conditions of workers that are at issue, but activities such as supply of baby milk to countries where it can lead to deaths of infants and what companies are doing to promote GM crops, which perhaps our constituents would not want? What about the mining activities by companies in the great lakes region in Africa? Are those companies stimulating some of the civil war that has affected Burundi, Rwanda and the Democratic Republic of the Congo? People want some reporting on those issues.

§ Mr. Dismore
My hon. Friend makes the point strongly. There is a range of issues, such as those to which she refers, on which companies must take greater responsibility. My sole concern is that this Bill is only being introduced this year—we should have had such a Bill decades ago. I remember looking at reports of cases of asbestos workers in South Africa who were poisoned by big asbestos companies and are now trying to fight for compensation. Their claims were resisted tooth and nail by those companies all the way up through our courts here, until finally, for once, the judges got it right and allowed those people properly to bring claims for compensation. That is exactly the sort of problem with which we should be dealing.

§ Mr. Paul Keetch (Hereford) (LD)
What would the hon. Gentleman say to the organic farmers of Herefordshire, which has more organic farms per hectare than any other county in England, whose crops might be contaminated by genetically modified crops? What would he say in defence of his Labour colleagues who have just caused a Division that has effectively meant that an important private Member's Bill has now been lost, which might have had a chance for further debate?

§ Madam Deputy Speaker (Sylvia Heal)
Order. That intervention is way outside the scope of this debate.

§ Mr. Dismore
Thank you, Madam Deputy Speaker. All I would say is that the hon. Gentleman makes an important point about genetically modified organisms, which raises an issue in relation to corporate behaviour. He may be interested to know that I share his views about corporate behaviour in relation to genetically modified food, and I regret that he could not summon enough Liberal Democrat Members to support the previous Bill, or enough Conservative Members, or enough between them, to do so.

Madam Deputy Speaker
Order. I have just ruled that discussion on the topic of the previous Bill is outside the scope of this debate.

§ Mr. Dismore
I apologise, Madam Deputy Speaker. I was getting a little carried away.

§ Tony Cunningham (Workington) (Lab)
I have in my constituency a running shoe manufacturer called New 1201 Balance. It is the only running shoe manufacturer that produces running shoes in the United Kingdom. All the other companies—Reebok, Nike, Adidas and the rest—produce in far-flung parts of the world. Is this Bill designed to look at those sorts of companies, which may be producing their running shoes in ideal conditions, while in some third-world countries workers could be suffering from poor health and safety and so on. Is this Bill designed to examine those issues?

§ Mr. Dismore
My hon. Friend makes an important point about looking at the performance of companies in this respect. We have all read stories and seen television documentaries about companies in the far east, for example, employing child labour on a penny or two a day. That is completely exploitative and outside any form of proper reporting and control. If companies are engaged in those practices, shareholders and the wider public ought to be aware of it. Of course, the issue goes beyond unfair labour practices elsewhere, to fairness of competition and trade with legitimate companies such as that in my hon. Friend's constituency. How can that company compete fairly when other companies behave so improperly and badly, undercutting its legitimate business?

§ Andy King
I am sure that my hon. Friend is also aware that large multinational companies do not just behave disgracefully towards their work force, as in terms of the computer issue. In places such as Plachimada in India, Coca-Cola took away drinking water, which is necessary to sustain life, and Shell is of course notorious for its activities in the Niger delta. Such companies put whole communities at risk, yet they are not held to account by their shareholders.

§ Mr. Dismore
My hon. Friend makes an interesting point about Coca-Cola and water. Recently, there was a scandal in our own country when Coca-Cola had to withdraw its bottled tap water because it was not safe. That was a rip-off, if ever there was one. That is an example from the developed world of a company that has misbehaved in the developing world, in India.

§ Mr. Gardiner
Does my hon. Friend agree that the Bill will provide tremendous assistance to pension funds? The Government introduced a provision whereby investment companies must issue a statement of investment principles by which the funds must abide, and which their trustees must observe. That is especially relevant in the context of exercising corporate social responsibility, given that those companies are some of the major shareholders in many multinational companies on the index. Having analysed their investments, their shareholders will be able to exercise their vote at annual general meetings. The Bill would allow the shareholders of those companies to analyse their investments and to vote at annual general meetings with a clear knowledge of the social responsibility of the activities in which they are engaged. That will—

Madam Deputy Speaker
Order. That is rather long for an intervention.

§ Mr. Dismore
I thank my hon. Friend for his excellent contribution. I hope that he will have the opportunity to develop it after I have concluded my remarks. 1202 I want to put my hon. Friend's point in a slightly different light in relation to ethical investment companies and pension funds. When I recently had a financial health check with my financial adviser, who no doubt tried to bamboozle me, I was astounded, when I looked at my pension, that the small amount of money that I had put into an ethical fund had performed much better than the funds in the general market. That is a sign of the times. People are much more interested in knowing where their money is going and what the companies that they are investing in are up to. That is why my hon. Friend's Bill is so timely. It catches the spirit of the age—the zeitgeist that allows us, as investors, to ensure that our money is invested properly based on companies' reports of what they are doing.

§ Ms Drown
Does my hon. Friend agree that that is true not only of investment companies? Many people have expressed concern about call centres going abroad. Nationwide, whose headquarters are in my constituency, recently stated that it was going to keep its call centres in Swindon, which is a great reflection on the staff there. That is the sort of decision that people want to know about; certainly, Nationwide's financial performance is reflecting it. Similarly, there is huge increase in interest in fair trade. People want to know about what companies are doing, and the Bill would assist that.

§ Mr. Dismore
I am grateful to my hon. Friend; she makes a good point. The issue of call centres is a difficult and thorny one. Personally, I do not necessarily object to their going overseas. The real question is whether the people who work in them are being exploited, and that would emerge clearly from corporate reports that deal with the subject, as they would have to under the Bill.

§ Mr. Gardiner
On a point of order, Madam Deputy Speaker. You will recall that earlier in our debates a point of order was made to Mr. Deputy Speaker, who was then in the Chair, stating that there was not an appropriate departmental Minister on the Front Bench. That matter was pursued extensively by Conservative Members, yet the Members on their Front Bench are not the appropriate shadow Ministers for the relevant Department—the DTI.
Madam Deputy Speaker: Order. That is on the record, but it is not a point of order for the Chair.

§ Mr. Dismore
Thank you, Madam Deputy Speaker.
Before the last round of interventions, I was talking about the problems in Nigeria in relation to Shell's operations, especially in the context of oil spills. We have all read a great deal in newspapers recently about that company and its lack of social responsibility towards the people of Nigeria.

§ Tony Cunningham
Earlier today we had the successful Second Reading of the Christmas Day (Trading) Bill. It was helped through its Second Reading by a trade union, which provided support. If the Bill before us passes through the House, I hope that it would allow people to know whether companies that have dealings in other parts of the world accept and encourage trade union involvement and trade union 1203 membership. We know that in this country that is acceptable. Would it not be as well if people knew what companies were doing in respect of trade uionism in other parts of the world?

§ Mr. Dismore
My hon. Friend makes an important point. When we are talking about organisations such as those in the oil industry, it is extremely important. We are not thinking only about terms, conditions and wages—we must also have regard to health and safety. Many companies operate in ways that are downright unsafe.
Recently, a multinational company was describing to me its health and safety record with particular reference to fatal accidents. In Europe, those accidents could be counted on one's fingers—that is if one still has them! However, there were more people killed by this one company worldwide than the whole of the people killed at work in the United Kingdom in a year, twice over. That shows that while in Europe we may have a strong attitude to health and safety, that does not apply in the rest of the world. My hon. Friend is right to highlight the role of the trade unions on health and safety. An inquiry into health and safety is being conducted by the Select Committee on Work and Pensions. Trade unions are important when it comes to terms and conditions, and especially important in the context of health and safety at work.
It is easy for us in the west to take for granted the right that is guaranteed by all the international conventions to organise as a trade union. We know that there are many dictatorships throughout the world that operate hand in glove with some rather despicable companies, which will deal only with sweetheart trade unions or which actively fight against trade unionism itself. Many people have died in the developing world, particularly in south America, for the right to be represented by a trade union. It is an issue on which companies should report back to their shareholders in the developed world.

§ Andy King
I am sure that my hon. Friend is aware that the Bill has the full support of every trade union in this country and that of the TUC, which has written to me offering its full and unqualified support because of the benefits that the Bill would bring to the very workers to whom my hon. Friend has referred.

§ Mr. Dismore
I am grateful to my hon. Friend for his intervention because it significantly emphasises the point made by my hon. Friend the Member for Workington (Tony Cunningham). The trade union movement is an international movement. An important reflection of the good work that our trade unions do is the attempt to promote decent labour conditions for workers internationally, often in circumstances where they are not able to look after themselves.
Amnesty International continues to be the leading source of information on human rights abuses, where business has failed to act within their sphere of influence, or sought to avoid responsibility altogether, through legal means. That includes, for example, BP's negotiation within the context of the Baku-Tbilisi oil pipeline.
If I were to draw a thread through all these different stories, including those to which I was referring before I was intervened on, I would ask what they all have in 1204 common. Concerns have been expressed by stakeholders who have been unable to articulate their concerns by issuing reports, by media attention or by direct lobbying. Most of these issues have failed to appear in corporate social reports. Why is that? Is it perhaps because those companies are unwilling to explain what has been going on? Is it because no one wants to be seen to be taking a lead for fear of creating a disadvantage for their company?

§ Mr. Gardiner
My hon. Friend has been most generous in taking interventions. Does he agree that some of the very principles with regard to stores that felt a compulsion as a result of their competition opening on Christmas day on the basis of which we were earlier urging this House to pass legislation to prevent Christmas day trading are exactly the same as those that apply here? There are companies that fear the impact on their own share price and operations from doing the right thing and publishing each year a statement of their socially responsible activities. They fear that unless we act, they will be disadvantaged in the commercial arena.

§ Mr. Dismore
My hon. Friend makes a strong point that I was starting to develop. Blue-chip companies may like to do that, but nobody wants to be seen to be the one putting a toe in the water. All our companies and employers—not just trade unions—would also see the benefits of the Bill.

§ Tony Cunningham
In Burma, Aung San Suu Kyi has been under house arrest for many years and democracy has broken down. Many people would not want British and European companies to invest there, but they need to know whether companies are investing in a country with such a regime. I hope that the Bill will provide them with the information.

§ Mr. Dismore
That is a strong point. The question is why people want to know that information. There are two or three different reasons. The first is whether they are happy with their money being invested in a country such as that. But there may be big corporate investors who are prepared to see that done for profit but also prepared to put pressure on companies in turn to pressurise the regimes to try to move towards democracy. My hon. Friend makes an important point about Burma, where a number of UK companies invest. If some of the shareholders, pension fund members and people with individual pension rights knew where their money was invested, they might well put pressure on those companies to improve standards throughout the developing world in their operations, as well as on Governments to clean up their acts.

§ Mr. Adrian Flook (Taunton) (Con)
The hon. Gentleman may be a sponsor of the Bill and will be au fait with its contents. Companies such as Clarks of Somerset produce all their products in China and what are known as third-world countries, but comply with the Bill's provisions. What advice has he sought from such companies?

§ Mr. Dismore
The hon. Gentleman makes an interesting intervention. Such companies have a lot to 1205 gain from the Bill. The same situation applies to the company that makes training shoes, in the constituency of my hon. Friend the Member for Workington (Tony Cunningham). Companies with decent labour standards and proper health and safety regimes have nothing to fear and everything to gain from the Bill.

§ Andy King
In addition, decent companies in this country fully support the Bill. The Co-operative Bank, which is thriving, is fully behind us, as are British Telecom andB?Q. A lot of companies are saying that the time has come to act together so that they are not undercut by the worst.

§ Mr. Dismore
I am grateful to my hon. Friend for that intervention, because he mentioned some important companies. The Co-op hank is a major finance business, and B?Q brings in raw materials from all over the world, particularly timber, in respect of which there are issues involving hardwood. It is interesting that BT, a high-tech company, also subscribes to the Bill, which goes back to the point that my hon. Friend the Member for South Swindon (Ms Drown) made about call centres.

§ Mr. Stephen Pound (Ealing, North) (Lab)
I am grateful to my hon. Friend for giving way; he shows extraordinary generosity of spirit. May I add Tetley, which is based in Greenford my constituency, to the list of companies that operate ethically? Tetley has been ethically sourcing tea for not the past five or 10 years but for the past 15 years, because it recognises that it has a global duty and an imperative to act as an ethical sourcer in the growth and boxing of loose tea. It has been extraordinarily successful, even though it has had to withdraw from some of its tea-growing operations in Zimbabwe and China. Does he accept that there are some good companies and that, in a reverse of Gresham's law, the good might possibly drive out the bad?

§ Mr. Dismore
I am grateful for my hon. Friend's intervention. When he mentioned Tetley's, I wondered whether we were going to go down the beer route, which would have been interesting.

§ Mr. Pound
Not during Lent.

§ Mr. Dismore
Given that we debated Christmas day earlier, we seem to be having a day of religious festivals.
My hon. Friend is involved in Labour Friends of India, and has a large Indian community in his constituency, so it is important to him that the tea company in his constituency is shown to be using proper practices in the region where many of his constituents have their roots. It is a double bonus for him to have such a company on his patch.
Why do such issues not at present appear in corporate reports? Is it really because companies do not think that they are likely to have any impact on shareholder value until they pose a clear financial risk? Shareholder value, however, is the starting point of the founding principle of the Government's proposed operating and financial 1206 review. Some people involved in the company law review process, such as civil society groups, are calling for an operating and financial review that addresses the interests of all relevant users, including shareholders, consumers, employees, communities and charities. The company law review has accepted that premise, and argues that an operating and financial review should be prepared for members and other users. However, the proposals are still aimed primarily at members' interests alone.
The proposed operating and financial review must ensure that companies take into account and disclose a range of impacts on relevant stakeholders, instead of perpetuating the status quo, which is based on companies' voluntary good will. Do businesses currently report on what is important to other users? Some might, but not all. Looking at the leaders in corporate social responsibility, there are significant gaps between companies' social and environmental concerns and their financial considerations. When a business makes a decision, it must arguably consider several issues beyond financial impact, including legal implications and the risk to its brand reputation, but business decisions rarely allow a stakeholder interest to overrule financial concerns if it has no proven financial bearing. In forward-looking strategies, unless there are clear financial risks, business will do what is best for business as it perceives that in its short-term, blinkered view of the world today.

§ Mr. Gardiner
Does my hon. Friend agree that there is a parallel with the change in the legislative and regulatory environment in local government from compulsory competitive tendering to the best-value regime that this Government introduced? Previously, local authorities were obliged simply to look at the cheapest price for delivering a service, whereas they can now assess "value" much more widely. Does not the Bill seek, in many respects, to do the same for business? A business should not simply consider the cheapest price at which it can produce its product in a given area but the overall value that accrues to the consumer, and to society in general, as a result of its interventions.

§ Mr. Dismore
Again, my hon. Friend makes a cogent point. That is the nub of the debate. We want companies to look more broadly at the wider range of stakeholders and people who may be affected by their operations.
We have had such laws for a very long time. The Health and Safety at Work etc. Act 1974 gives companies duties towards the general public. Here, we are asking companies merely to tell us what they are up to, and then perhaps market forces, paradoxically, will do the trick.

§ Mr. Pound
I do not have my copy of the Register of Members' Interests to hand, although I know that my hon. Friend knows it by heart. Does he agree that many right hon. and hon. Members who rightly list their directorships, in certain cases in companies dealing in tobacco, for example, might set an example to the House 1207 and to the nation by insisting on this form of disclosure, and in the absence of legislation for it, perhaps even arranging to do so themselves?

§ Mr. Dismore
My hon. Friend makes an interesting point. I am a member of the Standards and Privileges Committee, but I do not know the register inside out. We consult it only when we are investigating someone.
It is amazing that the only representative of the Conservative party here today is the shadow Minister, and the same goes for the Liberal Democrats.

§ Mr. Gardiner
He is not a shadow Minister.

§ Mr. Dismore
Whatever he is, he is sitting on the Front Bench. Perhaps he will clarify what he is doing here.

§ Gregory Barker (Bexhill and Battle) (Con)
I am a member of the Opposition Whips Office, and as such a shadow Minister.

§ Mr. Dismore
Perhaps the Liberal Democrat spokesman can make a similar declaration.

§ Mr. Keetch
As the Liberal Democrat shadow Defence Secretary, I have an important interest in defence matters in this debate, which is why I am listening attentively to the hon. Gentleman.

§ Mr. Dismore
rose—

§ Gregory Barker
May I also add that, as a member of the Environmental Audit Committee—

Madam Deputy Speaker
Order. The hon. Member for Hendon (Mr. Dismore) must respond to the first intervention before taking a second one.

§ Mr. Dismore
Thank you, Madam Deputy Speaker.
The Conservative representative has clarified his position as a shadow Whip. Perhaps he can whip in some of his colleagues today, and in particular those who have the shareholdings that have been referred to by my hon. Friend the Member for Ealing, North (Mr. Pound). Perhaps then they can answer for the companies of which they are shareholders and, I suspect, directors, and defend them at first hand in relation to both the Bill and the issues that have been raised today. I suspect—my hon. Friend may be able to supply the detail shortly—that some of them may be a little worried about the Bill, because it may expose them as directors of companies involved in nefarious practices in the developing world.

§ Gregory Barker
As well as a shadow Whip, I am a member of the Environmental Audit Committee, so this is a subject that I am especially interested in and sympathetic to, but I caution the hon. Gentleman that, at his instigation, we have tested who is in the House today, and it transpires that only six Labour Members were prepared to go into the Lobby, versus 16 1208 Conservative Members, so it ill becomes him to speak about Members not being here, especially as he has destroyed a very good Bill.

§ Mr. Dismore
rose—

Madam Deputy Speaker
Order. I hope that, rather than responding to that intervention, the hon. Gentleman will continue with the debate on the Bill.

§ Mr. Dismore
Thank you, Madam Deputy Speaker.
The hon. Member for Hereford (Mr. Keetch) spoke about the interest of the defence industry in the Bill. He may wish to make a fuller contribution later, but I invite him to say a little more now.

§ Mr. Keetch
The defence industry clearly has an interest in the Bill, and I should point out that, as the Register of Members' Interests confirms, I am a non-executive director of two companies based in my constituency, neither of which has activities outside the United Kingdom. Indeed, one of them does not even have activities outside Herefordshire.

§ Mr. Dismore
I am sure that the House has heard the hon. Gentleman's declaration, and for the avoidance of doubt, I have no directorships whatsoever.

§ Mr. Pound
Is my hon. Friend aware that the hon. Member for Bexhill and Battle (Gregory Barker) has registered nine shareholdings in the current register, but that—

Madam Deputy Speaker
Order. We really must return to the debate currently before the House.

§ Mr. Dismore
I am sure that we can examine the hon. Gentleman's shareholdings in the Tea Room afterwards.

§ Ms Drown
I am grateful to my hon. Friend for giving way and to you, Madam Deputy Speaker, for intervening, as we were getting a little off track. That said, this is a good debate and I wish that we had more such debates. Does my hon. Friend recognise that the danger with a Bill such as this is that one adds more and more elements to it, and that it is important that regulation is not burdensome? Has he any thoughts on how we can encourage appropriate reporting without the system becoming too big, burdensome and costly to companies? A balance has to be struck in that regard.

§ Mr. Dismore
My hon. Friend makes a very important point. The Bill makes a useful contribution to the debate and is a good start. I suspect that it has little prospect of becoming legislation, but my hon. Friend the Member for Rugby and Kenilworth (Andy King) has done us a great service in bringing these issues before the House and at least kicking off the debate. The best way forward is for business to listen to this debate and to engage with those of us who feel strongly about these issues. It is clear from her interventions and her work outside this place that my hon. Friend the Member for South Swindon (Ms Drown) feels strongly about them. 1209 The CBI and the large companies represented by such organisations should engage with us and start to develop some solutions. We have witnessed the failure of voluntarism, but perhaps the one or two good companies that do want to make progress could become pilots and flag-bearers for business organisations. Notwithstanding the ignorance of the reporting, if shareholders were to say at annual meetings, "We know that there is no law requiring you to act in this way, but we as shareholders are insisting that you do," we might start to make progress. In that regard, and as my hon. Friend the Member for South Swindon says, this debate is important and valuable.
I was talking about business strategies and what business gets up to. A good example is the construction of an oil pipeline or dam. As we have seen throughout the developing world, such projects are often completely rejected by local communities. However, the voices of those communities are seldom, if ever, heard. If they are heard, they are seldom, if ever, the crucial factor in the business decision as to whether that oil pipeline or dam should go ahead. Such decisions are taken irrespective of environmental, cultural or social damage.
We have discussed the idea that the operating and financial review should not be a full social and environmental report, and that only key performance indicators should be included, yet some businesses will assume that if they have done the OFR, they have done the job. Furthermore, what they chose to include in the final report would be a matter for them. Such an OFR could therefore have an adverse effect, resulting in companies disclosing less, not more. However, the Bill requires an OFR that ensures that companies report on relevant social, environmental and economic impacts and performance, thereby providing both shareholders and stakeholders with an informed assessment of companies' operations and financial positions. The Bill also sets out the matters that should be included in the OFR, and those matters that directors have a duty to consider in order to allow an informed assessment. Moreover, it provides a process for signing off the review. It determines which major companies must publish an OFR—approximately the top 1,000 United Kingdom companies—but more importantly, it allows the OFR to bring in more companies in future.
In addition, my hon. Friend's Bill will amend the basic duties on company directors to include social and environmental impacts by requiring the director to promote the success of the company while having to consider all factors of potential risk, including impacts on communities and the environment, among other matters. Where possible, directors must also reduce damaging impacts on the environment and communities.
We have had some six years of consultation on the review of company law, and we should use every opportunity to ensure that legislation includes the requirements that many of my hon. Friends believe should be implemented, as we have heard in today's and previous debates. Regulations for the operating and financial review were promised in the 2002 White Paper, 1210 which has been followed by further consultation, and still more consultation is due when the review is published.

§ Tony Cunningham
The Government chief scientific adviser recently said that climate change was perhaps a greater danger to the world than terrorism. Does my hon. Friend agree that, if companies in this country are developing techniques—whether it be for oil, coal, gas or whatever—in other parts of the world, that contribute to climate change, shareholders and stakeholders should know that such activity is going on?

§ Mr. Dismore
My hon. Friend once again makes a cogent point. There is always considerable debate about climate change. We need only reflect on the weather to see how the climate has changed—whether it be the consequence of CFCs in the atmosphere or whatever. I believe that there is now overwhelming evidence that corporate activity, particularly in the developing world—logging, for example—can have a major impact on the climate not just for individual countries but worldwide. The British public should be aware, in taking investment decisions, of what contributions companies are making towards resolving that extremely serious problem that the whole world faces.
To conclude, I remind the Minister that commitments were made in 1994, reviews begun in 1997 when the Government came into office, and the challenge was put to business in 2001—

§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)
My hon. Friend is making an excellent speech on an important issue. Like him, I am pleasantly surprised to have an opportunity to debate the issues today. I hope that he is pleased to know that the Government were the first to introduce a Minister with particular responsibility for corporate social affairs.

§ Mr. Dismore
I hope that my remarks have done nothing to detract from the Government's achievements so far. We are now examining corporate responsibility in a wide range of matters, not least corporate manslaughter. I have taken a strong interest in that matter for some time.
The Minister is right that the Government have already done a lot, but what we are discussing now is very important, going beyond the narrow confines of company law. Even though the Bill amounts to company law reform, it affects the investment decisions made by everyone who has a pension fund. It affects the way in which our big companies behave worldwide. It is an essential reform. It is now opportune, after the challenge put to business in 2001, for social and environmental concerns to be crystallised into company law. The Bill will make that happen. I strongly support my hon. Friend, who has done the House a great service in introducing the Bill. I hope that he will make at least some progress today.

§ Mr. Barry Gardiner (Brent, North) (Lab)
I am delighted to follow my hon. Friend the Member for Hendon (Mr. Dismore). We have had an interesting 1211 Friday morning. Friday mornings are a time when the House debates matters in a way—different from during the rest of the week—that few people see. We have had both good humour and bad temper in this morning's debates. However, we are now debating provisions on which there seems to be a good measure of agreement across the Chamber.
I want to focus my remarks on the importance of corporate social responsibility, reform and the wider impact of the proposals not just in our society, but throughout the world. The Government set up an independent company law review in 1998, and I commend them for that. It was intended to establish fundamental reform of the framework of core company law. The company law review published its final report in 2001, and the first part of the response was published in 2002, in the White Paper "Modernising Company Law". As I understand it, the Government remain committed to the implementation of their proposals for company law reform.
Two of the main recommendations of the company law review were, first, that there should be an accessible, codified statement of the general duties that directors owe to their company as managers and monitors, embodying a modern, inclusive view of the range of decision making and objective standards of professional skill and care, tailored to the role of the individual director. The second principal recommendation was that all companies of significant economic size should be required to produce, as part of their annual report and accounts, an operating and financial review—the OFR, as my hon. Friend called it. That recommendation is reflected in clause 1(1) of the Bill, which states that a major company must prepare an operating and financial review. The intention of the Bill is not to focus on smaller companies. Right at the beginning, it explicitly mentions major companies and tries to recognise the impact that they have on the wider community.

§ Mr. Dismore
My hon. Friend is right to point out that the Bill imposes an obligation on directors to prepare the OFR. The review reports to the members of the company, but interest in it will go beyond those members. The Bill performs a neat conjuring trick, in that while remaining within the confines of company law, it will ensure that the wider public can have a greater understanding of how companies operate.

§ Mr. Gardiner
In a good debate, ideas feed off each other, and the intervention that I made in my hon. Friend's speech earlier has now come back to me. The wider interest that must be generated by an OFR is in the wider community's involvement as shareholders in the company. That will drive the company towards better and better practice, because it will know that when investors read the OFR and consider the wider implications of investing in that company, they will have some tough decisions to make. Investors will have to pay great attention to the sometimes damaging effects that a company can have before deciding whether to invest in it or not. That will promote better practice and companies will be forced on to their mettle to clean up their act. 1212 A good example of that was provided by my hon. Friend the Member for Crosby (Mrs. Curtis-Thomas), who used to work for a multinational oil company. She and a number of other people were studying the plans for a new plant that was to be built in an African country. My hon. Friend felt that something was not quite right about the plans, and when the meeting broke up she kept the plans to study them overnight, and found out that there was no filtration plant at the appropriate point to stop effluent being gunked out into the local community. When she pointed that out the next day, there was a bit of a silence and the people responsible for drawing up the plans said, "That's quite deliberate". There was no law to oblige that company to include such environmental controls.

§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)
I am sure that my hon. Friend will be pleased that the Government are supporting the UN global compact that Secretary-General Kofi Annan announced in 1999, which sets out principles for business on human rights, labour and the environment, and would cover the circumstances he describes.

§ Mr. Gardiner
Indeed. I wholeheartedly support the Government's actions in that respect. My hon. Friend is right to point out that those things need to be tackled internationally.

§ Andy King
It is important that the Government put their money where their mouth is. The Prime Minister issued a challenge to the top 350 companies in October 2000: to issue OFRs by the end of the 2001. However, only about 20 per cent. of them actually did so. We are lagging behind. Denmark has introduced mandatory reporting, as have the Netherlands, Norway and Sweden, yet the Department of Trade and Industry says only that we will soon be bringing forward OFRs. How soon is soon? It has taken six years so far—surely it is time to do something?

§ Mr. Gardiner
My hon. Friend makes a powerful point in support of his Bill and I agree; it is time to act. It is shameful that companies issued with that challenge have ignored not only the Government's directive, but also public will in this country. People certainly want OFRs to be set up so that there is a clear understanding of the impact of companies' practice in the areas and countries where they operate. It is a matter of the public right to know. Shareholders have the right to know what is going on so that they can make the appropriate decisions. They should be able to find out—if they want to know—how their money is being invested, and whether it is being invested in companies that behave in a socially responsible manner, as I believe the vast majority of shareholders want them to. We all have a stake in this matter; for example, those of us who share in pension funds.

Lembit öpik (Montgomeryshire) (LD)
I do not necessarily disagree with the general tenor of the hon. Gentleman's remarks, but I should like some reassurance. Will he confirm that he is not suggesting that legislation is required because we think that the majority of companies are irresponsible? From my 1213 experience in industry, I know that Procter and Gamble was always highly responsible internationally. Does he agree that, although there are details that could be discussed in Committee, the principle is not that everyone is guilty until proven innocent? The Bill would simply ensure that companies that transgressed internationally, perhaps significantly, were publicly brought to book.

§ Mr. Gardiner
I am most grateful to the hon. Gentleman for guarding my back. Before I became a Member, I ran an international company in the City for 10 years. In that respect, I am very industry-friendly. I understand the constraints of running an international company and am aware that the vast majority of such companies and their directors want to operate properly and ethically, for the benefit of the wider community. I welcome that. However, it sits ill with that when only a small percentage of major companies are prepared to prove their good intentions by producing an OFR.

§ Mr. Sutcliffe
Perhaps I can help my hon. Friend with some of the figures: 132 of the FTSE 250 companies report on environmental performance, with a further 100 reporting on social and ethical issues. So there is still a long way to go, but progress is being made.

§ Mr. Gardiner
Indeed, progress is being made, and I understand that, in many respects, it is better that companies willingly make progress. No one wants to drag companies kicking and screaming into declaring such matters. We want co-operation, and I am sure the Government want co-operation. Of course that is a tremendously sensible way to proceed, not just for FTSE 100 companies, but for all the companies involved who are saying, "This is what we want to do. We want to be open and transparent."
I remember speaking to Chief Justice Verma, a former chief justice of India, who is now a human rights commissioner there. He had a wonderful phrase, "Sunlight is the best disinfectant." That touches the heart of the matter. Putting forward the OFR and allowing transparency and all the facts to be available is the surest way of companies cleaning up their acts.

Lembit öpik
As Sunlight is a Lever product, I would suggest that Fairy liquid is the best disinfectant. From my experience in Procter and Gamble, I think that that company would say that it could use its impeccable standards, especially in international investment, as a competitive advantage. I have not been asked to raise this on its behalf, but it might ask why it should be made to do something that responsible companies already do effectively, without being made to by law. Given the Minister's statistics, will the more successful companies not report anyway, over time, because they will understand that not doing so puts them at a competitive disadvantage?

§ Mr. Gardiner
I understand where the hon. Gentleman is coming from, but the counter-argument is, "Look, if you are already doing this as a responsible company in the community, what can possibly be your objection to the regulations stating that you ought to do 1214 it?" If companies want to do something, surely they cannot object to the regulations stating that they have to do so, particularly as their competitors, who may have good reason not to want to do it because they may be shown in a disadvantageous light by comparison, will be forced to do it.
The perverseness of the argument that the hon. Gentleman makes—I will not call him my hon. Friend, as that would only ruin his career—is that those good companies that are already happy to put such information into the public domain may perceive a benefit to them by being contrasted with their competitors who do not put it in the public domain. They may perceive that they can then claim that they are more virtuous and more likely to attract investments from the ethical funds and managed trusts that want to invest ethically, and hence that they may gain a competitive advantage over those who do not conform as they do; so they may be against such legislation for that reason. That may simply show the labyrinthine workings of my mind, but I am sure the hon. Gentleman would agree that that perverse argument may encourage companies to favour worse practices than those that they themselves carry out.

§ Mr. Dismore
There is another aspect to the debate. Clause 9 is entitled "Promotion of company's objectives", so is it not an enabling power? At the moment, directors may wish to do the socially acceptable things that we have been talking about, but may feel constrained by the existing restrictions of company law, which says that they must act in the best interest of shareholders. Clause 9 would enable directors to act in a socially acceptable way even though they may feel constrained from doing so at present. The problem is not just reporting, but enabling directors to act.

§ Mr. Gardiner
I am grateful to my hon. Friend for pointing that out. Clause 9 states: A director of a company must in any given case…act in the way he decides, in good faith, would be most likely to promote the success of the company.

§ Mr. Sutcliffe
That throws up the question about the work that the Government have been doing on the Tyson report, on who should be company directors. Company directors should reflect society, and my hon. Friend may want to say something about that.

§ Mr. Gardiner
I confess to my hon. Friend that the Tyson report is not a part of the Government's work about which I have read a great deal. If he wishes to enlighten the House further, I shall be grateful to hear from him.

§ Mr. Sutcliffe
I thank my hon. Friend for allowing me to intervene. The Tyson report talks about who should be company directors. It says that they should reflect the make-up of society—for example, there should therefore be more women on company boards. The Tyson report, which the Government have accepted, is a major step forward, because it would help the way that people look at these issues—whether social, environmental or whatever. It is an excellent piece of work.

§ Mr. Gardiner
I am certainly happy to agree with the general thrust of my hon. Friend's remarks. A good 1215 company will wish to reflect the community that it serves. It can improve its capacity to serve the community by more closely representing the make-up of that community. I certainly would not support any arbitrary notion of imposing directors on companies; that would be wholly redundant and not the way forward. The directors appointed should be those most capable of taking the company forward, but my hon. Friend makes a good point when he says that women are under-represented as directors in some of the major companies in the UK. I know that the Government are working to redress that problem, and we should support them.

§ Andy King
Does my hon. Friend agree that the issue relates not just to the directors but to the investors in companies? The Bill would give more power to shareholders so that they can become enlightened shareholders, obtain a true picture of the activities of their company and begin to shape those activities in a more sustainable way.

§ Mr. Gardiner
That is absolutely correct. One of the most significant changes that the Government have made on this issue is the vesting of responsibility in the trustees of pension funds to make a statement of investment principles. They must report on that each year in their annual reports, and the statements must take account of social and ethical matters. Exercising corporate responsibility as investors has now been placed on the trustees of pensions funds, and that will have one of the most dramatic impacts in improving the practice of companies. They will feel the heat from their corporate shareholders. They will have to act responsibly to attract the investment funds that they need to expand their businesses and to perform well in the market. They will have to ensure that their statement of corporate social responsibility is made public, and made accessible to shareholders; and that, when the shareholders read it, they do not blanch at what their money is used for. I have no doubt that that will create short-term turbulence in the stock market and in those companies, but the long-term impact will be highly significant. I welcome the Government's intervention.

§ Mr. Dismore
Does my hon. Friend also agree that it is important that the public know where the buck stops? Clause 10 is important. It significantly limits the powers of delegation of a director so that people know who is responsible for the decisions taken.

§ Mr. Gardiner
My hon. Friend is correct. He highlights the delegation and independence of judgment that is required. A company director must not, unless authorised to do so by the company's constitution, or as a result of any decisions as set out in clause 8, delegate any of his powers or fail to exercise his independent judgment in exercising his powers. The provision not to alienate his powers and not to be at arm's length from the decisions that his company makes is critical.
Clause 9 provides that a director must take account in good faith of all the material factors that it is practicable in the circumstances for him to identify", 1216 and take all reasonable steps to minimise the impact of the company's impact on the communities that it affects and on the environment. Let me give a good example of a successful company in the UK that operates in precisely that way and fulfils Government policy in, perhaps, unexpected ways in an unexpected area. Timbmet sources timber from around the world and supplies it to the building trade in the UK. The company recognises that people in the UK, and in particular their Government, do not want any destruction of the rainforests and want the continued growth of forests of hardwood trees, which, unlike pine tress, which grow within 20 or 30 years, cannot simply be cut down and replenished. Hardwood trees have lifespans of 200 or 300 years, and sometimes longer.
Timbmet has engaged in a careful programme of identifying sustainable ways of supplying timber into the UK market. On the other hand, the Department for International Development has included in its country strategy paper on Cameroon, which has substantial forest resources, the importance of considering the impact on wildlife and the environment of the interventions that it makes and of its development interventions through aid.
It is often the case that an aid programme, such as the promotion of a new road through a community, has great commercial benefits in linking towns and communities that were separated, and in enabling a country to develop. No one knows as well as the Minister the importance of transport infrastructure in facilitating development. However, roads can have a devastating impact on the environment and wildlife.
The bushmeat trade used to be localised within selected, very poor communities in that part of the world, which depended on it for protein and have done so for generations. They were tremendously badly affected, because hunters from the cities used the new highways to come into those communities, snare wildlife, take it into the cities, and develop what has become an international trade in bushmeat. That is an example of the unexpected and perverse impacts that can result from otherwise good and sensible development proposals that bring real economic benefits to a community.
To return to corporate and social responsibility, Timbmet has formed an alliance with the bushmeat campaign in this country, has initiated programmes and is working with the Government, who have just issued the AFLEG—African Forest Law Enforcement and Governance—declaration, which my hon. Friend the Under-Secretary of State for International Development signed a few months ago in Ghana. That company wants to maximise its beneficial impact on the community in which its centre of operations is located in west Africa. It has also recognised how the consumer market works in the United Kingdom. It has decided that it is imperative that it operates in those communities in a way that is beyond reproach.
Timbmet has thus established its credentials in the construction industry in this country and the rest of Europe as a supplier of timber that can be certified as coming from sustainable sources. I should mention in passing the tremendously good work of the Forest 1217 Stewardship Council in that respect, in providing one of the few effective certification processes for timber around the world. Timbmet is also able to match the Government's aspirations, as their procedures state that wood used in construction by the Government must come from sustainable sources. That completes the chain, which goes right back to some of the poorest communities in the world, by ensuring that the pathways opened up into the forest by Timbmet's work are not used by hunters. That initiative protects those local, indigenous people who have depended on bushmeat, cane rat, duika and bush antelope for years, as a way of topping up their protein intake, and who otherwise would have been forced into food poverty as a result of a timber trade that came in and merely allowed hunting to continue on the back of it.
The impact of industries and companies on communities is incredibly diverse. It is sometimes difficult for Members to appreciate just how far the ramifications of such a seemingly dry Bill can be felt in communities throughout the world.

§ Mr. Dismore
My hon. Friend is correct to draw attention to the breadth of the environmental issues that the Bill addresses. I want to point out to him an issue that has so far been omitted from our debate: protection of the marine environment. We have looked at forestry and land-based problems, but the marine environment is also significantly under threat. Does he have some observations about that?

§ Mr. Gardiner
My hon. Friend tempts me down yet another route on a matter that he and I have debated at great length in the past. He is absolutely right; one need only consider the pollution of our seas and waterways. In using the word "our" I do not mean to suggest that the situation is confined to the United Kingdom. I pay tribute to the work that the Environment Agency has done over the past few years to improve the watercourses in this country.
It is absolutely critical that companies take into account the water supply of the areas in which they operate. My hon. Friend the Member for Rugby and Kenilworth described how Coca-Cola's location of its operation in India used up the local people's water supply. One would think that those people must have felt great joy that a major multinational company was locating in their area as they thought of the prosperity and employment opportunities that it would bring with it. That is true, and it is welcome that such inward investment goes into developing countries. However, unless those companies operate within clear parameters that protect the local community and the very essentials of its life, they are not welcome, because they are not acting in partnership with that community, but behaving in the same manner as the Danes in this country 1,000 years ago by pillaging its resources.

§ Gregory Barker
I am struck by the hon. Gentleman's comments about procurement from the third world. I want to draw his attention to the report on Government procurement that was undertaken last year by the Environmental Audit Committee, which highlighted the scandal surrounding the procurement of wood for the 1218 Cabinet Office. Similar things have happened in other Departments. Does he agree that before hon. Members start lecturing business, the Government should clean up their act?

§ Mr. Gardiner
If the hon. Gentleman is an avid reader of parliamentary questions, he will know that I have tabled more than 120 on the timber sources used by the Government and by each Department—a subject that is very close to my heart. The hon. Gentleman is right that it is important that we in Parliament should get our act together—indeed, it is an absolute priority. It is difficult to stand up and preach to industry and the rest of the world about what should be done unless we are following those procedures ourselves. I am delighted to say that all the Departments to which I put my questions about the procurement of timber were able exactly to describe the parameters of those processes and to say that they specify that hardwood should come from sustainable sources.
As the hon. Gentleman is a member of the Environmental Audit Committee, he will recognise that it is very difficult to track back the certification process. I mentioned the Forest Stewardship Council and the tremendous work that it does on enabling that to happen, but it is one organisation and we are talking about a global trade. When a supplier presents somebody with a certificate saying, "This has come from sustainable sources," there are very few ways in which they can be 100 per cent. sure that that is the case. I am sure that the hon. Gentleman would pay tribute to the work that my right hon. Friend the Secretary of State for International Development did with the Government of Indonesia when he was in the more junior ministerial position in that Department. He worked with them to ensure that the entire process of governance within that country, including the timber industry, enabled proper certification to take place.
There are an infinite number of links in the chain following the moment at which a piece of timber is cut down in the forest until it takes the form of sawn timber and arrives at a building to be turned into a door, a door frame or whatever. Unless every link in the chain can be certified, it is difficult for us to say, "We rely on the fact that we have a policy. We rely also on the fact that we have a formula that states that the material has come from sustainable sources." It is not enough for us to adopt the right policy. There must be an onus at every stage in the commercial chain, which goes right back to the forest, to ensure that we can properly identify the product that we eventually use.
I rose to talk about the reform of company law and the Bill, and I fear—

§ Mr. Sutcliffe
My hon. Friend has made an excellent speech, as he always does in the Chamber, on a Friday and at other times.
We are talking about a global situation. That reinforces why the Government need to ensure that we have high-performance companies and high-performance workplaces. All the issues that my hon. Friend has raised are global and there needs to be a global solution. Is he proud of the fact that the Government, since 1997, have supported a global approach in every instance?

§ Mr. Gardiner
I welcome my hon. Friend's intervention. He draws me back to my theme and to one of the major points, and that is that the Government have sought to be what all Labour Members would welcome, which is an internationalist Government. We must recognise that there is no such thing as getting something right in one's own backyard because it is intimately connected with the rest of the world. For things to be right in our backyard, it is necessary to ensure that everybody else is operating to the same standard that we wish to see domestically. I know that that is what the Minister believes, and it is what I believe. Many Labour Members would say that it is simply the Socialist International working properly. It is what the Government are trying to do, and I am delighted to support my hon. Friend's remarks.

§ Mr. Mark Francois (Rayleigh) (Con)
Like my hon. Friend the Member for Bexhill and Battle (Gregory Barker), I serve on the Environmental Audit Committee. I can confirm that the Committee has looked into these matters in detail and has expressed considerable concerns. There has been a lot of upset about the way in which the Government handled the procurement of some of the timber for the new Home Office building. Will the hon. Gentleman accept, without my wishing to make a particularly partisan point, that the Government need to try harder to put their own house in order? All members of the Committee have been pressing that point.

§ Mr. Gardiner
I hope that the hon. Gentleman will accept that I have been extremely upfront in my own acceptance that this is a matter that we, as a Government, have to get right. I am provoked to say that at least we have the right policies in place. At least we are setting the right standards and trying to abide by them. The hon. Gentleman must accept that for 18 years in this place that was not the case. We did not have those standards. Had I asked 100-odd written questions under a Conservative Administration 10 years ago, I would not have received the same answers from the Department concerned, setting out the good practice policy that we as a Government have implemented. I accept that it is not enough to have the right policies. We must ensure that we get things right, that we abide by our policies and that our suppliers abide by them. It is easy to say, "Well, it was in the contract. We did not realise that the suppliers were not doing what we wanted." Of course the Government must monitor their contracts properly. However, as I said to the hon. Member for Bexhill and Battle (Gregory Barker), sometimes, unless certification processes are in place, it is difficult to monitor effectively. That is why it is vital that the responsibility be placed on industry and carried down the chain; in large part, that is what the Bill will deliver in just one of its aspects.

§ Mr. Sutcliffe
On Government procurement, the Government's investment in the public services will give my hon. Friend more examples of how large amounts of money going into the public services will make things better, as opposed to the Conservative party's policy of reducing investment.

§ Mr. Gardiner
My hon. Friend is right. Awarding contracts and commissioning from companies and 1220 industry allows the Government to determine the terms of contracts and set the standards. The Government have spent billions on 14 new hospitals already built and 78—or is it 178?—in various stages of construction, as well as on new schools. It is open to the Government, quite properly, to specify the standards that they want and to ensure that corporate social responsibility and environmental standards are met. We have to follow that up by delivering the proper monitoring processes to ensure that that happens.
The Select Committee on Trade and Industry published the "Modernising Company Law" White Paper in May 2003, which, again, broadly welcomed the Government's proposals. What does the Bill propose on the OFR? The Bill reproduces the draft clauses on the OFR that were included in that White Paper, but with a few significant changes. Broadly, the Bill would require all major companies to publish an OFR, the objective of which was to permit the members—the shareholders—of a company to make an informed assessment of the company's operations, financial position, future strategies and prospects and impacts on the environment and on any communities in which the company operates.
Major companies are defined essentially as companies that will fill at least two of the following three conditions and are not subsidiaries of another European economic area-registered company. The first condition is that their turnover should be at least £50 million: the second is that the balance sheet total should be at least £25 million; the third is that they should employ at least 500 employees.
Opposition Members should not use that example to jump up and down to talk about red tape. From the remarks of the two Conservative Members who have spoken, I would not expect them to do so; they have indicated that they are broadly in favour of the Bill. I have no doubt, however, that should the Bill pass into law, it will be added to their list of red tape initiatives introduced by the Government. But this is red tape that the Opposition support and which we support; this is red tape that tries to improve the way in which companies operate.

§ Mr. Sutcliffe
My hon. Friend raises another important point on regulation. In an earlier debate, I tried to tease out from the Opposition which employment regulations they were against. That is a continual challenge that we put to the Opposition, who talk glibly about red tape but never tell us which regulations they want to get rid off.

§ Mr. Gardiner
That is absolutely correct. I look at all these dreadful regulations and red tape brought in by the Government and then I look at their effect. Their effect has been that we now have a national minimum wage for the first time, at £4.85.

Madam Deputy Speaker
Order. I think that we are wandering a little outside the scope of the debate.

§ Mr. Gardiner
I will observe your gentle caution, Madam Deputy Speaker, and return to the theme of our debate, because you are absolutely right.
The White Paper's proposals were far from perfect and it made it clear that they were a preliminary draft, designed to aid discussion rather than to give a 1221 conclusive view on the best legislative approach. The main changes from the White Paper proposals to the Bill are these. First, the OFR will always have to include information on the company's impact on the environment and on any communities in which the company operates. That is in clause 1(3)(d). Secondly, there is a power for the Secretary of State to make rules by negative resolution, although the purpose of such rules is not clear. That is in clause 1(9) and (10). Thirdly, the wording on employment, environment, social and community issues has been changed, I presume in an attempt to make it broader, although the effect is again uncertain. That is in clause 3(2)(c) to (e). Finally, the Bill would apply equally to private and public companies, whereas the White Paper proposed higher thresholds for private companies. I believe that the Government are in any case likely to propose different coverage in the draft regulations now being prepared.

§ Mr. Sutcliffe
My hon. Friend's speech is so excellent that I shall take the opportunity now, rather than mentioning this later, to announce that the draft regulations will be ready after Easter. The delay with the OFR has been raised with us before, but the draft regulations will be launched after Easter.

§ Mr. Gardiner
I am delighted to have that assurance from the Minister, and I know that my hon. Friend the Member for Rugby and Kenilworth will be as delighted as I am to hear that that is the case. We feel that the delay has been unacceptable, and it is good to know that there will be progress in very short order. We welcome the fact that the Government are going to publish their draft regulations in the near future.
The OFR will improve corporate governance by increasing transparency and accountability. It will provide better and more relevant information on businesses for shareholders and will enable investors to make better decisions, thus improving confidence in financial markets.

§ Andy King
I am extremely grateful to my hon. Friend for his excellent contribution to this excellent debate. I am also grateful to my hon. Friend the Minister for announcing that the Government will issue the draft regulations after Easter. My hon. Friend the Member for Brent, North (Mr. Gardiner) has teased out a few differences between what was in the White Paper and what is in the Bill. The Bill is not set in stone, and the whole point of producing it has been to get the debate going. I believe that we have gone a long way in that respect. We want to get the Bill into Committee so that we can put it into shape and adjust it as necessary. That is why I would be delighted dutifully to amend certain aspects of it in Committee.

§ Mr. Gardiner
I am sure that the Minister will have heard that offer from my hon. Friend. I pay tribute to him, because he has introduced his Bill in a most distinguished manner. He has argued his case with passion but also with the great reasonableness that the 1222 whole House recognises characterises him as a Member. He has put forward a strong case, and whether or not the Bill ultimately goes into Committee—I wish it a fair wind in that respect—I am sure that he will take great comfort from the fact that he has brought it to public attention. The Minister might not be able to accept it publicly, but my hon. Friend the Member for Rugby and Kenilworth has pressed the Government's heels on this matter, and he will be delighted when that bears fruit after such a short time in the publication of the draft regulations.
One of the main benefits of the OFR is that directors will need to identify and report on all factors that are key to the past, present and particularly future performance of their business. It is not intended to replicate or replace the social and environmental reports that many companies already publish. It is not the place for general reporting on environmental and social factors for the public interest. However, it will include disclosures on such factors where they are material to an understanding of the business, and it will be for the directors to decide what is material.
The Government have set up a working group, which will shortly publish guidance, and I am sure that the draft regulations will be significantly different from the White Paper and the Bill, partly in order to implement aspects of the EU modernisation directive of 2003, and partly to reflect developments in policy in the light of responses to the White Paper and further work, including technical improvement of the drafting. The intention is to publish a consultation document, including the draft regulations, as soon as possible.
What does the Bill propose on directors' duties? It reproduces part of the Government's draft statutory statement of directors' duties, but with one significant amendment.

§ Mr. Sutcliffe
Would my hon. Friend care to refer to consultation with organisations such as Business in the Community? We talk about regulation and red tape, but much good work is done in consultation with Business in the Community.

§ Mr. Gardiner
Of course, consultation with business is absolutely vital. We need business to be able to feed into legislation that concerns it. When its interests are to be materially affected, it is right to consult it at every stage, and I welcome the discussions that have already taken place.
The amendment to directors' duties is to impose a responsibility on them to take all reasonable steps to minimise negative social, environmental and economic impacts, while at the same time requiring them to act in a way that is most likely to promote the success of the company for the benefit of its members.
I believe that the Bill will create best value in companies. It tells them to look beyond the financial bottom line to the community bottom line. It says that they should not only maximise profit for shareholders, vital though that is, but consider how they are creating value in the community that they serve. A dry Bill alone cannot do that—it has to be at the forefront of directors' minds. I look forward to the day when Government, working with industry, can achieve that.

§ Gregory Barker (Bexhill and Battle) (Con)
I congratulate the hon. Member for Rugby and Kenilworth (Andy King) on securing this welcome debate. I am only sorry that it is being held at the expense of my own Genetically Modified Organisms Bill, but I guess that, as this is my Dispatch Box debut, from adversity springs opportunity. As we have heard, the Bill would provide for the production and publication of annual reports on the social, environmental and economic impacts and performance of companies and Government Departments. As someone who is interested in the whole green agenda, I am very pleased to be able to respond to this debate.
I should like to begin by making it clear that I am well aware of the need to be concerned about the harmful impact that some corporate activities can have on the environment and on local communities. All of us who want to promote sustainability would welcome greater transparency and better practice. However, at the same time I believe that the main priority of business and its most important contribution to society is the creation of wealth and jobs and the provision of goods and services. Winning orders and contracts might sound mundane, but it is central to the success of our economy.
It is clear that a balance must be found. I have been struck by the wide consensus that exists in respect of this issue, which is indeed about finding the right balance. The Bill's aims are not in dispute, but there is a genuine debate about whether they should be pursued by encouraging and nurturing best practice, or through regulation. Corporate social responsibility is important, but we must also recognise the primary necessity of encouraging wealth creation, for it is only through wealth creation that we can fund all the improvements in public services that our constituents rightly demand.
Social responsibility can indeed aid productivity and enhance a company's reputation among consumers. Britain has a pretty good record in this regard; indeed, the best performing companies on the stock market are often those at the forefront of best practice. Yet initiatives such as this can also inhibit commercial success. Policy makers have two options: the first is to impose legal requirements that businesses must meet—the Government are very good at that—and the second is to promote a voluntary approach, outlining the responsibilities that businesses should accept in the interests of all shareholders and all stakeholders. The choice is the classic one between carrot and stick.
It is my instinct and that of my party to be very vigilant in respect of any measure that might increase regulatory burden. I know that the hon. Member for Brent, North (Mr. Gardiner), who spoke extensively, is very relaxed about increasing regulation, but we Conservatives do not share his laid-back attitude to the ever-rising burden of red tape on business.

§ Mr. Sutcliffe
I am grateful to the hon. Gentleman for giving way and I welcome him to the Opposition Front Bench; hopefully, this could be the start of a long career. Given that there have been some notably poor performances by major corporate companies, does he feel able to support the Government's efforts to improve 1224 public confidence in the way that they operate? How should one balance the use of regulation against the performance of certain companies?

§ Gregory Barker
I do not have enough time to discuss particular companies, and to be honest I am not sufficiently well briefed to give the Minister an expert answer on the performance of individual companies. However, as someone who has worked in the City and in business, my feeling is that, by and large, British companies do a pretty good job and can hold their heads up high in the world. Indeed, they have often been at the forefront in encouraging and nurturing best practice. We should not be ashamed of our businesses; rather, we should be proud of what they achieve daily. I am not here to berate businesses, but I do want to encourage them to be better, and to take that best practice abroad and share it more widely. We must continue to be vigilant in terms of increasing performance.
There is no doubt that socially responsible programmes have the potential to bring benefits to business and to society as a whole; as such, they are to be welcomed and encouraged. However, too much compulsion can hit competitiveness, particularly of smaller firms, give less responsible firms an advantage, and even give the whole agenda of corporate social responsibility a bad name.

§ Mr. Dismore
The hon. Gentleman talks about small companies, but has he read the Bill? If he had, he would know that we are talking about companies with turnovers of £50 million or balance sheets of £25 million or with more than 500 employees. Those cannot be viewed as small companies.

§ Gregory Barker
If the hon. Gentleman were familiar with the definition of small to medium-sized companies, he would know that by stock exchange standards that is typically taken to mean companies with a valuation of anything less than £250 million—or, in some cases, less than £500 million. That definition may exclude basic trading companies, but many small companies with a market capitalisation in excess of £100 million perhaps on the AIM mark et or approaching a stock market flotation—could find their performance greatly inhibited by burdensome regulation.
My concern is that there are risks in the imposition of legal requirements, so it is vital not to force socially responsible initiatives on to business without proper and due regard to their impact on Britain's ability to compete. If business is faced with rising costs, the ability to win orders and create jobs is affected and all members of a community—rich and poor alike—may be made worse off. Regulation reduces economic freedom and deprives people of opportunities. That is the great risk of introducing a statutory approach to corporate social responsibility. The potential for harm caused by the imposition by the Government of a legal framework, including too many onerous standards and policies, is an important consideration.
As I said, it all comes back to a question of balance. I prefer to encourage business itself to take the lead in dialogue not just with politicians, but with other representatives and stakeholders in the community. A lightly regulated business environment, which promotes a dynamic economy, is the most important force in creating the fairer society to which we all aspire. 1225 In summary, I am broadly sympathetic to the aims of the Bill and I am glad to see it debated here in the House, but I am keen to see that it is neither too bureaucratic nor too prescriptive. Accordingly, my party will encourage the Bill into Committee for further detailed debate. At the same time, we will insist on a proper regulatory impact assessment so that the costs as well as the benefits of the measures in the Bill can be rigorously scrutinised.

§ Roger Casale (Wimbledon) (Lab)
I congratulate the hon. Member for Bexhill and Battle (Gregory Barker) on his debut at the Dispatch Box. Given the strength and brevity of his contribution, I am sure that we will hear many more fine performances from him in the future. We can all agree that we have heard many fine performances in today's debate.
I am pleased to have this opportunity to make a brief contribution because I represent a constituency with a high percentage not only of shareholders, but of professional and managerial people who are active in international companies and in many Government Departments. It was interesting to hear the expertise and comments of my hon. Friends the Members for Brent, North (Mr. Gardiner) and for Hendon (Mr. Dismore), and I would also like to congratulate my hon. Friend the Member for Rugby and Kenilworth (Andy King) on introducing the Bill.
It has not featured much in today's debate, but my hon. Friend also includes the actions of Government Departments—the public sector, not just the private sector—in the scope of the Bill. Many examples spring to mind. From the recent Budget we know about job changes in the Department for Work and Pensions?and other Departments—that will affect many of my constituents who live close to, and work in, central London. There is also the action of St. George's trust in disposing of land in my constituency, which will have considerable environmental implications. I would certainly like to see a more rigorous approach towards assessing the environmental and social impact of various Departments.
My constituents, like those of my hon. Friends, will be attracted by the touchy-feely appeal of the notion of corporate social responsibility, but the hon. Member for Bexhill and Battle was right to say that we should be cautious about what that will mean in practice and, in particular, for the bottom line. However noble our social and environmental objectives, we have to let businesses be run as businesses. We must not give them any other objective than being successful as businesses. To be successful, they must aim at maximising shareholder value and making a profit. Some directors and shareholders may go into business because they want to make a wider contribution to society, but the way to do that is to run a successful business and then invest the money made in other social projects?give it to charity or invest it in other ways.
At the same time, however, we must realise that the notion of shareholder value—which companies and directors have to maximise—is changing, in a changing world. My hon. Friend the Member for Brent, North 1226 spoke about best value. but I prefer to refer to the notion of enlightened shareholder value that recognises that if businesses are to be successful in the long term and in a sustainable way, they must be held to account in relation to wider objectives such as those that we have debated today. The Bill is desirable for exactly that reason.
The Bill is necessary, but when we review it in Committee we will need to take a cautious approach to how it will work in practice. One of the issues that will enjoy closer scrutiny in Committee is the question of whether the regulation should be mandatory or voluntary. We should not be too inhibited by the prospect of regulation because the Bill does not seek to introduce more red tape. Instead, it would introduce what may become known as green tape—something that will help companies to resist actions that would be damaging to the environment and, therefore, to the relationships that they have with clients and suppliers. Green tape could also prevent companies from damaging their reputations and, therefore, their longterm business interests, as well as assisting long-term sustainability.
Should the legislation be mandatory or voluntary? Well, we are talking about minimum standards. We want to encourage best practice, and Business in the Community has been mentioned as one vehicle among many that does that. However, we should not forget the extent of malpractice that occurs. We have seen several terrible business failures, with consequences on a massive scale, including Enron and Equitable Life. The people most affected are often those with investments—the rich and powerful—but we are considering the impact on local communities from job losses and environmental problems. Just as we seek to be tougher in the regulatory framework on business malpractice in the financial sector. we should introduce proper measures to prevent malpractice in relation to social and environmental concerns, which may affect all of us. I favour a mandatory approach, but we will return to the matter in Committee. The other aspect that we should focus on is the criteria. When the Bill was debated in January, it was made clear that whatever regime is introduced, it must be transparent and fair.
The point about consultation with the business community has not been made strongly enough. The Government have not said, "We know all the answers, we're smarter than everybody else. We know what to do, thank you very much. Here are our laws." They want to work in partnership to solve the problem. The Government will listen carefully to any proposals for legislation to bolster corporate social responsibility and will build on the excellent relationships that they have forged with the Federation of Small Businesses and other bodies representing business. The same thing applies locally. I am in close consultation with the Merton chamber of commerce in my community, which helps us in our work. I am sure that business representation will be clear and helpful and will assist us in framing transparent, specific legislation.
To return to my original point, society has changed. Sustainability is at the heart of our considerations on how best to secure the future of our local communities and on ensuring a fairer global business community. Our market economy must be underpinned by a strong and effective regulatory framework. Citizenship 1227 involves rights matched by responsibilities. The idea that such responsibilities and duties should apply to corporate entities is much stronger than ever before.
Much of company law is backward looking. These proposals are forward looking and will help companies to prepare for the future and could have a positive impact on their business success, which has to be the bottom line. I am delighted to add my contribution to a debate in which there has been a high degree of cross-party support for an important measure, and I congratulate my hon. Friend the Member for Rugby and Kenilworth on introducing it.

Lembit öpik (Montgomeryshire) (LD)
I think we all agree with the intentions of the proposals; the question is the degree to which they should be mandatory.
As hon. Members may have realised by now, I once worked for a multinational—Procter and Gamble. I chose to work for the company because I thought it acted with social responsibility, even though that was not mandatory. Members may not know that when there is an oil spill, Fairy liquid is used to wash the birds—not for public relations but because Procter and Gamble believes in doing the right thing. It is a shame that we seem to be saying that people will only start to act responsibly if it is made mandatory.
Employees are more inclined to stay with a company if they feel good about its values and feel that it is making a contribution to the community. Procter and Gamble did a lot of outreach work in schools and so on. When the Minister responds, I hope that he will assure us that the Government are not as cynical as that mandatory approach might imply and that he believes that good, responsible companies will act positively because they and their staff want to do so.
I came into politics because I think that human nature is basically good and that people will generally try to do the right thing without needing to have the Government breathe down their neck. Those who want to do 1228 otherwise will always find a way through and, looking at some of the provisions, I am worried that words such as "fairness" could be interpreted negatively by cynics. If the Bill goes into Committee—I am sure that the Minister will keep his contribution brief enough to allow that to happen—it is on such points that we shall push the most.
I agree with the intention behind the Bill but, as a Liberal Democrat and a positive politician, I still think that the human race is generous-spirited enough to do the right thing without always having to look over its shoulder for the law.

§ The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Gerry Sutcliffe)
Things are improving. The last time we debated private Members' Bills, I had a minute and a half to wind up the debate; today, I have two minutes.
I never cease to be amazed by the way we manage to get things done in this place. I anticipated making long speeches on previous Bills this morning, but that 1 would have no opportunity to speak on this Bill. I am delighted that we have been able to debate it, and I congratulate my hon. Friend the Member for Rugby and Kenilworth (Andy King) on introducing it. My Department has had a previous opportunity to respond to it, and I am grateful to be able to talk on it today.
There have been tremendous contributions from lots of hon. Members—pnotably, my hon. Friends the Members for Hendon (Mr. Dismore) and for Brent, North (Mr. Gardiner)—and I would find it difficult, even in two minutes, to respond in the necessary detail to the many issues that they have raised.
There is always a balance. That is why I tried to draw the hon. Member for Bexhill and Battle (Gregory Barker) on his views about regulation—
It being half past Two o'clock, the debate stood adjourned.
Debate to be resumed on Friday 30 April.