§ Order of the Day for the Second Reading read.
§ EARL GRANVILLE, in moving the Second Reading of this Bill, said, that he had gone so fully into its details on the occasion of the first reading, and those of their Lordships who were most interested in the measure had had such ample opportunity for considering its provisions, that he would not now travel over the same ground again, although he should feel happy to give their Lordships any information on the subject they might require. He should, therefore, confine himself to a statement of the reasons which had induced Her Majesty's Government to introduce the measure in its present shape. Their Lordships were aware that by the present law it was attempted to provide for the proper keeping of railway accounts and for their efficient audit, and that as soon as the present Railway Board was constituted by the existing Government, the hon. Member who was at the head of that board brought in a Bill on the subject. But the clause in that Bill giving the Railway Commissioners power to inspect railway accounts, met with so violent an opposition that it did not pass the House of Commons. The opposition of some of the opponents of the measure at the time, both in and out of the House of Commons, had resulted in the right hon. Gentleman at the head of that department being driven from the office he held; although it was found that some of the most active promoters of that opposition were not free from the irregularities against which the clause in question had been intended to provide. About two years ago the subject was taken up by a noble Lord, a Member of their Lordships' House (Lord Mont-eagle), who having filled the office of Chancellor of the Exchequer, and being Comptroller of the Exchequer, was particularly well qualified to undertake it. Having applied himself with his usual zeal and industry to the preparation of a measure, the noble Lord introduced a Bill, which in some respects might be called a Shareholders' Bill, as it gave power to a certain number of shareholders in a company to call upon the Railway Commissioners to 624 audit their accounts. That Bill passed their Lordships' House unanimously; it went to the House of Commons, where its second reading was moved. The Bill was supported by the right hon. Gentleman the President of the Board of Trade; but the railway interest, injudiciously as he (Earl Granville) thought, opposed it, and it did not pass the House of Commons. In the following year the noble Lord to whom he had referred moved the appointment of a Select Committee to consider the question of railway audit. That Committee met often, and various resolutions were passed, upon which a Bill was afterwards founded. He might say that the real difficulty experienced by that Committee was to procure persons to come forward to give bonâ fide testimony upon the different matters involved in the inquiry: but the Committee came to a resolution affirming the necessity of having a system of railway audit. The Committee had before them representatives from all the great railway companies, and many of the gentlemen of experience in these matters had declared that the present system of auditing railway accounts was mere moonshine. The noble Lord to whom he had referred offered to relinquish the Bill into the hands of the Government; but the Government felt that it could not be in better hands, although in the other House of Parliament it was undertaken by the Government. While that Bill was yet under discussion, a deputation waited upon the noble Lord the First Minister of the Crown, stated their opposition to the measure, and added that if it were persevered in, another month would be added to the Session. Subsequently a measure on the subject had been suggested by parties connected with the North Western Company, but that proposition had not been entertained by the Government, as it was not considered that it provided an efficient and independent system of audit. It contained, for instance, the inherent defect of all other railway audits, namely, that the auditors were to be named by the directors, and were chosen for one year only, thereby leaving them insecure as to their future election, and subject to be influenced by the directors in consequence. It was then that he had been induced to ask their Lordships to give a first reading to this Bill, and within the last hour he might say that he had seen several gentlemen connected with those who had before opposed the measure of the noble Lord, who now said that they had reconsidered the Bill, the 625 principle of which remained, but in the details of which there were some alterations which would be explained. Now, with regard to the introduction of a measure on this subject, the Government felt that it would be unfair to the public, to their Lordships, and to the noble Lord (Lord Monteagle), if they had not at once come forward to explain their views upon the subject. The Government conceived that the great complaint of those who objected to the present system was that we were without a real, independent, and continuous audit of railway accounts. Their Lordships were bound to consider the arguments which were urged in public, impugning and defending such a measure. Some of those arguments they could not admit to be arguments of any value or force at all, especially those arguments in which it was contended that the solvency of railway companies was a question in which the public had no interest, and which only belonged to the shareholders and the directors. Now, he could not admit that this was true. When it was considered that Parliament had legislated specially on behalf of railway companies, and had conferred upon them great powers—that the network of those railways throughout the country had expanded to so large an extent, and that the operations of the Post Office and the transmission of troops were dependent upon them—he was certainly of opinion that the public as well as the directors and shareholders in railways were deeply interested in their solvency. He denied that it had been the intention of the noble Lord either to obtain any degree of undue credit, or to procure an additional opportunity for the exercise of patronage for the Government. So little founded were these charges, and particularly the latter one, that at one time undoubtedly the Government intended to have secured a greater degree of direct influence in the operations of the board, than they would possess under the Bill be-fore them; but upon a due consideration of the whole subject, they thought it better to alter their views in that respect so as to prevent any such pretence being made a handle of, and giving rise to any difficulty in the other if not in this House as to the passing of the Bill. He would merely re-mind the House that under the provisions of this Bill there would be a railway central board continually employed in the auditing of railway accounts. The constitution of that board he had already ex- 626 plained, and he had now only to ask their Lordships to pass the scond reading of the Bill.
LORD STANLEYwould not oppose the second reading, unless, indeed, the remaining stages of the bill were to be pressed forward precipitately. In addressing himself to the subject before their Lordships, he confessed that he did not claim to be heard as an authority upon the matter. He had never attended a railway meeting, and he had never held a railway share, while, practically, he was conversant neither with the management of railways, nor the abuses or difficulties which had been found to prevail in connection with them, and which were said to require legislative improvement. Still, however, he addressed them because he had had that morning the honour of receiving a deputation, the authority of which he thought the House would be likely to recognise when he told them that it was composed of delegates from all the principal railways in the kingdom, representing no less than 119,000,000l. of paid-up capital. Now, had these gentlemen come to him with a proposition to resist an effective audit, he should have been the very last person to assist them, for, ignorant as he was of railway matters, he had heard and known enough of them to be well convinced that a really effective audit was indispensable for the good management of railways, and for the interests not only of the shareholders but of the public. Now, he did not mean to deny that the union of the railway companies on this subject had been, if not caused, at least accelerated, by the introduction of the Bill brought in by the Government, and to which they were asked that night to give a second reading; but his noble Friend had admitted the difficulties to be surmounted and the obstacles to be overcome in legislating upon this subject, and therefore he trusted that he would not be inclined to turn a deaf ear to the proposals which he (Lord Stanley) had to make upon the subject. Within the last three or four hours he had been waited upon by a deputation composed of the representatives of the principal railway companies—the representatives, indeed, of the vast majority of those undertakings. These gentlemen bad come to an agreement with respect to the present measure of railway audit, and their opinions upon the subject they wished to be stated through him to their Lordships. The Bill before them, in the opinion of these gentlemen, professed to provide that which was most desirable— 627 a really effective, although not an independent audit. It did not provide an audit exclusive of the shareholders. The deputation stated to him several objections to the principle of that Bill, and he was sure that the subject was one in respect to which Government, if they could obtain the consent of the great majority of the parties interested, would gladly agree to give way upon minor points and matters of detail. To the Bill, then, as at present proposed, railway directors and railway shareholders entertained great objection; and he had now in his hand the printed draught of a Bill, which had been framed by the delegates of these railway companies, and which, if they would permit him to lay it upon the table of the House, would be tomorrow ready for presentation, and would be found to embody a scheme which they conceived would obviate the objections to the Bill of the Government, and prove beneficial to the shareholders. This deputation was by no means a deputation from the directors of railways. It was one emphatically emanating from the shareholders, and in many cases it consisted of individuals selected on account of the antagonistic position in which they had stood towards directors. These gentlemen stated to him objections to the Government measure, objections both of principle and detail. The first objection of the former class to which he would advert was that of centralisation. They objected that any three persons, be they who they might, should in themselves be invested with such a degree of authority and control over all the railways of the country, as the auditor would possess under this Bill. They objected, also, to the degree of control which Government would exercise over the auditors so chosen. It was true that the auditors were to be selected by delegates chosen out of all the railway companies; but what ground had his noble Friend for saying that after they were chosen, Government had no control over them? That was not the case. The auditors were to be appointed by delegates, but after their appointment Government could continue them in their offices, notwithstanding the objections or the well-founded complaints of the delegates and the companies. He did not say that Government would abuse that power, but under the provisions of the Bill they clearly possessed it. Besides this, Government were to fix the salaries of the auditors, and of all the persons to be appointed under them—persons who would form a most ex- 628 tensive and most expensive staff. But Government had also another duty to perform under this Bill; 10,000l was to be levied, according to his noble Friend, who had much underrated the expense of this audit board, from the different companies—whether 10,000l. or 20,000l, or 30,000l. signified little—it had to be raised from the different railway companies. Then the Government was to declare, or, to speak more correctly, the board of audit was to declare, and Government was to sanction, the principles upon which that sum was to be distributed and raised upon the different railway companies. As the Bill provided for the amount to be expended, it was important to know on what principle that amount was to be collected from the different companies. On what principle, then, were they going to impose that rate? By the amount of capital, or by the amount of dividend? Some companies had large capital and no dividend, and others had small capital but large dividends. How was the rate to be apportioned and collected in such a discrepancy of cases? Well, but the expense to which he was referring was calculated at 10,000l. He believed, and in saying so he spoke the opinions of the deputation, that that amount would be found wholly insufficient. The clerks, secretaries, and travellers of the London establishment would absorb 3,000l. or 4,000l. out of the 10,000l. Why, the audit-office in Liverpool of the London and North Western Railway cost upwards of 4,000l. a year; and the clearing-house in Euston-square cost upwards of 13,000l. a year. The Railway Commission which actually existed, cost 15,000l.; and to suppose that the 4,000l., or 5,000l. which might be over after the expense of the London establishment had been defrayed would support the other necessary expenses, was, he believed, to entertain a most unreasonable proposition. But whatever the amount might actually be, it would be an amount over and above the actually existing expenditure of the companies. They must still continue to have their own audits, and to carry on their own business their own way; and he must say, that the addition of an indefinite amount of expenditure to that which they now actually were laying out, was a proposition to which they very naturally demurred. Again, the deputation represented that the proposed central board were to employ travelling clerks, who were to investigate the affairs of all companies in their own localities. This 629 was a provision which afforded reasonable grounds of apprehension, inasmuch as the companies feared that these clerks would be persons not inaccessible to such influences as might be employed by rival companies to induce them to reveal the details of business and management with which, in their official capacities, they might become acquainted. Again: this board of audit was for the alleged purpose of protecting the shareholders—for the alleged purpose of preventing the "cooking" of accounts. Now, he should wish to know from his noble Friend how this object was to be accomplished? At present railway accounts were annually made up to the 31st of December, and the meetings of the companies took place about the 15th of February. Now, between those periods it might be competent for the auditors of an individual railway company to go through the transactions of that company, and to make such a statement as should satisfy the shareholders; but he held it to be totally impracticable for any three gentlemen to whom they could submit the task, between the 31st of December and the 15th of February, to go through an examination of and regularly audit the accounts of no less than 183 railway companies. But what were they, in the meantime, to do as to the half-yearly dividends? To audit all the accounts would take at least six months. In what order, then, and according to what arrangement, were the auditors to proceed to settle the affairs of the different companies? Those which were longest postponed would have reasonable grounds of complaint. But were they, or were any of them, to wait for the declaration and distribution of the dividend until their accounts had been audited? If such were intended, not only would there be an undue postponement of the dividend, but to the auditor would virtually be left the task of fixing the amount of that dividend. Well, but what would be the case, supposing the opposite alternative to be adopted? Suppose, after the shareholders had received 6 per cent, the audit proved that they ought only to have received 4 per cent. The inference at once was, that the audit would be ineffectual in checking approaching mischief, however effectually it might expose that mischief after it had been committed. These were some of the objections of the deputation to a general audit; but that deputation was not averse to a bonâ fide substantial audit, which would give them a due statement of their 630 affairs. He admitted that a measure upon the subject had been too long postponed; and that with the closing of the capital accounts, one of the principal temptations to railway mismanagement was disappearing. Still a great many shareholders and directors had been proved to be very careless, and a good many directors to be very corrupt. The shareholders had, indeed, as a body, been careless as regarded everything excepting the amount of the dividend which they were to receive. But those days were gone by; the current was now setting the other way, and the danger seemed to be that of shareholders placing too little rather than too much confidence in their directors. They would not look upon a director as an honest man, but would be inclined to set him down at once as a rogue; and the falling dividend would quicken the shortsightedness of the shareholders. The Bill before them, therefore, came at a period when it was much less requisite than formerly, but still he thought that their Lordships would not consider that all necessity for such a measure had ceased. The desire of the shareholders was, that while the Legislature compelled them to institute an effective audit, that audit should not be altogether taken out of their own hands, believing, as they did, that the audit of each railway should be left in the hands of the shareholders of that railway. He would therefore state the principal provisions of the Bill with which he had been entrusted, and to which he had already referred. It proposed, then, that the shareholders of all companies should, each for itself, select a committee of audit, such committee in the case of each railway to consist of five members; that the committee should be composed of persons possessing such an amount of qualification as would entitle them to become directors, but that the members should not be directors or office-holders of the railway, or even persons under the control of directors or office-holders; and that no director should, by his own vote or by proxies, have any voice in the appointment of the committee. The audit committee being thus constituted, it was proposed that it should recommend two or more auditors, and certify fourteen days before the general meeting the names of the persons so recommended, and that no directors or office-holders whatever should have any vote whatever with regard to the nomination of those auditors so recommended by the committee. The Bill went on to provide that the accounts 631 should be kept in a regular form, as specified in a schedule, and that the auditors, having very full and general powers for the examination of all papers and transactions, should certify to the directors if they found anything irregular and objectionable. If the directors took no notice of such information, then it was proposed that the auditors should have the power of reporting to the general body of shareholders the abuse or irregularity which they had discovered. It was also provided that each set of auditors should employ a public accountant—such accountant being wholly unconnected with the company—to assist in going through and auditing the accounts. It was further proposed, that the half-yearly report should be sent to every shareholder seven days before a meeting; and in order to protect the minority, it was provided that a minority of not less than twenty persons, holding not less than one-twentieth part of the paid-up capital, should have the power of appointing a special auditor—at their own expense—unless from the result of his investigation the majority should deem it desirable that the expense should be borne by the company. There was another proposition in the Bill not connected with the matter of audit, but regulating and controlling the functions and office of directors. It was proposed that at the period of the directors retiring, only one of the retiring directors should be eligible for re-election, and that the directors should be prohibited absolutely, and at all meetings, from holding proxies at the expense of the company. Now, this was a very important cheek, giving the shareholders a fair and bonâ fide control over their property. Under the present practice, directors were allowed to bring down as many proxies as they might think fit, costing 2s. 6d. each, and consequently persons with twenty or thirty proxies each were able not only to control the proceedings of the meeting, but to put the company to very great expense. The Bill, therefore, as he had stated, abolished the system of directors holding proxies at the expense of the companies, unless in the case of a general meeting declaring that, for a special and particular purpose, proxies should be allowed to represent the opinions of shareholders. The Bill went on to provide that a register of shareholders should be made up monthly; that a list of all shareholders qualified for directors should be in the hands of the shareholders in general twenty-one days 632 before the time of meeting; and that the business to be transacted should be specified in the notice convening the meeting to which it referred. These were the principal provisions of the Bill which he had that day received from the deputation of which he had spoken. What he had undertaken to do was to state the objections which they entertained to the present measure, and to lay upon the table the scheme to which they were prepared to adhere. He trusted, therefore, that Government would not object to his introducing the Bill in question, with the view of having it printed and distributed; and, if his noble Friend pressed the second reading of his Bill this evening, that his doing so would not be considered as precluding the future consideration of the measure which he had now to lay upon the table of their Lordships.
§ LORD MONTEAGLEsaid, he much rejoiced to find that Her Majesty's Government had taken this subject into their own hands, admitting, as he fully did, that all the previous attempts at remedial legislation on this subject had left matters pretty nearly as they had previously been. It was undeniable that the necessity for an improved system of audit would diminish in proportion to the number of capital accounts which were in course of being closed up. But the noble Lord was more sanguine than he was about the closing up of capital accounts. If they were not to be so soon closed as people expected, and if companies came to Parliament for more capital, it would be as necessary as ever to have the and of an effective audit; and nothing could be more evident than that, if an audit had been discontinued by reason of closing the capital account, if it were again resumed by the creation of new capital, in opening up the capital account again the two accounts of the earlier and the later capital should not be intelligibly united the one with the other. He was not prepared to give his approval to the measure of the Government, though he rejoiced that they had taken the subject up; at the same time his objections to the Bill were different from those of the noble Lord opposite. He hoped their Lordships would remember that in dealing with this matter they were dealing with a vast amount of property, an investment of not less than 200,000,000l When he called to mind the property sunk in those undertakings, he could not help feeling strongly how unfortunate it was 633 that the public had been left to the present time without any good system of audit; it was a state of affairs seriously injurious to the interests of the country, as well as injurious to the shareholders—most injurious likewise to the commercial character of the country, both at home and abroad: such misapplication of powers, such betrayal of trusts, such utter disregard of law and of everything like justice and equity, had Inflicted, in his opinion, a greater blow on the commercial character of England than any which it had sustained since the time of the South Sea Bubble. It had led to an extent of gambling in this country of which scarcely any parallel could be found; and he feared that from this moral responsibility Parliament was not altogether free, for Parliament had developed, if it did not directly encourage, the reckless speculation of which they had heard so many and such just complaints. But, bad as all this was, something worse remained which the country might still be fated to endure. As a necessary consequence springing from wild gambling, the uncertainty left on men's minds was such that no one could trust railway accounts. At the present moment no one felt any confidence that dividends, when paid, were paid out of profits; they had no security that such dividends were paid out of profits or paid out of capital. They might have confidence in the character of the directors; they might rely upon the personal integrity of more than one individual who held a seat at the board of direction; but in the system itself they had no confidence whatever. And this was but just, for it deserved no confidence. He would take the instance of the Caledonian Railway among other railways that might be mentioned, and in which it would be found that a great portion of their funds had been applied to purposes for which, by the Acts constituing those companies, the capital had never been intended. When he found in the direction of a railway like that he had specified, the names of such men as Mr. Hope Johnstone and his right hon. Friend the Secretary at War, he could not for a moment doubt the personal integrity of the gentlemen concerned in managing that undertaking. It was not of the men, but of the system, of which he complained. It was the system that was in fault, and it was the system which required alteration. But if Parliament could be induced by the Government to substitute for the present, 634 a system which, giving a delusive protection, fails in providing any real security for the shareholders, they would only make matters infinitely worse than they were at present. He would rather have the present suspicion left upon the minds of the shareholders, resting as it did upon reasonable grounds, and tending possibly to make them watchful, than have a false confidence infused into them, resting upon grounds wholly unsubstantial. This, too, would be discreditable to Parliament; for if the House enacted a system of ineffectual audit, they would lead all the persons interested in railway companies into a worse position than even that which they now occupied. This, he apprehended, would be the consequence of the Government Bill in its present form. Pounded as it was on audit confided exclusively to the railway interest, he feared that the present measure would not give an adequate security for the fidelity of the accounts. The fidelity of the accounts was an object of paramount importance, inasmuch as melancholy experience had proved the temptation to falsify them was amongst the highest that could be offered to any body of men brought together as the members of some railway companies too generally were. His expectations were not unreasonable. What was wanted was, to have the accounts rendered truly and sincerely. The check to be at all useful, should be sufficient and absolute, above all, it should be independent; to show how necessary it was that an amply-sufficient check should be granted, he would mention the case of a northern railway, the accounts of which were audited by a gentleman, a public accountant, wholly unconnected with the company, and whose report under all the circumstances should have been considered altogether unimpeachable. Yet how was it disposed of by the company? At the regular meeting of the shareholders, the chairman of the company, holding up the auditor's account in his hand, said to the meeting, "Here is the auditor's account, and I am ready to put a motion for its adoption to the meeting if you think fit; but I think it right to tell you, that if this report be read and adopted, your dividends will fall." That settled the question at once. The account was instantly rejected. The effect was as magical as the cry of "Open Sesame!" The dividend was considered the grand point which must not be touched. And for that reason he (Lord Monteagle) thought that too much reliance was placed by his 635 noble Friend (Lord Granville) upon the shareholders, when he selected them as the exclusive persons to elect auditors. The fact was, that shareholders could not be depended upon like persona possessing property of a more fixed and permanent character. They had a greater interest in the present exchangeable value of their shares than in the future substantial value of the railway property itself. From facts well known to the greater number of the noble Lords then present, it was but too clear that railway companies were not always adequate to the task of performing the duties which they owed to themselves and the public, and therefore the Legislature and the Government ought to assist them in doing that which they evidently were unable to do for themselves. His noble Friend (Earl Granville) had said that his first impression had been that he ought to give the Government a little more authority in the affair than was accorded to them by the present Bill. In this he (Lord Monteagle) agreed. He thought that the Government had not authority enough conferred upon it under the Bill as printed. Some independent referable department ought to have, at least, the power of appointing one out of the three auditors, in order that the public might have the security of the vigilant supervision of one independent eye, and the consequent certainty that the truth would be disclosed. In the proposition of a Bill which had been laid before them by the noble Lord opposite (Lord Stanley), though no attempt was made to meet this fundamental objection, there were many points which deserved much consideration: of these, certainly the abolition of the present system of using proxies was one of the most urgent. The uses that had been made of proxies constituted one of the most flagrant abuses of the whole system; it too frequently overthrew the legitimate power of the shareholders. He would just mention a case that had been stated in the Committee upstairs. There existed a combined interest in what might be called an English and Irish railway; the English branch was the South Wales Railway Company;. the Irish was the Waterford, Wexford, and Dublin Railway Company. In the hands of the South Wales Company it was stated that there were shares of the other association to the number of 11,000; but that they were held upon a distinct agreement that the South Wales Company were not to be obliged to pay 636 any further calls upon those shares. He had often heard of sleeping partners, but he never before heard of a case in which men were to participate in the dividends without contributing to the capital. Still when there was occasion to vote, out came those 11,000 shares. They slept whilst there was anything to pay, but were called into most mischievous activity when there was occasion to vote. This alleged abuse was one that required a remedy. To return, however, to the subject of the audit—if they did wish for a really efficient audit. Parliament must, however unwilling the Government might be, insist on the appointment of one auditor in three by the Crown. Without something like that, every attempt to constitute an audit would prove a delusion. Under any auditors he would object to the clause which only proposed to give the new auditors the same powers as those possessed by the old. The old auditors had no power of taking cognisance of the scheme of account upon which the dividends were declared. It could not be denied that this document was one of the most important of which the new auditors ought to have the examination. Another set of accounts which now escaped audit were the legal and parliamentary expenses. An excellent suggestion had been made regarding them in the Bill proposed, in the Bill introduced by himself and passed in the last Session, to enforce taxation of costs, which provided that not more than 50 per cent of the amount of such bills of costs should be paid before the bills were taxed. The necessity of bringing the whole of those items under the control of the auditors, would appear when he reminded the House that it was calculated that the enormous sum of 10,000,000l. had been expended in parliamentary and legal costs for railways within a very few years. These accounts most certainly required rigorous taxation as well as an audit, not merely to prevent more money being paid than was justly due, but in order to prevent the introduction of undue and indefensible expenses under those heads. Amongst the evidence laid before their Lordships last year, there was one case in which—something after the fashion of the Caledonian Railway—a sum of several hundred thousand pounds had been expended, contrary to law, in the purchase of the shares of other companies. He (Lord Monteagle) asked the witness from whom the information had been elicited, how the directors managed to place before the shareholders 637 the accounts of these illegitimate expenditures of capital? And the reply was "Oh, we put it to the account of law and parliamentary expenses." And the reason the witness gave for the propriety of its being-placed to such an account was, that the company whose shares they bought might have opposed them in Parliament; and, therefore, it was but a logical way of jumping to the conclusion that in preventing parliamentary opposition, and consequent expenditure, the money so laid out was fairly to be considered as laid out in payment of parliamentary and law expenses. As to the expenses of the proposed audit, he thought they must exceed the 10,000l. named in the Bill. But whatever the amount, he should like to know what the present expenses of the 180 railway companies were for auditing their accounts, in order that it might be set off against a portion of the proposed expenses; and if the present system of audit were, as they had heard it termed by excellent authority, no more than moonshine—he adopted the words of Mr. Swift, the solicitor to the North Western Company—it would be good economy to pay twice as much for an efficient system. He should like to see the two Bills (Earl Granville's and Lord Stanley's) sent together to be considered by a Committee upstairs. If that were done, he believed there would be a much better Bill returned to the House from that Committee than either of the Bills were in their present stage, or those would be made by the House. He believed also that the Bill so amended would be that which would be most likely to succeed in the House of Commons.
LORD STANLEYrose for the purpose of adding that there were two points in the Bill of which he had taken charge which he might as well mention. As the law stood, any director might continue in office, and direct the affairs of the company, and levy calls on the shareholders, notwithstanding that he had not paid up his own calls. By the proposed Bill, any director who was a defaulter in the payment of calls became ipso facto incapacitated from continuing in the direction. Again, if a director in any way misconducted himself, it was proposed that he might be removed by a resolution of a general meeting of the shareholders.
§ LORD COLCHESTERwished to know how far the auditors would have power to examine railway accounts? He referred particularly to those sums of money 638 which were raised by Act of Parliament, for various purposes, by companies which had been some time formed. It had come to his knowledge that a large southern company, who had taken powers to raise 80,000l for making a branch railway, spent it, not as their Bill authorised them, but in purchasing a railway fifty miles off. He was anxious, therefore, that the auditors should have power to inquire whether such sums of money as Parliament might authorise the various companies to raise, were spent in accordance with the intention of the Legislature, and for the object specified.
§ EARL GRANVILLEwas understood to observe that the 6th Clause was sufficient to enable the auditors to make the inquiry suggested by the noble Lord who had just spoken. He thought it very essential that the public should be made aware that the contracts must be kept. He thanked the noble Lord opposite (Lord Stanley) for having stated the nature of the Bill he had introduced, and for the manner in which he had expressed his willingness to allow the second reading of the Bill before their Lordships, on the understanding that he (Earl Granville) would not press it through the House in any of its subsequent stages with unreasonable haste. Some of the objections of the noble Lord seemed to be founded on some little misconception. In the first place, as regarded the expenses of the audit, when Government fixed on the sum of 10,000l, they did not moan to say that it would be fully sufficient, and was all that could be possibly required; they merely took it as the first sum to be paid up, and he had stated in a very distinct way that he believed the expenses might amount to 20,000l As it appeared to him, there was a great difference in the principles of the measure proposed by Government, and that entrusted to the noble Lord opposite; one was a Bill for the audit of railway accounts within the company; the other was a Bill for the audit of railway accounts without the company. Those who would be delegated to inquire into the accounts under the plan suggested by Government, would be persons without any interest in the company's affairs, and not open to the objections which existed to the appointment of auditors by the shareholders. On the three members of the board would be concentrated the whole force of public opinion, and if they made the appointment of persons manifestly unfitted for their duties, they would be exposed to 639 the weight of that opinion, and he obliged to retrace their steps. The delegates of the several companies would elect the three auditors, and the character and capacity of each of those officers would be examined more thoroughly by such a body, than they possibly could be if they were appointed by Government. If they were to be elected by 200 or 300 people, who felt that their numbers shielded them from all such responsibility, it was not likely that the same strict scrutiny would be made, or that the force of public opinion would have so much influence. As to the provision of the Bill to be introduced by the noble Lord, that the directors were not to have a vote in the election of delegates, he must say, he did not so much regard the power of the directors or the influence of their fifteen or twenty votes, as their indirect influence, which must necessarily be very considerable, with the great body of the company. Now, he thought that the directors would, by means of proxies and otherwise, still retain the whole of the indirect influence which they possessed, whilst they would be relieved from the responsibilities that would attend their open act. He assented to the principles of that Bill so far as they had been stated by the noble Lord. It would be found that auditors elected for one year would have a very strong idea that if they desired to have a chance of re-election, they should not make themselves too troublesome to the various companies. There was one great advantage in a permanent audit board, that they would derive increased facility for the despatch of business as they continued to sit, and that auditing the accounts of railways for one year would give them much useful knowledge towards the audit of the year after.
§ EARL GRANVILLEsaid, that that too would be a very objectionable rule, because it would do away with all the advantages of accumulated experience.
LORD STANLEYthought that the auditors to be appointed under the Bill would not get through the accounts of the different companies in sufficient time.
§ EARL GRANVILLEsaid, he thought that objection was sufficiently answered by the fact that six commissioners were found to be sufficient to get through the whole accounts of the country, so that he thought there would be no difficulty in the auditors to be appointed under the Bill getting through their particular accounts in suf- 640 ficient time, sooner, in fact, than they were now.
§ LORD BEAUMONTsaid, if his noble Friend intended this Bill to be referred to a Select Committee, and that the other Bill to be introduced to-morrow should be allowed to overtake it, so as to be referred to the same Committee, then he had no objection to its second reading. The necessity of an audit of railway accounts on which the public could implicitly rely, had been so clearly demonstrated by recent events that it was idle to dwell longer on it. But he objected both to the present Bill and to that shadowed out in the speech of the noble Lord (Lord Stanley), because neither of them went to secure a totally independent audit. He did not think there was much difference in principle between the two Bills, because both of them, though perhaps in an indirect and roundabout way, gave the appointment of the auditors to the company themselves. It was often the interest of both shareholders and directors that the true financial position of the company should be concealed from the public, and if the appointment of auditors was still dependent on the votes of the company, the public would not obtain a full insight into the money transactions of these great undertakings. Now, the principle which he was anxious to see carried out was one which would secure an audit totally independent of the companies; for he was satisfied that till that was done no trust could be placed in the returns made by those auditors. If the principle adopted in the Bill of his noble Friend were persevered in, he would come to the conclusion of his noble Friend opposite, that it would do more harm than good, because it would not secure a really sound audit, or a knowledge of the actual state of a company's affairs, and yet it would produce in the public mind a false confidence in the statements made by these companies, which would have a strong tendency to mislead. He was not anxious particularly for the good of the shareholders—he did not look to the interests of the directors—he looked to the interests of the public at large; he regarded these companies not in the light of ordinary companies who had obtained powers to carry out a scheme which was to be made profitable to themselves; he looked upon them as trustees who had undertaken to do certain acts for the benefit of the public, and that the public, as parties interested, had a right to see and know exactly how the 641 whole transactions were conducted. At present it was impossible, not only for the public, but even for the shareholders, to have any knowledge of the financial state of these companies. There were some railway companies with which he was connected, and he had whole drawers full of their balance-sheets, which really looked very plausible; but all he knew was, that there were no dividends, and that the capital account had been expended. Mind, in each of these railway companies they had audits, and yet this was the result, and therefore he said that unless the audit was totally independent, it was worse than nothing at all. He concluded by asking his noble Friend if he would allow the other Bill to overtake the present one, so that both might be referred to the same Select Committee?
§ EARL GRANVILLEthought he had stated enough when he undertook not to hurry the Bill through the House, so as to give perfect time for their Lordships to judge of the provisions of the noble Lord's Bill. With regard to the proposition for referring the Bill to a Select Committee, he was quite sensible of the great advantages they would derive from the services of noble Lords and Gentlemen acquainted with railway affairs in such a Committee, but should like to have time to consider it. The Bill of last year had been lost, owing to the delay which had occurred before a Select Committee, and a similar delay, arising out of the number of witnesses to be examined, and other causes, might hazard the passing of this Bill also. On the whole, he was of opinion it would be advisable to send the Bill to a Committee, but wished for a day before he decided.
§ Resolved in the Affirmative.
§ Bill read 2a
§ House adjourned till To-morrow.