§ 2.45 p.m.
§ Order of the Day for the Second Reading read.
§ THE LORD CHANCELLOR (LORD GARDINER)
My Lords, I beg to move that this Bill be read a second time. In so moving, I think that my first words must be words of thanks to Lord Jenkins and the members of the Company Law Committee. We are all very indebted to them for the considerable amount of work which they did in this field and of which, in a sense, this Bill is a child. Of course, as economic and social conditions change so the law has to change to meet them. Our Company Law has always been elaborate, and the Jenkins Committee, in the introduction to their Report, say:This elaboration of the law can generally speaking he fairly justified as having been found necessary in order to keep effective control over the growing and changing uses of the company system as an instrument of business and finance and the possibilities of abuse inherent in that system.124 The same point was put slightly differently by my noble friend Lord Chorley in a chapter on Company Law in a book called Law Reform Now, when he said:Limitation of liability, in its inception a convenient method of joining a number of small investors with a common interest in a particular venture and insulating them from the risks of the venture and the travails of management, became a means to defraud investors, bilk creditors and evade taxation.From our main Companies Act, originally of 1908, after a lapse of 21 years the time had come for a radical revision of our Company Law, and so we had the Act of 1929. Another 18 years passed, and then again, in the Act of 1947, consolidated in 1948, we had another major revision. Since then another 18 years have passed and the time has come for us to see what revisions are necessary in our Company Law in consequence of changes which have taken place meanwhile. To my mind this should not be a question of Party politics. We are revising a piece of our law as a whole. There will always be room for differences of opinion. For example, so far as directors are concerned the Institute of Directors consider, I rather think, that we have gone too far, while the City as a whole think we have not gone far enough.
The Bill is in four Parts, of which the first Part deals in the main with duties of disclosure, the second Part deals with insurance companies, the third Part deals with banking and money-lending companies, and the fourth Part with miscellaneous provisions. I think that nearly all the points on which there may be differences of opinion are in substance contained in the first Part, and I should like, if I may, to take the less contentious Parts first. This means taking the Bill from back to front; but at any rate it will make a change.
I do not think that in the five clauses of Part IV there is anything to which, for the purpose of Second Reading, I need draw your Lordships' attention. They relate almost wholly to repeals or amendments of detail which are consequent upon the provisions contained in the first three Parts. Part III deals with the distinction between banking companies and money-lending companies, Section 6(d) of the Money-lenders Act 1900 having exempted from the provisions of the Act persons bona fide carrying on the business of banking. We all know 125 what is the difference between a bank and a moneylender. A moneylender is a man who lends his own money, usually at some risk, because if you have securities you go to a bank and not to a moneylender. But if he sees that the would-be borrower is in a responsible position, earning a settled income he is prepared to take his risk. A bank, on the other hand, is an institution into which you put your money for safe keeping, and, quite naturally, they charge you for it. Then, the moment your back is turned, so far from keeping it in safe keeping they go and lend it out to somebody else, out of which they make some money, and they do not usually take any risk because they lend money only on good security. This is primarily why, whether there is a slump or a boom, whether times are good or bad, almost the only people who are never affected are the banks.
The result of all this, for some reason that I have never quite understood, is that everybody agrees that banks are frightfully respectable people and moneylenders are frightfully disrespectable people. In consequence, great difficulties are put in the way of moneylenders who are not banks. They have to get a licence. Their contracts all have to be in a particular form, and if they move a foot wrong the whole thing is illegal and they cannot recover the loan. So it is important to distinguish between the two.
In former limes there was no difficulty, but in later times we have had merchant banks, finance houses, discount houses, and hire-purchase companies. If you want to buy a car and have not the money to do so, what you do in fact is to go to a hire-purchase company and borrow the money from them, on terms that you repay it by installments, they having the right, if you default in your payment of instalments, to come and take the car away. I said "in fact", because that is not at all the view which your Lordships' House formed some years ago, as a matter of law, and it is now too late to alter it. The law on the subject is that instead of being, as it plainly is, a contract for sale on credit terms, you are really only hiring the car from the company, they having never seen the car at all, and it is not until you have paid the final shilling that you can be said to be buying it.
126 Whether, in those circumstances, hire-purchase companies are moneylenders or not might, I suppose, be open to some controversy. In February, a case came before the Court of Appeal and it was contended that the United Dominions Trust (an old, most able and respectable hire-purchase company), who were the plaintiffs, were moneylenders. In the course of his judgment, the learned Master of the Rolls, Lord Denning, said:It is very desirable that the public should be able to distinguish between bankers and moneylenders. The UDT have only succeeded in this case because of their reputation and standing in the City of London as hankers. If any other concern should wish to be regarded by the courts as bankers, they ought to ask the Board of Trade for a certificate that they should be treated as bankers".The Board of Trade, in fact, have no such powers. They can give a company the equivalent of a certificate when they are satisfied that it should be treated as a banking company for the purposes of the Eighth Schedule to the Companies Act, 1948; that is to say, as to accounts. But the Board of Trade have no other power to issue a certificate of the kind suggested by the learned Master of the Rolls.
However, it is extremely important that there should not be any uncertainty in this field. If any bona fide hire-purchase company were to be held to be a money-lending company, all of their loans outstanding would be illegal and they would be unable to recover any of them. The purpose of Clause 81, therefore, is to end the present uncertainty by stating that a person is exempted from the provisions of the Money-lenders Acts if he has satisfied the Board of Trade that, as a person carrying on his business of banking, he ought to be so exempted. The clause provides for such an exemption being retrospective. It would be possible, in, say, August, 1967. to exempt a person from an earlier date. If that were not possible, it would leave room for doubt as to whether, in the period before the exemption was given, the company was not, after all, a money-lending company. That is what Clause 81 does. It also improves the definition of companies carrying on a banking business which is contained in the Act of 1900. Clause 82 repeals Section 1 of the Moneylenders Act, 1911. This was a provision which related only to loans under agreements made before January 1, 1928. We do 127 not think there are many loans outstanding now which were made before January 1, 1928. If the moneylender has not got his money back in forty years he probably will not get it back now.
Part II of the Bill relates to insurance companies. As your Lordships know, in the case of the Fire Auto and Marine Insurance Company, and one or two others, we have recently found that our citizens have been led to insure in companies which, when a loss arises, are found not to have the means to pay. Not only is this a great hardship on the person who is insured, but it may also, particularly in road traffic cases, be an even greater hardship on the unfortunate plaintiff who has been awarded damages, if he cannot get the damages which he has been awarded. There are few other Western countries in which insurance companies do not have to be authorised before they start business, and accordingly Clauses 44 and 45 provide that, while existing companies will be automatically authorised in relation to their existing classes of business, new companies can start in the insurance world only at the discretion of the Board of Trade. Clause 46 provides that their assets must exceed their liabilities by £50,000, and that if they have a share capital at least £100,000 of the share capital must be paid up.
Clause 47 provides for suitable reinsurance arrangements; Clause 48 that only persons who are fit and proper persons to start insurance companies will be allowed to do so. Clause 49 is one under which the Board of Trade may impose conditions on the investments in which an insurance company's money may be held during its first five years. Clause 50 provides that if the Board of Trade is doubtful about the affairs of an insurance company it can order the company not to undertake new business of a specified class or classes.
Clauses 52 to 57 deal with the accounts of insurance companies. Clause 58 doubles what may be called the solvency margin, and Clause 59deals with the methods of seeing that that margin is maintained. Clause 60 removes the present position by which the Board of Trade cannot petition for the winding-up of an insurance company without the leave of the court. Clauses 61 to 64 128 give the Board of Trade the same powers of investigation of insurance companies as they have under the Protection of Depositors Act 1963. Clauses 65 to 72 deal with the enforcement of the previous provisions, and Clauses 73 to 79 with minor miscellaneous matters. It is in the belief that there is really nothing in all this on which there is likely to be any dissent of principle, and in order to leave myself time to deal more fully with Part that I have passed over the clauses to which I have referred without going into matters of detail upon them.
Now I come to Part I, which perhaps raises the only question that is likely to be controversial. It deals in the main with what limited companies ought to disclose. Your Lordships may know that in February a Second Reading was given to a Companies Bill in another place, but then came the General Election as a result of which that Bill fell. Complaints were made during the discussions on that Bill that it did not go far enough. It was said there was nothing about directors' share dealings. Well, there is now, in this Bill. Then it was said that the Bill dealt only partially with the subject of contracts in which directors were interested. This Bill deals with that subject fully. Then it was said that the earlier Bill said nothing about directors' contracts of service. This Bill does.
Another criticism of the earlier Bill was that, so far as insurance companies were concerned, it dealt only with the form of accounts which they ought to keep. This Bill deals with them fully. Further, there was nothing in that earlier Bill relating to businesses akin to the business of banking, whereas Part III of this Bill now deals with that subject. Then it was said that that Bill had not dealt with the exemption of shipping companies from the other provisions. This Bill does so. Another criticism voiced on that Bill was: you have not dealt with the fact that a partnership cannot consist of more than 20 members. This Bill deals with that subject. Then it was said: you have not dealt with the question of nominee shareholdings. The Government said that that was a very difficult question and that any clause which was to provide for disclosure of nominee shareholdings would necessarily have to be a very complicated one. In this Bill we have done our best to cope with that matter also. The result 129 is that while the earlier Bill was a Bill in 45 clauses, this is a Bill of very nearly double the length, with 87 clauses and 6 Schedules.
The first matter is that which is the subject matter of Clause 2. If some companies ought to file their accounts at Somerset House, which companies ought to have this obligation? Clause 2 says all of them. As your Lordships will remember, this matter has something of a history to it. Originally, in 1908, Parliament said:" Well, it is really quite simple. There are public companies and there are private companies. The private companies are just small family businesses, and we need not trouble with them." They said that public companies must file their accounts, but private companies need not do so. Subsequent experience showed that the view that private companies would merely be small family businesses was quite wrong, and that a lot of very funny things were going on under the hat of the private company. As a result, in 1947, Parliament had another look at this matter and said, "We will split them into three: public companies, private companies and exempt private companies. Public and private companies should file their accounts, but on our definition of exempt private companies they will be only small family businesses, so we do not have to worry about them.
After a further period of time, the Jenkins Committee went into the matter and found that a lot of funny things were going on in exempt private companies, and that, so far from their being small family businesses, about 75 per cent. of all limited companies were exempt private companies. The Committee recommended, and the Government agree, that all limited companies should now have to file their accounts. The accounts of all companies are, of course, of interest to shareholders, to customers and to employees who may find themselves left with nothing but a claim for their wages in a winding-up.
The principle of the matter, it seems to me, is this. Although limited companies have undoubtedly been of the greatest use in the development of our economy, they are, nevertheless, an enormous privilege. You are saying to 130 people: "You lot can get together; you can start a business, and you can engage in trade. If the result of the whole thing is that you have got a lot of creditors whom you cannot pay, don't worry. Nobody is going to take away your house, nobody is going to rummage about in your bank account. You will be quite all right. All you have to do is to start another limited company." It is because this great privilege is given to people who operate limited companies that it is only right that one thing, at least, they can do in return is to file their accounts. All companies must have an annual account. All they are being asked to do is to send a copy of their annual account to the Registrar of Companies. Unlimited companies will be under no such obligation, and the Bill contains provisions at the end enabling registered limited companies to become unlimited companies, and unlimited companies to become limited companies. Those provisions are in Clauses 31 to 33; but if people want to have this great privilege it is not, I suggest, too much to put a duty on all companies to file their accounts.
I think that most lawyers and accountants would agree that, apart from any other factor, the exempt private company has really been the backbone of all the most successful tax frauds and tax evasions that there are. I remember a colleague of mine telling me that he had just had a conference with a client whom he was advising about something or other. At the end of the conference, he said to his client, "Now the conference is over, and I know you are paying me to advise you, and I am not paying you. But as a matter of interest I should be very concerned to know this. I see that your income is almost exactly the same as mine"—I think it was about £20,000 a year—"By the time we have paid income tax and surtax, that is £15,000, we have £5,000 left, and we both know what can be done with it to-day. I have a Rover car, and I am all right, but when I look at your expenses I see that you have a Rolls Royce and a Bentley, as well as a yacht. How on earth do you do that on this income?" The client replied: "Well, I have the best accountant in London, and I do what he says. He has provided me with twelve exempt private companies, and the whole thing is frightfully involved. The yacht belongs to 131 an exploration company, and it is all so complicated that the Inland Revenue do not seem to be able to puzzle it out. As a matter of fact I have not paid any tax for six years, and my accountant tells me that as long as there is a letter on the file to answer the Inland Revenue seem quite happy."
The next group of clauses, Clauses 3 to 14, and Schedule 1, deal with disclosure in the accounts of the company and also with the qualification of auditors. It was always one of the problems with the exempt private company that the auditor did not need to have any qualification or to be independent of the company. Clauses 3 and 4 relate to disclosure of subsidiary and associated companies, and by Clause 5 a subsidiary company must say which is its ultimate holding company. Clauses 6 to 8 deal with the remuneration of directors and provide that the chairman, or anybody who is paid more than the chairman, must state what his income is, and that others, as well as employees earning over £10,000 a year, can be put in bands of remuneration. The system of bands is, in fact, what is done in the nationalised industries: one finds the chairman's remuneration, and then that of the other directors in different bands.
A director must also say if he has waived his remuneration. This is of some importance, because otherwise somebody looking at the accounts may say, "Well, the directors are not being paid very much", entirely ignorant of the fact that, whereas he would think that next year their remuneration would be the same, of course if they waived a large part of their remuneration this year their remuneration next year would be very different.
I do not know why this has become controversial. We live in days when there is an incomes policy, and everybody's income is very interesting to everybody else. Why not'? The vast majority of our people are weekly wage-earners and they know what their income is and. for that matter, what their take-home pay is. This can he seen in the reports of the Ministry of Labour and as a result of trade union organisation. Everybody knows what everybody in the Armed Forces is paid, from the private to the 132 Field Marshal. Nobody thinks it is infra dig. for people to know what the Field Marshal is paid. Everybody knows what everybody in the Civil Service is paid. Many a wife, I expect, has been grateful to Whitaker's Almanack. Everybody knows what the Lord Chancellor is paid.
Why, then, should we have this privileged group of people, company directors, who are so extraordinarily shy about people knowing what they earn? I believe I am right in thinking that in America the remuneration of every company director has always been published for the last thirty years, and I cannot myself see any reason—we seem to have been very accommodating about the bands; and, of course, one should always be accommodating—why whatever remuneration any director gets should not in fact be known.
Matters of detail as to the accounts are now contained in the Eighth Schedule to the 1948 Act. Clause 9 and Schedule 1 to this Bill propose certain changes in that Schedule, and Schedule 2 to this Bill is a Keeling Schedule; that is to say, Schedule 2 shows what Schedule 8 would look like if the Amendments proposed in Schedule 1 were carried. Schedule 1 also contains an exemption for shipping companies. This was considered by the Jenkins Committee in relation to the exemptions which exist regarding matters to be contained in accounts for shipping companies. The Jenkins Committee were of the opinion that these exemptions should be abolished. The Government are not sure about that. They are not sure that there may not he one or two shipping companies which, for good reasons and in the national interest, ought perhaps not to have to disclose certain matters in their accounts, and accordingly, in Clause 9 and Schedule 1, the question is left to the good sense of the Board of Trade.
Clauses 10 to 14 contain miscellaneous matters—dealing in particular with the qualifications of auditors—and Clause 12 deals with the subject of whether banking and discount companies should also be exempt from some of the provisions which apply to others in relation to their accounts. This was a matter on which the Jenkins Committee were divided in opinion. The majority were in favour 133 of retaining the exemption, with some reserved discretion on the part of the Board of Trade. Under the Bill it is left to the Board of Trade, who, frankly, have not yet made up their minds. Discussions on the point have taken place, and are still taking place, between the Board of Trade and banking and discount companies.
I come to the group of clauses, Clauses 15 to 23, which deal with disclosure which is to be made, not in the accounts but in the directors' report. Clause 16 deals with contracts in which directors are interested, and with directors' dealings in the shares of their companies. Clause 17 provides that the directors' report should state what is the turnover of the company in each class of business, and I shall come back to this in a moment.
Clause 18 provides that any contributions over £25 for political or charitable purposes must be disclosed in the report. Clause 19 provides that the report must state the amount of the company's export business if its turnover is over £20.000 a year. Clauses 20 to 22 are subsidiary points, and Clause 23 deals with the shareholders' rights to copies of the directors' report. In this group of clauses there are one or two points which may be open to some controversy.
May I say a word, first, about the requirement that the directors' report should state the turnover and the export business? It is suggested, as I understand it, that if, for example, a limited company here had really only one customer somewhere abroad, this requirement would tell the company's customer much too much about its business. This sort of practical point I shall leave to my noble friend Lord Brown, with his practical experience. But the answer, I suggest, is that if you are a company which has only one customer, he knows it anyway. This is the sort of information which it is necessary for Governments, "Neddies", E.D.C.s and trade associations to know in the days in which we live.
With regard to the provision for disclosure of exports, I understand it is said that this is, or may be, rather hard on some companies which manufacture a lot of parts which some other company then assembles into a machine and exports. 134 But the Government and these trade associations are mainly concerned about the actual exporting companies; and, of course, there is nothing whatever to prevent a company which makes the parts from saying in its directors' report, "We are making a good effort to help the export trade, because such-and-such a proportion of our business consists entirely of making parts to sell to other companies, which they in turn export."
Then there is the question of political and charitable contributions over £25. Here I do not understand what the objection is. This is not, after all, the directors' money that they are giving away it is the shareholders' money. The Bill does not provide that they may not do so without the approval of shareholders. All it says is that when they have done so they ought to tell the shareholders what they have been doing, and I should have thought, with respect, that there could be no reasonable objection to that. I can well understand that, if three out of four directors happen to be supporters of the Labour Party, Conservative shareholders might be annoyed if they find their money being given away to the Labour Party. At all events, it is right that they should know. What seems wrong is that a shareholder writes to the directors and asks, "Have you been giving money away to any political Party, and if so which?", and receives the answer, "We shall not tell you." Of course, so often things work all right unless they are overdone.
Your Lordships may remember that in the General Election in October, 1964, the Conservative Party spent £750,000 on Press posters and Press advertising, the steel companies spent £1,250,000 of their shareholders' money on anti-Labour propaganda, Aims of Industry £370,000, and the Economic League £250,000. Then British United Industrialists was openly formed for the purpose of getting directors to give them grants and funnelling them to Conservative Party headquarters. As I have said, this is not directors' money; it is shareholders' money. I should have thought that the least we can do is to provide that, at any rate after the event, shareholders are told how much of their company's money has been given away, and to whom. In a sense, much the same thing applies to charities. Nobody wants to 135 stop companies from making reasonable donations to charities, and I should think that the shareholders of any shipping company who found that their board was not making reasonable contributions to seamen's charities would think that they ought to do so. On the other hand, if very large sums of a company's money were being given to Moral Rearmament because three out of the four directors happened to be believers in that, the shareholders might very well object, although I expect that is a charity.
Clauses 24 to 28 are other provisions affecting directors. Clause 24 prohibits directors from getting themselves options on shares. Clause 25 provides for the disclosure of directors' contracts with the company in which those directors are interested. Clause 26 provides for the disclosure by directors of their holdings in the shares and debentures of the companies of which they are directors; and Clauses 27 and 28 provide for the availability of this information at the company's office.
That leaves Clauses 29 and 30. These clauses provide an obligation on the beneficial owners of 10 per cent. or more of the shares of a company to disclose who they are. I did say that when the absence of a provision of this kind in the February Bill was commented on the Government said that it was going to be a rather complicated thing to do—and I think it is. As to whether we have provided for this exactly correctly in these clauses, we shall of course listen to the views of your Lordships and will welcome any Amendments which are genuinely intended to improve the drafting of the Bill.
As I understand it, it is still said in some quarters that even this Bill is not enough: there are still other recommendations of the Jenkins Committee, for example, which this Bill does not include. This Bill is only a first instalment. It is the intention of the Government to introduce a further Companies Bill in the lifetime of this Parliament. If it is asked, "Why do you not do the whole thing now?", it is because it must be for each Government to decide how much Parliamentary time in a particular Session they can allow for reforming the law in any one field, and this is all that can be allowed in this Session. But it is 136 a substantial meal. The Government will hope to be able to deal in the other Bill with the question of the protection of minorities; with the powers of the Board of Trade to investigate company affairs; and, perhaps, with the very relevant question to-day—as the success or failure of a company naturally depends so much on those who work for the company, the employees—of whether they ought not to have a more settled place or places on the board of directors of the company by which they are employed than English law allows them now.
It has sometimes been said that this Government have not always taken enough time in the drafting of the legislation which has been put before Parliament. It is because they want further time to consider these matters that they are introducing this Bill as a first instalment; and, in any case, it is not always wise to eat too large a meal at one time. This Bill, after all, has 87 clauses and six Schedules, and is just on 100 pages long, and I suggest it is quite enough for the time being. If, nevertheless, the noble Lord, Lord Erroll of Hale, or the noble Lord, Lord Drumalbyn, still say, "You ought to have covered much more ground", I must say that our reply will be—with every courtesy, of course—"Look who's talking!" In the last 36 years we have had only two Acts to reform our Company Law: that of 1947, consolidated in 1948, which was during the term of office of a Labour Government, and now this Bill is brought forward in 1966, again by a Labour Government. The Conservatives have not been wholly out of office in those 36 years, and it is strange that this passion for reforming our Company Law on an enormous scale seems to exist only when they are in Opposition.
I say nothing about "thirteen years", because I know that that is not a popular subject, but it is a fact that the Jenkins Committee reported in May of 1962 and that the Conservatives then had until October, 1964—two years and five months—with nothing much to do, except to create the worst adverse balance of trade in the history of the country; whereas we have not been in office yet, under both this and the last Government, for as long as two years five months.
§ THE LORD CHANCELLOR
I hope so. My Lords, I was looking last night at the debates on the 1947 Bill, and I saw that, among the old faces—or familiar faces; I must not say "old"—assisting the Lord Chancellor in the Committee stage at that time (and an enormous number of Amendments were put down) was my noble friend Lord Chorley. There were also notable contributions from my noble friend Lord Latham; from the noble and learned Lord, Lord Simonds, as he then was; from the noble Lord, Lord Saltoun; from the noble Lord, Lord Hawke, coming in on a number of occasions on the question, "Whether the clause shall stand part?"; and the noble Lord, Lord Man-croft. I felt even more at home when I saw that between the dates of the different Committee stages of the Bill there was a debate on the rising trend of divorce, and what we were to do about our divorce law; there was a debate on the Territorial Army; there was the Sunday Entertainments Bill; and there was a debate on the grave economic position. So I felt altogether quite at home.
I also noticed that although, I suppose, in those days, the built-in Conservative majority was a good deal larger than it is now, and although there was this enormous number of Amendments, the Opposition did not press any single Amendment to a Division. Noble Lords opposite are very keen on precedents, and I respectfully commend this precedent to them. On this happy note, I beg to move that this Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(The Lord Chancellor.)
§ 3.28 p.m.
§ LORD ERROLL OF HALE
My Lords, I should like to begin by echoing the appreciation which the noble and learned Lord the Lord Chancellor has expressed to the noble and learned Lord, Lord Jenkins, for his admirable Report. Lord Jenkins was invited by my predecessor, a member of a Conservative Government, to study Company Law and to report, and it so happened that I held the office of President of the Board of Trade when he reported to me in May, 1962. I therefore took particular note of what the noble and learned Lord the Lord Chancellor had to say about our so-called 138 inactivity. Of course, the first and most essential thing is to get a good Report by a well-known, impartial and highly-respected individual—and that is what we got.
In our way of thinking, we thought it right that there should be time to collect the opinions of all those likely to be affected before framing detailed legislation, and we made our intentions to legislate quite plain in the summer of 1964. It being impossible to carry a Bill through because of the impending Election of October, 1964, we made it quite plain how we were going to legislate and what we were going to do. We are sorry that the successor Government did not see fit to take our Bill on board and put it through, because it was a good Bill. Instead, they have wasted two whole years while they have been doing certain things which the noble and learned Lord the Lord Chancellor described as "yet another economic crisis", rather than getting on with some useful legislation. Nevertheless, we now have the Bill and it was most interesting to hear how the noble and learned Lord the Lord Chancellor described it.
In his dignified and lofty way, he suggested that of course there should be no politics in this matter, and then proceeded to make one of the most violent, controversial Party political speeches that I have heard in this House. Indeed, I have seldom heard one so vicious in its studied arrogance in another place when I was there for twenty years. I hope that some of his violent strictures on the banks of this country were meant to be funny. I like to think that he was being humorous, for I have appreciated his delightful sense of humour on previous occasions. But it might have been better if he had made it a little clearer that he was being funny about the banks and not nasty about them. I should like to give him the benefit of the doubt and assume that he was making jokes about the prosperity of the banks and the poor chances of survival of the moneylenders.
Also I noticed that the noble and learned Lord the Lord Chancellor referred somewhat disparagingly to the Institute of Directors who he thought would be against the Bill, and the City of London who, he said, were in favour of it. Perhaps I might instruct the noble and learned Lord. There are many 139 directors in the City of London who are Fellows of the Institute of Directors. Perhaps before going any further it would be in accordance with the custom of this House that I should declare my personal interests. I am a chairman of two British companies and a director of three others, and I am also a member of the Council of the Institute of Directors. So, if I speak with knowledge, I hope that I speak without prejudice.
My Lords, before going into the details of the Bill, I must say that I have seldom heard a Second Reading speech by a Minister introducing a Bill in which he started at the end and ended up at the beginning. But that, as the noble and learned Lord the Lord Chancellor said, does at least make it different; and with that I fully agree. I should like at the beginning of my remarks to state our Conservative attitude towards this Bill. We support changes in Company Law involving greater disclosure as a means towards greater efficiency. We therefore support the principles behind this Bill and many of its provisions. Indeed, there are some areas where we were pledged to go further than Labour has seen fit to go. I do not think that in going further it would have added many more clauses to the Bill. I have never heard a Member of Her Majesty's Labour Government apologise for a lengthy Bill. Some of the Bills we have had in the last two years have been very lengthy indeed. If they had wanted to, they certainly could have produced a more comprehensive Bill using the material that we left behind us.
While, therefore, we can lend our general support to the Bill's proposals, we criticise it on two grounds: first, on the ground of important omissions from matters recommended by the Jenkins Report, and, secondly, on matters in which the Bill goes further than the Jenkins Report recommended. To this we object. Noble Lords will probably have been studying Press comment on the Bill. It has been wide-ranging, and I think it is fair to say that it has been generally favourable. But respectable newspapers have not failed to point out some of the least savoury features of this Bill. For example, The Times, commenting on what one might call the "first edition" of the Bill, which was introduced in February, said on February 11: 140The bit about political contributions of course is vengeful, the bit about directors' fees is envious and the bit about export earnings invidious.The Daily Telegraph a week earlier said:Another radical proposal is for the abolition of the privileges of the 'exempt' private company. Here, likewise, it is difficult not to credit the Government with political prejudice…".These are the remarks of two well-respected newspapers who see in this Bill a substantial element of political prejudice.
In studying the Bill, and the many remarks made about it in another place when it had its earlier Second Reading, the "first edition" Second Reading, and listening carefully to the noble and learned Lord the Lord Chancellor, I could not but sympathise with the dilemma and the problems facing a Socialist Government. First of all, we must realise that they do not really believe in the free enterprise system: they regard it as a necessary evil. They must tolerate it, because it is the driving force of productive industry to-day. Secondly, they recognise, quite rightly, that the reform of Company Law is overdue and that they must do something about it. Then they are in the dilemma that they hold shareholders in contempt. They do not like shareholders: they have said so on many occasions. I would quote only one example—it comes from the Chancellor of the Exchequer, who in another place on May 10, 1965, said that the oil companyshareholder…is as redundant as the rhinoceros."—[OFFICIAL REPORT, Commons, Vol. 712, col. 208; 10/5/65.]I do not think that that is a very good statement to come from the Chancellor of the Exchequer, even in the heat of a debate in another place. But it illustrates the attitude of Socialist Ministers towards shareholders.
Then there is the distrust, if not hatred, of directors, especially part-time directors or ordinary directors. There is this eager curiosity—a form of envy—to discover what is the pay of directors. But I should have liked the Lord Chancellor to be perhaps a little more forthcoming about the disclosure of the pay of members of his own distinguished profession. When are we going to hear about the emoluments of barristers? When are we going to have some reforms about some of those 141 barristers who did very well in their last year and escaped tax? If there is going to be a vendetta between the profession which the Lord Chancellor represents and directors of companies in this country, let us have all the cards on the table and not just sneering, mocking references to the hard-working members of the Community.
I suggest that that summary of the difficulties and dilemma of the present Socialist Government may help to explain some of the more curious features of this Bill. I wanted to begin like this, because I must return to some of the points which can he regarded as political, contentious or prejudicial, according to the viewpoint of the individual noble Lords. Unlike the noble and learned Lord the Lord Chancellor, I propose to begin at the beginning and go on to the end, because in my simple, non-legal, way I find that the easiest way to get through a Bill.
I start, therefore, with exempt private companies. We accept the Jenkins recommendations; but I must point out to noble Lords that there is strong and reasonable opposition from many influential and respected bodies to the abolition of the exempt private company. In my opinion, this stems partly from the fact that Her Majesty's Government have gone beyond the Jenkins recommendations. If they had stuck to the Jenkins recommendations I think that the opposition to the abolition of exempt private companies would have been on a much smaller scale than it has proved to be in the event. The principal features in which the present Bill goes beyond the Jenkins recommendations are in turnover, directors' emoluments and rents. I should like to deal with each of these three in detail for a minute or two.
As regards turnover, it is going to be a very serious matter for the small business to have to reveal its turnover; nor is it necessary for it to do so, in the interests of the community or for any other purpose. The small business operating in, say, Leicester, will have to reveal its turnover in trade; whereas the comparable business in Leicester which happens to he a subsidiary of a nation-wide chain will not have to reveal the comparable turnover from its operations in Leicester. So that the small business will be put at a disadvantage as com- 142 pared with the branch of the big business. I believe that in the case of a small company its turnover is a matter entirely for that company and its shareholders. There is no possible justification for compulsory disclosure to the nation as a whole of the turnover of these small businesses.
As regards directors' emoluments in the case of the formerly exempt private company, this provision runs directly counter to what the Jenkins Report had to say in regard to the exempt private company…and I am not here dealing with the question of the large public companies. I think this is a matter of such importance that I hope noble Lords will allow me to quote from Paragraph 351 of the Report, where the Committee say:We recognised, however, that some information required in the accounts, while of interest to the members, was not of prime importance to creditors, and that its public disclosure by some small companies might he embarrassing to them; we had in mind particularly the requirement to disclose directors' emoluments.I should have been glad if the noble and learned Lord the Lord Chancellor could have explained, in a serious rather than a facetious manner, why he felt it was so necessary to override his noble colleagues' considered judgment in this matter. We shall, however, return to this subject during the Committee stage, when perhaps the noble and learned Lord will avail himself of an opportunity to give to noble Lords a fuller explanation.
The same applies to rents. I have mentioned turnover, directors' emoluments and rents, and I should like to inform noble Lords that during the Committee stage we shall seek to delete these requirements in respect of small, unquoted private companies. It is no answer to say that they can go unlimited if they prefer to do so, because that would be a retrograde step, since the great industrial and commercial development of our land has occurred through the remarkable British invention of the limited private company.
I turn now to the requirement to publish figures relating to export performance. I listened in vain for a full and satisfactory explanation from the noble and learned Lord the Lord Chancellor. He is an expert in many things but not, I fear, in the matter of 143 exports. I cannot see what useful purpose this disclosure will serve. If the Board of Trade want to know whether a firm is exporting or not, all they have to do is write a polite letter, and get the answer. What are the Government going to do with all this information when they get it? Are they going to start a witch-hunt? Are there to be unpleasant comparisons between a butcher's shop in Leicester which does not export, and a butcher's shop in Hull which does export, because it has a big shipping victualling business? Are we going to have a great stir-up of comparisons between some companies who happen to export direct, and others who export indirectly through what they supply to other companies? Such figures could not be meaningful.
Although the Lord Chancellor suggested that such companies could quote figures, how are they to know, when they supply a large volume of components to a motor car assembly plant, what proportion of those components are going in direct export as motor cars; what proportion are going to spare parts depots in this country, and what proportion will be shipped abroad as spare parts stocks overseas? The only way to find out would be to write to the customer and say, "Please can you give me some figures, because I have to put them in my accounts". What is the outcome to be if they get the information? What are people going to do with these facts when they get them? What I fear about this excessive degree of disclosure is that some people will start to say, "We have a lot of information, now we must start doing something about it". We shall get the assistant economic lecturer at one of the new technical colleges writing a thesis on the proportion of exports among small companies in this country, which will, in turn, stir up more discussion and more controversy.
It may be that those companies which do not export will be accused of" failing the nation"—a phrase very popular with Socialist Ministers at the present time. They will then have to prepare a long justification of why they are not exporting and why, in fact, they are doing much better for the nation by sticking to the job they know how to do. We oppose this disclosure of export turnover because it is misleading as between firm and firm; and 144 also because it can be very damaging to the firm concerned, and therefore to the national interest, because it will give foreign competitors valuable information which they would dearly love to have at present. We shall therefore seek to amend these provisions in Committee.
Then, as regards the disclosure of the salaries at higher levels and among public companies, the noble and learned Lord, the Lord Chancellor made great play with the salaries of Field Marshals and the salaries of public servants. I agree with him that many wives must be grateful to Whitaker's Almanack, but the great and essential difference between such salaries and the salaries of directors and executives in business is that the salaries of public servants are paid out of public funds and the public has a right to know how its money is being used. The salaries of directors and senior executives are paid by the chairman and the directors, in accordance with their estimate of the value of the services of each individual, in order to secure the best results for the company for whose success they are responsible to the shareholders. There is a very substantial difference. What is the object of this disclosure? is it really going to serve any useful purpose, or is it merely to satisfy the curious and the malevolent? We have had no satisfactory explanation of this. I fear too much that it is a desire to satisfy the curiosity of those who think they are not as well off as directors or chief executives. Or is it, indeed, to keep a watch on the general increase of such salaries? I thought that might have been a plausible argument which the noble and learned Lord the Lord Chancellor would introduce. I can assure him that the effect of such disclosures will be to increase the rate of increase of salaries far and away above what has been going on in the past few years, because you may be quite sure that there are many people who are curious.
The noble and learned Lord rightly pointed out that we are all interested in the incomes of other people—although we are not able to learn the incomes of barristers. And you may be quite sure that one executive will take good steps to find out what his opposite number in another firm is getting, if it is published, and make sure that his salary goes up commensurately. It is also obvious that 145 if the chairman is the best paid executive and he is getting more than the chaps lower down, they are going to say, "Why should you get three times as much as me? What about putting up my salary?"
There is another aspect of the matter: the new phenomenon in England known as the "head hunters"—a specialised firm which looks for men who are quite happily engaged in one job and entices them away to another job which is very much better paid. This section of the Bill is really the "head hunters' charter". It enable them to see in which firms the salary scales are low in relation to others, and they will know exactly where to go to pick out the good men for transfer to higher paid jobs. This may be a very good thing. I am not against high pay; it is only the Socialists who are against high pay. I am on the side of the executives who want more money, and it may be that this disclosure will be a very good thing to help to ameliorate the lot of the insufficiently well paid executive—though I very much doubt whether that was the intention of Her Majesty's Government.
Now I turn to political and charitable donations, a subject which was referred to in the Jenkins Report. It is a matter of some controversy, I think, as to whether Jenkins really referred to both political and charitable donations. I thought, as we may come back to the subject in Committee, that if noble Lords would allow me a moment, I should just like to explain that the relevant paragraphs are 50 to 53 inclusive. Paragraph 53 under the heading "Charitable and political donations", summarises what is going to be dealt with in the ensuing three paragraphs—namely:(a) whether political donations by companies should be permitted; (b) whether statutory powers should be conferred on every company … to make charitable donations of every kind; (c) whether such donations should be shown separately in the accounts.Paragraph 51 says:We do not comment on the substance of these suggestions"—that is, about political contributions being prohibited—because we are quite clear that they are not primarily a matter of company law".Paragraph 52 deals with charitable donations, and paragraph 53 sweeps up the 146 earlier two paragraphs in regard to donations as a whole, and says:But we do not think donations are a sufficiently important item in most company accounts to justify an express, general requirement to disclose them".We stand by Jenkins in this matter. We do not mind if all these contributions are going to be disclosed. We think it a pity to sully what should be a Bill dealing solely with Company Law by a mean, spiteful gesture designed to frighten firms out of giving to political organisations of their choice. But I think that side will be seen to be very small when compared with the charitable donations which have to be made public at the same time. So I think that by including disclosure and listing of charitable donations, the Government are largely defeating their own purpose in showing up the political donations.
But, of course, there may be effects unexpected by Her Majesty's Government. One would be if, as the years go by and more and more firms have experienced the hazards of Socialist Government, they will become increasingly proud to show their support of the Party which believes in free enterprise. Furthermore, there will be many shareholders—thanks to the initiative shown by Her Majesty's Government—who may well ask their companies, when they see no political contributions are being made to the Conservative Party, why no such contribution is being made on their behalf. So on this side of the House we are not afraid. We think that the correct Party will get the finance which they need from this source, together with funds from all other appropriate sources.
In regard to political contributions there are two matters which I think I ought to put to your Lordships. There can be two unfortunate effects. First of all, Socialist local authorities, and some trade unions, may well instruct the administrators of their pension funds to withdraw investments from firms making a contribution to Parties other than the Labour Party. There was some evidence of this in the summer of 1964. This, of course, would be only to the detriment of the viability of the pension fund. The other aspect (and there is some evidence of this too, though I will not burden your Lordships with the details) is the withdrawing of contracts and purchases from 147 such firms by local authorities, and possibly by Her Majesty's Government as well. There is no provision in the Bill against this. And we shall seek at the Committee stage to insert an appropriate Amendment, designed to avoid the victimisation of firms which give full exercise to their right to donate money to such political Parties as they may wish to do.
As regards charitable donations, as I have said, I am sure that the Jenkins Committee were right in thinking that probably the matter did, not warrant action, as the paperwork would be so great. I would question the £25 limit. I mentioned this to the chairman of a large company to-day and he said, "This is going to mean a terrible lot of work." Indeed, it will mean so much that many firms may well consider reducing their donations to charity—but perhaps that is the object of Her Majesty's Government. Perhaps it is not. But it is not made plain. I would make the suggestion, which I hope we shall press in Committee, that at least the lower limit should be raised from the present niggardly £25 to something like £125. In any case, I would say at this stage that in my opinion the Government have wholly failed to make out a case for what they are proposing. About the insurance provisions, which the Lord Chancellor dealt with first, I have little to say, because I am going to leave that to my noble friend Lord Drumalbyn, who will be winding up for our side.
Before I close I should like to mention one or two important omissions which in our view should certainly have been included in this Bill. The first concerns the procedure affecting take-over bids. The Jenkins Committee made some important recommendations in this regard, but there is nothing in this Bill, yet this could surely have gone in. It would have been non-controversial and it is long overdue. Secondly, as regards unit trusts, the Jenkins Committee urged freedom from the prohibitions on security dealing and the issue of circulars, and also that the Board of Trade should have power to impose a number of requirements by Statutory Instrument affecting the operation of unit trusts. This is shown in paragraph 324 of their Report. The law relating to unit trusts urgently needs improvement and overhaul in the framework of the Jenkins Report, and it could 148 have been done in this Bill without trouble or difficulty. Yet there is no mention of it at all.
As regards shares of non-par value, paragraphs 32 to 34 of the Jenkins Report recommended that ordinary and preference shares of non-par value should be permitted, but again there is nothing in the Bill about it. Accordingly, I give notice that we shall table an Amendment on Committee stage to give effect to this important recommendation of the Jenkins Committee, which I hope will be carried by noble Lords on both sides of the House.
My Lords, as I have explained, we on this side can give a partial welcome to this Bill, where it is good, but we shall not hesitate to oppose those features which we think are vicious and misconceived, and in that spirit we shall go forward to the Committee stage, where I hope we shall be able to improve the Bill substantially before it goes down the corridor to another place.