LORDS AMENDMENT TO COMMONS AMENDMENT No. 208 (Hansard, 27 March 1980)

Lord BRUCE of DONINGTON
My Lords, I beg to move, as an amendment to the Commons amendment, Amendment No. 208D. This amendment arises within the context of the Government's expressed intentions to introduce at some future time a further Companies Bill dealing with the EEC Fourth Directive, which implies that the next Bill will deal largely with accounting matters, with the standardisation of a form of accounts, and so on. It also takes place at a time when the country, in so far as it has been informed, has had an opportunity of considering the implications of the Dowgate Report, a report which your Lordships will recall was made by Mr. Joseph Jackson, QC, and Mr. Young, a chartered accountant, appointed by the Board of Trade under Section 165B to investigate the affairs of a group of companies, which for the moment we shall call the Dowgate group.
This report disclosed—and I do not think it is any exaggeration to say this—a degree of lying, cheating, double-dealing, concealment from shareholders of transactions that had actually taken place affecting the directors personally, breaches of trust 1099 and refusal by some of the witnesses summoned to co-operate with the inspectors themselves. One is happy to say that this is not typical of the City as a whole. One accepts the view that it is the exception. But it makes bloodcurdling reading, as the noble Lord opposite will know if he has read through it.
Quite clearly, the current Bill before your Lordships makes no pretence of dealing with any of the matters that have been revealed in the Dowgate Report; the Government have taken very little account of its conclusions and certainly have not acted specifically on any of its recommendations. That being so, and in view of the fact that the next important Companies Bill will deal largely with matters of account stemming from the Communities Fourth Directive, and the very dubious likelihood of yet a further Bill dealing, to some extent, with the evils revealed in the Dowgate Report, we on this side of the House think that we should persuade the Government to take one tentative step towards the recommendations made by the inspectors in this particular report.
Those of your Lordships who have read the very comprehensive report of the inspectors will recall that there was a firm of stockbrokers acting for one of the companies within the group and that certain members of that firm of stockbrokers were also members of the board of the particular company with which they were having dealings. I do not want to recite any names, just the principles involved. It was revealed in the evidence, and accepted by the inspectors, that certain directors of the company had used the firm of stockbrokers, of which their colleagues were members, in order to conduct a series of transactions that would not stand up to the very high standards that are normally in force in the City of London.
Briefly, the stockbrokers would buy shares on behalf of one of the directors. If the shares went up. they would be put down to the directors' account; on the other hand, if they went down, they would be charged to the company's account. That is the broad outline of it. I shall not go into any further details of the report, but at paragraph 7 of their recommendations the inspectors say: Consideration should be given to the prohibit 1100 tion of a company instructing or employing a firm or company of stockbrokers, one of whose members or directors is also a director of the company in question". This amendment does not go as far as that. We take the view that at some future time we hope soon—some legislative action will be taken to implement those detailed recommendations that were made by the inspectors appointed by the Board of Trade. However, as an interim, with a Government that will certainly be beset with many problems as the years roll on, within that context, we think that as a minimum and preliminary step it would be proper at this stage for Section 26 to be amended in such a way that information about the relationships between a director and a firm of stockbrokers, of which he is also a member, ought to be available to the members of that particular company by its entry on a register in the form set out in Section 26 of the Companies Act 1967.
This is a very modest amendment which will enable the Government to find out the extent of the problem. Of course, it is no answer to say that the provisions of the Companies Acts already require directors to disclose their directorships in other limited companies. That is, of course, so, but stockbrokers operate very largely as firms, and where this is so there would be no requirement for them to disclose that information at the present time, whether in a form in which it can be apprehended only by members of the company or whether, as in the case of those particulars that are registrable anyway on the company file, in a form open to the public.
This modest amendment provides the Government with an opportunity to consider the matter. I sincerely hope that they will not reject it on the grounds that it does not go far enough, that it does not go as far as the comprehensive legislation that they may have in mind on some future date, on the assumption that they will have the parliamentary time to deal with it. At any rate, acceptance of this amendment would be an earnest that they take the problem seriously and that they are prepared to ensure that members of public companies covered by this Bill are in a position to be informed as to those of their colleagues who happen to be members of stockbroking firms with which the company is in a contractual relationship. I beg to move.

§ Lord LYELL
My Lords, the noble Lord, Lord Bruce of Donington, has gone into this amendment in considerable detail, and in support of his amendment has quoted the Dowgate Report. The Government have consulted widely on the recommendations made by the inspectors in the report which the noble Lord, Lord Bruce, mentioned. Comments have been sought from the Stock Exchange, and indeed from every other form of organisation. As regards this particular recommendation, it seems that the general feeling in the City is that it is far the best thing to rely on the Stock Exchange's disciplinary control over its members in this particular aspect of the Dowgate Report. Certainly the Government have not, and are not, brushing aside any of the inspectors' other recommendations. We hope that there will be action to implement any of the inspectors' powers which need to be strengthened.
I am advised that Section 199 of the Companies Act 1948, which has been strengthened by the Bill before your Lordships today, already requires directors to disclose their interests in contracts with the company including their interests by virtue of the fact that they are members of partnerships which are party to such contracts. I think that Section 199 is still on the statute book, and I believe that that is a valuable safeguard.
It is already recognised, in regard to the noble Lord's amendment, in the Stock Exchange guidance for brokers—and these are its own members—that when a broker is also a director of a quoted company problems arise in relation to dealings with the securities of that company. We do not think that there is any purpose in requiring disclosure of that relationship to members of the company itself if the object is to strengthen the insider dealing provisions which already cover this problem by preventing any person with inside information, as we heard in the Dowgate Report, from dealing as an agent either as a director or a member of the Stock Exchange. We do not think that this amendment is relevant for this particular part of the Bill.

Lord BRUCE of DONINGTON
My Lords, I am grateful to the noble Lord for his reply. What he has said reinforces my view that it ought to be incorporated in the Bill. If it is so unexceptional that it commends itself to the Stock Exchange in terms of their voluntary approval, then there does not seem to be any reason why it should not be incorporated in the Bill itself. I do not think that the provisions of Section 199 of the old Act at all cover the situation which is described here, otherwise there can be no doubt that the inspectors would have referred specifically to that fact. It is precisely because the inspectors appointed by the noble Lord's department thought that extra action was necessary over and above that which was incorporated in the existing legislation, that they made the recommendations they did.
Talking of insider dealing, I entirely agree that where a rigid contractual relationship exists between a firm of stockbrokers and a company which can be reduced to written form, or which might even in certain circumstances be under seal, these are things for disclosure. But, as anybody who has read the Dowgate Report knows, the relationship was a completely unofficial one. The transactions were carried out over the telephone. There was perfect amity between the directors involved and those in the company concerned. There was a relationship that could not be expressed in terms of any contract that was in fact disclosable within the provison of any Act. There was, if you like, what is euphemistically termed "an understanding". That understanding expressed itself in the whole series of events which were reported in detail, and with great clarity, by the inspectors appointed by the Board of Trade.
We on this side of the House would take it as a sign of good faith, and a sign that, so far as noble Lords opposite and we are concerned, these are not profoundly party political matters but are matters essentially of firm purpose in establishing good faith and honour within this great commercial and industrial centre, if the noble Lord, on behalf of the Government, would accept this amendment, and certainly on the basis that they will pursue far more vigorous action afterwards when they next bring a Companies Bill before this House.