Companies Bill [H.L.]

HL Deb 21 February 1989 vol 504 cc600-36

8.50 p.m.

House again in Committee on Clause 91.

Lord Williams of Elvel moved Amendment No. 231DA:

Page 89, line 8, at end insert ("(6) Part 11 of the Companies Act 1985 (a company's management; directors and secretaries; their qualifications, duties and responsibilities) is amended as follows.

(7) Leave out section 286(1)(e).").

The noble Lord said: I beg to move Amendment No. 231DA standing in my name and that of my noble friend Lord Peston. It may be convenient if I speak also to Amendment No. 231DB.

These amendments direct themselves to the position of the company secretary. The company secretary is mentioned in various places in companies legislation, in the Companies Act 1985 and in the Insolvency Acts. There has never been a definition of what a company secretary should do. There has been an earlier debate in your Lordships' Committee about who should sign the accounts of a company. There were a number of your Lordships in Committee who thought that it was not right to accept the Government's proposal that the company secretary should sign those accounts. Be that as it may, it posed the problem of what the company secretary really was. It seemed proper both to me and to the Institute of Chartered Secretaries and Administrators to put forward an amendment which would try to define the duties of a company secretary.

To some extent this has come out of what I might call, without offence, the Guinness affair. Your Lordships will be well aware of what I am talking about. The Guinness affair involved board committees keeping particular information secret from the whole board. It was believed at the time that the company secretary should have had the opportunity to supervise the minutes of those committees and to report them to the full board of directors. The Guinness affair is in the past to the extent that it has happened, but the resolution of that affair is not yet completed. The legacy of that affair and indeed of other problems which have occurred in public companies has led the institute to try to establish a definition of what a company secretary is meant to do.

Amendments Nos. 231 DA and 231DB try to define what the secretary should do. It is in many senses a radical definition of the role of secretary because it asks for a clause in the Companies Act which specifies that the secretary shall be responsible to the directors for the effective administration of the procedures and arrangements for compliance with the law. Therefore, in a sense, the secretary is here being defined as what, under the Financial Services Act, we should call a compliance officer. The amendments ask for the presence of the secretary at any board meeting or any board committee meeting and provide that the secretary shall be entitled to review their minutes and shall prepare the minutes or arrange for their preparation so that the full board can be aware of what any board committee does. They also specify that the directors of a company shall receive at each meeting the minutes of any committee which the secretary has prepared and furthermore and this is perhaps most important—that the secretary shall be removed from office only by a resolution passed at a properly convened meeting of the directors, and shall be entitled to receive notice of that and to be heard.

The position of the secretary is as yet undefined. The Guinness affair has shown that things can go on in companies—and things still go on in companies—of which the secretary is unaware; that there must be a conduit, which the secretary is properly qualified to be, to ensure that the whole board of directors, which is responsible under law for the conduct of a company, is informed of what takes place not only in meetings of the board itself but in committees of the board which may be set up perfectly legitimately by one means or another but which may from time to time take place and resolve matters which the whole board is not aware of.

The amendment seeks to establish in law what is the role of the individual who is not just the secretary of the company but the compliance officer, the chief legal officer of the company. I would support the institute, which put this amendment to me, in thinking that it is time that that should be defined. The Government may disagree with one or other of the various provisions in my amendment but I submit that it is the right moment to define in the Bill the role of the company secretary.

Lord Strathclyde

The Government are opposed to this set of proposals, both for reasons of general principle and also because they consider that the implications of the individual changes are in some cases highly undesirable in themselves.

Turning first to the specific issues, I should like to draw the attention of noble Lords to the very restrictive implications of the change relating to the appointment of the secretary. The consequence of this would be that for any plc the directors of a company would not be able to appoint as secretary of that company the person whom they wished to appoint unless that person had the prescribed qualifications. This would hold true not only for plcs but also for any private company in a group containing a plc, no matter how small that company might be. The discretion given to directors under the current law to appoint the best man for the job, regardless of formal qualifications, would be entirely removed.

The present law of course specifies certain qualifications that a company secretary may hold. I do not wish to play down in any way the value of those qualifications or the suitability of people holding them to perform the tasks for which a company secretary is responsible. However, the list at present is not exclusive. The board may appoint as secretary someone whom it regards as suitable even if that person does not hold one of the stated qualifications. The Government do not believe that a valid case has been made for removing that element of discretion.

Equally, we have very considerable misgivings about the provisions relating to the dismissal of secretaries. There is a tried and tested framework of employment protection legislation in this country with safeguards against wrongful dismissal and procedures for obtaining compensation for such dismissal. It would be invidious and unjustified for the secretary of the company to be given exceptional privileges in this regard compared with any other employee.

We also regard as redundant the proposal that directors be given a duty to establish procedures and arrangements to ensure compliance with the law. Directors already have a clearly established duty, both as individuals and in respect of the company, to comply with the law, and they are the people who bear the consequences if they do not comply. We therefore believe that they are the best juLdges of what should be done to ensure compliance. Indeed, it is integral to the role of directors that they exercise their own judgment on such matters. It is not for the law to take such decisions for them or to dictate what the internal administrative arrangements of their companies should be. Again I remind Members of the Committee that we are discussing not merely the imposition of such structures on enormous pies but on every company in the country, regardless of its size, which is part of a group containing a plc.

It follows from those basic objections to this proposal that we are opposed also to the consequential proposal that the secretary be given responsibility for oversight of such procedures and arrangements. This would detract from the directors' own fundamental responsibility.

Turning to the remaining issues, we are of the view that these are also internal procedural matters which should not be regulated by law. The directors can and should decide for themselves how to deal with such issues. That is not to say that they do not reflect good management practice, but we cannot and should not attempt to legislate on management procedures.

The noble Lord, Lord Williams of Elvel, mentioned one case—Guinness—to make his point. Obviously I cannot comment on that case. However, I hope that he will read what I have said. I hope that he will feel able to withdraw his amendment.

9 p.m.

Lord Williams of Elvel

I do not think that the noble Lord has understood the role of the secretary of the company. The secretary of the company is the chief legal officer of the company. He is by extension the person who is meant to ensure that the board of directors of the company comply with their responsibilities. He does so at the moment—I know from personal experience—without having any statutory or constitutional basis or a basis in the articles. The problem is that he is a servant of the company, yet he is trying to ensure that the directors of the company comply with their legal responsibilities. There is the great dilemma. The secretary's role must be defined in some way or another. He is there to make sure that the directors adhere to their responsibilities. It is no good the noble Lord saying that the directors are bound by law to adhere to their responsibilities. We know perfectly well that it does not always happen. If the secretary's job is to do that, he should be given some definition in the statute. We have spent hours defining the role of the auditors. I am spending five minutes trying to define the role of the secretary.

Lord Strathclyde

I shall be brief, but the noble Lord, Lord Williams, commented that I had said that directors of companies were bound by law and that they would not necessarily comply with the law. The noble Lord is suggesting that secretaries are somehow brought under the law. I could say exactly the same to him: that they would not necessarily comply with the law. I therefore do not see how he is improving the position or even proving his point.

He also suggested that the company secretary should prepare minutes of a meeting. I do not wish to imply that this is not a good idea, but to try to cover that in legislation is inappropriate. It is properly a matter for the internal organisation of the company, and any legislation would be virtually impossible to enforce. Furthermore, the compliance officer analogy that the noble Lord used is wrong. The compliance officer is a role in a company in a sector subject to a particular supervisory regime. In the generality of companies the directors themselves are responsible for the internal regulation of the company. Finally, the secretary is not necessarily the chief legal officer of the company. Certain companies have legal directors who do their job perfectly well.

I do not think that the noble Lord is talking pie in the sky. I know that he has had representations from the institute on this matter. Obviously it is concerned for the professional nature of its members. However, the Government do not feel that this is particularly important or relevant. I hope that he will think again.

Lord Williams of Elvel

The Government may think what they like. I have certain experience and I hear from the noble Lord, Lord Hanson, sitting on the Back Benches that he has certain experience of the way in which companies are run. The secretary is the person who draws up the minutes of board meetings and should draw up minutes of committee meetings of the board unless committees are established in a way that is perfectly legal under the law. The secretary is the person who makes sure that those minutes are observed, that matters arising are properly dealt with and that the directors are aware of their reponsibilities. That is the job that secretaries normally perform.

I speak as one who has been a director of many companies over the past 25 years. I admire the way that secretaries generally do this. However, they do so as employees of the company. They therefore have essentially a conflict of interest because they are employees. They do not go to their chairman and say, "By the way, I am terribly sorry but the committee which you set up is not in accordance with section this, that and thus of the Companies Act". It is very difficult for a secretary to do that.

The noble Lord makes a face but the root of the Guinness problem is that a secretary finds great difficulty in going to his chairman or managing director and saying, "I'm terribly sorry. You pay me my salary, but I have to tell you that what you are doing is not in accordance with the companies legislation". This is the problem that the amendment is designed to remedy. If the Government dismiss it as pie in the sky or rubbish, then I am afraid that they have not really understood what the job of a company secretary is and what the problems are that are faced by a company secretary.

I shall not press this to a Division, but I hope that the Government will consider the amendment and the representations of the institute and will perhaps look a bit more seriously at the possibility that there might be a role for the secretary defined in law, in the same way as there is a role for the auditor defined in law.

Lord Boardman

I hope that I shall not be considered to be denigrating company secretaries, but I feel I must say something in response to the noble Lord, Lord Williams, because I do not feel that he really understands the practical position in a corporation. The secretary is a statutory officer of the company. The chain of responsibility lies to the chairman and through the chairman to the board of directors. Anything that crossed that and tried to establish a second tier of authority set up in opposition to the board and the chairman would be wrong.

Secretaries are people for whom I have the highest regard. They have acquired a status and a training which did not exist some years ago. The secretaries and their organisation deserve great credit for what they have done. But let us put them in the right posture; that is, as officers of a company with responsibility to the chairman and through the chairman to the board. That, I believe, is the position which exists today, and it is the right one.

Viscount Caldecote

I fully support what my noble friend said and I take up one point that the noble Lord, Lord Williams, made. When I was the chairman of companies in the past I remember several times a secretary coming to me and saying, "Chairman, I do not think you can do that. You cannot do this or that". There is no problem for the secretary to say that, and if the chairman is sensible he will take wise advice. That is the way it should be done, as my noble friend has said.

Lord Pennock

May I take that further? As an erstwhile chairman I have had a number of secretaries working with me and on many occasions, as the noble Lord has mentioned, these things have happened. The efficiency, the effectiveness and the way in which the secretary performs his tasks is a direct reflection on his calibre and ability. Usually one has secretaries of calibre and ability. To buttress the system with some legislation in this way would not make it more effective.

Lord Carr of Hadley

I must very briefly support my noble friends. I do not believe that I have the reputation, at the moment anyway, of being a "yes" man in support of the views of my noble friends on the Front Bench. I believe most strongly that the Government's view is right in this matter and that the amendment is wrong.

Lord Lloyd of Kilgerran

I must immediately apologise to the noble Lord, Lord Williams, that I missed his presentation of these amendments. We all recognise where they came from. I was invited to put them down and put my name to them, but I decided I would not and I shall tell the Committee my reasons later.

I recognise that these are amendments proposed by the Institute of Chartered Secretaries and Administrators. One has the greatest respect for secretaries of companies, as the noble Lords, Lord Boardman and Lord Carr, and others have said, but I thought that the amendments that we were being asked to put down carried the position too far in favour of the secretaries. Therefore I could not support them. As the noble Lord, Lord Boardman, said, the amendments seek to introduce a second tier in the government of a company.

Lord Williams of Elvel

I can see the phalanx of company chairmen and managing directors against me. I understand that. I can understand the noble Lords, Lord Boardman, Lord Pennock and Lord Hanson, and the noble Viscount, Lord Caldecote—I leave out the noble Lord, Lord Carr, because I believe that he may be on our side on a subsequent amendment—would certainly agree that the secretary is an employee of the company, responsible to the chairman. Any good chairman will have a secretary who will say to him, "Chairman, you cannot do this". But my friends and I have to say that there are companies which do not have chairmen like the noble Viscount, Lord Caldecote, and the noble Lords, Lord Boardman, Lord Hanson and Lord Pennock. There are occasions when companies require a compliance-type officer. I believe that the secretary is the only person who can fulfil that role. If Guinness had had a secretary holding the powers contained in my amendment, the problems which arose may not have done so.

In the light of the phalanx, the fact that Members present and those in the dining room who are chairmen of companies oppose me, and also in the light of the comments made by the noble Lord, Lord Lloyd of Kilgerran, which surprised me, 1 beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 231DB not moved.] Clause 91 agreed to.

9.15 p.m.

Lord Williams of Elvel moved Amendment No. 231 DC:

After Clause 91, insert the following new clause: ("Composition of Board. . At the end of Part IX of the Companies Act 1985 (company's management; directors and secretaries; their qualifications, duties and responsibilities) insert the following new section after section 310

"310A. At least one third of the directors of a public company shall be non-executive, and one of these shall be Chairman of the Board." ").

The noble Lord said: I face the phalanx again. However, that which faced me when I supported my noble friend Lord Bruce of Donington on the Second Reading of the Bill successfully introduced by the late Sir Brandon Rhys Williams contained more Members of the opposite Benches who spoke against that Bill than are present this evening. I am sure that quality will make up for quantity and that I shall encounter the same power of opposition as that which then faced my noble friend Lord Bruce.

The ultimate accolade for a spokesman of the Opposition is to incur the anathema of the CBI. I am glad to say that I have received that ultimate accolade. Members of the Committee will be aware that the CBI has issued a parliamentary brief stamped in red letters. It states that my amendment is, "A danger to economic health", to quote from its title. My noble friends will also have received it. I am grateful to the CBI for giving me the privilege of being declared a kind of anti-Christ in the debate.

I hope that when Members opposite speak they will put away the speeches that have been written for them by their private secretaries and also those written for them by the CBI. This is not a Second Reading debate. It is a debate in Committee on the role of non-executive directors; whether, as a result of my amendments, the economic health of the nation will be endangered; whether the interests of British industry will be seriously affected; and whether the proposal is against the public interest in general.

My Amendments Nos. 231DC, 231DD and 231 DE are designed to introduce into our legislation not a new element but a best-practise element in public companies as they now exist. As far as I know, many public companies have non-executive directors. Some do not; but most do. As far as I know many companies have non-executive directors as chairman. As far as I know, many public companies have compensation committees which set the emoluments and perquisites of executive directors. As far as I know, a number of companies—I should not like to say "many" because I have made no analysis—have audit committees. The object of these amendments is to try to reflect what I said on Second Reading of the Bill and also what the noble Lord, Lord Carr of Hadley, said.

I believe that it is time to write into our legislation that there should be non-executive directors on public company boards and I drafted an amendment specifying one third of directors which I believe follows that proposed by the noble Lord, Lord Carr of Hadley. I believe, if anything more strongly, that there should be compensation committees because all Members of the Committee will be aware that over the past two or three years the compensation awarded to chief executives, managing directors, chairmen and senior executives of companies has been exaggerated to a certain extent.

I believe that my third amendment on audit committees presages a Community requirement which at the end of the day will be implemented in our legislation and will ensure that the audit committee of non-executive directors will be responsible for making sure that the financial affairs of the company are, within the context of a board of directors, at least vetted by people who are not themselves executives.

Perhaps I may turn to the CBI brief. The CBI brief says that my amendment will introduce inflexibility into the way companies run their affairs and will impair the competitiveness of British industry. It goes on to say that executive directors and the conduct of companies' affairs should not be subject to supervision and that if there is supervision, that strikes at the heart of the principles of UK company law under which all directors, executive and non-executive, have equal responsibility for all decisions made.

It goes on to say that compensation and audit committees as a mandatory requirement is a step towards a two-tier board system. This is perceived by industry as likely to lead to a division of two or more boards. Finally it says that all those matters should be for a company to decide and must so remain.

Nowhere in the CBI brief can I see any indication that the shareholders have the right to say what they think about the matter which I am discussing. Industry is described as it is and I perceive industry to be those people who work on CBI committees and who represent those companies which are large companies and, in many cases, are chief executives and chairmen of those companies. I have nothing against that but I find it very odd that that purports to be representative of industry.

I have a quarrel with the CBI brief over the fact that it is suggested my amendments strike at the heart of the principles of UK company law; of course they do not. We all accept that executive and non-executive directors alike have a responsibility under UK company law, an equal responsibility. Nevertheless, in best practice there is a non-executive element which has a role in balancing the executive element, because, as we know, from time to time the executive element can try to override the interests of shareholders. The CBI claims that that is a matter for a company to decide and must so remain. However, Parliament decides what should be the constitution of companies. That is why the Bill is before this Chamber. If we perceive that there is a mischief, that there is inadequate representation for shareholders and that the interests of shareholders and employees are not being properly represented on boards of directors, it is for Parliament to take the necessary measures.

I believe that this is part of a long running saga. I do not believe that I am going to win the argument this evening. I do not expect to win a Division were I to call one now. However, I have to say to Members opposite that I believe that the whole question of employee ownership, of non-executive directors and how companies are managed—the question of company governance is not one which is yet resolved. I believe that in the 1990s we shall move forward, whether on our own account or in Europe, towards a type of system that my amendments represent.

I look forward to hearing noble Lords opposite either agreeing with me or arguing their case, having thrown away the CBI brief with which they have been supplied. I beg to move.

Lord Carr of Hadley

As the noble Lord mentioned my name perhaps I can be the first to go into bat on this side of the Committee. I have not received the CBI brief. Whether or not that is an oversight I am not sure. I was on the council of the CBI for a good many years and also the chairman of two important committees, or one unit, of the CBI and I have a great regard for that organisation. It does not mean that I share all its views but I have a great regard for the work that it does and the expertise it brings to bear on these matters. I have not had the brief so I have no idea whether I shall be taking its line.

It is true, as the noble Lord said, that in my Second Reading speech on this Bill I expressed, and have long felt strongly, the need for a strong cadre of well qualified and fully independent non-executive directors. The words "fully independent" are at least as important as the word "non-executive". It is also true that I expressed the view—I have a distinguished colleague sitting behind me who I do not expect to agree with this—that the chairman and the chief executive positions should be held by separate people.

I believe that view is important. I have always wished that the position could be brought about without legislation but I have become rather impatient about the lack of complete progress on this matter. Therefore, on Second Reading I went so far as to say that if necessary I would, though with regret, be prepared to see legislation used to bring about these changes. I would accept that with great regret but I cannot accept the wording of the amendments now before us because they seem to omit a number of important points.

The first important point that I should like to make—and it is not clear from the wording of the amendments whether they agree with what I am about to say is that we must maintain the positionthat committees of the board are committees of the board which report to the board and to no one else; and that they in no way short circuit the chairman and the board. For example, the amendment refers to the committee being responsible for "fixing the emoluments". I cannot accept that. The committee should be responsible for recommending but not for fixing.

Lord Williams of Elvel

1 apologise for my drafting. I accept that it is a committee of the board, that it should recommend to the board and that the board should be responsible. If my drafting in that respect is defective I apologise to the noble Lord. He is right to make that point. If it were possible to do so, I should like to amend my amendment.

9.30 p.m.

Lord Carr of Hadley

Thank you; that is helpful so far as it goes. One of the troubles with legislation that I have not got over yet is how one defines the term "non-executive". Amendment No. 231DC says that one of the non-executive directors, shall be Chairman of the Board". Having been the chairman of a large company which has always laid great emphasis on the fact that its chairman is non-executive, in practice it is very difficult to say where "non-executiveness" ends and "executiveness" begins. I remember being interviewed by the company's staff newspaper on the day I took office. I was asked to explain what I thought my role was. I said that in the end my role is that the buck stops with the chairman. If the buck stops with the chairman he cannot—however non-executive he may wish to be—be too firmly divorced from the use of executive power if the buck is ever to stop with him. I am very nervous of the laying down of the non-executive nature of the chairman as strongly as is proposed. I know that many of my noble friends and others will not agree with me, but I feel that the office of chairman and that of chief executive should be held by two separate people.

Lord Williams of Elvel

I am sorry to interrupt the noble Lord again, but does not the buck stop with the board?

Lord Carr of Hadley

Of course the buck stops with the board and I stand corrected on that. However, when one is talking about the responsibilities of individuals, I believe that in the end there is no individual in the company with whom the buck stops more clearly than with the chairman. He is in a special position as regards stopping bucks if the going gets tough. The other matter is how we are to stress in legislation this need for the cadre of non-executive directors also to be fully independent. They could all be retired executives of the company. I have known that position and I had some hand in changing it. Those people had worked very well in the company but I did not believe such appointments right in principle.

The chairman can always appoint his old pals. If we are considering what matters can go wrong, we shall not stop that by passing this kind of legislation. I have not yet seen how one defines a fully independent nature. One of the ways of doing that is to adopt the practice that many companies now increasingly follow. In their annual reports they give a brief CV about their directors, their backgrounds and their current positions. That provides some information to the shareholders and to the public which is perhaps a better guarantee of their degree of independence and qualification than any other. There is that problem.

There is also the problem that I have already mentioned about the necessity for committees. I am not by any means convinced that either the compensation committee of the board or the audit committee should be compelled in law to consist solely of non-executive directors. Let us consider the work of the compensation committee in practice. I believe that it should be mainly composed—perhaps with one exception—of non-executive directors. How one can make recommendations about the top echelon, other than the chief execuLtive himself, without having the counsel in the closest possible form of the chief executive, I do not know. When one comes to deal with the chief executive's own remuneration it is natural that he departs from the meeting. I believe that to be compelled by law to have a compensation committee which must not include anybody but non-executive directors would be a mistake.

When it comes to audit committees it would be a mistake to compel by law. The non-executive element should be dominant. One purpose of these committees is to draw together and increase the confidence between the executive and non-executive elements. That is one of the matters that is wrong with two-tier boards. With a wholly management board and a wholly non-management board you get this dichotomy. The great merit of the single board in this country is that where it is properly conducted it brings these two elements together. When you have a management committee of the executive then I believe that in practice in this country we get the benefits of the two-tier board system without any of the disadvantages. 1 should be loth—and here I agree with the CBI, irrespective of whether I have read its brief—to push by legislation a movement to two-tier boards on the European model. That would not be for the good of British industry.

Lord Williams of Elvel

I am sorry to intervene again. Does the noble Lord agree that a committee of non-executive directors—I am talking about a compensation committee—could have a perfectly friendly relationship with the chief executive of the company and could arbitrate and recommend to the full board without having that executive membership?

Lord Carr of Hadley

I have said all I wish to say at the moment. I am not saying it would be impossible, but why have a separation there? Speaking as a one-time chairman of a large company, if I cannot trust the chief executive to be a full member of a committee with two or three of his board colleagues, albeit non-executive ones, it does not seem to me that the company is in good shape or that the chairman is doing his job.

Lord Grimond

Even at 25 minutes to 10 and even with the Committee so well supplied with experts, it may be a mild advantage to have the view of an amateur in this matter.

I am not a complete amateur in that I have actually been a non-executive director, believe it or not, of the Guardian and of the Manchester Evening News. I wholly agree with the noble Lord, Lord Peston, that we should return to this important matter. It is vital to know who will appoint these directors. It is also vital to know what relationship they are to have with the company in general, including the people who work in it. If they are simply to be friends of the full-time directors and from the same background I cannot think that they would do much good. We had one or two non-executive directors with specialised knowledge who were of great service to the paper. We also had what in a sense could be described as the kind of committee the noble Lord has been talking about. It was composed of the trustees of the paper and representatives of the workers and the journalists. It served a useful purpose.

During the great crisis of my time, at which one might think non-executive directors would be peculiarly useful, they were not very useful. We were told that we were rapidly going bankrupt and that we should amalgamate with The Times. This has obvious implications outside the newspaper industry. It might be thought that it is on that wider matter that nonexcutive directors would be so valuable. In point of fact, when this arose they were not in sufficiently close touch with the paper's financial position to be able to overrule the advice of our financial advisers, who said, to put it bluntly, that we were going bankrupt.

The people who saved the Guardian from a fate worse than death—amalgamation with The Times—were not the executive directors, although they, including myself, behaved quite reasonably, but the real Guardian characters who were engaged in its day-to-day administration. They were the people who said, "No, not on your life, we will not amalgamate with The Times". They had sufficient knowledge of and authority within the paper to carry the day and overrule our advisers.

I am not saying for a moment that that is a reason against appointing non-executive directors, but I suggest that this is a difficult matter and that we ought to return to it. I should like further elaboration at a future stage of the Bill on how they are to be appointed and exactly what their functions will be.

Lord Pennock

If we are to present ourselves as a phalanx in a somewhat arrow-headed formation, perhaps I may follow in the discussion. I should like to begin by reassuring the noble Lord, Lord Williams, that I am reading my own notes. That presents a difficulty. Many years ago—more years than I care to think—I presented an essay to my tutor. He scribbled some hieroglyphics on the bottom. I went along to see him and asked, "Could you please decipher the heiroglyphics?" He looked at them for a long time and rather shamefacedly peered over his pince-nez and said, "Yes, what they say is that I can't possibly read your writing". I find myself somewhat in that condition tonight. However, perhaps I may make four brief points.

First, legislation is not necessary. The cause of non-executive directors, which is the aim and object of the amendments, is to be encouraged and lauded. Indeed, it is already happening and we are doing very well. As the noble Lord, Lord Williams of Elvel, said, there will be few companies today which do not have effective and practising non-executive directors. Moreover, as a member of five boards in that capacity, I can assure the noble Lord that they are working, possibly because of affairs such as the Guinness affair, with increasing authority, respect and expertise.

Secondly, legislation in this field could be counterproductive. If we seek to force this upon companies, especially smaller companies which have not yet seen the light, then I fear that we will simply get the adoption of a number of ill-qualified non-executive directors, lacking in the necessary authority and expertise, recruited in order to fulfil the requirements of the law. I do not think that that is the object of the amendments and I believe that they would fail.

In my view the amendments could be, in the way suggested by the noble Lord, Lord Carr, divisive; they could be divisive by virtue of the suggestion that we have remuneration committees and audit committees which are exclusively the domain of non-executive directors. I think that that would, and could, begin to produce a lack of that balance to which the noble Lord, Lord Williams of Elvel, referred and which he praised as something well worth while on a British board.

Finally, as regards the concept of a non-executive chairman, again as a permanent, inflexible requirement on any board, perhaps I may take issue. Like the noble Lord, Lord Carr, I think that in many situations, in companies of increasing complexity, the combination of a chairman who looks outward and considers the impact of the activities of a company on the outside world and a managing director who looks after the shop and runs the business is a very good one. However, there will be many occasions, often of a critical nature-for example, where the running of a company requires a shake-up and an overall change—when there will be a real necessity for a hands-on, effective executive chairman.

Therefore I take issue with the inflexibility which might be produced by such legislation; it would be unreal, impracticable and unproductive. In conclusion I must say that the aim of the amendments is to be praised, but my worry is that we should be going about it in the wrong way.

Lord Boardman

I have sat on a number of boards and been chairman of many boards of various shapes and sizes. One thing which I certainly have learned is that one should not be too hidebound in one's approach to this particular issue. I think that companies' requirements vary. I believe that there are occasions when a very large non-executive content is an advantage. Indeed, in the company which I chair at the moment two-thirds of the directors on a large board are non-executive. However, on other boards with which I have been concerned there has been a small non-executive element. Therefore I believe that we should have considerable flexibility in the matter.

We should also bear in mind—the noble Lord, Lord Williams of Elvel, may have overlooked the point—that the composition of the board rests with the shareholders. It is the shareholders who appoint or dismiss the directors. If the shareholders feel that they are best protected by having a larger number of non-executive or a larger number of executive directors, the decision is ultimately in their hands. We should not ignore that point.

Perhaps I may follow the point made by my noble friends Lord Pennock and Lord Carr about the definition of a non-executive director. I find that definition extremely difficult. Perhaps I may give an example. I happen to be a chairman of one of the big four clearing banks. One of the other of the big four banks has, as I do, a chief executive. Technically we both call ourselves non-executive chairmen. I am sure that we both say that the hours we put in—the shareholders will no doubt say the amount that we are paid—does not distinguish us from the others. The other two banks have chairmen and chief executives.

As I understand the amendment, it would mean that the two chairmen who do not have chief executives and act in that role would be disqualified from so doing. 1, and the chairman of the other bank who is in the same position as I am, would remain free to continue as non-executive chairmen. That is an area which would not stand close examination.

We must retain flexibility so that companies and shareholders can obtain the composition which best suits the requirements of that company. In most cases with which I have been concerned, I entirely support the need for an audit committee made up of non-executive directors. I support a remuneration committee with a non-executive majority, not a committee made up exclusively of non-executive directors for the reasons given by others. Those are essential components of a large company. We should have flexibility, and at the end of the day it should be left to the company and its shareholders to find the composition which best serves their purpose.

9.45 p.m.

The Earl of Onslow

I do not support the amendment. I declare an interest as a non-executive director of one or two small companies. If one has a fixed number of non-executive directors who are compartmentalised their influence will be much less than if they are on the board on their own merit. They will then not be seen to be in conflict with the chief executive. The chief executive is there to be supported and possibly occasionally criticised by the non-executive directors. If they are compartmentalised, which will be the inevitable result of adopting an amendment such as this, then the non-executive directors' influence will be reduced.

Lord Williams of Elvel

I do not wish to interrupt noble Lords who wish to speak, but we have heard a series of speakers who have shared with us their experiences as non-executive chairmen and executive chairmen and non-executive this and that. I do not propose to ask for a government response to the amendment because we want to get on with the Committee stage.

The debate has been interesting. I have been interested to hear how noble Lords opposite justified their personal positions or the positions of their friends. We shall read what has been said. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 23 IDD and 231DE not moved.]

The Earl of Onslow moved Amendment No. 231DF:

Page 89, leave out lines 18 to 22 and insert: ("within 42 days after the annual general meeting for the year, whether or not that meeting is the first or only general meeting, or the first or only general meeting of the company in that year.").

The noble Earl said: I am not my noble friend Lord Mottistone. For want of a better word, he nobbled me before he went out to dinner and asked whether I would move the amendment in his place. If I appear not to be completely knowledgeable about the matter, it is because I am moving the amendment solely so that it can be brought before the Committee and does not go by the board.

My brief is simple. It is a CBI brief. It considers that the Government's proposal to regulate the date of the annual return more strictly would greatly reduce the present flexibility that companies have when compiling their annual returns. Annual returns will, if the Bill is implemented as it stands, have to be delivered on a specific date, so imposing an additional deadline on companies. The CBI would prefer the present requirements to be retained so that the existing flexibility will be preserved. That seems reasonably sensible. I have no intention of pressing the amendment. I am merely moving it so that the Members of the Committee have a chance to make their views known. I beg to move.

Lord Strathclyde

I am grateful to my noble friend Lord Onslow for moving the amendment. I was aware that my noble friend Lord Mottistone would not be here. The Committee may find it helpful if I first explain the structure of the new Section 363 which is inserted into the 1985 Act by this clause and the reasons the Government want to adopt the system for determining and changing the return date for a company's annual return. I shall then explain why I do not believe that the amendment moved by my noble friend would achieve these purposes.

Subsection (I) requires the company to deliver to Companies House successive annual returns made up to a date not later than the company's current return date. There is therefore nothing to prevent a company from preparing and delivering a return made up to a date which is earlier than the company's current return date. That new date then becomes the company's subsequent return date by virtue of subsection (1)(b). The only restriction is that a company cannot leave a gap of more than 12 months between its returns.

This structure was developed following a consultative exercise in 1986 and 1987 on the delivery of annual accounts and returns to the Registrar of Companies. It meets two principal requirements. First, it is clear from the consultation that companies want the flexibility to change the date of their annual return relatively easily, whether, for example, this is to bring the return date of all companies within the group together or to be able to file the annual return and the annual accounts at the same time. I have explained how the new Section 363 gives this flexibility.

The second requirement is to ensure that each company has a clearly identifiable return date. That is the latest date to which an annual return can be made. Why is this important when it has not been seen as such up to now? It is important to enable Companies House to introduce what is known as the shuttle document for the annual return. This idea proposed in the consultative document involves Companies House in Cardiff and in Edinburgh sending out to each company in advance of the return date an annual return form already completed with the information provided by the company in the previous return. The company need then only amend its shuttle document as necessary and have it signed and dated by the appropriate officer.

Most consultees, including the CBI, warmly welcome this as offering a significant reduction in the burden of form-filling. There are firm plans to introduce the shuttle system but it will take some time to do so.

My noble friend's amendment does not meet either of these objectives. It is more rigid than the system proposed in the Bill in that it retains the link to the annual general meeting. That link also presents problems for the shuttle document. The provisions for the holding of AGMs require that one is held every calendar year and that no more than 15 months can elapse between consecutive AGMs. The annual return is not therefore due on a particular date and Companies House would find it virtually impossible to know when best to send out the shuttle document. I do not plan to say any more, and 1 hope that my noble friend will withdraw his amendment.

Lord Hanson

I thank the Minister for his explanation of the Government's view. However, I feel that perhaps the Government are not taking into account the difficulty that arises with certain companies in meeting a particular deadline. Have they taken into account, for example, that certain companies have a 13-month year; that is to say, 13 by four weeks in the year? There are variations on this. It is not always possible in this day and age for companies to produce these figures. Most of us try to produce them very quickly indeed. The banks certainly are the best examples there.

It seems to me very reasonable to suggest that the date should be flexible. The whole of this evening has been spent on talking about flexibility, understanding and reasonableness on these matters from both sides of the Committee. I feel that something could be gained by looking at the amendment moved by the noble Earl, Lord Onslow, along those lines. Companies do not wish to delay their accounts. They have to operate in accordance with the present law. I should like to see a little flexibility in the matter. If the Minister would consider that possibility I am sure that the Committee would be grateful for his consideration.

Lord Seebohm

I should like to support those remarks. I was for some time chairman of Barclays Bank DCO. No doubt the noble Lord, Lord Williams of Elvel, will be glad to know that I was executive chairman. The company operated in approximately 40 countries. It was impossible to issue the accounts in 28 days. I think that we closed our books in September and it was very rarely before January that our accounts were completed. Therefore I believe that flexibility in that area is necessary.

Lord Strathclyde

I should like to reply briefly to the noble Lord who has just spoken. I believe that there is a certain amount of misunderstanding of the government proposals. If Members of the Committee who disagree with the Government's view look more closely at our proposals they will see that we have allowed a certain amount of flexibility. We have no desire to create a totally fixed or rigid system. I think that there is sufficient flexibility to get round the problem which my noble friend Lord Hanson mentioned.

The Earl of Onslow

I should like to read what my noble friend has said. To be honest, I understood hardly a word of it. I am sure that that is not what one is supposed to say in your Lordships' House, but honesty does not come amiss. I should like to read what my noble friend has said, and I am sure that my noble friend Lord Mottistone will also do so.

I agree very much with what my noble friend Lord Hanson said about the need for flexibility, and I can see the Government's point of view that flexibility must not be allowed to lapse into laxness. I think that that is what the whole discussion is about. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lloyd of Kilgerran moved Amendment No. 231E:

Page 89, line 22, at end insert— ("or, (c) if the company is a wholly-owned subsidiary of another company, the return date of its holding company.").

The noble Lord said: The amendment concerns the duty to deliver annual returns. I agree entirely with the noble Lord, Lord Hanson, that it is best to be flexible in the matter of return date. However, new Section 363(1) states that the return date is: (a) the anniversary of the company's incorporation, or (b) if the company's last return delivered in accordance with this Chapter was made up to a different date, the anniversary of that date". It seems to me that that does not deal with the case of a large group of companies. My amendment is directed to assisting groups of companies. It provides that if the company is a wholly-owned subsidiary of another company, the return date shall be that of its holding company. That appears to me to be a straightforward and helpful suggestion. It would mean in practice that the company secretary could deliver all the annual returns for all the companies in the group at the same time. I beg to move.

Lord Strathclyde

I have no quarrel with the intention behind the amendment but I do not believe that it is necessary. As I explained in relation to the previous amendment moved by my noble friend, the new Section 363 which Clause 92 inserts into the 1985 Act gives a company considerable flexibility to change the date to which it makes up its annual return. I do not, therefore, see the need for the amendment.

Subsection (1) requires the company to deliver to Companies House successive annual returns made up to a date not later than the company's current return date. There is nothing therefore to prevent a company from preparing and delivering a return made up to a date which is earlier than a company's current return date. That new date then becomes the company's subsequent return date by virtue of subsection (1)(b). All that is needed to align a subsidiary's return date with that of its holding company is for the subsidiary to prepare a return as at the next return date of its holding company. The company cannot of course in the meantime fail in its obligation to prepare and deliver successive returns—it cannot leave a gap of more than 12 months between its returns to await the next return date of its holding company. But apart from that restriction—which simply reflects the general rule that there should be no more than 12 months between the dates to which successive returns are made up—there is complete flexibility.

Lord Lloyd of Kilgerran

I am afraid that at this time of night the noble Lord does not seem to have addressed his mind to the point which this amendment is intended to deal with. It is a provision to help groups of companies. I did not understand from his answer that the Minister had dealt with the position that so often arises with groups of companies. As I said, if we had this amendment, where for a company wholly owned as a subsidiary of another company the return date should be that of the holding company, it would solve the difficulties that may arise. I will read what the noble Lord has said and see whether it will be necessary to bring this back again at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

10 p.m.

Lord Williams of Elvel moved Amendment No. 231F:

Page 90, line 13, at end insert ("(6) The Secretary of State may authorise alterations of a company's return date in such circumstances as he may prescribe by regulation on the payment of a prescribed fee.").

The noble Lord said: I beg to move this amendment standing in my name and that of my noble friend Lord Peston. Its purpose is to allow a change in the return date which would be approved by the Secretary of State. We appreciate that the date on which the return is to be made up is to be fixed so that the registrar can easily keep a permanent record of when returns are due, but in our view there are certain specified circumstances when the registrar, acting on behalf of the Secretary of State, could be empowered to authorise changes to the date.

The special circumstances might well be that a company wishes to change its return date to bring it into line with that of an associated undertaking or on a change of accounting reference date under the new Section 225(2) of the Companies Act 1985—and indeed there might be other circumstances which the Secretary of State might feel were appropriate. Therefore it seems to us that this amendment would be a desirable addition to the Bill, and I beg to move.

Lord Strathclyde

I was initially slightly confused as to the exact purpose of this amendment. The requirement in the new subsection (1) of Section 363 is to deliver successive returns, each of which is made up to a date not later than the company's current return date. 1 cannot really see the need for the power of the Secretary of State proposed by the noble Lord. I have already explained flexibility in replying to an earlier amendment. Perhaps the noble Lord would read what I have said, and I think he will find that what I said earlier on is very relevant to this particular point and therefore the amendment is probably unnecessary.

Lord Williams of Elvel

I am grateful to the noble Lord. I will certainly read what the noble Lord said in reply to an earlier amendment and I hope that he will read what I said in support of my amendment. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 232 and 233 not moved.]

Clause 92 agreed to.

[Amendments Nos. 234, 234A and 234B had been withdrawn from the Marshalled List.]

Lord Monson moved Amendment No. 234BA. After Clause 92, insert the following new clause:

("Time of meetings

. In section 370 of the Companies Act 1985 (general provisions as to meetings and votes), at end insert— ("(7) No meeting of a public company shall take place on a Bank Holiday. (8) No meeting of a public company shall be convened to start

1. (a) before 10 a.m. or later than 4 p.m. on a Saturday or Sunday;
2. (b) before 12 noon on any day immediately following a Bank Holiday or after 1 p.m. on any day immediately preceding a Bank Holiday or Bank Holiday weekend;
3. (c) before 9.30 a.m. or after 6 p.m. on any other day.".").

The noble Lord said: I think I should start by explaining to the Committee that my four amendments have as their objective the protection of small shareholders in general and the promotion of shareholder democracy in particular. The Government never cease to assert that they want to encourage wider share ownership: an admirable objective. But unless the dice start to become a great deal less heavily loaded against the small shareholder the Government are not going to get very far. Unit trust sales, if not totally on the floor, have not recovered at all well from the trauma of the October 1987 crash; and if members of the public were somehow enabled to dispose of their privatisation shareholdings without incurring huge expenses by way of commission, as is the case at the moment, the proportion of shareholders in the population might drop quite dramatically. At the moment they are effectively locked into their privatisation shares because of the costs of disposal.

Big Bang may have been a marvellous thing for institutions but it has been disastrous for the small shareholder. The costs of disposal of a modest holding may now absorb up to 10 per cent. of the gross proceeds, particularly when VAT is taken into account. In contrast, the institutions will get away with well under 1 per cent.

And, although this point involves small investors generally rather than small shareholders, one read with dismay in the Sunday Telegraph of 12th February that insurance companies are now being prevented by law from revealing the high commissions paid by their competitors to agents and to intermediaries, high commissions that are paid inevitably at the expense of their policyholders' profits. This seems to many people to run counter to the entire concept of investor protection. These modest amendments are intended to go some small way towards redressing the balance in favour of the small man or woman.

Perhaps I may defuse criticism in advance by freely conceding that at least two of the amendments are probably defectively drafted and will need improvement at the next stage, assuming that the general principle is agreed to by the Committee.

I should like to start with Amendment 234BA. On the face of it, this is the least necessary of the four. At least 99-8 per cent. of public limited companies treat their shareholders correctly as far as the timing of meetings is concerned; but possibly one in 500 do not, and it is against those that this amendment is aimed. It goes without saying that the rogue companies in question generally have something to hide not only from their shareholders but, just as importantly, from the ever vigilant eye of the city editors of national newspapers. Therefore, characteristically in these cases, meetings of shareholders are called for 4 p.m. on Christmas Eve or 9 a.m. on Boxing Day or 7 p.m. on New Year's Eve. To put an end to this I suggest some modest prohibitions which apply, as the amendment makes clear, to public companies only, because private companies with half a dozen family shareholders may quite validly want to hold their meetings at 7 p.m. on a Sunday evening or some other unusual time.

I have not excluded ordinary Saturdays and Sundays because there are a few public companies which have perfectly sound reasons for wanting to hold their AGMs at a weekend. Typically, they are companies whose operations are based somewhere in the country and whose shareholders live mainly in London or some other conurbation. They therefore hold their meetings at weekends so that the shareholders can travel out to see the company at work, as it were, and possibly have a day in the country as well. Naturally, if meetings are to be held at the weekends the times must be relatively convenient, which is why I suggest that they should not start before 10 a.m. or after 4 p.m.

As far as weekdays are concerned I suggest that there should be no earlier starting time than 9.30 a.m. The reason for this is that I do not see why shareholders living in Basingstoke, Ashford, Rugby or Colchester should have to struggle on to a packed commuter train to arrive in time for a meeting in London. Similarly, the latest starting time should be 6 p.m., which I suggest gives people who work in London a chance to attend an AGM or EGM after they have finished work, if the board of directors thinks that that would uit most of its shareholders.

Bank Holidays and Bank Holiday weekends are different. These are times when people very often go abroad for a long weekend or go to the north of Scotland. Therefore much greater restrictions are justified. Members of the Committee may doubtless have their own ideas: I am not suggesting that the times that I have suggested are necessarily entirely right. The important thing is to find a formula which will deter the small handful of rogues while not in any way impeding or inconveniencing the vast majority of perfectly honest and well-run companies. I beg to move.

Lord Peston

One of the pleasures of this Chamber is that it is educative. I did not have the faintest idea what the amendment was about or what the point was. I am indebted to the noble Lord, Lord Monson, for the clarification. I am amazed to discover that there is a problem here in terms of the 0.2 per cent. of rogue companies. It certainly never occurred to me that companies would hold meetings on Bank Holidays or late at night. If this is a serious problem it ought to be taken up by the Government and some solution put forward. However, I admit that I am absolutely staggered at the problem.

I do not accept one part of the discussion. I do not see why we should become involved with the start time on an ordinary weekday. For those of us who begin work much earlier than 9.30, I have no sympathy for people who have the problem of crowded transport. However, that is another matter.

I shall be interested to hear what the noble Lord, Lord Strathclyde, will tell us of the Government's view. I am amazed to discover that the problem exists and that it needs a solution.

Lord Strathclyde

The Government are not convinced that present legal arrangements regarding notice for meetings and their conduct are inadequate or should be subject to more detailed regulation. In particular, it should be borne in mind that on occasion there may well be pressing and valid reasons for holding a meeting at a time or on a date which could be proscribed by this amendment. I have in mind, for example, the very tight deadlines which sometimes have to be imposed in connection with takeover proposals. In such situations we believe that the minimum period of notice required for such meetings and the right to appoint a proxy provide adequate safeguards for the shareholder. This amendment would make it necessary for all public companies to take specific powers in their articles of association to provide for the emergency situation.

In proposing this amendment the noble Lord spoke of directors having meetings to avoid editors of certain newspapers. I am sure that even with this amendment in place, if they wished to avoid the eagle eye of editors, they would find ways to get round it.

In general, for this type of proposed change to company law there needs to be serious consideration of the position and views of all involved parties and, if change is to be contemplated, it should be on the basis of evidence of real and widespread abuse. The Government do not believe that those criteria have been met on this amendment. I hope the noble Lord will feel able to withdraw his amendment.

Lord Morris

The mischief that this amendment could cause is well illustrated by the practice of a company registered in Nottingham which used to hold its annual general meeting at 8.30 in the morning to ensure that the meeting was completed in good time for directors and members of the company to attend the first day of the Trent Bridge Test Match. It would be very sad if those arrangements could not take place. In my view that is the proper way to run a company.

Lord Monson

I am most grateful to all who have spoken. The noble Lord, Lord Morris. has made a valid point, as did the noble Lord, Lord Peston. I did not think that this amendment was perfect: I wished to have the views of other noble Lords.

But I believe that there is a problem. The rogue companies may number less than one in 500. They are not companies which are constantly going through a bad patch and have something to hide. Not every company goes through a bad patch consistently. If they do, they go bust and so do not hold meetings of any kind.

It has been useful to air the subject. I was as surprised as was the noble Lord, Lord Peston, but for a different reason. I referred to the Companies Act 1985 and was amazed to find that there was no restriction of any kind upon the hours at which companies can hold their AGMs or EGMs. This seems odd. I concede that the restrictions ought to be very much narrower. Perhaps there should be restrictions on companies holding meetings between 24th December and 26th December inclusive or something like that. It may or may not be worth returning at the next stage with more modest proposals such as that. However, for the moment I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

10.15 p.m.

Lord Monson moved Amendment No. 234BB: After Clause 92, insert the following new clause:

("Proxy forms

—. In section 372 of the Companies Act 1985 (proxies), after subsection 3 insert— ( ) Any notice calling a meeting of a public company which is issued to its members shall be accompanied by a reply-paid form of proxy".").

The noble Lord said: This amendment is aimed at a slightly larger number of companies than the previous amendment was. However, in this case I would not call them rogue companies: "inconsiderate" might be a more appropriate description. When I first took this matter up both inside and outside the House about 12 or 13 years ago it appeared that about 85 per cent. of the top 500 companies in this country automatically supplied reply-paid proxy cards or proxy forms to their shareholders accompanying the annual report or notices of extraordinary general meetings. However, about 15 per cent. did not and this included at least three well known blue chip companies. Now happily, whether as an unlikely consequence of my intervention or for whatever reason, at least 95 per cent. of the top 500 or so companies automatically supply reply-paid proxy cards or proxy forms, but that leaves a few mainly small companies which do not.

Most small shareholders are intelligent enough to know that their vote in practice counts for very little against the vote of the large shareholders or the institutions. When everything is going well perhaps it is sensible not to bother to vote for the re-election of directors or the re-appointment of auditors. But when things are going badly the shareholder ought to be able to register his or her protest against, let us say, a massive ex gratia payment being made to a retiring managing director—who has been responsible for putting the company into the red and halving the dividends while at the same time doubling his salary—without having to queue for 20 minutes or so at the post office to buy a 13p stamp with which to register that protest. This is especially true when the shareholder involved knows full well that his or her vote would mean no more than a gesture: but gestures have their uses. Of course if the shareholder thought that there was any chance of his or her vote tilting the balance, he or she would not mind standing in a post office queue, but that is fairly unlikely.

Some of the smallest public companies do not have business reply facilities. They would therefore be obliged to purchase stamps and to stick them on the proxy forms. That would be an unjustifiable burden. For that reason the Committee may feel that the amendment should apply only to companies with a paid up share capital of, say, more than £1 million. With that proviso I hope that the Committee will support the general principle of the amendment. I beg to move.

Lord Strathclyde

At present the law already provides that every notice calling a meeting of a company must contain a statement with reasonable prominence that the member entitled to attend and vote is entitled to appoint a proxy. Active shareholder participation, however, is unlikely to depend on whether the company rather than the shareholder himself or herself meets the cost of the postage stamp. This seems to be entirely a matter, and a fairly minor one at that, for the internal organisation in running the company's affairs and its relationship with its own shareholders. I do not consider that this is a matter for legislation.

Lord Monson

It is very interesting that this Government are giving much the same reply as their predecessors when they were in power. It is funny, because Labour never purported to care much about a shareholding democracy: but this Government do, and what I am proposing facilitates the effective exercise of a shareholding democracy. It is a question not so much of money but of time. I am disappointed in the Government's reply: I do not think they have properly thought through the implications of what I have said. But at this time in the evening I do not intend to go any further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Peston moved Amendment No. 234BC: Before Clause 93, insert the following new clause:

("Private company proxies

. In section 372(1) of the Companies Act 1985 (proxies) leave out "in the case of a private company".").

The noble Lord said: I wish to speak to the amendment standing in the names of my noble friends Lord Williams of Elvel and Lady David. The Committee will be aware of the content of Section 372(1) of the Companies Act 1985. In a way it is rather peculiar. The first part of the sentence refers to the entitlement of members of the company to attend and vote or to send proxies. The second part then refers to what the proxy can do. There is the oddity that only in the case of a private company does the proxy have the same right as a member to speak. It makes no sense to us whatever. Although we would not approve, we could understand a rule that the proxy could not speak at any meeting. We could understand a rule that the proxy could speak at all meetings. However, we cannot understand a rule that the proxy can speak at a meeting of a private company but not of another company.

We have tabled the amendment mainly in the hope that the Government will accept it or, alternatively, that they will offer an explanation of why it is wrong. I do not mind which. I am willing to be convinced although I should like to see the amendment accepted. I beg to move.

Baroness Lockwood

I wish to put forward another aspect of the amendment. It is important in the light of the encouragement given to more families to take out investments. The amendment would be particularly important to women because often a family investment is taken out by the husband or in the joint names of husband and wife. In such cases the husband would be regarded as being the principle investor and would have the right to attend meetings of shareholders. Even though the husband might appoint his wife as a proxy she would not have the right to speak under the present law.

A number of women's organisations are conscious of that aspect. In particular the Fawcett Society is campaigning for qualifying women to take up their rights at meetings of companies and alerting them to the problem they face if they are joint shareholders within the family.

Such an amendment could gain the sympathy of the Government. They are continually talking about the importance of encouraging women into business, to qualify for appointments to public boards and so forth. This is part of that process. If more women can be encouraged and be seen to take part in such meetings and in the running of the country's businesses it would encourage and help them in their promotion.

For those reasons I hope that the Government will accept the amendment or come back with their own amendment in order to accommodate the situation.

Lord Hatch of Lusby

My noble friend Lady Lockwood has said all that I wish to say on the subject. 1 should like to ask the Minister whether he has read the recommendations of the Jenkins Committee of 1962. I believe that they included similar recommendations to those that we propose but that they have never been implemented. If so, will the noble Lord consider taking away the amendment, read the report and return on Report with government proposals which outline the way they see the issues raised by my noble friends in the light of the recommendations made as long ago as 1962?

Lord Strathclyde

This is a long-standing restriction and one which affects a considerable number of interests. I am referring here not only to those shareholders in public limited companies who may wish from time to time to appoint proxies, but also to the many other shareholders whose interest lies in the smooth running of the meetings of such companies. Such meetings can on occasion attract a considerable number of shareholders who wish to speak. The present provision was introduced in 1947 on the grounds that to allow all proxies also to speak would open the way for what might be described as "professional" proxies whose purpose was simply to delay business by lengthy interventions. Although this restriction may seem a little hard on the proxy and the person he represents, it is important to bear in mind that the proxy does have the right to vote and that is the crucial factor. The private company is treated differently for the simple reason that it is in the private company that shareholders are more likely to be oppressed by majority shareholders.

There are also clear practical difficulties in large public companies where a proxy may well represent thousands of shareholders. It is perfectly feasible for those shareholders to decide in advance how they wish to proxy vote on specific resolutions. The exact wording of the resolution is set out in the material the shareholder receives and he can decide whether his proxy should vote for or against or abstain. But speaking is much more open ended. Even if the general intention is to speak for or against, there will often be a variety of arguments which could be used. There is no reason to suppose that all the shareholders who have appointed a particular proxy would be willing to endorse everything he might say or any particular argument he might advance.

Although it is true that a shareholder who is concerned about this point can appoint his own individual proxy, there is still no way to ensure that he will speak as instructed. It is also important to remember that a shareholder who has strong views to express has the opportunity to attend in person.

Having said that, I was interested in the comments of the noble Baroness, Lady Lockwood. It was an angle which I had not come across before. I was not Vol. 504aware that this particular problem aroused so much concern in women's groups. However, I am sure that if the noble Baroness says that there is widespread concern, then that is true.

As for the comments made by the noble Lord, Lord Hatch of Lusby, I have not read the specific aspect of that report but I shall do so before Report stage. Perhaps I may say in ending this debate that I make no commitment at all that we shall bring forward our own amendment on Report or at any other stage, but we shall consult further to see if anything can be done.

Lord Hatch of Lusby

Perhaps 1 may assist the noble Lord in his reading. If he refers to section 1749, clause 418(g) of the report, that will save him from reading the rest.

Lord Peston

Perhaps I may thank the noble Lord for his response. Of course I accept that people who talk too much can be a pain in the neck in all sorts of deliberations. Nevertheless, I believe that I interpreted his response as sympathetic. We shall be very pleased if the noble Lord consults with Members of the Committee on this side who are interested. If there is a way in which we can move forward, we should very much like to do it jointly and without controversy. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 234BD not moved]

Clause 93 agreed to.

Lord Monson moved Amendment No. 234C: After Clause 93, insert the following new clause:

("Power to acquire shares

. In section 428 of the Companies Act 1985 (power to acquire shares of dissenting minority), in subsection (I) after the words "nine-tenths" there shall be inserted the words ''or, when the transferor company is an investment company as defined m section 266 of this Act, nineteen-twentieths".").

The noble Lord said: This is an important amendment. What is more it is an amendment the drafting of which I should like to believe is flawless, unlike some others.

The Committee will be aware that the original purpose of what are termed investment trusts (which in law are known as investment companies) was to provide a safe vehicle for investors, both large and small, but in particular the small investor who did not have the time or the expertise to monitor his investments on a day-to-day or week-to-week basis and who might for much of the year be serving the country overseas in either a civil or military capacity. Such investors wanted their income and their capital to keep pace with what little inflation there was in those days and, ideally, to do rather better than inflation. That remains the function of investment trusts today—a function which they carry out a great deal more cheaply than unit trusts.

However, in recent years investment trusts have started to become victims of institutional predators who cast covetous eyes on their assets—assets which tend to be undervalued by the market for reasons which have always slightly escaped me although the market is often somewhat illogical. To those few small shareholders simply looking for a quick capital profit, that is reasonably good news, of course, although the profits to be made on unitisation or liquidation are rarely large. However, to the majority of small shareholders who hold investment trust shares for the long term, which is just what the Government want investors to do, this is extremely bad news.

One takeover bid last year resulted in small shareholders having to pay in capital gains tax about 24 per cent. of the unsolicited sum they received from the company which took over the investment trust—all this so that one institution could benefit at the expense of all the small shareholders.

Acceptance of the amendment would not put an insurmountable hurdle in front of predators. But it would make things just that little more difficult for them. They would have to acquire 95 per cent. of the outstanding equity of an investment company before they could compulsorily acquire the rest, as opposed to 90 per cent. in the case of a conventional non-investment company. For ordinary or industrial trading companies it is perhaps sensible to facilitate the compulsory acquisition of minorities when a takeover takes place, as the minority shareholders might otherwise find themselves treated disadvantageously should the takeover company strip the assets or entirely change the nature of the business. Such a safeguard is not necessary where an investment company, with its enormous spread of risk, is taken over.

Acceptance of this amendment would help to protect minority shareholders in investment companies or at least help them to secure better terms from the takeover while at the same time making such takeovers slightly more difficult. Both those developments I am sure the Government must devoutly desire. I beg to move.

Lord Strathclyde

In setting the threshold in the original Section 428 at 90 per cent. of share by value, the intention of the present Bill is to provide a balance between the interests of efficient changes of management control and the interests of shareholders. I am not aware of any criticism that these provisions are not working satisfactorily, notwithstanding what the noble Lord said.

I doubt, however, whether in practice raising the threshold to 95 per cent. for investment trusts would make a great deal of difference. Effective control would still pass at a much lower percentage of shares acquired. The main effect appears to be the creation of a smaller rump of dissentient shareholders.

The Government have no reason to curtail the protection of minorities, nor to discriminate in favour of investment companies; nor to doubt that the law in this area is working effectively. For those reasons we are not inclined to accept the amendment.

Lord Monson

I do not think that the events I have described have been happening long enough for the Government to claim that the law has been operating satisfactorily. Nor do I think that the present law protects the rump of shareholders at all. As I said, small shareholders in some companies taken over fare extremely badly because while institutions have all sorts of tax breaks given by this Government—unjustly in my opinion—the small shareholders are landed with enormous capital gains tax bills as if they had been pure speculators when they are in fact long term investors. In that respect small shareholders come off badly.

I do not think it is good public policy to encourage the break-up of investment trusts. They fulfil a most useful service.

Lord Strathclyde

Perhaps I may briefly intervene. I understand the point that the noble Lord seeks to make. But he is discussing taxation—particularly capital gains tax and this Bill is not the appropriate place for such a debate. I suggest to the noble Lord, who probably has an extremely good case to make on capital gains tax and how it relates to small shareholders, that it would be better to make his case on the Second Reading of a Finance Bill. I hope, therefore, that the noble Lord will not feel the need to continue.

Lord Monson

As the noble Lord is aware, our powers to comment on the Second Reading of a Finance Bill are highly circumscribed in this House. I was advancing one argument for the amendment. The other argument is that it is not a good thing for the country as a whole that investment trusts should disappear. They fulfil a useful function much more cheaply than unit trusts. I should have thought that one of the objectives of the Government would be to preserve them and not to allow them to be swallowed up by institutions wanting to make a fast buck. However, it is late at night and while reserving my position, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 94 agreed to.

Lord Strathclyde moved Amendment No. 234D: After Clause 94, insert the following new clause:

("Abolition of doctrine of deemed notice.

. In Part XXIV of the Companies Act 1985 (the registrar of companies, his functions and offices), after section 711 insert—

"Exclusion of deemed notice.

711A.—(1) A person shall not be taken to have notice of any matter merely because of its being disclosed in any document kept by the registrar of companies (and thus available for inspection) or made available by the company for inspection. (2) This does not affect the question whether a person is affected by notice of any matter by reason of a failure to make such inquiries as ought reasonably to be made. (3) In this section 'document' includes any material which contains information.".").

The noble Lord said: This clause abolishes—in so far as it exists the so-called deemed notice rule.That is to say, third parties are not to be deemed to have notice of any matter merely because it is disclosed in any document kept by the Registrar of Companies or is made available by the company for inspection. However, a saving is made that the abolition of this rule is not to affect the question whether a person should be taken as having notice by reason of a failure to make such inquiries as ought reasonably to be made.

In the case of a company's objects clause, our reforms of the ultra vires rule will largely mean that the constructive notice rule is redundant. However, we have followed Dr. Prentice's advice, supplemented by that of Professor Diamond, and propose to abolish it completely. We do not think that the rule that everyone should be taken as having knowledge of a document merely because they could have gone and inspected it on a register has a place in modern commercial life.

I have mentioned Professor Diamond. As the Committee will know, we have supported Professor Diamond's recommendation that in relation to documents kept by the registrar the deemed notice rule should he abolished. I beg to move.

Lord Williams of Elvel

This brings us back to the constructive notice point in the registration of charges. We have to study what the Government have said and what they have put down. On balance at the moment we have no particular opinion, but I reserve our position on Report.

Lord Strathclyde moved Amendment No. 234E: After Clause 92, insert the following new clause:

("Rights of inspection and related matters.

.—(1) In Part XXV of the Companies Act 1985 (miscellaneous and supplementary provisions), after section 723 insert—

"Obligations of company as to inspection of registers, &c.

723A.—(1) The Secretary of State may make provision by regulations as to the obligations of a company which is required by any provision of this Act

1. (a) to make available for inspection any register, index or document, or
2. (b) to provide copies of any such register, index or document, or part of it;

and a company which fails to comply with the regulations shall be deemed to have refused inspection or, as the case may be, to have failed to provide a copy.

(2) The regulations may make provision as to the time, duration and manner of inspection, including the circumstances in which and extent to which the copying of information is permitted in the course of inspection.

(3) The regulations may define what may be required of the company as regards the nature, extent and manner of extracting or presenting any information for the purposes of inspection or the provision of copies.

(4) Where there is power to charge a fee, the regulations may make provision as to the amount of the fee and the basis of its calculation.

(5) Nothing in any provision of this Act or in the regulations shall be construed as preventing a company from affording more extensive facilities than are required by the regulations or, where a fee may be charged, from charging a lesser fee than that prescribed or no fee at all.

(6) Regulations under this section shall be made by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament."

(2) In section 169(5) of the Companies Act 1985 (contract for purchase by company of its own shares), omit the words from ", during business hours" to "for inspection)".

(3) In section 175(6) of the Companies Act 1985 (statutory declaration and auditors' report relating to payment out of capital), in paragraph (b) omit the words from "during business hours" to "period".

(4) In section 191 of the Companies Act 1985 (register of debenture holders)—

1. (a) in subsection (I), omit the words from "(but" to "for inspection)" and for the words from "a fee of 5 pence" to the end substitute "such fee as may be prescribed";
2. (b) in subsection (2), for the words from "10 pence" to the end substitute "such fee as may be prescribed"; and
3. (c) in subsection (3), after "on payment" insert "of such fee as may be prescribed" and omit paragraphs (a) and (h).

(5) In section 219 of the Companies Act 1985 (register of interests in shares, &c.)—

1. (a) in subsection (1), omit the words from "during" to "for inspection)"; and
2. (b) in subsection (2) for the words from "10 pence" to "required to be copied" substitute "such fee as may be prescribed".
3. (6) In section 288 of the Companies Act 1985 (register of directors and secretaries), in subsection (3), omit the words from "during" to "for inspection)" and for the words from "5 pence" to the end substitute "such fee as may be prescribed".

(7) In section 318 of the Companies Act 1985 (directors' service contracts), in subsection (7) omit the words from ", during business hours" to "for inspection)".

(8) In section 356 of the Companies Act 1985 (register and index of members' names)

1. (a) in subsection (1), omit "during business hours" and for "the appropriate charge" substitute "such fee as may be prescribed";
2. (b) omit subsection (2);
3. (c) in subsection (3) for "the appropriate charge" substitute "such fee as may be prescribed"; and
4. (d) omit subsection (4).

(9) In section 383 of the Companies Act 1985 (minutes of proceedings of general meetings)

1. (a) in subsection (1), omit "during business hours";
2. (b) omit subsection (2); and
3. (c) in subsection (3), after "entitled" insert "on payment of such fee as may be prescribed" and omit the words from "at a charge" to the end.

(10) In Part IV of Schedule 13 to the Companies Act 1985 (register of directors' interests)

1. (a) in paragraph 25, omit the words from "during" to "for inspection)" and for the words from "5 pence" to the end substitute "such fee as may be prescribed"; arid
2. (b) in paragraph 26(1), for the words from "10 pence" to the end substitute "such fee as may be prescribed".").

The noble Lord said: With the leave of the Committee, I shall speak also to Amendment No. 258. This new clause gives the Secretary of State the power to make regulations defining the nature of a company's obligations where the Act requires that a register, index or document must be made available for inspection and copying. The most obvious such provision in the 1985 Act is the right to inspect the register of members. Other examples are the right to inspect the register of charges, the right to inspect a contract for the purchase of own shares, and the right to inspect the register of interests in shares or the register of directors and secretaries. There are other similar rights.

A careful balance needs to be struck between the rights of the companies in particular the need not to impose unreasonable burdens on them—and the right of members and others to inspect registers without unreasonable obstruction. We need to consult interested parties further before reaching a final view. It would be a pity to miss the opportunity to take what I believe is a sensible step which will lead to an improvement in existing arrangements. Amendment No. 258 merely makes certain repeals which are consequential on the main change I have outlined. I beg to move.

Clause 95 ["Subsidiary", "holding company" and "wholly-owned subsidiary']:

Lord Strathclyde moved Amendments Nos. 235 and 236:

Page 95, line 38, leave out ("or controls").

Page 95, line 42, leave out ("or controlled").

The noble Lord said: These amendments and most of the other government amendments to this clause are intended to keep the clause in step with corresponding provisions in Clause 19, which the Committee has already considered. This clause defines the term "subsidiary" for non-accounting purposes. Clause 19 defines "subsidiary undertaking" for the accounting provisions in the Act. I beg to move.

Lord Strathclyde moved Amendment No. 237:

Page 95, line 44, leave out from ("company") to end of line 49.

Lord Strathclyde moved Amendment No. 238:

Page 96, leave out lines 1 to 10 and insert ("(3) The right to appoint or remove a majority of the board of directors means the right to appoint or remove directors holding a majority of the voting rights at meetings of the board; and for this purpose a company shall be treated as having the right to appoint to a directorship if

1. (a) a person's appointment to it follows necessarily from his appointment as director of the company, or
2. (b) the directorship is held by the company itself,

but a right to appoint or remove which is exercisable only with the consent or concurrence of another person shall be left out of account unless no other person has a right to appoint or, as the case may be, remove in relation to that directorship.").

Lord Strathclyde moved Amendment No. 239: Page 96, line 13, leave out from ("only") to first ("the") in line 18 and insert ("when the circumstances have arisen, and for so long as they continue to obtain, and when").

Lord Strathclyde moved Amendment No. 239A: Page 96, line 42, leave out ("a subsidiary") and insert ("any of its subsidiaries, or by a person acting on behalf of the company or any of its subsidiaries").

The noble Lord said: I foreshadowed this amendment when we were considering two amendments to Part I of the Bill, Amendments Nos. 64 and 166, which were tabled by the noble Lords, Lord Williams and Lord Peston, and to which the noble Lord, Lord Williams, spoke. I beg to move.

Lord Strathclyde moved Amendments Nos. 240 and 241: Page 97, line 4, leave out (" "holding company" or "wholly-owned subsidiary" ") and insert ("or "holding company" "). Page 97, line 7, leave out ("holding company or wholly-owned subsidiary") and insert ("or holding company").

The noble Lord said: These amendments make a minor change. I beg to move.

Clause 95, as amended, agreed to.

The Earl of Onslow moved Amendment No. 242:

After Clause 95, insert the following new clause:

("Table G.

. The Secretary of State may by order made by statutory instrument amend the Companies Act 1985 by the addition of Table G.").

The noble Earl said: I very much regret that I cannot be quite as quick as we have been with the last few amendments. The Government are aware of the object of this exercise. I had a letter today from Francis Maude of the DTI. It says that it would be useful if the debate in Committee brought out views on the demand for partnership companies. Under the present law Tables A to F set out various types of company. I should like the Government to add Table G, which would enable partnership employee-owned companies to be bought readily off the shelf, or rather their articles to come off the shelf.

At the moment it is expensive to set them up. The employees of one company spent £750,000 buying it and then paid another £100,000 to various members of the legal profession to make sure that the articles were correct. That was a waste of £100,000 and it should have been done much more cheaply.

My noble friend's colleague in another place asked me to produce evidence of demand. To a certain extent demand and evidence of it in a situation like this is a case of chicken and egg. In the United States legislation was first introduced in the mid-1970s. There were then practically no employee-shareowned companies. However, there are now 7 million employees in the United States who own their own companies. The National Freight Corporation is obviously a good example of this, as is the John Lewis Partnership. They are examples of highly successful employee-share-owned companies. Surely we should therefore be encouraging the maximum amount of employee participation in the ownership of their companies. Moreover, we should be encouraging the widest possible form of share ownership. I therefore hope that my noble friend will look at the amendment favourably. I beg to move.

10.45 p.m.

Lord Williams of Elvel

I only wish to say that I support the noble Earl, Lord Onslow, on this amendment, and that I also hope the Government will consider it favourably.

Lord Seebohm

I should like to speak to this amendment because it is very similar to one which was tabled in my name about eight years ago. That amendment was welcomed by all sides of the Chamber, especially by the noble Lords, Lord Boyd-Carpenter and Lord Mishcon. It seemed to me that if those two noble Lords agreed, then it was a jolly good amendment. However, the amendment was not accepted. The noble and learned Lord the Lord Advocate said at the time: The principles he has explained"— that is a reference to me— and the desires he seeks to achieve are ones that we would seek to facilitate". In fact, he had about three objections to the amendment. The first was that to put the amendment I had suggested on the face of the Bill would, as it were, freeze it and therefore amendments to the Bill would be very much more difficult.

The second objection was that there was no real evidence at that time of the extent of the demand for this kind of company. However, eight years have passed since then and things have changed a great deal. There is now a general acceptance of the fact that anything which encourages employee shares is a concept at which we should look very carefully.

The third objection, about which the noble and learned Lord felt very seriously at the time, was that there was no law which would enable companies to buy their own shares. That was a quite serious block to the proposals which we put forward at that time. However, that situation has now been put right and today it is perfectly legal to buy your own shares.

I think that Table A, when it was originally introduced, was an enormous help to companies when they were arranging their articles of association, and the same applies in respect of the other tables. I believe that what is proposed will be of great help to companies, especially to private companies which want to hand over their companies to their employees and which find the tangle of the legal procedures through which they have to go extremely difficult. Therefore I believe that the Committee should give very favourable consideration to the amendment.

Lord Vinson

Perhaps I may join with other noble Lords in welcoming this amendment. I do so as chairman of the Industrial Participation Association, which is a body that has been promoting wider ownership for over a hundred years. It seems to me that the amendment is eminently sensible and very much in line with the Government's whole philosophy of widening share ownership and diffusing economic power. I therefore hope that the Minister will give it very serious consideration.

Lord Grimond

I too should like to express my support for the amendment. It emanates, I think, from Job Ownership Limited, of which I was chairman until recently. The device of lists appears to have worked well. That may appear rather curious, but it works well and it saves a great deal of time and trouble in drawing up the relevant articles of association.

If I understand correctly what has been said, one of the objections raised by the Government when a similar clause was tabled for inclusion in a Bill some years ago was that there was no reason to treat what were then called job ownership companies particularly favourably. However, this clause will embrace a wider spectrum of partnerships. I think we are all agreed that an increase in employee partnership leads to efficiency and is to be encouraged on both industrial and social grounds.

As I believe the Government to be favourable to the idea, I should think that as the old objections to previous clauses have now been removed, they will be able to accept the clause or something like it.

Lord Carr of Hadley

Having stayed here for this amendment, at this time of night I shall not argue. I should just like to say how strongly I support the amendment and how bitterly disappointed I should be if the Government were to resist it.

Lord Strathclyde

I have listened to the debate with interest. Over recent years the Government have done a great deal, especially through their privatisation and taxation policies, to foster the greater involvement of employees in their companies. We have noted the development of other concepts, such as the type of partnership company my noble friend's amendment is designed to promote. I should say at this point that the Government are sympathetic in principle to the development of the kinds of organisation to which my noble friend has referred.

In view of the strong support expressed by the Committee for the concept of making provision for a Table G, I am prepared to consider my noble friend's amendment further with a view to bringing forward suitable enabling proposals at a later stage. At present the suggested amendment is defective in that it makes no reference to the subject to be covered by Table G.

The Earl of Onslow

All that one can say to that reply is, yippee. I thank my noble friend, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Monson moved Amendment No. 242A: After Clause 95, insert the following new clause:

("Shareholder protection.

Moneys owing to a shareholder of a company shall not, without his prior consent in writing, be retained by the company for its benefit, whether on the ground that the cost of distribution might exceed the value of the sum distributed or otherwise, unless the sum so owing is less than one pound.").

The noble Lord said: This is the last of my shareholders protection amendments for the time being. The Committee will undoubtedly be aware that following a rights issue, or the takeover of a company which involves the issue of cash and/or convertible or non-convertible loan stock in exchange for the equity or part of the equity of an existing shareholder, or following some of the other forms of capital reconstruction, the existing shareholder has frequently received a notification accompanying the offer document or the rights issue allotment letter to the effect that the balance of moneys owing to the shareholder would not be distributed to him but would be retained "for the benefit of the company" should those moneys amount to less than £1.

Latterly the so retained in that arbitrary fashion has crept up to £2 and now to £2.50. Soon no doubt it will rise to £4 or £5. That will not do. To an institution or a large private shareholder £2 or £2.50 is of course chicken-feed—salmonella-infested chicken-feed, what is more—and they do not want to know about it. But to someone with a tiny parcel of shares inherited from an aunt or as a result of some privatisation issue it may represent 1 per cent. or more of his or her capital. If there should be rights issues at intervals of 15 or 18 months—I can think of some well-known companies which have had rights issues at that type of interval—over a short period the shareholder could end up losing 5 per cent. of his capital.

What is so objectionable is that this could become the thin end of the wedge. If capital sums are withheld on the grounds of cost or inconvenience to the company, why not withhold annual reports from the shareholder? After all, annual reports probably cost £2 or more to prepare and distribute. Why not withhold half-yearly net dividend payments of less than £2.50? I occasionally receive net dividend payments of under £2.50 from a small inherited holding which is too expensive to dispose of, and from unit trusts that hold Japanese shares with small dividend yields.

Companies are terrified of institutional predators, and are actively seeking many more small shareholders because of their well-known inertia and because they tend to be easily satisfied and sometimes almost pathetically loyal, and hence resistant to takeover blandishments. In attracting more shareholders for the purpose of self-preservation, companies must be prepared to take the rough with the smooth. If the small shareholder costs rather more to service than the large shareholder, as indeed he does, that is just too bad. He or she should not be cheated of what legally belongs to him or her for the sake of cost saving or convenience. It is an important matter of principle, and I beg to move.

Lord Williams of Elvel

The noble Lord has raised a very important point. I wonder whether he would be prepared to withdraw his amendment and wait for the Government's response on Report. I do not think this is a matter which we could debate at this hour in Committee. If he were able to do that, we could have a proper debate on Report.

Lord Monson

If the Government do not wish to reply now I take it from their silence that they are prepared at least to consider what I am saying; otherwise the noble Lord would have leapt to his feet and said that there was nothing in the amendment whatsoever. In view of the helpful suggestion of the noble Lord, Lord Williams, I beg leave to withdraw the amendment.

mendment, by leave, withdrawn. Schedule 13 agreed to.

Clause 96 agreed to.

Schedule 14 [Minor amendments of the Companies Act 1985]:

[Amendment No. 243 not moved.]

Lord Strathclyde moved Amendment No. 243A: Page 197, line 20, at end insert

("Time limit for holding extraordinary general meeting convenedon members' requisition

. In section 368 of the Companies Act 1985 (extraordinary general meeting on members' requisition), after subsection (7) add— (8) The directors are deemed not to have duly convened a meeting if they convene a meeting for a date more than 28 days after the date of the notice convening the meeting.".").

The noble Lord said: This amendment makes a very small improvement to company law. I beg to move.

Lord Strathclyde moved Amendment No. 243B: Page 197, line 20, at end insert—

("Protection of company's members against unfair prejudice

. In Part XVII of the Companies Act 1985 (protection of company's members against unfair prejudice)—

1. (a) in section 459(1) (application by company member), and
2. (b) in section 460(1)(b) (application by Secretary of State),

for "unfairly prejudicial to the interests of some part of the members" substitute "unfairly prejudicial to the interests of its members generally or of some part of its members".").

The noble Lord said: This amendment confers more protection upon minority shareholders in transactions where the company's affairs are being managed in an unfairly prejudicial manner. It amends a defect. I beg to move.

[Amendment No. 244 not moved.] Schedule 14, as amended, agreed to.

Lord Henley

I beg to move that the House do now resume.

House resumed.

House adjourned at two minutes before eleven o'clock.