HL Deb 30 January 1989 vol 503 cc876-84

2.58 p.m.

Lord Strathclyde

My Lords, on behalf of my noble friend Lord Young of Graffham, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Strathclyde.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD ABERDARE in the Chair.]

Clause 1 [Introductory]:

Lord Williams of Elvel moved Amendment No. 1: Page 1, line 11, leave out ("and").

The noble Lord said: I should like to speak to Amendments Nos. 1, 2 and 106, which stand in my name and that of my noble friend Lord Peston.

We are at the start of what may prove to be a long Committee stage. Speaking from the Opposition Benches generally, I wish to say that I shall try to deal with the business as quickly as possible. I am sure that I speak for my noble friends in that regard.

The present situation under the Companies Act 1985 is that directors must state in their report contributions made for political purposes and also for charitable purposes. The report, together with the company's accounts, is laid before shareholders at a general meeting and approved or otherwise. It is approved in its totality because, under the present legislation, shareholders do not have the ability to select bits and pieces from the report, to vote against one sentence rather than another, or to vote in favour of one paragraph rather than another.

So that if any shareholder or any group of shareholders wishes to object to contributions for political or charitable purposes, they have to disapprove; that is to say, in general meeting they have to vote against the ordinary resolution to approve the report and accounts as a totality; in other words, they stand or fall in their entirety.

There is no record in my experience—and I have attended one or two general meetings in my time—of shareholders voting against an ordinary resolution to approve the report and accounts solely because they disagree with one possibly minor item. There is an obvious reason for that. The rejection of the report and accounts, even the rejection of the directors' report were that to be possible, would amount to a rejection of the commercial management of the company. If that company were a listed company that would amount to a serious effect and possibily a catastrophic fall in the share price, which would undoubtedly suffer from that vote.

No shareholder who is presumably an investor for commercial reasons in a company has any interest in such a course of action because no shareholder will willingly vote to reject the whole of the directors' report and/or the accounts of the company simply because he objects to one item in it. That is the financial equivalent of turkeys voting for Christmas. Therefore, my amendments seek to isolate the decision on what are non-commercial payments from the decision on whether or not to approve the directors' report and accounts, which is basically a report on the commercial conduct of the firm.

I accept and willingly accept that the logic of our position is that a similar arrangement should be made for charitable contributions. I should not stand in the way if the Government wish to come forward with such an amendment. Nevertheless, I believe that provision should be made along the lines of the amendment for what I have in mind.

Specifically, my proposals are contained in Amendments Nos. 1 and 2 which are paving but introduce the concept that boards of directors should not, without separate shareholder approval, spend shareholders' funds on non-commercial purposes without that specific resolution of shareholders in ordinary general meeting. Amendment No. 106 is the substantive amendment which explains how, in our view, that could be done. It provides for a section of the directors' report to be left unsigned, that is, the section on contributions for political purposes, and framed in the form of a proposal to shareholders. Obviously, if directors decide to make such a proposal, they will recommend that. It is perfectly proper that the board of directors should recommend such a proposal to shareholders and the resolution, in consequence, will be proposed in general meeting in the proper form.

These proposals are simple and, in our view, necessary to bring the law up to date. First, we are not trying to discriminate against any political party. Those companies which wish to contribute to the Conservative Party, the Labour Party, the Social and Liberal Democrat Party, the Social Democrat Party, the Communist Party, the National Front or whichever party it may be, will have to follow the same procedure.

Secondly, over the years we have had a number of measures passed by this Chamber designed to ensure that trade unions abide by a process of ballot and approval of their members both on the principle of the political levy and on the question of contracting out.

Thirdly, and more importantly, over the years I accept—however much some of us may deny the figures—that there has been an extension of share ownership. As a result of many factors such as privatisation issues, publicity, and now possibly the conversion of building societies into plcs, share ownership has become much wider and will continue to follow that course. There are millions of new shareholders. We hope that the Government are supportive not only of the fact of wider share ownership but also of the responsibilities implied in that. In other words, we hope that the Government will encourage a form of shareholder democracy in a way in which they have encouraged democracy on a wide front elsewhere in the trade unions.

Shareholders should be allowed to have their say in how funds are spent by their boards of directors in other than commercial matters. The central issue here is that extension of shareholder democracy. How can we possibly approve of a wider spread of share ownership if new shareholders are to be presented with a fait accompli in the way in which their money is spent for other than the purposes for which they invested and on causes to which they may, in their own political lives, he deeply opposed? Should they not have a chance to register a vote on the subject? If directors can persuade them that that is right, then that is perfectly fair and logical. If not, the shareholders should have the right to oppose without, in doing so, bringing their company crashing down, as in the present situation, around their ears.

I believe that this is in line with what the Government have been trying to do over the past few years and I very much hope that the Government will support our amendment.

3 p.m.

Lord Lloyd of Kilgerran

We on these Benches support the amendments so ably presented to the Committee by the noble Lord, Lord Williams of Elvel. It seems to us to be clearly in the public interest that, whichever party is being considered for those sort of financial proposals, the law should be changed to include these amendments.

Lord Boyd-Carpenter

It was pleasant to hear the noble Lord, Lord Williams of Elvel, applauding the increase in wider share ownership. It was particularly pleasant to hear it from those Benches because that has not always been the theme of the Labour Party. However, when one comes to the specific proposals which he is putting forward, I believe that he is probably somewhat exaggerating the significance of the subject matter.

Generally, compared with the sums involved in the report and accounts of almost any company, the political donations to be given, if any, are absolutely trivial. However, to pick them out for a separate resolution which requires the full paraphernalia to be put to the general meeting seems extraordinarily disproportionate. I take the noble Lord's point that some shareholders may object to political contributions being made to any political party by the company in which they are shareholders.

However, under the present system there is nothing to prevent them from saying so at the annual general meeting. Those of us with experience of being on company boards know perfectly well that if, at a company's annual general meeting, there were serious criticisms of political contributions being made by the company by any appreciable number of shareholders, the board would carefully review the situation in respect of them for the following year. Equally, if there are very few shareholders who object it is absolutely pointless to go through the whole machinery of putting a special resolution, which would on that hypothesis be heavily voted down after a considerable waste of time and energy.

One can rest content with the present situation. I speak from some experience of company boards. I know that if there is any suggestion of a political contribution, boards look very carefully into the practical position as to whether the success or failure of a particular political party will be in the interests of or detriment to the company. That is the test which is in general applied. As a board is elected to apply its general judgment to the affairs of the company, including matters of much greater significance to the company than the relatively trivial amounts involved in political contributions, it seems to be straining at a gnat to insist that this one small point should be separated out for the purposes of a separate resolution.

The noble Lord, Lord Williams of Elvel, in a sense gave that case away when he admitted that he was not proposing any amendment in respect of the often much larger charitable donations which are made; yet the test that these are payments not directly for the purposes of the company but perhaps indirectly applies just as much to these charitable donations as to political contributions. One cannot help wondering why the noble Lord is so much more interested in picking out political contributions than he is apparently in dealing with the, on the whole, much larger problem of charitable donations. One can perhaps speculate as to the reasons.

However, I do not think that there is a problem here. As I have said, the experience of any of us who have served on boards is that, if there is a serious objection to a political contribution being made by a company and that objection is voiced at all substantially at the annual general meeting, that contribution will be looked at very carefully for the following year. There is always a sensible sensitiveness of boards of directors on this subject as to whether such a donation would be acceptable to shareholders.

The attempt to separate out political contributions from charitable contributions and from every other expenditure of a company is highly artificial. Many company contributions—for example, contributions to trade associations—are not of very direct interest to a company but may well, particularly in the case of political contributions, be of considerable indirect and future interest. However, there is no hard and fast line, as the noble Lord, Lord Williams of Elvel, seemed to suggest, between political and charitable contributions, on the one hand, and all other company expenditure on the other. If the noble Lord is to be logical he would have to separate out several other items for example, contributions to trade associations—for a separate resolution. Whatever else that would do, it would have the effect of unduly prolonging company annual general meetings to an intolerable extent.

I hope that the noble Lord will not feel that he is on to a particularly important argument or a right one. On the whole, the present law under which political donations have to be disclosed—and it is absolutely right—is perfectly adequate to deal with the situation and we should leave it alone.

Baroness Seear

The noble Lord, Lord Williams of Elvel, said that he was perfectly prepared to include charitable contributions; indeed, I think that it would be highly desirable to do so. The Government never stop saying that industry should make a contribution to every conceivable good cause in the country. I often wonder when this free market, capitalist Government will realise that the purposes for which money is put up to industry is the development of industry, the reduction in prices and the payment of dividends and of wages. If the Government have their way a great deal of the money would go to all sorts of extraordinary places. If the noble Lord, Lord Boyd-Carpenter, is saying that he will support the amendment if charities are included with political contributions, I am sure that most of us on this side of the Committee would be only too pleased to agree with him.

3.15 p.m.

Lord Morris

Not for the first time I am sure that Members on this side of the Committee will be grateful for the extremely clever way in which my noble friend Lord Boyd-Carpenter has marshalled his arguments and, indeed, his very clever debating points. We should also be grateful for the moderate way in which the noble Lord, Lord Williams of Elvel, has argued this point.

At the heart of the argument, to use the language of the Income Tax Act, runs the point about expenditure which is both wholly necessary and exclusively for the use of the business. The characteristics of this particular type of expenditure—namely, political contributions and charitable donations—are that the direct link with the normal expenditure of the company can always be construed as somewhat tenuous.

The characteristic that boards of directors and governments have in common is that they are both highly suspicious of the democratic process in that it can so often inhibit the directors' view of the right progression and growth of the company and indeed growth in the view of the government.

The point missed by my noble friend Lord Boyd-Carpenter is this. How can he possibly hold the view that he does—I am sorry if I am bringing in a boring political point which the noble Lord, Lord Williams of Elvel, was far too nice to raise —about political contributions by the unions and the way that that is done and at the same time object to this amendment? I cannot see how he can possibly square that circle.

Lord Rochester

I should like briefly but strongly to support this amendment. Speaking on behalf of my noble friends at the Second Reading of the Trade Union Bill 1984, I said that we considered there was an urgent need to find fairer ways of financing political parties in this country. In Committee I tabled an amendment which if it had succeeded would have had the effect of delaying the operation of Part III of the Act dealing with trade union political funds until such time as alterations had been made to the Companies Act 1967 much in line with the amendment that the noble Lord, Lord Williams of Elvel, has proposed.

Recent revelations concerning the clandestine way in which contributions from certain large companies have allegedly been made to the Conservative Party make an amendment more urgent than ever. There is a need for a much more even-handed approach as between contributions from individuals to trade union funds and from companies to political parties. I am well aware of the distinctions that can be drawn between the two cases, but I do not think that they are of a kind to invalidate the principle underlying this amendment. I hope that the Committee will support it.

Lord Strathclyde

The noble Lord, Lord Williams, in his opening words said that we were starting a long Committee stage and he is correct. However, I hope that at the end of our deliberations we will have a better Bill from the Government's point of view. Unfortunately, we do not seem to have started particularly well with Amendments Nos. 1, 2 and 106.

The effect of the amendment to Clause 1 would be to make provision for the second amendment which would provide that where a political contribution has been disclosed in the directors' report, that part of the report should not be signed but be put to the annual general meeting for approval by ordinary resolution.

The Government are opposed to these proposals. It may more readily help Members of the Committee to understand the reasons for our opposition if I explain the provisions of the existing Companies Act that relate to the disclosure of political contributions. Very briefly, companies have been required since 1967 to disclose in the directors' report any gifts of money for political purposes that exceed a specified sum, currently £200. In each case the amount of the donation must be shown, as must the name of the recipient. The directors' report is part of the documentation that must be sent to shareholders before the company's annual general meeting.

While there is no obligation under the Companies Act for companies to request the prior approval of shareholders for such donations, it is possible for shareholders who are concerned at the nature or scale of such donations as are revealed in the report to raise the subject in discussion of the accounts at the annual general meeting. My noble friend Lord Boyd-Carpenter made this point in what I thought an excellent speech. Moreover, shareholders have the right to have an ordinary resolution put to the general meeting under the normal procedures for such resolutions thus enabling them to express any more general concerns that they may have on the subject of political donations. The Government accordingly consider these existing safeguards of the shareholders' interests to be wholly adequate and view the proposed amendments as wholly unnecessary.

The noble Lord, Lord Williams of Elvel, and my noble friend Lord Morris made what I believe was an unfortunate comparison between commercial companies and trade unions. That is a false analogy. It is like comparing apples and bananas. A commercial company is there to take people's money and to invest it in order to create a profit and a dividend at the end of the year. It is not for me to lecture Members of the Committee opposite on what a trade union is all about; but it must be something entirely different, financed by subscriptions rather than through people's investments. I hope that Members of the Committee opposite will feel able to withdraw the amendment.

Lord Williams of Elvel

I am most grateful to Members of the Committee who have participated in this short debate. It has been extremely useful. The problems raised by my amendment do not seem of a kind that will easily go away. I say to the noble Lord, Lord Strathclyde, that I did not find the Government's answer wholly convincing.

The noble Lord, Lord Boyd-Carpenter, applauded my appreciation of wider share ownership. I was very careful in choosing my words. I personally applaud wider share ownership by employees; I am neutral on the question of wider share ownership in general. I am opposed to privatisation by bribe. However, I leave that aside. It is a political point, and we are not having a political discussion.

The noble Lord, Lord Boyd-Carpenter, continued by saying that he did not see why these small amounts of relatively little significance should go through the full paraphernalia of what he called a special resolution. I am not arguing for special resolution but an ordinary one at the general meeting. If they are so very small why should they not be approved quite easily at a general meeting? Furthermore, it is my experience, possibly contrary to that of the noble Lord—both of us have experience of these matters—that drafting another ordinary resolution is not the end of the world. There are ordinary resolutions put to shareholders by company secretaries. They are easily drafted. The format is quite simple, consisting possibly of two or three extra lines of printing on the document that summons the shareholders to a general meeting. I do not see that I am trying to create a great bureaucracy of some kind.

The noble Lord, Lord Boyd-Carpenter, referred to a possibility that the noble Lord, Lord Strathclyde, picked up; namely, that those shareholders who object to such contributions can stand up and speak or write in. To use the expression of the noble Lord, Lord Boyd-Carpenter, the following year the directors will take those representations into account. The noble Lord explained in full exactly as I did the existing situation. We are dealing with companies nowadays which have millions of shareholders. If the Abbey National becomes a plc the estimate is that there will be more than five million shareholders. They may be spread up and down the country. They will not be arriving at the Plaisterers Hall, the Goldsmiths Hall, or wherever the function is held, to badger the board of directors. But they still have an equal interest of one share for one share in the conduct of the company. I do not see that that is a very serious point.

The noble Baroness, Lady Seear, supported my logic. The noble Lord, Lord Boyd-Carpenter, did not move a manuscript amendment to my amendment arguing for the inclusion of charitable contributions. If such an amendment had been moved I would have willingly accepted it, as I said at the outset. The noble Lord, Lord Morris, was right in saying that there is a hard and fast line between political and charitable contributions and those to trade associations. The hard and fast line is drawn by the Companies Act 1985. It is already there. I am not trying to change any aspect of that basic legal principle.

The noble Lord, Lord Strathclyde, responded to the noble Lord, Lord Morris, on the question of trade unions. I must say a word on the subject since it has been raised. I address my appeal to Members of the Committee opposite and to those on the Cross-Benches, who, over a number of years. have vociferously—if I may say so without offence—advocated the democratic process in trade unions. That is the process of ballot. I wholly accept that they have done so in good faith. I may have disagreed with the effects of what they were supporting, but I do not challenge the good faith of what they were intending.

I say to those Members of the Committee quite frankly that one either supports democracy in all its forms and in all of its extensions or one does not. There is no halfway house about it. Democracy, like freedom, is indivisible. If Members of the Committee support democracy, as I believe they do, they will recognise that I am only trying to extend to the shareholders of a company the same right that trade unionists now have; namely, the right to decide at the end of the day how their money is spent. In the case of shareholders, it is a right to decide without bringing the whole company down around their ears. That is an important point.

If Members of the Committee opposite and those on the Cross-Benches who constitute the majority in the Committee, do not support this proposition, then we accept that they are happy that decisions will be taken in smoke-filled rooms and presented as a fait accompli to shareholders at a general meeting. One or two shareholders may rise to complain, but that is not going to get them anywhere. I like to believe that all Members of the Committee have a sense of fairness that transcends party politics and unites us. I believe this to be one of those issues that impinges on fairness. I hope that the Committee will support me in that belief.

3.28 p.m.

On Question, Whether the said amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents 106; Not-Contents, 93.

DIVISION NO. 1
CONTENTS
Airedale, L. Kearton, L.
Allen of Abbeydale, L. Kilbracken, L.
Amherst, E. Kilmarnock, L.
Ardwick, L. Lawrence, L.
Banks, L. Leatherland, L.
Beaumont of Whitley, L. Liverpool, Bp.
Birk, B. Llewelyn-Davies of Hastoe, B.
Bonham-Carter, L. Lloyd of Kilgerran, L.
Bottomley. L. Lockwood, B.
Briginshaw, L. Lovell-Davis, L.
Broadbridge, L. McIntosh of Haringey, L.
Bruce of Donington, L. McNair. L.
Burton of Coventry, B. Mais, L.
Callaghan of Cardiff. L. Mason of Barnsley, L.
Carmichael of Kelvingrove, L. Mayhew, L.
Carter. L. Mishcon, L.
Cledwyn of Penrhos, L. Morris, L.
Craigavon. L. Mountevans, L.
Cudlipp, L. Mulley, L.
David. B. Northfield, L.
Davies of Penrhys, L. Ogmore, L.
Dean of Beswick, L. Oram, L.
Donaldson of Kingsbridge. L. Paget of Northampton, L.
Donoughue, L. Peston, L.
Dormand of Easington, L. Phillips, B.
Elwyn-Jones, L. Pitt of Hampstead, L.
Ewart-Biggs, B. Ponsonby of Shulbrede, L.
Ezra, L. [Teller.]
Falkland, V. Rathcreedan, L.
Fisher of Rednal, B. Reilly, L.
Flowers, L. Ritchie of Dundee, L.
Foot. L. Rochester, L.
Gallacher. L. Sainsbury, L.
Galpern. L. Seear, B.
Gladwyn, L. Sefton of Garston, L.
Graham of Edmonton, L. Serota, B.
Greenhill of Harrow, L. Shackleton, L.
Gregson, L. Shepherd, L.
Grey, E. Somers. L.
Grimond, L. Stallard, L.
Hampton, L. Stedman, B.
Hanworth. V. Stoddart of Swindon, L.
Harris of Greenwich, L. Strabolgi. L.
Hatch of Lusby, L. Taylor of Blackburn, L.
Hayter, L. Taylor of Mansfield. L.
Hirshfield, L. Tordoff, L. [Teller.]
Hooson. L. Turner of Camden, B.
Hughes, L. Underhill, L.
Hunt, L. Williams of Elvel. L.
Jacques, L. Wilson of Langside, L.
Jay, L. Wilson of Rievaulx, L.
Jenkins of Hillhead, L. Winchilsea and Nottingham,
Jenkins of Putney, L. E.
John-Mackie, L. Winterbottom, L.

Moved accordingly, and, on Question, Motion agreed to.

Resolved in the affirmative, and amendment agreed to accordingly.

Lord Strathclyde

I beg to move that the House do now resume.

House resumed.