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Bill Presented

Volume 889: debated on Wednesday 26 March 1975

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Referendum

Mr. Edward Short, supported by the Prime Minister, Mr. Chancellor of the Exchequer, Mr. Secretary Jenkins, Mr. Secretary Callaghan, Mr. Secretary Benn, Mr. Secretary Shore, Mr. Fred Peart, and Mr. Gerry Fowler, presented a Bill to provide for the holding of a referendum on the United Kingdom's membership of the European Economic Community: and the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 121.]

Companies

4.35 p.m.

That leave be given to bring in a Bill to make provision for the responsibilities and duties of directors; to require certain companies to appoint non-executive directors; to require such directors to make an annual statement to the shareholders; and for purposes connected therewith.

I am seeking the leave of the House for the seventh time to introduce a Companies Bill which will have the effect of increasing slightly the supervisory element in senior management. As on previous occasions, I propose that the Bill should apply to about 1,000 of the largest quoted companies; namely, to those with net assets of £5 million or more, or about 1,500 workers. I suggest that all such companies should have at least three non-executive directors.

I believe that over 80 per cent. of these companies have at least one non-executive director already and over half have at least three, so the Bill does not represent a very big departure in the first instance. But to give these non-executive directors a more serious function than they have at present I would like once again to recommend that they should be obliged to make an annual statement to the shareholders declaring their view of the management of the company and the use of the company's assets, together with such information as they consider material for the appreciation of the efficiency and propriety of the conduct of the company's affairs. This statement should be made available to all shareholders and employees. By this means we could introduce a supervisory element at the level of senior management without the general disclosure of confidential information.

I believe, too, that this provision would enhance the status of non-executive directors. Their statement could be purely formal. It would not be necessary for them to produce a large-scale management audit each year, and the Bill will actually include a provision to prevent them doing so without the specific agreement of the shareholders. But each of the non-executive directors appointed in accordance with the terms of the Bill should be made to sign this statement or resign from the board.

Objection has been made that the Bill would make two classes of director—the executive directors and the non-executive or supervisory directors—and that this would be incompatible with the idea of board unity. I accept this objection in that it is the whole purpose of the Bill to provoke a process of cell-division within the British joint stock company. This is a development which has to take place because the two-tier board is a concept which is now increasingly well understood and in the end it has to come. We have to differentiate between the executive functions of top management and the supervisory functions which are no longer being carried out effectively in all too many companies.

This year I suggest that the Bill should include some innovations. First, I suggest that the non-executive directors shall not have the right to vote at meetings of the board. This, of course, recognises the fact that they are officers of the company with a separate function of their own. They are not responsible collectively, with the rest of the hoard, in a situation where they are now normally wholly out-numbered by the executive directors. Secondly, I suggest that the non-executive directors shall be required to meet as a separate body, apart from the rest of the board, at least once a year and that at their separate meetings they shall have the right to co-opt an equal number of representatives of the work force.

These minor, as I think, improvements to the Bill are not just put forward to be trendy. We must recognise that the British version of the joint stock company can be a very sick organism. Changes are needed in the way we organise our- selves for work in this country. I am not one of those who blame British management, British technology or the British working man and woman for the shortcomings of the economy, but we fail to organise ourselves as effectively as we should for the creation of wealth, and this is something which needs legislation albeit of a minor character, to put right.

With the virtual withdrawal of the shareholders the essential element of supervision is missing in all too many of the larger joint stock companies. It cannot be imposed from outside the company; it must be developed from within. We must build on what we already have. The non-executive directors are a nascent supervisory board. We need a minor reform to encourage them to exert themselves in that capacity.

That is a summary of the Bill which I hope the House will give me leave to introduce.

Question put and agreed to

Bill ordered to be brought in by Sir Brandon Rhys Williams, Mr. Sydney Bidwell, Mr. John Cope, Mr. David Crouch, Mr. Hugh Dykes, Mr. Robert Edwards, Mr. R. A. McCrindle, Mr. Tom Normanton, Mr. John Pardoe, Mr. David Price, Mr. Tim Rathbone, and Sir John Rodgers.

Companies

Sir Brandon Rhys Williams accordingly presented a Bill, to make provision for the responsibilities and duties of directors; to require certain companies to appoint non-executive directors; to require such directors to make an annual statement to the shareholders; and for purposes connected therewith: and the same was read the First time; and ordered to be read a Second time upon Friday 2nd May and to be printed. [Bill 125.]