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Review Committee

Volume 979: debated on Tuesday 26 February 1980

The text on this page has been created from Hansard archive content, it may contain typographical errors.

'(1) There shall be a Committee appointed by the Secretary of State to keep company law under review and to make recommendations to the Secretary of State as to any changes in company law that may from time to time appear to the Committee to be desirable.

(2) The Committee shall consist of not less than eight and not more than ten persons appointed by the Secretary of State in accordance with subsections (4) and (5) below.

(3) Before appointing the members of the Committee (other than the chairman) the Secretary of State shall—

  • (a) as to two of them, consult such organisations representing employers as he considers appropriate;
  • (b) as to two others, consult such organisations representing employees as he considers appropriate.
  • (4) The remaining members of the Committee shall consist of:

  • (a) a practising barrister;
  • (b) a practising solicitor;
  • (c) a practising accountant;
  • (d) a practising banker; and
  • (e) any persons appearing to the Secretary of State to have qualifications or experience that would be of value to the Committee in considering any matter with which it is concerned.
  • (5) The Secretary of State shall appoint one member of the Committee to be its chairman.

    (6) It shall be the duty of the Committee:

  • (a) to prepare and publish, as soon as possible after 31st March in each year, a report on the performance of its functions during the period of 12 months ending with that date; and
  • (b) to deliver a copy of the report to the Secretary of State before it is published; and it shall he the duty of the Secretary of State to lay before Parliament copies of each report of which he receives a copy in pursuance of this section.'.—-[Mr. John Smith.]
  • Brought up, and read the First time.

    With this it will be con- venient to take new clause 32—Committee on company law—

    '(1) There shall be a Committee appointed by the Secretary of State to keep company law under review and to make recommendations to the Secretary of State as to any changes in company law that may from time to time appear to the Committee to be desirable.
    (2) The Committee shall include not fewer than four members who are currently engaged as directors or managers of public companies.
    (3) The Committee shall consist of not more than twelve members:.

    The purpose of new clause 13 is to set up a committee to advise the Secretary of State on the review of company law. I wish not only to argue the proposition but to make a small complaint about the Government departing from an excelltn idea, which announced on Second Reading of our Companies Bill.

    When one looks at the grave iniquities committed by this divided and dispirited Government in these nine short months one sees that this departure is not their most wicked act. None the less, it was an excellent idea to have a review committee. When it was announced I do not believe that there was a word of objection from the Conservative Party or from any of the bodies that would be affected. By and large, it seemed a good idea all round.

    When this Government came to office, the idea was departed from. Instead of a committee being set up to review company law and advise the Secretary of State in an open manner, the idea of a panel of advisers crept in, to be chaired by a professor of company law. He may be an excellent professor of company law. I believe that he is. However, the whole idea of a panel of advisers is less attractive than that of having a review committee.

    11.15 pm

    A panel of advisers to advise the Department is a very cosy arrangement. No doubt it will have interesting chats with the Department of Trade about any reform of company law. There is much to be said for not having a cosy arrangement. There is much to be said for having a proper committee, with independent experts. The Secretary of State could consult such independent experts and they, in turn, could bring things to the notice of the Secretary of State. Interested bodies could also communicate with it.

    If we have an open, public debate about possible changes in company law, all those who are interested will be able to contribute. That cannot be carried out as effectively by a panel of advisers, who are in a cosy relationship with the Secretary of State and with officials in the Department. The present Government have an enormous bias against any advisory body. It is almost a reflex action. However, when the Government went through their primal hunting exercise they discovered that many of the bodies had a distinct and useful value. Very often those people give their services without pay. They do so in the interest of developing the law and of making it more effective.

    I therefore suggest that the Government were wrong to dispense with the idea of a review committee. There is a great deal of merit in bringing in outside experts to advise the Secretary of State. There is much to be said for stimulating public debate about changes in company law. We should face some of the practical difficulties. In Committee objection was raised that the amendment would confer an obligation on the Secretary of State to consult a review committee. However, the Minister will have noticed that that obligation does not appear in this new clause. That shows how reasonable we have been about meeting the Government's objections.

    I hope that the Minister is prepared to think again about this issue. Everyone agreed that the review committee was an excellent idea. It has been the innocent victim of the Government's anti-quango drive. The Government may therefore be guilty of throwing out the baby with the bath water. This is not the most revolutionary proposal of modern times. Nor is it the greatest iniquity that the Government have committed. However, it is a small iniquity that needs to be put right.

    By my vote in Committee I helped to keep an eye on the idea of a review committee. I hope that the Government will take that idea seriously. So many changes take place in company law—or should take place—and so many changes occur in our thinking about the future of private enterprise that it is probably unreasonable to ask the Department to embrace all the different aspects. Those aspects should be studied, and the Government will inevitably need to take advice.

    I shall not list all the aspects of company law reform, as I have referred to them previously in Committee, at conferences, and during debate. However, there is a general feeling that the 1948 Act has been left behind by social and economic changes. Of course, it is still a landmark. Company law is no longer relevant to present times, or to the 1980s. Tomorrow we may deal with the clauses that follow clause 46. That puts a new emphasis on the role of directors. Many people have campaigned for that. However, when the clause is on the statute book it will give rise to a great change in attitude. It will accelerate the pace at which the 1948 Act becomes obsolete.

    I hope that we shall end the games of Normans and Saxons. Such games are still played between management and workers. The background of company law envisages that directors work only for the investors and that they do not have responsibilities to the workers. That background is rapidly coming to an end.

    There is a developing concern for small businesses, not just on the Government Benches. All over the country people know that small business is important but that it is being crushed because it cannot be adapted to bear the burdens which are placed on larger companies under company law. We need people to advise the Department on the whole future relationship between company law and the small business.

    In one of his inspired moments—and he has many—my hon. Friend the Under-Secretary suggested that we should consider splitting table A so that we have one set of standards for large public companies and a different set of standards for small businesses. I think that that is exceedingly important and urgent, and I wonder whether the Department, left to itself, could go to work quickly and produce some vital suggestions for Parliament to consider and the nation to follow.

    I could touch on many other aspects of company law reform which should be taken into new areas. We are coming to the end of the cult of the equity. Trade union pressure, social forces and inflation have acted on public companies in such a way that the great majority of them are not in a position to pay a dividend. If they had taken current cost accounting principles seriously they would have stopped paying dividends, because they are at the point where their margins are too narrow even to replace existing assets, let alone re-equip themselves for more highly capitalised competition in the future.

    Table A does not envisage the possibility that equity will receive no share of the turnover. We must look ahead to the needs of institutional investors called upon to provide new capital for companies that are not in a position to meet their equity dividend. I do not think that this is disastrous—it is a challenge, and I wonder whether the Department has ideas ready for the new classes of capital that will be needed, which perhaps have a prior claim on the turnover and will enable investment to continue in the situation where the directors have fully accepted their responsibility to the employees. These are speculations that we could keep making all night. I am sure that the arguments will continue for at least another 10 years.

    Will we have an advisory committee or review body supporting the Department which will consist of people of practical experience, or will it consist only of people who have learnt about industry out of books and magazines? This is important, because many experts on company law have never actually earned their living in companies that have to compete in the real world. They have served in an advisory capacity to companies. They have learnt about companies through public relations, through law, or through other very important functions that are part of the creation of wealth, I admit. But I believe that the provision in my new clause that the Minister should seek to be advised by people who are currently directing or managing companies is worthy of consideration.

    I do not know whether Labour Members intend to press this matter to a vote. If they do, I do not think that I shall be able to support them. I am not happy with the composition of the review body that the Opposition recommend. My own suggestion is only a sketch. Nevertheless, I hope that in this debate we shall have sown the seeds that may grow into something useful to help modernise our company law over the next few years.

    I wonder whether we get very far by setting up bodies that have a continuous and undefined desire to make proposals and to press changes. I noted carefully what my hon. Friend the Member for Kensington (Sir B. Rhys Williams) said about the changes in company law, but there are many other areas of life in which changes are likely to be made and in which all kinds of alterations come about. I do not suggest that the whole world should be in commission—the concept of a series of committees, constantly concerned to press forward alterations. I suggest that the committee would—as it does—contain a whole series of people who may or may not have a real understanding of the way in which companies work in actuality. The committee would be of less value and importance than almost any suggested in recent propositions by the Opposition.

    The members are to be a practising barrister, a practising solicitor, a practising accountant, a practising banker, two persons who will arise from consultations with employers' organisations or other appropriate people and two persons who will arise from consultations with employees or other appropriate people. Out of that, I suggest that we will have a collection of practising people and no real exponents. I should be happier if I felt that the Department was being advised by those people who do the job and by the House.

    It is that which has caused me to comment on the new clause. The proposition that it is improper for the House to take the information from outside and press the Government to make such changes as become appropriate cannot be right. There must be some other committee—

    Why are the two things mutually exclusive? It would be a committee of experts. The Government are seeking to enrol a panel of experts who will be closeted within the Department of Trade to advise. Obviously, they do not feel that they are getting sufficient stimulus—for the perfectly good reason that it is overworked—from the Department.

    There is a clear distinction between the Government's drawing to themselves a series of experts—indeed, there is a distinction between experts and the list proposed here—for internal advice and the concept of an exterior committee. The point made by the Opposition is that the committee would be seen in public, so that it was constantly kept under review, but there is a fundamental difference. The people who should be keeping constantly under review the question of company law, as, indeed, the question of law in general, are the Members of this House. The fewer other bodies who have a statutory base in no man's land, constantly to keep change and pressure under review, the better.

    We need a company law that is informed by those who are active within companies—both employers and employees. We need those people to have ready access to the Government through the House. In so far as we are able to change the mechanisms of this House to do that job, we shall do the nation a good. In so far as we obfuscate and cover up the real purposes of Parliament by the production of synthetic committees that provide jobs for persons who clearly have not run businesses we do the country ill.

    I do not propose to delay the House long with comments on the clause. It was discussed at some length in the Standing Committee. I note that the right hon. Member for Lanarkshire, North (Mr. Smith) has made a small change to the clause that his hon. Friend the Member for Hackney, Central (Mr. Davis) proposed in Committee. The right hon. Gentleman recognised the force of our previous arguments and dropped his subsection (2), which quite unreasonably required the Secretary of State to consult his suggested review committee before proposing any changes in company law.

    New clause 13 requires the establishment of a new body of fixed composition with full independent powers of review, replete with the power to publish recommendations. As right hon. and hon. Gentlemen know, the Government already consult widely on proposals for changing company law. I shall shortly come to the points that my hon. Friend the Member for Eye (Mr. Gummer) raised.

    We do not consider that the role of an advisory body should be to replace the existing process of consultation. It cannot, for example, replace the detailed comment which the Department typically receives from the broad spread of interests which it consults. The Green Paper on company accounting and disclosure, for example, published last September, has so far attracted comment from more than 100 different bodies and individuals. I should like my hon. Friend the Member for Eye to study those views, because I think that such study would temper his confidence that every Member of Parliament necessarily understands and is aware of the implications of some of these problems.

    11.30 pm

    Will the Minister please explain why his party, when in opposition, pressed the case for an insolvency rules committee to be established comprising a wide variety of people? Will he explain why his party persists in having the Criminal Law Revision Committee, and why it insists on retaining the Lord Chancellor's Legal Aid Advisory Committee? Further, will he explain why his own Department only recently insisted on retaining the Pilotage Commission? What is the distinction?

    I should be only too glad to deal with all those matters in detail, but I think that you would rule me out of order, Mr. Deputy Speaker—or at least I hope that you would.

    The new clauses on directors' conflicts of interest which were tabled last November were sent out to nearly 40 recipients for comment, while as regards ideas at a different stage of development, the Department last year sent to 20 bodies a questionnaire on the subject of audit committees and non-executive directors. I stress that all this consultation was necessary.

    The Department is well aware of the important issues in company law. Indeed, given the volume of representations made it would be difficult for Ministers and officials not to be in touch with developments as they occur—which is as it should be. What the Department lacks, however —I think that this will appeal to my hon. Friend the Membr for Kensington (Sir B. Rhys Williams)—is a continuing forum and sounding board for the testing and trying out of ideas and possible solutions when they are at an early stage of development. There is, therefore, a place for a small body of advisers available on a continuing basis who can, by virtue of their experience, give authoritative advice on the choices available for solving particular problems.

    I stress to my hon. Friend the Member for Eye that the purpose of this advisory body, which, I assure him, has to deal with very complex matters, is to be able to pose the right choices, which ultimately have to be settled by Members of Parliament. I entirely agree with the principle that my hon. Friend enunciated so firmly about the importance of reference to Parliament for the decisions. The purpose is really to get them organised in a proper form to be given to Parliament, so that the appropriate decisions may be made in good order. There is no question of any intention in the minds of Ministers in the Department to take that great function away from Parliament. We respect it highly, and we want to make it work well.

    The purpose of the advisory panel is not to publish its own proposals for company law reform. Nor do we look to it necessarily to produce an agreed view. Its merit will lie in its expression and consideration of individual proposals and approaches. As for making public expressions of view or recommendations of the panel, let us wait to see how the panel works out in practice.

    I should add that the panel members will not be constrained to avoid referring to their advisory work, because much of it will be consulted on in due course, although there may, of course, be occasions when matters of some sensitivity will need to be treated in confidence.

    I hope, therefore, that hon. Members will recognise that our new company law advisory panel will provide the external advice that the Department needs in a far more flexible way than would flow from some statutory quango, with, no doubt, a new bureaucracy and obligations to publish reports.

    The terms of reference of the company law advisory panel that we have established are:
    "To assist the Department of Trade, as and when so requested, in reviewing the desirable development of company law and proposals for change; similarly, to advise the Department on changes designed to improve the operation of the Companies and related Acts in the light of modern conditions and practices; and to advise on such other par- ticular matters concerning company law as the Department may refer to them from time to time."
    I am pleased to tell the House that the first meeting of the panel will take place shortly and will be under the chairmanship of a deputy secretary of the Department. The panel's membership consists of individuals nominated by the Law Society, the Law Society of Scotland, the Stock Exchange, the Consultative Committee of Accountancy Bodies, the Chartered Institute of Secretaries and Administrators, the Confederation of British Industry and the Bank of England. The Department's research adviser, Professor Gower, will also be a member of the panel.

    It will help the House if I mention the names and present positions of the nominated members of the panel. They are Mr. Fearn, secretary of Allied Breweries Ltd.; Mr. Higginson, former senior partner, Herbert Smith and Co.; Professor Jack, professor of mercantile law, University of Glasgow and a senior partner of McGrigor, Donald and Co.; Mr. Keir, group secretary of Unilever; Mr. Gold, head of accounting research, Shell International Petroleum Co. Ltd.; Mr. Pope, finance and planning director, Eldridge, Pope and Co. Ltd.; Mr. Knight, deputy chief executive, Stock Exchange; and Mr. Rutteman of Arthur Young McClelland Moores and Co.

    I am not confident that I can answer that question with complete accuracy. The hon. Gentleman need not be so dismissive. I shall find out and give him the answer as soon as I can.

    Will my hon. Friend confirm that he has read out a fine list of people who are active in the business of companies? Does it not show the sort of advisers that it is proper for a Government to have, in contrast to the advisers that we get when we set up the sort of review committee that we are discussing?

    I am grateful for that. I should emphasise that we chose the bodies from which the nominations have been sought not with an eye to establishing a particular spread of membership but because we were confident that they could suggest persons whose advice would be intrinsically valuable. Having read out the list of those who will be serving on the panel, I believe that that view is justified.

    As the Minister responsible for company law, I can assure the House that I shall be kept closely in touch with the work of the research adviser and the panel. I am sure that, over a period, hon. Members will notice the benefit that we expect the panel to bring in the quality of the proposals that the Department will put forward for wider consultations and resolution by hon. Members.

    I believe that we have devised a system of advice that, by its informality and flexibility, will be of great advantage to our scrutiny of company law, and I commend the proposals to the House. I hope that my hon. Friend the Member for Kensington will be pleased with the proposals. I have indicated the bodies from which we invited nominations and I hope that my hon. Friend will note with approval that two of the eight members of the panel are currently engaged in senior positions in public companies. I think that that will help to make a contribution in the area that my hon. Friend mentioned. They will bring the benefit of their first-hand experience of industry.

    I hope that my hon. Friend will find little difference between his approach and that of the Government and will feel content to ask leave to withdraw the clause knowing that we shall be well equipped to deal with the problems. He made his usual positive contribution to these debates by listing a whole series of difficult problems and we hope to grapple with them with the help of this advisory panel, the contribution of which will be justified.

    Of course the panel is better than nothing, but there was no real reason why the Government, except out of pure prejudice, should have dismissed the other idea announced by my right hon. Friend in 1978. Indeed, the membership of the panel would have been similar, except that we would have had the courtesy to ask the TUC to play a part. The Government clearly do not think that that is appropriate. That is a significant omission. The TUC has an interest in commerce and company law. It is another indication of sheer prejudice, or at best oversight, on the part of the Government.

    If I can attract the attention of the Minister, I should like to ask him whether he will reconsider that omission or oversight. I am prepared for the Minister to intervene.

    As the hon. Gentleman knows, it was customary for the previous Government always to appoint someone from the TUC to everything. He knows that we shall have consultations with the TUC on the proposals that come from the panel of experts.

    If the hon. Gentleman will let me explain I shall try to do so. He knows well the complexity of the discussion among members of such a panel. It is essential to have a great deal of experience of the kind of problems with which the panel will have to grapple. Once the panel has brought forward its detailed recommendations we shall have wider consultations and include the TUC and all kinds of other worthy bodies in those consultations. Earlier I mentioned the great number of consultations that we have had with different bodies. If the TUC said to me "Look here, we have someone who is especially interested in this particular exercise" naturally I would consider that.

    The hon. Gentleman is becoming excited about the fact that a member of the TUC was not automatically invited to serve on the panel, but the expertise required is of a special kind. I think that the point that I make is very valid. We shall consult the TUC.

    That was a long intervention simply to say "No". It was a lot of blather. The TUC has much legal and commercial expertise. After all, it represents a large number of trade unionists who have an interest in the reform of company law. Therefore the TUC has a locus in this matter and the Minister should have invited the TUC to be represented. It is part of the Government's philosophy, of course, to behave in this way, even on so small an issue. The value of the Government's undertaking to consult the trade unions is not worth a candle.

    When the Minister says that he supports the arguments of his hon. Friend the Member for Eye (Mr. Gummer) his attitude is completely inconsistent with the whole experience of this Government and the previous Conservative Government. Why have these continuing committees that are doing valuable work? Surely it is conceded, especially by all lawyers in the House, that the Criminal Law Revision Committee and the Lord Chancellor's Legal Aid Advisory Committee have valuable roles. When we are dealing with company law, is it not of vital importance to the commercial prosperity of this country that we should keep it under close scrutiny? Why should it be any different?

    11.45 pm

    The Government have sanctified that sort of arrangement by having a Pilotage Commission. Judging by the scoffing that we have heard from some Conservative Members, the composition of the commission will be not dissimilar from the panel of advisers. There is scoffing because the Opposition refer to a practising barrister and a practising solicitor, but they are involved in the panel of advisers. If the argument of some Conservative Members had any merit those working on the Pilotage Commission, for example, would have nothing to do with pilotage. That would be absurd. Any Government would draw from an area capable of offering relevant expertise.

    That is not the argument between us. The argument is whether the panel should sit publicly. If it does not sit publicly, it should at least publish its reports. In that way it could stimulate discussion in a much more direct way than by sitting in the Department of Trade under the chairmanship of someone in the Civil Service.

    The deputy secretary in the Department of Trade is a capable civil servant. I worked with him for over five years and I know his qualities. However, we should not have that form of chairmanship. We need an independent chairman, who is capable of carrying out consultation with the Department. We should deal with this issue in the way suggested by my right hon. Friend the Member for Lan- arkshire, North (Mr. Smith). The Government are making a great mistake.

    The hon. Member for Eye says that in effect we are to establish another quango. He did not use the word but that is his argument. I hope that I have indicated that that would not be the result. Even if it were, why did Conservative Members not object to the proposition when they were in opposition? It is a proposition that has been warmly supported by every professional body. Every body that we consulted when in government supported the concept. There has been no opposition to it.

    I shall give way to the hon. Gentleman if he thinks that there has been. Can he cite any examples? Of course, the answer is that he cannot.

    The Government have missed a chance. The idea has been sacrificed on the ground of pure party dogma. It is a great pity, and it is manifestly absurd that the TUC has been excluded.

    I should like to say a few words, Mr. Deputy Speaker, as my new clause is one of the clauses that has been selected. I am delighted that the Department has collected a galaxy of talent and that it will be able to benefit from its collective advice in future.

    I sympathise very much with my hon. Friend the Member for Eye (Mr. Gummer), who feels that the Department should be open to pressures from Parliament. However, there are not many Members who are seriously concerned about these matters. I introduced my first companies Bill in 1969. I have introduced at least one companies Bill in each Session since then. I have made no progress. That is not because I have not had support from eminent men, including those who have been prominent Ministers in the Department from both sides of the House. We must not be too enthusiastic about the possibility of changing company law by parliamentary pressure. I am not saying that I shall not continue to try because I shall do so.

    I join the hon. Member for Hackney, Central (Mr. Davis) in urging the Government to agree that the panel should publish its reports. It will not succeed in stimulating a general debate—that is what we need on company law—or catching the attention of hon. Members unless it puts into writing what it is saying to the Department. We should have access to regular reports from it on major subjects of concern. If reports are not forthcoming, we cannot be sure that it is doing all that it should in this area.

    I shall look with reserve at the work of this body. If one confines the consultations to men who have done well under the established order, one might well find that they are well disposed towards the continuation of the establishment and are not sufficiently receptive to the need for change.

    Last, I come to the possibility that the work force, middle management—most important of all—and the TUC might be represented on this committee. In the Bullock committee the TUC had a great opportunity of making a major contribution to company law reform, but it fouled it up in a way that has set us back 10 years. I would support the Department if it were chary of inviting a representative from the TUC, if that led to a repetition of that disastrous process. In principle, it would be proper that consultations should take place with people who are genuinely able to speak for the work force. The Minister might put his mind to that problem for the future.

    I wish the body well. I feel more confidence tonight that we shall see real change in company law in the next few years than perhaps I have felt since I started in 1969.

    Question put and negatived

    Further consideration of the Bill adjourned.—[ Mr. Eyre.]

    Bill, as amended (in the Standing Committee), to be further considered tomorrow.