Company Law Reform Bill [HL]

moved Amendment No. 203A:"After Clause 402, insert the following new clause—" ““CONSULTATION ABOUT DIRECTORS’ REMUNERATION WITH SOCIAL REPRESENTATIVES (1)   The Secretary of State may by regulations make provision for the board of directors of a relevant company to give notice to its members of his proposal that two or more social representatives shall be consulted by its remuneration committee on matters falling within this section, in good time before the directors’ remuneration for the financial year is proposed. (2)   After discussion with such persons as appear to him to be appropriate, the Secretary of State may propose, in a form prescribed by the regulations (either by name, description or otherwise), two or more social representatives, with whom the relevant company’s remuneration committee should consult concerning its directors’ proposed remuneration, having regard to such directors’ duties and to the company’s social responsibilities (including environmental matters and the interests of local communities) and to the interests of social stakeholders (including the company’s employees) other than issues covered by collective bargaining with an independent trade union. (3)   In this section— ““a relevant company”” means— (a)   a quoted company; and (b)   any other company which employs, or is a parent undertaking in a group of companies which together employ, 500 or more employees; ““remuneration”” has the same meaning as in section 402; and ““remuneration committee”” means— (a)   any committee of or body in a relevant company which has among its functions the task of proposing the directors’ remuneration for the report mentioned in section 401 above, or any similar body in a non-quoted company; but (b)   where no such committee exists, it means the board of directors. (4)   The regulations shall include provision concerning the right of access of social representatives to papers and information which are directly relevant to the setting of the directors’ remuneration and other benefits. (5)   Where a company rejects a proposal to engage in such consultation, it shall notify the Secretary of State, giving its reasons, and taking account of those reasons he may thereafter make new proposals to the company. (6)   The Secretary of State may, after discussion with the company and such other persons as he considers appropriate, publish his proposals and (where appropriate) the reasons for their rejection, and any new proposals, taking such account, as he considers appropriate, of the company’s claims that particular matters should not be published which might seriously prejudice its interests by reason of their confidentiality.”” The noble Baroness said: My Lords, this amendment, standing in my name and those of my noble friends Lord Wedderburn of Charlton and Lord Judd, has in fact been drafted by my noble friend Lord Wedderburn. He is unfortunately not well enough to come to the House, but he has been following the progress of the Bill with considerable interest. If he were well enough he would certainly be here to move it. In his absence I shall do my best to present what I think are the main arguments in favour of it on the basis of a briefing that he has supplied. Many may feel that much of the ground covered by the amendment has been dealt with adequately in the debate that we had yesterday on Amendment No. 79, which your Lordships approved. My noble friend Lord Wedderburn has devised another way which in effect endeavours to take the argument a stage further. The aim is also to produce a debate on the remuneration of directors, both executive and non-executive, in large companies. The amendment departs from adjusting directors’ duties so as to be enforceable by legal machinery and aims at intervention at another point of central interest to directors—in other words, their remuneration. The amendment would apply to all quoted companies and to large companies of economic significance, a formula that the Company Law Review group applied to some disclosure requirements. The precise definitions could be changed, but some quoted companies have proposed to withdraw from listing in order to evade disclosure provisions. It would require company directors’ remuneration committees to take account of the views of social representatives, or have the company explain why it cannot do so. In the past few decades, as we have already heard in the discussion on Amendment No. 203, the remuneration of directors of large companies has increased enormously. A joint statement by the British, German and Dutch trade unions on 29 May 2003 states:"““Excessive executive pay is now an issue pressing at the very heart of European capitalism””." The setting of directors’ remuneration by committees that include directors of other companies has, despite legal requirements for independent and non-executive directors after the Higgs report, given rise to a classic case, as my noble friend Lord Lea has said, where mutual back-scratching occurs. The process has given rise to a growing gap between executive salaries and average incomes of others in society. My noble friends Lord Lea and Lord Whitty have already covered that very adequately on Amendment No. 203. Nothing has been done about the scandal of directors being paid six times the pay of other people. The current Bill does not do anything about that either. My noble friend Lord Wedderburn suggested in 2004 that directors’ remuneration committees should include employees’ representatives. But he has now been persuaded that that is not necessarily the right way to proceed to get the debate going to encourage support for greater transparency and social responsibility on the issue. The amendment gives a wide discretion to the Secretary of State to nominate persons or organisations with whom the DRC should consult before proposing to the board of directors the directors’ remuneration for the year. That would, for example, allow the Minister to nominate bodies interested in environmental issues, such as the Friends of the Earth, to intervene with questions about each director’s record on such issues before the remuneration committee reached its decision on proposed remuneration. So, too, consultees could be proposed from among experts in social groups, such as unions and other bodies, to consult on the director’s record on safety at work. It would be a mechanism through which various types of social representatives could raise other issues perhaps relating to the pay structure of the company except where such matters are already covered by collective bargaining. The amendment, however, is mild in its terms. It does not involve civil sanctions: it makes use of two mechanisms. First, the company must comply or explain. That is the chosen method of the City in respect of its combined code of good practice on corporate governance. It is difficult to see any objection to that. No legal remedies are attempted—only the pressure of social groups, the media and so on. Secondly, greater transparency on the so-called rent extraction by executives in their pay and benefits would be achieved, beyond the existing director’s report and other required disclosure provisions, by way of the publications of the Secretary of State, where the company rejects consultation with the proposed social representatives. Provision could, of course, also be made for the publication of a report after consultation. I believe that the feeling behind the amendment is in full accord with the views of the Government and also that of the Conservative Party under its new leaders particularly as far as the environmental issues are concerned. Social and community issues are also important to all the major parties, as indicated in the discussions that we have already had throughout the consideration of this Bill. Here is a way of ensuring that these concerns are met, and continue to be met, by large companies which will actually have to engage with the issues. Large globalised companies arguably have more effect on the lives of us all than sometimes even governments. It therefore seems appropriate that there should be more accountability and more transparency. The aim of this amendment is to try to achieve those objectives. I beg to move.