Company Law Reform Bill [HL]

My Lords, in this debate on the amendment we are looking at the very pith, the kernel or the epicentre of directors’ duties. My noble friend Lord Freeman has put his finger right there. I support his suggestion that we admit this list of duties. I have tried to imagine what would happen if they were to be retained. I have tried to imagine myself in a boardroom—where sometimes I sit—trying to help to take those difficult decisions where there is a high profile merger, a hostile approach of a contentious kind or a proposal afoot within the boardroom—perhaps under the eagle eye of experienced company chairmen such as my noble friends Lord Kalms or Lord Kirkham—to take a lower cash bid than the high profile cash bid because I decide that in my judgment it is in the shareholders’ interest as that bid is more likely to be delivered and more likely to be sustainable, or whatever. These are the issues that directors up and down the land—men and women—face day in, day out. If the Government’s provisions remain in the Bill, I would be concerned if during those discussions I had not taken the trouble to keep a proper trail of contemporaneous notes to justify that I had directed myself properly in coming to decisions and that I had emptied my mind of every consideration that should not be in it when taking those decisions and so on and so forth. ““So on”” includes taking account of the sometimes conflicting claims of the six groups of stakeholders that are referred to in the Bill. In effect, this clause introduces unforeseen circumstances—a new regulatory burden—to the boardroom. This Government do that from time to time. We can see the difficulties that they have got into recently in the alterations made by the Treasury to the tax treatment of trusts, which is allegedly going to affect exactly 23,000 trusts, although practitioners say that it will affect a million or more and the excellent Law Society says more. The Government have not thought through what will happen as a result of wrapping directors in red tape by this legislation. Directors will potentially be at risk not just from activist shareholders, but also from activist judges. Your Lordships will know from experience in this place that there are one or two activist judges around. I see a very small smile crossing the face of the noble and learned Lord the Attorney-General—but it has quickly gone away. There are one or two activist judges who would be eager to exercise the new powers given to them, and who would be aided and abetted by human rights lawyers who would suddenly see moral imperatives to involve themselves in the human rights of shareholders. They would have a field day. This clause—let alone the next amendment that we are going to address—is trying to legislate not for reasonable, good-faith behaviour by company directors but for perfect behaviour followed by equally perfect evidential paper trails for the courts that may be waiting. These perceptions among those who are directors or who may be tempted to become directors should not just be brushed away as being highly unlikely in the real world. The Government are still in a mess in this area. If they want to save face, they could, doubtless, cook up some non-statutory code with explain-or-comply opportunities written in it, but, in corporate life, we do not need another box-ticking boardroom industry, particularly since the Government have failed to demonstrate a nuisance that needs correction. This is a point that was made time and again at Second Reading. It might be of interest for the noble and learned Lord the Attorney-General to give us an example of the nuisances that need correction because there is no point in having law unless it is dealing with such nuisances. The Government should also reflect on the law—with a small ““l””, not a capital ““L””—of unintended consequences. My noble friend Lord Freeman has already referred to the unfortunate—from America’s point of view—aftermath of the passage into law of Sarbanes-Oxley legislation in that jurisdiction, leading to a flood of potential initial public offerings moving away from exchanges such as NASDAQ to exchanges over here such as AIM. That is very good, and it has helped to strengthen the grip of the London markets on global capital markets, but if this Bill becomes law, then the perception of the risk to directors—not only of the greater regulatory burden, but of the greater risks in law—could be equally significant in driving companies seeking to list in the United Kingdom to look elsewhere, as my noble friend Lord Forsyth said in an intervention in a debate on an earlier amendment. The Government are in a two-way squeeze here because there are those of us who wish to liberalise what they are trying to enforce in the over-regulatory framework contained in these provisions, while—