Company Law Reform Bill [HL]

moved Amendment No. 79:"Page 69, leave out lines 12 to 25 and insert ““, and in doing so have regard (amongst other matters) to—" (a)   the likely consequences of any decision in the long term, (b)   the interests of the company’s employees, (c)   the need to foster the company’s business relationships with suppliers, customers and others, (d)   the impact of the company’s operations on the community and the environment, (e)   the desirability of the company maintaining a reputation for high standards of business conduct, and (f)   the need to act fairly as between members of the company. (2)   Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members were to achieving those purposes.”” The noble and learned Lord said: My Lords, I hope that the House will agree that, given the substantial and, as the noble Lord, Lord Freeman, said, frank but full debate we have just had on shareholder value, it may be sufficient if I simply explain the purposes behind the amendment, while being ready to answer any questions, of course. We believe that enlightened shareholder value is the right approach, but we have listened carefully to the concerns expressed. Some were misunderstandings, but some had to be dealt with by amendment, which is why we have tabled these amendments. We would make three changes. First, we propose to bring together subsections (1) and (3) of Clause 156 in the hope of addressing misunderstandings that have arisen from their separation. We did not intend them to be two distinct duties, so by bringing them together, we hope that our intention will be made clearer in that, while a director must have regard to the various factors, that is subordinate to the overriding duty to act in the way the director,"““considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole””." In the light of further discussions with business and other stakeholders, we retabled the original amendment to delete the second ““must”” in the amended Clause 156(1), as it was suggested that using ““must”” twice might imply a separate duty. We do not think that the deletion of that word affects the obligation to have regard to the factors, but it makes it clearer that Clause 156(1) is a single proposition, so we are content to make the change. Secondly, we believe that it is better to delete the phrase,"““so far as reasonably practicable””," which gave rise to uncertainty from almost all sides. The words were intended to operate as a limit on what was required of directors, but also to indicate that directors were required to do more than pay lip-service to the factors. On reflection, we think that the degree of uncertainty to which the words give rise is unhelpful. We want the director to give such consideration to the factors identified as is necessary for the decision that he has to take, and no more than that. We do not intend a director to be required to do more than good faith and the duty of skill and care would require, nor do we want it to be possible for a director acting in good faith to be held liable for a process failure where it could not have affected the outcome. In the light of concerns about the effect of the words,"““so far as reasonably practicable””," we thought it best to delete them. The third point is that we have included the words ““amongst other matters””. We want it to be clear that the list of factors is not exhaustive. I suggested in Grand Committee that it could not possibly be exhaustive. I said, for example, that there was no specific reference to the duty to have regard to the profitability that the transaction would bring, but we believe that that is implicit. Nor does the list as it stands include the short-term implications, but it is better to make what is implicit explicit by inserting the words ““amongst other matters”” to make that clear. We do not think that that detracts from the obligation to have regard to those other factors. We have genuinely striven to meet concerns. The other concerns, as I have already indicated, and as the noble Lord, Lord MacGregor, noted, relate to the concept of derivative actions, but we will come on to that later. I beg to move.