Company Law Reform Bill [HL]

My Lords, I rise to speak to Amendments Nos. 80 to 87—Amendment No. 87 should probably have been taken separately, but I was trying to help the business in the House when I discussed it with the Clerk. I very much welcome Amendment No. 79 proposed by my noble friend the Minister and compliment my noble friend Lord Lea on his imaginative way of dealing with this matter, because I had not thought to amend the Government’s amendment. However, my amendments address the same issues. My understanding is that if Amendment No. 79 is agreed to, my amendments will fall, but I feel that it is important to have the opportunity to discuss them at this stage. The Government have made significant progress, for which I compliment them, towards addressing the issues that were raised during the discussions about directors’ duties in Grand Committee and at Second Reading. Indeed, the discussion will continue to take place in further stages of the Bill and in another place. In the government amendment, I particularly welcome the removal of the words"““so far as reasonably practicable””." I also welcome the addition of the new subsection (2), which is a logical and useful prompt regarding companies that are run for the benefit of those other than members—social enterprises, for example. However, the government amendment should have gone further. I fear that it does not quite deliver on the principal issue of directors’ duties, which would involve the inclusion of a positive duty for company directors to take reasonable steps to minimise significant potential negative impacts of their company’s operations on communities and the environment around the world. That is the nub of the new wording to subsection (3) proposed in Amendment No. 81. I would also like to take this opportunity to remind noble Lords about the Trade Justice Movement and the CORE coalition, which are concerned with corporate social responsibility. These coalitions represent more than 100 organisations with 9 million individual members. They are calling for amendments to the Company Law Reform Bill to ensure that UK companies are more accountable for the impact of their activities on employees, communities and the environment. Having listened to the debate that took place earlier this afternoon, I believe that they are quite right in those concerns, which is why I have chosen to support them. The discussions that we have had so far have been about the nature of directors’ duties. The Government have been considering two contrasting approaches—enlightened shareholder value and pluralism. The approach finally adopted was enlightened shareholder value, so ably explained by my noble friend the Minister earlier. Those of us who wish to address these issues face the problem that the key assumption underlying enlightened shareholder value is that business prosperity and responsible business behaviour are two sides of the same coin. However, the CORE coalition, the Trade Justice Movement and many of us believe that this assumption places too much emphasis on the voluntary approach to corporate social responsibility. Indeed, Action Aid, Friends of the Earth, Christian Aid, Amnesty International and other such organisations have numerous case studies that demonstrate that the voluntary approach to CSR cannot be relied on to prevent corporate abuse and to ensure that companies minimise their negative impacts on communities and the environment. I waited in vain for the noble Lord, Lord Freeman, to address issues to do with, for example, the violated rights of women fruit pickers in South Africa and the many well recorded examples of British companies that, while on the face of it have strong corporate responsibility policies, pursue practices in other parts of the world, such as Africa and Asia, that are to the detriment of local communities and the environment. The Trade Justice Movement and CORE support a pluralist approach. Ever practical, however, we realise that that is the least likely option to be pursued under these circumstances. It is recognised that the enlightened shareholder value approach explained by my noble friend is the route down which we will go. Therefore, we argue that that needs to be strengthened as far as possible. Specifically, Amendment No. 80 repeats the use of the phrase ““in good faith”” used in subsections (1) and (2) and is intended to reinforce the message that the duty to take account of environmental and community issues is a serious obligation. That is a positive clarification of that duty. Amendment No. 81 deals with the issue that has already being referred to—the environment and social impacts. Amendments Nos. 82 and 86 relate to the wholesale approach of UK corporate performance in dealing with its impacts, as I have already mentioned, on the environment and local communities. Amendment No. 84 addresses the issue of the high standards of business conduct and would ensure that they included ethical standards. That should be explicitly addressed to strengthen and clarify that duty. Amendment No. 85 would make it clear that the minimisation of adverse impact is desirable, and that responsible behaviour, including taking account of the interests of a company’s full range of stakeholders, can be economically beneficial. As I said, Amendment No. 87 should probably have been taken separately, because it concerns the recognition that company directors will need detailed guidance about what, in practical terms, the enhanced duties will mean for them and how the duty to minimise adverse impacts relates to other duties in Clause 156. Such guidance will need to be regularly updated, because the way in which directors’ duties should be translated into practice is likely to change through the passage of time. Clause 156 requires the Secretary of State for Trade and Industry to publish guidance on how directors should interpret the duties in the clause, and how they can reconcile or integrate the different considerations that the clause requires them to take into account. The guidance can be updated more frequently and easily than the Company Law Reform Bill can be once it has become law.