Company Law Reform Bill [HL]

My Lords, I thank all who have taken part in this short debate. I am particularly grateful for the welcome given to Amendment No. 79, and particularly to the noble Lord, Lord Freeman, who dealt with it very graciously in the light of the decision on the previous amendment. Everything that my noble friends, the noble Earl, Lord Sandwich, and the noble Baroness, Lady Northover, have said is powerful stuff; of that, there is no doubt. It demonstrates the balance that the Government have been trying to achieve between the powerful points they make and the other concerns we discussed in the previous debate. I shall deal with the amendments in turn, and shall explain the Government’s attitude to them. There are a number of them, although, as the noble Lord, Lord Lea, said, that is to some extent the result of ingenuity and the attempt to avoiding pre-emption, for which I congratulate him. Amendment No. 79A would require the directors to take account of the factors listed, rather than to have regard to them. The intention may have been to impose a more onerous requirement. The clause creates a requirement to ““have regard to””, rather than to have some other consideration of the matters listed in subsection (3), so as not to diminish the overriding nature of the duty in subsection (1), which we intend to conflate with subsection (3). The words ““have regard to”” also reflect the wording used in Section 309 of the Companies Act 1985, to which I drew attention in the previous debate, requiring directors to have regard to the interests of the employees. The amendment would also delete the words ““amongst other matters””. As I said in moving this amendment, those words are helpful, indicating that the list is not exhaustive. I would not want to see them go. Amendments Nos. 79B, 79C and 79D would amend the list of factors by painting them in, if I can put it this way, more pluralist colours. There are three reasons why that would be wrong. First, the list of factors is based on those recommended by the Company Law Review and, as such, has benefited from lengthy consultation. Secondly, these words do not need to be added to make the point that both the company and, more widely, society will benefit from an enlightened approach. That is implicit in the clause. Thirdly, we are concerned that, in so far as the words would have an effect, they might confuse directors about what they should be seeking to achieve. The overarching objective of directors should be the success of the company, for the benefits of its members as a whole; that is a key part of the enlightened shareholder value concept. We do not want wording which leads to confusion on that point. Amendment No. 79E is effectively a description of the case for enlightened shareholder value. That is unnecessary because, by having regard to the factors, directors will achieve long-term sustainable business success for the company. That is implicit in the clause. Amendment No. 79F is also unnecessary and likely to lead to confusion. This is perhaps the most substantial amendment, because it shifts the objective of the clause. It is important to recognise—we have said this before, and I am happy to repeat it—that having regard to something does not mean that a box-ticking approach is acceptable. It is meant to be more than mere window dressing. It is therefore right that weight is given to the individual factors. The problem with the amendment is that it would point the directors in two different directions. Its introductory words:"““In fulfilling the duty imposed by this section””," point the directors towards the duty in subsection (1), of deciding what will promote the success of the company. However, the amendment would also require them, so far as was reasonably practicable, to promote the interests of the company’s employees or minimise any adverse impact of the company’s operations on the community and environment. That is just the situation which could lead directors into the difficulty of not being able to determine which of those objectives should have priority. The concept of enlightened shareholder value means that they need to properly have regard to those factors as I have indicated, but then to reach a judgment as identified by subsection (1).