Businesses: Rights and Responsibilities

Baroness Couttie Excerpts

Thursday 8th December 2016 Lords Chamber

[Baroness Couttie (Con)]

My Lords, I too add my thanks to my noble friend Lord Hodgson of Astley Abbotts for bringing this debate to the Chamber this afternoon. The subject is of course many faceted but, in the interests of time, I shall focus in the main on just one aspect of it.

In over 30 years of being in business and in nearly 30 years of senior management roles, I have become a fervent believer that for business to flourish government should impose only the minimum amount of regulation and restriction. This allows business to be innovative and agile, which is key to long-term success. However, this position is credible only if businesses play by the rules.

I have seen business from many perspectives, having founded, built up and sold two small businesses and having been the managing director of a subsidiary of a publicly quoted company and a director at Citigroup. During that time I have witnessed corporate behaviour of the worst kind. The disgraceful types of behaviour of some of the companies highlighted this afternoon by my noble friend Lady Bottomley and the noble Baroness, Lady Bowles, have generated a great deal of publicity but are just some examples of corporate malpractice.

There are also many incidents of large organisations mistreating small businesses and sole traders that go way beyond the late payment of invoices, which is so often discussed, very serious though that is; yet these incidents go unreported. I applaud Theresa May’s focus on the excesses of the corporate sector and welcome the opportunity to contribute to this debate.

Large corporations are in a privileged position, as they have the financial resources to take and defend legal action in a way that small businesses and sole traders simply cannot. A small number of institutions take advantage of this by breaching legally binding agreements to avoid paying what they owe on the basis that small companies do not have the financing behind them to take legal action all the way to court. This biases the negotiations heavily in favour of large businesses and forces smaller ones to agree to unacceptably low settlements, which are often tied to confidentiality clauses.

In my experience, this behaviour is becoming increasingly prevalent, particularly among privately owned companies that are not subject to the same scrutiny as publicly quoted companies and do not have such a high profile. It seems that their employees deem it clever business to avoid paying what they owe and, what is more, some benefit from an increased bonus taken from the money saved. Many of these companies are involved with conspicuous charitable giving and consequently have an aura of corporate responsibility that is simply not deserved.

I have witnessed many incidents of corporate giants abusing their position and taking advantage of smaller operators, a couple of which are close to home. Many years ago I was a victim. I had my own small business. A director at my largest client left and was replaced by someone who decided to slash my contractually agreed fees for work that I had already undertaken, despite no implication that the work had not been completed to the highest standard. Despite a clear legal right to the fees, I was left with the option of either accepting a small sum or costly and lengthy legal action. I felt compelled to take the small sum. My experience is not uncommon and I am aware of far too many similar stories.

My husband has also recently found himself on the receiving end of just such corporate immorality, having worked on a transaction for two years without remuneration. He was relying on a legal agreement which would compensate him when the transaction closed. The organisation in question is now refusing to pay. It is offering him a mere fraction of what he is owed and is assuming that he does not have the resources to litigate, particularly as he has not been paid for so long.

I fully accept that there are occasions when there are good reasons for a corporation withholding payment—for example, when the goods or services have not been of an acceptable standard—but the incidents I am referring to do not fall into this category. They are merely attempts to avoid payments that are due. It is high time that this practice was stopped and I am determined to make every effort to ensure that no one else finds themselves in this situation.

If we are to deal properly with corporate responsibility, we need to create a legal framework that levels the playing field between big and small businesses without unreasonably restricting responsible organisations, and there are examples from other countries that may be useful to look at. In France, certain types of dispute, including large ones, are not taken to court. A judge is provided with a summary of the case from each side and all the documentation to support it, such as contracts, emails and expert reports. He then meets with one lawyer from each side to ask any questions he may have, before pronouncing judgment. This format saves considerable cost and is relatively quick. It is similar to our magistrates system, but the cases are far larger and are held in front of a judge rather than a magistrate.

I also believe that large organisations should be under the same financial imperative not to behave unreasonably. One mechanism to achieve this would be for judges, if they believe an organisation has behaved vexatiously, to award damages for hardship brought on the firm bringing the case and impose penal fines which could be used to fund the courts.

These changes would also help in the area of patents. Too many times one hears of small businesses, or more often sole traders, who take a product to a large company and have it turned down, only to find that about a year later a very similar product appears on the market. These sole traders cannot possibly afford any form of redress under the current system.

There are many noble Lords in this Chamber who will have further ideas, which I would urge them to put forward as we move towards what I hope will be regulations to curb these excesses. I ask the Minister to look at this issue so that the Davids of the business world can truly stand up to the Goliaths.