Baroness Wilcox
Main Page: Baroness Wilcox (Conservative - Life peer)
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, I should like to thank the noble Lord, Lord Harrison, for raising this important and timely question on what steps the Government are taking to improve corporate governance and accountability on social and environmental issues, a subject that I have some knowledge of, because I wrote the first corporate and social responsibility document for Cadbury Schweppes, and, well you see where it got them. I am therefore going to try to answer as many questions as possible as I go through, because this really has been a most engaging debate. I am amazed that we have managed to get through so many speeches in such a short time with so many questions, and my noble friend is already telling me to get a move on, so I shall.
As my noble friend Lady Bottomley stressed, strong corporate governance must be at the heart of successful capital markets which work both for companies needing to raise capital and investors looking for solid and sustainable returns. It is essential for the long-term health of our British economy. It is equally clear that accountability and transparency are the bedrock of a vibrant corporate sector. They build trust and, as the noble Lord, Lord Harrison, said, underpin business decision-making and long-term performance. Britain has been a pioneer in developing high standards of corporate governance but we are far from complacent. A few weeks ago my right honourable friend the Secretary of State for Business announced that he had asked Professor John Kay to lead the review of the effect of British equity markets on the competitiveness of British business. This will address issues of vital importance to the long-term performance and governance of British quoted companies. I am delighted to note the support of the noble Lord, Lord Harrison, for the Secretary of State’s thinking on this.
My noble friend Lord Patten asked whether the Government will introduce further regulation. As we said in the call for evidence, on a long-term focus for corporate Britain the best solutions are those which are owned and driven by market participants and investors in companies. Therefore, we want to work with the companies and the City to develop business-led solutions.
My noble friend Lord Newby asked whether the Government should review fiduciary duties. The Kay review will consider whether government policies directly relevant to institutional shareholders and fund managers promote time horizons and effective collective engagement. If that is not clear, we will write. I am not sure whether I answered that correctly. We recognise the importance of social environmental issues to the long-term success of businesses. All directors have a general duty to have regard to the impact of the company’s operations on the community and the environment. That is reflected in the way in which they report to their shareholders, notably in the business review part of the company’s annual report.
The purpose of the business review is to help shareholders assess how the directors have complied with this duty. Quoted companies must provide information in the business review about environmental, social and community issues to the extent necessary for an understanding of the company’s business. Some companies already make high-quality disclosures but the standards are not applied consistently, as we have heard. Getting this right is crucial if we want to achieve balanced and sustainable economic growth. In the growth review, we gave a clear commitment to simplify the reporting framework. The work we have been doing on narrative reporting is important. Our aim is to give shareholders the information that they need to make well informed decisions without adding to the regulatory burden.
The noble Baroness, Lady Sherlock, spoke of introducing a higher audit requirement. In July, the Government will consult fully on these matters. They will of course need to avoid placing additional regulatory requirements on business unless there is clear evidence that they will help to improve the quality and relevance of the disclosures. We aspire to make reports less complex and cluttered. We will enable quoted companies to provide clear and relevant information to investors about strategy, performance and risk, using a more concise report with supporting information on the company’s website.
The noble Lord, Lord Harrison, asked what constitutes adequate reporting and assurance of the information contained therein. I thank the noble Lord for that question. An adequate report meets the needs of investors and, as such, investors should engage with companies to determine specific standards of assurance.
My noble friend Lord Patten asked whether the Government will introduce more regulation in narrative reporting. We want to ensure that we have the right framework, which would be a win for everyone. Boards should face less complexity and shareholders and other readers should be able to access information more easily. That means removing any duplicate requirements, improving guidance and making it easier for companies to adapt to national and international developments. Our consultation, which will run from July to October, will consult on proposals to address these aims and we look forward to receiving the views of many noble Lords who are here tonight.
The noble Lord, Lord Haskel, asked whether the Government will support a branding exercise. The Government support a range of industry-led awards in this area, which have proved to be very effective. They will continue to support these and I would encourage the noble Lord to help us in this.
The noble Baroness, Lady Young, asked whether the Government will bring forward proposals specifically to drive up the quality of social environmental reporting as indicated in the coalition agreement. The answer is yes. The Government’s consultation will address the issue of how social and environmental reporting can be better integrated into the narrative reporting framework to drive up the quality of the disclosures of this information.
In answer to the question asked by the noble Baroness, Lady Sherlock, no decision has been taken yet on whether to regulate. The consultation is aimed at understanding whether regulation is necessarily the best way to ensure consistency in reporting. My noble friend Lord Newby and the noble Lord, Lord Whitty, asked whether the time has come to review the reporting of environmental emissions. The Government have launched a consultation to consider options including a voluntary alternative to promote more widespread and consistent reporting of greenhouse gas emissions by companies in their annual reports. This was an open consultation with no preferred option. It closed today and it will report in the autumn.
We must keep an eye on the European and international agendas. Commissioner Barnier published his Green Paper on corporate governance in April and the Government will respond to it, ensuring that Britain continues to play a key role in shaping European thinking. My right honourable friend the Secretary of State for Business will be taking forward our thinking in the international arena this summer.
The noble Lord, Lord Harrison, asked whether proposals will be brought forward specifically to drive up the quality of social and environmental reporting as indicated in the coalition agreement. The answer is yes. The Government’s consultation will address how social and environmental reporting can be better integrated into the narrative reporting framework to drive up the quality of disclosures of this information.
Better governance is allied with stronger corporate responsibility, an issue we take very seriously. It is not just about businesses not doing harm; it is about them helping to build a better society. We are committed to helping businesses succeed so that they create the jobs, the wealth and the opportunity that our country needs. We want to encourage enterprise and make it easier for small firms to grow. Our commitment to business and the commitment we are asking for in return from all businesses, large and small, is set out in Every Business Commits. This responsibility deal between businesses and the Government asks them to show that they are serious about meeting their social responsibilities by, among other things, protecting the environment and supporting communities.
Finally, I should like to mention the recent review by the noble Lord, Lord Davies, Women on Boards, which highlighted the low numbers of women reaching senior positions in our companies. The report set out a body of evidence that showed that diverse boards are in a better position to make good decisions. A company and its shareholders profit from this. As a result of the report, things are already changing. The Financial Times reports that in the first two months of this year, 35 per cent of new FTSE 100 board appointments were women. If there is not enough change in the next few years then the Government will consider what further action they will take. However, the key recommendations of the noble Lord, Lord Davies, are for companies themselves. These are aimed at the larger companies, the FTSE 100 or 350. However, I would hope that all companies will think about the report and about how they can benefit from its findings.
The noble Lord, Lord Harrison, asked some detailed, important and pertinent questions about pensions as did the noble Lord, Lord German. My answer to them both is, as I have no doubt the noble Lord, Lord Harrison, knows, pensions are the responsibility of the Department for Work and Pensions and I will liaise with colleagues in DWP and write to both noble Lords to ensure I provide a coherent and joined-up answer.
As we work through these issues our conclusions will be informed by the principles underpinning our thinking on how to renew the corporate governance framework; a commitment to rebuilding trust; a determination to empower shareholders and a focus on protecting long-term values. We are not in the business of weighing companies and investors down with more regulation and higher costs but we are going to shine our spotlight on corporate governance to improve accountability and transparency and secure long-term, sustainable economic growth for United Kingdom companies. I wonder whether the noble Lord, Lord Harrison, would like to have a final thought. There is no reply but I am sure that if he wishes to—