Draft Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016

John Redwood Excerpts

Thursday 8th December 2016 General Committees

[Bill Esterson]

I am grateful to the Minister for her summary of the regulations. As she said, while we remain members of the EU, we continue to implement its directives. Some members of this Committee may be considering the irony of that situation, but that is where we are.

I raised the question of corporate governance because it struck me on reading the regulations and the Government’s response to the consultation that this was an opportunity to pick up on many of the points considered in the Green Paper at an early stage, including, but not exclusively, worker representation on boards. At one point the Prime Minister was very keen on having elected representatives, but we seem to have gone into reverse on that. Perhaps the Minister will correct me if I am wrong, but my understanding is that a director will now represent workers, small businesses/suppliers and customers, and presumably that director will be appointed by the board.

A number of aspects of the regulations seem worthy of further debate. If we are to make the most of the opportunities afforded by non-financial reporting, matters such as how companies deal with worker representation and their relationships with suppliers and customers will fit directly with that approach.

[John Redwood (Wokingham) (Con)]

Does the hon. Gentleman not think that this sums up the EU perfectly: no financial benefits, plenty of financial costs and we cannot do anything about it?

[Bill Esterson]

Just when we thought we had escaped the debate about the EU this morning.

There are opportunities, regardless of whether we are part of the EU. I happen to think it a very good thing for companies to report on their approach and attitude to wider stakeholders, because I think companies should behave responsibly. I hope hon. Members on both sides of the Committee agree with that. Section 172 of the Companies Act 2006 has provisions, which have never been enforced, about directors’ long-term responsibilities to have regard to employees, suppliers and customers, to the community and the environment, to standards of business conduct and the importance of the company’s reputation, and to the way they treat fellow directors and shareholders. Those matters would fit very well with duties to report non-financial matters. Do the Government intend to consider section 172 as part of this statutory instrument? What does the Minister think will be contained in the reports after it passes? We have no intention of dividing the Committee, because this instrument is a thoroughly good move, but perhaps she could tell us what she thinks will be in the reports.

The Minister mentioned gender reporting. Again, the diversity of company boards is exactly the sort of thing that should be seen in company reports, but is it also an opportunity to consider gender equality in terms of pay, or the difference between the top pay and the pay of everybody else in companies? Is it an opportunity to examine pay policy and have it clearly set out in the non-financial as well as the financial part of company reports? She mentioned that there will be omissions. Can she explain what those omissions will be and why things will be omitted, as well as whether she agrees about the areas that I would like to be included?

The Minister discussed the importance of employees. She also said that because of their security implications, cyber matters—I think that was the phrase she used—were as important in reports as financial matters. I agree, but that led me to think about electronic reporting. She can correct me if I am wrong, but I think the Government are still considering requiring small firms, which are clearly outside the scope of the legislation—[Interruption] —she is confirming that to me by nodding—to undertake significant additional bureaucratic responsibilities by reporting quarterly using digital reporting. The feedback that I get—we have discussed this before, and I am sure we will discuss it again—is that that is time-consuming and expensive for many small firms that simply do not have the resources in-house to address them. Does she consider it ironic that, although she made it clear that she did not want to extend the responsibilities in these regulations any further than necessary beyond the largest firms, when it comes to electronic reporting, she is making small firms comply with time-consuming additional responsibilities?

I mentioned the importance that I think we should attach to the wider stakeholders when it comes to the responsibility of business to society. These regulations are a move in the right direction. Non-financial reporting is extremely important, and I hope that the Minister will take on board the opportunity that the regulations present, alongside the corporate governance Green Paper, to partner with business to develop the relationships and arrangements with the wider community and society that are the hallmarks of a successful business environment and a prosperous economy and country.