FTSE 100 Companies (Governance)

Lord Willetts Excerpts

Monday 23rd May 2011 Commons Chamber

[The Minister for Universities and Science (Mr David Willetts)]

I congratulate the hon. Member for Falkirk (Eric Joyce) on securing this debate. The title on the Order Paper is “Standards of governance amongst FTSE 100 companies”, which is a very important subject, and it is clear from his remarks that he has a particular company and set of circumstances in mind. It will be hard for me to comment on that, but I realise that he is using the case to make some wider points about the City of London. He also rightly referred to the role of professional bodies before turning to the specific case of the ENRC.

The coalition Government believe that the UK’s corporate governance framework plays an important role in enabling investors to hold the boards of companies to account for their performance, facilitating efficient allocation of resources in the economy and creating the accountability and transparency that encourage responsible business behaviour in line with internationally agreed standards. As such, it is vital to achieving our goal of sustainable economic growth.

There are various ways in which we deliver the strong corporate governance framework we have in the UK. One is our listing rules, which might help the hon. Gentleman and me to confront the question he asked towards the end of his speech. The listing rules that must be fulfilled before a company can be quoted on the London stock exchange are a matter for the Financial Services Authority as the UK listing authority. The UK regime is one of the strongest in the world and UK listed companies are expected to comply with high standards of corporate governance through compliance with the Financial Reporting Council’s corporate governance code. The short answer to the hon. Gentleman’s question is that the listing rules are crucial.

We are not complacent. We recognise that we need to ensure that our overall corporate governance regime is fit for the future and we need to make sure that the governance of our top companies continues to improve. The governance landscape is constantly changing, both domestically and internationally. We need to adapt to that to stay in line with our competitors and we are trying to do that with corporate governance reform, the stewardship code, narrative reporting and guidance on directors’ remuneration and bankers’ pay. That is all part of the Government’s commitment to a wider corporate social responsibility agenda, encouraging businesses to minimise the negative social and environmental impact of their activity and maximise the positive impact they can make while benefiting commercially in the process.

Our action to support and encourage responsible business focuses on helping businesses to understand how they can deliver on corporate social responsibility, including by facilitating the exchange of good practice and supporting a range of international frameworks such as the OECD guidelines for multinationals and the UN global compact, which might be relevant to the case that the hon. Gentleman has raised. The Government are pressing for the EU to adopt rules providing for greater transparency in the information provided by multinational companies in extractive industries about, for example, their tax payments in host countries, based on the United States’ Dodd-Frank principles. This will allow citizens to have the information to hold their Governments to account for the revenues they receive from resource wealth, including some of the tax payments the hon. Gentleman mentioned. However, I am not able to make any comment on or judgment about that specific account.

The US Dodd-Frank Act also requires companies reporting to the Securities and Exchange Commission to report their use of conflict minerals originating in the Democratic Republic of the Congo or neighbouring countries. We are interested to see how the US Government will implement their new legislation and we will closely monitor its implementation. In the meantime, we have been supporting the work of the OECD and the UN group of experts to develop due-diligence guidelines for the minerals supply chain in eastern DRC and to encourage adherence by companies looking to trade in cassiterite, wolframite, coltan and gold originating from the DRC. We are strong supporters, including financially through PROMINES, of DRC efforts fully to implement the extractive industry transparency initiative.

As we are talking about that country and businesses located in it, let me touch briefly on the hon. Gentleman’s comments, but I hope he will understand that it is very difficult for me to comment on an individual case and that it would not be right for me to do so from the Dispatch Box. He asked about non-executive directors: let me make it clear that under UK law all directors need to comply with the same general duties, including the duty to promote the success of the company both in the long term and the short term and the duty to exercise reasonable care, skill and diligence.

I did not know that the hon. Gentleman had intended to refer to the company he mentioned or to Sir Richard Sykes, and I am not able to comment on those specific points. What I can say is that I have had dealings with Sir Richard Sykes over the years in relation to his position with the NHS and Imperial college, and we all know his record as the chief executive at GlaxoSmithKline. He is a well-respected business man who has also made a considerable contribution to the NHS and our higher education system. I am sure that the hon. Gentleman will recognise the seriousness of some of the things he said about the company. I am not able to comment on that case but I think we should all, on both sides of the House, recognise the significant contribution that Sir Richard Sykes has made to the commercial life of our country and to public service, in which I am sure he has always behaved with great integrity.

Outside the specific case that the hon. Gentleman has raised, there are wider issues. We have launched a new agenda called “Every Business Commits”, in partnership with business in the community, to help all UK businesses understand how they can act responsibly. It gives them clear examples of how they can make a difference in priority areas such as supporting communities, improving quality of life, improving skills and creating jobs, protecting the environment and supporting small and medium-sized enterprises. “Every Business Commits” aims to shape business’s contribution to the Government’s broader agenda to empower communities and encourage social action. We believe it will provide the platform for business to play an important role alongside Government in helping to resolve some of society’s most important challenges.

So my response to the hon. Gentleman is that the Government believe that the UK already has a robust corporate governance framework. We are not complacent and recognise that it always needs to be reviewed and updated, and we realise that there will always be individual cases that test those guidelines and that framework. I hope the hon. Gentleman will understand that it is hard for me to go further into the specific case that he raised. Nevertheless, our principles on which we will approach this and all cases are clear—that it is in the long-term interests of British companies to support the work we are doing to bolster corporate governance, and we encourage every company to meet the standards of the best.

We have specific powers, including the powers relating to the listing rules, which are for the Financial Services Authority. As we work through the issues of the correct structure of corporate governance in the UK, our conclusions will be based on the principles that motivate our desire to have a world-class corporate governance framework. However, we are not in the business of weighing companies and investors down with more regulation and higher costs. We believe in improving accountability and transparency. Those are important principles which we expect all companies, large or small, multinational or solely domestic, to live up to. We believe that following those principles is essential for securing long-term, sustainable economic growth for Britain.

I am grateful to the hon. Gentleman for raising these important issues. Although it is not possible for me to comment in any detail on the specific case, I hope he will accept that the coalition Government take very seriously indeed the overall framework of corporate governance, the powers that Governments and other regulatory bodies have, and our commitment specifically to tackling the problems with regard to the DRC and making sure that we have the highest standards of compliance when it comes to some of the extractive industries there.

Question put and agreed to.