Draft Companies (Miscellaneous Reporting) Regulations 2018

Michael Fabricant Excerpts

Wednesday 4th July 2018 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Andrew Griffiths)]

I beg to move,

That the Committee has considered the draft Companies (Miscellaneous Reporting) Regulations 2018.

It is a pleasure to serve under your chairmanship, Mr Sharma, even in this somewhat sticky weather.

The UK has an international reputation for the strength of its corporate governance framework, which gives us a competitive advantage and is important in making the UK an attractive place to work, invest and do business. One of the reasons we have maintained that reputation is that we have kept our corporate governance framework up to date by conducting reviews and making improvements from time to time.

In that spirit, in November 2016 the Government published a Green Paper on corporate governance reform, which focused on ways to improve shareholder scrutiny of executive pay and strengthen boardroom engagement with employees, customers, suppliers and other stakeholders; it also looked at the case for strengthening corporate governance in large privately held businesses. The backdrop to the Green Paper was public disquiet about high executive pay, which over the past two decades has grown much faster than pay generally. The largest increases occurred between 1998 and 2011—they have now stabilised—when mean pay of FTSE 100 chief executive officers rose from £1 million to £4.5 million.

[Michael Fabricant (Lichfield) (Con)]

Is my hon. Friend aware that John Lewis Partnership plc has an arrangement in its trust deed that no one can earn more than 75 times the lowest paid person in that company? Although that ratio may not be appropriate for FTSE companies, does he not think there is merit in having that type of maximum pay range?

[Andrew Griffiths]

I thank my hon. Friend and constituency neighbour for raising that point. The John Lewis Partnership is an exemplar of the way businesses should deliver corporate governance. It has a well-earned reputation for doing the right thing. Although it would be wrong of us to be prescriptive about pay ratios, sunlight is the best antiseptic, and this kind of transparency will change behaviour.

--- Later in debate ---

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

In the spirit of the previous interventions, I rise to acknowledge the work of John Spedan Lewis, who set an early trend for having women at the top and in corporate governance roles by talking about the importance of a woman being the financial secretary of a company and keeping everything in check. I also support the points that were made about the importance of a multiplier. Will the Minister clarify what the draft regulations mean by “employees” in comparison with workers?

[Michael Fabricant]

On a point of order, Mr Sharma. This is not really a point of order—it is a sort of helpful intervention—but I am going to say it is one. I just want to point out that Andy Street, who was the managing director of John Lewis, nominated a woman to run that company, not just to be secretary.

[The Chair]

Thank you—we take your point. I call the Minister.

--- Later in debate ---

[Bill Esterson]

My hon. Friend is quite right to raise that point, given that we are talking about private sector companies. Perhaps it is time for the Government to consider wider corporate governance issues in the private sector. The directors to whom she referred have benefited from public money and success for such companies has come through the Government’s Help to Buy scheme, where unfortunately, despite the Government’s intention, money has gone to the directors rather than helping people who desperately need somewhere to live. Last year, Labour’s manifesto had commitments on the 20:1 ratio for the public sector and companies involved with public contracts. Might the Government be in a position to do something similar?

I agree that improving relationships and consulting stakeholders is important. Doing so with employees is also important, so I will return to employees. Consulting, discussing and publishing the results of those discussions is one thing, and action is quite another. I am interested in the Minister’s thoughts on what can be done with the findings of such consultations. If consultations are just a talking shop and the results have to be published, what is the point? What is a company’s motivation other than to look good in reports?

Members of the Committee will have had the TUC’s briefing. It has raised a number of concerns. It said—the Minister touched on this in his opening remarks—that the whole workforce need to be engaged, and that these regulations should be about engaging with workers as a whole and not just with employees. I remind the Committee that the TUC estimates that 740,000 people in the UK today are working through an employment agency, 450,000 earn most of their income through personal service companies and 500,000 people are in bogus self-employment. Significant numbers of people are in indirect employment and their indirect employment is often with the companies covered by the regulations.

I hear what the Minister has to say about the difficulty of having direct control, but is there not a danger that some employers will take the opportunity to act less than scrupulously and use indirect employment as a way to avoid their responsibility under the regulations? Sadly, we have seen too much of that kind of behaviour in our economy and the mistreatment of people in precarious situations is a growing and dangerous part of how our economy functions. Not only is it bad for working people, but it creates an unfair competitive advantage and undercuts those employers who want to do the right thing—those businesses that want to act in a responsible way. I urge the Minister to take that point on board, in the spirit of its being good for workers and good for businesses.

The TUC also raised the point about the size of businesses covered by these regulations. For listed companies the regulations use the established definition of a large company, which in this case is one with more than 250 employees, but, for reasons that the Minister might want to explain, for private companies the figure is 2,000. The TUC has drawn to our attention the fact that the gender pay gap reporting requirements use the same lower figure for public and private. I stand ready to be corrected by the Minister, but that is my understanding from the information coming from the TUC. Why is there a difference between the reporting requirements for gender pay and for pay ratios, if that is indeed the case? If it is not, and they are both 2,000 for private companies, I would still want to know why there is a difference between private and public.

[Michael Fabricant]

Will the hon. Gentleman give way?

[Bill Esterson]

I will take the opportunity to find my place in my notes.

[Michael Fabricant]

I always try to be helpful. Does the hon. Gentleman not agree that although these rules of course concern companies and corporate law, perhaps other organisations should fall under such a remit, such as universities, where some vice-chancellors, we hear, earn astronomical wages?

[Bill Esterson]

Yes, of course—I do not think there is any doubt about that—but this is about the private sector. I quoted the figure in our manifesto for the public sector. Perhaps the hon. Gentleman is advocating that the Conservative party should make similar proposals of its own for the public sector? I welcome his conversion to the cause and support for Labour’s manifesto from last year in the spirit in which his intervention was no doubt intended.

The other point I want to raise with the Minister concerns the FRC’s responsibilities and enforcement. Perhaps he could start by describing how enforcement has happened with the gender pay gap regulations and what examples have been received, in what I think is just over a year since those regulations came into force, of the need for the FRC to intervene and whether they have found companies that are not compliant. He quoted the policy of “comply or explain”; perhaps he can say whether he has considered what happens if the answer is always to explain and if we do not have compliance. I would be interested in his thoughts on the level of enforcement that has already gone on with the gender pay gap, and on how enforcement will happen for these regulations.

A lack of enforcement of the prompt payment code was one reason so many ended up in such a precarious financial position as suppliers of Carillion. The Minister and I have debated before the difficulties of enforcing the prompt payment code. This debate is an opportunity to remind him that good enforcement is essential for the regulations to have any meaning, and to encourage him in that regard. Perhaps the Minister could tell us how he envisages that and also give examples of how the FRC will be able to deliver that enforcement.