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A key clause on corporate social responsibility in the UK’s Company Law
Reform Bill is under threat due to opposition from the business sector.
The Confederation of British Industry is lobbying for significant amendments to clause 156, which as it stands enjoins company directors to consider the interests of stakeholders other than shareholders.
The Bill was introduced in the House of Lords and is currently at grand committee stage, in which peers examine it line by line.
A vote is not expected until mid-April at the earliest, when the Bill reaches the report and third reading stages. It will then move to the House of Commons, perhaps in May, with a view to receiving royal assent by autumn.
The CBI’s senior legal adviser, Susannah Haan, told EP that while her organization had no difficulty with the principle of enlightened shareholder value as outlined in clause 156 (EP7, issue 7, p9) it was ‘worried’ the requirement that directors show they have regard for the interests of stakeholders such as employees and local communities would increase red tape because boards would ‘spend their time commissioning a whole series of reports in order to prove they have considered these factors’. There were also concerns that directors could become vulnerable to legal challenge over the way they have considered such interests.
The Conservatives, too, have difficulties with the clause, despite recent pledges by David Cameron, their new leader, that the party intends to promote responsible business practices (EP7, issue 9, p1). Lord Hodgson, who is leading the Conservative response to the Bill in the Lords, told EP the clause was ‘too prescriptive’ and that he would prefer ‘statutory guidance’ rather than legislation.
EP sources in the Lords say the most likely amendment to be put forward on clause 156 would change the wording so that directors ‘should’, rather than ‘must’, have regard for other stakeholders. This would substantially weaken its effect.
The CBI’s opposition is particularly noteworthy as its stance appears to have influenced chancellor Gordon Brown’s decision to scrap the requirement for large companies to produce Operating and Financial Reviews covering their social and environmental impacts. The government has been forced to put that decision out to consultation until 24 March after agreeing an out-of-court settlement with Friends of the Earth on a judicial review of the announcement. Theoretically the OFR could be reintroduced in the Company Law Reform Bill, but most observers think that unlikely.
Another clause with responsible business implications is also in jeopardy. Both the CBI and the Tories oppose clause 866, which could force institutional investors to declare their annual general meeting voting records, on the ground that this could bring ‘political activism’ into AGMs.
The Confederation of British Industry is lobbying for significant amendments to clause 156, which as it stands enjoins company directors to consider the interests of stakeholders other than shareholders.
The Bill was introduced in the House of Lords and is currently at grand committee stage, in which peers examine it line by line.
A vote is not expected until mid-April at the earliest, when the Bill reaches the report and third reading stages. It will then move to the House of Commons, perhaps in May, with a view to receiving royal assent by autumn.
The CBI’s senior legal adviser, Susannah Haan, told EP that while her organization had no difficulty with the principle of enlightened shareholder value as outlined in clause 156 (EP7, issue 7, p9) it was ‘worried’ the requirement that directors show they have regard for the interests of stakeholders such as employees and local communities would increase red tape because boards would ‘spend their time commissioning a whole series of reports in order to prove they have considered these factors’. There were also concerns that directors could become vulnerable to legal challenge over the way they have considered such interests.
The Conservatives, too, have difficulties with the clause, despite recent pledges by David Cameron, their new leader, that the party intends to promote responsible business practices (EP7, issue 9, p1). Lord Hodgson, who is leading the Conservative response to the Bill in the Lords, told EP the clause was ‘too prescriptive’ and that he would prefer ‘statutory guidance’ rather than legislation.
EP sources in the Lords say the most likely amendment to be put forward on clause 156 would change the wording so that directors ‘should’, rather than ‘must’, have regard for other stakeholders. This would substantially weaken its effect.
The CBI’s opposition is particularly noteworthy as its stance appears to have influenced chancellor Gordon Brown’s decision to scrap the requirement for large companies to produce Operating and Financial Reviews covering their social and environmental impacts. The government has been forced to put that decision out to consultation until 24 March after agreeing an out-of-court settlement with Friends of the Earth on a judicial review of the announcement. Theoretically the OFR could be reintroduced in the Company Law Reform Bill, but most observers think that unlikely.
Another clause with responsible business implications is also in jeopardy. Both the CBI and the Tories oppose clause 866, which could force institutional investors to declare their annual general meeting voting records, on the ground that this could bring ‘political activism’ into AGMs.
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