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.
