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Last Updated: Friday, 10 November 2006, 11:31 GMT
Firms face legislative behemoth
By Brian Wheeler
Politics reporter, BBC News

It is likely to contain 870 pages, more than 1,500 clauses and has been eight years in the making.

Red tape
Red tape: Every firm's worst nightmare

Piled up on floor with its supporting documents, it will reputedly reach a height of nearly two metres.

It is the mammoth Companies Bill, the longest piece of legislation ever to pass through the House of Commons, which finally made it on to the statute books on Wednesday, to sighs of relief from all concerned.

"We are glad to see the back of it," admits Conservative peer Baroness Noakes, one of the politicians to have had the unenviable task of scrutinising this legislative behemoth.

She describes the bill's year-long passage through its various Parliamentary stages as "hellish".


Its sheer size and complexity means about 800 of its clauses have not been debated by MPs or peers in the conventional way, prompting Tory warnings about making laws "on the hoof".

The government insists the clauses have been scrutinised by all the relevant "stakeholders" and are mostly "non-controversial".

The reason for the new Act's extraordinary length is that it pulls together - at the Tories' request, it should be added - all existing company law into one giant piece of legislation.

Something on this scale is only attempted once every few decades. The last time was in 1985. Before that it was 1948.

So has all the effort been worth it?


The government is hailing the Companies Bill, originally called the Company Law Reform Bill, as a major improvement in the laws governing the way companies in Britain are set up and run - simplifying them, tidying them up and bringing them up-to-date.

Are companies turning a blind eye to their suppliers' behaviour?

It is also "light touch" regulation, argues trade secretary Alistair Darling, saving business people time and money.

But the Act's opposition critics are concerned aspects of it could seriously damage Britain's economic competitiveness.

Among many other things, the Act is designed to streamline the business of setting up a company, getting rid, for example, of the requirement to have a company secretary or an annual general meeting.

Directors will also no longer have to publish their home addresses in company reports - a move designed to combat animal rights extremists.

Law suits

The Act will also promote "shareholder engagement," argues Mr Darling, giving the people who invest money in companies more of a say in how they are run - and so promoting longer -term investment.

For the first time, shareholders will be able to sue directors for "breach of duty" in what is called a "derivatives" action.

In addition, directors will also have to take account of the interests of the community, suppliers, and the environment.

Jonathan Djanogly
The provisions will affect not the large multinational but the small listed company
Jonathan Djanogly, Conservatives

For trade unions and environmental campaigners, who believe business has become too powerful in recent years - and increasingly beyond the reach of morality and the law - this is a significant victory.

It comes after plans to force all publicly listed companies to produce an annual Operating and Financial Review (OFR) detailing the risks they face - including environmental and social factors - were unexpectedly scrapped last year by Chancellor Gordon Brown, who argued they would place too much of a burden on business.

The "business review" section of the Companies Act is, to some extent, a much watered down version of the OFR.


It does not go nearly as far America's new Sarbane-Oxley anti-corruption laws, introduced in the wake of the collapse of Enron and other corporate scandals.

But some critics fear it could still open the floodgates to law suits from, as one City commentator recently put it, "any nutcase who can get on to the share register".

The government is hoping to save companies from this fate by making the legal costs fall on the person bringing the claim. Litigants will also only be able to sue on behalf of all shareholders rather than for their own individual gain.

But the Conservatives says this section of the new Act shows just how little Labour understands about business.

Rather than ushering in a new age of corporate responsibility, it will merely succeed in driving business away from the City of London and lead to more companies being taken into private hands, they argue.

And the prospect of being sued by shareholders could make recruiting quality candidates to sit on boards even more difficult.


Conservative industry spokesman Jonathan Djanogly was particularly upset about a clause - inserted, he claims, at the last minute - requiring companies to list their suppliers.

A common criticism of large companies is that although they may be a model of social responsibility themselves, it can be a different story for their suppliers. Pollution and unethical practices - such as employing gang labour - are often simply passed down the supply chain.

But the prospect of having to disclose potentially sensitive information about suppliers - that could be exploited by competitors - is likely cause alarm in the nation's boardrooms.

Industry minister Lord Sainsbury went out of his way to reassure business that the rule would only apply to "key relationships" and did not mean firms had to supply "exhaustive lists" of everyone they deal with.

But, argues Mr Djanogly, in their efforts to please both campaigners and captains of industry, Labour has ended up with a rule that satisfies no one.


"Anyone who thinks the clause will lead to supermarkets having to disclose the suppliers of their 30,000 product ranges...is gravely mistaken," Mr Djanogly recently told MPs.

"The provisions will affect not the large multinational but the small listed company with a smaller field of operation, whose key supplier or customer might have commercial sensitivity, which might mean that it does not want to disclose such contracts."

This stout defence of business interests is all very well, argues Labour, but where does it leave Conservative leader David Cameron's much-hyped commitment to corporate social responsibility?

Mr Djanogly, the Conservative front bench spokesman on corporate responsibility, insists the party is deadly serious about the issue - it just does not think legislation is the answer.

Business, he believes, can be cajoled and exhorted into behaving more responsibly.

Chocolate bars

He cites the example of the high street newsagent criticised by Mr Cameron for promoting cut-price chocolate bars at its tills "instead of real oranges".

"He was attacked for that, but the company has now stopped doing it," Mr Djangoly tells the BBC News website.

But for Labour, this sort of talk shows just how weak Mr Cameron's claim to be not afraid to "take on big business" really is.

And, they argue, however much the Conservatives complain about the Companies Act now, they agreed to the vast majority of the measures included in it.

More importantly, officials argue, the CBI has also backed the Act (after a bit of last-minute sweet-talking by Margaret Hodge, the minister in charge of piloting it through the Commons).

In some respects, the government has tried to do the impossible with the Companies Act, treading a delicate path between the demands of business, for less red tape and government interference, and trade unions and trade justice campaigners for more corporate responsibility.

Inevitably, DTI officials say, not everyone is going to be happy with everything in it.

But because of its size and complexity it will not be obvious, from the moment it lands with a thump on boardroom tables, who the real winners and losers will ultimately be.

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