Draft Directors' Remuneration Report Regulations 2002

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Mr. Waterson: I am, as always, grateful to the Minister for her introduction. The penetrating insights afforded by the interventions of my hon. Friend the Member for Lichfield reveal a situation in which listed companies, under the code that is incorporated in the listing rules, are required to do almost all the good things that might be expected of significant public companies post-Greenbury. The regulations add extra bells and whistles to which I shall return in more detail, but even if there is a vote, it will not make any difference.

Miss Johnson: May I clarify that?

Mr. Waterson: Just one more sentence. All that we are being asked to do is use the full majesty of the law to give people the opportunity to have a row.

Miss Johnson: Will the hon. Gentleman clarify whether he and his party believe that the shareholders' view of what a company is doing is irrelevant and whether it should be completely disregarded by companies?

Mr. Waterson: That is what the Americans call a no-brainer. These proceedings, which are unlikely to receive much media coverage, would receive rather more if I were to say, '' Yes, it is our policy that shareholders should have absolutely no input to the running of a company.''

I shall take the Committee through the history of the matter. A lot of the committees were set up under the Conservative Government and their findings were welcomed by them. We are not going to vote against the regulations?I do not think we will, unless there is a sudden exodus from the Room. All that I am trying to do is expose the threadbare reasoning behind the Government's thinking. We all saw the rather glorious press release put out by the Secretary of State when the regulations were published and the hon. Member for Shrewsbury and Atcham (Mr. Marsden) has told us what was promised. For all I know, that might be the very thing that caused him to cross the Floor. In reality, however, nothing much is happening other than what happens already, with the addition of a few bells and whistles.

We shall spend an hour and a half or so debating regulations that simply create a chance for a row. People are not slow to take advantage of such opportunities without the benefit of regulations. I recall a meeting of one public company?British Gas, I think?at which a large pig was produced. That appeared in all the media, and there have been several other major rows at shareholder general meetings.

Michael Fabricant: Does my hon. Friend share my concern that the regulations will not affect large corporations that employ teams of people to handle such documents so much as smaller ones? I do not have to remind the Committee of the size of the document?even the schedule runs to some 21

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paragraphs and the Minister has already said that some of it is more than is required. However, smaller companies that are quoted on Nasdaq come under the ambit of the regulations, which, although we now find that they are merely window dressing, represent a major additional burden, particularly for high-tech companies. I ran that sort of company in the 1980s, and such burdens can contribute to their lack of performance. Some companies will have to employ extra people to produce the report.

Mr. Waterson: My hon. Friend speaks with considerable commercial experience, and the Committee would do well to listen to what he has to say.

I want to draw four main issues out of the regulations. The first is delay. Given how much of a mouse the regulations are in the real world, why has it taken the Government so long to produce them? Secondly, are the regulations the right option to pursue at the moment? At this time yesterday in a similar Room, or perhaps even the same Room, we discussed insolvency regulations and I pointed out that the Government seem to be acting piecemeal.

We know that there will be a major announcement on company law reform next week, and presumably the Government intend to announce a large Bill on the subject in the Queen's Speech. I suspect that much of that Bill will be non-controversial and that its intentions will find support among all parties. Why deal with the matter now, given the delay of three years or so in sorting it out, when we know that the whole question of corporate governance will be considered in a different context in the autumn? That will not be a moment too soon, however.

Thirdly, will the regulations make any difference? Will they be more effective than current legislation? We have heard that the votes will not be legally binding. For the reasons that the Minister explained, which I entirely accept, we have to treat all directors' remuneration as one package in terms of the vote. If one so-called fat cat receives an extraordinary package, but everyone else receives something reasonable or even minimal, a vote against everybody's package will be the only option. However, it will make no legal difference, as the Minister conceded.

Miss Johnson: To clarify, the vote may not be legally binding, but it will make a huge practical difference. The practicalities and the impact of the proposals are what we are interested in, not whether the vote is legally binding. The effect will be the same.

Mr. Waterson: I am sure that the Minister concedes that people are not slow to criticise if there is unease over the remuneration of directors or chief executives. I have a sheaf of cuttings from the Library along those lines, and I shall refer to a small selection of them in a moment.

Such matters are often aired through the media and at shareholder meetings. As I understand it, although I am open to correction by the Minister, even now shareholders can vote down the directors' report to a

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meeting. That would be inconvenient for a large company, but it is possible in theory, so what is she giving shareholders that they do not have at the moment? Is she giving them merely another opportunity to have a bit of a ruck or a row?

I come now to the question whether the regulations address the growth of legitimate shareholder activism. I welcome as a useful development in this country the fact that shareholders in many companies are rightly taking much greater interest in how their company is run. Perhaps they take more interest when the shares plummet and the directors' remuneration packages soar, but that is human nature.

A while ago, I read that all large Japanese companies hold their general meetings on the same day to get round the fact that the Japanese version of the Mafia?the yakuza, I think?could make a good living by threatening to disrupt shareholders' meetings by buying shares in large companies and sending some toughs along to cause trouble. Of course, that is not the kind of shareholder activism that I advocate, but it is important that shareholders be active. They should have full information on the remuneration packages, as is the case under the listing rules.

It is also important that shareholders have the opportunity?they have in recent memory?to raise issues at shareholders' meetings. I can remember any number of occasions when shareholders have complained at their meetings about the remuneration packages of directors and senior executives.

I shall sketch in some background. The combined code has resulted from the Cadbury, Greenbury and Hampel reports on various aspects of corporate governance. The code recommends that the pay of executive directors should be subject to the recommendations of a committee of non-executive directors. That is not new; the 1995 Greenbury report was prompted by a surge of concern about executive pay, much of it to do with the privatisation of nationalised industries, and the phrase ''fat cats'' was being hurled about.

The Conservative Government welcomed the Greenbury report. As the excellent Library briefing on the regulations makes clear, many Greenbury requirements did not need legislation as they applied to listed companies. They were implemented in March 1997 by making changes to the listing rules following consultation?again, during the term, although close to the end of it, of the Conservative Government.

It is certainly true that Labour in opposition made a great deal of fat cats. Indeed, it was an issue in Labour's campaign?I suppose that opposition parties are allowed to do that sort of thing?and it no doubt contributed to Labour's electoral success. However, the Government have been remarkably slow to do anything about it. We may hear from the hon. Member for Shrewsbury and Atcham on that issue later.

Mr. Gibb: Does my hon. Friend know how many so-called executive fat cats earn more than 90,000 a week? Why are people so hostile to company executives who produce goods and services, yet not hostile to footballers who earn considerably more?

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The Chairman: Order. The hon. Gentleman knows that he is straying somewhat widely.

Mr. Waterson: I am no great expert on football, as my hon. Friends may know, but I agree that people should be paid the rate for the job. The rate for the top executives and directors of big public companies is rather like a transfer fee, and we are told that there is a international market for such people. We have seen the package being offered, for example, to anyone who can rescue Consignia. I do not know what would happen at Consignia shareholders' meetings if complaints were made about the directors' remuneration when the company is losing 1.5 million a day, because it has only one shareholder in the person of the Secretary of State. I suppose that some voting arrangement could be worked out, but I presume that she would have the only vote.

Mr. Gibb: The point that I was trying to make, without going against your ruling, Mr. Hurst, is that the Government are not introducing regulations to deal with footballers similar to those that they propose to deal with business.

Mr. Waterson: It is not for me to fathom the Government's reasoning processes, but I suspect that the answer is that one of those measures would be unpopular.

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