SUMMARY OF RESPONSES TO THE CONSULTATIVE DOCUMENT POLITICAL DONATIONS BY COMPANIES

1. General

1.1 The Department received a total of 41 responses to its consultative document on Political Donations by Companies. The responses came from a spectrum of interested parties which included individuals, industrial federations and public limited companies, legal firms, accountancy and management organisations, quasi-governmental bodies and one from a political party. One (confidential) response was received from a foreign organisation.

1.2 Generally, respondents agreed with the Government that there was a case for change to companies legislation in the area of political donations by companies. However, the responses varied considerably in which aspects this was necessary and how this should be achieved - in some there was agreement, in others, eg whether foreign political parties/organisations should be included within the definition of a political donation this was not the case.

2. Definition of "Political Donation"

2.1 Definition of "Political Donation" - To Include Sponsorship?

2.2 Comments were invited on the approach that the definition of "political donation" should include sponsorship of a political party or an event sponsored by a political party, although, as was noted in the Neill Report, this form of donation is arguably rather different from a company perspective.

2.3 Where stated, the response was overwhelmingly in support of the inclusion of sponsorship within the definition of political donations. Seven respondents agreed explicitly with this approach and one stated that the definition outlined in paragraph 3.7 of the document was broadly appropriate. Another considered that the definition of political donation should be broadly drawn to ensure that all forms of support should be disclosed. There were none who stated that they did not agree with the approach.

2.4 Definition of "Political Donation" To Include Foreign Political Parties/Organisations?

2.5 The Government sought the views of consultees on whether the definition of a "political donation" should, in relation to companies, include donations to foreign political parties or organisations.

2.6 This was, by far, the most contentious issue in the consultation document if it is judged by the nature of the responses received. Ten respondents were of the opinion that the definition should include donations to foreign political parties or organisations, while thirteen were not, two of whom thought that further consideration or consultation was required on the issue.

The majority of those against were large international companies. Amongst other things, it was pointed out that the same measures should not be applied to donations by overseas subsidiaries in countries where the political funding environment may be very different from the UK. One respondent stated that social and political conventions may, in some markets, make political donations a commercial necessity where they may be covered by existing guidelines. Another that members of UK groups of companies could be placed in a difficult legal and political position, as well as competitive disadvantage, if more onerous regulatory requirements were imposed from the UK than those applicable in the local foreign jurisdiction itself. It was also suggested that disclosure in one country could encourage pressure to make unwarranted contributions elsewhere.

3. Definition of "Donation" in Respect of Political Donations

3.1 Definition of "Donation" - To Include Advertising/Promotional Material?

3.2 The Government sought the views of consultees on whether the definition of "donation" in respect of political donations by companies should cover any advertising or other promotional material by a company which would reasonably be regarded as likely to affect public support for a political party.

3.3 There was overwhelming support for this - ten respondents stating that this should be the case. One respondent thought that there could be a valid business purpose for advertising, or taking a stand, at a party conference and that there may be genuine business reasons for advertising which could affect public support. Another considered that there was no need to extend the definition of "donation" in this respect as the current definition (paragraph 5(2) of Schedule 7 of the Companies Act 1985) would cover this.

3.4 Three respondents considered that clear guidance was needed, and one, who was supportive, suggested that it would, however, be difficult to prove whether advertising or other promotional material by a company would be likely to affect public support for a political party.

4. Shareholder Approval

4.1 Comments were invited on the Neill Report proposal that a company wishing to make a donation to a political party should have to have the prior authority of the shareholders.

4.2 Twenty-seven respondents commented on this issue and most of these were, in one way or another, in favour of the proposal. Exceptions included two respondents who thought that this was a matter purely for the board and one who thought it inappropriate and a policy statement in the report and accounts would be better. One respondent suggested that there should be a total exemption for small businesses but a de minimis rule for large companies while another suggested that shareholder approval should apply only to public limited companies.

4.3 Of the different ways that the amendment to the Companies Act might be drafted (paragraph 4.6 of the consultative document), there was a wide range of views.

4.4 Two respondents supported the option that the board could be permitted to seek a general and and unlimited authority from shareholders so that the directors were left with total discretion over the amount, timing and recipient of future donations. Although one of these considered that it should apply only if the definition of "Political Donation" were to include foreign political parties and organisations.

4.5 Two respondents thought that there should be a requirement for the board to seek shareholders' approval for each individual donation before it was made.

4.6 One respondent considered that all political donations should be approved in advance at the AGM, and another that this is something for individual company shareholders to decide in the light of the views or recommendation of the board.

4.7 Six respondents supported the option that the board could be required to seek shareholders' approval annually for expenditure up to a prescribed limit, in order to support an identified political party (although one considered that this could be done without having to identify the parties).

4.8 However, the most favoured option, supported by fourteen respondents, was the one to permit the board to seek a broad enabling power, but to require the company to seek renewed shareholder authority after a time period laid down in the Companies Act. Some of the respondents attached conditions to this, notably, two respondents suggested that it apply only to public companies. As to the time period to be laid down in the Companies Act, where it was explicitly stated, this was as shown in the table below:

5. Threshold

5.1 The Government sought views on the threshold for disclosure by companies of political donations (paragraph 5.10 of the consultative document). Twenty-three respondents gave their views on this. Stated figures for the threshold have been collated and are shown in the table below:

6. Directors' Liability

6.1 Paragraph 4.12 sought the views of consultees on options to be considered in the the circumstances where a director agreed to a political donation being made by a company without shareholder approval.

6.2 Twelve respondents gave views on this - only one preferred option (a) whereby directors would be liable to a criminal offence, although another did not rule it out.

6.3 Six respondents favoured option (b) whereby special procedures would be created under which directors who agreed to a political donation being made by a company without shareholder approval could be required personally to repay the company the amounts donated.

6.4 One respondent thought that shareholders should be entitled to petition the High/County court for repayment by directors and another that civil remedies were preferred.

6.5 One respondent thought that this should be dealt with by disqualification provisions; another that further consultation was required. Only one respondent considered that the Companies Act 1985 was already sufficient and that nothing further was required.

7. Disclosure of Directors' Political Affiliations

7.1 Comments were invited (paragraph 5.10) on a possible requirement that a director be required to disclose in the directors' report any connection with a political party or organisation which might give rise either to a conflict of interest or to the perception of a conflict of interest. Seventeen respondents commented on this with a broad spectrum of views.

7.2 One respondent considered political affiliation to be a private matter and six thought it an issue which was either not necessary, not workable, or not appropriate, one of whom suggested that it should not be required unless a director were paid by a political party.

7.3 Four respondents thought either that the issue was too complicated to address via the Companies Act or that further guidance was required.

7.4 Six respondents put forward suggestions for some form of disclosure requirement. These ranged from one who stated that all personal and professional links were to be declared to another who suggested that this should be limited to only significant connections.

7.5 Two respondents suggested that disclosure should be by way of a register of directors' interests open for inspection by shareholders. However, one of these mentioned this in respect of publicly quoted companies in relation only to UK political parties.

7.6 One respondent thought that the connections of directors (and their families) with a political party or organisation should be disclosed in the directors' report if the company has made political donations. Another put forward that any actual or potential conflict of interest should be disclosed to the board and that it should be for the board to decide if it is appropriate to inform the shareholders.

Company Law and Investigations Directorate

Department of Trade and Industry

November 2000