Company Law Reform Bill [HL]

moved Amendment No. 130:"Page 60, line 23, leave out subsection (1) and insert—" (1)   All companies admitted to trading on a regulated market are deemed within the company’s articles to have a provision to enable members to nominate another person or persons as entitled to— (a)   receive documents and information that the member is entitled to receive from the company; and (b)   enjoy or exercise all or any specified rights of the member in relation to the company.”” The noble Lord said: We now come to Part 9, which is entitled ““Exercise of Members’ Rights””, and it contains some very important issues. In moving Amendment No. 130, I shall speak also to Amendment No. 132. Both amendments concern Clause 136 on the enjoyment or exercise of members’ rights. As this is an important issue, I hope that the Committee will forgive me if I speak at slightly greater length than I have to the fairly rat-a-tat series of amendments that we have had today and earlier this week. I am extremely grateful for the noble Baroness’s support on this matter and I am grateful, too, for the slightly more guarded support from the Liberal Democrat Benches. I made it clear in my remarks at Second Reading that we did not find the present proposal in the Bill persuasive. We argued that there should be a link between the person who has chosen directly and individually to invest in a particular company’s shares and the company itself. We further argue that the increasing modern practice of holding shares in the name of a nominee holding—not the name of the individual—puts this link at risk. Finally, we argue that that is not a good development if one seeks a vibrant, participative public financial market. In that connection, our concerns about the provisions of Part 9 as currently drafted have been supported by a number of interested parties: the UK Share Association, the Share Centre and the Association of Private Client Investment Managers and Stockbrokers (APCIMS). These amendments impose on companies that trade on a regulated market—note we use the phrase ““regulated market””—the requirement to give effect to members’ rights where the shares are held in nominee accounts, such as those of ISA managers, stockbrokers or investment managers. As it currently stands, the Bill relies on the voluntary support of companies to change their articles to support enfranchisement of nominee shareholders in full. However, from the responses by a number of parties, it is clear that many companies are unenthusiastic about implementing such enfranchisement, primarily based on concerns of cost, despite the financial savings that will arise in the use of electronic communications with their shareholders, as will be allowed in other parts of the Bill. APCIMS has indicated to us that out of 10 million individual shareholdings, 80 per cent are now in nominee names and only 20 per cent are certificated to the individual in question. Currently, the Bill contains reserve powers in Clause 137 to enable the Secretary of State to compel companies to provide information but only to shareholders in nominee accounts. As far as we can see, there appears to be no power to compel the provision of voting or other rights. It must be argued, and should be argued, that full shareholder enfranchisement requires much more than the simple provision of information to shareholders. In reality such information is often freely available. Even if, and when brought into operation by the Secretary of State, the existing wording of the Bill would, at best, provide little extra benefit to shareholders. They really need to be enfranchised and that has not been guaranteed at all. In addition, to be effective, those who operate nominee names must support those companies that have selected to enfranchise their nominee shareholders. If they are not willing to supply the names and addresses of their nominee shareholders to the companies and their registrars, the companies cannot send them the information. Similarly, nominees must be required either to have to vote on behalf of the shareholders, having ascertained their wishes, or to pass those voting rights on to the individual shareholders in question. There is no compulsion for nominee managers to do any of those things under the Bill and it is clear that many see no need to do so or have objections to doing so on the grounds of cost. In practice, with this level of commitment from many companies and from many members of the financial community, implementation of shareholders’ enfranchisement will be patchy at best. Individual shareholders may find that if they hold a number of shares in a nominee account portfolio, only some of them may provide enfranchisement and it may not even be easy with the Bill as currently drafted for the shareholders to determine which ones are doing so. Simply on the grounds of practicality and clarity for shareholders, the Bill needs significant revision along the lines of the amendments that we have tabled this afternoon. I argue that if a company has taken an investor’s money and accepts responsibility for it, it should have to account to that investor as a full member of the company. With more and more investments being held in nominee names, we are in danger of companies being able to take investors’ money and not having to communicate directly to the shareholders at all. Surely that is not the basis on which our company law was built. I fully accept that many shareholders are not interested in the progress of their investee companies and are irritated by the flow of paper that they receive. That is a double whammy. Companies produce and mail extensive and expensive information to thousands of shareholders, many of whom put the whole package straight into the wastepaper basket. Where would a possible solution lie? The system in Canada seems worthy of consideration. Under that system, shareholders must be told annually of their entitlement to members’ rights and asked whether they wish to opt into the system. Those who do not so wish need not reply and the next they will hear from the company will be in a further year’s time, reminding them again of their right to opt in if they so wish. For those who do wish to opt in, which may well be a minority, they can do so and receive the enfranchisement that their money has earned them. I really do not see any significant downside to that system, which seems both fair and workable. Good practice is beginning to emerge already in this country, so I do not wish to be unduly critical of companies or their nominees. Only this week, I received a really interesting communication from GlaxoSmithKline. It is worth just showing how the system is moving towards what seek from that example. The letter tells me that I shall be sent a copy of the annual review, because, as the letter says:"““We believe that the annual review better suits the needs of most shareholders, as well as saving money and avoiding waste of natural resources””." It explains that the annual review will be sent to me at the end of March. It also says that, if I prefer, I may elect to receive it electronically—and I have been given the details of how I may receive it in that way. The letter then lays out what is in the annual review, including the details of the directors, the summary financial statements and the responsibility statements. It goes on to tell me that it will also contain statements from the auditors and that the auditors will confirm that the summary financial statements are consistent with the full annual report. It warns me that the summary financial statements will be an overview document and will not contain all the information to allow me a full understanding of the results. It then invites me to accept the annual review, if I wish, or to fill in a tear-off slip to get the full annual report. That sort of thing already goes halfway toward the system that we should like to see emerge; all that we need to add to it is the opportunity for people to receive their enfranchisement in this way and for it to be an annual mailing, not just a once-off mailing. The letter says:"““Our records show you have become a shareholder of the company since the publication of last year’s annual review””." We have gone a long way down the road. It only requires the Government in this Bill to give shape and purpose to the whole area. The amendments that I have tabled will not require all companies to enfranchise their nominee shareholders—simply those companies whose shares are traded on a regulated market. That will limit the cost effect on any companies that are small and untraded, while enfranchising the nominee shareholders of listed companies. That will provide much greater clarity as to which companies offer members’ rights and which do not. These amendments do not, however, force nominees to provide the service; the pressure is on the company. I fully accept that the amendments are almost certainly not the finished article and will need refining. However, I hope that they lay out adequately the point of principle that I am driving at. I hope that the Minister accepts our amendments, if not in this form, certainly in principle, with a view to tabling a government amendment at a later date to give effect to it. I beg to move.