Company Law Reform Bill [HL]

moved Amendment No. 59:"Page 60, line 31, leave out subsection (1) and insert—" ““(   )   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: My Lords, I shall speak also to Amendments Nos. 60 and 61. This is another significant group of amendments. The exercise of members’ rights is an important issue, which we discussed at some length in Grand Committee and about which we feel strongly. We are extremely grateful to the noble Lords, Lord Razzall and Lord Sharman, for their support from the Liberal Democrat Benches and for adding their names to the amendments, and to the noble Baroness, Lady Murphy, on the Cross Benches, who, I know, shares our view. In summary, once a person invests their money in the shares of a company, a golden thread of trust and responsibility runs from that company to the investor. It does not matter whether the investment is held directly—that is to say, in the person’s own name—or through an ISA, PEP or other group arrangement whereby the shares are held by a nominee account holder. For that reason we have retabled these amendments, which we moved first in Grand Committee. I do not wish to trouble your Lordships’ House by repeating at length the background to the arguments we put forward in Grand Committee. Suffice it to say that the amendments would require all companies that trade on a regulated market to give members whose shares are held in nominee accounts the right to receive information—that is to say, annual and interim accounts, and notice of meetings—and the ability to exercise their right to vote on the shares they own. The Government did not feel they could accept this proposal when we discussed it in Grand Committee on 1 February. They put forward three reasons for not doing so. First, the Government said they would work with the industry to promote an environment in which it becomes the standard practice without the creation of a bureaucracy of enforcement. That is a commendable objective. However, we fear that if the extension of shareholders’ rights is voluntary for companies, the situation may remain as it is. Very few companies extend rights to nominee shareholders. There have been calls for nominee shareholder enfranchisement for nearly 20 years, and no appreciable improvement has occurred. If individual companies can refuse enfranchisement, nominee shareholders’ rights may not exist across a whole share portfolio. The grant of opt-in rights to investors on a company-by-company basis will lead to a very unsatisfactory situation and to considerable frustration for individual shareholders. This is not red tape; it is about shareholder democracy. We are told that nearly 50 per cent of all private shareholdings are now administered by nominees. There are now 24 million nominee-based shareholdings against 26 million certificated shareholdings. It is estimated that £100 billion worth of share capital is therefore held in a form that is accorded no corporate governance rights. That means that a significant section of UK shareholders have no ability to influence the direction of the company in which they have chosen to invest. That is why this is not red tape; it is an injustice to shareholding democracy. It is worth noting that steps are being taken to address this injustice at European level. We would surely not wish to be seen as laggards in shareholder democracy. Secondly, the Government have said that investors can and do choose to hold shares through many types of investment and increasingly complex investment chains. That means, according to the Government, that there cannot be a ““one size fits all”” legislative solution to enfranchising indirect investors without imposing disproportionate costs on industry and uncertainty whether the intended outcome will be achieved. In fact, the vast majority of individual shareholders hold their shares through nominee operators, whose name is listed as the ““member”” on the register. Individual shareholders who choose their own investments do not, for the most part, use complex investment chains; it is they who want shareholders’ rights the most. If complex chains are really the Government’s concern, the clause could be tightened still further—we have not tabled an amendment at the moment—to meet that objection by inserting the following additional definition:"““For the purposes of Section 136 the nominated person shall include only those individuals, where:" (a)   the nominated person is the beneficial owner of the interest in the company; and (b)   the nominated person retains the right to transfer or dispose of the shares””. The Government’s claim that there would be a disproportionate cost burden is simply not true. It has been calculated that a company would need 10 times the number of nominee shareholdings to ““name on register”” shareholdings to cancel out the saving that can accrue from the ability to provide communications in electronic form, as provided for in Part 3 of Schedule 7. Meanwhile, the mechanism proposed for delivering nominee shareholders’ rights will allow companies to obtain an early indication—say, for printing purposes—of aggregate reports required for opted-in nominee shareholders. The overall saving to UK companies if electronic communication is adopted is estimated at over £100 million per annum. The overall cost of nominee shareholder enfranchisement is estimated at around £6 million per annum. In any event, sufficient time could be allowed in the implementation of provisions enforcing enfranchisement to permit further consultation on how those relatively minor costs should be borne. Thirdly, the Government have said that the Secretary of State’s power under Clause 137 is intended as an additional tool for encouraging and achieving greater enfranchisement. Unfortunately, there is no guarantee that that power will be exercised. The numerous groups that have made representations to us on the matter have little confidence that it will be used in practice. Furthermore, the power is limited to the provision of documents and information; that is not satisfactory. Clause 137(1) states:"““The Secretary of State may by regulations require companies to enable members to nominate another person or persons as entitled to receive documents and information that the member is entitled to receive from the company””." What about the ability to exercise their right to vote? That critical issue is not covered in the Bill. Over the past 20 years or so, registrars and their corporate clients have lobbied hard and successfully to resist the enfranchisement of nominee shareholders. The Bill should, therefore, make mandatory the enfranchisement of nominee shareholders in companies whose shares are traded on a regulated market. I beg to move.