Company Law Reform Bill [HL]

My Lords, after six hours of reasonableness, sensitivity and flexibility, I have to put in place another small brick wall. I remember well our rather lively debate on these clauses in Grand Committee. Noble Lords tabled a number of amendments and questioned why these clauses should stand part of the Bill. They raised a number of concerns, which I should now like to address. First, what is the justification of these new provisions? As I said in Committee, it was a clear recommendation of the Company Law Review that members should have a specific right to require independent scrutiny of a poll and that the share capital or voting rights needed to trigger such independent scrutiny should be the same as for requisitioning a resolution. The problem they were seeking to put right was a lack of confidence in the integrity and effectiveness of the voting processes in quoted companies. Their objective was to deal with what was perceived to be a problem in registering voting instructions. As I am sure noble Lords will agree, dealing with perception is all important when we are talking about confidence in the markets. What we are seeking to do here is to inject more robustness, rigour and integrity into the voting systems of UK quoted companies. Secondly, what evidence is there of support for these new provisions? Noble Lords may say that they are not concerned with what the Company Law Review said; they are concerned with what will happen in the boardroom. So I must stress that this proposal was endorsed by Paul Myners—a person of much boardroom experience—in his Review of the impediments to voting UK shares. Moreover, his report and proposals were fully signed up to by an industry-wide group—the shareholder voting working party—comprising representatives and practitioners from across the City. This group, which includes, for example, the Investment Management Association, the Institute of Chartered Secretaries and Administrators, the Association of British Insurers and the British Bankers’ Association, is concerned specifically with improving voting practice across UK quoted companies. In developing this policy for the Bill, we consulted and listened to what stakeholders such as these were saying and refined the clauses accordingly to be less prescriptive and provide more flexibility. Thirdly, noble Lords asked what would be the consequences on the result of the poll if it were found to be conducted improperly. The main purpose of giving members the right to require such a report is as a means for the shareholders to insist on transparency. An independent report on a poll is not intended to change the chairman’s declaration of the result or cast doubt on a resolution. If an independent report found the poll to have been carried out improperly, the chairman’s declaration made at the time could still stand. The company would be able to ensure through its articles that this would be the outcome of any report on a poll. What such a report would do, of course, is to put the directors on notice that the company’s polling processes needed improving. Fourthly, noble Lords expressed concern about how these provisions would work in practice. An independent report on a poll could be required of a vote only where a poll is demanded. We are certainly not proposing a requirement for quoted companies to subject all resolutions to a poll. However, where companies do not already hold a poll as a matter of course, the Bill, like the 1985 Act, provides that, for example, five members can demand a poll. Members could submit their request for a report on a poll before the meeting or up to one week after the poll was conducted. The directors would need to appoint an independent assessor within one week of such a request. If an independent assessor is appointed before the meeting, then he has the right to attend. There is no specified timetable as to when the assessor must complete his report, as this may vary from case to case depending on the size of the count and the complexity of the information he must review. But as I made clear earlier, whenever the report is issued should not matter. The report need not affect the declared result of the poll itself. Certainly there would be no reason for the outcome of an AGM to be delayed. Lastly, noble Lords argued that Section 459 of the 1985 Act, under which members could bring an action for ““unfair prejudice””, provided sufficient remedy. We agree that this might be an appropriate remedy in some extreme cases. However, the costs of bringing an action under Section 459 are prohibitive, so it is only where there are significant amounts at stake that this provision will make an impact. The procedure in the Bill is supposed to raise standards across the board. This policy is about maintaining and ensuring investor confidence in the markets. These new provisions form part of the Government’s wider objective to promote greater transparency and improve shareholder engagement. But I should reiterate that these provisions merely provide a right for shareholders. If exercised by the shareholders, this right will, of course, result in some additional costs for quoted companies. However, in companies with good, transparent voting processes, shareholders will be less likely to ask for independent reports. In any event, we believe that the clauses provide sufficient flexibility to avoid imposing unnecessary burdens on companies. Certainly, we would not expect such costs to be nearly as burdensome as some of the amendments that the Opposition have moved today. I therefore urge the noble Lord to withdraw the amendment.