Company Law Reform Bill [HL]

No, my Lords, the point that I was making was about people’s enthusiasm for a voluntary scheme as opposed to the taking of powers. On the previous occasion, the noble Lord was immensely unenthusiastic about the voluntary scheme, even though it seemed to be working, and went very hard on the need for regulations. It is nothing to do with the issue involved; it is just the general approach. Clause 865 confers a power on the Secretary of State and the Treasury to make regulations requiring certain categories of institutional investor to provide information about the exercise, or non-exercise, of their voting rights. I am pleased that the noble Lord, Lord Hodgson, accepted in Committee that, "““shareholders whose shares are held through nominees or are managed on their behalf are entitled to know what is being done with the shares that they own””." Therefore, I am concerned that, in spite of this shared agreement about the rights of shareholders to this information, noble Lords have proposed the removal of this clause. However, I understand that they have concerns about the taking of a broad power, and I would like to allay their specific concerns. Noble Lords were concerned, first, about the taking of a power without showing, "““that the financial costs and administrative complexities of the clause have been fully considered and that it has a commercially logical foundation””.—[Official Report, 25/4/06; col. GC69.]" Noble Lords are quite right that the clause does not specify exactly how the power would be exercised, and therefore, if it is exercised, what the costs would be. It is precisely to address these complexities that we are proposing a broad and flexible enabling power. Taking a power of this scope and flexibility of course requires an assurance that it will be exercised proportionately and appropriately. We have given this assurance. We have been very clear that the exercise of the power will be subject to further consultation as well as a cost/benefit analysis. If the Government were to exercise the power, they would shape the provisions to make sure that the regime is underpinned by the commercially logical foundation identified and fully justified on the balance of costs and benefits. Noble Lords also commented on the importance of allowing time to see whether the voluntary approach will continue to yield more disclosure. I absolutely agree with this. This is why we are introducing an enabling power. The approach we adopt will take the evolution of market practice into account. We would like to see best practice continue to drive this improvement on its own. As noble Lords correctly noted in Committee, there is a growing trend domestically and internationally towards disclosure of voting. The mere existence of the enabling power may encourage institutional investors to adopt best practice, but if some institutional investors are reticent, it is right to consider the use of this power to bring the laggards up to the level of the better performers. Noble Lords also expressed concern that mandatory disclosure of voting information could result in the production of mechanistic disclosures, including, "““pages of statistics and tables, which could be meaningless without further analysis””." The Government have said they would introduce a mandatory disclosure regime only where the benefits exceeded the costs. I can assure noble Lords that this analysis would consider the value of the information to be disclosed. The increasing trend towards voluntary disclosures suggests that more institutional investors recognise their clients’ right to this information and that its disclosure is of benefit to clients. More fundamentally, noble Lords asserted that they were by no means convinced that the clause, "““in any way meets the Government’s strategic objectives set out in the Bill””.—[Official Report, 25/4/06; col. GC79.]" A key objective is enhancing shareholder engagement. A power to compel institutional investors to disclose to their end beneficiaries how they vote on their behalf is surely crucial to enhancing shareholder engagement, particularly if the institutional investors fail to provide appropriate levels of transparency on their own. I am sure noble Lords want institutional investors to be accountable both for governance decisions they make on behalf of end beneficiaries and for managing transparently the conflicts of interest to which these decisions might give rise. If noble Lords believe that individual investors are entitled to know what is being done with the shares that they beneficially own, and that this disclosure is beneficial, then they should support this clause. Moreover, this clause should also be supported by those who argue for a voluntary disclosure regime. The Government are committed to examining this and, if it is the better solution, it will be preferred to a mandatory regime. The choice with this clause is not between voluntary and mandatory approaches, but whether the Government should have effective backup. In the event that the voluntary approach does not deliver, we would have no lever to address the problem. The commitment to consultation, rigorous cost/benefit analysis and affirmative approval of any regulations provides the assurance that any use of this power would be proportionate. I therefore hope that the noble Lord will agree to withdraw the amendment.