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Company Law Reform Bill [HL]

My Lords, I should say at the outset that I do not include myself in that galaxy of talents in company law reform to which the noble Lord, Lord Hodgson, referred earlier. Indeed, as a psychiatrist, I do not know if I can offer my services to the Minister only to shrink the Bill in some way. I want to speak as a member of the UK Shareholders’ Association; I should say at the outset that I am a close relative of one of the directors of that association and have read their views on this Bill with interest. I want to speak to a point already raised by the noble Lord, Lord Hodgson, about Part 9 from the point of view of those 10 million or so people in the UK who have put their precious savings into PEPs and ISAs, boldly joining the new shareholding democracy, without realising—and I include myself in this—that they enjoy none of the rights of ordinary registered shareholders. The use of nominee accounts for these types of investments has effectively disenfranchised investors. I contrast this with the hold style of small personal investments 25 years ago, when a nest egg bought a handful of shares in a blue-chip company or one’s favourite retailer, and then you had the fun every morning of watching your stocks go up and down. If you wished, you could go to the AGM and, with a bit of luck, you got a free lunch. Now, though, no less than 40 per cent of all shareholdings in this country are held in nominee accounts. That is a staggeringly high percentage of holdings, and people have no say in what happens to those investments. In the Bill the Government acknowledge the desirability of nominee account shareholders being properly informed about their investments and support them being able to participate in company meetings, request and vote on resolutions, and so on. But, in practice, the Bill is unlikely to make any substantial difference to the majority of those account holders. First, the Bill is enabling, not obligatory. It relies on the support of companies to change their articles to support enfranchisement of nominee shareholders, but it is clear that companies probably will not want either the hassle of change or the cost of implementing these rights, even though, as the Minister said, costs may go down substantially if £250 million a year is saved through other parts of the Bill. Although the Bill provides reserve powers in Clause 137 to enable the Secretary of State to compel companies to provide information, there are no powers to compel companies to involve shareholders in company business. It is not clear under what circumstances these reserve powers would be used, nor how the intermediate tier of stockbrokers and financial advisers will be persuaded to collaborate with such a system. If the intermediate purchasers and operators do not want to provide the information, then, with the best will in the world, a voluntary system will not work. Companies will differ in their decisions about nominee shareholder enfranchisement; information to the shareholders will often be varied and confusing. Can the Minister outline how there could be more clarity and a bolder structure in the shareholders’ interests, to which I believe the Government have committed themselves? Of course, many shareholders will have no desire to immerse themselves in the detail and should not be burdened with information if they do not want to be. But if they do, their rights should be there on request. The USA is able to provide such a system of shareholder enfranchisement in these cases, through use of a third single party account, and I see no reason why we cannot do this. Perhaps the Minister can explain why. Part 8 sets out the public nature of a company’s register and a company’s right to apply to a court to refuse access to the register if it believes that access is not for a proper purpose. What exactly might ““not proper”” include? There is a concern that it might include denying access to the register of a person critical of the board’s decision-making who wants to advertise his criticisms to others on the register. Or is that not the case? Most of the Bill promotes the Government’s commitment to clarity and openness in business, and it is to be welcomed. However, I would like the Government to be a little less supine about the rights of the small but numerous investors whose savings are so crucial to the overall pattern of investment in this country.