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Company Law Reform Bill [HL]

moved Amendment No. 96:"Leave out Clause 876." The noble Lord said: My Lords, Amendment No. 96 seeks to leave out Clause 876. Despite our tabling amendments to this clause in Committee and on Report, there are still many uncertainties over how the Government propose to implement any regulations to be made under this clause and there are grave concerns over the whole approach taken. In Grand Committee, the Minister said:"““Greater transparency of voting can be expected to improve the confidence of savers in the stewardship exercised on their behalf by institutional investors””." However, it has to be said that public disclosure could undermine and generally dumb down the voting process due to the sensitivity of the issues and the confidentiality necessary. In particular, public knowledge of a disagreement with an investee company’s management could have an adverse effect on shareholder value without any solution to the disagreement. Furthermore, where an institution has a general policy not to vote, to be distinguished from votes consciously withheld where an active decision is taken not to vote on a particular resolution, a mandatory requirement to disclose the non-exercise of voting rights in each and every situation may drive firms simply to vote without giving due consideration to the issues at stake in order to be seen to be doing something. That could potentially skew the result by diluting the impact of those votes which have been exercised in a considered manner. The Minister went on to say that,"““the very existence of the power will encourage institutional investors not currently disclosing this kind of information to respond and adopt best practice””.—[Official Report, 25/4/06; col. GC 80.]" However, the existence of this power could result in a corporate equivalent of planning blight. Institutions will hold fire on their own voluntary disclosure regimes until secondary legislation makes it clear what is needed to be disclosed. Why make an investment in IT and skilled personnel to implement a system which may be rendered completely redundant by a statutory system? On Report, the Minister said:"““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””.—[Official Report, 16/5/06; col. 248.]" Again, that reveals the Government’s muddled thinking. We have repeatedly made it clear from these Benches that we have no issue with financial institutions reporting to their clients. But that is not what Clause 876 is about. The regime under the clause can require the information to be disclosed to the world at large, which is a completely different matter. We are aware that the hit rates for those who disclose are very low. One manager who disclosed had no questions raised as a result, which indicates a low level of interest, if any. But, as the Minister said, there is an increasing trend to disclosure being undertaken voluntarily, so there is no need to take the heavy-handed approach that Clause 876 proposes. A number of other issues have not been adequately answered by the Government. First, what evidence do the Government have that this information is of benefit to the public or that the public want it? Secondly, are the Government aware that the Institutional Shareholders’ Committee, whose membership comprises the Investment Management Association, the Association of British Insurers, the National Association of Pension Funds and the Association of Investment Trust Companies, is developing its own guidance on public disclosure? Finally, I hope that the Minister—whichever Minister it is—will not fall back on the argument that this is a reserve power and unlikely to be used. Governments, particularly this Government, love command and control devices, of which this is a classic example. A commensurate regulatory touch has been one of the keys to the incredible success of the UK’s financial services industry. This clause does no one anywhere any favours. I beg to move.