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Companies Bill [Lords]

Indeed. In discussions that we had about information being given by companies to indirect shareholders, the companies made it clear that they preferred to use e-information channels. I suppose that the hon. Member for Huntingdon would make a distinction between reports and accounts and, for instance, information on voting on particular resolutions. I cannot, however, follow the qualitative difference between the two that would lead to secrecy on one and openness on the other. I therefore agree completely with the intervention of the hon. Member for Angus (Mr. Weir). The important principle of openness must be underpinned by clear benefits. What are the benefits? First, it can only increase the confidence of savers in the governance being exercised on their behalf by institutional investors, that they are engaging with companies and that they are doing that well. Secondly, greater transparency makes institutional investors more accountable for the governance decisions that they make on behalf of savers, providing stronger incentives to cast votes and to do so thoughtfully. It will put more pressure on institutional investors to explain their decisions. That cannot be a bad thing. The hon. Member for Huntingdon used the argument—I cannot remember whether it was from the ABI—that this would encourage uninformed voting decisions. How can that be right? An institution that chose to vote unthinkingly would be exposed to ridicule. Why would it choose to do that, when delegating decisions to a fund manager or using a voting advisory service are simple options to ensure considered voting? Thirdly, greater transparency will help institutional investors manage potential conflicts of interest arising from voting decisions, thus deterring decisions that might benefit the institutional investor rather than savers. Such conflicts can influence behaviour. Research by the university of Michigan using data acquired under the American disclosure rules found that business ties between the institutional investor and a company made it more likely that the investor would vote with the company’s management. That is natural, but not right, and transparency would reduce that risk. Fourthly, greater transparency enhances shareholder engagement between institutions and investee companies, which is one of the key objectives of the Bill. Again, it has been argued that that will harm behind-the-scenes engagement. Of course, some discussions are more effective behind closed doors. But if a company knows beforehand why an institution is not supporting a resolution, how does disclosure after the fact of the vote cause damage? And if it did so, why are a dozen major UK institutional investors, including institutions such as the Pru and Standard Life, making voluntary disclosures of their voting records? Of course, there are important issues to deal with in designing the disclosure regime. I accept that it must be cost-effective, and we are confident that it will be. The disclosure data in question are already available, as required by the industry’s own best practice guidelines. Institutions that already publish voting records, such as Co-operative Insurance Services, confirm that the costs are not excessive, and John Bogle said that they were a ““drop in the bucket””. That might be why there is a strong existing trend towards voluntary disclosure, which the hon. Member for Huntingdon accepted. In the UK, of 35 major fund managers, the number making voluntary disclosures has increased from two in 2003 to 10 in 2005, and two more have now joined them. Alternatively, the reason might be pressure from clients. A recent survey among pension fund trustees found nine out of 10 agreeing that fund managers should publicly disclose their votes. I am also encouraged by the growing number of international precedents. The US in 2003, followed by Canada, have mandated voting disclosure. In the US, that covers 3,700 mutual funds with approximately $2 trillion of investments, and it has been implemented without the dire consequences that the hon. Member for Huntingdon predicts for the UK. Action is also being contemplated in South Africa and France. During the passage of the Bill, it has been interesting to note that fewer people are saying that disclosure is wrong in principle. I do not think that the hon. Member for Huntingdon is saying that. Increasingly, people are saying, ““It’s a good thing, but you don’t need the power, it’s going to happen anyway””. Even the industry may be moving that way, if the vigorous debate on a voluntary disclosure regime is anything to go by. But the argument goes the other way. If it is going to happen anyway, why is there all this angst about taking a power? The positions adopted by the Opposition and others are inconsistent. In the Government’s view, taking the power is still necessary. While we are keen to see how market practice evolves before considering a mandatory regime, we need back-up if the voluntary movement does not deliver. Of course, there will be a full consultation and cost-benefit analysis, and parliamentary approval through the affirmative procedure, to ensure that any mandatory regime is proportionate. The case for disclosure of voting is clear. We want to work with all stakeholders to make sure that we achieve that sensibly and practically, at least cost. This power lets us do that, and I ask the hon. Member for Huntingdon to withdraw his amendment. Amendment No. 435, to which the hon. Member for Cambridge referred, would require the Government to consult and undertake cost-benefit analysis on regulations. I have already made clear that we will do that. Do we need a provision in the Bill that tells us to do that? Our view is that we do not. Consultation on such proposals is in line with normal practice and Government guidance. We have made a formal commitment—I have done so today two or three times—to full public consultation. In the circumstances, we think it unnecessary to introduce such a requirement in the Bill. I note that an amendment in the other place that would have had a similar effect was withdrawn after the Government gave its assurance. New clause 15 would require the institutions to which the disclosure applies to disclose on a website whether they had exercised voting rights attaching to shares. They would have to make the disclosure in respect of each opportunity to exercise such rights. The new clause suggests that we share common ground on the principle of introducing provisions governing institutional investor voting, and we welcome that acknowledgment. We also agree with the logic behind the requirement for website disclosure. As was suggested by the hon. Member for Angus, that may be the best way of ensuring that disclosure is cost-effective. However, the new clause interacts with clauses 1241 to 1244, and two problems may arise. First, the new clause makes compulsory the disclosure of certain information on the exercise of voting rights. That means that the Government would not have flexibility to adjust the requirement—as suggested by the hon. Member for Cambridge—even if that was supported by the results of consultation and analysis. Secondly, in the absence of clause 1244, the new clause would limit disclosure to whether or not voting rights had been exercised. The Government would not be able to require the disclosure of information about how the votes had been cast. That would prematurely restrict the scope of the Government’s flexible enabling power before we had consulted on the best way in which to achieve a proportionate disclosure regime. I believe that the knowledge of how votes were intended to be cast is important to understanding how the institutional investor is exercising ownership responsibilities. However, I do not want to prejudge the outcome of the consultation to which I have committed us. I do not consider the new clause, as drafted, to be appropriate. I hope that the hon. Member for Huntingdon will not press it or his amendments to a Division, and that he will support the more flexible and principled route that the Government have taken.