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Companies Bill [HL]

My Lords, I beg to move, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 988, leave out ““agree”” and insert ““disagree””. I shall speak also to Amendments Nos. 989A to 991A. We return to familiar ground and the case has been summarised by the Government that a reserve power is needed to compel financial institutions to disclose to the world at large, not their clients, how they have voted their shares. On these Benches, we argue that not only is this power unnecessary, it is undesirable on technical, practical and philosophical grounds, especially when it comes from a Government who keep stating and showing their deregulatory colours. We debated this issue at some length in Grand Committee and it came to a head on Third Reading on 23 May, when the House decided to strike out this provision from Clause 865. The provision has now been reinstated with four clauses, rather than one. To be fair to the Government, Amendments Nos. 989, 990 and 991 attempt to provide clarity on some of the technical aspects of the proposal. We are grateful for that. We note that financial institutions can now have the necessary information disclosed on their behalf by their agents and that disclosure can now be of voting intentions given. Finally, under Amendment No. 991 at subsection (5)(b), an institution will have to disclose only an aggregate of all its voting in respect of an individual company. But that destroys the value of the whole exercise. Consider the position of a major fund manager who manages a series of unit trusts, investment trusts and pension funds for some of which he has responsibility in deciding how to vote and for others where the client has retained that right but has delegated the disclosure to the manager. We could then have a ludicrous situation where, for a major company, say, Marks and Spencer, a fund manager would have to report that in respect of a particular resolution at an AGM it voted, say, W shares in favour, X shares against, abstained on Y shares, while Z shares were not voted on at all. The fund manager would not even have taken the decision in respect of some of those shares. In practice, this remains a valueless exercise but is also likely to give rise to our old friend the law of unintended consequences as outsiders and third parties seek to draw unwarranted conclusions from the figures disclosed. The House should be aware that there is already a trend towards greater public disclosure. The Investment Management Association, whose 35 members look after 62 per cent of all UK equities, reports a steady increase in the number of their members reporting publicly—three years ago it was seven, last year it was 10 and now it is 12. Hermes, which manages the huge British Telecom and Post Office pension funds is about to join, making 13 in all. If the Government proceed with this clause, that momentum may well be stalled. Why spend money and resources on developing disclosure procedures that may well not fit with the regulations that are produced? It may be better to sit on one’s hands and see what will be required by statute. Disclosures, as, I think, the Minister accepts, are complex and do not fit with a one-size-fits-all requirement. The IMA’s 2005 annual survey of fund managers’ engagement analysed voting details that had been published on websites. The 12 managers that currently disclose publicly used a wide variety of ways of disclosing. Some give narrative reasons as to how they voted in a contentious situation; some give narrative reasons for voting against, or consciously withholding their vote; some give no explanation at all. This wide variation in the matters reported indicates the complexity of the area and the difficulty of introducing a one-size-fits-all legislative requirement, which would only serve to undermine the progress made to date. Furthermore, those that analyse the issues give narrative reasons to do so, in order to provide a clear picture to users. By contrast, legislative requirements would be likely to result in mechanistic, meaningless reporting. If regulations are made to require voting disclosure, there is a risk that managers could be discouraged from voting. Far from engaging with shareholders, as the Minister thought, the reverse could happen. That could in turn lead to some managers choosing to get round the disclosure requirement by not voting, which cannot be what the Government seek to achieve. The killer blow to these amendments comes not from the City or, indeed, from the Opposition Benches. It comes from the Minister’s colleague, the Chancellor of the Exchequer. He wrote in the FT on 18 October that his aim is to reduce the regulatory burdens by 25 per cent; he has subsequently met a group of leading City figures to discuss that objective. The Economic Secretary to the Treasury, Ed Balls MP, in a speech to the City of London on 25 October said: "““And it is this commitment to openness and internationalism, our light-touch and risk-based regulatory approach—combined with the great pool of talent gathered from across the planet—that underpins London’s success as a modern international financial centre””." Clearly, the left hand of the Treasury has no idea what the right hand of the DTI is doing. We on the Opposition Benches are happy both to be the messenger between the two departments and—on this occasion, at least—to help the Chancellor of the Exchequer achieve his objective. I beg to move. Moved, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 988, leave out ““agree”” and insert ““disagree””.—(Lord Hodgson of Astley Abbotts.)