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Lord Ezra: My Lords, we had some debate on the issue in Committee. Those who contributed to the discussions at the time, like the noble Lord, Lord Haskel, myself, and others, made the point that here we have a unique opportunity to support the cause of corporate governance without departing too much from the Bill. As the noble Lord, Lord Haskel, pointed out, the amendments could very easily be dovetailed into the existing provisions. As the noble Lord rightly said, pension funds now represent a massive part of investment on the Stock Exchange. Indeed, it amounts to no less than one-third.

Many of us have been worried over the years about the role of institutional investors. Those of us who are concerned with such matters have felt that they should be taking a more positive role. As legislative opportunities present themselves, surely they should be

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seized. The same attitude has been adopted in environmental matters: when appropriate legislation is there, why not seize it? Therefore, I very strongly support what has been so ably proposed by the noble Lord, Lord Haskel. I believe that it would be a big step forward. I do not think that it is a small step; I believe that it would be a big, notable step forward in emphasising the responsibility of institutional investors—in this case, in the form of pension funds—for taking a more positive role in the use made of their investments.

Lord Mackay of Ardbrecknish: My Lords, the noble Lord, Lord Haskel, set out the reasoning and logic behind the amendments this evening as, indeed, he did when we debated similar amendments in Committee. Among the arguments he put forward was that I should take the advice of Chairman Mao as regards every journey beginning with a step. As the bamboo curtain is being raised, I am not entirely sure that I like all the places where Chairman Mao ended up on some of his journeys, or indeed where his country ended up. Therefore I do not consider that argument terribly good.

I agree with the noble Lord, Lord Haskel, and the noble Lord, Lord Ezra, that shareholders of all kinds have a crucial say in influencing and ensuring the competitiveness of British industry and that they should take those responsibilities seriously. I confirm that in Committee I said that what he envisaged in those amendments reflected good practice. I still hold to that view. However, I believe that good practice is not necessarily appropriate for legislation. I believe that good practice has to have an air of flexibility and that it must be geared to individual trustees and individual schemes and the various circumstances which arise. We are talking about a guide to trustees who must be careful under trust law not to fetter their own discretion by laying down, or having laid down for them, very strict rules which they have to follow regardless of what may be the situation facing them on a particular issue.

I spoke at some length about these amendments in Committee. As I said then, this is something which goes well beyond pension funds and their strategies. Both noble Lords who spoke agreed but thought the Bill was a good place to start taking action along those lines, arguing that pension funds were big holders of UK equities and for them to play a full part in decisions made at shareholders' meetings would be a considerable step forward from where we are today. I am sure the House will be aware that my right honourable friend the Prime Minister said in another place that the Government would wish to consider any recommendations from the Greenbury Committee and whether there was a need for any further legislative action to support any recommendations the committee might make. I therefore think that that is the appropriate way to proceed.

I hope that having brought this issue to our attention for a second time the noble Lord will agree that we should, as my right honourable friend the Prime Minister suggested, await the views of Sir Richard Greenbury and his colleagues before we decide what, if any, action we require to take. If we require to take any action, clearly that would be taken on a wider basis than

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just the pensions industry. I hope that having ably paraded his argument once again, and having heard my remarks, the noble Lord will feel able to withdraw his amendment. I am sorry that he thought I was only starting off in a good frame of mind. I hope that I am still in a good frame of mind. I wonder whether he should talk to his noble friend Lady Hollis about whether I have been in a good frame of mind all day.

8.30 p.m.

Lord Haskel: My Lords, I thank the Minister for that considered reply which I found disappointing. He put forward no new arguments as to why these amendments should not be incorporated in the Bill. The amendments are tailored so that they dovetail exactly into the Bill. It seems to me extraordinary that there are some duties which the Government think should be imposed on trustees and pension fund managers but not others. It seems to me that the duties I am asking them to undertake are entirely consistent with the things the Government are asking them to undertake.

As regards waiting for the conclusions of the Greenbury Committee, that committee is looking into the matter of remuneration. Shareholders are interested in a whole range of matters. I can well imagine that shareholders, as well as being interested in employment policies, are interested in environmental matters, moral matters and all sorts of things in a company. One cannot have a committee look into each of these aspects as soon as they arise. It would seem sensible for shareholders to be encouraged to take their proper interest in all matters relating to the company; if that were done the Prime Minister and other Ministers in the Government would not have to deal with these things as they crop up. Shareholders would deal with those matters as a matter of routine.

I did not wish to remind your Lordships that this provision is now obligatory on American pension fund managers and will apply to their shares held in British companies in London. I can well imagine that American pension fund managers will start to take a lot more interest in the activities of British companies. It seems a pity that we have to wait for them to become more active and then follow on, as inevitably we shall have to. For obvious reasons I shall not divide the House on this matter. I find the Minister's response disappointing. I shall try to find a more suitable quotation from the thoughts of Chairman Mao which may convince him on a later occasion as it is obviously some time since he read them. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Buckinghamshire moved Amendment No. 75:

Page 17, leave out line 10 and insert:
(" ( ) take into account the interests of beneficiaries and contingent beneficiaries (including employers).").

The noble Earl said: My Lords, Clause 30 provides for trustees to have the same power to make an investment of any kind as if they were absolutely entitled to the assets of the scheme. It also entitles the trustees to delegate discretion over day to day

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investment decisions. Clause 31, however, requires trustees to prepare, maintain and periodically review a written statement of the principles governing the trustees' investment decisions. The trustees are required to consult the employer and obtain and consider the advice of a qualified and experienced financial person before preparing or revisiting this statement.

The point I made on Second Reading and in Committee, when it was raised obliquely, is that there is no obligation on trustees to take account of the views of the employer in drawing up their policy. They are only required to consult. It seems to me reasonable that the trustees should take account not only of the interests of the beneficiaries but also of the likely financial impact of any investment decision on the employer as the contributor to the scheme. If the Bill is introduced unamended there will be no explicit obligation on the trustee body to take account of any views expressed by the employer. I believe there is a difficulty as regards the use of the word "consult" rather than "consultation". That will leave employers exposed potentially to additional costs over which they have no control.

The argument may be made that the employers accept that the trustees will not wish to prejudice the continuing sponsorship of the employers, but I believe that unless specific duties are placed on the trustees to take account of the employers' views in the new law, trustees may well think that they have a duty and are best advised to take the most conservative view on funding and investment decisions. This is an important amendment. I look forward to hearing my noble friend the Minister's reply. I beg to move.

Baroness Hollis of Heigham: My Lords, we are uneasy about the amendment for several reasons. It appears to move the trustees away from having a fiduciary responsibility to consider all the interests of all the associated parties and ask them to give particular regard to one party; that is, the employer. We have already accepted, apparently, that two-thirds of the trustees will be nominated by the employer himself. Nobody can believe for a moment that as a result the employer's view on investment policy will not be well argued and well reflected within the trustee body. That is accepted. However, we also argue that within that body a trustee should operate within a framework of fiduciary duty. If the Bill is to allow employers to nominate two thirds of the trustee membership one needs to make sure that the framework within which the trustees operate is a fiduciary one.

If the noble Earl's amendment were accepted in addition to the fact that employers already nominate two-thirds of trustees, that would seem to us to tilt the balance away from the notion of stewardship too much towards consideration of employers' interests, which is something which trustees are required to consider but not necessarily to regard as of overriding importance. I hope that on this occasion the Minister feels that he has the balance about right in the Bill as it stands.

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