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Lord McKenzie of Luton moved Amendment No. 94:

On Question, amendment agreed to.

Clause 872 [Corporate governance regulations]:

Lord McKenzie of Luton moved Amendment No. 95:

On Question, amendment agreed to.

Clause 876 [Institutional investors: information about exercise of voting rights]:

Lord Hodgson of Astley Abbotts moved Amendment No. 96:

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:

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
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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,

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:

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
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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.

Lord Razzall: My Lords, as on the previous amendment, my noble friend Lord Sharman supported the Opposition on this point throughout the deliberations in the Moses Room and on Report. We certainly do not intend to renege on that support today. The fundamental point which my noble friend would have made had he been able to be here was made by the noble Lord, Lord Hodgson. There is now extensive development of a voluntary code, which, as the noble Lord, Lord Hodgson, said, if we have to wait for regulations to come in from the Government, is likely to be frozen. As a result, this is an unnecessary regulatory step too far. This is the one that can be confined to the bonfire of regulations which the Government have so often promised but have so often failed to deliver.

Lord Sainsbury of Turville: My Lords, Clause 876 confers a power on the Secretary of State and the Treasury to make regulations requiring certain categories of institutional investor to provide information about the exercise or non-exercise of their voting rights. I am pleased that we have reached agreement—confirmed by the noble Lord, Lord Hodgson, on Report—on the important principle underpinning this clause. Beneficiaries and clients are entitled to know what is being done with the shares that they beneficially own. Disclosure of voting information is an important part of the transparency of the exercise of corporate governance functions. I would have thought that the Liberal Democrat Party in its noble traditions of supporting democracy and transparency would also agree to that simple proposition.

We are also in agreement that the increasing disclosures by institutional investors, either to their clients directly or more publicly—for example, as the noble Lord, Lord Hodgson, noted, the recent decisions by Fidelity Standard Life Investments and Newton Investment Management to disclose voting—are a positive change. We agree that the voluntary approach to disclosures by institutional investors should be allowed to evolve further before any consideration is given of implementing a mandatory disclosure regime. The idea that because we have back-up powers, but are allowing a voluntary approach that will somehow produce a wonderful thing called "planning blight", seems to be one of the more far-fetched arguments that has been produced in this House, which has not as a whole produced fanciful arguments. However, I must say that the argument of "planning blight" is somewhat fanciful.

One suggested point of disagreement raised on Report was the extent of disclosure: should it just be to the beneficiaries, or to some wider class, or to the public at large? The clause does not prescribe that a particular approach must be adopted. It leaves the options open. That approach seems the best at this early stage. It cannot be that there is a great matter of
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principle; clearly if one divulges how one votes to a wide range of shareholders, it will be public information anyway. It may be that doing so publicly on a public website is the quickest way to give out the information. So I cannot believe that that is a serious issue.

As I emphasised on Report, the choice with this clause is not between the voluntary and mandatory approaches but whether the Government should have effective backup in the event that the voluntary approach does not deliver or should have no lever to address the problem. On that point we appear to differ. The taking of power is intended to underpin the good progress being made voluntarily, not undermine it as some noble Lords seem to fear. The taking of power makes it clear that the Government value increasing levels of disclosure. By taking a power now, rather than creating a mandatory regime in the Bill, it also shows that the Government are willing to see how market practice evolves before choosing whether and how to exercise the power.

I simply do not accept that taking the power has the negative consequences that noble Lords suggest. I have no hesitation in repeating the assurances that we have given, because they are important safeguards, not to be made light of. The Government will consult extensively before taking the power and it will be subject to a rigorous cost-benefit analysis. Those factors, combined with further scrutiny in both Houses, will ensure that any use of the powers will be proportionate. I return to our common ground. If noble Lords believe that we are right to encourage the voluntary approach, they should support the taking of a power that will serve to underpin that good progress.

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